AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1997
REGISTRATION STATEMENT NO. 333-22637
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT
NO. 4
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.
1000 BUSINESS CENTER DRIVE 1000 BUSINESS CENTER DRIVE
LAKE MARY, FLORIDA 32746 LAKE MARY, FLORIDA 32746
(407) 304-3235 (407) 304-3235
(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 JUNE 10, 1997
2,500,000 SHARES
[LOGO]/Trademark/ 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 Common Stock has been approved for listing 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 620,100 shares of Common Stock subject to issuance pursuant to
options outstanding as of March 31, 1997, including options for 567,100
shares granted under the Company's 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
-------------- -------------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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
Pro forma net income per
common and common
equivalent share(1) ...............
Pro forma weighted average
number of common and
common equivalent shares
outstanding(1) .....................
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ --------------------
1995 1996 1996 1997
------------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ..................... $ 20,673 $28,688 $9,527 $11,947
Income (loss) from operations ...... (1,393) 1,606 2,030 1,601
Net income (loss) .................. (858) 834 1,157 899
Pro forma net income per
common and common
equivalent share(1) ............... $ 0.15 $ 0.16
Pro forma weighted average
number of common and
common equivalent shares
outstanding(1) ..................... 5,481 5,481
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------------------
PRO FORMA
FOR
ACTUAL RECAPITALIZATION(2) AS ADJUSTED(3)
------------- ---------------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................................... $ 855 $ 366 $20,363
Working capital ............................................. 675 186 21,008
Total assets ................................................ 24,234 23,745 43,742
Notes payable to related parties, less current portion ...... 240 240 -
Total stockholders' equity (deficit) ........................ (1,375) 4,202 25,264
</TABLE>
- ---------
(1) Pro forma net income 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.
(2) Gives retroactive effect to the Recapitalization and related payment of
accrued dividends. See "-The Recapitalization."
(3) 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 March 31, 1997), 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 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 $57 million for fiscal year
1998 and $100 million for fiscal year 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 and resources, which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Underwriting."
10
<PAGE>
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 Articles of Incorporation,
as amended ("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." In addition, certain provisions of the Company's Amended
Articles or Bylaws, 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) the annual meeting of shareholders shall be held on such date
and at such time fixed from time to time by the Board of Directors, provided
that there shall be an annual meeting held every calendar year, (iii) any
special meeting of the 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, (iv) an advance
notice procedure must be followed for nomination of directors and for other
shareholder proposals to be considered at annual shareholders' meetings, and (v)
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 1000
Business Center Drive, Lake Mary, Florida 32746 and its telephone number is
(407) 304-3235.
USE OF PROCEEDS
The net proceeds from the sale of the 1,950,000 shares of Common Stock
offered by the Company will be approximately $21.1 million ($25.2 million if the
Underwriters' over-allotment option is exercised in full) at an assumed offering
price of $12.00 per share after deducting the aggregate underwriting discounts
and the estimated expenses of the offering. The Company intends to use a portion
of the proceeds to repay its revolving credit facility, which matures on June
30, 1998 and bears interest at the fluctuating prime rate plus 1-1/4%. On March
31, 1997, an aggregate of approximately $765,000 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
March 31, 1997, (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>
MARCH 31, 1997
-------------------------------------------------
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 $489,357 at March 31, 1997), 2,000,000 shares
authorized; 1,769,494 shares issued (liquidation preference of
$3,246,000 at March 31, 1997), none pro forma or as adjusted ...... 5,937 - -
Mandatorily redeemable Class C, Common Stock:
.0002 par value, 200,000 shares authorized; 63,600 shares issued;
none pro forma or as adjusted .................................... 129 - -
-------- -------- --------
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 ....................................... 294 5,818 26,861
Accumulated deficit ............................................. (1,681) (1,681) (1,681)
Cumulative translation adjustment .............................. 11 11 11
-------- -------- --------
Total stockholders' equity (deficit) .............................. (1,375) 4,202 25,264
-------- -------- --------
Total capitalization ............................................. $ 4,931 $ 4,442 $ 25,264
======== ======== ========
</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 620,100 shares of Common Stock subject to issuance pursuant to
options outstanding as of March 31, 1997, including options for 567,100
shares granted under the 1997 Executive Incentive Compensation Plan.
13
<PAGE>
DILUTION
The net tangible book value of the Company, at March 31, 1997, was $391,885
or $0.07 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 March 31, 1997 would have been
approximately $21.0 million or $2.87 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 March 31, 1997 ... $0.07
Increase in net tangible book value per share attributable to this
offering and proceeds therefrom .................................... 2.80
-------
Pro forma net tangible book value per share after this offering ...... 2.87
--------
Dilution per share to new investors (1) .............................. $9.13
========
</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 March 31, 1997,
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 March
31, 1997, the Company had options outstanding to purchase 620,100 shares of
Common Stock at a weighted average exercise price of $8.78 per share.
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, as of and for the three months ended March 31,
1997, the three months ended March 31, 1996, 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
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Software licenses .................................... $ 4,834 $ 6,149 $ 9,808
Professional services ................................. 2,775 3,087 3,666
Hardware ............................................. 1,548 1,757 921
Maintenance and other ................................. 2,158 3,591 5,311
-------- -------- --------
Total revenues ....................................... 11,315 14,584 19,706
-------- -------- --------
Operating expenses:
Cost of software licenses ........................... 536 1,379 1,280
Cost of professional services ........................ 2,567 2,942 3,452
Cost of hardware .................................... 1,049 1,116 719
Cost of maintenance and other ........................ 1,183 2,090 3,246
Research and development .............................. 1,162 1,604 2,006
Sales and marketing .................................... 1,605 2,293 3,829
General and administrative ........................... 3,196 4,179 4,219
-------- -------- --------
Total operating expenses .............................. 11,298 15,603 18,751
-------- -------- --------
Income (loss) from operations ........................... 17 (1,019) 955
Other expenses:
Interest expense ....................................... 161 135 104
-------- -------- --------
Income (loss) before provision for income taxes ......... (144) (1,154) 851
Provision (benefit) for income taxes .................. 45 (109) 139
-------- -------- --------
Net income (loss) .................................... (189) (1,045) 712
Accretion and accrual of dividends on mandatorily
redeemable preferred stock ........................... - - (84)
-------- -------- --------
Net income (loss) attributable to
common stockholders .................................... $ (189) $ (1,045) $ 628
======== ======== ========
Pro forma provision (benefit) for income taxes(1) ...... (103) (353) 249
