<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 2000
REGISTRATION NO. 333-93445
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 3
TO
FORM S-1/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DEMANDSTAR.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 7374 59-3590973
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification Number)
</TABLE>
1551 SANDSPUR ROAD, SUITE B
MAITLAND, FLORIDA 32751
(407) 975-0000
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
O. F. RAMOS
CHIEF EXECUTIVE OFFICER
1551 SANDSPUR ROAD, SUITE B
MAITLAND, FLORIDA 32751
(407) 975-0000
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
COPIES TO:
RANDOLPH H. FIELDS, ESQ.
SANDRA C. GORDON, ESQ.
GREENBERG TRAURIG, P.A.
111 NORTH ORANGE AVENUE, 20TH FLOOR
ORLANDO, FLORIDA 32801
TELEPHONE NO. (407) 420-1000
FACSIMILE NO. (407) 420-5909
---------------------
APPROXIMATE DATE OF COMMENCEMENT DATE OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule
462(d)under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED SHARE PRICE FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rights to purchase shares of common
stock, par value $.0001 per
share(1)............................. 18,811,330 -- -- --(2)
- ---------------------------------------------------------------------------------------------------------------------------
Common stock, par value $.0001 per
share, to be issued pursuant to
exercise of the rights............... 18,811,330(3) $1.00 $18,811,330 $5,076(4)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) DemandStar.com, Inc. is granting, at no cost, non-transferable
subscription rights to subscribe for and purchase shares of common stock
of DemandStar.com, Inc.
(2) Pursuant to Rule 457(g), no separate registration fee is required for
the rights since they are being registered in the same registration
statement as the common stock of DemandStar.com, Inc. underlying the
rights.
(3) Represents shares of common stock of DemandStar.com, Inc. issuable
pursuant to the exercise of the rights.
(4) Previously paid.
---------------------
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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL OR DISTRIBUTE
THESE SECURITIES UNTIL THE REGISTRATION STATEMENT IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
- --------------------------------------------------------------------------------
(Demandstar.com Logo)
DEMANDSTAR.COM, INC.
(18,811,330 RIGHTS TO PURCHASE COMMON STOCK)
18,811,330 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
We are distributing, at no cost, non-transferable rights to purchase our
common stock to:
- persons who own shares of common stock of H.T.E., Inc., our parent
company, on the record date of March 6, 2000;
- persons who held HTE stock options on December 16, 1999 and who are also
employees or directors of HTE, or a subsidiary of HTE, as of February 1,
2000; and
- persons who are employees of HTE, or a subsidiary of HTE, as of February
1, 2000.
You may purchase one share of our common stock for each right you are
issued for the price of $1.00 per share. You will be able to exercise your
rights only during a limited period. If you do not exercise your rights before
5:00 p.m., Eastern Standard Time, on , 2000, your rights will
expire. We may decide to extend the rights offering, in our discretion, for up
to 15 calendar days.
No public market currently exists for our common stock or the rights. Our
common stock will be traded over the OTC Electronic Bulletin Board. The rights
will not be listed on Nasdaq or any securities exchange.
<TABLE>
<CAPTION>
MAXIMUM PROCEEDS
AFTER DEDUCTING
PRICE TO THE PUBLIC OFFERING EXPENSES(1)
------------------- --------------------
<S> <C> <C>
Subscription Price............................. $ 1.00 $ .97
Total Offering................................. $18,811,330 $18,288,754
</TABLE>
- ---------------
(1) Offering expenses estimated at $522,576.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
Forward-Looking Statements............ 26
The Offering.......................... 26
Use of Proceeds....................... 36
Dividend Policy....................... 37
Dilution.............................. 38
Capitalization........................ 39
Selected Financial Data............... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 45
Management............................ 58
Executive Compensation................ 61
Related Party Transactions............ 71
Security Ownership of DemandStar...... 76
Description of Securities............. 76
Shares Eligible for Future Sale....... 86
Federal Income Tax Consequences....... 87
Legal Matters......................... 90
Available Information................. 90
Index To Financial Statements......... F-1
</TABLE>
-------------------------
Our principal executive offices are located at 1551 Sandspur Road, Suite B,
Maitland, Florida 32751, and our telephone number is (407) 975-0000. Our World
Wide Web site is www.demandstar.com. The information in the Web site is not
incorporated by reference into this prospectus.
You should rely only on the information contained in this prospectus, the
related registration statement and any documents incorporated by reference into
the registration statement. DemandStar has not authorized any dealer, broker,
salesperson or any other individual to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it as having been authorized by DemandStar. The information in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus. DemandStar is not making an offer to sell
these securities, or soliciting an offer to buy, in any jurisdiction where the
offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of the prospectus.
i
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus. Except as otherwise noted,
all information in this prospectus reflects: (1) the adoption and filing by
DemandStar of the Amended and Restated Articles of Incorporation and the Amended
and Restated By-Laws described in this prospectus; and (2) a 1,250-for-one share
split of DemandStar common stock effected in December 1999.
