<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1998
REGISTRATION NO. 333-61383
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
H.T.E., INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-2133858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1000 BUSINESS CENTER DRIVE
LAKE MARY, FLORIDA 32746
(407) 304-3235
(Address, including zip code, and telephone number, including
area code, or registrant's agent for service and principal executive offices)
---------------------
DENNIS J. HARWARD
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
H.T.E., INC.
1000 BUSINESS CENTER DRIVE
LAKE MARY, FLORIDA 32746
(407) 304-3235
(Name, address, including zip code, and telephone number,
including area code of agent for service)
---------------------
WITH COPIES TO:
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<S> <C>
CHARLES C. ZALL, ESQ. RANDOLPH H. FIELDS, ESQ.
SAUL, EWING, REMICK & SAUL LLP SANDRA C. GORDON, ESQ.
CENTRE SQUARE WEST GREENBERG TRAURIG, P.A.
1500 MARKET STREET, 38TH FLOOR 111 NORTH ORANGE AVENUE, SUITE 2000
PHILADELPHIA, PENNSYLVANIA 19102-2186 ORLANDO, FLORIDA 32801
(215) 972-7701 (407) 420-1000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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> 2
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.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED SEPTEMBER 18, 1998
5,137,100 SHARES
H.T.E., INC. LOGO
H.T.E., INC.
COMMON STOCK
---------------------
Of the 5,137,100 shares of Common Stock, $.01 par value, offered hereby,
1,500,002 are being sold by H.T.E., Inc. ("HTE" or the "Company") and 3,637,098
shares are being sold by certain selling shareholders (the "Selling
Shareholders"). The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. See "Principal and Selling Shareholders."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"HTEI." On September 15, 1998, the last reported sale price of the Common Stock
as reported on the Nasdaq National Market was $13.00 per share. See "Price Range
of Common Stock."
---------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
---------------------
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 PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(4)..................... $ $ $ $
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</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 to be $500,000.
(3) The Company will pay certain expenses of the Offering for the Selling
Shareholders, other than underwriting discounts and commissions, any
transfer taxes associated with transfer of the shares, and costs of counsel
to the Selling Shareholders.
(4) Certain Selling Shareholders have granted the Underwriters an option,
excercisable within 30 days of the date hereof, to purchase an aggregate of
up to 770,565 additional shares at the Price to Public less Underwriting
Discounts and Commissions, to cover over-allotments, if any. If all such
additional shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company, and Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
---------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of SG Cowen Securities Corporation, New York, New York, on or about
, 1998.
---------------------
SG COWEN
JANNEY MONTGOMERY SCOTT INC.
RAYMOND JAMES & ASSOCIATES, INC.
VOLPE BROWN WHELAN & COMPANY
, 1998
<PAGE> 3
[INSIDE FRONT COVER]
ARTWORK -- THE FOLLOWING TEXT TO BE ARRANGED IN CIRCULAR FLOW-CHART FORMAT:
TOTAL ENTERPRISE SOLUTION(TM)
PUBLIC SAFETY & JUSTICE
- Computer Aided Dispatch
- FIRES(TM) Management System
- Fire Prevention
- Fire Resources Activity Tracking
- Emergency Medical Services
- CRIMES(TM) Management System
- Field Reporting
- Schedule Manager
- Jail System
- Court System
- Mobile Data
- Prosecutors System
- Crackdown(TM)
- Public Defenders System
- Probation System
- Return Of Service System
FINANCIALS
- - General Ledger
- - Accounts Payable
- - Project Accounting
- - Budgets
- - Applicant Tracking
- - Human Resources
- - Payroll/Personnel
- - Accounts Receivable
- - Fleet Management
- - Extended Reporting
- - Asset Management
- - Purchasing/Inventory
- - Cash Receipts
COMMUNITY SERVICES
- - Land/Parcel Management
- - Building Permits
- - Code Enforcement
- - Business Licenses
- - PARCSoft(TM)
- - Tax Billing & Collections
- - Field Plus
- - Planning & Zoning
- - Voter Registration
- - Appraisal Plus
UTILITIES
- - Customer Information System
- - Utility Marketing
- - Continuing Property Records
- - Asset Management II
- - Work Orders/Facility Management
- - Distribution Management
- - Contract Billing
- - Contract Management
EDUCATION
- - Student Administration
- - General Accounting
- - Human Resources
- - Payroll
HTE is a leading provider of enterprise-wide software applications to
public sector organizations and utilities. The Company's Total Enterprise
Solution(TM) currently includes more than 50 applications addressing five
functional areas: financial management, community services, public safety and
justice, education 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. As part of its strategy to provide a
completely integrated solution to its customers, the Company also provides a
variety of related services, including consulting, implementation, education and
training, and the provision and configuration of hardware systems.
<PAGE> 4
FINANCIAL SYSTEMS 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.
(Photo of office worker at PC terminal)
APPLICATIONS
- - Integrated Accounting
- - Extended Reporting
- - Accounts Receivable
- - Cash Receipts
- - Payroll/Personnel
- - Applicant Tracking
- - Purchasing/Inventory
- - Fleet Management
- - Asset Management I
- - Human Resources
(Sample page from financial management program)
UTILITY MANAGEMENT
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.
(Photo of rolls of electric cable)
APPLICATIONS
- - Customer Information System
- - Continuing Property Records
- - Work Orders/Facility Management
- - Distribution Management
- - Contact Management
- - Asset Management II
(Photo of gas meter reader)
(Sample page from utility management program)
[INSIDE FRONT COVER FOLD-OUT]
<PAGE> 5
EDUCATION SYSTEMS
Designed by school administrators, HTE education systems software
applications support the unique requirements of school districts. All
applications incorporate a variety of standard features and functions to provide
ease of use, customization capabilities and reporting flexibility.
(Photo of student in classroom)
APPLICATIONS
- - Student Administration
- - Human Resources
- - General Accounting
- - Payroll
(Sample page from education systems program)
[INSIDE FRONT COVER FOLD-OUT -- CONT'D]
<PAGE> 6
PUBLIC SAFETY & JUSTICE
From dispatch to adjudication, HTE's public safety and justice solution
offers integrated applications that provide real-time access to vital
information.
(Photo of police officer in patrol car)
APPLICATIONS
- - Computer Aided Dispatch IV
- - Computer Aided Dispatch III
- - CRIMES Records Management
- - Crackdown
- - FIRES Records Management
- - Fire Resources Activity Tracking
- - Fire Prevention
- - Emergency Medical Services
- - Mobile Data Systems
- - Integrated Mapping
- - Case Management
- - Citation Management
- - Jail System
- - Court System
- - Prosecutors System
- - Public Defenders System
- - Probation System
- - Return of Service System
(Sample page from public safety and justice program)
(Photo of judge in courtroom)
COMMUNITY SERVICES
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.
(Photo of building inspector)
APPLICATIONS
- - Land/Parcel Management
- - Building Permits
- - Code Enforcement
- - Business Licenses
- - Planning and Zoning
- - Tax Billing and Collections
- - Parks and Recreation
- - Tax Appraisal and Assessment
(Sample page from community services program)
[INSIDE FRONT COVER FOLD-OUT -- CONT'D]
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context indicates otherwise, the terms "Company" and
"HTE" refer to H.T.E., Inc. and its subsidiaries. Unless otherwise indicated, or
the context otherwise requires, all information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, and (ii) gives effect to
a two-for-one split of the Common Stock on June 18, 1998 (the "Stock Split").
The Company changed its fiscal year end from March 31 to December 31 effective
December 31, 1996.
THE COMPANY
The Company develops, markets, implements and supports fully integrated
enterprise-wide software applications designed specifically for public sector
organizations, including state, county and city governments and other municipal
agencies and for public and private utilities. For over 16 years, the Company
has strategically focused on providing software applications exclusively to
public sector organizations and utilities, and therefore has established itself
as a leading provider of software solutions to those markets. HTE's fully
integrated enterprise-wide software applications are designed to fulfill the
specific functional requirements of the public sector marketplace, such as
improvement of delivery of services, reduction of costs, enhancement of revenue
collection, operation within budgetary constraints, compliance with government
regulations and improvement of overall operating efficiencies. The Company's
Total Enterprise Solution currently includes more than 50 applications
addressing five functional areas: financial management, community services,
public safety and justice, education 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. As part of
its strategy to provide a completely integrated solution to its customers, the
Company also provides a variety of related services, including consulting,
implementation, education and training, and the provision and configuration of
hardware systems.
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 services while striving to control and reduce
costs and generate additional revenues. In response, public sector organizations
are employing information technology ("IT") solutions in an effort to streamline
and automate administrative 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 IT and related
products, which is expected to grow to $45.0 billion by 2001 according to G2
Research, Inc. The estimated total for 2001 includes approximately $8.0 billion
for software, $12.3 billion for external services and $8.4 billion for hardware.
Certain IT issues facing state and local governments also impact utilities, many
of which are owned by municipalities. Consequently, utilities are under pressure
to retain their customer bases and focus their efforts on enhancing service
levels, improving operating practices and reducing costs. However, current
software solutions have not been able to meet the needs of public sector
organizations because they are typically not enterprise-wide, do not share
information among various public sector departments and are not designed
specifically for use by public sector organizations. As public sector
organizations reengineer their practices and strive to become more efficient,
they seek comprehensive, fully-functional solutions from a single source which
enable them to meet their particular needs.
Historically, local governments and utility companies utilized computerized
operations management systems principally based on mainframe and mini-computers
running customized proprietary software. These legacy systems have a limited
ability to operate with other software applications, systems and resources and
are often difficult and expensive to maintain, upgrade and modify. Budget
constraints and other factors have caused public sector organizations to lag
private sector companies in the adoption of newer, open-architecture
client/server systems. However, the need to integrate mission-critical functions
is now driving these
3
<PAGE> 8
organizations to replace their legacy systems and more recently acquired point
solutions with more technologically advanced, integrated and complete software
solutions.
HTE offers fully integrated enterprise-wide software solutions designed to
automate and integrate the operations of public sector organizations. The
applications in the Financial Management System are based on government fund
accounting and provide integrated financial management functions including
general ledger,
budgeting, purchasing and asset management. The Community Services System
provides a centralized land and location database solution which expedites
access to property data, building permits, planning and zoning processes,
business license information, property appraisals and assessments, and tax and
billing collections. The Public Safety and Justice System offers a complete
solution from dispatch to adjudication through an integrated suite of
applications which provides immediate field access to vital information. The
Utility Management System facilitates electric, water, gas and other utility
services by automating tasks such as customer location maintenance, meter
reading maintenance, bill processing, delinquencies, penalties, refunds and
write-offs. The Education System provides integrated financial management
functions and scheduling functions for school districts (grades K through 12).
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.
As part of HTE's strategy to provide a completely integrated solution to
its customers, the Company also provides a variety of related services,
including maintenance, system planning and implementation, project management,
education and training, the provision and configuration of hardware systems, and
custom applications analysis, design and development. The Company's focus on the
public sector and utility markets has allowed it to develop significant
expertise regarding public sector organizations and to design comprehensive
solutions that address the specific needs of these organizations. The Company
markets and sells its products primarily through a direct sales force operating
out of various locations. As of June 30, 1998, the Company had more than 1,600
customers in the U.S., Caribbean, United Kingdom and Canada, including
installations in all 50 U.S. states.
The Company's objective is to be the leading provider of enterprise-wide IT
solutions to the public sector and utility markets. The Company seeks to
accomplish this objective by: (i) promoting integrated enterprise-wide solutions
thereby enabling it to sell additional products to customers who have only a few
of the Company's applications or who prefer products which may be easily
integrated with other applications in the future; (ii) capitalizing on its
public sector and utilities expertise to enhance sales in existing markets and
expanding into new market segments, such as foreign governments and educational
institutions; (iii) aggressively pursuing acquisition opportunities in the
highly fragmented public sector vendor market; (iv) continuing to develop new
applications and incorporate new product functionality into business solutions
that can operate effectively regardless of the customer's platform preference;
and (v) increasing market penetration and expanding its geographic markets by
increasing the size of its sales force and augmenting its collaborative
relationships with customers.
RECENT ACQUISITIONS
In December 1997, the Company purchased the assets of Kb Systems, Inc.
("Kb") for $400,000 in cash and the payment of a continuing royalty on license
fees over a five-year period. For its fiscal year ended June 30, 1997, Kb had
revenues of approximately $1.4 million. As of the date of the acquisition, Kb
had approximately 150 customers. The Kb software applications have enabled the
Company to expand its penetration into governmental tax departments by adding
property appraisal and assessment applications to its traditional tax billing
and collection capability.
In January 1998, the Company purchased the assets of JALAN, Inc. ("JALAN")
for approximately $1.7 million in cash. For its fiscal year ended September 30,
1997, JALAN had revenues of approximately $2.5 million. As of the date of the
acquisition, JALAN had 18 employees and approximately 120 customers in 32
states. The JALAN software applications track inmate information for jails, case
status for courts, defendant case information for district attorneys' and public
defenders' offices, civil papers for sheriff departments, case information for
the probation system and claims for victim compensation.
4
<PAGE> 9
In April 1998, the Company completed a pooling of interests acquisition of
Phoenix Systems, LLC ("Phoenix") for 272,036 shares of Common Stock valued at
$3.0 million on or about the closing date. As of the date of the acquisition,
Phoenix had 22 employees and approximately 70 customers. The Phoenix software
applications encompass a complete suite of integrated Windows NT software
products targeted towards financial management and student administration for
school districts (grades K through 12).
In June 1998, the Company completed a pooling of interests acquisition of
UCS, Inc., ("UCS") for 1,120,000 shares of Common Stock valued at $15.0 million
as of the April 1998 agreement valuation date. For its fiscal year ended
December 31, 1997, UCS had revenues of approximately $10.0 million. As of the
date of the acquisition, UCS had approximately 130 employees in its Ft.
Lauderdale, Florida, Golden, Colorado and Vienna, Virginia offices and more than
200 customers throughout the United States. UCS is a leading mobile work force
automation provider of field-based reporting software. UCS's products and
services are utilized by federal, state, county and city government agencies, as
well as police and fire departments. UCS mobile data software enables law
enforcement officials to utilize HTE software through the entire criminal
justice process -- from the first point of contact with a suspect in the field
through the judicial system and throughout the incarceration period.
In August 1998, the Company purchased the assets of Vanguard Management &
Information Systems, Inc. ("Vanguard") for $400,000 in cash and the payment of
continuing royalties over a five-year period. Vanguard provided professional
management services and software applications to trial courts and other judicial
agencies. The Company expects the acquisition to expand its justice system
product line, enhance its UNIX client/server offerings, and permit it to respond
to proposals for large scale court administration systems.
Over the past five years, the Company has supplemented its internal growth
with ten acquisitions, five of which have occurred since June 1997. The Company
intends to continue its growth strategy and expects growth from acquisitions to
complement internally generated growth. The Company views acquisitions as a
means of acquiring technology and industry expertise, thereby expanding the
variety of enterprise-wide software applications the Company offers for sale and
servicing, 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 IT solutions to the public sector.
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.
5
<PAGE> 10
THE OFFERING
Common Stock offered:
By the Company.............................. 1,500,002 shares
By the Selling Shareholders................. 3,637,098 shares(1)
Common Stock to be outstanding after the
Offering...................................... 18,512,856 shares(1)(2)
Use of Proceeds............................... For working capital, other
general corporate purposes and
potential acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol................. HTEI
- ---------------
(1) Includes 136,600 shares of Common Stock currently issuable upon exercise of
outstanding stock options, held by certain Selling Shareholders, which
options will be exercised concurrently with or immediately prior to the sale
of such shares. Does not include up to 770,565 shares of Common Stock
issuable upon exercise of the Underwriters' over-allotment option.
(2) Does not include 1,576,460 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 30, 1998, of which 357,960 were
exercisable at that date.
6
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------------- --------------------- --------------------- -----------------
1994 1995 1996 1995 1996 1996 1997 1997 1998
------- ------- ------- ----------- ------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues.................. $19,098 $33,532 $39,597 $28,023 $34,502 $45,821 $66,092 $30,184 $43,817
Operating income (loss)......... (533) 1,274 1,651 (489) 482 2,464 6,209 2,686 4,399
Net income (loss)............... (559) 1,031 1,313 46 (290) 819 3,954 1,757 2,509
Net income (loss) attributable
to common stockholders........ (559) 947 1,129 (92) (1,293) (230) 2,646 449 2,509
Pro forma net income
(loss)(1)..................... (389) 662 931 (294) 133 1,260 3,973 1,555 2,898
Net income (loss) per share:
Basic......................... $ (0.08) $ 0.12 $ 0.14 $ (0.01) $ (0.16) $ (0.03) $ 0.21 $ 0.05 $ 0.15
Diluted....................... $ (0.08) $ 0.12 $ 0.12 $ (0.01) $ (0.16) $ (0.03) $ 0.20 $ 0.05 $ 0.14
======= ======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per
share(2):
Basic......................... $ 0.01 $ 0.28 $ 0.13 $ 0.17
Diluted....................... $ 0.01 $ 0.27 $ 0.13 $ 0.17
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $10,892 $29,501
Working capital............................................. 23,406 42,015
Total assets................................................ 57,573 76,182
Long term debt.............................................. -- --
Total stockholders' equity.................................. 33,116 51,725
</TABLE>
- ---------------
(1) Prior to their acquisitions, certain businesses acquired by the Company were
taxed as S corporations. The pro forma net income (loss) reflects historical
data as adjusted for all income being taxed as if it were earned by a C
corporation.
(2) Pro forma net income (loss) per share is determined by dividing pro forma
net income (loss) by the pro forma weighted-average number of shares
outstanding during the period. Pro forma weighted-average number of shares
outstanding for all periods reported, except for the six months ended June
30, 1998, were determined assuming the conversion of the mandatorily
redeemable preferred stock and the mandatorily redeemable Class C common
stock into the Company's Common Stock as of the date it was first issued.
Common share equivalents included in the diluted calculation are computed
using the treasury stock method and consist of common stock which may be
issuable upon the exercise of outstanding stock options, when dilutive.
(3) Gives effect to the sale of 1,500,002 shares of Common Stock offered by the
Company hereby at an assumed offering price of $13.00 per share, the receipt
of proceeds from the exercise of 136,600 stock options exercised
concurrently with or immediately prior to the sale of such shares and the
application of the net proceeds therefrom, after deducting underwriting
discounts and estimated offering expenses.
7
<PAGE> 12
RISK FACTORS
The shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information in
this Prospectus before purchasing the shares of Common Stock offered hereby.
Except for the historical information contained herein, the discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this Prospectus. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include those discussed below, as well as those discussed
elsewhere herein. See "Special Note Regarding Forward-Looking Statements" on
page 57 of this Prospectus.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenues and operating results are subject to quarterly and
other fluctuations resulting from a variety of factors, including the budgeting
and purchasing practices of its customers, the length of customer evaluation
processes for the Company's solutions and the timing of customer system
conversions. 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. In addition, 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
revenues fall below expectations, net income is likely to be adversely affected.
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 -- Overview."
RISKS ASSOCIATED WITH PUBLIC SECTOR MARKET
Substantially all of the Company's revenues to date have been attributable
to sales of software and services rendered to state, county and city
governments, other municipal agencies and publicly owned utilities. The Company
expects that sales to public sector customers will continue to account for
substantially all of the Company's revenues in the future. The sales cycle
associated with the purchase of the Company's products is typically complex,
lengthy and subject to a number of significant risks, including customers'
budgetary constraints and governmental acceptance reviews over which the Company
has little or no control.
For each contract with a public sector customer, the Company is typically
subject to a protracted procurement process. The process can include a detailed
written response to the demonstrations, the design of software that addresses
customer-specified needs, the integration of Company and third party products,
political influences, award protests initiated by unsuccessful bidders and
changes in budgets or appropriations which are beyond the Company's control.
Contracts with public sector customers are typically subject to procurement
policies which may be onerous and may include profit limitations and rights of
the agency to terminate for convenience or if funds are unavailable. Some public
sector customers require liquidated damages for defective products and/or for
delays or interruptions caused by system failures. Payments under some public
sector contracts are subject to achieving implementation milestones, and the
Company has had, and may in the future have, differences with customers as to
whether milestones have been achieved.
Government organizations require compliance with various legal and other
special considerations in the procurement process. 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. See "Business -- Industry Background."
8
<PAGE> 13
MANAGEMENT OF GROWTH
As a result of both acquisitions and successful operations, 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
demands 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 and other qualified
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 or to integrate successfully operations and personnel of acquired
entities. Any failure to implement and improve the Company's operational,
financial and management systems, to integrate operations of acquired businesses
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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Employees," and "Management."
ABILITY TO RETAIN AND ATTRACT PERSONNEL
The Company's continued success will depend upon the availability and
performance 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 continued
success will depend in large part upon its ability to attract and retain such
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 "Business -- Employees" and "-- Sales and Marketing," and "Management."
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. The market for the Company's
products is characterized by rapid technological change, evolving industry
standards in computer hardware and software technology, changes in customer
requirements and frequent new product introductions and enhancements. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. As a
result, the Company's future success will depend, in part, upon its ability to
continue to enhance existing products and develop and introduce in a timely
manner or acquire new products that keep pace with technological developments,
satisfy increasingly sophisticated customer requirements and achieve market
acceptance. There can be no assurance that the Company will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner, or that products, capabilities or
technologies developed by others will not render the Company's products or
technologies obsolete or noncompetitive. If the Company is unable to develop or
acquire on a timely and cost-effective basis new software products or
enhancements to existing products, or if such new products or enhancements do
not achieve market acceptance, the Company's business, operating results and
financial condition may be materially adversely affected. See
"Business -- Overview," and "-- Product Development."
RISKS ASSOCIATED WITH ACQUISITIONS
A fundamental element of the Company's strategy is to grow through
acquisitions. As part of its growth strategy, the Company evaluates the
acquisition of other companies, assets or product lines that would complement or
expand its business in attractive geographic or service markets or that would
broaden its customer relationships. There can be no assurance that the Company
will be able to identify suitable acquisition candidates available for sale at
reasonable prices, consummate any acquisition or successfully
9
<PAGE> 14
integrate any acquired business into the Company's operations. The success of
any completed acquisition will depend in large measure on the Company's ability
to integrate the operations of the acquired business with those of the Company
and otherwise to maintain and improve the results of operations of the acquired
business. Acquisitions may involve a number of special risks, including
diversion of management's attention, failure to retain key acquired personnel,
unanticipated events or circumstances, legal liabilities and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Although the Company conducts due diligence reviews of potential acquisition
candidates, the Company may not identify all material liabilities or risks
related to acquisition candidates.
The Company may elect to finance acquisitions with the proceeds of the
Offering, as well as with possible debt financing or through the issuance of
equity securities, or any combination of the foregoing. There can be no
assurance that the Company will be able to arrange adequate financing on
acceptable terms. If the Company were to consummate one or more significant
acquisitions in which the consideration consisted of stock, shareholders of the
Company could suffer dilution of their interests in the Company. Most of the
businesses that might become attractive acquisition candidates for the Company
are likely to have significant intangible assets, and acquisition of these
businesses, if accounted for as a purchase, would typically result in
substantial amortization charges to the Company, which would reduce future
earnings. In addition, such acquisitions could involve non-recurring
acquisition-related charges, such as write-offs or write-downs of acquired
research and development costs, which could have a material adverse effect on
the Company's results of operations for the accounting period in which such
charges are incurred. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview," and "Business -- Strategy."
COMPETITION
The Company believes it is a leading provider of integrated enterprise-wide
solutions for the public sector and utility markets. However, 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 IT
staffs.
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. The Company competes from time to time with (i) the consulting divisions
of national and regional accounting firms; (ii) companies which focus on
selected segments of the public sector and utilities markets including
PeopleSoft, Inc., Systems & Computer Technology Corp. and J.D. Edwards &
Company, Inc.; and (iii) a significant number of smaller private companies.
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. 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. 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. 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 -- Overview" and
"-- Competition."
DEPENDENCE ON KEY SUPPLIERS AND STRATEGIC 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
10
<PAGE> 15
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 its 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 could have an adverse effect on the Company's financial
performance. The Company may need to establish additional alliances and
relationships in order to keep pace with changes in technology and there can be
no assurance such additional alliances will be established.
The Company relies primarily on distribution channels for sales of its
recently acquired line of field-based reporting software products. The Company
has established strategic marketing alliances with several large vendors for
these products. Other businesses that the Company may acquire in the future may
also sell their products primarily through similar marketing alliances or other
collaborative relationships. The maintenance of those alliances and the
establishment of additional alliances may be necessary for increased market
penetration for such products. Certain of the Company's competitors may have
already established such alliances with desired vendors who, as a result, may
have limited interests in creating alliances with the Company. There can be no
assurance that the Company will be able to negotiate any additional strategic
relationships, that such additional relationships will be available to the
Company on acceptable terms or that any such relationships, if established, will
be commercially successful. Failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
RISKS OF SOFTWARE DEFECTS AND PRODUCT LIABILITY
Software products as 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 material 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.
The Company markets 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
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. See "Business -- Product Development."
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 owns no patents and, under existing copyright
laws, has only limited protection for its intellectual property. 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.
11
<PAGE> 16
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. Although the Company
currently provides object code to its customers and not source code, the Company
historically provided source code to its customers for several products. The
Company has escrowed and continues to escrow its source code for the benefit of
all customers. A misappropriation or other misuse of the Company's intellectual
property, including source codes previously delivered to customers, could have
an adverse effect on the Company. Further, there can be no assurance that third
parties will not assert infringement or misappropriation claims against the
Company in the future with respect to current or future products. Any claims or
litigation, with or without merit, could be time-consuming, result in costly
litigation, diversion of management's attention and cause product shipment
delays or require the Company to enter into royalty or licensing arrangements.
Such royalty or licensing arrangements, if required, may not be available on
terms acceptable to the Company, if at all. Litigation to defend and enforce the
Company's intellectual property rights could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business, financial condition and results of operations, regardless of the final
outcome of such litigation. The Company may be subject to additional risks as it
enters into transactions in countries where intellectual property laws are not
well developed or are poorly enforced. Legal protections of the Company's rights
may be ineffective in such countries. See "Business -- Intellectual Property,
Proprietary Rights and Licenses."
YEAR 2000 COMPLIANCE
Many installed computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, in less than two years, computer systems and/or software
used by many organizations may need to be upgraded to comply with such "Year
2000" requirements. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. The Company
does not believe that it has material exposure to the Year 2000 issue with
respect to its own information systems. The Company believes that the current
versions of its products are Year 2000 compliant. The Company regularly runs
regression tests on its software, including tests of the Year 2000 rollover.
Based on the above, it is not expected that the Company's products will be
adversely affected by date changes in the year 2000. However, there can be no
assurance that the Company's products contain and will contain all features and
functionality considered necessary by customers, distributors, resellers and
systems integrators to be Year 2000 compliant. Notwithstanding that the Company
regularly provides free software upgrades to its customers and that recent
upgrades are Year 2000 compliant, certain customers of the Company may still be
running earlier, noncompliant versions of the Company's products. The Company is
in the process of informing customers of the need to migrate to current products
that management believes are Year 2000 compliant. Although the Company believes
that the information systems of its major vendors (insofar as they relate to the
Company's business) comply with Year 2000 requirements, there can be no
assurance that the Year 2000 issue will not affect the information systems of
the Company's major vendors as they relate to the Company's business, or that
any such impact of a major vendor's information system would not have a material
adverse effect on the Company. The Company has no contingency plan as such,
however the Company believes it should be able to identify alternative vendors
if the need arises. The Company anticipates that generally throughout the
software industry substantial litigation may be brought against software vendors
of non-compliant operating environments. Any such claims against the Company,
with or without merit, could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
The Company has sold products to customers in Canada, the Caribbean, and
the United Kingdom. Management expects to augment its presence in international
markets. Accordingly, the Company's business, and its ability to expand its
operations internationally, is subject to the risks inherent in international
business
12
<PAGE> 17
activities, including, in particular, greater difficulty in safeguarding its
intellectual property, general economic and political conditions in each
country, foreign currency exchange rate fluctuations, overlap of different tax
structures, difficulty in staffing and managing an organization spread over
various countries (should the Company elect to establish a presence in
international markets rather than through independent sales representatives),
unexpected changes in regulatory requirements, compliance with a variety of
foreign laws and regulations, and longer accounts receivable payment cycles in
certain countries. Other risks associated with international operations include
import and export licensing requirements, trade restrictions and changes in
tariff rates. Any of the foregoing factors could have a material adverse effect
on the Company's ability to expand its international sales. In addition, the
Company must translate its software into foreign languages. To the extent that
the Company is unable to accomplish such translations in a timely manner, the
Company's ability to further penetrate international markets would be adversely
affected. The deeper exposure to international markets creates new areas with
which the Company is not familiar and places the Company in competition with new
vendors. There is no assurance the Company will be successful in its efforts to
compete in these international markets.
If the Company significantly expands its international business, it
anticipates that it will hedge exchange rate movements on either side of a
locked-in spot rate for movements within certain ranges on dollar-foreign
currency rates. Changes in the value of foreign currencies relative to the
dollar beyond the ranges hedged by the Company could affect its financial
condition and results of operations, and gains and losses on currency
translations could contribute to fluctuations in the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Common Stock may be 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.
CONTROL BY OFFICERS AND DIRECTORS
After the Offering, the present Directors and executive officers of the
Company and their affiliates will beneficially own approximately 33.4% of the
outstanding Common Stock. As a result, these shareholders would likely be able
to effectively control most 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 "Management" and "Principal and Selling
Shareholders."
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
Substantially all of the net proceeds to be received by the Company in
connection with the Offering will be allocated to working capital and be made
available for general corporate purposes and future acquisitions. Accordingly,
management will have broad discretion with respect to the expenditure of such
proceeds. Purchasers of shares of Common Stock offered hereby will be entrusting
their funds to the Company's management, upon whose judgment they must depend,
with limited information concerning the specific
13
<PAGE> 18
working capital requirements and general corporate purposes to which the funds
will ultimately be applied. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 18,512,856 shares
of Common Stock outstanding, substantially all of which will be freely tradeable
without restriction or further registration under the Securities Act other than
shares held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. The Company, together with its executive officers and
directors, who in the aggregate will own or have the right to acquire 6,186,735
shares of Common Stock upon completion of the Offering, have agreed that they
will not directly or indirectly offer, sell or otherwise dispose of any shares
of Common Stock, or other securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock without the prior written consent
of the Underwriters for a period of 90 days from the date of this Prospectus,
with the exception that the Company may issue shares of Common Stock in
connection with acquisitions that may be made in the future or pursuant to the
exercise of stock options. From time to time the Company may issue shares of
Common Stock to finance acquisitions and in respect thereof, may be required to
register the sale of such shares under the Securities Act. In such event, such
shares would be freely tradeable upon the effectiveness of any such registration
unless subject to other restrictions. Sales of a substantial number of shares of
Common Stock in the public market following this Offering, or the perception
that such sales might occur after the applicable restrictions thereupon lapse,
could have a material adverse effect on the market price of the Common Stock.
ABSENCE OF CASH DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past.
The Company presently intends to retain earnings for its business and does not
anticipate paying any cash dividends in the foreseeable future. See "Dividend
Policy."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER 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 its best
interest. The Company is subject to the "affiliated transactions" and "control
share acquisition" provisions of the Florida Business Corporation Act. These
provisions require, subject to certain exceptions, that an "affiliated
transaction" be approved by the holders of two-thirds of the voting shares other
than those beneficially owned by an "interested shareholder" or by a majority of
disinterested directors. 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. See "Management."
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<PAGE> 19
USE OF PROCEEDS
The net proceeds from the sale of the 1,500,002 shares offered by the
Company hereby (at an assumed offering price of $13.00 per share and after
deducting the underwriting discount and estimated offering expenses payable by
the Company) are estimated to be approximately $18.0 million. The Company will
not receive any proceeds from the sale of Common Stock by Selling Shareholders.