-------- -------- --------
Pro forma net income (loss) attributable to
common stockholders(1) ................................. $ (86) $ (692) $ 379
======== ======== ========
<CAPTION>
YEAR NINE MONTHS ENDED THREE MONTHS ENDED
ENDED ----------------------- ---------------------
MARCH 31, DECEMBER 31, MARCH 31,
---------- ----------------------- ----------------------
1996 1995 1996 1996 1997
---------- ----------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Software licenses .................................... $ 11,151 $ 6,552 $ 9,139 $ 4,599 $ 5,830
Professional services ................................. 6,203 4,528 5,586 1,675 1,767
Hardware ............................................. 6,157 4,788 7,435 1,369 1,620
Maintenance and other ................................. 6,689 4,805 6,528 1,884 2,730
------- -------- -------- ------- --------
Total revenues ....................................... 30,200 20,673 28,688 9,527 11,947
------- -------- -------- ------- --------
Operating expenses:
Cost of software licenses ........................... 3,396 2,647 2,402 749 855
Cost of professional services ........................ 5,029 3,823 3,223 1,206 1,131
Cost of hardware .................................... 4,822 3,741 5,890 1,081 1,381
Cost of maintenance and other ........................ 3,118 2,317 2,216 801 1,265
Research and development .............................. 3,491 2,586 3,729 905 1,392
Sales and marketing .................................... 4,666 3,312 5,228 1,354 2,152
General and administrative ........................... 5,041 3,640 4,394 1,401 2,170
------- -------- -------- ------- --------
Total operating expenses .............................. 29,563 22,066 27,082 7,497 10,346
------- -------- -------- ------- --------
Income (loss) from operations ........................... 637 (1,393) 1,606 2,030 1,601
Other expenses:
Interest expense ....................................... 127 70 191 57 69
------- -------- -------- ------- --------
Income (loss) before provision for income taxes ......... 510 (1,463) 1,415 1,973 1,532
Provision (benefit) for income taxes .................. 211 (605) 581 816 633
------- -------- -------- ------- --------
Net income (loss) .................................... 299 (858) 834 1,157 899
Accretion and accrual of dividends on mandatorily
redeemable preferred stock ........................... (184) (138) (1,003) (46) (1,634)
------- -------- -------- ------- --------
Net income (loss) attributable to
common stockholders .................................... $ 115 $ (996) $ (169) $ 1,111 $ (735)
======= ======== ======== ======= ========
Pro forma provision (benefit) for income taxes(1) ...... - - - - -
------- -------- -------- ------- --------
Pro forma net income (loss) attributable to
common stockholders(1) ................................. $ 115 $ (996) $ (169) $ 1,111 $ (735)
======= ======== ======== ======= ========
Pro forma net income per common and common
equivalent share(2) $ 0.15 $ 0.16
======= =======
Pro forma weighted average number of common and
common equivalent shares outstanding(2) 5,481 5,481
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............................. $ 599 $ 737 $ 1,653
Working capital (deficit) .............................. (1,473) (3,173) (919)
Total assets .......................................... 8,980 8,180 13,786
Notes payable to related parties, less current portion 225 150 75
Total stockholders' equity (deficit) .................. 714 (591) (629)
<CAPTION>
MARCH 31,
------- DECEMBER 31, MARCH 31,
1996 1996 1997
------- -------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............................. $ 388 $ 740 $ 855
Working capital (deficit) .............................. (916) (410) 675
Total assets .......................................... 17,941 24,781 24,234
Notes payable to related parties, less current portion - 240 240
Total stockholders' equity (deficit) .................. (552) (722) (1,375)
</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 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 18.5% 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 THREE MONTHS
ENDED ENDED
YEAR ENDED MARCH 31, DECEMBER 31, MARCH 31,
-------------------------------- --------------------- ----------------------
1994 1995 1996 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses .................. 42.2% 49.8% 36.9% 31.7% 31.9% 48.3% 48.8%
Professional services ............... 21.2 18.6 20.6 21.9 19.5 17.6 14.8
Hardware ........................... 12.0 4.7 20.4 23.2 25.9 14.3 13.5
Maintenance and other ............... 24.6 26.9 22.1 23.2 22.7 19.8 22.9
--------- ------- ------- --------- ------- ------- -------
Total revenues ..................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
--------- ------- ------- --------- ------- ------- -------
Operating expenses:
Cost of software licenses ......... 9.5 6.5 11.2 12.8 8.4 7.9 7.1
Cost of professional services ...... 20.2 17.5 16.7 18.5 11.3 12.7 9.5
Cost of hardware .................. 7.6 3.7 16.0 18.1 20.5 11.3 11.5
Cost of maintenance and other ...... 14.3 16.5 10.3 11.2 7.7 8.4 10.6
Research and development ............ 11.0 10.2 11.6 12.5 13.0 9.5 11.7
Sales and marketing ............... 15.7 19.4 15.4 16.0 18.2 14.2 18.0
General and administrative ......... 28.7 21.4 16.7 17.6 15.3 14.7 18.2
--------- ------- ------- --------- ------- ------- -------
Total operating expenses ......... 107.0 95.2 97.9 106.7 94.4 78.7 86.6
--------- ------- ------- --------- ------- ------- -------
Income (loss) from operations ...... (7.0) 4.8 2.1 (6.7) 5.6 21.3 13.4
Other expenses:
Interest expense ..................... 0.9 0.5 0.4 0.3 0.7 0.6 0.6
--------- ------- ------- --------- ------- ------- -------
Income (loss) before provision for
income taxes ........................ (7.9) 4.3 1.7 (7.0) 4.9 20.7 12.8
Provision (benefit) for income taxes
(pro forma 1994 and 1995) ............ (0.7) 0.7 0.7 (2.9) 2.0 8.6 5.3
--------- ------- ------- --------- ------- ------- -------
Net income (loss) (pro forma
1994 and 1995) ..................... (7.2)% 3.6% 1.0% (4.1)% 2.9% 12.1% 7.5%
========= ======= ======= ========= ======= ======= =======
</TABLE>
18
<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
REVENUES. The Company's total revenues were $11.9 million for the three
months ended March 31, 1997 compared to $9.5 million for the three months ended
March 31, 1996, an increase of $2.4 million or 25.4%. Revenues from software
licenses were $5.8 million for the three months ended March 31, 1997 compared to
$4.6 million for the period ended March 31, 1996, an increase of $1.2 million or
26.8%, as a result of an increased number of applications available for sale and
an increased investment in sales and marketing. Revenues from professional
services were $1.8 million for the three months ended March 31, 1997 compared to
$1.7 million for the three months ended March 31, 1996, an increase of $92,000
or 5.5%, as the Company increased the number of service offerings. Hardware
revenues were $1.6 million for the three months ended March 31, 1997 compared to
$1.4 million for the three months ended March 31, 1996, an increase of $251,000
or 18.3%, as the Company expanded its third-party re-marketing sales through
IBM. Revenues from maintenance and other were $2.7 million for the three months
ended March 31, 1997 compared to $1.9 million for the three months ended March
31, 1996, an increase of $846,000 or 44.9%, as a result of maintenance contracts
associated with new software licenses, customer system upgrades and price
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 $855,000
for the three months ended March 31, 1997 compared to $749,000 for the three
months ended March 31, 1996, an increase of $106,000 or 14.2%, as a result of
increased number of software licenses. Cost of professional services, which
consists primarily of personnel costs and other costs related to the services
business, was $1.1 million for the three months ended March 31, 1997 compared to
$1.2 million for the three months ended March 31, 1996, a decrease of $75,000 or
6.2%, as a result of reducing 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 $1.4 million for the three months
ended March 31, 1997 compared to $1.1 million for the three months ended March
31, 1996, an increase of $300,000 or 27.8%, which is directly related to the
increased hardware sales. Cost of maintenance and other for the three months
ended March 31, 1997 was $1.3 million compared to $801,000 for the three months
ended March 31, 1996, an increase of $464,000 or 57.9%, due to investment in new
customer support process, increased personnel to enhance products and additional
computer equipment required to handle GUI interfaces to the AS400.