BUSINESS OF DEMANDSTAR
DemandStar is a provider of Internet-based procurement systems for
governmental agencies. Our procurement systems enable governments to purchase
goods and services more efficiently and at lower administrative costs while at
the same time providing valuable services to businesses selling to government
agencies. The businesses pay a membership fee to get the benefit of "real time"
notification of new bid opportunities. The DemandStar system handles all goods
and services that agencies acquire through a mandatory bid process.
OUR HISTORY
We were formed as "HTE-IOD, Inc.," a Florida corporation, on June 1, 1999.
On June 18, 1999, we acquired the business and specified net assets of our
predecessor, Information On Demand, Inc., a Florida corporation formed in June
1997. In connection with that acquisition, we changed our name to "Information
On Demand, Inc." On December 21, 1999, we then changed our name to
"DemandStar.com, Inc."
We have a limited operating history. We have a history of significant
losses, with a net loss of ($1,138,842) for the period from June 18, 1999 to
December 31, 1999. We anticipate that we will continue to incur significant
losses into the foreseeable future. In that 1999 was our first year of
operation, our accumulated deficit is the same as our net loss. Our auditors
have expressed a "going concern" opinion.
OUR BUSINESS MODEL
Our services are provided at no-cost to participating government agencies.
Businesses that provide goods and services to agencies are provided the
opportunity to register with us as member vendors for an annual fee. We bring
together agencies and vendors for e-procurement. Our focus is on the bid/request
for proposal process. Our Internet-based products and services offer the
agencies and vendors the opportunity to quickly, efficiently and seamlessly
communicate information regarding bids, goods and services. Our system allows
governments to reduce administrative overhead in bid notification and follow-up.
Governments can often use other agencies' contracts, and our site allows
governments to quickly find similar contracts and bids. A larger vendor
community available through the DemandStar website can improve the responses
that agencies get back on bids. Member vendors receive "real time" notification
of bids and can immediately access them on the web.
1
<PAGE> 5
OUR GROWTH STRATEGY
Many governmental agencies have recognized the need to develop a
procurement presence on the Internet, but have not had the resources to do so
due to budgetary constraints. Our Internet-based procurement systems allow a
vendor to go to an agency's website and view outstanding bid information in a
uniform, easy-to-read manner. Our services address those budgetary concerns and
successfully serve the procurement systems needs of over two dozen agencies. In
order to take advantage of our market opportunity, we plan to use proceeds from
initial funding from HTE and the investors who exercise their rights under this
offering to expand our marketing and sales efforts to other geographical
locations throughout the United States and internationally.
RISK FACTORS
We are operating in a new industry and our business and this offering
involves a high degree of risk. You should consider the risks of investing in
our common stock, as more fully described under "Risk Factors."
RELATIONSHIP BETWEEN HTE AND DEMANDSTAR
In the first quarter of fiscal 2000, HTE contributed $1,500,000 to
DemandStar to fund the costs of this rights offering, anticipated DemandStar
operating losses and for general corporate purposes. In exchange for this
investment, prior to the closing of the offering, DemandStar will issue to HTE
750,000 shares of Series A preferred stock. The 750,000 shares of Series A
preferred stock issued to HTE for $1,500,000 is convertible, at HTE's election,
into 750,000 shares of DemandStar common stock, and provides HTE
disproportionate voting rights and a liquidation preference to the other
DemandStar common shareholders. While no independent appraisal was done for the
Series A preferred stock issued to HTE, these preferences were taken into
consideration by DemandStar in establishing the fair market value at $2.00 per
share, or $1.00 more than the rights holders will pay for each share of
DemandStar common stock purchased.
Immediately following the closing of the rights offering, HTE will maintain
effective control over our management and policies and substantially all matters
submitted to our shareholders for consideration, including the election of
directors and all proposals for merger, liquidation, sale of substantially all
of our assets and charter amendments. The terms of the Series A preferred stock
held by HTE will allow HTE to continue to effectively control the vote on almost
all shareholder votes for the foreseeable future, without taking into account
any shares of common stock which HTE may hold.
The boards of directors of DemandStar and HTE are identical, with the
exception of one HTE board member, Joseph Loughry, who does not serve on the
DemandStar board. In addition, L.A. Gornto, Jr. is the only officer of
DemandStar who is also an officer of HTE.