See "Principal and Selling Shareholders." The Company intends to use net
proceeds from the sale of the shares offered by it for general corporate
purposes, working capital and potential acquisitions. The Company is not a party
to any definitive acquisition agreement. Pending the application of the net
proceeds of the Offering as described above, the Company will invest the
proceeds in short-term, investment grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"HTEI." The following table sets forth, for the quarterly periods indicated, the
high and low sales prices of the Common Stock, as reported on the Nasdaq
National Market. The Common Stock was not publicly traded prior to June 11, 1997
and, therefore, there are no data prior to June 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 1997
Second Quarter.............................................. $ 5.56 $ 5.13
Third Quarter............................................... 7.88 5.25
Fourth Quarter.............................................. 10.38 7.31
FISCAL YEAR ENDING DECEMBER 1998
First Quarter............................................... 11.31 8.75
Second Quarter.............................................. 17.88 11.00
Third Quarter (through September 15, 1998).................. 17.63 8.31
</TABLE>
Such market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The transfer agent for the Common Stock is Continental Stock Transfer and Trust
Company.
On September 15, 1998, the last sale price of the Common Stock as reported
on the Nasdaq National Market was $13.00 per share. As of June 30, 1998, there
were 169 holders of record of the Common Stock. The Company estimates that
approximately 1,260 additional shareholders own Common Stock held for their
accounts at brokerage firms and financial institutions.
DIVIDEND POLICY
HTE has not paid cash dividends on its Common Stock in the past and does
not intend to pay cash dividends in the forseeable future. HTE presently intends
to retain earnings for use in its business with any future decision to pay cash
dividends dependent on its growth, profitability, financial condition and other
factors the Board of Directors may deem relevant.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998, on an actual basis, and as adjusted to reflect the issuance and sale
by the Company of 1,500,002 shares of Common Stock at an assumed offering price
of $13.00 per share, the receipt of proceeds from the exercise of 136,600 stock
options exercised concurrently with or immediately prior to the sale of such
shares and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Common stock, $0.01 per value, 50,000,000 shares
authorized, 16,819,458 shares issued and outstanding,
actual; 18,456,060 shares issued and outstanding, as
adjusted(1)(2)......................................... $ 168 $ 184
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; none issued and outstanding................ -- --
Additional paid-in capital................................ 28,309 46,902
Retained earnings......................................... 4,672 4,672
Cumulative translation adjustments........................ (33) (33)
------- -------
Total capitalization.............................. $33,116 $51,725
======= =======
</TABLE>
- ---------------
(1) Includes 136,600 shares of Common Stock currently issuable upon exercise of
outstanding stock options held by certain Selling Shareholders, which
options will be exercised concurrently with or immediately prior to the sale
of such shares.
(2) Does not include 1,576,460 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 30, 1998, of which 357,960 were
exercisable at that date. See Note 8 of Notes to Consolidated Financial
Statements.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company as of and
for the year ended March 31, 1994, for the nine months ended December 31, 1995,
for the year ended December 31, 1996, for the six months ended June 30, 1997,
and as of and for the six months ended June 30, 1998, 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 during the year ended March 31, 1996), 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 March 31,
1995 and 1996, and for the year ended March 31, 1995, have been derived from
consolidated financial statements audited by Arthur Andersen LLP. The selected
consolidated financial data of the Company as of December 31, 1996 and 1997, and
for the years ended March 31, 1996 and December 31, 1997, and the nine months
ended December 31, 1996, have been derived from and are qualified by reference
to the Company's Consolidated Financial Statements audited by Arthur Andersen
LLP, independent certified public accountants, included elsewhere herein. The
selected consolidated financial data set forth below 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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------------- ----------------- ----------------- -----------------
1994 1995 1996 1995 1996 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software licenses........... $ 6,397 $10,498 $11,575 $ 6,791 $10,869 $15,847 $26,762 $12,049 $19,801
Professional services....... 6,372 8,390 10,686 7,376 8,943 11,715 14,543 7,498 9,454
Hardware.................... 2,731 6,802 7,323 5,836 7,740 9,219 11,768 4,640 5,477
Maintenance and other....... 3,598 7,842 10,013 8,020 6,950 9,040 12,571 5,997 8,362
Resource management......... -- -- -- -- -- -- 448 -- 723
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 19,098 33,532 39,597 28,023 34,502 45,821 66,092 30,184 43,817
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Cost of software licenses... 1,385 1,433 3,585 2,794 2,919 3,742 5,283 2,207 3,016
Cost of professional
services.................. 4,639 6,144 7,608 5,629 4,952 6,728 8,363 4,159 5,546
Cost of hardware............ 2,003 6,240 5,774 4,656 6,186 7,308 9,209 3,570 4,378
Cost of maintenance and
other..................... 2,093 5,092 4,233 3,168 2,705 3,598 5,984 2,877 4,400
Cost of resource
management................ -- -- -- -- -- -- 343 -- 467
Research and development.... 2,087 3,174 4,508 3,310 5,242 6,537 8,256 4,064 6,226
Sales and marketing......... 2,845 4,610 5,474 3,949 6,186 7,742 11,520 5,133 8,322
General and
administrative............ 4,579 5,565 6,764 5,006 5,830 7,702 10,925 5,488 7,063
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 19,631 32,258 37,946 28,512 34,020 43,357 59,883 27,498 39,418
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... (533) 1,274 1,651 (489) 482 2,464 6,209 2,686 4,399
Interest expense (income)..... 135 104 127 70 191 248 (227) 126 (255)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (668) 1,170 1,524 (559) 291 2,216 6,436 2,560 4,654
Provision (benefit) for income
taxes....................... (109) 139 211 (605) 581 1,397 2,482 803 2,145
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)..... (559) 1,031 1,313 46 (290) 819 3,954 1,757 2,509
Accretion and accrual of
dividends on mandatorily
redeemable preferred
stock....................... -- 84 184 138 1,003 1,049 1,308 1,308 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)
attributable to
common
stockholders........ $ (559) $ 947 $ 1,129 $ (92) $(1,293) $ (230) $ 2,646 $ 449 $ 2,509
======= ======= ======= ======= ======= ======= ======= ======= =======
PRO FORMA OPERATIONS DATA:
Income (loss) before income
taxes....................... $ (668) $ 1,170 $ 1,524 $ (559) $ 291 $ 2,216 $ 6,436 $ 2,560 $ 4,654
Pro forma provision (benefit)
for income taxes............ (279) 508 593 (265) 158 956 2,463 1,005 1,756
------- ------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income (loss)
(1)......................... $ (389) $ 662 $ 931 $ (294) $ 133 $ 1,260 $ 3,973 $ 1,555 $ 2,898
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, JUNE 30,
---------------------- ------------------ --------------- ----------------
1994 1995 1996 1995 1996 1996 1997 1997 1998
------ ----- ----- ------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) per share:
Basic................................... $(0.08) $0.12 $0.14 $(0.01) $(0.16) $(0.03) $0.21 $0.05 $0.15
Diluted................................. $(0.08) $0.12 $0.12 $(0.01) $(0.16) $(0.03) $0.20 $0.05 $0.14
Pro forma net income (loss) per share (2):
Basic................................... $ 0.01 $0.28 $0.13 $0.17
Diluted................................. $ 0.01 $0.27 $0.13 $0.17
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------------- ----------------- JUNE 30,
1994 1995 1996 1996 1997 1998
------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 902 $ 1,738 $ 1,143 $ 1,038 $18,634 $10,892
Working capital (deficit)................................... (2,516) (307) 782 387 24,387 23,406
Total assets................................................ 9,786 16,084 21,514 27,415 54,208 57,573
Long term debt.............................................. 150 75 -- 240 -- --
Total stockholders' equity (deficit)................ (206) 75 1,166 (175) 30,292 33,116
</TABLE>
- ---------------
(1) Prior to their acquisitions, certain businesses acquired by the Company were
taxed as S corporations. The pro forma net income (loss) reflects historical
data as adjusted for all income being taxed as if it were earned by a C
corporation.
(2) Pro forma net income (loss) per share is determined by dividing pro forma
net income (loss) by the pro forma weighted-average number of shares
outstanding during the period. Pro forma weighted-average number of shares
outstanding for all periods reported except for the six months ended June
30, 1998, were determined assuming the conversion of the mandatorily
redeemable preferred stock and the mandatorily redeemable Class C common
stock into the Company's Common Stock as of the date it was first issued.
Common share equivalents included in the diluted calculation are computed
using the treasury stock method and consist of Common Stock which may be
issuable upon the exercise of outstanding stock options, when dilutive.
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this Prospectus.
This description contains certain forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ significantly from
the results discussed in the forward-looking statements as a result of certain
of the factors set forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company develops, markets, implements and supports fully integrated
enterprise-wide software applications designed specifically for public sector
organizations, including state, county and city governments and other municipal
agencies and for public and private utilities. For over 16 years, the Company
has strategically focused on providing software applications exclusively to
middle market public sector organizations and utilities, and has established
itself as a leading provider of software solutions to those markets. HTE's fully
integrated enterprise-wide software applications are designed to fulfill the
specific functional requirements of the public sector marketplace, such as
improvement of delivery of services, reduction of costs, enhancement of revenue
collection, operation within budgetary constraints, compliance with government
regulations and improvement of overall operating efficiencies. The Company's
Total Enterprise Solution currently includes more than 50 applications
addressing five functional areas: financial management, community services,
public safety and justice, education 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. As part of
its strategy to provide a completely integrated solution to its customers, the
Company also provides a variety of related services, including consulting,
implementation, education and training, and the provision and configuration of
hardware systems.
The Company provides its software applications and business solutions to
customers in public sector and utility markets under license agreements and
service contracts. HTE's revenues are generated principally from (i) software
licenses that grant customers the right to use the Company's software products,
(ii) professional services derived from a variety of services related to the
implementation of the Company's software, including project management, custom
programming, consulting, conversion and education programs, systems planning and
integration and other services, (iii) sales of hardware such as computers, data
collection equipment, peripherals and related network and communications
products purchased from third-parties and sold by the Company to its software
customers, (iv) maintenance and other revenues which include revenues associated
with annual software maintenance and support services, and (v) resource
management revenues derived from IT outsourcing services designed to assume
total or partial control and responsibility of customers' information resources,
generally on a long-term basis.
The Company recognizes revenues 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 time and materials basis
and such revenues are recognized as services are performed. Hardware revenues
are recognized at the time the products are shipped. The Company drop-ships
hardware directly to the customer and does not carry hardware inventory.
Revenues from maintenance and other are recognized ratably over the term of the
applicable maintenance agreement. Resource management revenues are recognized
monthly as services are performed, according to the contractually agreed upon
rate.
The sales cycle for the Company's systems is typically six to 18 months
from initial contact to contract signing. The product delivery cycle varies
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.
19
<PAGE> 24
Accordingly, the product delivery cycle depends upon the combination of products
purchased and the defined implementation plan.
The Company accounts for costs related to computer software in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." All costs
incurred to establish technological feasibility of a software product are
charged to research and development expense as incurred. Technological
feasibility 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 over three years once
the product is available for general release to customers. The Company ceases
capitalization when the product is available for general release to customers.
Effective April 1, 1995, management changed the estimated useful life of
capitalized 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 license
revenues from 19.7% to 31.0% for the year ended March 31, 1996.
The Company derives substantially all of its revenues from domestic
operations. In November 1996, HTE established a presence in Canada through an
acquisition.
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 the 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. In 1996, the Company implemented a new sales and
marketing program and changed its fiscal year end to December 31, which the
Company believes will have the effect of moderating such fluctuations. Because
of these changes, the Company believes that historical quarterly operating data
should not be relied upon as an indicator of its 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
its future performance.
Recent Acquisitions
In December 1997, the Company purchased the assets of Kb for $400,000 in
cash and the payment of a continuing royalty on license fees over a five-year
period. For its fiscal year ended June 30, 1997, Kb had revenues of
approximately $1.4 million. As of the date of the acquisition, Kb had
approximately 150 customers. The Kb software applications have enabled the
Company to expand its penetration into governmental tax departments by adding
property appraisal and assessment applications to its traditional tax billing
and collection capability.
In January 1998, the Company purchased the assets of JALAN for
approximately $1.7 million in cash. For its fiscal year ended September 30,
1997, JALAN had revenues of approximately $2.5 million. As of the date of the
acquisition, JALAN had 18 employees and approximately 120 customers in 32
states. The JALAN software applications track inmate information for jails, case
status for courts, defendant case information for district attorneys' and public
defenders' offices, civil papers for sheriff departments, case information for
the probation system and claims for victim compensation.
In April 1998, the Company completed a pooling of interests acquisition of
Phoenix for 272,036 shares of Common Stock valued at $3.0 million on or about
the closing date. As of the date of the acquisition, Phoenix had 22 employees
and approximately 70 customers. The Phoenix software applications encompass a
complete
20
<PAGE> 25
suite of integrated Windows NT software products targeted towards financial
management and student administration for school districts (grades K through
12).
In June 1998, the Company completed a pooling of interests acquisition of
UCS for 1,120,000 shares of Common Stock valued at $15.0 million as of the April
1998 agreement valuation date. For its fiscal year ended December 31, 1997, UCS
had revenues of approximately $10.0 million. As of the date of the acquisition
UCS had approximately 130 employees in its Ft. Lauderdale, Florida, Golden,
Colorado and Vienna, Virginia offices and more than 200 customers throughout the
United States. UCS is a leading mobile work force automation provider of
field-based reporting software. UCS's products and services are utilized by
federal, state, county and city government agencies, as well as police and fire
departments. UCS mobile data software enables law enforcement officials to
utilize HTE software through the entire criminal justice process -- from the
first point of contact with a suspect in the field through the judicial system
and throughout the incarceration period.
In August 1998, the Company purchased the assets of Vanguard for $400,000
in cash and the payment of continuing royalties over a five-year period.
Vanguard provided professional management services and software applications to
trial courts and other judicial agencies. The Company expects the acquisition to
expand its justice system product line, enhance its UNIX client/server
offerings, and permit it to respond to proposals for large scale court
administration systems.
Future Acquisitions
Over the past five years, the Company has supplemented its internal growth
with ten acquisitions, five of which have occurred since June 1997. The Company
intends to continue its growth strategy and expects growth from acquisitions to
complement internally generated growth. The Company views acquisitions as a
means of acquiring technology and industry expertise thereby expanding the
variety of enterprise-wide software applications the Company offers for sale and
servicing, 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 help it to accomplish its objective of becoming
the leading provider of enterprise-wide IT solutions to the public sector.
21
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
revenues, income and expense items expressed as a percentage of the Company's
total revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------- ----------------------- ------------------- -------------------
1995 1996 1995 1996 1996 1997 1997 1998
--------- --------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses................. 31.3% 29.2% 24.2% 31.5% 34.6% 40.5% 39.9% 45.2%
Professional services............. 25.0 27.0 26.3 25.9 25.6 22.0 24.8 21.6
Hardware.......................... 20.3 18.5 20.9 22.4 20.1 17.8 15.4 12.5
Maintenance and other............. 23.4 25.3 28.6 20.2 19.7 19.0 19.9 19.1
Resource management............... -- -- -- -- -- 0.7 -- 1.6
----- ----- ----- ----- ----- ----- ----- -----
Total revenues.............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Cost of software licenses......... 4.3 9.1 10.0 8.5 8.2 8.0 7.3 6.9
Cost of professional services..... 18.3 19.2 20.1 14.4 14.7 12.7 13.8 12.7
Cost of hardware.................. 18.6 14.6 16.6 17.9 15.9 13.9 11.8 10.0
Cost of maintenance and other..... 15.2 10.7 11.3 7.8 7.9 9.1 9.5 10.0
Cost of resource management....... -- -- -- -- -- 0.5 -- 1.1
Research and development.......... 9.5 11.4 11.8 15.2 14.3 12.5 13.5 14.2
Sales and marketing............... 13.7 13.8 14.1 17.9 16.9 17.4 17.0 19.0
General and administrative........ 16.6 17.1 17.9 16.9 16.8 16.5 18.2 16.1
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses.... 96.2 95.9 101.8 98.6 94.7 90.6 91.1 90.0
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss)............. 3.8 4.1 (1.8) 1.4 5.3 9.4 8.9 10.0
Interest expense (income)........... 0.3 0.3 0.2 0.5 0.5 (0.3) 0.4 (0.6)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes... 3.5 3.8 (2.0) 0.9 4.8 9.7 8.5 10.6
Provision (benefit) for income
taxes............................. 0.4 0.5 (2.2) 1.7 3.0 3.7 2.7 4.9
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)........... 3.1% 3.3% 0.2% (0.8)% 1.8% 6.0% 5.8% 5.7%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues
The Company's total revenues increased by 45% to $43.8 million for the six
months ended June 30, 1998, from $30.2 million for the six months ended June 30,
1997.
Software Licenses Revenues. Software licenses revenues increased by 64% to
$19.8 million for the six months ended June 30, 1998, from $12.0 million for the
six months ended June 30, 1997. As a percentage of total revenues, software
license revenues increased to 45.2% for the six months ended June 30, 1998, from
39.9% for the six months ended June 30, 1997. The dollar and percentage
increases resulted primarily from an increased number of software applications
available for sale and a continued investment in sales and marketing activities.
Professional Services Revenues. Professional services revenues increased
by 26% to $9.5 million for the six months ended June 30, 1998, from $7.5 million
for the six months ended June 30, 1997. As a percentage of total revenues,
professional services revenues decreased to 21.6% for the six months ended June
30, 1998, from 24.8% for the six months ended June 30, 1997. The dollar increase
in professional services was directly related to the increase in license fees
and service offerings. The decrease in professional services revenues as a
percentage of total revenues was primarily due to an increase in the sale of
products requiring less implementation services, along with an increased backlog
of services revenues associated with license fee bookings in the period.
Hardware Revenues. Hardware revenues increased by 18% to $5.5 million for
the six months ended June 30, 1998, from $4.6 million for the six months ended
June 30, 1997. As a percentage of total revenues, hardware revenues decreased to
12.5% for the six months ended June 30, 1998, from 15.4% for the six months
ended June 30, 1997. The dollar increase was primarily due to the increased
number of license fee contracts executed that required the installation of
hardware. The decrease in hardware revenues as a percentage of total
22
<PAGE> 27
revenues was primarily due to a larger number of sales of software licenses to
customers who did not require additional hardware.
Maintenance and Other Revenues. Maintenance and other revenues increased
by 39% to $8.4 million for the six months ended June 30, 1998, from $6.0 million
for the six months ended June 30, 1997. As a percentage of total revenues,
maintenance and other revenues decreased to 19.1% for the six months ended June
30, 1998, from 19.9% for the six months ended June 30, 1997. The dollar increase
was primarily due to maintenance contracts associated with new software
licenses, customer system upgrades and price increases in the fees charged for
annual maintenance. The decrease in maintenance and other revenues as a
percentage of total revenues was primarily due to the lag time between the sale
and booking of software licenses and the commencement of annual maintenance
contracts.
Resource Management Revenues. Resource management revenues were $723,000
or 1.6% of total revenues for the six months ended June 30, 1998. There were no
comparable revenues for the six months ended June 30, 1997 as this division
began operations in the fourth quarter of 1997.
Cost of Revenues
Cost of Software Licenses Revenues. Cost of software licenses includes
third party royalties and amortization of computer software development costs.
Cost of software licenses increased by 37% to $3.0 million for the six months
ended June 30, 1998, from $2.2 million for the six months ended June 30, 1997.
As a percentage of software license revenues, cost of software licenses
decreased to 15.2% for the six months ended June 30, 1998, from 18.3% for the
six months ended June 30, 1997. The dollar increase resulted primarily from an
increased number of third party software licenses sold, specifically module
enhancements such as report writers and imaging products. The decrease in the
cost of software licenses as a percentage of software license revenues was
primarily due to the growth of internal software licenses which exceeded the
growth of third party software licenses.
Cost of Professional Services Revenues. Cost of professional services
consists primarily of personnel costs and other costs related to the services
business. Cost of professional services increased by 33% to $5.5 million for the
six months ended June 30, 1998, from $4.2 million for the six months ended June
30, 1997. As a percentage of professional services revenues, cost of
professional services increased to 58.7% for the six months ended June 30, 1998,
from 55.5% for the six months ended June 30, 1997. The dollar increase was
directly related to increased professional services revenues. The increase in
cost of professional services as a percentage of professional services revenues
was primarily due to lower utilization rates resulting from an increased number
of non-billable consultants in training.
Cost of Hardware Revenues. Cost of hardware consists primarily of costs
payable to vendors for hardware. Cost of hardware increased by 23% to $4.4
million for the six months ended June 30, 1998, from $3.6 million for the six
months ended June 30, 1997. As a percentage of hardware revenues, cost of
hardware increased to 79.9% for the six months ended June 30, 1998, from 76.9%
for the six months ended June 30, 1997. The dollar increase was related to the
increased hardware sales in the period. The increase in the cost of hardware as
a percentage of hardware revenues was primarily due to the higher number of and
smaller size of new contracts signed.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
consists primarily of seven days a week, 24 hours a day telephone support,
documentation and related administrative and personnel expenses. Cost of
maintenance and other increased by 53% to $4.4 million for the six months ended
June 30, 1998, from $2.9 million for the six months ended June 30, 1997. As a
percentage of maintenance and other revenues, cost of maintenance and other
increased to 52.6% for the six months ended June 30, 1998, from 48.0% for the
six months ended June 30, 1997. The dollar and percentage increases were
primarily due to investment in a new customer interaction software system and
increased personnel to enhance products and support a larger client base.
Cost of Resource Management Revenues. Cost of resource management consists
primarily of personnel, hardware and administrative costs associated with
managing data processing operations. Cost of resource management was $467,000
for the six months ended June 30, 1998. As a percentage of resource management
revenues, costs of resource management was 64.6% for the six months ended June
30, 1998. There were no
23
<PAGE> 28
comparable costs for the six months ended June 30, 1997, as this division began
operations in the fourth quarter of 1997.
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
increased by 53% to $6.2 million for the six months ended June 30, 1998, from
$4.1 million for the six months ended June 30, 1997. As a percentage of total
revenues, research and development increased to 14.2% for the six months ended
June 30, 1998, from 13.5% for the six months ended June 30, 1997. The dollar and
percentage increases were primarily due to increased staffing levels and
expenses for additional software and hardware required for the development of
additional products and platforms as well as maintenance and enhancements of
existing products.
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 increased by 62% to $8.3 million for the six months ended
June 30, 1998, from $5.1 million for the six months ended June 30, 1997. As a
percentage of total revenues, sales and marketing increased to 19.0% for the six
months ended June 30, 1998, from 17.0% for the six months ended June 30, 1997.
The dollar and percentage increases were 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 increased by 29% to $7.1 million for the six months
ended June 30, 1998, from $5.5 million for the six months ended June 30, 1997.
As a percentage of total revenues, general and administrative expenses decreased
to 16.1% for the six months ended June 30, 1998, from 18.2% for the six months
ended June 30, 1997. The dollar increase was due to additional staffing,
additional facility related expenses and additional computer equipment and
software required to build the infrastructure to support the Company's growth.
The decrease in general and administrative expenses as a percentage of total
revenues was primarily due to leveraging of existing resources. In the period
ended June 30, 1998, the Company recorded a non-recurring charge of $237,000
related to the acquisitions of Phoenix and UCS. In the period ended June 30,
1997, the Company incurred non-recurring expenses of $300,000 related to the
relocation and closing of certain offices.
Provision for Income Taxes. The Company's income taxes have been recorded
on a quarterly basis based on the Company's anticipated annual tax rate.
However, during the six months ended June 30, 1998, the Company recorded a
non-recurring deferred income tax charge of $339,000 in connection with the
acquisitions of UCS and Phoenix. This provision recorded the deferred tax
liabilities of UCS and Phoenix due to changes in tax status on the acquisition
dates for federal income tax reporting purposes.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues
The Company's total revenues increased by 44% to $66.1 million for the year
ended December 31, 1997, from $45.8 million for the year ended December 31,
1996.
Software Licenses Revenues. Software licenses revenues increased by 69% to
$26.8 million for the year ended December 31, 1997, from $15.8 million for the
year ended December 31, 1996. As a percentage of total revenues, software
license revenues increased to 40.5% for the year ended December 31, 1997, from
34.6% for the year ended December 31, 1996. The dollar and percentage increases
resulted from an increased number of applications available for sale and an
increased investment in sales and marketing.
Professional Services Revenues. Professional services revenues increased
by 24% to $14.5 million for the year ended December 31, 1997, from $11.7 million
for the year ended December 31, 1996. As a percentage of total revenues,
professional services revenues decreased to 22.0% for the year ended December
31, 1997, from 25.6% for the year ended December 31, 1996. The dollar increase
was primarily due to the Company's
24
<PAGE> 29
increased number of services offered. The decrease in professional services
revenues as a percentage of total revenues was primarily due to strong growth in
revenues from software licenses, along with an increase in related professional
services backlog.
Hardware Revenues. Hardware revenues increased by 28% to $11.8 million for
the year ended December 31, 1997, from $9.2 million for the year ended December
31, 1996. As a percentage of total revenues, hardware revenues decreased to
17.8% for the year ended December 31, 1997, from 20.1% for the year ended
December 31, 1996. The dollar increase resulted from the Company's expansion of
its third-party re-marketing sales through IBM. The decrease in hardware
revenues as a percentage of total revenues was primarily due to stronger growth
in software license revenues.
Maintenance and Other Revenues. Maintenance and other revenues increased
by 39% to $12.6 million for the year ended December 31, 1997, from $9.0 million
for the year ended December 31, 1996. As a percentage of total revenues,
maintenance and other revenues decreased to 19.0% for the year ended December
31, 1997, from 19.7% for the year ended December 31, 1996. The dollar increase
resulted from maintenance contracts associated with new software licenses,
customer system upgrades and price increases in the fees charged for annual
maintenance. The decrease in maintenance and other revenues as a percentage of
total revenues was primarily due to stronger growth in software license
revenues.
Resource Management Revenues. During 1997, the Company began offering the
resource management service that allows customers to turn over management of all
computer related functions. In October 1997, the Company signed its first
resource management contract with Seminole County, Florida. Resource management
revenues for the year ended December 31, 1997 were $448,000 or 0.7% of total
revenues.
Cost of Revenues
Cost of Software Licenses Revenues. Cost of software licenses increased by
41% to $5.3 million for the year ended December 31, 1997, from $3.7 million for
the year ended December 31, 1996. As a percentage of software license revenues,
cost of software licenses decreased to 19.7% for the year ended December 31,
1997, from 23.6% for the year ended December 31, 1996. The dollar increase
resulted from an increased number of software licenses. The decrease in the cost
of software licenses as a percentage of software license revenues was primarily
due to the growth of internal software licenses which exceeded the growth of
third party software licenses.
Cost of Professional Services Revenues. Cost of professional services
increased by 24% to $8.4 million for the year ended December 31, 1997, from $6.7
million for the year ended December 31, 1996. As a percentage of professional
services revenues, cost of professional services increased to 57.5% for the year
ended December 31, 1997, from 57.4% for the year ended December 31, 1996. The
dollar increase resulted from the growth in professional services revenues.
Cost of Hardware Revenues. Cost of hardware increased by 26% to $9.2
million for the year ended December 31, 1997, from $7.3 million for the year
ended December 31, 1996. As a percentage of hardware revenues, cost of hardware
decreased to 78.3% for the year ended December 31, 1997, from 79.3% for the year
ended December 31, 1996. The dollar increase is directly related to the
increased hardware sales. The decrease in the cost of hardware revenues as a
percentage of hardware revenues was primarily due to slightly improved margins
on the larger hardware transactions.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
increased by 66% to $6.0 million for the year ended December 31, 1997, from $3.6
million for the year ended December 31, 1996. As a percentage of maintenance and
other revenues, cost of maintenance and other increased to 47.6% for the year
ended December 31, 1997, from 39.8% for the year ended December 31, 1996. The
dollar increase was primarily due to investment in new customer support
processes, increased personnel to enhance products and additional computer
equipment required to handle graphical user interfaces. The increase in the cost
of maintenance and other revenues as a percentage of maintenance and other
revenues was primarily due to costs related to building infrastructure to
accommodate the growth in client base.
25
<PAGE> 30
Cost of Resource Management Revenues. Cost of resource management was
$343,000 for the year ended December 31, 1997. As a percentage of resource
management revenues, cost of resource management was 76.6% for the year ended
December 31, 1997. There were no comparable costs for the year ended December
31, 1996, as this division began operations in the fourth quarter of 1997.
Research and Development Expenses. Research and development expenses
increased by 26% to $8.3 million for the year ended December 31, 1997, from $6.5
million for the year ended December 31, 1996. As a percentage of total revenues,
research and development expenses decreased to 12.5% for the year ended December
31, 1997, from 14.3% for the year ended December 31, 1996. The dollar increase
was primarily 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. The decrease in research and development
expenses as a percentage of total revenues was primarily due to revenues growing
at a faster rate than research and development expenditures.
Sales and Marketing Expenses. Sales and marketing expenses increased by
49% to $11.5 million for the year ended December 31, 1997, from $7.7 million for
the year ended December 31, 1996. As a percentage of total revenues, sales and
marketing expenses increased to 17.4% for the year ended December 31, 1997, from
16.9% for the year ended December 31, 1996. The dollar and percentage increases
were 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
increased by 42% to $10.9 million for the year ended December 31, 1997, from
$7.7 million for the year ended December 31, 1996. As a percentage of total
revenues, general and administrative expenses decreased to 16.5% for the year
ended December 31, 1997, from 16.8% for the year ended December 31, 1996. The
dollar increase was due to additional staffing, space, computer equipment and
software required to build the infrastructure to support the Company's growth.
The decrease in general and administrative expenses as a percentage of total
revenues was primarily due to the leveraging of existing resources.
Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31,
1995
Revenues
The Company's total revenues increased by 23% to $34.5 million for the nine
months ended December 31, 1996, from $28.0 million for the nine months ended
December 31, 1995.
Software Licenses Revenues. Software licenses revenues increased by 60% to
$10.9 million for the nine months ended December 31, 1996, from $6.8 million for
the nine months ended December 31, 1995. As a percentage of total revenues,
software license revenues increased to 31.5% for the nine months ended December
31, 1996, from 24.2% for the nine months ended December 31, 1995. The dollar and
percentage increases resulted primarily from an increased number of applications
available for sale combined with the benefits of an increased investment in
sales and marketing.
Professional Services Revenues. Professional services revenues increased
by 21% to $8.9 million for the nine months ended December 31, 1996, from $7.4
million for the nine months ending December 31, 1995. As a percentage of total
revenues, professional services revenues decreased to 25.9% for the nine months
ended December 31, 1996, from 26.3% for the nine months ended December 31, 1995.
The dollar increase was primarily due to the increase in the number of its
service offerings. The decrease in professional services revenues as a
percentage of total revenues was primarily due to the impact of a large contract
that ended in the year ended December 31, 1995.
Hardware Revenues. Hardware revenues increased by 33% to $7.7 million for
the nine months ended December 31, 1996, from $5.8 million for the nine months
ended December 31, 1995. As a percentage of total revenues, hardware revenues
increased to 22.4% for the nine months ended December 31, 1996, from 20.9% for
the nine months ended December 31, 1995. The dollar and percentage increases
were primarily due to the Company's expansion of its third party remarketing
sales through IBM.
26
<PAGE> 31
Maintenance and Other Revenues. Maintenance and other revenues decreased
by 13% to $7.0 million for the nine months ended December 31, 1996, from $8.0
million for the nine months ended December 31, 1995. As a percentage of total
revenues, maintenance and other revenues decreased to 20.2% for the nine months
ended December 31, 1996, from 28.6% for the nine months ended December 31, 1995.
The dollar and percentage decreases were primarily due to a large support
contract in the nine months ended December 31, 1995.