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 $1.4 million for the three months ended March 31, 1997 compared to $905,000
for the three months ended March 31, 1996, an increase of $487,000 or 53.8%, due
to increased staffing levels and associated costs and expenses related to
additional software and hardware required to enable the development of
additional products and platforms.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries, commissions, travel related benefits and administrative
costs allocated to the Company's sales and marketing personnel. Sales and
marketing expenses were $2.2 million for the three months ended March 31, 1997
compared to $1.4 million for the three months ended March 31, 1996, an increase
of $798,000 or 58.9%. This increase was attributable to the Company's continued
expansion of its direct sales force, increased marketing efforts, travel and
other expenses related 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 $2.2 million for the three months ended March 31,
1997 compared to $1.4 million for the three months ended March 31, 1996, an
increase of $769,000 or 54.9%. This increase was due to additional staffing,
additional space and additional computer equipment and software required to
build the infrastructure to support the Company's growth.
19
<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 prices increases in the fees
charged for annual maintenance.
COST OF REVENUES. Cost of software licenses 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 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 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 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 $101,000, or 4.4%.
RESEARCH AND DEVELOPMENT EXPENSES. 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 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
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 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%.
20
<PAGE>
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 $786,000, 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
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
21
<PAGE>
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.
22
<PAGE>
QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly results of
operations for each of the nine quarters ended March 31, 1997, together with
such data as a percentage of total revenue. In the opinion of management, this
quarterly information has been prepared on the same basis as the annual
Consolidated Financial Statements presented elsewhere in this Prospectus and
includes all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the information for the periods
presented when read in conjunction with the Consolidated Financial Statements
and the Notes thereto. The operating results for any quarter are not necessarily
indicative of results of the full year or of any future quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
------------ ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Software licenses ................................. $3,251 $ 1,435 $ 2,062 $3,055
Professional services .............................. 965 1,602 1,574 1,352
Hardware .......................................... 251 872 1,412 2,504
Maintenance and other .............................. 1,517 1,494 1,543 1,768
------- -------- ------- -------
Total revenues .................................... 5,984 5,403 6,591 8,679
------- -------- ------- -------
Operating expenses:
Cost of software licenses ........................ 587 1,172 731 744
Cost of professional services ..................... 917 1,314 1,259 1,250
Cost of hardware ................................. 196 629 1,092 2,020
Cost of maintenance and other ..................... 863 754 716 847
Research and development ........................... 603 849 828 909
Sales and marketing .............................. 1,097 1,039 1,011 1,262
General and administrative ........................ 1,292 1,121 1,152 1,367
------- -------- ------- -------
Total operating expenses ........................... 5,555 6,878 6,789 8,399
------- -------- ------- -------
Income (loss) from operations ........................ 429 (1,475) (198) 280
Other expenses:
Interest expense .................................... 34 17 20 33
------- -------- ------- -------
Income (loss) before provision for income taxes ... 395 (1,492) (218) 247
Provision (benefit) for income taxes ............... 65 (617) (90) 102
------- -------- ------- -------
Net income (loss) ................................. $ 330 $ (875) $ (128) $ 145
======= ======== ======= =======
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1996 1997
------------ ----------- ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses ................................. $4,599 $ 1,036 $3,409 $ 4,694 $ 5,830
Professional services .............................. 1,675 1,701 1,578 2,307 1,767
Hardware .......................................... 1,369 2,300 1,914 3,221 1,620
Maintenance and other .............................. 1,884 2,051 2,191 2,286 2,730
------- ------ ------- -------- --------
Total revenues .................................... 9,527 7,088 9,092 12,508 11,947
------- ------ ------- -------- --------
Operating expenses:
Cost of software licenses ........................ 749 676 906 820 855
Cost of professional services ..................... 1,206 1,056 1,109 1,058 1,131
Cost of hardware ................................. 1,081 1,815 1,443 2,632 1,381
Cost of maintenance and other ..................... 801 636 724 856 1,265
Research and development ........................... 905 1,224 1,197 1,308 1,392
Sales and marketing .............................. 1,354 1,332 2,098 1,798 2,152
General and administrative ........................ 1,401 1,251 1,355 1,788 2,170
------- ------ ------- -------- --------
Total operating expenses ........................... 7,497 7,990 8,832 10,260 10,346
------- ------ ------- -------- --------
Income (loss) from operations ........................ 2,030 (902) 260 2,248 1,601
Other expenses:
Interest expense .................................... 57 64 61 66 69
------- ------ ------- -------- --------
Income (loss) before provision for income taxes ... 1,973 (966) 199 2,182 1,532
Provision (benefit) for income taxes ............... 816 (397) 82 896 633
------- ------ ------- -------- --------
Net income (loss) ................................. $1,157 $ (569) $ 117 $ 1,286 $ 899
======= ====== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-------------------------------------------------
QUARTER ENDED
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses ................................. 54.3% 26.6% 31.3% 35.2%
Professional services .............................. 16.1 29.6 23.9 15.6
Hardware .......................................... 4.2 16.1 21.4 28.8
Maintenance and other .............................. 25.4 27.7 23.4 20.4
------- --------- ----------- --------
Total revenues .................................... 100.0 100.0 100.0 100.0
------- --------- ----------- --------
Operating expenses:
Cost of software licenses ........................... 9.8 21.7 11.1 8.6
Cost of professional services ..................... 15.3 24.3 19.1 14.4
Cost of hardware .................................... 3.3 11.6 16.6 23.3
Cost of maintenance and other ..................... 14.4 14.0 10.9 9.8
Research and development ........................... 10.1 15.7 12.6 10.5
Sales and marketing ................................. 18.3 19.2 15.3 14.5
General and administrative ........................... 21.6 20.8 17.5 15.7
------- --------- ----------- --------
Total operating expenses ........................... 92.8 127.3 103.1 96.8
------- --------- ----------- --------
Income (loss) from operations ........................ 7.2 (27.3) (3.1) 3.2
Other expenses:
Interest expense .................................... 0.6 0.3 0.3 0.4
------- --------- ----------- --------
Income (loss) before provision for income taxes ...... 6.6 (27.6) (3.4) 2.8
Provision (benefit) for income taxes ............... 1.1 (11.4) (1.4) 1.2
------- --------- ----------- --------