CONTRACTUAL ARRANGEMENTS
Prior to the closing of the rights offering, we will enter into a services
agreement with HTE under which HTE will provide us with general management and
administrative services. The services agreement will also provide that HTE will
bill DemandStar for services based on an estimated cost basis. The services
agreement will permit termination upon 120 days notice from either party. Prior
to the closing of the rights offering, we will also enter into a tax sharing and
indemnity agreement with HTE. On December 21, 1999,
2
<PAGE> 6
DemandStar and HTE entered into an investment and distribution agreement with
respect to HTE's $1,500,000 capital contribution to DemandStar in exchange for
Series A preferred stock, and a registration rights agreement providing HTE
demand and piggy-back registration rights with respect to the DemandStar common
stock. In addition, on December 21, 1999, DemandStar entered into a Conditional
Series B Stock Purchase Agreement with HTE, O. F. Ramos, L.A. Gornto, Jr.,
Bernard Markey and Edward Moses, officers and directors of DemandStar, whereby
HTE and the officers and directors named above agreed to contribute an aggregate
of $2,000,000 to DemandStar in exchange for Series B preferred stock in the
event that less than an aggregate of $5,000,000 in rights is exercised.
THE OFFERING
Description of the Rights
Offering..................... DemandStar is distributing the rights in this
offering to HTE which, in turn, is distributing
the rights to HTE shareholders, option holders,
directors and employees. At the closing of the
rights offering, HTE will purchase the
18,811,330 shares of DemandStar common stock
being registered in this offering for the price
of $1.00 per share. The aggregate purchase price
will be evidenced by a non-interest bearing
promissory note payable to DemandStar in the
principal amount of $18,811,330, which shall be
delivered and immediately thereafter repaid at
the closing of the offering from the proceeds
received from investors who exercise their
rights and purchase DemandStar common stock from
the shares purchased by HTE pursuant to the
non-interest bearing note. Immediately after the
closing of the offering, DemandStar will file a
post-effective amendment to this registration
statement to de-register any underlying shares
of common stock not subscribed for by rights
holders at closing. The note will provide that
such de-registered restricted shares shall be
redeemed by DemandStar in exchange for the then
outstanding balance due under the note.
Description of Eligible
Rights Holders............... Each holder of shares of HTE common stock on the
record date of March 6, 2000 will receive one
right for every share of HTE common stock owned
on that date. In addition, each person who held
HTE stock options as of December 16, 1999
pursuant to an HTE stock option agreement, and
who is also an employee or director of HTE, or a
subsidiary of HTE, as of February 1, 2000, will
receive one right for each share that he has
such a vested and/or unvested option to acquire.
Further, each person who is an employee of HTE,
or a subsidiary of HTE, as of February 1, 2000
will receive 200 rights. Each right carries a
basic subscription privilege which entitles the
holder to purchase one share of DemandStar
common stock. We are offering up to 18,811,330
shares
3
<PAGE> 7
in the aggregate. The right must be exercised as
to whole shares. No fractional rights or shares
will be issued.
Subscription Price........... The subscription price of DemandStar common
stock is $1.00 per share.
Exercise Period.............. The rights will only be exercisable, in whole or
in part, from the period beginning on
, 2000 and ending on , 2000, at 5:00
p.m., Eastern Standard Time, unless extended by
us in our sole discretion. In no event will we
extend the exercise period beyond 5:00 p.m.,
Eastern Standard Time, , 2000.
How Rights Will be
Evidenced.................... Each holder will receive a subscription
certificate representing his rights.
Purchase of Unsubscribed
Shares; Restricted
Securities................... In the event that not all of the rights are
exercised by the closing of the rights offering,
Messrs. Markey, North, Ramos and Jordan,
officers and/or directors of DemandStar, have
committed to purchase at $1.00 per share up to
718,568 restricted shares from the pool of
unsubscribed rights available, if any. In
addition, Messrs. Markey, North, Ramos, Gornto
and Moses, all officers and/or directors of
DemandStar, have committed to purchase for $1.00
per share, an aggregate of 656,821 restricted
shares based upon their current ownership of HTE
common stock and options. The consummation of
all such purchases of shares by those officers
and directors will be made at the closing of the
rights offering. Any shares acquired by such
officers and directors, including shares from
the pool of unsubscribed rights, will be
restricted shares, subject to the requirements
and restrictions of Rule 144, unless such shares
are registered for resale in a subsequent
registration statement.
Number of Shares of Common
Stock to be Outstanding After
the Offering................. Immediately following this offering and assuming
maximum exercise of rights, we will have
shares of common stock outstanding.
We have reserved 4,000,000 shares of common
stock for the grant of options and other awards
under our 1999 Employee Incentive Compensation
Plan, of which we have outstanding options for
the purchase of 2,270,000 shares in the
aggregate at an exercise price of $1.00 per
share. We also have 1,000,000 shares of common
stock reserved for issuance upon the exercise of
warrants with an exercise price of $2.00 per
share and 750,000 shares
4
<PAGE> 8
of common stock reserved for issuance upon the
conversion of the Series A preferred stock.