Cost of Revenues
Cost of Software Licenses Revenues. Cost of software licenses increased by
5% to $2.9 million for the nine months ended December 31, 1996, from $2.8
million for the nine months ended December 31, 1995. As a percentage of software
license revenues, cost of software licenses decreased to 26.9% for the nine
months ended December 31, 1996, from 41.1% for the nine months ended December
31, 1995. Excluding the charge related to the acceleration of amortization of
computer software development costs of $1.0 million during the nine months ended
December 31, 1995, the increase was $1.1 million or 62% in 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 Revenues. Cost of professional services
decreased by 12% to $5.0 million for the nine months ended December 31, 1996,
from $5.6 million for the nine months ended December 31, 1995. As a percentage
of professional services revenues, cost of professional services decreased to
55.4% for the nine months ended December 31, 1996, from 76.3% for the nine
months ended December 31, 1995. The dollar and percentage decreases resulted
from minimizing non-billable travel and other administrative costs as this line
of business expanded.
Cost of Hardware Revenues. Cost of hardware increased by 33% to $6.2
million for the nine months ended December 31, 1996, from $4.7 million for the
nine months ended December 31, 1995. As a percentage of hardware revenues, cost
of hardware increased to 79.9% for the nine months ended December 31, 1996, from
79.8% for the nine months ended December 31, 1995. The dollar increase is
directly related to increased sales of hardware.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
decreased by 15% to $2.7 million for the nine months ended December 31, 1996,
from $3.2 million for the nine months ended December 31, 1995. As a percentage
of maintenance and other revenues, cost of maintenance and other decreased to
38.9% for the nine months ended December 31, 1996, from 39.5% for the nine
months ended December 31, 1995. The dollar and percentage decreases were
primarily due to a large support contract in 1995.
Research and Development Expenses. Research and development expenses
increased by 58% to $5.2 million for the nine months ended December 31, 1996,
from $3.3 million for the nine months ended December 31, 1995. As a percentage
of total revenues, research and development expenses increased to 15.2% for the
nine months ended December 31, 1996, from 11.8% for the nine months ended
December 31, 1995. The dollar increase was primarily due to increased staffing
levels and associated costs. The increase in research and development expenses
as a percentage of total revenues was primarily due to increased staffing levels
and expenses for additional software and hardware required for the development
of additional products and platforms as well as maintenance and enhancements of
existing products.
Sales and Marketing Expenses. Sales and marketing expenses increased by
57% to $6.2 million for the nine months ended December 31, 1996, from $3.9
million for the nine months ended December 31, 1995. As a percentage of total
revenues, sales and marketing expenses increased to 17.9% for the nine months
ended December 31, 1996, from 14.1% for the nine months ended December 31, 1995.
The dollar and percentage increases were 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
increased by 17% to $5.8 million for the nine months ended December 31, 1996,
from $5.0 million for the nine months ended
27
<PAGE> 32
December 31, 1995. As a percentage of total revenues, general and administrative
expenses decreased to 16.9% for the nine months ended December 31, 1996, from
17.9% for the nine months ended December 31, 1995. The dollar increase was
primarily due to additional staffing in finance and accounting, human resources
and contract administration required to support the Company's growth. The
decrease in general and administrative expenses as a percentage of total
revenues was primarily due to better leveraging of resources compared to growth
in revenues.
Year Ended March 31, 1996 Compared to Year Ended March 31, 1995
Revenues
The Company's total revenues increased by 18% to $39.6 million for the year
ended March 31, 1996, from $33.5 million for the year ended March 31, 1995.
Software Licenses Revenues. Software licenses revenues increased by 10% to
$11.6 million for the year ended March 31, 1996, from $10.5 million for the year
ended March 31, 1995. As a percentage of total revenues, software license
revenues decreased to 29.2% for the year ended March 31, 1996, from 31.3% for
the year ended March 31, 1995. The dollar increase resulted from new software
licenses. The decrease in software licenses revenues as a percentage of total
revenues was primarily due to increased professional services compared to growth
in software license sales.
Professional Services Revenues. Professional services revenues increased
by 27% to $10.7 million for the year ended March 31, 1996, from $8.4 million for
the year ended March 31, 1995. As a percentage of total revenues, professional
services revenues increased to 27.0% for the year ended March 31, 1996, from
25.0% for the year ended March 31, 1995. The dollar increase resulted from the
Company's expansion of its professional services business. The increase in
professional services revenues as a percentage of total revenues was primarily
due to increased professional services compared to growth in software license
sales.
Hardware Revenues. Hardware revenues increased by 8% to $7.3 million for
the year ended March 31, 1996, from $6.8 million for the year ended March 31,
1995. As a percentage of total revenues, hardware revenues decreased to 18.5%
for the year ended March 31, 1996, from 20.3% for the year ended March 31, 1995.
The dollar amount increased as the Company entered into a new remarketing
agreement with IBM. The decrease in hardware revenues as a percentage of total
revenues was primarily due to a larger proportional increase in software license
revenues.
Maintenance and Other Revenues. Maintenance and other revenues increased
by 28% to $10.0 million for the year ended March 31, 1996, from $7.8 million for
the year ended March 31, 1995. As a percentage of total revenues, maintenance
and other revenues increased to 25.3% for the year ended March 31, 1996, from
23.4% for the year ended March 31, 1995 as a result of new software licenses and
customer system upgrades.
Cost of Revenues
Cost of Software Licenses Revenues. Cost of software licenses increased by
150% to $3.6 million for the year ended March 31, 1996, from $1.4 million for
the year ended March 31, 1995. As a percentage of software licenses revenues,
cost of software licenses increased to 31.0% for the year ended March 31, 1996,
from 13.7% for the year ended March 31, 1995. Excluding the charge related to
the acceleration of amortization of computer software development costs of $1.3
million during the year ended March 31, 1995, the dollar increase was $822,000,
or 57.4%, in the year ended March 31, 1996 compared to the year ended March, 31
1995. The change was primarily due to additional costs associated with third
party products.
Cost of Professional Services Revenues. Cost of professional services
increased by 24% to $7.6 million for the year ended March 31, 1996, from $6.1
million for the year ended March 31, 1995. As a percentage of professional
services revenues, cost of professional services decreased to 71.2% for the year
ended March 31, 1996, from 73.2% for the year ended March 31, 1995. The dollar
increase resulted from the Company's expansion of its professional services to
offer full service in this area. The percentage decrease was primarily due to
improved operating efficiencies.
28
<PAGE> 33
Cost of Hardware Revenues. Cost of hardware decreased by 8% to $5.8
million for the year ended March 31, 1996, from $6.2 million for the year ended
March 31, 1995. As a percentage of hardware revenues, cost of hardware decreased
to 78.8% for the year ended March 31, 1996, from 91.7% for the year ended March
31, 1995. The dollar decrease was due to a new remarketing agreement with IBM
offset by a large hardware sale in the year ended March 31, 1995. The percentage
decrease was due to the lower margin on hardware in the prior year from a large
contract compared to normal hardware margins.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
decreased by 17% to $4.2 million for the year ended March 31, 1996, from $5.1
million for the year ended March 31, 1995. As a percentage of maintenance and
other revenues, cost of maintenance and other decreased to 42.3% for the year
ended March 31, 1996, from 64.9% for the year ended March 31, 1995. The dollar
and percentage decreases were primarily due to a corporate restructuring in the
earlier period to build an infrastructure to support future growth.
Research and Development Expenses. Research and development expenses
increased by 42% to $4.5 million for the year ended March 31, 1996, from $3.2
million for the year ended March 31, 1995. As a percentage of total revenues,
research and development expenses increased to 11.4% for the year ended March
31, 1996, from 9.5% for the year ended March 31, 1995. The dollar and percentage
increases were primarily due to increased staffing levels and associated costs.
Sales and Marketing Expenses. Sales and marketing expenses increased by
19% to $5.5 million for the year ended March 31, 1996, from $4.6 million for the
year ended March 31, 1995. As a percentage of total revenues, sales and
marketing expenses increased to 13.8% for the year ended March 31, 1996, from
13.7% for the year ended March 31, 1995. The dollar increase was attributable to
travel and other expenses related directly to increased sales activity.
General and Administrative Expenses. General and administrative expenses
increased by 22% to $6.8 million for the year ended March 31, 1996, from $5.6
million for the year ended March 31, 1995. As a percentage of total revenues,
general and administrative expenses increased to 17.1% for the year ended March
31, 1996, from 16.6% for the year ended March 31, 1995. The dollar and
percentage increases were due to additional staffing and related expenses in
finance and accounting, human resources and contract administration required to
support the Company's growth.
29
<PAGE> 34
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly results of
operations for each of the nine quarters ended June 30, 1998, 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 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>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues:
Software licenses........ $ 1,676 $ 4,120 $ 5,073 $ 6,763 $ 5,286 $ 6,460 $ 8,253 $ 8,559 $11,242
Professional services.... 2,712 2,811 3,420 3,600 3,898 3,528 3,517 4,313 5,141
Hardware................. 2,313 2,153 3,274 1,859 2,781 2,406 4,722 2,613 2,864
Maintenance and other.... 2,113 2,338 2,499 2,889 3,108 3,235 3,339 4,094 4,268
Resource management...... -- -- -- -- -- -- 448 361 362
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues..... 8,814 11,422 14,266 15,111 15,073 15,629 20,279 19,940 23,877
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Cost of software
licenses............... 748 978 1,193 901 1,306 1,651 1,425 1,309 1,707
Cost of professional
services............... 1,602 1,636 1,714 1,892 2,267 2,055 2,149 2,566 2,980
Cost of hardware......... 1,832 1,669 2,685 1,591 1,979 1,932 3,707 1,946 2,432
Cost of maintenance and
other.................. 744 879 1,082 1,443 1,434 1,402 1,705 2,001 2,399
Cost of resource
management............. -- -- -- -- -- -- 343 241 226
Research and
development............ 1,685 1,706 1,851 1,998 2,066 2,091 2,101 2,889 3,337
Sales and marketing...... 1,643 2,435 2,108 2,398 2,735 2,800 3,587 3,638 4,684
General and
administrative......... 1,723 1,820 2,287 2,654 2,834 2,389 3,048 3,325 3,738
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 9,977 11,123 12,920 12,877 14,621 14,320 18,065 17,915 21,503
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss).... (1,163) 299 1,346 2,234 452 1,309 2,214 2,025 2,374
Interest expense
(income)................. 64 61 66 69 57 (131) (222) (144) (111)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes.................... (1,227) 238 1,280 2,165 395 1,440 2,436 2,169 2,485
Provision (benefit) for
income taxes............. (397) 82 896 633 170 639 1,040 839 1,306
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss)........... $ (830) $ 156 $ 384 $ 1,532 $ 225 $ 801 $ 1,396 $ 1,330 $ 1,179
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share:
Basic.................... $ (0.14) $ (0.02) $ 0.01 $ (0.01) $ 0.06 $ 0.05 $ 0.08 $ 0.08 $ 0.07
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted.................. $ (0.14) $ (0.02) $ 0.01 $ (0.01) $ 0.02 $ 0.05 $ 0.08 $ 0.08 $ 0.07
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
30
<PAGE> 35
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Software licenses........ 19.0% 36.1% 35.6% 44.8% 35.1% 41.3% 40.7% 42.9% 47.1%
Professional services.... 30.8 24.6 24.0 23.8 25.9 22.6 17.3 21.6 21.5
Hardware................. 26.2 18.8 22.9 12.3 18.4 15.4 23.3 13.1 12.0
Maintenance and other.... 24.0 20.5 17.5 19.1 20.6 20.7 16.5 20.6 17.9
Resource management...... 0.0 0.0 0.0 0.0 0.0 0.0 2.2 1.8 1.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues..... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Cost of software
licenses............... 8.5 8.6 8.4 6.0 8.7 10.6 7.0 6.6 7.2
Cost of professional
services............... 18.2 14.3 12.0 12.5 15.0 13.1 10.6 12.9 12.5
Cost of hardware......... 20.8 14.6 18.8 10.5 13.1 12.3 18.3 9.7 10.2
Cost of maintenance and
other.................. 8.4 7.7 7.6 9.5 9.5 9.0 8.4 10.0 10.0
Cost of resource
management............. 0.0 0.0 0.0 0.0 0.0 0.0 1.7 1.2 0.9
Research and
development............ 19.1 15.0 13.0 13.2 13.7 13.4 10.4 14.5 14.0
Sales and marketing...... 18.6 21.3 14.8 15.9 18.2 17.9 17.7 18.2 19.6
General and
administrative......... 19.6 15.9 16.0 17.6 18.8 15.3 15.0 16.7 15.7
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses......... 113.2 97.4 90.6 85.2 97.0 91.6 89.1 89.8 90.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss).... (13.2) 2.6 9.4 14.8 3.0 8.4 10.9 10.2 9.9
Interest expense
(income)................. 0.7 0.5 0.4 0.5 0.4 (0.8) (1.1) (0.7) (0.5)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income
taxes.................... (13.9) 2.1 9.0 14.3 2.6 9.2 12.0 10.9 10.4
Provision (benefit) for
income taxes............. (4.5) 0.7 6.3 4.2 1.1 4.1 5.1 4.2 5.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income
(loss)........... (9.4)% 1.4% 2.7% 10.1% 1.5% 5.1% 6.9% 6.7% 5.0%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's revenues and operating results are subject to quarterly and
other fluctuations resulting from a variety of factors, including the budgeting
and purchasing practices of its customers, the length of the customer evaluation
process for the 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. In 1997, the Company
implemented a new sales and marketing program which the Company believes has
moderated such fluctuations. 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 the 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 "Risk
Factors -- Fluctuations in Quarterly Operating Results."
The differences between the quarterly results of operations presented on
the previous page and the quarterly results of operations presented in the
Company's previously filed Quarterly Reports on Form 10-Q are due to the effects
of the pooling of interests transaction with UCS which was effective in June
1998.
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1997, the Company funded its operations primarily through cash
generated from operations, supplemented by borrowings under a bank line of
credit and the private sale of equity securities. On June 11,
31
<PAGE> 36
1997, the Company completed its initial public offering of Common Stock (the
"IPO"). The Company received $22.6 million from the IPO, net of issuance costs.
Cash flow (used in) provided by operating activities was $(3.2 million) and $2.1
million for the six months ended June 30, 1998 and 1997, on net income of $2.5
million and $1.8 million, respectively. Cash flow provided by operating
activities was $4.7 million and $2.9 million for the years ended December 31,
1997 and 1996, on net income of $4.0 million and $819,000 respectively. Cash
flow provided by (used in) operating activities was $1.8 million and $(488,000)
for the nine months ended December 31, 1996 and 1995, on net (loss) income of
$(290,000) and $46,000, respectively. Cash flow provided by operating activities
was $721,000 and $1.8 million for the fiscal years ended March 31, 1996 and
1995, on net income of $1.3 million and $1.0 million, respectively.
Cash used in investing activities (capital expenditures, software
development investments and acquisitions) totaled $3.6 million and $1.4 million
during the six months ended June 30, 1998 and 1997, respectively. Cash used in
investing activities totaled $6.6 million and $3.3 million for the years ended
December 31, 1997 and 1996. Cash used in investing activities totaled $2.6
million for each of the nine months ended December 31, 1996 and 1995. Cash used
in investing activities totaled $3.4 million and $2.6 million in the fiscal
years ended March 31, 1996 and 1995, respectively. In 1997, the Company made
significant investments in leasehold improvements related to its new
headquarters facility in Lake Mary, Florida, and also acquired the assets of Kb.
The increase in restricted cash in 1997 reflects cash held in escrow related to
the JALAN acquisition. The JALAN acquisition was closed in January 1998. 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. The Company
continues to capitalize between $2.6 million and $2.7 million on an annual basis
related to software development efforts for additional products and platforms.
Net cash used in financing activities was $901,000 in the six months ended
June 30, 1998, reflecting the payment of the amounts due to stockholders related
to the UCS acquisition, partially offset by the net proceeds from the Employee
Stock Purchase Plan, compared to cash provided of $15.8 million in the
comparable 1997 period, related primarily to the proceeds from the IPO, offset
partially by the repayment of a line of credit and payment of dividends on the
mandatorily redeemable preferred stock. Net cash provided by financing
activities was $19.5 million in the year ended December 31, 1997, compared to
$341,000 in the comparable 1996 period. In 1997, net proceeds from the IPO of
$22.6 million were partially offset by repayment of long-term debt, payment of
accrued dividends on mandatorily redeemable preferred stock and pay-off of a
note payable to related parties. Cash flow provided by financing activities was
$914,000 for the nine months ended December 31, 1996, relating primarily to the
issuance of capital stock which raised $252,000 and net borrowings of $662,000,
compared to cash provided of $2.2 million for the nine months ended December 31,
1995. For the 12-month period ended March 31, 1996, net cash provided by
financing activities was $2.1 million comprised of $2.0 million in net borrowing
under the line of credit offset by repayments under capital leases and related
party advances. For fiscal year ended March 31, 1995, net cash provided was $1.6
million consisting of $2.8 million from the issuance of preferred stock offset
by repayments under capital leases and the line of credit along with shareholder
distributions.
In August 1998, the Company received a commitment from SunTrust Bank,
Central Florida, National Association (the "Bank") for a Revolving Line of
Credit Agreement (the "Loan Agreement") under which the Bank committed to extend
a line of credit of up to a maximum borrowing amount of $15.0 million with an
expiration date of June 30, 2000, subject to review by June 30, 1999. Borrowings
under the Loan Agreement will be collateralized by first liens on accounts
receivable, inventory, equipment, furniture, furnishings, fixtures and
intellectual property. The line of credit will bear interest at LIBOR plus 1.7%
per annum. Under the terms of the Loan Agreement, the Company will be required
to comply with certain financial covenants. Borrowings under the Loan Agreement
may be made for financing operations and interim acquisition financing. The
Company anticipates finalizing the Loan Agreement prior to the closing of this
Offering.
The Company believes its cash balances, cash generated from operations and
this Offering, and borrowings available under the Loan Agreement 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
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additional sources of liquidity to fund future growth. Such sources of liquidity
may include additional equity offerings or debt financings.
INFLATION
The Company believes that inflation has not had a material impact on the
Company's operating results and does not expect inflation to have a material
impact on the Company's operating results in 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
97-2, "Software Revenue Recognition" ("SOP 97-2"), later amended by Statement of
Position 98-4 ("SOP 98-4"). SOP 97-2 and SOP 98-4 require companies to defer
revenue and profit recognition if four required criteria of a sale are not met.
In addition, SOP 97-2 and SOP 98-4 require that revenue be allocated to multiple
element arrangements. SOP 97-2 and SOP 98-4 are effective for all transactions
entered into in fiscal years beginning after December 15, 1997. The Company has
adopted the provisions of SOP 97-2, as amended, effective January 1, 1998 and
such adoption did not have a material impact on the Company's operating results
or financial position.
In June 1997, the FASB issued Statements of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). The Company adopted these statements effective in 1998. SFAS 130
establishes standards for reporting comprehensive income and SFAS 131
establishes standards for reporting information about operating segments. The
Company does not expect that the adoption of SFAS 130 and SFAS 131 will have a
material impact on the Company's operating results or financial position.
YEAR 2000 COMPLIANCE
Risks Associated with the Year 2000. Many currently installed computer
systems and software products are coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies will need
to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. There are several aspects to the Year 2000
issues as follows:
Impact on Revenues. The Company believes that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues in a
variety of ways. Many companies are expending significant resources to correct
or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
such as those offered by the Company. Conversely, Year 2000 issues may cause
other companies to accelerate purchases of software to replace non-Year 2000
compliant applications, causing a short-term increase in demand for the
Company's products. There is no assurance that such increase in demand will be
realized. Either of the foregoing could have a material adverse effect upon the
Company's business, operating results and financial condition.
Year 2000 Compliance. The Company believes that the current versions of
its products are Year 2000 compliant. The Company regularly runs regression
tests on its software, including tests of the Year 2000 rollover. Based on the
above, it is not expected that the Company's products will be adversely affected
by date changes in the year 2000. However, there can be no assurance that the
Company's products contain and will contain all features and functionality
considered necessary by customers, distributors, resellers and systems
integrators to be Year 2000 compliant. Notwithstanding that the Company
regularly provides free software upgrades to its customers and that these recent
upgrades are Year 2000 compliant, certain customers of the Company may still be
running earlier, noncompliant versions of the Company's products. The Company is
in the process of informing customers of the need to migrate to current products
that management believes are Year 2000 compliant. The Company anticipates that
generally throughout the software industry substantial litigation may be brought
against software vendors of noncompliant operating environments. The Company
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believes that any such claims against the Company, with or without merit, could
have a material adverse effect on the Company's business, operating results and
financial condition.
Internal Systems. The Company has also reviewed its internal systems for
Year 2000 compliance and is in the process of upgrading to Year 2000 compliant
versions from third party software vendors, modifying certain systems, and
planning to replace certain systems with new third party software, which the
Company expects to complete prior to January 1, 2000. In addition to making its
own systems Year 2000 ready, the Company has also begun to contact its key
suppliers and vendors to determine the extent to which the systems of such
suppliers and vendors are Year 2000 compliant and the extent to which the
Company could be affected by the failure of such third parties to be Year 2000
compliant. The Company has appointed its Manager of Quality Assurance to oversee
all activities associated with Year 2000 compliance issues. A standing committee
meets on a monthly basis to review appropriate activities. Management does not
believe that the cost to bring its software products and internal systems into
Year 2000 compliance will have a material adverse effect on the Company's
results of operations or financial condition. However, delays in upgrading some
systems to Year 2000 compliance, or a failure to fully identify all Year 2000
dependencies in the Company's systems and in the systems of its suppliers,
vendors, and financial institutions could have material adverse consequences,
including delays in the delivery or sale of products.
Expenses Related to Year 2000 Compliance. The Company has not incurred
significant expense in becoming Year 2000 compliant as this has been achieved as
a part of regular upgrades to its internal operating systems. Future costs
related to Year 2000 compliance are not expected to have a material adverse
effect on the Company's results of operations or financial condition.
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BUSINESS
OVERVIEW
The Company develops, markets, implements and supports fully integrated
enterprise-wide software applications designed specifically for public sector
organizations, including state, county and city governments and other municipal
agencies and for public and private utilities. For over 16 years, the Company
has strategically focused on providing software applications exclusively to
public sector organizations and utilities, and therefore has established itself
as a leading provider of software solutions to those markets. HTE's fully
integrated enterprise-wide software applications are designed to fulfill the
specific functional requirements of the public sector marketplace, such as
improvement of delivery of services, reduction of costs, enhancement of revenue
collection, operation within budgetary constraints, compliance with government
regulations and improvement of overall operating efficiencies. The Company's
Total Enterprise Solution currently includes more than 50 applications
addressing five functional areas: financial management, community services,
public safety and justice, education 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. As part of
its strategy to provide a completely integrated solution to its customers, the
Company also provides a variety of related services, including consulting,
implementation, education and training, and the provision and configuration of
hardware systems.
As of June 30, 1998, the Company had over 1,600 customers in the U.S.,
Caribbean, United Kingdom 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 and utilities industries has allowed it
to develop significant expertise 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 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 $35.0 billion on IT and related products which is
expected to grow to over $45.0 billion in 2001 according to G2 Research, Inc.
This total for 2001 includes approximately $8.0 billion for software, $12.3
billion for external services and $8.4 billion for hardware.
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 face increasing pressure to improve
delivery of services while striving to control and reduce costs and generate
additional revenues. In response, public sector organizations are employing IT
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 sector organizations are seeking to
use IT to create new sources of revenues and enhance existing revenue
collection.
Certain IT issues facing state and local governments also impact utilities,
many of which are owned by municipalities. In addition, recent deregulation in
the utility market has resulted in greater competition among utilities.
Consequently, utilities are under pressure to retain their customer bases and
focus their efforts on enhancing service levels, improving operating practices
and reducing costs. Specifically, utilities seek to ensure timely and effective
utilization of inventory, equipment and human resources, along with improved
customer service levels. Utilities must also comply with government regulations
covering environmental, worker health and safety and other matters.
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Historically, local governments and utility companies utilized computerized
operations management systems principally based on mainframe and mini-computers
running customized proprietary software. These legacy systems have limited
ability to operate with other software applications, systems and resources and
are often difficult and expensive to maintain, upgrade and modify. Budget
constraints and other factors have caused public sector organizations to lag
private sector companies in the adoption of newer, open-architecture
client/server systems. However, the need to integrate mission-critical functions
is now driving these organizations to replace their legacy systems and more
recently acquired point solutions with more technologically advanced, integrated
and complete software solutions.
While there are an increasing number of software vendors seeking to target
the public sector, current solutions provided by these vendors have not been
able to meet the needs of public sector organizations. Because these solutions
typically are not enterprise-wide, they lack the ability to share information
among the multitude of agencies and departments within a public sector
organization. In addition, these vendors are frequently private sector providers
with little public sector expertise which offer general software products that
often do not fulfill the specific functional requirements of the public sector
marketplace, such as complying with government fund accounting, procurement and
budgeting processes. Consequently, many of these solutions must be highly
customized and become difficult and costly to implement, use and modify. As
public sector organizations reengineer their practices and strive to become more
efficient, they typically seek comprehensive, fully-functional solutions from a
single source which enable them to meet their particular needs.
THE HTE TOTAL ENTERPRISE SOLUTION
The Company's fully integrated enterprise-wide software solutions enable
public sector organizations and utilities to improve delivery of services,
reduce costs, enhance revenue collection, operate successfully within budgetary
constraints, comply with government regulations and improve overall operating
efficiencies. As part of its strategy to provide a completely integrated
solution to its customers, the Company also provides a variety of related
services, including consulting, implementation, education and training and the
provision and configuration of hardware systems. HTE's Total Enterprise Solution
is based on more than 16 years of public sector and utility expertise and
consists of a suite of software applications, as well as a wide 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 more than 50
applications, which provides feature-rich systems for financial management,
community services, public safety and justice, education 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 among
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 suite of products allow customers
to accommodate growth and expand application functionality. In addition,
the Company offers several application programming interfaces to enable
customers to develop customized reporting and satisfy unique requirements.
Ease of Implementation and Use. The Company leverages its public
sector expertise and the integrated nature of its software products to
provide a rapid and cost effective implementation of its software with
minimal need for customization. In addition, HTE's software solutions
provide for centralized system administration, thereby simplifying system
management and reducing the need for in-house system administrators and
third party services. These characteristics reduce the expense and
disruption associated with the implementation and maintenance of
enterprise-wide IT solutions.
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STRATEGY
The Company's objective is to be the leading provider of enterprise-wide IT
solutions to the public sector and utility marketplace. Principal elements of
the Company's strategy include:
Promote Integrated Enterprise-Wide Solutions. HTE believes that the
fully integrated suite of comprehensive 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 are using only one or a few of the Company's
applications. HTE also intends to offer its suite of applications to
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 to marketing strategies which
target customers seeking enterprise-wide software solutions.
Capitalize on Public Sector and Utilities Expertise. For over 16
years, the Company has focused exclusively on the public sector and utility
markets, and had over 1,600 customers at June 30, 1998. The Company
believes this focus has resulted in the development of a core expertise and
understanding of the unique operational requirements of the public sector,
such as emergency services and government fund accounting. The Company
intends to capitalize on its knowledge and experience to enhance sales in
existing markets and expand into new market segments, such as foreign
governments and educational institutions. The Company believes the size and
geographic breadth of its customer base offers significant leverage with
regard to new business, since references from existing customers often
result in future sales opportunities.
Complement Growth through Strategic Acquisitions. Over the past five
years, the Company has supplemented its internal growth with ten
acquisitions. The Company intends to accelerate its growth through
acquisitions. The Company views acquisitions as a means of increasing its
technological capabilities, broadening its customer base and expanding its
international presence. The Company believes that the public sector
software application vendor market is highly fragmented, and is entering a
period of consolidation. The Company intends to pursue acquisition
opportunities which will help it accomplish its objective of becoming the
leading provider of enterprise-wide information solutions to the public
sector. See "Management's Discussion of Financial Condition and Results of
Operations -- Recent Acquisitions."
Continue to Deliver New Technology and Platform - Independent
Applications. The Company intends to continue to serve its customers by
maintaining its reputation for proven and effective use of recent advances
in technology. The Company will continue to develop new applications and
incorporate new functionality, such as Internet integration, object-based
technology, decision support and wireless communications into its software
products. In addition, the Company recognizes that individual customers
prefer a variety of hardware and operating system platforms, including the
AS/400, Windows NT and UNIX. As such, the Company's development efforts
focus on providing suites of business solutions which can operate
effectively regardless of the customer's platform preference.
Expand Sales Force and Marketing Initiatives. The Company intends to
increase its penetration of the public sector and utility markets by
expanding the distribution of its products. 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
targeted marketing programs 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.
HTE'S INTEGRATED SOFTWARE PRODUCTS
HTE offers fully integrated enterprise-wide software solutions designed to
automate and integrate the operations of public sector and utility
organizations. The Company has designed its products based on the
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premise that complete application integration is essential for the effective
sharing of information across an organization. Offering enterprise-wide
integration, the Company's software applications share functions and eliminate
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 $500,000, depending on hardware configurations, number
of users and applications licensed. Additional revenues are generated from
providing related professional and maintenance services and required hardware.
The following is a representative sampling of the Company's applications
and the principal benefits of the integrated application system, followed by a
more detailed discussion of some of these applications:
FINANCIAL MANAGEMENT SYSTEMS -- 12 APPLICATIONS
- A comprehensive integrated financial reporting system designed to monitor
organizational goals and performance.
- Eliminates redundant data entry and centralizes and minimizes record
management and retrieval of historical information through interfacing
modules.
- Complies with Governmental Accounting, Auditing, and Financial Reporting
("GAAFR") and Government Finance Officers Association ("GFOA") standards.
- Streamlines IRS reporting and offers custom budgeting tools.
COMMUNITY SERVICES SYSTEMS -- 12 APPLICATIONS
- A centralized information system which expedites access to property data,
building permits, business licenses, code enforcement proceedings,
planning and zoning processes, property appraisal and assessment, and tax
billing and collections.
- Generates all documentation and improves revenue tracking, processing and
payment collection.
- Routes projects to various agencies and promotes communication among
agencies.
- Maintains voter records and tracks voting history.
- Manages community parks and recreational facilities.
PUBLIC SAFETY AND JUSTICE SYSTEMS -- 20 APPLICATIONS
- A complete suite of applications which provides critical information to
users in emergency situations through mobile computing technologies.
- Integrates police, fire and emergency medical service reporting and
communications with state and federal information systems and facilitates
sharing of vital information.
- Increases personnel safety and provides for better public service by
allowing police and emergency personnel to access databases by mobile
connections.
- Promotes effective management of time, staff and facilities involved in
the administration of justice.
UTILITY MANAGEMENT SYSTEMS -- 6 APPLICATIONS
- A broad utility management system designed to handle a full range of
services including bill processing, equipment management and customer
service information.
- Provides immediate access to customer information and work orders and
tracks assets and resources.
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EDUCATION SYSTEMS -- 4 APPLICATIONS
- An integrated suite of student administration and financial applications
designed to meet the unique requirements of school districts (grades K
through 12).
- Complies with state and federal reporting requirements.
- Centralizes storage of employee and student information for quick
retrieval.
- Automates the creation of course catalogs, class schedules, reports,
financial statements and other documents to increase efficiency and
improve accuracy.
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 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 Employment Opportunity 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.
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Community Services Systems
The Company's community services applications provide a centralized land
and location database solution which expedites access to property data, building
permits, code enforcement proceedings, planning and zoning processes, business
license information, voter registration, appraisal and assessment, and tax
billing and 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 locations 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
allow 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.
Planning and Zoning. Manages planning and zoning projects through
review and approval processes. Enables users 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.
Property Appraisals and Assessments. Automates the property appraisal
and assessment process. Features user defined property data items and
valuation calculations. Also available is a field software module for
appraisers' use during reassessment field visits.
Public Safety and Justice Systems
The public safety and justice applications offer police, fire, emergency
services, courts and jail entities a complete public safety/justice solution
through an integrated suite of applications which provides 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"). Computer aided dispatch
software provides 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
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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 and 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.