Net income (loss) .................................... 5.5% (16.2)% (2.0)% 1.6%
======= ========= =========== ========
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
--------------------------------------------------------------
QUARTER ENDED
--------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1996 1997
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses ................................. 48.3% 14.6% 37.5% 37.5% 48.8%
Professional services .............................. 17.6 24.0 17.4 18.4 14.8
Hardware .......................................... 14.3 32.5 21.0 25.8 13.5
Maintenance and other .............................. 19.8 28.9 24.1 18.3 22.9
------- --------- --------- -------- -------
Total revenues .................................... 100.0 100.0 100.0 100.0 100.0
------- --------- --------- -------- -------
Operating expenses:
Cost of software licenses ........................... 7.9 9.5 9.9 6.5 7.1
Cost of professional services ..................... 12.7 14.9 12.2 8.5 9.5
Cost of hardware .................................... 11.3 25.6 15.9 21.0 11.5
Cost of maintenance and other ..................... 8.4 9.0 7.9 6.8 10.6
Research and development ........................... 9.5 17.3 13.2 10.5 11.7
Sales and marketing ................................. 14.2 18.8 23.1 14.4 18.0
General and administrative ........................... 14.7 17.6 14.9 14.3 18.2
------- --------- --------- -------- -------
Total operating expenses ........................... 78.7 112.7 97.1 82.0 86.6
------- --------- --------- -------- -------
Income (loss) from operations ........................ 21.3 (12.7) 2.9 18.0 13.4
Other expenses:
Interest expense .................................... 0.6 0.9 0.7 0.5 0.6
------- --------- --------- -------- -------
Income (loss) before provision for income taxes ...... 20.7 (13.6) 2.2 17.5 12.8
Provision (benefit) for income taxes ............... 8.6 (5.6) 0.9 7.2 5.3
------- --------- --------- -------- -------
Net income (loss) .................................... 12.1% (8.0)% 1.3% 10.3% 7.5%
======= ========= ========= ======== =======
</TABLE>
23
<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
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 and changed its fiscal year end to December 31 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. Net cash provided by
operating activities was approximately $2.3 million in the three months ended
March 31, 1997, compared to $783,000 in the comparable 1996 period. 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 was
$593,000 in the three months ended March 31, 1997, compared to $652,000 in the
comparable 1996 period. 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.
Net cash used in financing activities was $1.6 million in the three months
ended March 31, 1997, compared to $98,000 in the comparable 1996 period. Cash
flow provided by 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.
24
<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 staffs.
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.
25
<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.
26
<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
27
<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 $300,000, depending on
hardware configurations, number of users and applications licensed.
28
<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
29
<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.
30
<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.
31
<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.
32
<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
HTE APPLICATIONS - BUSINESS LOGIC
/bullet/ Financial Systems
/bullet/ Community Service
/bullet/ Public Safety
/bullet/ Utility Management
DATABASE
/bullet/ IBM DB2/400
/bullet/ Oracle
/bullet/ Datagate
OPERATING SYSTEMS
/bullet/ AIX
/bullet/ HPUX
/bullet/ OS/400
/bullet/ Windows
/bullet/ Windows 95
/bullet/ Windows NT*
HARDWARE
/bullet/ H-P 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.
33
<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
34
<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 March 31, 1997, the Company had 54 full-time and two part-time
employees in its sales and marketing 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.
35
<PAGE>
CUSTOMERS
The Company provides fully-integrated, enterprise-wide software solutions
to state, city and county governments, utilities, transportation authorities,
parks and recreation departments and police, fire and emergency personnel. As of
December 31, 1996, the Company had over 1,000 customers, including installations
in all 50 U.S. states. The following is a representative list of current
licensees and users of one or more of the Company's applications.
<TABLE>
<CAPTION>
NUMBER OF FINANCIAL COMMUNITY PUBLIC
CUSTOMER APPLICATIONS MANAGEMENT SERVICE SAFETY UTILITY
CUSTOMER NAME SINCE PURCHASED SYSTEMS SYSTEMS SYSTEMS SYSTEMS
- ----------------------------------------- ------------- ------------ ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Amherst Police Dept., MA 7/89 7 /bullet/
Amtrack Police National Railroad,
Philadelphia, PA 9/93 6 /bullet/
Atlantic City, NJ 9/96 4 /bullet/
Berkeley, CA 2/91 14 /bullet/ /bullet/
Billings, MT 10/89 10 /bullet/ /bullet/
Burlington Electric Dept., VT 9/86 13 /bullet/ /bullet/
Cocoa Beach, FL 3/94 14 /bullet/ /bullet/ /bullet/ /bullet/
Coos County, OR 12/92 2 /bullet/
Cortez, CO 1/95 17 /bullet/ /bullet/ /bullet/ /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.
36
<PAGE>
PRODUCT DEVELOPMENT
HTE's product development efforts are focused on the enhancement of its
existing products and expansion of its enterprise system. At March 31, 1997, HTE
had 86 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 $5.4 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
37
<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 March 31, 1997, the Company employed 328 people, including 56 in
sales and marketing, 84 in product development, 72 in customer support and
field services, 76 in professional services and 38 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 recently moved its headquarters to Lake Mary, Florida, where it
leases an aggregate of approximately 87,000 square feet at the three story
building located in the Heathrow International Business Center. Administrative,
marketing, product development and customer support and service operations are
located in this space. The initial lease term for the new headquarters expires
ten years from the commencement date of the lease, and may be renewed by HTE for
up to three consecutive renewal terms of five years each. In connection with the
lease, HTE entered into an expansion agreement pursuant to which it may, at its
option during the term of the main lease, lease two additional office buildings
in the Heathrow Business Center, each of which would contain approximately
27,000 to 40,000 gross square feet of space. 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.
38
<PAGE>
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not a party to any legal proceedings, the adverse outcome of which, individually
or in the aggregate, would have a material adverse effect on the Company's
results of operations or financial position.
39
<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 ............ 42 Vice President-Chief Marketing Officer
Charlotte B. Hill ......... 41 Vice President-Research and Development
Ronald E. Goodrow ......... 46 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
40
<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 consist 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 appointed a Compensation Committee, consisting
of Messrs. Markey and Roberts, which is responsible for establishing the
compensation of officers of the Company and administering the Executive
Incentive Plan. Effective with this offering, the Board of Directors will
41
<PAGE>
appoint an Audit Committee, consisting of Mr. Jack L. Harward and Messrs. Markey
and Roberts, which will have responsibility for reviewing 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.