Use of Proceeds.............. Fund anticipated operating losses, to provide
working capital and for other general corporate
purposes.
Our executive offices are located at 1551 Sandspur Road, Suite B, Maitland,
Florida 32751, and our telephone number is (407) 975-0000. Our World Wide Web
site is located at http://www.demandstar.com. Information contained in our web
site shall not be deemed to be part of this prospectus.
In this prospectus, the terms "DemandStar," "we," "us," and "our" refer to
DemandStar.com, Inc.
HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary financial data should be read in conjunction with
DemandStar's financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The financial information as of December
31, 1999, and for the period from June 18, 1999 to December 31, 1999, reflects
the financial position and results of operations of DemandStar. The financial
information for the year ended December 31, 1998, and for the period from
January 1, 1999 to June 17, 1999, reflects the financial position and results of
operations of the Predecessor. The pro forma financial information is derived
from the December 31, 1999 audited balance sheet of DemandStar, as adjusted for
HTE's $1,500,000 investment in shares of Series A preferred stock. The following
summary financial information has been derived from and is qualified by
reference to DemandStar's and the Predecessor's financial statements audited by
Arthur Andersen LLP, independent certified public accountants, included
elsewhere herein.
<TABLE>
<CAPTION>
INFORMATION ON DEMAND, INC.
(PREDECESSOR) DEMANDSTAR.COM, INC.
---------------------------------------- --------------------
FOR THE YEAR FOR THE PERIOD FROM FOR THE PERIOD FROM
ENDED DECEMBER 31, JANUARY 1, 1999 TO JUNE 18, 1999 TO
1998 JUNE 17, 1999 DECEMBER 31, 1999
------------------ ------------------- --------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................... $ 33,718 $ 132,135 $ 196,855
Operating loss............. (280,711) (270,359) (1,111,534)
Net loss................... (280,711) (270,359) (1,138,842)
Basic and diluted loss per
common share............. $ (0.91)
Weighted average number of
common shares
outstanding.............. 1,250,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 127,733 $1,627,733
Working capital (deficit)................................... (301,640) 1,198,360
Total assets................................................ 1,311,391 2,811,391
Note payable to HTE......................................... 1,306,885 1,306,885
Series A preferred stock.................................... -- 1,500,000
Total shareholder's equity (deficit)........................ (326,304) 1,173,696
</TABLE>
5
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business, operating results and
financial condition and could result in a complete loss of your investment.
RISKS PARTICULAR TO DEMANDSTAR.COM, INC.
WE ANTICIPATE INCURRING SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE. OUR
AUDITORS HAVE QUALIFIED THEIR REPORT ON OUR FINANCIAL STATEMENTS WITH RESPECT TO
OUR ABILITY TO CONTINUE AS A GOING CONCERN.
As noted in the Report of Independent Certified Public Accountants included
elsewhere herein, we have experienced significant operating losses and an
accumulated deficit which raise substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any adjustments that
might result from this uncertainty. To date, we have not been profitable. We may
never be profitable or, if we become profitable, we may be unable to sustain
profitability. We have incurred significant losses since inception. Together
with our Predecessor, we reported a total net loss of $1,409,201 for the year
ended December 31, 1999. We expect to continue to incur significant losses for
the foreseeable future. As of December 31, 1999, our accumulated deficit was
$1,138,842. Our limited operating history makes predicting our future operating
results, including operating expenses, difficult. Our revenues may not grow or
may not even continue at their current level. We are conducting this offering to
raise the cash for working capital in the future. To the extent we are unable to
raise sufficient cash from this offering, our business, operations and financial
condition will be materially adversely affected.
WE RECEIVED A QUALIFIED ACCOUNTANTS' REPORT WHICH INDICATES THERE ARE DOUBTS
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
The report of our independent accountants, in connection with our audited
financial statements for the year ended December 31, 1999, contains an
explanatory paragraph indicating factors which create doubt about our ability to
continue as a going concern. These factors include the fact that DemandStar has
generated losses since its inception and has relied on capital contributions and
loans from shareholders to fund its operations.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT TO EVALUATE OUR
BUSINESS.
We only have a limited operating history on which to base an evaluation of
our business and prospects. You must consider our business in the light of the
risks, expenses and problems frequently encountered by companies like us. Before
investing in our common stock, you should consider the risks and difficulties we
may encounter as an early-stage company in the new and rapidly evolving
e-commerce market. These risks include our ability to:
- implement our business model;
- increase the efficiency and function of our services;
6
<PAGE> 10
- anticipate and adapt to rapid changes in our markets;
- retain existing customers, attract new customers and maintain customer
satisfaction;
- introduce enhanced web sites, services, products and alliances; and
- minimize technical difficulties, system downtime and the effect of
Internet brownouts.