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.
Enterprise Field Reporting. A portable software solution for public
safety that automates the entire reporting process and speeds up every
aspect of report management, from the field to the office. Easy-to-use
report applications, combined with wireless communications technology,
provide a system of fully integrated modules that work together to share
information and eliminate redundant data entry.
Jail System. Delivers a comprehensive jail management and inmate
tracking solution that provides the information required to manage jails of
virtually all sizes and complexity.
Court System. A multi-jurisdictional case management system that
tracks the progress of each case through arraignment to final disposition.
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Prosecutor's System. A case tracking and management solution that
supports the prosecutor's office in all aspects of a case. The solution
captures the basic information from the police report or other initiating
sources enabling the assigned attorney to follow the progress of the case.
Probation System. A probation management solution that tracks the
case from pretrial to final compliance, including word processing that
automates court orders, recommendations, letters, contact forms and
notices.
Public Defender System. A case tracking, document processing and
management reporting solution that streamlines case tracking from initial
incident to final disposition.
Return of Service System. A civil paper process management system
that supports the civil department in serving court papers in a timely
manner. The system allows quick responses to court inquiries, tracks funds
and property from auctions and provides docket information for legal record
keeping.
Utility Management Systems
The Company offers a suite of integrated products designed to handle a full
range of utility services including electric, water, gas and waste removal. 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 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.
Contact Management. Directs and handles customer calls and integrates
information with CIS and Work Orders/Facility Management to improve
customer service operations.
Education Systems
The Company offers a suite of software applications to support the unique
requirements of school administrators (grades K through 12). Applications
incorporate a variety of standard features and functions to provide ease of use,
customization capabilities, and reporting flexibility across applications.
Student Administration. Provides school administrators with each
student's status, including attendance records, grade reports and
transcripts. Provides fully computerized or arena scheduling and online
schedule maintenance. Stores home room assignment and generates photo ID
cards with student schedule.
General Accounting. Offers a fully integrated, multi-user fund and
encumbrance accounting system that includes general ledger, accounts
payable, revenues, purchase orders, requisitions, 1099 processing, and
state reporting. Also includes a comprehensive budget building module.
42
<PAGE> 47
Payroll. Provides a complete payroll management system that meets
federal and state requirements while addressing the needs of school
districts. Supports direct deposit into multiple accounts, payroll
encumbrance, teacher substitute distributions, supplements and balloon
checks. Generates assignment notification letters, staff directories, photo
IDs, tenure lists and other reports.
Human Resources. Manages a wide range of employee data specific to
school districts, including certification, assignments, benefits, academic
history, and attendance information. Offers multiple-level salary
schedules, academic and professional leave history. Generates assignment
notification letters, staff directories, photo IDs, tenure lists and other
reports.
SERVICES
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.
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.
Professional consulting services are priced separately.
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 center. Customized
education and training programs are also available to meet a customer's specific
development needs. Education and training services are priced separately.
HARDWARE
As part of its Total Enterprise Solution, the Company is able to provide
the hardware necessary for its customers to run the Company's software. The
Company has value-added reseller relationships with hardware vendors under which
it resells those vendors' hardware to its own customers on a drop-ship basis.
Substantially all of the Company's revenues from hardware sales to date have
been derived from IBM products. The Company believes its ability to provide
hardware is an important element in enabling it to offer a comprehensive
solution to its customers, and differentiates it from many of its smaller
competitors.
CUSTOMER SERVICE
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 operating systems. During fiscal 1997, the
Company expanded its support services 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 the HTE User Group ("HUG"), the Company involves its customers and
end-users to help identify new functions and product features that would offer
the greatest additional benefits. HUG is an independent non-profit organization
formed by users of HTE's products. HUG hosts an annual meeting that is attended
by thousands of members for purposes of exchanging information, viewing new
product demonstrations by the Company, and providing the Company with product
feedback and recommendations for
43
<PAGE> 48
additional enhancements or updates. If there is sufficient support for a
particular enhancement or update, the Company pursues its development and
incorporates it as a standard feature in the next iteration of the applicable
software. For isolated recommendations, the Company contacts the customer to
explore a customized enhancement or upgrade at agreed upon professional fees.
SALES AND MARKETING
The Company sells its products primarily through a direct sales force. As
of June 30, 1998, the Company had 98 employees in its sales and marketing
organization, including sales representatives, pre-sale consultants, sales
support representatives, sales management, proposal specialists, product
demonstrators and systems hardware specialists. The Company employs a variety of
business development and marketing activities to communicate directly with
current and prospective customers. These activities 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 has implemented a new sales strategy which includes
sophisticated prospect development and sales cycle management processes. HTE
uses a combination of prospective client databases, targeted marketing campaigns
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 reduces 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.
HTE believes a strong local presence is an important factor in addressing
the needs of local governments and establishing long-term relationships.
Therefore, the Company has decentralized much of its client development,
customer service and customer account responsibilities. As a result, HTE has 18
sales offices throughout the U.S. and one in Canada.
An aspect of the Company's sales and marketing strategy is to build and
maintain strong business alliances that the Company believes play a role in the
successful marketing of its software products. These alliances are with software
and hardware vendors and technology consulting firms, some of which are active
in the selection and implementation of IT systems for organizations that
comprise the Company's principal customer base. HTE maintains strategic
relationships with companies such as International Business Machines
Corporation, Microsoft Corporation, Motorola, Inc., TRW Inc., Lockheed Martin
Corporation, AT&T Corporation, Hewlett-Packard Company, Oracle Corporation, and
Seagull Technology, Inc. The Company believes that its sales and marketing
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.
44
<PAGE> 49
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 June 30, 1998, the Company had over 1,600 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. No customer
accounted for more than 5% of total revenues of the Company in 1997 or for the
six months ended June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF PUBLIC
CUSTOMER APPLICATIONS FINANCIAL COMMUNITY SAFETY UTILITY
CUSTOMER NAME SINCE PURCHASED MANAGEMENT SERVICES AND JUSTICE MANAGEMENT EDUCATION
- ------------- -------- ------------ ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Arlington Heights, IL.......... 1995 19 - - - -
Bend, OR....................... 1989 23 - - - -
Bossier City, IA............... 1991 23 - - - -
Bristol Township, PA........... 1995 3 -
Broomfield, CO................. 1985 16 - - - -
Caribbean Utilities Company,
Ltd., Grand Cayman Islands... 1997 14 - - -
Citizens Utilities Company,
VT........................... 1997 9 - - -
Clayton County Communications,
GA........................... 1990 9 -
Davidson County, NC............ 1996 9 - -
East Hartford, CT.............. 1997 3 -
Escambia County Utility
Authority, FL................ 1984 10 - -
Farmington Public Schools,
CT........................... 1998 6 -
Ft. Lauderdale, FL............. 1998 3 -
Government of Bahamas, Nassau,
BA........................... 1993 4 - -
Guelph Hydro, Ontario, CN...... 1994 15 - - -
Kansas Highway Patrol, KS...... 1994 2 -
Kingsport, TN.................. 1989 27 - - - -
Lumberton, NC.................. 1994 12 - - -
Missouri City, TX.............. 1996 31 - - - -
Montrose, CO................... 1996 3 -
Opelika, AL.................... 1993 28 - - - -
Paducah, KY.................... 1994 28 - - - -
Rio Rancho, NM................. 1995 22 - - - -
Sarasota County Utility, FL.... 1997 11 - - -
Sierra Vista, AZ............... 1994 13 - - -
Stockton, CA................... 1988 19 - - - -
University of Michigan Public
Safety, MI................... 1987 8 - -
Westport, CT................... 1995 4 -
Wisconsin State Patrol, WI..... 1984 3 -
</TABLE>
PRODUCT DEVELOPMENT
HTE's product development efforts are focused on the enhancement of its
existing products and expansion of its enterprise system. As of June 30, 1998,
HTE had 141 employees engaged full-time in product development. HTE plans to
continue to enhance its applications to meet the evolving needs of the public
sector and utility markets. 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 three fundamental objectives: (i) reduction of the time and
cost in developing new applications; (ii) continued user empowerment with an
emphasis on ease-of-use; and (iii) increased flexibility to modify base products
in order to suit specific customer requirements. The Company incorporates a
System Change Program whereby the Company distributes guidelines for standards
and conventions to its users (usually at a HUG annual meeting) and encourages
product users to submit suggestions for product changes. If sufficient demand
exists for product enhancement, the Company strives to develop the enhancement
for incorporation as a standard
45
<PAGE> 50
feature in the next release of the applicable software. With respect to
proposals for enhancements that have generated limited interest among HTE
product users, the Company offers customized development of the enhancement for
a fee. 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
strives to allow customers to utilize existing systems while at the same time
allowing customers to take advantage of advances in network systems, platforms,
databases and other relevant technologies. The Company's gross development
expenditures were $7.3 million, $7.2 million, and $11.0 million for the year
ended March 31, 1996, the nine months ended December 31, 1996, and the year
ended December 31, 1997, respectively.
COMPETITION
The Company believes it is a leading provider of integrated enterprise-wide
solutions for the public sector and utility markets. However, 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 IT
staffs.
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)
consulting divisions of national and regional accounting firms; (ii) companies
which focus on selected segments of the public sector and utility markets
including PeopleSoft, Inc., Systems & Computer Technology Corp. and J.D. Edwards
& Company, Inc.; and (iii) a significant number of smaller private companies.
While HTE's products are designed for the public sector, competitors' products
are currently adapted for use by the public sector. 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 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.
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.
46
<PAGE> 51
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. Although the Company
currently provides only object code to its customers, the Company historically
provided source code to its customers for several products and has escrowed, and
continues to escrow, its source code for the benefit of all customers. A
misappropriation or other misuse of the Company's intellectual property,
including source codes previously delivered to customers, could have an adverse
effect on the Company. 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 June 30, 1998, the Company employed 693 people, including 98 in sales
and marketing, 141 in product development, 305 in customer support and field
services, 37 in professional services and 112 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.
FACILITIES
The Company leases facilities in various locations. The Company's
headquarters is located in Lake Mary, Florida, and occupies approximately 90,000
square feet. Administrative, marketing, product development and customer support
and service operations are located in this space. The initial lease term for the
headquarters expires in 2007, 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 agreement pursuant to which it may, at its option during the
term of the lease, lease additional space comprising approximately 27,000 to
40,000 gross square feet.
The Company also occupies approximately 12,000 square feet of space in Ft.
Lauderdale, Florida, pursuant to a lease expiring in November 1999,
approximately 6,000 square feet of space in Golden, Colorado pursuant to a lease
expiring in May 2000, approximately 2,000 square feet of space in Vienna,
Virginia pursuant to a lease expiring in March 2000 and approximately 3,000
square feet of office space in Southbury, Connecticut, for a one year renewable
term.
The Company also leases an aggregate of approximately 19,000 square feet of
office space in approximately 19 locations which are used for sales offices.
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
business, results of operations or financial position.
47
<PAGE> 52
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis J. Harward......................... 42 Chief Executive Officer, President and
Chairman of the Board
Jack L. Harward........................... 67 Executive Vice President, Assistant
Secretary, Assistant Treasurer and Director
O.F. Ramos................................ 40 Executive Vice President and Director
L.A. Gornto, Jr........................... 55 Executive Vice President, Secretary and
General Counsel
Daniel E. Catan........................... 43 Vice President, Chief Marketing Officer
Susan D. Falotico......................... 35 Vice President, Treasurer and Chief
Financial Officer
Charlotte B. Hill......................... 43 Vice President -- Research and Development
Gilbert O. Santos......................... 38 Vice President -- Customer Services
Brian B. Heafy............................ 37 Vice President -- Human Resources and
Organizational Development
Bernard B. Markey(1)...................... 33 Director
Raymond Ambrose(1)........................ 51 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee and the 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. Dennis J. Harward is the son of Jack L.
Harward.
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. During
November 1997, he was appointed Assistant Secretary and Assistant Treasurer. 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. Jack L.
Harward is the father of Dennis J. Harward.
Mr. O. F. Ramos joined the Company in June 1998 and was appointed to the
Board of Directors in August 1998. He currently serves as Executive Vice
President of the Company and President of HTE-UCS, Inc., a wholly owned
subsidiary of HTE. From 1986 to 1998, Mr. Ramos served as the President and CEO
of UCS. As the co-founder of UCS, he was responsible for the corporate direction
and financial development of UCS, Inc. and for overseeing operations. Prior to
1986, Mr. Ramos served in various engineering and management capacities at
Motorola, Inc. where he was responsible for the development of diverse software
and hardware projects for several platforms.
Mr. L. A. Gornto, Jr. joined the Company in January 1997, serves as an
Executive Vice President, Secretary and General Counsel, and oversees mergers
and acquisitions. From January 1997 until November 1997, he served as the
Company's Chief Financial Officer. 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
48
<PAGE> 53
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.
Mr. Daniel E. Catan joined the Company in July 1996 and currently serves as
a Vice President and Chief Marketing Officer. From 1990 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 revenues for
the 1996 Summer Olympic Games. Mr. Catan was also responsible for managing the
sales negotiation and sponsor support departments. From 1977 to 1990, 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. Susan D. Falotico joined the Company in 1995 and serves as Vice
President, Treasurer and Chief Financial Officer. From 1995 to November 1997,
Ms. Falotico served as the Company's 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.
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. Gilbert O. Santos joined the Company in September 1998 as its Vice
President -- Customer Services, responsible for various functional areas
including customer support and training, documentation and media, software
quality assurance and testing, service management and project management and
implementation. Mr. Santos held various marketing and engineering management
positions with the Land Mobile Products Sector of Motorola, Inc. from 1983 to
September 1998, most recently Director of Operations.
Mr. Brian B. Heafy joined the Company in August 1994 and currently serves
as Vice President, Human Resources & Organizational Development. From 1994 to
1998, Mr. Heafy served as the Company's Director of Public Safety and Justice
Systems division, where he was responsible for consolidating three operating
groups into one and for improving customer satisfaction, revenue growth and
profit. From 1990 to 1994, Mr. Heafy served as Manager of Information Services
for the City of Coral Springs, Florida. His major responsibilities included the
successful implementation of a multi-million dollar information technology
project. From 1987 to 1990, Mr. Heafy served as Program Manager for CACI, Inc.,
Federal division. Prior to 1987, Mr. Heafy served in various technical
management and staff capacities with the United States Marine Corps.
Mr. Bernard B. Markey has been a Director of the Company since 1995. Mr.
Markey 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 of several
privately-held companies.
Mr. Raymond Ambrose was appointed as a member of the Company's Board of
Directors in November 1997. Since 1984, Mr. Ambrose has been the President of
Air Orlando, Inc., Orlando, Florida, an aviation company with aircraft charter,
maintenance, sales and flying school divisions. From 1981 until 1987, Mr.
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<PAGE> 54
Ambrose served as the Mayor of the City of Altamonte Springs, Florida. From 1971
until 1981, Mr. Ambrose was employed by the Altamonte Springs Police Department
as a Rank Lieutenant.
The Company's Articles of Incorporation provide for the Board of Directors
to have a minimum of three and a maximum of nine directors, which number is
fixed from time to time by the Board of Directors. The number of directors is
currently fixed at six. The Articles of Incorporation further provide that the
members of the Board be divided into three classes, as nearly equal in number as
possible, to serve in staggered terms of office for three years. The number of
members comprising the Board presently is five. Messrs. Jack L. Harward and
Raymond Ambrose are Class II directors whose terms expire at the 2001 Annual
Meeting of Shareholders. Messrs. Dennis J. Harward and Bernard B. Markey are
Class III directors whose terms expire at the 1999 Annual Meeting of
Shareholders. Mr. O.F. Ramos is a Class I director. There is one vacancy in
Class I which, pursuant to the Company's Articles of Incorporation, may be
filled by majority vote of the Board of Directors. The Company is actively
searching for a qualified individual to fill that position. The term of the
Class I directors expires at the 2000 Annual Meeting of Shareholders or until
their successors were duly elected and qualified. The Company's officers serve
at the discretion of the Board of Directors and are elected by the Board
annually.
For a description of employment and change of control severance agreements
between the Company and each of Dennis J. Harward and Jack L. Harward, see Note
11 of Notes to the Company's Consolidated Financial Statements.
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<PAGE> 55
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of July 31, 1998, with respect to (i) each
director and executive officer of the Company, (ii) the directors and executive
officers of the Company as a group, (iii) each person known by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock, and (iv)
each Selling Shareholder.
The Selling Shareholders consist of the following categories of persons:
(i) BancBoston Ventures, Inc., a venture capital investor that has held its
shares since November 1994; (ii) various institutional and individual limited
partners of a venture capital partnership that held its shares from March 1995
until it recently distributed such shares to its partners (a total of 8
investors selling 798,380 shares); (iii) two former shareholders of Phoenix
selling a total of 220,000 shares received in connection with the Company's
acquisition of Phoenix in April 1998; (iv) former shareholders and options
holders of UCS who received their shares in connection with the Company's
acquisition of UCS in June 1998, representing a total of 51 persons selling a
total of 350,954 shares, excluding 273,098 shares that are held by Mr. Ramos, an
officer of the Company and former principal shareholder of UCS; and (v) certain
directors, officers and a former officer of the Company selling a total of
1,155,332 shares, including the 273,098 shares being sold by Mr. Ramos,
referenced above.
Except as otherwise noted, and subject to community property laws where
applicable, each named beneficial owner has sole voting and investment power
over the shares shown. To the knowledge of the Company, none of the Selling
Shareholders has had within the past three years any material relationship with
the Company or any of its predecessor or affiliates, except as set forth in the
footnotes to the following table.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
THE OFFERING(1) OFFERED(2) THE OFFERING
------------------- ---------- -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- ----------------------------------------------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Dennis J. Harward(2)(3)(4)..................... 3,713,798 22.0% 371,749 3,342,049 18.1%
Jack L. Harward(2)(3)(5)....................... 2,505,154 14.8% 250,885 2,254,269 12.2%
Bernard B. Markey(3)(6)........................ 28,117 * -- 28,117 *
Raymond Ambrose(3)(7).......................... 5,000 * -- 5,000 *
O.F. Ramos(2)(3)(8)............................ 546,422 3.2% 273,098 273,324 1.5%
L.A. Gornto, Jr.(2)(3)(9)...................... 212,000 1.3% 70,000 142,000 *
Gilbert O. Santos(3)(10)....................... -- -- -- -- --
Daniel E. Catan(3)(11)......................... 122,028 * 20,000 102,028 *
Susan D. Falotico(3)(12)....................... 11,763 * -- 11,763 *
Charlotte B. Hill(3)(13)....................... 23,205 * -- 23,205 *
Brian B. Heafy(3)(14).......................... 4,240 * -- 4,240 *
All executive officers and directors as a group
(11 persons)................................. 7,171,727 42.5% 985,732 6,185,995 33.4%
BancBoston Ventures, Inc.
175 Federal Street, 10th Floor
Boston, Massachusetts 02110.................. 1,112,432 6.6% 1,112,432 -- --
CoreStates Holdings, Inc.
First Union Capital Partners
One First Union Center, 4th Floor
Charlotte, NC 28288-0732..................... 416,391 2.5% 416,391 -- --
First Maryland Bancorp
121 West Market Street
Mail Code 401-610
York, PA 17401............................... 36,208 * 36,208 -- --
</TABLE>
51
<PAGE> 56
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
THE OFFERING(1) OFFERED(2) THE OFFERING
------------------- ---------- -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
- ----------------------------------------------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Summit Bancorp
750 Walnut Avenue
Cranford, NJ 07016........................... 54,312 * 54,312 -- --
The Philadelphia Municipal
Employees Retirement System
Two Penn Center Plaza, 20th Floor
Philadelphia, PA 19102....................... 90,520 * 90,520 -- --
PNC Bank, Delaware
222 Delaware Avenue, 18th Floor
Wilmington, DE 19899......................... 36,208 * 36,208 -- --
NatWest Group Holdings Corporation
175 Water Street
New York, NY 10038........................... 90,520 * 90,520 -- --
George P. Keeley
16 Manchester Court
The Highlands
Berwyn, PA 19312............................. 30,394 * 30,394 -- --
Raymond R. Rafferty, Jr.
64 Rosemont Avenue
Rosemont, PA 19010........................... 87,654 * 43,827 43,827 *
Ronald E. Goodrow(15).......................... 169,600 1.0% 169,600 -- --
Robert W. Nelson(16)........................... 283,468 1.7% 183,468 100,000 *
William K. North(17)........................... 172,846 1.0% 112,846 60,000 *
George A. Sheehy(18)........................... 136,018 * 110,000 26,018 *
David N. Way(19)............................... 136,018 * 110,000 26,018 *
Certain Employees (49) of HTE-UCS, Inc.(20).... 116,906 * 54,640 62,266 *
---------
3,637,098(2)
</TABLE>
- ---------------
* Less than 1%
(1) 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.
(2) Does not include a total of 770,565 additional shares of Common Stock that
the Underwriters may purchase to cover over-allotments pursuant to an option
granted to the Underwriters by certain Selling Shareholders, exercisable for
up to 30 days after the date of this Prospectus. Those Selling Shareholders
and their respective shares subject to the Underwriters' over-allotment
option are as follows: Dennis J. Harward -- 339,300 shares; Jack L.
Harward -- 339,301 shares; O.F. Ramos -- 81,964 shares; and L.A. Gornto, Jr.
(G & S Partnership) -- 10,000 shares.
(3) Unless otherwise noted, the address of each such executive officer, director
and over 5% shareholder is H.T.E., Inc., 1000 Business Center Drive, Lake
Mary, Florida 32764.
(4) Mr. D. Harward has been President, Chief Executive Officer and Chairman of
the Board of the Company since 1981.
(5) Mr. J. Harward has been Executive Vice President and a Director of the
Company since 1983.
(6) Mr. Markey is a Director of the Company and a general partner of the limited
partnership referred to above that distributed shares of Common Stock to its
limited partners.
(7) Includes 5,000 shares Mr. Ambrose holds jointly with his wife.
52
<PAGE> 57
(8) Mr. Ramos, a Director of the Company since August 1998, has been Executive
Vice President of the Company and President of HTE-UCS, Inc. since June
1998 and prior to that date was the President, Chief Executive Officer, a
Director and a principal (51.5%) shareholder of UCS. Includes 30,268 shares
of Common Stock held in escrow for 180 days following the June 1, 1998
closing of the UCS acquisition, pursuant to the terms and conditions of an
escrow agreement.
(9) Includes 106,000 shares of Common Stock held by G & S Investment Group
Limited Partnership (the "G & S Partnership") in which Mr. Gornto is the
general partner and he and his spouse are the limited partners, and 106,000
shares of Common Stock that Mr. Gornto may acquire within 60 days upon
exercise of stock options. Mr. Gornto has been Executive Vice President,
Secretary and General Counsel for the Company since January 1997, and Chief
Financial Officer from January 1997 to November 1997. Prior to January
1997, Mr. Gornto provided legal services to the Company. The sale of the
70,000 shares of Common Stock will be made by the G & S Partnership.
(10) Mr. Santos became Vice President -- Customer Services in September 1998.
(11) Includes 121,200 shares of Common Stock that Mr. Catan may acquire within
60 days upon exercise of stock options. Mr. Catan has been Vice President
and Chief Marketing Officer since July 1996.
(12) Includes 10,600 shares of Common Stock that Ms. Falotico may acquire within
60 days upon exercise of stock options.
(13) Includes 21,200 shares of Common Stock that Ms. Hill may acquire within 60
days upon exercise of stock options. Ms. Hill has been Vice
President -- Research and Development for the Company since February 1997.
(14) Represents shares of Common Stock that Mr. Heafy may acquire within 60 days
upon exercise of stock options.
(15) Includes 116,600 shares of Common Stock that Mr. Goodrow may acquire within
60 days upon exercise of stock options. Mr. Goodrow is a former officer of
the Company and was the Vice President -- Operations from August 1995 to
September 1998.
(16) Mr. Nelson has been Vice President -- Marketing and Chief Marketing Officer
with HTE-UCS, Inc. since June 1998 and was Vice President of Marketing and
a principal (26.7%) shareholder of UCS. Includes 15,710 shares of Common
Stock held in escrow for 180 days following the June 1, 1998 closing of the
UCS acquisition, pursuant to the terms and conditions of an escrow
agreement.
(17) Mr. North has been Vice President -- Research of HTE-UCS, Inc. since June
1998 and was a principal (16.3%) shareholder of UCS. Includes 9,578 shares
of Common Stock held in escrow for 180 days following the June 1, 1998
closing of the UCS acquisition, pursuant to the terms and conditions of an
escrow agreement.
(18) Mr. Sheehy has been Vice President of HTE-Phoenix Systems LLC since April
1998 and formerly held the same position with, and was a 50% equity owner
of Phoenix prior to HTE's acquisition of that company. Includes 13,602
shares of Common Stock held in escrow for 240 days following the April 1,
1998 closing of the acquisition of Phoenix pursuant to the terms of an
escrow agreement.
(19) Mr. Way has been President of HTE-Phoenix Systems LLC since April 1998 and
formerly held the same position with, and was a 50% equity owner of Phoenix
prior to HTE's acquisition of that company. Includes 13,602 shares of
Common Stock held in escrow for 240 days following the April 1, 1998
closing of the acquisition of Phoenix pursuant to the terms of an escrow
agreement.
(20) Represents shares of the Company's Common Stock received by various UCS
optionholders (employees) in connection with the acquisition of UCS by the
Company, which shares in the aggregate represent less than 1% of the issued
and outstanding shares of Common Stock of the Company. Excludes shares of
Common Stock beneficially owned by Messrs. Ramos, Nelson and North, who are
identified individually in the foregoing table.
53
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated as
of the date hereof (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 the Underwriters, for whom SG Cowen Securities
Corporation, Janney Montgomery Scott Inc., Raymond James & Associates, Inc. and
Volpe Brown Whelan & Company, LLC are acting as representatives (together, the
"Representatives"), has severally agreed to purchase from the Company and the
Selling Shareholders the respective number of shares of Common Stock set forth
opposite the name of such Underwriter below at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
- ---- ------------
<S> <C>
SG Cowen Securities Corporation.............................
Janney Montgomery Scott Inc.................................
Raymond James & Associates, Inc.............................
Volpe Brown Whelan & Company, LLC...........................
----------
Total............................................. 5,137,100
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below),
if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and, in part, to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.
Certain Selling Shareholders have granted the Underwriters an option,
exercisable for up to 30 days after the date of this Prospectus, to purchase up
to an aggregate of 770,565 additional shares of Common Stock to cover
over-allotments, if any. The Selling Shareholders who have granted the option
are Dennis J. Harward, Jack L. Harward, O.F. Ramos and L. A. Gornto, Jr., each
of whom is an executive officer and/or Director of the Company. 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
5,137,100 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
5,137,100 shares of Common Stock offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company, its Directors and executive officers and certain Selling
Shareholders have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible
54
<PAGE> 59
into or exercisable or exchangeable for, or any rights to purchase or acquire,
Common Stock for a period of 90 days following the date of this Prospectus,
without the prior written consent of SG Cowen Securities Corporation (which
consent may be given without notice to the Company's shareholders or other
public announcement), except for shares that may be issued by the Company with
respect to acquisitions and exercise of options under employee benefit plans.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales in excess of 5% of the
shares offered hereby to accounts over which the Underwriters exercise
discretionary authority.
In order to facilitate this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection with
this Offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of the Common
Stock in the open market. The Underwriters may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Common Stock in this
Offering, if the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short positions, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase, shares of the
Common Stock in market making transactions. These activities may stabilize or
maintain the market price of the Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
The foregoing contains a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg Traurig, P.A., Orlando, Florida. Certain legal matters
relating to the Offering will be passed upon for the Underwriters by Saul,
Ewing, Remick & Saul LLP, Philadelphia, Pennsylvania.
EXPERTS
The Consolidated Financial Statements included in this Prospectus and
elsewhere in the registration statement of which this Prospectus is a part have
been audited by Arthur Andersen LLP, independent certified public accountants,
as set forth in their report. In that report, Arthur Andersen LLP states that
with respect to UCS, its opinion is based on the reports of other independent
certified public accountants, PricewaterhouseCoopers LLP (formerly Price
Waterhouse LLP). The financial statements referred to above have been included
herein in reliance upon the authority of Arthur Andersen LLP as experts in
accounting and auditing.
The financial statements of UCS not separately presented in this Prospectus
have been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, whose reports thereon appear herein. Such financial statements, to
the extent they have been included in the financial statements of HTE as a
result
55
<PAGE> 60
of a pooling of interest transaction, have been so included in reliance on their
reports given on the authority of PricewaterhouseCoopers LLP as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Company has filed with the Commission a registration statement on Form S-3 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the provisions of
any document are not necessarily complete and, in each instance, reference is
hereby made to the copy of the document filed as an exhibit to the registration
statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
The registration statement described above, its exhibits and schedules, and
the reports, proxy statements, and other information that the Company files with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates from the Commission's Public Reference Section at its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a web site, the address of which is http:/www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission.
The Company's Common Stock is listed on the Nasdaq National Market, and
reports, proxy statements, and other information concerning the Company can also
be inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company will furnish without charge, upon written or oral request, to
any person, including any beneficial owner, to whom this Prospectus is
delivered, a copy of any information that has been incorporated in this
Prospectus by reference (other than exhibits to such documents that are not
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to Investor Relations, H.T.E., Inc.,
1000 Business Center Drive, Lake Mary, Florida 32746, telephone number (407)
304-3235.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
3. All Current Reports filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since December 31, 1997, consisting of the
Company's Current Reports on Form 8-K filed February 12, 1998, June 12,
1998 and amendment thereto filed on June 24, 1998, and August 19, 1998;
4. The Company's Definitive Proxy Statement for the 1998 Annual
Shareholder's Meeting filed on April 17, 1998 pursuant to Section 14 of the
Exchange Act; and
5. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A and any amendments to such descriptions
in such Registration Statement.
56
<PAGE> 61
In addition, all other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering shall be deemed
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified shall not
be deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute a part of this
Prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act, with respect to the Company's business, financial condition and results of
operations. When used in this Prospectus, the words "may," "will," "intends,"
"plans," "expects," "anticipates," "estimates," and similar expressions are
intended to identify forward-looking statements. The forward-looking statements
included herein are subject to risks and uncertainties. The Company's actual
results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus. Investors are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
57
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Certified Public Accountants......... F-2
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Stockholders' (Deficit) Equity... F-6
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 63
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 December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' (deficit)
equity and cash flows for the year ended March 31, 1996, the nine months ended
December 31, 1996, and the year ended December 31, 1997, which give retroactive
effect to the merger with UCS, Inc. on June 1, 1998, which has been accounted
for as a pooling of interests. 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 did not audit the financial
statements of UCS, Inc., which statements reflect total assets constituting 10
percent and five percent, as of December 31, 1996 and 1997, respectively, and
total revenues constituting 24 percent, 17 percent and 15 percent, for the year
ended March 31, 1996, the nine months ended December 31, 1996, and the year
ended December 31, 1997, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose reports thereon have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for UCS, Inc., is based solely upon the reports of the other auditors.
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 and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of H.T.E., Inc. and its
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the year ended March 31, 1996, the nine
months ended December 31, 1996, and the year ended December 31, 1997, after
giving retroactive effect to the merger with UCS, Inc. as described in Note 1 to
the consolidated financial statements, all in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Orlando, Florida
August 3, 1998
F-2
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of UCS, Inc.:
In our opinion, the balance sheet and the related statements of operations
and stockholders' equity and of cash flows (not presented separately herein),
present fairly, in all material respects, the financial position of UCS, Inc. at
December 31, 1995, and the results of its operations and its cash flows for the
year in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Miami, Florida
September 4, 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of UCS, Inc.:
In our opinion, the balance sheet and the related statements of operations
and stockholders' equity and of cash flows (not presented separately herein),
present fairly, in all material respects, the financial position of UCS, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
period April 1, 1996 through December 31, 1996 in conformity with generally
accepted accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
July 7, 1998
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of UCS, Inc.:
In our opinion, the balance sheet and the related statements of operations
and stockholders' equity and of cash flows (not presented separately herein),
present fairly, in all material respects, the financial position of UCS, Inc. at
December 31, 1997, and the results of its operations and its cash flows for the
year in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of UCS, Inc. as of any date
or for any period subsequent to December 31, 1997.