42
<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
--------------
FISCAL OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(2) SALARY BONUS(3) COMPENSATION(4) OPTIONS(5) COMPENSATION
- -------------------------------------- ----------- ----------- ----------- ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Harward 12/31/96 $150,000 $62,157 $25,830 - $ 3,190(6)
Chairman of the Board of Directors, 3/31/96 175,000 78,794 34,440 2,250(6)
President and Chief Executive 3/31/95 181,540 20,000 6,458 2,250(6)
Officer
Jack L. Harward 12/31/96 $106,875 $38,487 $25,830 - $ 5,820(6)
Executive Vice President 3/31/96 142,000 93,980 34,440 2,250(6)
3/31/95 131,800 20,000 6,458 1,950(6)
Daniel E. Catan 12/31/96 $ 68,750 $22,240 $ -0- 53,000 $ 81,826(7)
Vice President-Chief
Marketing Officer(8)
Ronald E. Goodrow 12/31/96 $ 90,000 $26,100 $ -0- - $ 5,080(6)
Vice President-Operations 3/31/96 120,000 45,698 -0- 3,680(6)
3/31/95 120,840 -0- -0- 3,680(6)
Susan D. Falotico 12/31/96 $ 45,350 $11,880 $ -0- $ 1,820(6)
Vice President-Controller 3/31/96 16,120 -0- -0-
and Chief Accounting Officer(9)
</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) Represents special compensation paid pursuant to an agreement dated November
9, 1994 which provides for approximately $2,333 per month for each of
Messrs. D. Harward and J. Harward until March 31, 1998.
(5) See the table under "Stock Options Granted in the Nine Months Ended December
31, 1996" below for additional information concerning these options.
(6) Represents matching contributions to the accounts of the Named Executive
Officers under the Company's 401(k) savings plan.
(7) Represents $52,526 for relocation moving expenses and $29,300 for
commissions.
(8) Mr. Catan's employment began July 1, 1996.
(9) Ms. Falotico's employment began December 29, 1995.
43
<PAGE>
OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to grants of
options to purchase shares of Common Stock during the nine months ended December
31, 1996 to the Named Executive Officers. The amounts shown as potential
realizable values on the options are based on assumed annualized rates of
appreciation in the price of the Common Stock of 0%, 5% and 10% over the term of
the options, as set forth in rules of the Securities and Exchange Commission.
Actual gains, if any, on stock option exercises are dependent on future
performance of the Common Stock. There can be no assurance that the potential
realizable values reflected in this table will be achieved.
STOCK OPTION GRANTS IN THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
------------------------------------------------------------------------ ----------------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN 12/31/96 ($/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.
In February 1997, the Company granted options for an additional 567,100
shares of Common Stock to 21 employees (including options to Mr. Catan, Mr.
Goodrow and Ms. Falotico for 53,000, 79,500 and 26,500 shares, respectively).
Each of the options has a per share exercise price of $9.43.
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 agreements also
provide that, upon the termination of the
44
<PAGE>
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 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
45
<PAGE>
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.
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's estate 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 cases,
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 capable of contributing to the
Company's performance. The Company has
46
<PAGE>
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.
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.
47
<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).
48
<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
49
<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 15 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) the annual meeting of shareholders
shall be held on such date and at such time fixed from time to time by the Board
of Directors, provided that there shall be an annual meeting held every calendar
year, (iii) any special 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
(iv) 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. 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 provisions described in this paragraph.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the community in
which the Company operates and the economy in general. Consequently, in
connection with any proposed action, the Board of Directors is empowered to
consider interests of other constituencies in addition to the Company's
shareholders, and directors who take into account these other factors may make
decisions which are less beneficial to some, or a majority, of the shareholders
than if the law did not permit consideration of such other factors. The Board of
Directors
50
<PAGE>
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 with
respect to an annual meeting, 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. To be timely with respect to a special meeting, a shareholder's notice
must be delivered to or mailed and received at the principal office of the
Company not later than the close of business on the fifth day following the date
on which notice of a special meeting is given to shareholders or the public,
whichever occurs first. 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.
51
<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.
52
<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.
53
<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 ................................. 2,500,000
===========
</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
54
<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.
55
<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.
56
<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 .............................. F-3
Consolidated Statements of Operations .................. F-6
Consolidated Statements of Stockholders' Deficit ......... F-7
Consolidated Statements of Cash Flows .................. F-8
Notes to Consolidated Financial Statements ............... F-10
</TABLE>
F-1
<PAGE>
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
February 28, 1997 (except with respect
to the matter discussed in Note 16, as
to which the date is June 10, 1997)
F-2
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1996 1997 1997
------------ --------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 16)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 388 $ 740 $ 855 $ 366
Trade accounts receivable, less allowance of $300
and $520 for doubtful accounts at March 31 and
December 31, 1996, respectively (Note 5) ......... 11,578 16,767 15,371 15,371
Deferred income taxes (Note 11) .................. 737 667 667 667
Other current assets ........................... 470 516 1,349 1,349
-------- -------- -------- --------
Total current assets ........................... 13,173 18,690 18,242 17,753
-------- -------- -------- --------
COMPUTER EQUIPMENT, FURNITURE AND
FIXTURES, net (Note 2) ........................... 1,385 1,592 1,573 1,573
-------- -------- -------- --------
OTHER ASSETS:
Computer software development costs,
net of accumulated amortization of $4,829
and $6,312 at March 31 and December 31,
1996, respectively .............................. 3,239 3,657 3,613 3,613
Other intangible assets, net of accumulated
amortization of $23 and $61 at March 31 and
December 31, 1996, respectively (Note 3) ......... 89 726 686 686
Deposits ....................................... 55 116 120 120
-------- -------- -------- --------
3,383 4,499 4,419 4,419
-------- -------- -------- --------
$17,941 $24,781 $24,234 $23,745
======== ======== ======== ========
</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
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1996 1997 1997
------------ --------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 16)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable .................................... $ 2,047 $ 2,845 $ 3,284 $ 3,284
Accrued liabilities ................................. 2,941 3,413 3,573 3,573
Line of credit (Note 5) ........................... 1,970 2,306 765 765
Deferred revenue .................................... 6,846 10,378 9,834 9,834
Current portion of long-term debt (Note 4) ......... 75 - - -
Current portion of obligations under capital leases
(Note 12) .......................................... 32 32 28 28
Current portion of notes payable to related parties
(Note 3) .......................................... 50 60 60 60
Current portion of deferred lease commitment
(Note 12) .......................................... 128 66 23 23
-------- -------- -------- --------
Total current liabilities ........................ 14,089 19,100 17,567 17,567
-------- -------- -------- --------
LONG-TERM LIABILITIES:
Notes payable to related parties, less current