If we do not successfully manage these risks, our business will suffer. We
cannot assure you that we will successfully address these risks or that our
business strategy will be successful.
WE EXPECT OUR OPERATING EXPENSES TO INCREASE.
Some of our expenses are fixed, including non-cancelable agreements,
equipment leases and real estate leases. These fixed costs are approximately
$2,000,000 in the short run. If our revenues do not increase, we may not be able
to compensate by reducing expenses in a timely manner. In addition, we plan to
increase significantly our operating expenses to:
- increase our sales and marketing operations;
- broaden our customer support capabilities; and
- develop new and enhanced products and services.
Expenses may also increase due to the potential impact of goodwill and other
charges resulting from completed and future acquisitions.
Additionally, leading Web sites, browser providers and other Internet
distribution channels may begin to charge us to provide access to our products
and services. If any of these expenses are not accompanied by increased
revenues, our business, financial condition and operating results would be
materially adversely affected.
WE MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY WHICH COULD CAUSE OUR BUSINESS
AND OPERATING RESULTS TO SUFFER.
Our growth rate may increase rapidly in response to the acceptance of our
products and services under new or existing government contracts. This growth
will place a substantial strain on our limited management, operational and
financial resources and systems. To integrate our operations and to manage the
growth of our operations will require the development and implementation of our
operational and financial systems, procedures and controls and training, and
management and expansion of our employee base. We cannot provide any assurance
that we will be able to effectively manage the expansion of our operations or
that the systems we develop and implement, or procedures or controls that we
adopt, will be adequate to support the rapid execution necessary to exploit
fully the market opportunity we have identified. If we do not manage our growth
effectively, our business and operating results will suffer.
7
<PAGE> 11
OUR BUSINESS PLAN DEPENDS ON ACCEPTANCE OF OUR SERVICE BY GOVERNMENTAL AGENCIES.
In order to expand the number of vendor subscriptions for our service, from
which we anticipate deriving more than 85% of our revenue under our business
plan, our program must be accepted by governmental agencies. There are various
factors which could delay acceptance by or prevent agencies from contracting
with us for our service, including:
- political acceptance of the concept of governmental agencies contracting
with third parties to distribute public information, which has been
offered traditionally only by the governmental agencies, often without
charge;
- changes to state legislation authorizing government's contracting with
third parties to distribute public information;
- the high cost of implementing and maintaining Internet technology in a
budget-constrained environment;
- the risks associated with moving from older, established technologies to
rapidly evolving Internet technologies;
- the intense competition for qualified technical personnel;
- the lengthy and political appropriations process for obtaining funds to
acquire and implement new technology; and
- the concern governmental agencies may have over security and privacy of
information they view as part of the public trust.
Delays in the approval process, or failure to obtain such approvals, from
government agencies could harm our business, operating results and financial
condition.
BECAUSE WE HAVE SERVICE CONTRACTS WITH A LIMITED NUMBER OF GOVERNMENTAL BODIES,
THE TERMINATION OF ANY OF THESE CONTRACTS MAY HARM OUR BUSINESS.
Currently, we have contracts with over two dozen governmental entities.
These contracts have terms ranging from one to three years. Contracts are
cancelable by either party upon 30 days' notice. The decision by one or more
governments not to renew an existing contract or any termination of one or more
of these contracts will result in significant revenue shortfalls. Revenue
shortfalls would result because vendor agreements are cancelable by either party
upon 30 days' notice. DemandStar will notify appropriate vendors if a government
terminates or fails to renew an agreement. The vendor could then choose to
cancel its vendor agreement. If these revenue shortfalls occur, our business and
financial condition would be harmed. We cannot be certain if, when or to what
extent governments might fail to renew or terminate any or all of their
contracts with us.
WE MAY BE UNABLE TO OBTAIN FUTURE CONTRACTS THROUGH THE REQUEST FOR PROPOSAL
PROCESS.
Once a government decides to utilize our services, it often involves a
selection process that operates under special rules that apply to government
purchasing. These rules typically require open bidding by possible service
providers like us against a list of requirements established by governments
under existing or specially-created procedures. To respond successfully to these
requests for proposals, we must estimate the time and costs required
8
<PAGE> 12
to establish operations for the proposed client and the likely terms of any
other proposals submitted. We also must assemble and submit a large volume of
information within the strict time schedule mandated by a request for proposal.