/s/ Price Waterhouse LLP
Miami, Florida
April 10, 1998
F-3
<PAGE> 65
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,038 $18,634 $10,892
Restricted cash........................................... -- 1,574 --
Trade accounts receivable, less allowance of $520, $617
and $617 for doubtful accounts at December 31, 1996 and
1997, and June 30, 1998, respectively (Note 4).......... 18,086 22,822 31,257
Deferred income taxes (Note 10)........................... 667 751 755
Other current assets...................................... 663 1,405 2,662
------- ------- -------
Total current assets................................ 20,454 45,186 45,566
------- ------- -------
EQUIPMENT, FURNITURE AND FIXTURES, net (Note 2)............. 1,969 3,257 3,876
------- ------- -------
OTHER ASSETS:
Computer software development costs, net of accumulated
amortization of $6,312, $8,361 and $9,133 at December
31, 1996 and 1997, and June 30, 1998, respectively...... 3,817 4,297 5,211
Other intangible assets, net (Note 3)..................... 1,045 1,271 2,658
Deposits.................................................. 130 197 262
------- ------- -------
4,992 5,765 8,131
------- ------- -------
$27,415 $54,208 $57,573
======= ======= =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 3,009 $ 3,134 $ 3,469
Accrued liabilities....................................... 4,314 5,235 4,103
Line of credit (Note 4)................................... 2,306 -- --
Deferred revenue.......................................... 10,378 12,430 14,588
Current portion of notes payable to related parties (Note
3)...................................................... 60 -- --
------- ------- -------
Total current liabilities........................... 20,067 20,799 22,160
------- ------- -------
LONG-TERM LIABILITIES:
Notes payable to related parties, less current portion
(Note 3)................................................ 240 -- --
Due to stockholders....................................... 1,064 1,213 --
Other long-term liabilities............................... 66 173 227
Deferred income taxes (Note 10)........................... 1,731 1,731 2,070
------- ------- -------
Total long-term liabilities......................... 3,101 3,117 2,297
------- ------- -------
COMMITMENTS AND CONTINGENCIES
(Notes 9, 11 and 12)
MANDATORILY REDEEMABLE PREFERRED STOCK, 7% cumulative
convertible preferred stock (including accrued dividends
of $433 at December 31, 1996), $.0002 par value, 2,000,000
shares authorized and 1,769,494 shares issued and
outstanding at December 31, 1996, 0 shares authorized,
issued and outstanding at December 31, 1997 and June 30,
1998 (Note 5)............................................. 4,303 -- --
------- ------- -------
MANDATORILY REDEEMABLE CLASS C COMMON STOCK, $.0002 par
value, 200,000 shares authorized and 63,600 issued and
outstanding at December 31, 1996, 0 shares authorized,
issued and outstanding at December 31, 1997 and June 30,
1998 (Notes 3 and 6)...................................... 119 -- --
------- ------- -------
STOCKHOLDERS' (DEFICIT) EQUITY (Note 7)
Common stock--
Class A, $.0002 par value, 4,000,000 shares authorized
and 3,530,557 shares issued and outstanding at December
31, 1996, 0 shares authorized, issued and outstanding
at December 31, 1997 and June 30, 1998................. 1 -- --
Class B, $.01 par value, 200,000 authorized at December
31, 1996, 0 shares authorized at December 31, 1997 and
June 30, 1998, none issued and outstanding............. -- -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 1,082,536, 16,472,792 and 16,819,458 shares
issued and outstanding as of December 31, 1996 and
1997, and June 30, 1998, respectively.................. 11 165 168
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding................. -- -- --
Additional paid-in capital................................ 342 27,999 28,309
Accumulated (deficit) earnings............................ (524) 2,122 4,672
Cumulative translation adjustment......................... (5) 6 (33)
------- ------- -------
Total stockholders' (deficit) equity................ (175) 30,292 33,116
------- ------- -------
$27,415 $54,208 $57,573
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 66
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
NINE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED JUNE 30,
MARCH 31, DECEMBER 31, DECEMBER 31, -----------------
1996 1996 1997 1997 1998
---------- ------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software licenses....................................... $11,575 $10,869 $26,762 $12,049 $19,801
Professional services................................... 10,686 8,943 14,543 7,498 9,454
Hardware................................................ 7,323 7,740 11,768 4,640 5,477
Maintenance and other................................... 10,013 6,950 12,571 5,997 8,362
Resource management..................................... -- -- 448 -- 723
------- ------- ------- ------- -------
Total revenues.................................... 39,597 34,502 66,092 30,184 43,817
------- ------- ------- ------- -------
OPERATING EXPENSES:
Cost of software licenses............................... 3,585 2,919 5,283 2,207 3,016
Cost of professional services........................... 7,608 4,952 8,363 4,159 5,546
Cost of hardware........................................ 5,774 6,186 9,209 3,570 4,378
Cost of maintenance and other........................... 4,233 2,705 5,984 2,877 4,400
Cost of resource management............................. -- -- 343 -- 467
Research and development................................ 4,508 5,242 8,256 4,064 6,226
Sales and marketing..................................... 5,474 6,186 11,520 5,133 8,322
General and administrative.............................. 6,764 5,830 10,925 5,488 7,063
------- ------- ------- ------- -------
Total operating expenses.......................... 37,946 34,020 59,883 27,498 39,418
------- ------- ------- ------- -------
OPERATING INCOME.......................................... 1,651 482 6,209 2,686 4,399
OTHER EXPENSE (INCOME):
Interest expense........................................ 127 191 175 127 2
Interest income......................................... -- -- (402) (1) (257)
------- ------- ------- ------- -------
Total other expense (income)...................... 127 191 (227) 126 (255)
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES................................ 1,524 291 6,436 2,560 4,654
TAXES:
Deferred tax provision related to acquisitions.......... -- -- -- -- 339
Provision for income taxes (Note 10).................... 211 581 2,482 803 1,806
------- ------- ------- ------- -------
NET INCOME (LOSS)......................................... 1,313 (290) 3,954 1,757 2,509
ACCRETION AND ACCRUAL OF
DIVIDENDS ON MANDATORILY
REDEEMABLE PREFERRED STOCK.............................. 184 1,003 1,308 1,308 --
------- ------- ------- ------- -------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS.................................. $ 1,129 $(1,293) $ 2,646 $ 449 $ 2,509
======= ======= ======= ======= =======
PRO FORMA INCOME DATA (Unaudited)
Income before income taxes.............................. $ 1,524 $ 291 $ 6,436 $ 2,560 $ 4,654
Pro forma provision for income taxes.................... 593 158 2,463 1,005 1,756
------- ------- ------- ------- -------
PRO FORMA NET INCOME...................................... $ 931 $ 133 $ 3,973 $ 1,555 $ 2,898
======= ======= ======= ======= =======
NET INCOME (LOSS) PER SHARE
Basic................................................... $ 0.14 $ (0.16) $ 0.21 $ 0.05 $ 0.15
======= ======= ======= ======= =======
Diluted................................................. $ 0.12 $ (0.16) $ 0.20 $ 0.05 $ 0.14
======= ======= ======= ======= =======
PRO FORMA NET INCOME PER SHARE (Unaudited)
Basic................................................... $ 0.01 $ 0.28 $ 0.13 $ 0.17
------- ------- ------- -------
Diluted................................................. $ 0.01 $ 0.27 $ 0.13 $ 0.17
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 67
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A NOTES
COMMON STOCK COMMON STOCK ADDITIONAL ACCUMULATED CUMULATIVE RECEIVABLE
--------------- --------------- PAID-IN (DEFICIT) TRANSLATION FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCKHOLDERS TOTAL
------ ------ ------ ------ ---------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31,
1995................... 1,061 $ 11 3,392 $ 1 $ 113 $ (50) $ -- $ -- $ 75
Issuance of common
stock.................. -- -- 136 -- 224 -- -- -- 224
Stock issued in
connection with UCS
merger................. 22 -- -- -- -- -- -- -- --
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............... -- -- -- -- -- 1,313 -- -- 1,313
Adjustment for difference
in fiscal years........ -- -- -- -- -- (47) -- -- (47)
------ ---- ------ ----- ------- ------ ----- ---- -------
BALANCE, MARCH 31,
1996................... 1,083 11 3,528 1 337 1,032 -- (262) 1,119
Issuance of common
stock.................. -- -- 3 -- 5 -- -- -- 5
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 --
Translation adjustment... -- -- -- -- -- -- (5) -- (5)
Net loss................. -- -- -- -- -- (290) -- -- (290)
------ ---- ------ ----- ------- ------ ----- ---- -------
BALANCE, DECEMBER 31,
1996................... 1,083 11 3,531 1 342 (524) (5) -- (175)
Stock issued in
connection with UCS
merger................. 13 -- -- -- -- -- -- -- --
Accretion of mandatorily
redeemable preferred
stock to redemption
value.................. -- -- -- -- -- (1,117) -- -- (1,117)
Accrual of mandatorily
redeemable preferred
stock dividends........ -- -- -- -- -- (191) -- -- (191)
Compensation due to sale
of stock............... -- -- -- -- 65 -- -- -- 65
Conversion of mandatorily
redeemable preferred
stock.................. 3,539 35 -- -- 4,952 -- -- -- 4,987
Conversion of mandatorily
redeemable Class C
common stock........... 127 1 -- -- 137 -- -- -- 138
Conversion of Class A
common stock........... 7,061 71 (3,531) (1) (70) -- -- -- --
Proceeds from sale of
common stock........... 4,650 47 -- -- 22,573 -- -- -- 22,620
Translation adjustment... -- -- -- -- -- -- 11 -- 11
Net income............... -- -- -- -- -- 3,954 -- -- 3,954
------ ---- ------ ----- ------- ------ ----- ---- -------
BALANCE, DECEMBER 31,
1997................... 16,473 $165 -- $ -- $27,999 $2,122 $ 6 $ -- $30,292
====== ==== ====== ===== ======= ====== ===== ==== =======
</TABLE>
F-6
<PAGE> 68
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY -- (CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A NOTES
COMMON STOCK COMMON STOCK ADDITIONAL ACCUMULATED CUMULATIVE RECEIVABLE
--------------- --------------- PAID-IN (DEFICIT) TRANSLATION FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCKHOLDERS TOTAL
------ ------ ------ ------ ---------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNAUDITED STOCKHOLDERS'
(DEFICIT) EQUITY DATA:
BALANCE, DECEMBER 31,
1997................... 16,473 $165 -- $ -- $27,999 $2,122 $ 6 $ -- $30,292
Stock issued in
connection with UCS
merger............... 24 -- -- -- (2) -- -- -- (2)
Proceeds from exercise
of stock options..... 10 -- -- -- 47 -- -- -- 47
Proceeds from issuance
of stock under
benefit plan......... 40 -- -- -- 265 -- -- -- 265
Stock issued in
connection with
Phoenix
acquisition.......... 272 3 -- -- -- 41 -- -- 44
Translation
adjustment........... -- -- -- -- -- -- (39) -- (39)
Net income............. -- -- -- -- -- 2,509 -- -- 2,509
------ ---- ----- ----- ------- ------ ----- ---- -------
BALANCE, JUNE 30, 1998... 16,819 $168 -- $ -- $28,309 $4,672 $ (33) $ -- $33,116
====== ==== ===== ===== ======= ====== ===== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 69
H.T.E., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(NOTE 14)
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED JUNE 30,
MARCH 31, DECEMBER 31, DECEMBER 31, -------------------
1996 1996 1997 1997 1998
---------- ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 1,313 $ (290) $ 3,954 $ 1,757 $ 2,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization........................ 3,200 2,381 3,226 1,592 2,430
Accretion of mandatorily redeemable Class C common
stock charged to interest expense.................. -- 7 19 19 --
Loss on disposal of equipment, furniture and
fixtures........................................... 3 6 -- -- --
Gain on forgiveness of accounts payable.............. (210) -- -- -- --
Compensation due to sale of stock.................... -- -- 65 65 --
Deferred income taxes................................ 145 237 (84) (38) 335
Changes in operating assets and liabilities--
Decrease (increase) in assets--
Trade accounts receivable -- net................... (5,410) (5,085) (4,736) (1,036) (8,296)
Other current assets............................... (253) (124) (544) (952) (1,257)
Deposits........................................... 29 (61) (67) (114) (65)
Increase (decrease) in liabilities--
Accounts payable and accrued liabilities........... 1,735 1,410 980 (957) (797)
Deferred revenue................................... 340 3,404 1,802 1,763 1,902
Other liabilities.................................. (171) (105) 107 20 54
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities..................................... 721 1,780 4,722 2,119 (3,185)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (671) (505) (2,091) (302) (1,194)
Proceeds from sale of investments...................... -- 119 -- -- --
Change in restricted cash.............................. -- -- (1,574) -- 1,574
Cash paid for acquisitions............................. (6) (375) (361) -- (1,792)
Computer software development costs.................... (2,693) (1,856) (2,616) (1,091) (2,205)
------- ------- ------- ------- -------
Net cash used in investing activities............ (3,370) (2,617) (6,642) (1,393) (3,617)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock.......... -- 247 -- -- --
Payment of dividends on preferred stock................ -- -- (624) (624) --
Net proceeds from issuance of common stock............. 224 5 22,620 19,056 312
Net proceeds (repayments) under line of credit......... 1,970 336 (2,306) (2,306) --
Repayments of long-term debt........................... (75) (83) -- -- --
Repayments of obligations under capital leases......... (149) (23) (34) (17) --
Net repayments of notes payable to related parties..... (50) (50) (300) -- --
Increase (decrease) in due to stockholders............. 396 483 149 (329) (1,213)
Advances on notes receivable from stockholders......... (262) (1) -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities..................................... 2,054 914 19,505 15,780 (901)
------- ------- ------- ------- -------
Effect of foreign currency exchange rate changes on cash
and cash equivalents................................... -- (5) 11 21 (39)
------- ------- ------- ------- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS................................... (595) 72 17,596 16,527 (7,742)
CASH AND CASH EQUIVALENTS, beginning of period........... 1,738 966 1,038 1,038 18,634
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period................. $ 1,143 $ 1,038 $18,634 $17,565 $10,892
======= ======= ======= ======= =======
SUPPLEMENTAL SCHEDULES OF CASH
FLOW INFORMATION
Cash paid for interest................................. $ 128 $ 187 $ 111 $ 116 $ 5
Cash paid for income taxes............................. 160 14 1,940 1,129 2,661
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 70
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
(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, Bellamy Software Ltd. (Bellamy), a Canadian
corporation, HTE-Kb Systems, Inc. (Kb Systems), a Florida corporation and
HTE-UCS, Inc. (UCS), a Florida corporation (collectively, the Company). HTE
develops, markets, implements and supports fully-integrated enterprise-wide
software applications designed specifically for public sector and utility
organizations, including state, county and city governments, other municipal
agencies, and publicly and privately 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 consolidated financial statements was not material.
On June 1, 1998, the Company acquired UCS, Inc., in exchange for 1,120,000
shares of the Company's common stock valued at approximately $15 million as of
the April 1998 agreement valuation date. UCS, Inc. is a mobile work force
automation provider of field-based reporting software. The acquisition has been
accounted for as a pooling of interests. Therefore, the consolidated financial
statements include the results of operations of UCS, Inc. for all periods
presented.
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 end 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.
Restricted cash
Restricted cash represents cash held in escrow in connection with the
JALAN, Inc. acquisition further discussed in Note 13.
F-9
<PAGE> 71
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
Trade Accounts Receivable
Included in trade accounts receivable at December 31, 1996 and 1997, are
unbilled receivables of $4,252 and $7,898, respectively. The following table
reflects the activity in the allowance for doubtful accounts for the year ended
March 31, 1996, the nine months ended December 31, 1996 and the year ended
December 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1997
--------- ------------ ------------
<S> <C> <C> <C>
Balance at the beginning of the period.............. $ 285 $ 300 $ 520
Provision........................................... 139 320 200
Write-offs.......................................... (124) (100) (103)
----- ----- -----
Balance at the end of the period.................... $ 300 $ 520 $ 617
===== ===== =====
</TABLE>
Equipment, Furniture and Fixtures
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.
The estimated useful lives of equipment, furniture and fixtures are as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Equipment................................................... 3-10
Office furniture and fixtures............................... 5-10
Leasehold improvements...................................... 5-10
</TABLE>
Depreciation and amortization expense related to equipment, furniture and
fixtures and leasehold improvements of $324, $350 and $643 is included in
general and administrative expenses on the accompanying statements of operations
for the year ended March 31, 1996, the nine months ended December 31, 1996 and
the year ended December 31, 1997, 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 expense 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 over three years 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 are 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
F-10
<PAGE> 72
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
reduce net income by approximately $798, net of the related tax benefit of $532,
or $0.07 per diluted share for the year ended March 31, 1996.
Amortization expense related to computer software development costs of
$2,831, $1,947 and $2,296 is included in cost of software license fees in the
accompanying consolidated statements of operations for the year ended March 31,
1996, the nine months ended December 31, 1996 and the year ended December 31,
1997, respectively.
Other Intangible Assets
Other intangible assets consisted of the following as of December 31, 1996
and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
DESCRIPTION 1996 1997
- ----------- ------------ ------------
<S> <C> <C>
Goodwill.................................................... $ 401 $ 401
Purchased software.......................................... 387 706
Customer lists.............................................. 386 580
------ ------
1,174 1,687
Less -- Accumulated amortization............................ (129) (416)
------ ------
$1,045 $1,271
====== ======
</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. Customer lists represent identifiable intangible assets purchased in
connection with the acquisitions of Bellamy and Kb Systems, Inc. and are
amortized over a period of 60 months. Purchased software represents identifiable
intangible assets purchased in connection with the acquisitions of PFS, Bellamy
and Kb Systems, Inc. and is amortized using the straight-line method over a
period of 36 months. Amortization expense related to goodwill and customer lists
of $23, $38 and $158 is included in general and administrative expenses in the
accompanying statements of operations for the year ended March 31, 1996, the
nine months ended December 31, 1996 and the year ended December 31, 1997,
respectively. Amortization expense related to the purchased software of $22, $46
and $129 is included in the cost of software license fees in the accompanying
consolidated statements of operations for the year ended March 31, 1996, the
nine months ended December 31, 1996 and the year ended December 31, 1997,
respectively.
Deferred Revenue and Revenue Recognition
Deferred revenue represents advance payments by customers for software
licenses, maintenance and professional services. Revenue from software licenses
is recognized when a contract has been executed, the product has been shipped,
all significant contractual obligations related to the software licenses have
been satisfied, uncertainty surrounding customer acceptance becomes
insignificant and collection of the related receivable is probable. Maintenance
revenue is 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.
During 1997, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which
is effective for transactions entered into in fiscal years beginning after
December 15, 1997, and supersedes SOP 91-1. The AICPA subsequently issued SOP
98-4, which deferred for one year the effective date of certain provisions of
SOP 97-2 with respect to
F-11
<PAGE> 73
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
vendor-specific objective evidence. Management does not anticipate that the
implementation of the guidance set forth in SOP 97-2, as amended by SOP 98-4,
will have a material impact on its current revenue recognition policies.
Income Taxes and Pro Forma Provision for 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. In
estimating future tax consequences, the Company considers all expected future
events other than enactments of changes in the tax law or rates. Changes in the
tax law or rates will be recognized in the future years in which they occur.
As noted above, the consolidated financial statements include the results
of operations of UCS, Inc. for all periods presented. UCS, Inc. was an S
corporation, and therefore no tax provision was reflected in its results of
operations. The pro forma provision for income taxes includes the tax impact of
UCS, Inc.'s operations, as adjusted for elimination of intercompany
transactions, based on the appropriate statutory rate.
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 Remarketing
agreement with IBM. Any change in this relationship could potentially have an
adverse effect on the Company's financial performance.
Stock-Based Compensation
The Company measures compensation expense for stock-based compensation
granted to employees in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company has elected to adopt only the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," which
are presented in Note 8.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the Canadian
dollar. The financial statements of the Company's foreign subsidiary 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 resulting translation adjustments reported as a separate
component of stockholders' (deficit) 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.
F-12
<PAGE> 74
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
Net Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." The Company adopted SFAS No. 128 in 1997 and, as a
result, restated all prior period income per share data presented. The following
disclosures comply with the requirements of SFAS No. 128 (amounts in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1997
--------- ------------ ------------
<S> <C> <C> <C>
Basic weighted-average shares outstanding........... 7,873 8,144 12,677
Common shares applicable to:
Stock options..................................... -- 51 442
Mandatorily redeemable preferred stock............ 3,271 -- --
------ ------ ------
Diluted weighted-average shares outstanding......... 11,144 8,195 13,119
====== ====== ======
</TABLE>
Common share equivalents included in the diluted calculation related to
stock options 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. Common share equivalents included in the diluted
calculation related to mandatorily redeemable preferred stock are computed using
the if converted method assuming conversion at the later of the beginning of
each period or the date issued, when dilutive.
All share and per share information in the consolidated financial
statements have been adjusted to give effect to the 53-for-one stock split and
par value restatement (related to the Company's mandatorily redeemable preferred
stock, mandatorily redeemable Class C common stock and Class A common stock),
which was effective on June 10, 1997. Additionally, the share and per share
information in the consolidated financial statements have been further adjusted
to give effect to the two-for-one common stock split which was effective on June
18, 1998.
Pro Forma Net Income Per Share (Unaudited)
Pro forma net income per share is determined by dividing pro forma net
income by the pro forma weighted-average number of shares outstanding during the
period. The basic and diluted pro forma weighted-average number of shares
outstanding during the periods presented, except for the six months ended June
30, 1998, which is not pro forma, assume the conversion of the mandatorily
redeemable preferred stock shares and the mandatorily redeemable Class C common
stock into Class A common stock as of the date such stock was first issued.
Carrying Value of Long-Lived Assets
The Company reviews the carrying value of all long-lived assets, including
equipment, furniture and fixtures, computer software development costs, and
other intangible assets, whenever events or changes in circumstances indicate
that the carrying value may not be recoverable through projected undiscounted
future operating cash flows. Although no impairment is indicated at December 31,
1997, the assessment of recoverability will be impacted if estimated projected
undiscounted operating cash flows are not achieved.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as
F-13
<PAGE> 75
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
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 December 31, 1996 and
1997, approximate fair value because of the short maturity of these instruments.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statements of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130) and No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components and SFAS 131 establishes standards for reporting information about
operating segments. The provisions of these statements become effective for
fiscal years beginning after December 31, 1997. As these statements pertain to
disclosure and informational requirements, they will have no impact on the
Company's operating results or financial position. Comprehensive income has not
been reported for the periods included in the accompanying consolidated
financial statements due to the immaterial nature of the related adjustments.
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 June 30, 1998, the
accompanying consolidated statements of operations and cash flows for the six
months ended June 30, 1997 and 1998, and the accompanying consolidated statement
of stockholders' (deficit) equity for the six months ended June 30, 1998,
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. The results of operations for the six months ended
June 30, 1998, are not necessarily indicative of the results to be expected for
the entire fiscal year.
2. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consisted of the following as of December
31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Equipment................................................... $ 3,489 $ 4,593
Office furniture and fixtures............................... 850 900
Leasehold improvements...................................... 102 1,018
------- -------
4,441 6,511
Less -- Accumulated depreciation and amortization........... (2,472) (3,254)
------- -------
$ 1,969 $ 3,257
======= =======
</TABLE>
F-14
<PAGE> 76
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
3. BUSINESS COMBINATIONS
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 equipment, furniture and fixtures,
miscellaneous deposits and purchased software. 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.
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 6) 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, equipment,
furniture and fixtures, prepaid expenses, purchased software and other
intangible assets. Additionally, the Company assumed various liabilities
including accounts payable and accrued expenses, certain customer service
liabilities, deferred taxes and a 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 subsequent to its acquisition.
Goodwill of $289 was recognized in connection with the purchase. 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 were repaid during 1997.
During the year ended December 31, 1997, the Company created Kb Systems as
a wholly-owned subsidiary. In December 1997, Kb Systems purchased the net assets
of Kb Systems, Inc. for $400 in cash. As of December 31, 1997, $300 had been
paid by the Company. The remaining $100 was paid in March 1998 upon receipt by
the Company of evidence of satisfaction of certain liabilities of Kb Systems,
Inc. The assets purchased consisted principally of purchased software and other
intangible assets. As part of the purchase, HTE also assumed limited customer
service liabilities. Additionally, the Company entered into a royalty agreement
with Kb Systems, Inc., for a period of five years. This acquisition has been
accounted for as a purchase in the accompanying consolidated financial
statements.
Revenues, net income and earnings per share presented on a pro forma basis,
as if the acquisitions had occurred at the beginning of each period presented,
are as follows (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Revenues.................................................... $36,305 $67,136
Net income (loss)........................................... (216) 3,985
Basic earnings per share.................................... (0.03) 0.31
Diluted earnings per share.................................. (0.03) 0.30
</TABLE>
The earnings per share information above was calculated using the pro forma
weighted-average shares outstanding during the periods presented as described in
Note 1.
4. LINE OF CREDIT
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
F-15
<PAGE> 77
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
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. At
December 31, 1996, borrowings of $2,306 were outstanding under the line of
credit. There were no borrowings outstanding under the line of credit at
December 31, 1997. The line of credit contains financial covenants which require
the Company to maintain certain financial ratios. As of December 31, 1997, the
Company was either in compliance with or had received appropriate waivers for
all debt covenants. The Company intends to refinance this line of credit during
1998.
5. MANDATORILY REDEEMABLE PREFERRED STOCK
Effective October 31, 1994, the Company authorized 200,000 shares of
mandatorily redeemable preferred stock. The preferred stock had full voting
rights and was convertible into common stock at any time based on a formula
defined in the Company's Articles of Incorporation. Annual dividends, which were
cumulative, were computed at seven percent per annum and totaled $268 and $433
as of March 31 and December 31, 1996, respectively. For the year ended March 31,
1996, the nine months ended December 31, 1996 and the year ended December 31,
1997, the amount of accretion related to the preferred stock totaled $(26), $838
and $1,117, respectively, which is reflected as an (decrease) increase in
mandatorily redeemable preferred stock, with the offset going to accumulated
(deficit) earnings. The accretion related to the preferred stock was determined
based on the liquidation preference as of March 31, 1996, the formula value as
of December 31, 1996, and the initial public offering (IPO) price during the
year ended December 31, 1997. As further described in Note 7, the mandatorily
redeemable preferred stock was converted to common stock during 1997 in
connection with the IPO, at which time $624 of accumulated dividends were paid.
6. MANDATORILY REDEEMABLE CLASS C COMMON STOCK
On November 1, 1996, the Company issued 63,600 shares of mandatorily
redeemable Class C common stock as partial consideration in connection with the
acquisition of Bellamy (see Note 3). As further described in Note 7, all
outstanding shares of mandatorily redeemable Class C common stock were converted
into 127,200 shares of common stock during 1997 in connection with the IPO.
7. STOCKHOLDERS' (DEFICIT) EQUITY
During the periods ended March 31 and December 31, 1996, the Company made
advances to its principal common stockholders evidenced by notes receivable
which 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 forgiveness of the notes receivable from
stockholders was reflected as a distribution to stockholders resulting in an
increase to the accumulated deficit as of December 31, 1996.
On June 10, 1997, the Company's IPO registration statement on Form S-1 was
declared effective by the U.S. Securities and Exchange Commission. Concurrent
with the effectiveness of the registration statement, the Company completed a
recapitalization pursuant to which (i) the number of authorized shares of the
Company's Class A common stock and mandatorily redeemable preferred stock were
increased to 4,000,000 and 2,000,000, respectively, (ii) all outstanding shares
of mandatorily redeemable preferred stock, mandatorily redeemable Class C common
stock and Class A common stock were split 53-for-one and exchanged
simultaneously on a two-for-one basis for shares of the Company's newly
authorized common stock, (iii) the Company paid in cash all accrued dividends on
the mandatorily redeemable preferred stock to the date of the stock splits and
exchanges described above and (iv) following the exchanges described above, the
mandatorily redeemable preferred stock, Class A common stock, Class B common
stock and mandatorily redeemable Class C common stock were canceled, retired and
eliminated from the shares the Company is authorized to issue (the
Recapitalization).
F-16
<PAGE> 78
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
The Company sold a total of 4,650,000 shares of common stock in the IPO,
3,900,000 of which were sold in June 1997, and 750,000 of which were sold in
July 1997, when the underwriters exercised their over-allotment option. Proceeds
received by the Company were approximately $22,620, net of offering costs of
$2,955.
The common stock issued in conjunction with the UCS, Inc. acquisition has
been reflected as outstanding for all periods presented.
8. STOCK COMPENSATION PLANS
EMPLOYEE STOCK OPTIONS
On July 1, 1996, the Company granted options to an employee to purchase
106,000 shares of the Company's common stock. The options are exercisable
beginning January 1, 1997, at $0.91 per share, which approximated 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.
EXECUTIVE INCENTIVE PLAN
The Company's 1997 Executive Incentive Compensation Plan (the Executive
Incentive Plan) was adopted by the Board of Directors and approved by the
stockholders 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 and restricted stock to employees and consultants of the
Company. The Company has reserved an aggregate of 1,908,000 shares (subject to
adjustment for stock splits and similar capital changes) of common stock for
grants under the Executive Incentive Plan. The exercise price of each option
equals the market price of the Company's stock on the date of grant and an
option's maximum term is 10 years. Some options have been granted with immediate
vesting, although most of the options granted to-date provide vesting schedules
of four or five years.
A summary of the status of the Company's outstanding stock options, each of
which is fixed with respect to number of shares and exercise price, including
employee stock options discussed above, as of December 31, 1996 and 1997, and
changes during the periods ending on those dates are presented below:
<TABLE>
<CAPTION>
1996 1997
-------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.... -- $ -- 106,000 $0.91
Granted........................... 106,000 $0.91 1,061,000 $4.83
Exercised......................... -- $ -- -- $ --
Forfeited......................... -- $ -- -- $ --
------- ---------
Outstanding at end of year.......... 106,000 $0.91 1,167,000 $4.47
======= =========
Options exercisable at year end..... -- $ -- 339,200 $3.52
Weighted-average fair value of
options granted during the year... $0.55 $1.35
</TABLE>
F-17
<PAGE> 79
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ ------------------------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
PRICES 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
- -------------- ------------------- --------------------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
$0.91 106,000 8.5 $0.91 106,000 $0.91
$4.72 1,007,000 9.0 $4.72 233,200 $4.72
$5.94 to $8.57 54,000 9.7 $6.94 -- $ --
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company adopted an Employee Stock Purchase Plan (ESPP) on July 23,
1997, which was approved by the stockholders in May 1998. The ESPP is effective
as of September 1, 1997, and is designed to qualify as an employee stock
purchase plan under Section 423 of the Internal Revenues Code of 1986, as
amended. Four hundred thousand shares are reserved for issuance over the term of
the ESPP, subject to periodic adjustment for changes in the outstanding common
stock occasioned by stock splits, stock dividends, recapitalizations or other
similar changes. The ESPP qualifies as a non-compensatory plan under APB Opinion
No. 25; therefore, the ESPP is not expected to have any effect on the results of
operations.
Under the terms of the ESPP, employees can choose each year to have up to
25 percent of their annual base earnings withheld to purchase the Company's
common stock. The purchase price of the stock is 85 percent of the lower of its
beginning of period or end of period market price. To date, approximately 80
percent of the Company's employees participate in the ESPP. No shares were sold
under the ESPP in 1997. As of December 31, 1997, there were 40,120 purchase
rights outstanding. These purchase rights were all granted in the initial
offering period in 1997, were exercisable at year-end and had a weighted-average
exercise price of $6.59. The weighted-average fair value of purchase rights
granted during 1997 under the ESPP was $1.90. All outstanding purchase rights at
December 31, 1997, were exercised in January 1998.