portion (Note 3) .................................... - 240 240 240
Obligations under capital leases, less current
portion (Note 12) ................................. 33 10 5 5
Deferred lease commitment (Note 12) ............... 43 - - -
Deferred income taxes (Note 11) ..................... 1,274 1,731 1,731 1,731
-------- -------- -------- --------
Total long-term liabilities ..................... 1,350 1,981 1,976 1,976
-------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 7, 10 and 12)
MANDATORILY REDEEMABLE PREFERRED
STOCK, 7% cumulative convertible preferred
stock (including accrued dividends of $268 and
$433 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
at December 31, 1996) (Note 6) ..................... 3,054 4,303 5,937 -
-------- -------- -------- --------
</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
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1996 1997 1997
------------ --------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 16)
<S> <C> <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) ...... - 119 129 -
-------- -------- -------- --------
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 .................. 1 1 1 -
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 ............... - - - 54
Additional paid-in capital ..................... 224 229 294 5,818
Accumulated deficit .............................. (515) (947) (1,681) (1,681)
Cumulative translation adjustment ............... - (5) 11 11
-------- -------- -------- --------
(290) (722) (1,375) 4,202
Notes receivable from stockholders
(Note 8) ....................................... (262) - - -
-------- -------- -------- --------
Total stockholders' equity (deficit) ......... (552) (722) (1,375) 4,202
-------- -------- -------- --------
$ 17,941 $ 24,781 $ 24,234 $ 23,745
======== ======== ======== ========
</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
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED THREE MONTHS ENDED
------------------------- ------------------------------- ------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1995 1996 1996 1997
------------ ------------ --------------- --------------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Software licenses ..................... $ 9,808 $ 11,151 $ 6,552 $ 9,139 $ 4,599 $ 5,830
Professional services ............... 3,666 6,203 4,528 5,586 1,675 1,767
Hardware .............................. 921 6,157 4,788 7,435 1,369 1,620
Maintenance and other ............... 5,311 6,689 4,805 6,528 1,884 2,730
------- ------- -------- -------- ------- --------
Total revenues ..................... 19,706 30,200 20,673 28,688 9,527 11,947
------- ------- -------- -------- ------- --------
EXPENSES:
Cost of software licenses ............ 1,280 3,396 2,647 2,402 749 855
Cost of professional services ......... 3,452 5,029 3,823 3,223 1,206 1,131
Cost of hardware ..................... 719 4,822 3,741 5,890 1,081 1,381
Cost of maintenance and other ......... 3,246 3,118 2,317 2,216 801 1,265
Research and development ............ 2,006 3,491 2,586 3,729 905 1,392
Sales and marketing .................. 3,829 4,666 3,312 5,228 1,354 2,152
General and administrative ............ 4,219 5,041 3,640 4,394 1,401 2,170
------- ------- -------- -------- ------- --------
Total operating expenses ............ 18,751 29,563 22,066 27,082 7,497 10,346
------- ------- -------- -------- ------- --------
INCOME (LOSS) FROM OPERATIONS ......... 955 637 (1,393) 1,606 2,030 1,601
OTHER EXPENSES:
Interest (Notes 4, 5, 7 and 12) ...... 104 127 70 191 57 69
------- ------- -------- -------- ------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES ........................ 851 510 (1,463) 1,415 1,973 1,532
PROVISION (BENEFIT) FOR INCOME TAXES
(Note 11) ........................... 139 211 (605) 581 816 633
------- ------- -------- -------- ------- --------
NET INCOME (LOSS) ..................... 712 299 (858) 834 1,157 899
ACCRETION AND ACCRUAL OF DIVIDENDS
ON MANDATORILY REDEEMABLE
PREFERRED STOCK ..................... (84) (184) (138) (1,003) (46) (1,634)
------- ------- -------- -------- ------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS .................. $ 628 $ 115 $ (996) $ (169) $ 1,111 $ (735)
======= ======= ======== ======== ======= ========
PRO FORMA ADJUSTMENT TO PROVISION
FOR INCOME TAXES (Note 11) ............ 249 - - - - -
------- ------- -------- -------- ------- --------
PRO FORMA NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS ........................ $ 379 $ 115 $ (996) $ (169) $ 1,111 $ (735)
======= ======= ======== ======== ======= ========
PRO FORMA NET INCOME
PER COMMON AND COMMON
EQUIVALENT SHARE ..................... $ 0.15 $ 0.16
======== ========
PRO FORMA WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING ........................... 5,481 5,481
======== ========
</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
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1994 .................. - $ 2 816 $-
Exchange of stock due to
recapitalization (Note 6) ............... - (2) 2,576 1
Stockholder distribution in connection
with PSC combination (Note 3) ............ - - - -
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 1
Issuance of common stock ............... - - 136 -
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 .................. - - 3,528 1
Issuance of common stock .................. - - 3 -
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 ............... - $ - 3,531 $1
== ==== ====== ===
<CAPTION>
NOTES
ADDITIONAL CUMULATIVE RECEIVABLE
PAID-IN ACCUMULATED TRANSLATION FROM
CAPITAL DEFICIT ADJUSTMENT STOCKHOLDERS TOTAL
------------- -------------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994 .................. $ 143 $ (736) $ - $ - $ (591)
Exchange of stock due to
recapitalization (Note 6) ............... 1 - - - -
Stockholder distribution in connection
with PSC combination (Note 3) ............ (144) (356) - - (500)
Stockholder distributions ............... - (166) - - (166)
Accretion of mandatorily redeemable
preferred stock to redemption value ...... - (26) - - (26)
Accrual of mandatorily redeemable
preferred stock dividends ............... - (58) - - (58)
Net income .............................. - 712 - - 712
------ ------- ----- ------ -------
BALANCE, March 31, 1995 .................. - (630) - - (629)
Issuance of common stock ............... 224 - - - 224
Accretion of mandatorily redeemable
preferred stock to redemption value ...... - 26 - - 26
Accrual of mandatorily redeemable
preferred stock dividends ............... - (210) - - (210)
Advances on notes receivable from
stockholders .............................. - - - (262) (262)
Net income .............................. - 299 - - 299
------ ------- ----- ------ -------
BALANCE, March 31, 1996 .................. 224 (515) - (262) (552)
Issuance of common stock .................. - - - - -
Accretion of mandatorily redeemable
preferred stock to redemption value ...... - (838) - - (838)
Accrual of mandatorily redeemable
preferred stock dividends ............... - (165) - - (165)
Advances on notes receivable from
stockholders .............................. - - - (1) (1)
Forgiveness of notes receivable from
stockholders .............................. - (263) - 263 -
Cumulative translation adjustment ......... - - (5) - (5)
Net income .............................. - 834 - - 834
------ ------- ----- ------ -------
BALANCE, December 31, 1996 ............... $ 229 $ (947) $ (5) $ - $ (722)
====== ======= ===== ====== =======
</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
(AMOUNTS IN THOUSANDS)
(NOTE 15)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED THREE MONTHS ENDED
------------------------- ------------------------------- ------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1995 1996 1996 1997
------------ ------------ --------------- --------------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ........................ $ 712 $ 299 $ (858) $ 834 $ 1,157 $ 899
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities-
Depreciation and amortization ............ 1,210 2,972 2,374 1,764 598 696
Accretion of mandatorily redeemable
Class C common stock charged to
interest expense ........................ - - - 7 - 11
Foreign currency translation loss ...... - - - (5) - 16
Loss on disposal of computer equipment,
furniture and fixtures .................. 76 3 3 6 - -
Gain on forgiveness of
account payable ........................... - (210) - - (210) -
Compensation due to sale of stock ......... - - - - - 65
Deferred income taxes .................. 120 145 - 237 145 -
Changes in operating assets
and liabilities-
Decrease (increase) in assets-
Trade accounts receivable, net ......... (3,642) (5,049) (6,211) (5,065) 1,162 1,396
Other current assets .................. (68) (334) (113) (44) (221) (833)
Deposits .............................. (59) 30 (174) (61) 204 (4)
Increase (decrease) in liabilities-
Accounts payable ........................ 234 1,096 1,566 675 (470) 439