Whether or not we are able to respond successfully to requests for proposals in
the future will significantly impact our business. We cannot guarantee that we
will win any bids in the future through the request for proposal process. We
also cannot guarantee that any winning bids will ultimately result in contracts
because after the winning bid is identified, negotiations then occur between the
winning party and the agency. Typically, these negotiations are over legal terms
and conditions of the agreement, not price or delivery time. We cannot guarantee
the success of those negotiations. If negotiations fail, the agency is free to
negotiate with other bidders, or restart the request for proposal process. Our
business, financial condition and operating results would be harmed if we fail
to obtain profitable future contracts through the request for proposal process.
IF DEMAND FOR OUR SINGLE CORE SERVICE WERE TO WEAKEN, OUR BUSINESS AND FINANCIAL
CONDITION WOULD BE HARMED.
We obtain substantially all of our revenues from a single core service.
Subscription-based fees charged for access to governmental procurement
information accounted for approximately 85% of our revenues for the year ended
December 31, 1999, and are expected to continue to account for a significant
portion of our revenue in the near future. Regulatory changes or the development
of alternative information sources could materially reduce our revenues from
this core service.
BECAUSE WE RELY ON A CONTRACTUAL BIDDING PROCESS WHOSE PARAMETERS ARE
ESTABLISHED BY GOVERNMENTS, THE LENGTH OF OUR SALES CYCLES IS UNCERTAIN AND CAN
LEAD TO REVENUE SHORTFALLS.
Our having to rely on a bidding process to initiate new projects, the
parameters of which are established by governments, results in uncertainty in
our sales cycles because the duration and the procedures for each bidding
process vary significantly according to each government entity's policies and
procedures. The time between the date of initial contact with a government for a
bid and the award of the bid may range from as little as 30 days to up to 180
days. The bidding process is subject to factors over which we have little or no
control, including:
- the internal review process by the government agencies for bid
acceptance;
- changes to the bidding procedure by the government agencies;
- changes in government administrations;
- the budgetary restrictions of government entities;
- the competition generated by the bidding process; and
- the possibility of cancellation or delay by the government entities.
Any delay in the bidding process, changes to the bidding practices and
policies, the failure to receive the bid or the failure to execute a contract
may disrupt our financial results for a particular period and harm our business
and financial condition.
9
<PAGE> 13
OUR CONTRACTS WITH GOVERNMENTAL ENTITIES COULD BE VOIDED.
Our contracts may be cancelled by either party upon 30 days' notice.
Further, our competitors or other third parties could bring lawsuits, seek
legislation or in other ways attempt to have our contracts voided by alleging
incorrect procurement processes or otherwise protesting our contracts. This
would harm our business, results of operations and financial condition.
ENTRANCE OF POTENTIAL COMPETITORS INTO THE MARKETPLACE COULD HARM OUR ABILITY TO
MAINTAIN OR IMPROVE OUR POSITION IN THE MARKET.
We operate in a very competitive business environment. The market for
online information services is rapidly evolving and intensely competitive, with
few barriers to entry. Many companies exist that provide one or more parts of
the products and services we offer. Moreover, government entities providing data
to us are not subject to exclusive agreements with us. Thus data included in our
products and services also may be included in those of our potential
competitors. Many of our existing and potential competitors are national or
international in scope, may have greater resources, and may devote a
significantly greater amount of resources to development of their products and
services than we do. These resources could enable our competitors to initiate
price cuts or take other measures in an effort to gain market share.
Additionally, in some geographic areas, we may face competition from smaller
consulting firms with established reputations and political relationships with
potential government clients. There can be no assurances that we will be able to
successfully compete with new or existing competitors. If we do not compete
effectively or if we experience any pricing pressures, reduced margins or loss
of market share resulting from increased competition, our business and financial
condition may be harmed.
THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS MAY HARM THE TRADING
PRICE OF OUR COMMON STOCK AND AFFECT OUR LONG-TERM VIABILITY.
Our future revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, any of which may harm our
business. Many of these factors are outside our control and include:
- the commencement, completion or termination of contracts during any
particular quarter;
- the introduction of new electronic government products and services by
our competitors;
- technical difficulties or system downtime affecting the Internet
generally or the operation of our electronic government products and
services; and
- general economic and market conditions and economic conditions specific
to the Internet and e-commerce.
Because we have a limited operating history, it is difficult to forecast the
impact of these factors on our future revenues. Our long-term viability depends
on, among other things, a favorable impact of many of these factors on us. Due
to the factors noted above, our revenues in a particular quarter may be lower
than we anticipate and if we are unable to reduce spending in that quarter, our
operating results for that quarter may be harmed. Our fixed costs in the short
run are approximately $2,000,000. You should not rely on quarter-
10
<PAGE> 14
to-quarter comparisons of our results of operations as an indication of future
performance. It is possible that in some future periods our results of
operations may be below your expectations. If this occurs, the price of our
common stock may decline.