The fair value of options granted during the fiscal years ended December
31, 1996 and 1997, reported below has been estimated at the date of grant using
a Black-Scholes option pricing model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including
the expected stock price volatility. The Company's options have characteristics
significantly different from those of traded options, and changes in the
subjective assumptions can materially affect the fair value estimate. The fair
value of each option grant was estimated on the date of grant based on the
following weighted-average assumptions for options granted during 1996 and 1997:
<TABLE>
<CAPTION>
STOCK OPTION PLAN ESPP
-------------------------------- ------------
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
----------------- ------------ ------------
<S> <C> <C> <C>
Expected life (in years)..................... 10 10 .3
Weighted-average risk-free interest rate..... 7.05% 6.74% 5.21%
Volatility................................... 45.4% 45.4% 45.4%
Dividend yield............................... -- -- --
</TABLE>
F-18
<PAGE> 80
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method under SFAS No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
----------------- ------------
<S> <C> <C>
Net income (loss) attributable to common stockholders
As reported........................................... $(1,293) $2,646
Pro forma............................................. (1,328) 2,180
Basic earnings per share
As reported........................................... $ (0.16) $ 0.21
Pro forma............................................. (0.16) 0.17
Diluted earnings per share
As reported........................................... $ (0.16) $ 0.20
Pro forma............................................. (0.16) 0.16
</TABLE>
The effects of applying SFAS No. 123 on pro forma disclosures of net income
and earnings per share for fiscal 1997 and 1996 are not likely to be
representative of the pro forma effects on net income and earnings per share in
future years.
9. 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 two 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 three percent of each individual's
compensation. Contributions made by the Company totaled $515, $384 and $616 for
the year ended March 31, 1996, the nine months ended December 31, 1996 and the
year ended December 31, 1997, respectively, and are included in general and
administrative expenses in the accompanying consolidated statements of
operations.
10. INCOME TAXES
The provision for income taxes is as follows for the year ended March 31,
1996, the nine months ended December 31, 1996 and the year ended December 31,
1997:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1997
--------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal........................................... $ 40 $284 $2,126
State............................................. 26 60 440
---- ---- ------
66 344 2,566
Deferred............................................ 145 237 (84)
---- ---- ------
$211 $581 $2,482
==== ==== ======
</TABLE>
Included in the current federal portion of the provision for income taxes
for the nine months ended December 31, 1996, and the year ended December 31,
1997, are foreign taxes of $33 and $53, respectively, arising from the
operations of Bellamy.
F-19
<PAGE> 81
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
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 year ended March 31, 1996, nine months ended December 31,
1996 and year ended December 31, 1997, as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1997
--------- ------------ ------------
<S> <C> <C> <C>
U.S. federal income tax rate........................ 34.00% 34.00% 34.00%
UCS taxed as an S corporation..................... (27.52) 158.57 .29
State taxes....................................... 3.63 3.63 4.62
Tax-exempt interest............................... -- -- (2.03)
Meals and entertainment........................... 2.40 2.87 .67
Foreign tax rate.................................. -- -- .20
Other............................................. 1.34 .59 .81
------ ------ -----
Effective tax rate.................................. 13.85% 199.66% 38.56%
====== ====== =====
</TABLE>
Deferred income taxes consisted of the following as of December 31, 1997:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
------- ---------- -------
<S> <C> <C> <C>
Tax assets:
Accrued liabilities..................................... $439 $ -- $ 439
Allowance for doubtful accounts......................... 238 -- 238
Deferred lease commitment............................... -- 67 67
Other................................................... 74 32 106
---- ------- -------
Total assets.................................... 751 99 850
---- ------- -------
Tax liabilities:
Basis difference in fixed assets........................ -- (203) (203)
Capitalized software development costs.................. -- (1,494) (1,494)
Other intangible assets................................. -- (133) (133)
---- ------- -------
Total liabilities............................... -- (1,830) (1,830)
---- ------- -------
Net deferred tax asset (liability)........................ $751 $(1,731) $ (980)
==== ======= =======
</TABLE>
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................................................... 6 10 16
---- ------- -------
Total assets.................................... 667 35 702
---- ------- -------
Tax liabilities:
Basis difference in fixed assets........................ -- (204) (204)
Capitalized software development costs.................. -- (1,394) (1,394)
Other intangible assets................................. -- (168) (168)
---- ------- -------
Total liabilities............................... -- (1,766) (1,766)
---- ------- -------
Net deferred tax asset (liability)........................ $667 $(1,731) $(1,064)
==== ======= =======
</TABLE>
F-20
<PAGE> 82
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space, furniture, automobiles and equipment under
certain long-term noncancellable operating lease agreements with varying terms
and conditions.
Future aggregate minimum rental payments under these agreements are as
follows as of December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ -------
<S> <C>
1998........................................................ $ 2,766
1999........................................................ 2,245
2000........................................................ 1,587
2001........................................................ 1,479
2002........................................................ 1,317
Thereafter.................................................. 5,008
-------
$14,402
=======
</TABLE>
In April 1996, the Company entered into a lease agreement for its corporate
headquarters office in Lake Mary, Florida, under a 10-year, noncancelable
operating lease which began on May 1, 1997. The lease agreement also provides
the Company with three five-year renewal options. 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 included in other long-term liabilities on the accompanying consolidated
balance sheets at December 31, 1996 and 1997. Rent expense under operating
leases totaled approximately $1,392, $1,129 and $2,359 for the year ended March
31, 1996, the nine months ended December 31, 1996 and the year ended December
31, 1997, respectively.
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 software
license 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 software license revenues are
recognized. The Company has recorded $370 and $611 as accrued liabilities for
product royalties as of December 31, 1996 and 1997, respectively. Royalty
expense was approximately $163, $263 and $325 for the year ended March 31, 1996,
nine months ended December 31, 1996 and the year ended December 31, 1997,
respectively, and is included in cost of software licenses. 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 five 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.
F-21
<PAGE> 83
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
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 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.
12. 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.
13. SUBSEQUENT EVENTS
In January 1998, the Company purchased the net assets of JALAN, Inc. for
$1,723. The assets purchased consisted of equipment, furniture and fixtures,
miscellaneous deposits and purchased software. As part of the purchase, HTE also
assumed various customer service liabilities. Additionally, the Company entered
into a consulting agreement with the former owners of JALAN, Inc. This
acquisition was accounted for as a purchase.
F-22
<PAGE> 84
H.T.E., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH AND DECEMBER 31, 1996 AND DECEMBER 31, 1997
In April 1998, the Company purchased Phoenix Systems, LLC (Phoenix), in
exchange for 272,036 shares of the Company's common stock valued at
approximately $3 million on or about the closing date. The acquisition was
accounted for as a pooling of interests, although the Company did not restate
the results of prior periods due to the financial immateriality of Phoenix's
historical operations.
As discussed in Note 1, in June 1998 the Company acquired UCS, Inc. in a
transaction accounted for as a pooling of interests.
In July 1998, the Company entered into a letter of intent to acquire the
assets of Vanguard Management & Information Systems, Inc. for $400 in cash and
the payment of continuing royalties over a five-year period. The Company expects
the acquisition to close during the third quarter of 1998 and intends to account
for it as a purchase.
14. SUPPLEMENTAL NONCASH TRANSACTIONS
The Company includes depreciation on certain equipment in the costs
capitalized as computer software development costs. During the year ended March
31, 1996, the nine months ended December 31, 1996 and the year ended December
31, 1997, depreciation of $86, $88 and $160, respectively, was capitalized as
computer software development costs.
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.
In December 1997, the Company purchased net assets of Kb Systems, Inc. for
$400 plus legal costs of $61. As of December 31, 1997, $100 of the purchase
price remained unpaid pending satisfactory resolution of certain matters related
to Kb Systems, Inc.
The acquisitions discussed above in this note had the following noncash
effect of increasing the following assets and liabilities during the year ended
March 31, 1996, the nine months ended December 31, 1996 and the year ended
December 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1996 1997
--------- ------------ ------------
<S> <C> <C> <C>
Trade accounts receivable........................... $ -- $124 $ --
Other current assets................................ -- 121 198
Equipment, furniture and fixtures................... 20 158 --
Purchased software.................................. 130 257 319
Other intangible assets............................. -- 386 194
Goodwill established due to recognition of deferred
income taxes (included in other intangible
assets)........................................... -- 289 --
Deposits............................................ 1 -- --
Accounts payable.................................... -- 123 --
Accrued liabilities................................. -- -- 100
Deferred revenue.................................... 45 128 250
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>
F-23
<PAGE> 85
[INSIDE BACK COVER]
GROUP PHOTO OF INDIVIDUALS
- Industry expertise
- Proven products
- Integrated, cost-effective systems
- Commitment to long-term partnerships
- Dependability
[LOGO]
MORE THAN SOFTWARE(TM)...
<PAGE> 86
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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 ANY OF THE
UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY, NOR DOES IT 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 TO SUCH
PERSON. 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 DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 8
Use of Proceeds................... 15
Price Range of Common Stock....... 15
Dividend Policy................... 15
Capitalization.................... 16
Selected Consolidated Financial
Data............................ 17
Management's Discussion and
Analysis
of Financial Condition and
Results of Operations........... 19
Business.......................... 35
Management........................ 48
Principal and Selling
Shareholders.................... 51
Underwriting...................... 54
Legal Matters..................... 55
Experts........................... 55
Available Information............. 56
Incorporation of Certain Documents
by Reference.................... 56
Special Note Regarding
Forward-Looking Statements...... 57
Index To Financial Statements..... F-1
</TABLE>
======================================================
5,137,100 SHARES
H.T.E., INC. LOGO
H.T.E., INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
SG COWEN
JANNEY MONTGOMERY SCOTT INC.
RAYMOND JAMES
& ASSOCIATES, INC.
VOLPE BROWN WHELAN
& COMPANY
, 1998
======================================================
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the Offering
described in this registration statement (other than underwriting and brokerage
discounts, commissions and fees and legal fees incurred by the Selling
Shareholders, if any, which shall be payable by such Selling Shareholders) will
be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 26,717
National Association of Securities Dealers, Inc. filing
fee....................................................... 9,556
Nasdaq additional listing fee............................... 17,500
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing Expenses........................................... *
Blue Sky Fees............................................... *
Miscellaneous Expenses...................................... *
--------
Total............................................. $500,000*
========
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify its directors and officers to the extent provided
in such statute. The Registrant's Amended and Restated Articles of Incorporation
provide that the Registrant may indemnify its executive officers and directors
to the fullest extent permitted by law either now or hereafter. The Registrant
has also entered into an agreement with each of its directors and certain of its
officers wherein it has agreed to indemnify each of them to the fullest extent
permitted by law.
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act") may be permitted to directors, officers or
controlling persons of Registrant, pursuant to the foregoing provisions or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission (the "Commission"), such indemnification is against
public policy as expressed in the 1933 Act, and is therefore unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, 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 1933 Act
and will be governed by the final adjudication of such issue.
II-1
<PAGE> 88
ITEM 16. EXHIBITS
The Exhibits to this Registration Statement are listed in the Index to
Exhibits on Page II-4.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 registrant 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.
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and obtained 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 this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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 offer in of such securities at the time shall be deemed to be
the initial bona fide public offering thereof.
II-2
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement on Form S-3 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Lake Mary, State of Florida on September 17, 1998.
H.T.E., Inc.
By: /s/ DENNIS J. HARWARD
------------------------------------
Dennis J. Harward
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-3 has been signed below on
September 17, 1998 by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DENNIS J. HARWARD Chairman of the Board, President, Chief
- ----------------------------------------------------- Executive Officer and Director (principal
Dennis J. Harward executive officer)
/s/ JACK L. HARWARD Executive Vice President and Director
- -----------------------------------------------------
Jack L. Harward
/s/ SUSAN D. FALOTICO Vice President, Chief Financial Officer
- ----------------------------------------------------- (principal financial officer)
Susan D. Falotico
/s/ O. F. RAMOS Executive Vice President and Director
- -----------------------------------------------------
O. F. Ramos
* Director
- -----------------------------------------------------
Bernard B. Markey
/s/ RAYMOND AMBROSE Director
- -----------------------------------------------------
Raymond Ambrose
</TABLE>
* By Dennis J. Harward pursuant to power of attorney.
II-3
<PAGE> 90
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.0 -- Form of Underwriting Agreement
5.1 -- Opinion of Greenberg Traurig, P.A.
23.1 -- Consent of Greenberg Traurig, P.A. (contained in its opinion
filed as Exhibit 5.1 hereto).
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of PricewaterhouseCoopers LLP
24.1 -- Power of Attorney is included in the Signatures section of
this Registration Statement.*
27.1 -- Financial Data Schedule for the year ended March 31, 1996
(For SEC use only).*
27.2 -- Financial Data Schedule for the nine months ended December
31, 1996 (For SEC use only).*
27.3 -- Financial Data Schedule for the year ended December 31, 1997
(For SEC use only).*
27.4 -- Financial Data Schedule for the six months ended June 30,
1997 (For SEC use only).*
27.5 -- Financial Data Schedule for the nine months ended September
30, 1997 (For SEC use only).
27.6 -- Financial Data Schedule for the three months ended March 31,
1998 (For SEC use only).
</TABLE>
- ---------------
* Previously filed.
II-4
<PAGE> 1
EXHIBIT 1.0
5,907,665 SHARES
H.T.E., INC.
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
October _____, 1998
SG Cowen Securities Corporation
Janney Montgomery Scott Inc.
Raymond James & Associates, Inc.
Volpe Brown Whelan & Company
As Representatives of the
several Underwriters
c/o SG Cowen Securities Corporation
Financial Square
New York, NY 10005
Ladies and Gentlemen:
1. Introductory. H.T.E., Inc., a Florida corporation (the "Company"), and the
selling shareholders named in Schedule B-1 hereto (the "Selling
Shareholders") propose to sell, pursuant to the terms of this Agreement, to
the several underwriters named in Schedule A hereto (the "Underwriters" or
each, an "Underwriter") an aggregate of 5,137,100 shares of Common Stock,
$.01 par value (the "Common Stock") of the Company. The aggregate of
5,137,100 shares so proposed to be sold is hereinafter referred to as the
"Firm Stock." Certain of the Selling Shareholders also propose to sell to
the Underwriters, upon the terms and conditions set forth in Section 3
hereof, up to an additional 770,565 shares of Common Stock (the "Optional
Stock"). The Firm Stock and the Optional Stock are hereinafter collectively
referred to as the "Stock." SG Cowen Securities Corporation ("SG Cowen"),
Janney Montgomery Scott Inc. ("Janney"), Raymond James & Associates, Inc.
("Raymond James") and Volpe Brown Whelan & Company ("Volpe") are acting as
representatives of the several Underwriters and in such capacity are
hereinafter referred to as the "Representatives."
2. (a) Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that (unless
the context in which the term appears indicate otherwise, the term
"Company" will be deemed to include reference to the Company and each of
its subsidiaries identified in Section 2(a)(vi) hereof (the
"Subsidiaries")):
<PAGE> 2
(i) A registration statement on Form S-3 (File No. 333-61383),
with respect to the Stock has been carefully prepared by
the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the
Commission under the Securities Act. Copies of such
registration statement and any amendments or supplements
thereto, and all forms of related prospectuses contained
therein, including all documents incorporated therein by
reference, have been delivered to you. Such registration
statement, including the prospectus, Part II, any documents
incorporated by reference therein and all financial
schedules and exhibits thereto, as amended at the time it
shall become effective, is herein referred to as the
"Registration Statement." If it is contemplated, at the
time this Agreement is executed, that a post-effective
amendment to the registration statement will be filed and
must be declared effective before the offering of the Stock
may commence, the term "Registration Statement" as used in
this Agreement means the registration statement as amended
by said post-effective amendment. The term "Registration
Statement" as used in this Agreement shall also include any
additional registration statement relating to the Stock
that is filed and declared effective pursuant to Rule
462(b) under the Securities Act. The term "Prospectus" as
used in this Agreement means the prospectus in the form
included in the Registration Statement, or, (A) if the
prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities
Act and such information is included in a prospectus filed
with the Commission pursuant to Rule 424(b) under the
Securities Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of
the Rule 430A and other additional information contained in
the prospectus filed with the Commission pursuant to Rule
424(b) and (B) if prospectuses that meet the requirements
of Section 10(a) of the Securities Act are delivered
pursuant to Rule 434 under the Securities Act, then (i) the
term "Prospectus" as used in this Agreement means the
"prospectus subject to completion" (as such term is defined
in Rule 434(g) under the Securities Act) as supplemented by
(a) the addition of Rule 430A information and other
information contained in the form of prospectus delivered
pursuant to Rule 434(c)(2) under the Securities Act or (b)
the information contained in the abbreviated term sheets
described in Rule 434(c)(3) under the Securities Act, and
(ii) the date of such prospectuses shall be deemed to be
the date of the abbreviated term sheets. The term
"Pre-effective Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included
in the Registration Statement at the time of the initial
filing of the Registration Statement with the Commission,
and as such prospectus shall have been amended from time to
time prior to the date of the Prospectus. Any reference
herein to any Pre-effective Prospectus or the Prospectus
shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Form S-3
under the Securities Act, as of the date of such
Pre-effective Prospectus or Prospectus, as the case may be,
and any reference to any amendment or supplement to any
Pre-effective Prospectus or the Prospectus shall be deemed
to refer to and include any documents filed after such date
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and so incorporated by reference.
2
<PAGE> 3
(ii) The Commission has not issued or threatened to issue any
order preventing or suspending the use of any Pre-effective
Prospectus, and, at its date of issue, each Pre-effective
Prospectus conformed in all material respects with the
requirements of the Securities Act and did not include any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in the light of the
circumstances under which they were made, not misleading.
When the Registration Statement becomes effective and at
all times subsequent thereto up to and including each of
the Closing Dates (as hereinafter defined), the
Registration Statement and the Prospectus and any
amendments or supplements thereto will contain all material
statements and information required to be included therein
by the Securities Act and will conform in all material
respects to the requirements of the Securities Act and the
Rules and Regulations. At the time the Registration
Statement becomes effective, it will not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading. At the time the
Registration Statement becomes effective, the Prospectus
and any amendment or supplement thereto will not include
any untrue statement of a material fact or omit to state
any material fact required to be stated therein or
necessary to make the statements therein, in the light of
the circumstances under which they were made, not
misleading. The foregoing representations, warranties and
agreements shall not apply to information contained in or
omitted from any Pre-effective Prospectus or the
Registration Statement or the Prospectus or any amendment
or supplement thereto in reliance upon, and in conformity
with, written information furnished to the Company by or on
behalf of any Underwriter, directly or through you, or by
any Selling Shareholder, specifically for use in the
preparation thereof. There is no franchise, lease,
contract, agreement or document required to be described in
the Registration Statement or Prospectus or to be filed as
an exhibit to the Registration Statement that is not
described or filed therein as required. All descriptions of
any such franchises, leases, contracts, agreements or
documents contained in the Registration Statement are
accurate and complete descriptions of such documents in all
material respects.
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and
except as set forth in the Prospectus, neither the Company
nor any of its Subsidiaries has incurred any liabilities or
obligations, direct or contingent, nor entered into any
transactions not in the ordinary course of business, and
there has not been any material adverse change in the
condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations
of the Company and its Subsidiaries considered as a whole
("Material Adverse Change"), or any change in the capital
stock, short-term or long-term debt of the Company and its
Subsidiaries considered as a whole.
3
<PAGE> 4
(iv) The financial statements, together with the related notes
and schedules, set forth or incorporated by reference in
the Registration Statement, any Pre-Effective Prospectus or
the Prospectus fairly present, on the basis stated in the
Registration Statement, the financial condition, results of
operations and changes in financial condition of the
Company and its Subsidiaries at the respective dates and
for the respective periods therein specified. Such
statements and related notes and schedules have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the
periods indicated, except as may be set forth in the
Prospectus. All adjustments necessary for a fair
presentation of results for such periods have been made.
The selected financial, operating and statistical data set
forth in the Prospectus under the captions "Selected
Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of
Operations" and in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, incorporated
by reference in the Prospectus, fairly present, on the
basis stated in the Registration Statement and such Annual
Report, the information set forth therein.
(v) Each of Arthur Andersen LLP, who have expressed their
opinions on the audited financial statements and related
schedules included in the Registration Statement and the
Prospectus and whose reports appear in the Prospectus, and
PricewaterhouseCoopers, whose reports appear in the
Prospectus, are independent public accountants as required
by the Securities Act and the Rules and Regulations.
(vi) Each of the Company and its Subsidiaries has been duly
organized and is validly existing and in good standing as a
corporation (or limited liability company, as the case may
be) under the laws of the jurisdiction of its organization,
with power and authority (corporate and other) to own or
lease its properties and to conduct its businesses as
described in the Prospectus; and each of the Company and
such Subsidiaries is duly qualified to do business and in
good standing as a foreign corporation in all other
jurisdictions where its ownership or leasing of properties
or the conduct of its businesses requires such
qualification (except where the failure to be so qualified
would not have a material adverse effect on the business,
condition or results of operations of the Company and its
Subsidiaries taken as a whole). Each of the Company and its
Subsidiaries has all requisite power and authority, and is
in possession of all necessary material consents,
approvals, franchises, grants, easements, certifications,
authorizations, orders, registrations, qualifications,
licenses and permits of and from all public regulatory or
governmental agencies and bodies and private parties
(collectively, the "Permits") to own, lease and operate its
properties and conduct its business as now being conducted
and as described in the Registration Statement and the
Prospectus, all of which permits are in full force and
effect, and no such Permit contains a materially burdensome
restriction not adequately disclosed in the Registration
Statement and the Prospectus. The Company owns directly or
indirectly 100% of the outstanding capital stock (or, in
4
<PAGE> 5
the case of any limited liability company, 100% of the
outstanding membership interests) of the following
entities: HTE Bellamy, Ltd., a Canadian corporation; HTE-Kb
Systems, Inc., a Florida corporation; HTE-Jalan, Inc., a
Florida corporation; HTE-Phoenix Systems, LLC, a
Connecticut limited liability company; HTE-USL Systems
Corporation, a Florida corporation; and HTE-UCS, Inc., a
Florida corporation. Any reference to the Company's
Subsidiaries herein shall be deemed to include all of these
entities. Neither the Company nor any of its Subsidiaries
has any direct or indirect equity interest (or derivative
thereof) in any other entity.
(vii) The Company's authorized and outstanding capital stock is,
on the date hereof, and will be on the Closing Dates, as
set forth under the heading "Capitalization" in the
Prospectus. The outstanding shares of Common Stock
(including the outstanding shares of Stock) of the Company
conform to the description thereof in the Prospectus and
have been duly authorized and validly issued and are fully
paid and nonassessable, are duly included for quotation on
the Nasdaq National Market and have been issued in
compliance with all federal and state securities laws and
were not issued in violation of or subject to any
preemptive rights or similar rights to subscribe for or
purchase securities. Except as disclosed in and or
contemplated by the Prospectus and the financial statements
of the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any
options or warrants to purchase, or any preemptive rights
or other rights to subscribe for or to purchase any
securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible
securities or obligations, except for options granted
subsequent to the date of information provided in the
Prospectus pursuant to, and in accordance with the
provisions of, the Company's employee and stock option
plans as disclosed in the Prospectus. The description of
the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or
exercised thereunder, as set forth in the Prospectus,
accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options
and rights. All outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued,
and are fully paid and nonassessable and are owned directly
by the Company or by another wholly owned Subsidiary of the
Company free and clear of any liens, encumbrances, equities
or claims. All the outstanding membership interests of any
Subsidiary that is a limited liability company are validly
issued and are owned directly by the Company or by another
wholly owned Subsidiary of the Company free and clear of
any liens, encumbrances, equities or claims, and the
Company is not liable for the debts or obligations (whether
contract, tort or otherwise) of any Subsidiary that is a
limited liability company beyond the Company's capital
contribution to such limited liability company, as set
forth in its operating agreement.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized
and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully
paid and nonassessable and free of any preemptive or
similar rights and will conform to the description thereof
in the Prospectus.
5
<PAGE> 6
(ix) Except as set forth in the Prospectus, there are no legal
or governmental proceedings or investigations pending to
which the Company or any of its Subsidiaries or affiliates
is a party or of which any property of the Company or any
Subsidiary or affiliate is subject, which, if determined
adversely to the Company or any such Subsidiary or
affiliate, might individually or in the aggregate (i)
prevent or adversely affect the transactions contemplated
by this Agreement, (ii) suspend the effectiveness of the
Registration Statement, (iii) prevent or suspend the use of
any Pre-effective Prospectus in any jurisdiction or (iv)
result in a Material Adverse Change, and, to the best
knowledge of the Company, there is no valid basis for any
such legal or governmental proceeding. To the best of the
Company's knowledge, no such proceedings are threatened or
contemplated against the Company or any Subsidiary or
affiliate by governmental authorities or others. The
Company is not a party nor subject to the provisions of any
material injunction, judgment, decree or order of any
court, regulatory body or other governmental agency or
body. The description of the Company's litigation under the
heading "Legal Proceedings" in the Prospectus is true and
correct and complies with the Rules and Regulations.
(x) Neither the Company nor any of its Subsidiaries is, or with
the giving of notice or lapse of time or both would be, in
violation of or in material default under, nor will the
execution or delivery hereof or consummation of the
transactions contemplated hereby result in a violation of,
or constitute default under, the certificate or articles of
incorporation, bylaws or organizational or governing
documents of the Company or any of its Subsidiaries, or any
agreement, contract, mortgage, deed of trust, loan
agreement, note, lease, indenture or other instrument to
which the Company or any of its Subsidiaries is a party or
by which any of them is bound, or to which any of their
properties is subject, nor will the performance by the
Company of its obligations hereunder violate any law, rule,
administrative regulation or decree of any court or any
governmental agency or body having jurisdiction over the
Company, its Subsidiaries or any of their properties, or
result in the creation or imposition of any lien, charge,
claim or encumbrance upon any property or asset of the
Company or any of its Subsidiaries.
(xi) No consent, approval, authorization or order of any court
or governmental agency or body is required for the
execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions
contemplated hereby, except such as may be required by the
National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act or the Exchange Act or
the securities or "Blue Sky" laws of any jurisdiction in
connection with the purchase and distribution of the Stock
by the Underwriters.
6
<PAGE> 7
(xii) The Company has the full corporate power and authority to
enter into this Agreement and to perform its obligations
hereunder (including to issue, sell and deliver the Stock),
and this Agreement has been duly and validly authorized,
executed and delivered by the Company and is a valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms.
(xiii) Each of the Company and its Subsidiaries is in all
material respects in compliance with, and conducts its
businesses in conformity with, all applicable federal,
state, local and foreign laws, ordinances, rules and
regulations and any order or decree of any court or
governmental agency or body. To the knowledge of the
Company, otherwise than as set forth in the Registration
Statement and the Prospectus, no prospective change in any
of such federal or state laws, rules or regulations has
been adopted which, when made effective, would have a
material adverse effect on the condition (financial or
otherwise), properties, business, management, prospects,
net worth or results of operations of the Company and its
Subsidiaries taken as a whole ("Material Adverse Effect").
(xiv) Each of the Company and its Subsidiaries has filed all
necessary federal, state, local and foreign income,
payroll, franchise and other tax returns and all such tax
returns are complete and correct in all material respects
and the Company has not failed to pay any taxes that were
payables pursuant to such returns (or with respect to any
of its properties) or any assessments with respect thereto.
There is no tax deficiency that has been, or to the
knowledge of the Company is likely to be, asserted against
the Company or any of its Subsidiaries or any of their
respective properties or assets that would have a Material
Adverse Effect.
(xv) No person or entity has the right to require registration
of shares of Common Stock or other securities of the
Company because of the filing or effectiveness of the
Registration Statement or otherwise, except for persons and
entities who have expressly waived such right or who have
been given proper notice and have failed to exercise such
right within the time or times required under the terms and
conditions of such right.
(xvi) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly,
any action designed or intended to stabilize or manipulate
the price of any security of the Company, or which caused
or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
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<PAGE> 8
(xvii) The Company has provided you with all financial
statements since December 31, 1997, to the date hereof that
are available to the officers of the Company, including
internal financial statements for the months of July and
August of 1998.
(xviii) The Company owns, or possesses rights to use, all
trademarks, trademark registrations, applications for
trademark registration, trade names, service marks, service
mark registrations, applications for service mark
registration, licenses, inventions, copyrights, know-how
(including, without limitation, trade secrets and other
unpatented and/or unpatentable proprietary or confidential
technology, information, systems, design methodologies and
devices or procedures developed or derived from or for the
Company's business), processes and formulations and other
proprietary information necessary for, used in, or proposed
to be used in, the conduct or its business as described in
the Prospectus (collectively, the "Intellectual Property").
The Company owns no rights in or to any patents or patent
applications. The Company has not infringed, is not
infringing and, except as expressly and specifically
disclosed in the Prospectus, has not received any notice of
conflict with, the rights of others with respect to the
Intellectual Property that, individually or in the
aggregate, if the subject of an unfavorable decision ruling
or finding, would have a Material Adverse Effect, and the
Company knows of no reasonable basis therefor. To the
knowledge of the Company, no other party has infringed upon
or is conflict with the Intellectual Property. The Company
is not a party to, or bound by, any agreement pursuant to
which royalties, honorariums or fees are payable by the
Company to any person by reason of the ownership or use of
any Intellectual Property that is material to the business
of the Company, except as described or referred to in the
Prospectus.
(xix) The Company has taken adequate steps to insure that all
software used in its operations or sold, licensed or
transferred to any person by the Company is "Year 2000
Compliant" (as defined below). For purposes of this
Agreement, the term "Year 2000 Compliant" means that the
software in question can, individually, and in combination
and in conjunction with all other systems, products or
processes with which it is required or designed to
interface, continue to be used normally and to operate
successfully (both in functionality and performance in all
material respects) over the transition into the
twenty-first century when used in accordance with the
documentation relating to the software, including being
able to, before, on and after January 1, 2000,
substantially conform to the following:
(i) use logic pertaining to dates that allows users to
identify and/or use the century portion of any date
field without special processing; and
8
<PAGE> 9
(ii) respond to all date elements and date input so as to
resolve any ambiguity as to century in a disclosed,
defined and pre-determined manner and provide date
information in ways that are unambiguous as to
century, either by permitting or requiring the century
to be specified or where the date element is
represented without a century, the correct century is
unambiguous for all manipulations involving that
element. Except as described in the Prospectus, to the
knowledge of the Company, the Company has no material
liability, whether accrued, contingent or otherwise,
either matured or unmatured, arising from the failure
to be Year 2000 Compliant of any of the following:
(A) software that is or has been sold, licensed or
transferred by the Company to any person;
(B) the Company's computer systems; or
(C) software utilized by the Company and other
components of the Company's information
technology infrastructure.
(iii) To the Company's knowledge, it has complied, and is
in compliance, in all material respects, with the
requirements set forth in the Commission's Release
No. 33-7558 relating to disclosure of year 2000
issues.
(xx) Each of the Company and its Subsidiaries has performed all
material obligations required to be performed by it under
each contract required by Item 601(b)(10) of Regulation S-K
under the Securities Act to be filed as an exhibit to the
Registration Statement (whether or not the Company has
complied with its obligation to so file any such contract).
Neither the Company nor any of its Subsidiaries nor any
other party to any such contract is in default under or in
breach of any of its obligations thereunder and, neither
the Company nor any of its Subsidiaries has received any
notice of such default or breach.