Accrued liabilities ..................... 1,071 775 (71) 472 846 160
Deferred revenue ........................ 1,905 340 2,725 3,404 (2,385) (544)
Deferred lease commitment ............... (156) (171) (128) (105) (43) (43)
------- ------- -------- -------- ------- ------
Net cash provided by (used in)
operating activities ..................... 1,403 (104) (887) 2,119 783 2,258
------- ------- -------- -------- ------- ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ..................... (281) (618) (485) (386) (133) (113)
Proceeds from sale of computer equipment,
furniture and fixtures .................. 84 - - - - -
Proceeds from sale of investments ......... - - - 119 - -
Acquisition of net assets of Programmed-
For-Success, Inc. ........................ - (6) (6) - - -
Acquisition of net assets of Bellamy
Software, Ltd. ........................... - - - (375) - -
Computer software development costs ...... (1,729) (2,195) (1,676) (1,556) (519) (480)
------- ------- -------- -------- ------- ------
Net cash used in
investing activities ..................... (1,926) (2,819) (2,167) (2,198) (652) (593)
------- ------- -------- -------- ------- ------
</TABLE>
F-8
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS) (CONTINUED)
(NOTE 15)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED THREE MONTHS ENDED
------------------------- ------------------------------- ------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1995 1996 1996 1997
------------ ------------ --------------- --------------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
preferred stock .................. 2,786 - - 247 - -
Net proceeds from issuance of
common stock ..................... - 224 - 5 224 -
Net proceeds (repayment) under line
of credit ........................ (204) 1,970 2,119 336 (149) (1,541)
Repayments of long-term debt ...... (75) (75) (75) (83) - -
Repayments of obligations under
capital leases ..................... (343) (149) (141) (23) (8) (9)
Net repayments of notes payable to
related parties .................. (58) (50) - (50) (50) -
Shareholder distributions ......... (667) - - - - -
Advances on notes receivable from
shareholders ..................... - (262) (147) (1) (115) -
------- -------- -------- ----- ------ --------
Net cash provided by (used in)
financing activities ............... 1,439 1,658 1,756 431 (98) (1,550)
------- -------- -------- ----- ------ --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............... 916 (1,265) (1,298) 352 33 115
CASH AND CASH EQUIVALENTS,
beginning of period ............... 737 1,653 1,653 388 355 740
------- -------- -------- ----- ------ --------
CASH AND CASH EQUIVALENTS,
end of period ..................... $ 1,653 $ 388 $ 355 $ 740 $ 388 $ 855
======= ======= ======== ===== ====== ========
SUPPLEMENTAL SCHEDULES OF CASH
FLOW INFORMATION:
Cash paid for interest ............ $ 104 $ 127 $ 69 $ 185 $ 58 $ 69
Cash paid for income taxes ......... 47 160 136 14 24 316
</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
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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.
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
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (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 $200, $221 and $242, 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, net of the related tax benefit of $532, or $.15 per share
for the year ended March 31, 1996.
Amortization expense related to computer software development costs of
$1,010, $2,729 and $1,483 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
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (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 ........................... $ 112 $ 401
Customer list ........................ - 386
----- -----
112 787
Less- Accumulated amortization ...... (23) (61)
----- -----
$ 89 $ 726
===== =====
</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 $23
and $38 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. As
the functionality of the hardware is not dependent on any other services
provided by the Company, 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
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (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 PER SHARE
Pro forma net income per common share is determined by dividing net income,
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 outstanding prior to the twelve-month period
preceding the initial filing date into Class A common stock as of the date such
preferred stock was 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.
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
F-13
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:-(CONTINUED)
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.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying consolidated balance sheet as of March 31, 1997 and the
accompanying consolidated statements of operations and cash flows for the three
months ended March 31, 1996 and 1997, and the nine months 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 a
normal, recurring nature,
F-14
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:-(CONTINUED)
except for the effect of the change in the estimated life of capitalized
computer software development costs. The accretion related to the preferred
stock was determined based on the estimated fair value of the Company for the
three months ended March 31, 1997. The results of operations for the three
months ended March 31, 1997, are not necessarily indicative of the results to be
expected for the entire fiscal year.
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 ........................ $ 99 $ 99
Computer equipment .................. 2,216 2,787
Office furniture and fixtures ......... 550 656
Leasehold improvements ............... 96 96
-------- --------
2,961 3,638
Less- Accumulated depreciation
and amortization ..................... (1,576) (2,046)
-------- --------
$ 1,385 $ 1,592
======== ========
</TABLE>
Included in accumulated depreciation and amortization is $21 and $30 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 (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 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
F-15
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
3. BUSINESS COMBINATIONS:-(CONTINUED)
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 ............... $ 6,416 $2,148 $ 746 $ 9,310
Net income (loss) ...... (432) 432 (451) (451)
</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.
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, the Company created PFS as a
wholly-owned subsidiary. In September 1995, PFS purchased the net assets of
Programmed-For-Success, Inc. by paying $6 in cash and issuing a note payable for
$100. 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, 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, issuing notes payable totaling $300 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 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 ............... $33,224 $29,245
Net income ............... 148 750
Earnings per share ...... $ 0.03 $ 0.14
</TABLE>
F-16
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
3. BUSINESS COMBINATIONS:-(CONTINUED)
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, $90 and $150 on November 1, 1997, 1998 and
1999, respectively.
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 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 REVOLVING LINE OF CREDIT WITH
A COMMERCIAL BANK. The line was increased to $4,000 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 and $2,030 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 $268 and $433 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) and $838,
F-17
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
6. MANDATORILY REDEEMABLE PREFERRED STOCK:-(CONTINUED)
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.
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 $7 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 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
F-18
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
9. EMPLOYEE STOCK OPTIONS:-(CONTINUED)
Company adopted the accounting treatment prescribed under SFAS 123 for the year
ended March 31, 1996, and the nine months ended December 31, 1996.
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 $243, $277, and $278 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 $ 40 $ 284
State ......... - 26 60
------ ------ ------
19 66 344
------ ------ ------
Deferred:
Federal ...... 102 124 222
State ......... 18 21 15
------ ------ ------
120 145 237
------ ------ ------
$ 139 $ 211 $ 581
====== ====== ======
</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 arising
from the operations of Bellamy.
F-19
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
11. INCOME TAXES:-(CONTINUED)
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 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.