WE MAY LOSE THE RIGHT TO THE CONTENT DISTRIBUTED BY US, WHICH IS PROVIDED TO US
ENTIRELY BY GOVERNMENT ENTITIES.
We do not own or create the governmental content distributed to our
vendors. We do not have an exclusive right to this content. We cannot assure you
that these data sources will continue to be available in the future. Government
entities could terminate their contracts to provide data. The loss or the
unavailability of our data sources in the future, or the loss of our right to
distribute some of the data sources, would harm our business, operating results
and financial condition.
WE RELY ON THE TIMELINESS AND ACCURACY OF CONTENT PROVIDED TO US BY GOVERNMENT
ENTITIES.
We depend on the governments with which we contract to supply information
and data feeds to us on a timely basis to allow businesses and citizens to
complete transactions and obtain government information. In addition, we are
dependent upon the accuracy and reliability of government computer systems and
data collection for the content of our systems. If the information provided to
us is not timely, accurate or complete for any reason, our business, operating
results and financial condition would be harmed.
WE MAY BE UNABLE TO HIRE, INTEGRATE OR RETAIN QUALIFIED PERSONNEL.
The recent growth in our business has resulted in an increase in the
responsibilities for both existing and new management personnel. The loss of any
of our executives or key employees, particularly O. F. Ramos, our Chief
Executive Officer and President, Edward Jordan, our Chief Operating Officer, and
William Knox North, our Chief Technology Officer, would likely harm our
business. We do not currently maintain any key-man life insurance on our
executives or key employees.
In addition, we expect that we will need to hire additional personnel in
all areas in 2000. Competition for personnel in the Internet industry is
intense. We may not be able to retain our current key employees or attract,
integrate or retain other qualified employees in the future. If we do not
succeed in attracting new personnel or integrating, retaining and motivating our
current personnel, our business could be harmed. In addition, new employees
generally require substantial training in the presentation, policies and
positioning of our products and services. This training will require substantial
resources and management attention.
TO BE SUCCESSFUL, WE MUST DEVELOP AND MARKET COMPREHENSIVE, EFFICIENT, COST-
EFFECTIVE AND SECURE ELECTRONIC ACCESS TO PUBLIC INFORMATION AND NEW PRODUCTS
AND SERVICES.
Our success depends in part upon our ability to rapidly establish our own
goods and services in all the principal governmental bodies in the United
States. In order to increase revenues in the future, we must continue to develop
products and services that businesses and citizens will find valuable, and there
is no guarantee that we will be able to do so. If we are unable to develop
products and services that allow us to attract, retain and expand our current
user base, our revenues and future operating results may be harmed. We
11
<PAGE> 15
cannot assure you that the products and services we offer will appeal to a
sufficient number of Internet users to generate continued revenue growth.
DEFICIENCIES IN OUR PERFORMANCE UNDER A GOVERNMENT CONTRACT COULD RESULT IN
CONTRACT TERMINATION, REPUTATIONAL DAMAGE AND FINANCIAL LIABILITY.
Each government entity with which we contract has the authority to review
our performance. We cannot assure you that a future review will not find any
material performance deficiencies that would lead to contract termination and
possible liability for subscription refunds. Moreover, the consequent negative
publicity could harm our reputation among other governments with which we would
like to contract. All of these factors could harm our business, results of
operations and financial condition.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a combination of nondisclosure and other contractual
arrangements with governments, our employees and third parties, and privacy and
trade secret laws to protect and limit the distribution of the proprietary
applications, documentation and processes we have developed in connection with
the electronic government products and services we offer. If we fail to
adequately protect our intellectual property rights and proprietary information
or if we become involved in litigation relating to our intellectual property
rights and proprietary technology, our business could be harmed. Any actions we
take may not be adequate to protect our proprietary rights and other companies
may develop technologies that are similar or superior to our proprietary
technology.
Additionally, it is possible that in the future we could become subject to
claims alleging infringement of third party intellectual property rights. Any
claims could subject us to costly litigation, and may require us to pay damages
and develop non-infringing intellectual property or acquire licenses to the
intellectual property that is the subject of the alleged infringement.
Additionally, licenses may not be available on acceptable terms or at all.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE ADDITIONAL CAPITAL ON ACCEPTABLE TERMS.
We anticipate that our current cash resources, combined with the net
proceeds from the commitment of DemandStar's officers and directors to exercise
their rights and their further commitment to purchase unsubscribed shares, the
sale of Series A preferred stock and the sale of Series B preferred stock if
5,000,000 shares have not been subscribed for by the closing of the rights
offering, will be sufficient to meet our present working capital and capital
expenditure requirements for the next three or four months following the date of
this prospectus. Thus, unless we raise significant capital from the rights
offering, it will be necessary to raise additional capital through further debt
and/or equity financings for our operations. If adequate funds are not available
on acceptable terms, our ability to continue as a going concern will be
adversely affected.