(xxi) The Company is not involved in any labor dispute nor is
any such dispute threatened. The Company is not aware that
(A) any executive, key employee or significant group of
employees of the Company or any Subsidiary plans to
terminate employment with the Company or any such
Subsidiary or (B) any such executive or key employee is
subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreement that would be
violated by the present or proposed business activities of
the Company and its Subsidiaries. Neither the Company nor
any Subsidiary has or expects to have any liability for any
prohibited transaction or funding deficiency or any
complete or partial withdrawal liability with respect to
any pension, profit sharing or other plan which is subject
to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any Subsidiary
makes or ever has made a contribution and in which any
employee of the Company or any Subsidiary is or has ever
been a participant. With respect to such plans, each of the
Company and its Subsidiaries is in compliance in all
material respects with all applicable provisions of ERISA.
9
<PAGE> 10
(xxii) The Company has obtained the written agreement described
in Section 8(k) of this Agreement from each of its
officers, directors and holders of Common Stock listed on
Schedule C hereto.
(xxiii) Each of the Company and its Subsidiaries has, and as of
each of the Closing Dates will have, good and valid title
in fee simple to all real property and good and marketable
title to all personal property owned or proposed to be
owned by it which is material to the business of the
Company, in each case free and clear of all liens,
encumbrances and defects, except such as are described in
the Prospectus or such as would not have a Material Adverse
Effect; and any real property and buildings held under
lease by any of the Company and its Subsidiaries or
proposed to be held after giving effect to the transactions
described in the Prospectus are, or will be as of each of
the Closing Dates, held by it under valid, subsisting and
enforceable leases with such exceptions as are described in
the Prospectus or as would not have a Material Adverse
Effect.
(xxiv) Each of the Company and its Subsidiaries is insured by
insurers of recognized financial responsibility against
such losses and risks and in such amounts as are customary
in the businesses in which it is engaged or proposes to
engage after giving effect to the transactions described in
the Prospectus. Neither the Company nor any Subsidiary of
the Company has any reason to believe that it will not be
able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its
business at a cost that would not cause a Material Adverse
Effect, except as described in or contemplated by the
Prospectus.
(xxv) Other than as expressly contemplated by this Agreement,
there is no broker, finder or other party that is entitled
to receive from the Company any brokerage or finder's fee
or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(xxvi) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida)
(related to doing business with the Government of Cuba or
with any person or any affiliate located in Cuba).
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<PAGE> 11
(xxvii) Each of the Company and its Subsidiaries maintains a
system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are
executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxviii) Neither the Company nor any of its Subsidiaries, nor
any officer, director, employee, agent or other person
acting on behalf of the Company or any of its Subsidiaries
has directly or indirectly, given or agreed to give any
money, property or similar benefit or consideration to any
customer or supplier (including any employee or agent of
any customer or supplier) or official or employee of any
agency or instrumentality of government (foreign or
domestic) or political party or candidate for office
(foreign or domestic) or any other person who was, or is in
the future may be, in a position to affect the general
affairs, properties, condition, financial or otherwise,
results of operations, stockholders' equity, business,
prospects or management of the Company or any of its
Subsidiaries, or any actual or proposed business
transaction of the Company or any of its Subsidiaries that
(A) could subject the Company to any liability (including,
but not limited to, the payment of monetary damages) or
penalty in any civil, criminal or governmental action or
proceeding that would have a Material Adverse Effect or (B)
violates any law, rule or regulation to which the Company
is subject, which violation, if proven, would have a
Material Adverse Effect.
(xxix) No statement, representation, warranty or covenant made
by the Company in this Agreement or in any certificate or
document required by this Agreement to be delivered to the
Representatives is, was when made, or as of any Closing
Date will be, inaccurate, untrue or incorrect in any
material respect.
(xxx) Neither the Company nor any of its Subsidiaries is or,
after application of the net proceeds of this offering as
described under the caption "Use of Proceeds" in the
Prospectus, will become, an "investment company" or an
entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). The Company is familiar with the
1940 Act and the rules and regulations thereunder and it
has in the past conducted, and intends to conduct, its
affairs in such a manner as to ensure that it will not be
an "investment company" within the meaning of the 1940 Act
and the rules and regulations thereunder.
(xxxi) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the
Underwriters hereunder shall be deemed to be a
representation and warranty by the Company as to the
matters covered thereby.
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<PAGE> 12
(b) Representations and Warranties and Agreements of the Selling
Shareholders. Each of the Selling Shareholders represents and
warrants to, and agrees with, the several Underwriters that such
Selling Shareholder (provided that only such of the Selling
Shareholders as are identified in Schedule B-3 hereto (the "Major
Shareholders") is making the representations, warranties and
agreements set forth in Section 1(b)(x) hereof and only such of the
Selling Shareholders as are identified in Schedule B-4 hereto (the
"Acquisition Shareholders") are making the representations,
warranties and agreements set forth in Section 1(b)(xi) hereof):
(i) Now has, and on the Closing Dates will have, valid and
marketable title to the Stock to be sold by such Selling
Shareholder, free and clear of any lien, claim, security
interest or other encumbrance, including, without
limitation, any restriction on transfer, and has full
right, power and authority to enter into this Agreement,
the Custody Agreement and Power of Attorney (as hereinafter
defined) and, to the extent such Selling Shareholder is not
a natural person, has been duly organized and is validly
existing and in good standing under the laws of its
jurisdiction of organization.
(ii) Now has, and on each of the Closing Dates will have, upon
delivery of and payment for each share of Stock hereunder,
full right, power and authority, as well as any approval
required by law (except such as may be required by the NASD
or under the Securities Act, the Exchange Act or the Blue
Sky laws) to sell, transfer, assign and deliver the Stock
being sold by such Selling Shareholder hereunder, and each
of the several Underwriters will acquire good, valid and
marketable title to all of the Stock being sold to the
Underwriters by such Selling Shareholder, free and clear of
any liens, encumbrances, equities, claims, restrictions on
transfer or other defects whatsoever.
(iii) Will not, for a period of 90 days after the date of this
Agreement, without the consent of SG Cowen, offer to sell,
sell, contract to sell or otherwise dispose of any Stock or
securities convertible into or exchangeable for Stock,
including, without limitation Stock which may be deemed to
be beneficially owned by such Selling Shareholder in
accordance with the Rules and Regulations, except for the
Stock being sold hereunder.
(iv) Has duly executed and delivered a Custody Agreement and
Power of Attorney, in substantially the form heretofore
delivered by the Representatives (the "Custody Agreement
and Power of Attorney"), (A) appointing Dennis J. Harward
and O.F. Ramos (or, in the case of the distributees of
Meridian Venture Partners, Dennis J. Harward and Bernard B.
Markey) and each of them, as attorney-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver
this Agreement on behalf of such Selling Shareholder, to
authorize the delivery of the shares of Stock to be sold by
such Selling Shareholder hereunder and otherwise to act on
behalf of such Selling Shareholder in connection with the
transactions contemplated by this Agreement and (B)
appointing Continental Stock Transfer and Trust Company as
custodian (the "Custodian"), pursuant to which certificates
in negotiable form for the shares of Stock to be sold by
such Selling Shareholder hereunder have been placed in
custody for delivery under this Agreement.
12
<PAGE> 13
(v) Has, by execution and delivery of each of this Agreement
and the Custody Agreement and Power of Attorney, created
valid and binding obligations of such Selling Shareholder,
enforceable against such Selling Shareholder in accordance
with their terms.
(vi) The performance of this Agreement, and the Custody
Agreement and Power of Attorney, and the consummation of
the transactions contemplated hereby and thereby will not
result in a breach or violation by such Selling Shareholder
of any of the terms or provisions of, or constitute a
default by such Selling Shareholder under, (A) the
articles, bylaws or other organizational documents of such
Selling Stockholder, if not a natural person, (B) any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Shareholder
is a party or by which such Selling Shareholder or any of
its properties is bound, (C) any judgment of any court
applicable to such Selling Shareholder or any of its
properties, (D) or to such Selling Shareholder's knowledge,
any statute, decree, order, rule or regulation of any court
or governmental agency or body applicable to such Selling
Shareholder or any of its properties.
(vii) Has examined the Registration Statement and the Prospectus
and the information relating to such Selling Shareholder
set forth therein and, as to such information, the
Registration Statement does not contain an untrue statement
of a material fact and does not omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and, as to such
information, the Prospectus does not contain any untrue
statement of the material fact and does not omit to state
any material fact required to be stated therein or
necessary to make the statement therein, in the light of
the circumstances under which they were made, not
misleading.
(viii) Has not incurred any liability for any finder's fee or
similar payment in connection with the sale of such Selling
Shareholder's Stock hereunder.
(ix) Has not distributed and will not distribute any offering
material in connection with the offering and sale of the
Stock other than the Registration Statement, a
Pre-effective Prospectus, the Prospectus and other
material, if any permitted by the Securities Act and the
Rules and Regulations. Neither such Selling Shareholder nor
any affiliate thereof has taken or shall take any action
designed, or that might be reasonably expected, to cause or
result in stabilization or manipulation or the price of the
Stock.
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<PAGE> 14
(x) If such Selling Shareholder is a Major Shareholder, the
representations and warranties of the Company contained in
Section 1(a) hereof are true and correct; provided, however,
with respect to the third sentence of Section 2(a)(xviii),
the Major Shareholders are making this representation and
warranty only to the best of their knowledge. Such Major
Shareholder has examined the Registration Statement and the
Prospectus and has no knowledge of any fact, condition or
information not disclosed therein that has had or could
reasonably be expect to have a Material Adverse Effect. Such
Major Shareholder is not prompted to sell the shares of
Stock to be sold by such Major Shareholder hereunder by any
information concerning the Company that is not set forth in
the Prospectus. The Registration Statement does not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus
does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
(xi) If such Selling Shareholder is an Acquisition Shareholder,
such Selling Shareholder has examined the Registration
Statement and the Prospectus and the information set forth
therein relating to the business of the Company acquired by
it when it acquired the entity (identified in Schedule B-4
hereto) of which Selling Shareholder was formerly an owner.
As to such information, the Registration Statement does not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading
and, as to such information, the Prospectus does not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in the light of
the circumstances under which they were made, not
misleading.
Each Selling Shareholder agrees that the shares of Stock represented by
the certificates held in custody under the Custody Agreement are for the
benefit of and coupled with and subject to the interests of the
Underwriters, the other Selling Shareholders and the Company hereunder,
and that the arrangement for such custody and the appointment of the
Attorneys-in-Fact are irrevocable; that the obligations of such Selling
Shareholder hereunder shall not be terminated by operation of law, whether
by the death or incapacity, liquidation or distribution of such Selling
Shareholder, or any other event, that if such Selling Shareholder should
die or become incapacitated or is liquidated or dissolved or any other
event occurs, before the delivery of the Stock hereunder, certificates for
the Stock to be sold by such Selling Shareholder shall be delivered on
behalf of such Selling Shareholder in accordance with the terms and
conditions of this Agreement and the Custody Agreement and Power of
Attorney, and any action taken by the Attorneys-in-Fact or any of them
thereunder shall be as valid as if such death, incapacity, liquidation or
dissolution or other event had not occurred, whether or not the Custodian,
the Attorneys-in-Fact or any of them shall have notice of such death,
incapacity, liquidation or dissolution or other event.
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<PAGE> 15
3. Purchase by, and Sale and Delivery to, Underwriters, Closing Dates. Each
of the Company and the Selling Shareholders agrees, severally and not
jointly, to sell to the Underwriters the Firm Stock, with the number of
shares to be sold by the Company and each Selling Shareholder being the
number of shares set forth opposite his, her or its name in Schedule B-1
hereto; and on the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Underwriters agree, severally and not jointly, to purchase
the Firm Stock from the Company and the Selling Shareholders, the number of
shares of Firm Stock to be purchased by each Underwriter being set forth
opposite its name in Schedule A hereto, subject to adjustment in accordance
with Section 12 hereof. The number of shares of Firm Stock to be purchased
by each Underwriter from each Selling Shareholder hereunder shall bear the
same proportion to the total number of shares of Firm Stock to be purchased
by such Underwriter hereunder as the number of shares of stock being sold
by each Selling Shareholder bears to the total number of shares of Stock
being sold by all Selling Shareholders, subject to adjustment by the
Representatives to eliminate fractions. Each Underwriter shall be obligated
to purchase from the Company the number of shares of Firm Stock that bears
the same proportion to the total number of shares of Firm Stock to be sold
by the Company as the number of shares of Firm Stock set forth opposite the
name of such Underwriter in the Schedule A hereto bears to the total number
of shares of Firm Stock to be purchased by all of the Underwriters pursuant
to this Agreement, subject to adjustment by the Representatives to
eliminate fractions.
The purchase price per share to be paid by the Underwriters to the Company
and the Selling Shareholders will be the price per share set forth in the
table on the cover page of the Prospectus under the heading "Proceeds to
the Company" (the "Purchase Price").
The Company and the Selling Shareholders will deliver the Firm Stock to
the Representatives for the respective accounts of the several
Underwriters (in the form of definitive certificates, issued in such names
and in such denominations as the Representatives may direct by notice in
writing to the Company and the Selling Shareholders given at or prior to
12:00 Noon, New York Time, on the second full business day preceding the
First Closing Date (as defined below) or, if no such direction is
received, in the names of the respective Underwriters or in such other
names as SG Cowen may designate (solely for the purpose of administrative
convenience) and in such denominations as SG Cowen may determine, against
payment of the aggregate Purchase Price therefor by certified or official
bank check or checks in immediately available funds (same day funds),
payable to the order of the Company and Continental Stock Transfer and
Trust Company as Custodian for the Selling Shareholders, all at the
offices of Saul, Ewing, Remick & Saul LLP, Centre Square West, 1500 Market
Street, 38th Floor, Philadelphia, Pennsylvania 19102. The time and date of
the delivery and closing shall be at 10:00 A.M., New York Time, on
_____________, 1998, in accordance with Rule 15c6-1 of the Exchange Act.
The time and date of such payment and delivery are herein referred to as
the "First Closing Date". The First Closing Date and the location of
delivery of, and the form of payment for, the Firm Stock may be varied by
agreement among the Company, the Selling Shareholders, SG Cowen and
Janney. The First Closing Date may be postponed pursuant to the provisions
of Section 12 hereof.
The Company and the Selling Shareholders shall make the certificates for
the Stock available to the Representatives for examination on behalf of
the Underwriters not later than 10:00 A.M., New York Time, on the business
day preceding the First Closing Date at the offices of SG Cowen, Financial
Square, New York, New York 10005.
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<PAGE> 16
It is understood that SG Cowen, Janney, Raymond James or Volpe,
individually and not as Representatives of the several Underwriters, may
(but shall not be obligated to) make payment to the Company or to the
Selling Shareholders on behalf of any Underwriter or Underwriters, for the
Stock to be purchased by such Underwriter or Underwriters. Any such
payment by SG Cowen, Janney, Raymond James or Volpe, shall not relieve
such Underwriter or Underwriters from any of its or their other
obligations hereunder.
The several Underwriters agree to make a public offering of the Firm Stock
at the "Price to Public" set forth in the table on the cover page of the
Prospectus as soon after the effectiveness of the Registration Statement
as in their judgment is advisable. The Representatives shall promptly
advise the Company and the Selling Shareholders of the making of the
public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus,
each of the Selling Shareholders listed in Schedule B-2 hereto hereby
grants to the Underwriters an option to purchase, severally and not
jointly, up to the number of shares of Optional Stock set forth opposite
his name on Schedule B-2 hereto, for an aggregate of up to 757,500 shares.
The price per share to be paid for the Optional Stock shall be the
Purchase Price. The option granted hereby may be exercised as to all or
any part of the Optional Stock at any time, and from time to time, not
more than thirty (30) days subsequent to the effective date of this
Agreement. No Optional Stock shall be sold and delivered unless the Firm
Stock previously has been, or simultaneously is, sold and delivered. The
right to purchase the Optional Stock or any portion thereof may be
surrendered and terminated at any time upon notice by the Underwriters to
the Selling Shareholders.
The option granted hereby may be exercised by the Underwriters by giving
written notice from SG Cowen to the Selling Shareholders setting forth the
number of shares of the Optional Stock to be purchased by them and the
date and time for delivery of and payment for the Optional Stock. Each
date and time for delivery of and payment for the Optional Stock (which
may be the First Closing Date, but not earlier) is herein called an
"Option Closing Date" and shall in no event be earlier than two (2)
business days nor later than ten (10) business days after written notice
is given. (Each Option Closing Date and the First Closing Date are herein
called the "Closing Dates.") All purchases of Optional Stock from the
Selling Shareholders shall be made on a pro rata basis. Optional Stock
shall be purchased for the account of each Underwriter in the same
proportion as the number of shares of Firm Stock set forth opposite such
Underwriter's name in Schedule A hereto bears to the total number of
shares of Firm Stock (subject to adjustment by the Underwriters to
eliminate odd lots). Upon exercise of the option by the Underwriters, the
Selling Shareholders agree to sell to the Underwriters the number of
shares of Optional Stock set forth in the written notice of exercise and
the Underwriters agree, severally and not jointly and subject to the terms
and conditions herein set forth, to purchase the number of such shares
determined as aforesaid.
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<PAGE> 17
The Selling Shareholders will deliver the Optional Stock to the
Underwriters (in the form of definitive certificates, issued in such names
and in such denominations as the Representatives may direct by notice in
writing to the Selling Shareholders given at or prior to 12:00 Noon, New
York Time, on the second full business day preceding the Option Closing
Date or, if no such direction is received, in the names of the respective
Underwriters or in such other names as SG Cowen may designate (solely for
the purpose of administrative convenience) and in such denominations as SG
Cowen may determine, against payment of the aggregate Purchase Price
therefor by certified or official bank check or checks in Clearing House
funds (next day funds), payable to the order of and Continental Stock
Transfer and Trust Company as Custodian for the Selling Shareholders or
payable as directed by such Custodian all at the offices of Saul, Ewing,
Remick & Saul LLP, Centre Square West, 1500 Market Street, 38th floor,
Philadelphia, Pennsylvania 19102. The Selling Shareholders shall make the
certificates for the Optional Stock available to the Underwriters for
examination not later than 10:00 A.M., New York Time, on the business day
preceding the Option Closing Date at the offices of SG Cowen, Financial
Square, New York, New York 10005. The Option Closing Date and the location
of delivery of, and the form of payment for, the Option Stock may be
varied by agreement among the Selling Shareholders, SG Cowen and Janney.
The Option Closing Date may be postponed pursuant to the provisions of
Section 12.
4. Covenants and Agreements of the Company. The Company covenants and agrees
with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective under the Securities Act and, if the
Company and the Representatives have determined to proceed pursuant
to Rule 430A of the Rules and Regulations, use its best efforts to
comply with the provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and Rule 424 of the Rules and
Regulations and, if the Company and the Representatives have
determined to deliver Prospectuses pursuant to Rule 434 of the Rules
and Regulations, to use its best efforts to comply with all the
applicable provisions thereof. The Company will advise the
Representatives promptly as to the time at which the Registration
Statement becomes effective, will advise the Representatives promptly
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of
any proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as soon as
possible the lifting thereof, if issued. The Company will advise the
Representatives promptly of the receipt of any comments of the
Commission or any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for
additional information and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus which
shall not previously have been submitted to the Representatives a
reasonable time prior to the proposed filing thereof or to which the
Representatives shall reasonably object in writing or which is not in
compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to
the Registration Statement or the Prospectus which in the opinion of
the Representatives may be necessary to enable the several
Underwriters to continue the distribution of the Stock and will use
its best efforts to cause the same to become effective as promptly as
possible. The Company will promptly file all reports and other
documents and statements required to be filed with the Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act subsequent to
the date of the Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the
Stock.
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<PAGE> 18
(c) If at any time after the effective date of the Registration Statement
when a prospectus relating to the Stock is required to be delivered
under the Securities Act any event relating to or affecting the
Company or any of its Subsidiaries occurs as a result of which the
Prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the
Securities Act and the Rules and Regulations, the Company will
promptly notify the Representatives thereof and will prepare an
amended or supplemented prospectus or make an appropriate filing
pursuant to Section 13 or 14 of the Exchange Act that will correct
such statement or omission; and in case any Underwriter is required
to deliver a prospectus relating to the Stock nine (9) months or more
after the effective date of the Registration Statement, the Company
upon the request of the Representatives and at the expense of such
Underwriter will prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, at or before the
Closing Dates, signed copies of the Registration Statement, as
originally filed with the Commission, and all amendments thereto
including all financial statements and exhibits thereto and all
documents theretofore incorporated by reference therein, and will
deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements and all
documents theretofore incorporated by reference therein but without
exhibits, and all amendments thereto, as the Representatives may
reasonably request. The Company will deliver or mail to or upon the
order of the Representatives, from time to time until the effective
date of the Registration Statement, as many copies of the
Pre-effective Prospectus as the Representatives may reasonably
request. The Company will deliver or mail to or upon the order of the
Representatives on the date of the initial public offering, and
thereafter from time to time during the period when delivery of a
prospectus relating to the Stock is required under the Securities
Act, as many copies of the Prospectus, in final form or as thereafter
amended or supplemented as the Representatives may reasonably
request; provided, however, that the expense of the preparation and
delivery of any prospectus required for use nine (9) months or more
after the effective date of the Registration Statement shall be borne
by the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its shareholders as soon
as practicable, but not later than fifteen (15) months after the
effective date of the Registration Statement, an earning statement
which will be in reasonable detail (but which need not be audited)
and which will comply with Section 11(a) of the Securities Act,
covering a period of at least twelve (12) months beginning after the
"effective date" (as defined in Rule 158 under the Securities Act) of
the Registration Statement.
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<PAGE> 19
(f) The Company will cooperate with the Representatives to enable the
Stock to be registered or qualified for offering and sale by the
Underwriters and by dealers under the securities laws of such
jurisdictions as the Representatives may designate and at the request
of the Representatives will make such applications and furnish such
consents to service of process or other documents as may be required
of it as the issuer of the Stock for that purpose; provided, however,
that the Company shall not be required to qualify to do business or
to file a general consent (other than that arising out of the
offering or sale of the Stock) to service of process in any such
jurisdiction where it is not now so subject. The Company will, from
time to time, prepare and file such statements and reports as are or
may be required of it as the issuer of the Stock to continue such
qualifications in effect for so long a period as the Representatives
may reasonably request for the distribution of the Stock. The Company
will advise the Representatives promptly after the Company becomes
aware of the suspension of the qualifications or registration of (or
any such exception relating to) the Common Stock of the Company for
offering, sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and in the event of
the issuance of any orders suspending such qualifications,
registration or exception, the Company will, with the cooperation of
the Representatives use its best efforts to obtain the withdrawal
thereof.
(g) The Company will furnish to its shareholders annual reports
containing financial statements certified by independent public
accountants and with quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five
(5) years from the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other Underwriters,
as soon as they are available, copies of each annual report of the
Company and each other report furnished by the Company to its
shareholders and will deliver to the Representatives, (i) as soon as
they are available, copies of any other reports (financial or other)
which the Company shall publish or otherwise make available to any of
its shareholders as such, (ii) as soon as they are available, copies
of any reports and financial statements furnished to or filed with
the Commission or any national securities exchange and (iii) from
time to time such other information concerning the Company as you may
reasonably request. So long as the Company has active subsidiaries,
such financial statements will be on a consolidated basis to the
extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its shareholders generally.
Separate financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(h) The Company will use its best efforts to cause the Stock to be
included for quotation, subject to official notice of issuance, on
the Nasdaq National Market concurrently with the effectiveness of the
Registration Statement.
(i) The Company will maintain a transfer agent and registrar for its
Common Stock.
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<PAGE> 20
(j) Without the prior written consent of SG Cowen, the Company will not
offer, sell, assign, transfer, encumber, contract to sell, grant an
option to purchase or otherwise dispose of any shares of Common Stock
or securities convertible into or exercisable or exchangeable for
Common Stock (including, without limitation, Common Stock of the
Company which may be deemed to be beneficially owned by the Company
in accordance with the Rules and Regulations) during the 90 days
following the date on which the price of the Common Stock to be
purchased by the Underwriters is set, other than the Company's sale
of Common Stock hereunder, the Company's issuance of Common Stock
upon the exercise of warrants and stock options which are presently
outstanding and described in the Prospectus and the Company's
issuance of Common Stock (which is restricted stock under the Rules
and Regulations) in connection with corporate acquisitions described
or referred to in the Prospectus.
(k) The Company will apply the net proceeds from the sale of the Stock as
set forth in the description under "Use of Proceeds" in the
Prospectus, which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(l) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by, the Commission in
connection with the registration of the Stock under the Securities
Act.
(m) Prior to each of the Closing Dates the Company will furnish to you,
as soon as they have been prepared, copies of any unaudited interim
consolidated financial statements of the Company and its Subsidiaries
for any periods subsequent to the periods covered by the financial
statements appearing in the Registration Statement and the
Prospectus.
(n) Prior to each of the Closing Dates the Company will issue no press
release or other communications directly or indirectly and hold no
press conference with respect to the Company, the financial
condition, results of operations, business, prospects, assets or
liabilities of the Company, or the offering of the Stock, without
your prior written consent. For a period of twelve (12) months
following the first Closing Date, the Company will use commercially
reasonable efforts to provide to you copies of each press release or
other public communications with respect to the financial condition,
results of operations, business, prospects, assets or liabilities of
the Company at least twenty-four (24) hours prior to the public
issuance thereof or such longer advance period as may reasonably be
practicable.
(o) During the period of five (5) years hereafter, the Company will
furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the annual
report to shareholders of the Company containing the balance sheet of
the Company as of the close of such fiscal year and statements of
income, stockholders' equity and cash flows for the year then ended
and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Report on Form 8-K or other report filed by the
Company with the Commission, or the NASD or the Nasdaq National
Market or any securities exchange; and (iii) as soon as available,
copies of any report or communication of the Company mailed generally
to holders of its Common Stock.
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<PAGE> 21
(p) The Company will comply with the Securities Act, the Rules and
Regulations, the Exchange Act and the rules and regulations
thereunder so as to permit the continuance of sales of, and dealings
in, the Stock for as long as may be necessary to complete the
distribution of the Stock as contemplated hereby.
(q) During the course of the distribution of the Stock, the Company will
not take, directly or indirectly, any action designed to, or that
could reasonably be expected to, cause or result in stabilization or
manipulation of the price of its Common Stock.
(r) For a period of no less than three years after the date of the
Prospectus, the Company will use all reasonable efforts to maintain
the inclusion of its Common Stock (including, without limitation, the
Stock) for quotation on the Nasdaq National Market or the New York
Stock Exchange.
(s) The Company shall, at its sole cost and expense, supply and deliver
to the Representatives and the counsel for the Underwriters and the
Major Shareholders and their counsel, within a reasonable period from
the last Closing Date, an aggregate of 15 transaction binders, each
of which shall include the Registration Statement, as amended or
supplemented, all exhibits to the Registration Statement, the
Prospectus, as amended or supplemented, all underwriting and closing
documents and all other correspondence, filings and applications with
the Securities and Exchange Commission, the NASD and the Nasdaq
National Market.
(t) The Company, during the three-year period after the date of the
Prospectus, will take such steps as shall be necessary to insure that
neither it nor any Subsidiary shall become an "investment company"
within the meaning of the 1940 Act and the Rules and Regulations
thereunder.
5. Payment of Expenses.
(a) The Company will pay (directly or by reimbursement) all costs, fees
and expenses incurred in connection with expenses incident to the
performance of the obligations of the Company and of the Selling
Shareholders under this Agreement and in connection with the
transactions contemplated hereby, including but not limited to (i)
all expenses and taxes incident to the issuance and delivery of the
Stock to the Representatives; (ii) all expenses incident to the
registration of the Stock under the Securities Act; (iii) the costs
of preparing stock certificates (including printing and engraving
costs); (iv) all fees and expenses of the registrar and transfer
agent of the Stock; (v) all necessary issue, transfer and other stamp
taxes in connection with the issuance and sale of the Stock to the
Underwriters; (vi) fees and expenses of the Company's counsel and the
Company's independent accountants; (vii) all costs and expenses
incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each
Pre-effective Prospectus and the Prospectus (including all exhibits
and financial statements) and all amendments and supplements provided
for herein, the Selling Shareholders' Custody Agreements or Powers of
Attorney, the Master Agreement Among Underwriters between the
Representatives and the Underwriters, the Master Selected Dealers'
Agreement, the Underwriters' Questionnaire and related documents, and
the Blue Sky memoranda (including related fees and expenses of
counsel to the Underwriters) and this Agreement; (viii) all filing
fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with exemptions from the qualifying or
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<PAGE> 22
registering (or obtaining qualification or registration of) all or
any part of the Stock for offer and sale and determination of its
eligibility for investment under the Blue Sky or other securities
laws of such jurisdictions as the Representatives may designate; (ix)
all fees and expenses paid or incurred in connection with filings
made with the NASD; (x) the Company's travel expenses in connection
with meetings with the brokerage community and institutional
investors; (xi) the costs and expenses associated with settlement in
same day funds (including, but not limited to, interest or cost of
funds expenses, if desired by the Company with respect to any
purchase of Optional Stock hereunder; and (xii) all other costs and
expenses incident to the performance of their obligations hereunder
which are not otherwise specifically provided for in this Section.
6. Indemnification and Contribution.
(a) The Company and each Major Shareholder, jointly and severally, agree
to indemnify and hold harmless each Underwriter and each person, if
any, who controls such Underwriter within the meaning of the
Securities Act and the respective officers, directors, partners,
employees, representatives and agents of each of such Underwriter
(collectively, the "Underwriter Indemnified Parties" and, each, an
"Underwriter Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (including the reasonable cost of
investigating and defending against any claims therefor and counsel
fees incurred in connection therewith), joint or several, which may
be based upon the Securities Act, or any other statute or at common
law, (i) arising out of any breach of the Company's representations
and warranties herein, or (ii) on the ground or alleged ground that
any Pre-effective Prospectus, the Registration Statement or the
Prospectus (or any Pre-effective Prospectus, the Registration
Statement or the Prospectus as from time to time amended or
supplemented) includes or allegedly includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance
upon, and in conformity with, written information furnished to the
Company by any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof or (iii) for any act
or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the
Stock or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or
expense arising out of or based upon matters covered by clause (ii)
above (provided that the Company shall not be liable under this
clause (iii) to the extent that it is determined in a final judgment
by a court of competent jurisdiction that such loss, claim, damage,
or liability or expense resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter
through its gross negligence or willful misconduct). The Company will
be entitled to participate at its own expense in the defense or, if
it so elects, to assume the defense of any suit brought to enforce
any such liability, but if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
reasonably acceptable to the Underwriters. In the event the Company
elects to assume the defense of any such suit and retain such
counsel, any Underwriter Indemnified Parties, defendant or defendants
in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Company shall have
specifically authorized the retaining of such counsel or (ii) the
parties to such suit include any such Underwriter Indemnified
Parties, and the Company and such Underwriter Indemnified Parties at
law or in equity have been advised by counsel to the Underwriters
that one or more legal defenses may be available to it or them which
may not be available to the Company, in which case the Company shall
not be entitled to assume the defense of such suit notwithstanding
its obligation to bear the fees and expenses of such counsel. This
indemnity agreement is not exclusive and will be in addition to any
liability which the Company might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in
equity to each Underwriter Indemnified Party. Notwithstanding the
foregoing, the liability under this Section 6(a) of each Major
Shareholder identified in Section B of Schedule B-3 hereto shall not
exceed the aggregate proceeds received by such person upon the sale
of his shares of Stock under this Agreement.