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 ...... $ 34 $ - $ 34
Accrued liabilities .............................. 431 - 431
Allowance for doubtful accounts .................. 196 - 196
Deferred lease commitment ........................ - 25 25
Other .......................................... 7 10 17
----- --------- ---------
Total assets .................................... 668 35 703
----- --------- ---------
Tax liabilities:
Basis difference in fixed assets ............... - (204) (204)
Capitalized software development costs ......... (1,394) (1,394)
Other intangible assets ........................ - (168) (168)
Other .......................................... (1) - (1)
----- --------- ---------
Total liabilities .............................. (1) (1,766) (1,767)
----- --------- ---------
Net deferred tax asset (liability) ............... $ 667 $ (1,731) $ (1,064)
===== ========= =========
</TABLE>
F-20
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
11. INCOME TAXES:-(CONTINUED)
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 ............ $136 $ - $ 136
Accrued liabilities .................................... 480 - 480
Allowance for doubtful accounts ........................ 113 - 113
Deferred lease commitment .............................. - 64 64
Alternative minimum tax (AMT) credit carryforward ...... - 80 80
Other ................................................... 8 6 14
----- --------- --------
Total assets .......................................... 737 150 887
----- --------- --------
Tax liabilities:
Basis difference in fixed assets ........................ - (205) (205)
Capitalized software development costs .................. - (1,219) (1,219)
----- --------- --------
Total liabilities .................................... - (1,424) (1,424)
----- --------- --------
Net deferred tax asset (liability) ..................... $737 $ (1,274) $ (537)
===== ========= ========
</TABLE>
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 .................................................................. $ 38
1998 .................................................................. 8
-----
Total payments ......................................................... 46
Less-Portion applicable to interest at rates ranging from 4 percent to 17
percent ............................................................... (4)
-----
Obligations under capital leases ....................................... 42
Less-Current portion ................................................... (32)
-----
$ 10
=====
</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.
F-21
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES:-(CONTINUED)
Future aggregate minimum rental payments under these agreements are as
follows as of December 31, 1996:
YEAR ENDING DECEMBER 31, AMOUNT
- --------------------------- --------
1997 .................. $ 795
1998 .................. 240
1999 .................. 31
-------
$1,066
=======
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 $276.
Rent expense under operating leases totaled approximately $911, $1,179 and
$967 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 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
1998 .................. 839
1999 .................. 976
2000 .................. 1,064
2001 .................. 1,074
Thereafter ............ 5,902
--------
$10,416
========
</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
F-22
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES:-(CONTINUED)
license fee revenues are recognized. The Company has recorded $372 and $370 as
accrued liabilities for product royalties as of March 31, 1996, and December 31,
1996, respectively. Royalty expense was approximately $352, $163 and $263 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 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 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
F-23
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES:-(CONTINUED)
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. The LOC extends through June 30, 1998, at which time the entire
unpaid principal balance and any accrued interest is payable in full. In
accordance with the agreement, the LOC bears interest at the bank's prime rate
plus 1.25 percent and is collateralized by the Company's accounts receivable,
inventory, intangible assets and equipment.
The Company's 1997 Executive Incentive Compensation Plan (the "Executive
Incentive Plan") was adopted by the Board of Directors in January 1997. The
purpose of the Incentive Plan is to attract and retain key employees and
consultants of the Company, to provide an incentive for them to achieve
long-range performance goals and to enable them to participate in the long-term
growth of the Company. The Incentive Plan authorizes the grant of stock options
(incentive and nonstatutory), stock appreciation rights and restricted stock
subject to adjustment to employees and consultants of the Company, capable of
contributing to the Company's performance. The Company has reserved an aggregate
of 954,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock for grants 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, $86 and $88, respectively,
was capitalized as computer software development costs.
During the year ended March 31, 1996, the Company capitalized $53 of
computer, furniture and fixtures acquired under capital lease obligations.
F-24
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
15. SUPPLEMENTAL NONCASH TRANSACTIONS:-(CONTINUED)
During the year ended March 31, 1996, PFS purchased the net assets of
Programmed-For-Success, Inc. (the PFS Acquisition). PFS paid $6 in cash and
issued a note payable of $100 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 in cash, issued notes payable with an aggregate value of $300 and issued
63,600 shares of mandatorily redeemable Class C common stock with a value of
$112 in connection with the Bellamy Acquisition.
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 ................................................... $ - $ 119
Trade accounts receivable .................................... - 124
Other current assets .......................................... - 2
Computer equipment, furniture and fixtures ..................... 20 158
Computer software development costs ........................... 130 257
Other intangible assets ....................................... - 386
Goodwill established due to recognition of deferred income taxes
(included in other intangible assets) ........................ - 289
Deposits ...................................................... 1 -
Accounts payable ............................................. - (123)
Deferred revenue ............................................. (45) (128)
Notes payable to related parties .............................. (100) (300)
Long-term debt ................................................ - (8)
Deferred income taxes (long-term liability) .................. - (289)
Mandatorily redeemable Class C common stock .................. - (112)
</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.
On June 10, 1997, concurrent with the effectiveness of the Company's
registration statement on Form S-1, (i) the number of authorized shares of the
Company's Class A common stock and Redeemable Preferred Stock were increased to
4,000,000 and 2,000,000, respectively, (ii) all outstanding shares of Redeemable
Preferred Stock, Class A common stock and Class C common stock were split
53-for-one and (iii) the par value of the Class A common stock and Class C
common stock was restated to $.0002 per share.
F-25
<PAGE>
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
16. UNAUDITED PRO FORMA INFORMATION:-(CONTINUED)
The accompanying unaudited pro forma consolidated balance sheet as of March
31, 1997, is based on the Company's historical balance sheet as of March 31,
1997, 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 March 31, 1997.
F-26
<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 ........................... 25
Management ........................... 40
Certain Transactions ............... 47
Principal and Selling Shareholders ... 48
Description of Capital Stock ......... 49
Shares Eligible for Future Sale ...... 53
Underwriting ........................ 54
Legal Matters ........................ 56
Experts .............................. 56
Additional Information ............... 56
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]/Trademark/
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.
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<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 Articles of Incorporation, as amended*
3.2 Registrant's 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 June 10, 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 June 10, 1997
Dennis J. Harward President and Chief Executive Officer
and Director (principal executive officer)
/s/ JACK L. HARWARD Executive Vice President and Director June 10, 1997
Jack L. Harward
/s/ L.A. GORNTO, JR. Executive Vice President, June 10, 1997
L.A. Gornto, Jr. Chief Financial Officer
(principal financial officer)
/s/ SUSAN D. FALOTICO Vice President, Controller June 10, 1997
Susan D. Falotico Chief Accounting Officer
(chief accounting officer)
/s/ BERNARD B. MARKEY Director June 10, 1997
Bernard B. Markey
/s/ PETER R. ROBERTS Director June 10, 1997
Peter R. Roberts
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------ --------------
<S> <C> <C>
23.2 Consent of Arthur Andersen LLP
</TABLE>
EXHIBIT 23.2
ARTHUR
ANDERSEN
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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 File No. 333-22637 of H.T.E., Inc., filed on June 10,
1997.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
Arthur Andersen LLP
Orlando, Florida
June 10, 1997