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<PAGE> 23
(b) Each Selling Shareholder agrees to indemnify and hold harmless each
Underwriter Indemnified Party against any losses, claims, damages,
liabilities or expenses (including, unless such Selling Shareholder
elects to assume the defense, the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred
in connection therewith), joint or several, which may be based upon
the Securities Act, or any other statute or at common law, (i)
arising out of breach of any representation and warranty of such
Selling Shareholder herein or (ii) on the ground or alleged ground
that the "Relevant Information" (as defined below) contained in any
Pre-effective Prospectus, the Registration Statement or the
Prospectus (or any Pre-effective Prospectus, the Registration
Statement or the Prospectus, as from time to time amended and
supplemented) includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically
for use in the preparation thereof; provided, however, that in no
case is such Selling Shareholder to be liable with respect to any
claims made against any Underwriter Indemnified Party against whom
the action is brought unless such Underwriter Indemnified Party shall
have notified such Selling Shareholder (at the address therefor
reflected in the records of the Corporation on the date hereof) in
writing within a reasonable time after the summons or other first
legal process giving information on the nature of the claim shall
have been served upon the Underwriter Indemnified Party, but failure
to notify such Selling Shareholder of such claims shall not relieve
it from any liability which it may have to any Underwriter
Indemnified Party otherwise than on account of its indemnity
agreement contained in this paragraph. Such Selling Shareholder shall
be entitled to participate at his own expense in the defense, or, if
he, she, or it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if such Selling Shareholder
elects to assume the defense, such defense shall be conducted by
counsel chosen by him, her or it. In the event that any Selling
Shareholder elects to assume the defense of any such suit and retain
such counsel, the Underwriter Indemnified Parties, defendant or
defendants in the suit, may retain additional counsel but shall bear
the fees and expenses of such counsel unless (i) such Selling
Shareholder shall have specifically authorized the retaining of such
counsel or (ii) the parties to such suit include such Underwriter
Indemnified Parties and such Selling Shareholder and such Underwriter
Indemnified Parties have been advised by counsel that one or more
legal defenses may be available to it or them which may not be
available to such Selling Shareholder, in which case such Selling
Shareholder shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. Any Selling Shareholder against whom indemnity may be sought
shall not be liable to indemnify any person for any settlement of any
claim effected without such Selling Shareholder's consent, unless
Selling Shareholders having sold in the aggregate a majority of the
Stock hereunder shall have consented to such settlement. This
indemnity agreement is not exclusive and will be in addition to any
liability which such Selling Shareholder might otherwise have and
shall not limit any rights or remedies which may otherwise be
available at law or in equity to each Underwriter Indemnified Party.
The Company and the Selling Shareholders may agree, as among
themselves and without limiting the rights of the Underwriters under
this Agreement, as to their respective amounts of such liability for
which they each shall be responsible. For purposes of this Section
6(b), the term "Relevant Information" means (A) in the case of each
Major Shareholder, the entirety of the contents, (B) in the case of
each Acquisition Shareholder, the information relating to the
business of the Company acquired by the Company when it acquired the
entity (identified in Schedule B-4 hereto) of which such Acquisition
Shareholder was formerly an owner, and (C) in the case of any other
Selling Shareholder, the information relating to such Selling
Shareholder. Notwithstanding the foregoing, the liability under this
Section 6(b) of each Selling Shareholder (other than the Major
Shareholders identified in Section A of Schedule B-3 hereto) shall
not exceed the aggregate proceeds received by such person upon the
sale of his or her shares of Stock under this Agreement.
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<PAGE> 24
(c) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person,
if any, who controls the Company within the meaning of the Securities
Act (collectively, the "Company Indemnified Parties") and, each
Selling Shareholder and each person, if any, who controls a Selling
Shareholder within the meaning of the Securities Act (collectively,
the "Shareholder Indemnified Parties"), against any losses, claims,
damages, liabilities or expenses (including, unless the Underwriter
or Underwriters elect to assume the defense, the reasonable cost of
investigating and defending against any claims therefor and counsel
fees incurred in connection therewith), joint or several, which arise
out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that
any Pre-effective Prospectus, the Registration Statement or the
Prospectus (or any Pre-effective Prospectus, the Registration
Statement or the Prospectus, as from time to time amended and
supplemented) includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, but only
insofar as any such statement or omission was made in reliance upon,
and in conformity with, written information furnished to the Company
by such Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; provided, however,
that in no case is such Underwriter to be liable with respect to any
claims made against any Company Indemnified Party or Shareholder
Indemnified Party against whom the action is brought unless such
Company Indemnified Party or Shareholder Indemnified Party shall have
notified such Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Company
Indemnified Party or Shareholder Indemnified Party, but failure to
notify such Underwriter of such claim shall not relieve it from any
liability which it may have to any Company Indemnified Party or
Shareholder Indemnified Party otherwise than on account of its
indemnity agreement contained in this paragraph. Such Underwriter
shall be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it.
In the event that any Underwriter elects to assume the defense of any
such suit and retain such counsel, the Company Indemnified Parties or
Shareholder Indemnified Parties and any other Underwriter or
Underwriters or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, respectively. The Underwriter
against whom indemnity may be sought shall not be liable to indemnify
any person for any settlement of any such claim effected without such
Underwriter's consent. This indemnity agreement is not exclusive and
will be in addition to any liability which such Underwriter might
otherwise have and shall not limit any rights or remedies which may
otherwise be available at law or in equity to any Company Indemnified
Party or Shareholder Indemnified Party.
(d) If the indemnification provided for in this Section 6 is unavailable
or insufficient to hold harmless an indemnified party under
subsection (a) or (b) or (c) above in respect of any losses, claims,
damages, liabilities or expenses (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and each of the Selling
Shareholders on the one hand and the Underwriters on the other from
the offering of the Stock. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Company and each of the Selling Shareholders on
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the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Shareholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company, the particular Selling Shareholder or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company, each of the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection
with investigating, defending, settling or compromising any such
claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the shares of the Stock
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. Notwithstanding the
provisions of this subsection (d), no Selling Shareholder (other than
the Major Shareholders listed in Section A of Schedule B-3 hereto)
shall be required to contribute any amount in excess of the amount by
which the aggregate proceeds received by such Selling Shareholder
from the sale of Stock hereunder exceeds the amount of any damages
that such Selling Shareholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. The Underwriters' obligations to contribute are
several in proportion to their respective underwriting obligations
and not joint. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The respective
indemnities, covenants, agreements, representations, warranties and other
statements of the Company, the Selling Shareholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter,
the Selling Shareholders, the Company or any of its officers or directors
or any controlling person, and shall survive delivery of and payment for
the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations of the
several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof and at and as of
each of the Closing Dates, of the representations and warranties made
herein by the Company and the Selling Shareholders, to compliance at and
as of each of the Closing Dates by the Company and the Selling
Shareholders with their respective covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to each
of the Closing Dates, and to the following additional conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and
no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or the Representatives, shall be threatened
by the Commission, and any request for additional information on the
part of the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
reasonable satisfaction of the Representatives. Any filings of the
Prospectus, or any supplement thereto, required pursuant to Rule
424(b) or Rule 434 of the Rules and Regulations, shall have been made
in the manner and within the time period required by Rule 424(b) and
Rule 434 of the Rules and Regulations, as the case may be.
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<PAGE> 26
(b) The Representatives shall have been satisfied that there shall not
have occurred prior to any of the Closing Dates any Material Adverse
Change or any change in the capital stock, short-term or long-term
debt of the Company and its Subsidiaries considered as a whole, such
that it is unpracticable in the reasonable judgment of the
Representatives to proceed with the public offering or purchase the
Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or governmental
action, suit or proceeding affecting the Company which is material
and adverse to the Company or which affects or may affect the
Company's or the Selling Stockholders' ability to perform their
respective obligations under this Agreement shall have been
instituted or threatened and there shall have occurred no material
adverse development in any existing such action, suit or proceeding.
(d) At the time of execution of this Agreement, the Representatives shall
have received from Arthur Andersen LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance
satisfactory to the Underwriters.
(e) The Representatives shall have received from Arthur Andersen LLP,
independent certified public accountants, letters, dated each of the
Closing Dates, to the effect that such accountants reaffirm, as of
each of the Closing Dates, and as though made on each of the Closing
Dates, the statements made in the letter furnished by such
accountants pursuant to paragraph (d) of this Section 8.
(f) The Representatives shall have received from Greenberg Traurig, P.A.,
counsel for the Company, opinions, dated each of the Closing Dates,
to the effect set forth in Exhibit I hereto.
(g) The Representatives shall have received from Greenberg Traurig, P.A.
and Steele Hector & Davis, LLP, counsel for the Selling Shareholders,
opinions dated each of the Closing Dates to the effect set forth in
Exhibit II hereto.
(h) The Representatives shall have received from Saul, Ewing, Remick &
Saul LLP, counsel for the Underwriters, their opinions dated each of
the Closing Dates with respect to the incorporation of the Company,
the validity of the Stock, the Registration Statement and the
Prospectus and such other related matters as may reasonably request,
and the Company and the Selling Shareholders shall have furnished to
such counsel such documents as they may request for the purpose of
enabling them to pass upon such matters.
(i) The Representatives shall have received certificates, dated each of
the Closing Dates, of the chief executive officer or the president
and the chief financial officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the knowledge of
the signers, no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities
Act;
(ii) They have examined the Registration Statement, each
Pre-effective Prospectus and Prospectus and any amendments or
supplements thereto and neither any Pre-effective Prospectus, as
of its date, nor the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, as of the time when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate,
included any untrue statement of a material fact, nor did the
Registration Statement (or any amendment thereto), at and during
such times, omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, nor did the Prospectus (or any supplement thereto),
at and during such times, omit to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading;
26
<PAGE> 27
(iii) They have read this Agreement and the representations and
warranties of the Company in this Agreement are true and correct
at and as of each of the Closing Dates, and the Company has
complied with all the agreements and performed or satisfied all
the conditions on its part to be performed or satisfied at or
prior to each of the Closing Dates; and
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, (i) there has
not been any Material Adverse Change; (ii) there has been no
material adverse change, loss, reduction, termination or
non-renewal of any material contract to which the Company or any
Subsidiary is a party, (iii) there has been no event or
transaction, contract or agreement entered into by the Company
or any Subsidiary that has not been, but would be required to
be, set forth in the Registration Statement or Prospectus; (iv)
the business and operations conducted by the Company and its
Subsidiaries have not sustained a loss by strike, fire, flood,
accident or other calamity (whether or not insured) of such a
character as to interfere materially with the conduct of the
business and operations of the Company and its Subsidiaries
considered as a whole; (v) no legal or governmental action,
suit, investigation or proceeding is pending or threatened
against the Company that is material to the Company, whether or
not arising from transactions in the ordinary course of
business, or which may materially and adversely affect the
transactions contemplated by this Agreement; (vi) the Company
has not incurred any material liability or obligation, direct,
contingent or indirect, made any change in its capital stock
(except pursuant to its stock plans, as described in the
Prospectus, and pursuant to corporate acquisition agreements
described or referred to in the Prospectus), made any material
change in its short-term or funded debt or repurchased or
otherwise acquired any of the Company's capital stock; and (vii)
the Company has not declared or paid any dividend, or made any
other distribution, upon its outstanding capital stock payable
to stockholders of record on a date prior to the Closing Date.
(j) The Representatives shall have received a certificate or certificates
(which may be executed and delivered by the respective
Attorneys-in-Fact), dated each of the Closing Dates, of each of the
Selling Shareholders to the effect that as of each of the Closing
Dates its representations and warranties in this Agreement are true
and correct as if made on and as of each of the Closing Dates, and
that it has performed all its obligations and satisfied all the
conditions on its part to be performed or satisfied at or prior to
the Closing Dates.
(k) The Representatives shall have received the written agreements,
substantially in the form of Exhibit III hereto, of the officers,
directors and holders of Common Stock listed in Schedule C thereto.
(l) The Nasdaq National Market shall have approved the stock for
inclusion for quotation, subject only to official notice of issuance.
(m) All corporate proceedings and other matters incident to the
authorization, form and validity of the Agreement, the Stock and the
form of the Registration Statement and the Prospectus, as amended and
supplemented, and all other legal matters relating to this Agreement
and the transactions contemplated hereby shall be satisfactory in all
material respects to counsel for the Underwriters. The Company and
the Selling Shareholders shall have furnished to such counsel all
documents and information that they may have reasonably requested to
enable them to pass upon such matters.
(n) The National Association of Securities Dealers, Inc. shall have
indicated that it has no objection to the underwriting arrangements
pertaining to the sale of any shares of Stock.
27
<PAGE> 28
(o) The Representatives shall have received at or prior to each Closing
Date from counsel for the Underwriters a memorandum or summary in
form and substance satisfactory to the Representatives with respect
to the qualification for offering and sale by the Underwriters of the
Stock under the securities or Blue Sky laws of such as are
jurisdictions designated by the Representatives.
(p) At each of the Closing Dates: (i) the Registration Statement and any
post-effective amendment thereto and the Prospectus and any
amendments or supplements thereto shall contain all statements that
are required to be stated therein in accordance with the Securities
Act and the Rules and Regulations and in all material respects shall
conform to the requirements of the Securities Act and the Rules and
Regulations, and the Registration Statement and any post-effective
amendment thereto shall not contain any untrue statement or a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented, shall not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; (ii) since the respective dates as of which information
is given in the Registration Statement and any post-effective
amendment thereto and in the Prospectus and any amendments or
supplements thereto, except as otherwise expressly stated therein,
there shall have been no Material Adverse Change; and (iii) since the
respective dates as of which information is given in the Registration
Statement and any post-effective amendment thereto and the Prospectus
and any amendment or supplement thereto, there shall have been no
event or transaction, contract or agreement entered into by the
Company or any Subsidiary that has not been, but is required to be,
set forth in the Registration Statement or Prospectus.
(q) The Representatives shall have received from Arthur Andersen LLP a
letter addressed to the Company and made available to the
Representatives for the use of the Underwriters stating that their
review of the Company's system of internal accounting controls, to
the extent they deem necessary in establishing the scope of audit of
the Company's consolidated financial statements as of December 31,
1997, after restatement for the 1998 pooling of interests with UCS,
Inc., did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
(r) There shall have been duly tendered to the Representatives for the
respective accounts of the Underwriters certificates representing all
of the shares of Stock to be purchased by the Underwriters on a
particular Closing Date.
(t) The Representatives shall have received copies of the executed
Custody Agreement and Power of Attorney for each Selling Shareholder,
and such document shall have been approved in form and substance by
counsel for the Underwriters, such approval not to be withheld
unreasonably.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in
form and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters
and other documents as the Representatives shall reasonably request. If
any of the conditions hereinabove provided for in this Section shall not
have been satisfied when and as required by this Agreement, this Agreement
may be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to each of the Closing
Dates, but SG Cowen, on behalf of the Representatives, shall be entitled
to waive any of such conditions.
28
<PAGE> 29
9. Effective Date. This Agreement shall become effective immediately as to
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business
day following the effectiveness of the Registration Statement or at such
earlier time after the Registration Statement becomes effective as the
Representatives may determine on and by notice to the Company or by
release of any of the Stock for sale to the public. For the purposes of
this Section 9, the Stock shall be deemed to have been so released upon
the release for publication of any newspaper advertisement relating to the
Stock or upon the release by you of telegrams (i) advising the several
Underwriters that the shares of Stock are released for public offering or
(ii) offering the Stock for sale to securities dealers, whichever may
occur first.
10. Termination. This Agreement (except for the provisions of Section 5) may
be terminated by the Company or the Selling Shareholders at any time
before it becomes effective in accordance with Section 9 by notice to the
Representatives and may be terminated by the Representatives at any time
before it becomes effective in accordance with Section 9 by notice to the
Company. In the event of any termination of this Agreement under this or
any other provision of this Agreement, there shall be no liability of any
party to this Agreement to any other party, other than as provided in
Sections 5, 6 and 11 and other than as provided in Section 12 as to the
liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the New York Stock Exchange,
American Stock Exchange, Nasdaq National Market System, Chicago Board of
Options Exchange, Chicago Mercantile Exchange, Chicago Board of Trade,
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium shall
have been declared by New York or United States authorities; (ii) trading
of any securities of the Company shall have been suspended on any exchange
or in any over-the-counter market; (iii) if at or prior to the First
Closing Date there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power or of any
other insurrection or armed conflict involving the United States or (B)
any change in financial markets or any calamity or crisis which, in the
judgment of the Representatives, makes it impractical or inadvisable to
offer or sell the Stock on the terms contemplated by the Prospectus; (iv)
if there shall have been any development or prospective development
involving particularly the business or properties or securities of the
Company or the transactions contemplated by this Agreement, which, in the
judgment of the Representatives, makes it impracticable or inadvisable to
offer or deliver the Stock on the terms contemplated by the Prospectus;
(v) if there shall be any litigation or proceeding, pending or threatened,
which, in the judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the on the terms contemplated by the
Prospectus; or (vi) if there shall have occurred any of the events
specified in the immediately preceding clauses (i) - (v) together with any
other such event that makes it, in the judgment of the Representatives,
impractical or inadvisable to offer or deliver the Stock on the terms
contemplated by the Prospectus.
29
<PAGE> 30
11. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any
election of the Company or the Selling Shareholders pursuant to the first
paragraph of Section 10 or shall be terminated by the Representatives
under Section 8 or Section 10, the Company will bear and pay the expenses
specified in Section 5 hereof and, in addition to its obligations pursuant
to Section 6 hereof, the Company will reimburse the reasonable
out-of-pocket expenses of the several Underwriters (including reasonable
fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand the Company will pay such amounts to you as
Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent
(10%) of the total number of shares of Firm Stock or Optional Stock (as
the case may be) underwritten, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase. If any Underwriter or Underwriters shall so
default and the aggregate number of shares with respect to which such
default or defaults occur is more than ten percent (10%) of the total
number of shares underwritten and arrangements satisfactory to the
Representatives and the Company for the purchase of such shares by other
persons are not made within forty-eight (48) hours after such default,
this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12, (i)
the Company and the Selling Shareholders shall have the right to postpone
the Closing Dates for a period of not more than five (5) full business
days in order that the Company and the Selling Shareholders may effect
whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements,
and the Company agrees promptly to file any amendments to the Registration
Statement or supplements to the Prospectus which may thereby be made
necessary, and (ii) the respective numbers of shares to be purchased by
the remaining Underwriters or substituted Underwriters shall be taken as
the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting
Underwriter of its liability to the Company, the Selling Shareholders or
the other Underwriters for damages occasioned by its default hereunder.
Any termination of this Agreement pursuant to this Section 12 shall be
without liability on the part of any non-defaulting Underwriter, the
Selling Shareholders or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section
6.
30
<PAGE> 31
13. Notices. All communications hereunder shall be in writing and, if sent to
the Underwriters shall be mailed, delivered or telegraphed and confirmed
to you, as their Representatives c/o SG Cowen Securities Corporation at
Financial Square, New York, New York 10005 except that notices given to an
Underwriter pursuant to Section 6 hereof shall be sent to such Underwriter
at the address furnished by the Representatives or, if sent to the Company
or the Selling Shareholders, shall be mailed, delivered or telegraphed and
confirmed c/o the Company at 1000 Business Drive, Lake Mary, Florida
32746.
14. Successors. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Shareholders
and their respective successors and legal representatives. Nothing
expressed or mentioned in this Agreement is intended or shall be construed
to give any person other than the persons mentioned in the preceding
sentence any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained, this Agreement and
all conditions and provisions hereof being intended to be and being for
the sole and exclusive benefit of such persons and for the benefit of no
other person; except that the representations, warranties, covenants,
agreements and indemnities of the Company and the Selling Shareholders
contained in this Agreement shall also be for the benefit of the person or
persons, if any, who control any Underwriter or Underwriters within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has
signed the Registration Statement and the person or persons, if any, who
control the Company or any Selling Shareholders within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. Authority of the Representatives. In connection with this Agreement, you
will act for and on behalf of the several Underwriters, and any action
taken under this Agreement by Cowen, as Representative, will be binding on
all the Underwriters; and any action taken under this Agreement by any of
the Attorneys-in-Fact will be binding on all the Selling Shareholders.
17. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision
hereof. If any Section, paragraph or provision of this Agreement is for
any reason determined to be invalid or unenforceable, there shall be
deemed to be made such minor changes (and only such minor changes) as are
necessary to make it valid and enforceable.
18. General. This Agreement constitutes the entire agreement of the parties to
this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may
be waived, only by a writing signed by the Company, the Selling
Shareholders and the Representatives.
31
<PAGE> 32
19. Counterparts. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Shareholders represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Shareholder pursuant to a
validly existing and binding power of attorney which authorizes such
Attorney-in-Fact to take such action.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding
agreement between us.
Very truly yours,
H.T.E., INC.
By:
----------------------------
President
<TABLE>
<S> <C> <C>
- ----------------------- ------------------------ ----------------------
DENNIS J. HARWARD O.F. RAMOS BERNARD B. MARKEY
Acting on his own behalf and Acting on his own behalf and Acting as Attorney-in-Fact
as Attorney-in-Fact for the as Attorney-in-Fact for the for the Selling Shareholders
Selling Shareholders listed in Selling Shareholders listed in listed in Schedule E hereto
Schedule D hereto Schedule F hereto
</TABLE>
Accepted and delivered in
New York, New York, as of
the date first above written.
SG COWEN SECURITIES CORPORATION
JANNEY MONTGOMERY SCOTT INC.
RAYMOND JAMES & ASSOCIATES, INC.
VOLPE BROWN WHELAN & COMPANY
Acting on their own behalf and
as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: SG COWEN SECURITIES CORPORATION
By:
----------------------------------
John P. Dunphy
Managing Director - Syndicate
32
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Number of
Shares to be Optional Shares to
Name Purchased be Purchased
- ---- --------- ------------
<S> <C> <C>
SG Cowen Securities Corporation
Janney Montgomery Scott Inc.
Raymond James & Associates, Inc.
Volpe Brown Whelan & Company
Total
- -----
</TABLE>
<PAGE> 34
SCHEDULE B-1
FIRM STOCK
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
COMPANY TO BE SOLD
- ------- ----------
<S> <C>
H.T.E., Inc..................................................................... 1,500,002
SELLING SHAREHOLDERS
- --------------------
Dennis J. Harward............................................................... 371,749
Jack L. Harward................................................................. 250,885
O.F. Ramos...................................................................... 273,098
L.A. Gornto, Jr................................................................. 70,000
Daniel E. Catan................................................................. 20,000
Ronald E. Goodrow............................................................... 169,600
Robert W. Nelson................................................................ 183,468
William K. North................................................................ 112,846
George A. Sheehy................................................................ 110,000
David N. Way.................................................................... 110,000
BancBoston Ventures, Inc........................................................ 1,112,432
CoreStates Holdings, Inc........................................................ 416,391
First Maryland Bancorp.......................................................... 36,208
Summit Bancorp.................................................................. 54,312
The Philadelphia Municipal...................................................... 90,520
PNC Bank, Delaware.............................................................. 36,208
NatWest Group Holdings Corporation.............................................. 90,520
George P. Keeley................................................................ 30,394
Raymond R. Rafferty, Jr......................................................... 43,827
49 Employees of HTE-UCS, Inc.................................................... 54,640
---------
Total........................................................................... 3,637,098
</TABLE>
<PAGE> 35
SCHEDULE B-2
OPTIONAL STOCK TO BE SOLD BY SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
OPTIONAL STOCK
SELLING SHAREHOLDERS TO BE SOLD
- -------------------- -----------
<S> <C>
Dennis J. Harward............................................................... 339,300
Jack L. Harward................................................................. 339,301
O.F. Ramos...................................................................... 81,964
L.A. Gornto, Jr................................................................. 10,000
-------
Total........................................................................... 770,565
</TABLE>
<PAGE> 36
SCHEDULE B-3
MAJOR SHAREHOLDERS
The following Selling Shareholders are "Major Shareholders" within the
meaning of Section 2(b) of this Agreement for the purposes of joining with the
Company in making the representations and warranties to, and agreements with,
the several Underwriters as provided in such Section 2:
A. Selling Shareholders whose obligations are coextensive with the
Company's:
Dennis J. Harward
Jack L. Harward
B. Selling Shareholders whose maximum obligations will not exceed the
proceeds received thereby, respectively, upon the sale of their Stock under
this Agreement.
O. F. Ramos
L. A. Gornto, Jr.
Ronald A. Goodrow
Daniel E. Catan
<PAGE> 37
SCHEDULE B-4
ACQUISITION SHAREHOLDERS
The following Selling Shareholders are "Acquisition Shareholders" within
the meaning of Section 2(b) of this Agreement.
A. Persons who formerly were shareholders of UCS, Inc., who acquired
their shares of Stock in connection with the Company's acquisition of UCS, Inc.
and whose maximum obligations will not exceed the proceeds received upon the
sale of their Stock under this Agreement.
Robert W. Nelson
William K. North
B. Persons who formerly were members of Phoenix Systems, LLC, who
acquired their shares of Stock in connection with the Company's acquisition of
Phoenix Systems, LLC, and whose maximum obligations will not exceed the proceeds
received upon the sale of their Stock under this Agreement.
George A. Sheehy
David N. Way
<PAGE> 38
SCHEDULE C
LOCK-UP AGREEMENT SIGNATORIES
H.T.E., Inc.
Lock-up obligations included in Underwriting Agreement.
Selling Shareholders
Lock-up obligations included in Underwriting Agreement and Custody
Agreement and Power of Attorney. Further, the following Selling
Shareholders have delivered stand-alone Lock-Up Agreements:
[To be provided]
Non-Selling Shareholders
Bernard B. Markey
Raymond Ambrose
Susan D. Falotico
Charlotte B. Hill
Brian B. Heafy
<PAGE> 39
SCHEDULE D
SELLING SHAREHOLDERS FOR WHOM
DENNIS J. HARWARD IS ATTORNEY-IN-FACT
Jack L. Harward
L.A. Gornto, Jr.
Ronald E. Goodrow
Daniel E. Catan
George A. Sheehy
David N. Way
<PAGE> 40
SCHEDULE E
SELLING SHAREHOLDERS FOR WHOM
BERNARD B. MARKEY IS ATTORNEY-IN-FACT
BancBoston Ventures, Inc.
CoreStates Holdings, Inc.
First Maryland Bancorp.
Summit Bancorp
The Philadelphia Municipal Employees Retirement System
PNC Bank, Delaware
NatWest Group Holdings Corporation
George P. Keeley
Raymond R. Rafferty, Jr.
<PAGE> 41
SCHEDULE F
SELLING SHAREHOLDERS FOR WHOM
O. F. RAMOS IS ATTORNEY-IN-FACT
David B. Adelson Sharon Marsh
Servando and Linda Alzati Anthony Marty
Antony Andrew Leanne M. May
Joseph E. August Daniel McLane
Rodney Bollinjin Thomas F. Mersch
Jeffrey L. Brungardt Joseph Messina
Darryle Burnham Linda S. Mills
Randall P. Carver Sarah Morales
Robert E. Castillo Robert W. Nelson
Powell Castro Kirsten Noppinger
Andrew Cotterell Alvin W. North
Harry Deer William K. North
Steven deRochemont Ryan Plush
Thomas D. Flynn Dania Ramos
Nancy L. Gainer Collin C. Richards
Pedro Gonzalez Marianne Ruiz
David Graves Lizzet Q. Serrano
Scott A. Gygi Rajiv Singh
Christopher Hangl Mary Ann Smith
Larry M. Haustein Philip E. Styron
Nancy Hucke Bruce Turner
Jeffrey D. Jaco Wayne Walker
James Killen, Jr. Richard E. Walsh
Nicholas Laurie Marco Ye
Mandvil Loriston Jeff Zwickel
<PAGE> 42
Exhibit III
[Form of Lock-Up Agreement]
[Date]
SG Cowen Securities Corporation
Janney Montgomery Scott Inc.
Raymond James & Associates, Inc.
Volpe Brown Whelan & Company
As Representative of the
several Underwriters
c/o SG Cowen Securities Corporation
Financial Square
New York, NY 10005
Re: H.T.E., Inc.
5,137,100 Shares of Common Stock
Dear Sirs:
In order to induce SG Cowen Securities Corporation ("SC Cowen"), Janney
Montgomery Scott Inc. ("Janney"), Raymond James & Associates, Inc. ("Raymond
James") and Volpe Brown Whelan & Company ("Volpe") (SG Cowen, Janney, Raymond
James and Volpe are together, the "Representatives"), to enter in to a certain
underwriting agreement with H.T.E., Inc., a Florida corporation (the
"Company"), with respect to the public offering of shares of the Company's
Common Stock, par value $.01 per share ("Common Stock"), the undersigned hereby
agrees that for a period of 90 days following the date of the final prospectus
filed by the Company with the Securities and Exchange Commission in connection
with such public offering, the undersigned will not, without the prior written
consent of SC Cowen, directly or indirectly, offer, sell, assign, transfer,
encumber, pledge, contract to sell, grant an option to purchase or otherwise
dispose of, other than by operation of law, any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations promulgated under the Securities Act of 1933, as the same may be
amended or supplemented from time to time (such shares, the "Beneficially Owned
Shares")).
Anything contained herein to the contrary notwithstanding, any person to whom
shares of Common Stock or Beneficially Owned Shares are transferred from the
undersigned shall be bound by the terms of this Agreement.
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Common Stock with respect to any shares of Common Stock
or Beneficially Owned Shares.
[Signatory]
By:
---------------------------------
Name:
Title:
<PAGE> 1
Exhibit 5.1
September 16, 1998
H.T.E., Inc.
1000 Business Center Drive
Lake Mary, Florida 32746
Gentlemen:
You have requested our opinion in connection with the Registration
Statement on Form S-3 (the "Registration Statement") of H.T.E., Inc. (the
"Company") relating to 5,907,665 shares (the "Shares") of the Company's Common
Stock, $.10 par value (the "Common Stock") to be sold pursuant to a secondary
offering as set forth therein (which includes 770,565 Shares subject to the
Underwriters' over-allotment option):
(a) 1,500,002 Shares to be issued by the Company;
(b) 4,407,663 Shares (including 770,565 Shares which the Underwriters have
the option to purchase to cover over-allotments) held by or issuable to Selling
Shareholders (as defined in the Registration Statement), which shares represent
the following:
(a) 4,271,063 Shares held by Selling Shareholders, and
(b) an aggregate of 136,600 Shares issuable to certain Selling
Shareholders upon exercise of stock options.
We have made such examination of the corporate records and proceedings of
the Company and have taken such further action as we deemed necessary or
appropriate to the rendering of our opinion herein.
Based on the foregoing, we are of the opinion that the 1,500,002 Shares,
when issued by the Company as contemplated by the Registration Statement, will
be legally issued, fully paid and non-assessable. Further, we are of the opinion
that the 4,271,063 Shares referenced above were legally issued, fully paid and
non-assessable. In addition, we are of the opinion that the 136,600 Shares
underlying the stock options, when paid for and issued as contemplated by their
respective governing instruments, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the heading "Legal Matters" therein.
Sincerely,
/s/ GREENBERG TRAURIG, P.A.
<PAGE> 1
Exhibit 23.2
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 this Registration
Statement.
/s/ Arthur Andersen LLP
-----------------------------
Orlando, Florida
September 15, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Prospectus constituting part of this
Registration Statement on Form S-3 of H.T.E., Inc. of our reports dated April
10, 1998, July 7, 1998 and September 4, 1996, relating to the financial
statements of UCS, Inc. (not presented separately herein), which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Miami, Florida
September 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF H.T.E., INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 21,193
<SECURITIES> 0
<RECEIVABLES> 19,835
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,305
<PP&E> 2,414
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,730
<CURRENT-LIABILITIES> 19,101
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 28,803
<TOTAL-LIABILITY-AND-EQUITY> 50,730
<SALES> 0
<TOTAL-REVENUES> 45,813
<CGS> 0
<TOTAL-COSTS> 41,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5)
<INCOME-PRETAX> 4,000
<INCOME-TAX> 1,442
<INCOME-CONTINUING> 2,558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,558
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF H.T.E., INC. FOR THE THREE MONTHS ENDED MARCH 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,101
<SECURITIES> 0
<RECEIVABLES> 25,980
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,743
<PP&E> 3,668
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,256
<CURRENT-LIABILITIES> 19,218
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 31,824
<TOTAL-LIABILITY-AND-EQUITY> 54,256
<SALES> 0
<TOTAL-REVENUES> 19,944
<CGS> 0
<TOTAL-COSTS> 17,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (144)
<INCOME-PRETAX> 2,169
<INCOME-TAX> 839
<INCOME-CONTINUING> 1,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,330
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