Further, assuming we raise adequate capital in the rights offering, we
subsequently may need to raise additional capital to do the following:
- support our expansion into other states, cities, municipalities, federal
agencies and internationally;
- respond to competitive pressures; and
12
<PAGE> 16
- acquire complementary businesses or technologies, should such
opportunities arise.
We cannot assure you that such additional funding, if needed, will be
available on terms acceptable to us, or at all. If adequate funds are not
available on acceptable terms, our ability to develop or enhance our products
and services, to take advantage of future opportunities or respond to
competitive pressures would be significantly limited. This limitation could harm
our business, operating results and financial condition.
OUR INABILITY TO MAINTAIN OR OBTAIN UPGRADES TO THE PRODUCTS AND SERVICES
SUPPLIED BY OUR THIRD-PARTY TECHNOLOGY AND SERVICE PROVIDERS MAY CAUSE, AMONG
OTHER THINGS, A DECLINE IN THE QUALITY OF SUCH PRODUCTS AND SERVICES.
Our products and services are made possible by computer software, the
Internet and telephony services provided by third parties. Our loss of, or
inability to maintain or obtain, upgrades to the technology licenses or hardware
systems deployed in our operating infrastructure by us or third parties could
result in delays, which would adversely effect our ability to operate our
business. This would cause our business and operating results to suffer until
equivalent technology could be identified and implemented. If we are unable to
maintain satisfactory relationships with third parties who provide services or
products necessary to operate our network on acceptable commercial terms, or the
quality of products and services provided by these third parties falls below a
satisfactory standard, we could experience a disruption in the delivery of
products and services, which could have a negative impact on our business and,
hence, our business and operating results.
WE MAY BE UNABLE TO INTEGRATE NEW TECHNOLOGIES AND INDUSTRY STANDARDS
EFFECTIVELY.
Our future success will depend on our ability to enhance and improve the
responsiveness, functionality and features of our products and services in
accordance with industry standards and to address the increasingly sophisticated
technological needs of our customers on a cost-effective and timely basis. Our
ability to remain competitive will depend, in part, on our ability to:
- enhance and improve the responsiveness, functionality and other features
of the products and services we offer;
- continue to develop our technical expertise;
- develop and introduce new services, applications and technology to meet
changing customer needs and preferences; and
- influence and respond to emerging industry standards and other
technological changes in a timely and cost-effective manner.
We cannot assure you that we will be successful in responding to the above
technological and industry challenges in a timely and cost-effective manner. If
we are unable to integrate new technologies and industry standards effectively,
our results of operations could be harmed.
13
<PAGE> 17
WE MAY HAVE DIFFICULTY INTEGRATING BUSINESSES INVOLVING OR GENERATING ACCEPTABLE
RETURNS FROM FUTURE ACQUISITIONS OR INVESTMENTS.
We may in the future make selective acquisitions or strategic investments
in complementary businesses, products, services or technologies. If we buy a
company, we could have difficulty in integrating and assimilating that company's
operations, technologies, products and personnel. In addition, the key personnel
of the acquired company may decide not to work for us, leaving us without any
experience in a new market. These difficulties could disrupt our ongoing
business and distract our management and employees. We may not successfully
overcome these and other problems encountered in connection with potential
acquisitions or strategic investments. In addition, an acquisition could
materially impair our operating results by diluting our shareholders' equity,
causing us to incur additional debt or requiring us to amortize acquisition
expenses and acquired assets.
RISKS TYPICAL OF THE INTERNET INDUSTRY
IF THE INTERNET INFRASTRUCTURE FAILS TO DEVELOP OR BE ADEQUATELY MAINTAINED, OUR
BUSINESS WOULD BE HARMED BECAUSE USERS MAY NOT BE ABLE TO ACCESS OUR GOVERNMENT
PORTALS.
Our success depends on the increase in Internet usage generally and in
particular as a means to access public information electronically. This in part
requires the development and maintenance of the Internet infrastructure. If this
infrastructure fails to develop or be adequately maintained, our business would
be harmed because users may not be able to access our systems. Among other
things, this development and maintenance will require a reliable network
backbone with the necessary speed, data capacity, security and timely
development of complementary products for providing reliable Internet access and
services. If our customers cannot access our website because of network failures
at or near their location or because of more global failures or even slowdowns
in the Internet, our business would be adversely affected because of their
perception of a problem at our site. If the failure were at or near our site,
our business would be adversely affected. We have not experienced a global
failure. Some customers have reported temporary outages of a short duration
probably due to their own Internet connections. To date, our Internet connection
has not experienced significant disruption.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. If the Web
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements, the Internet infrastructure may not be able to
support these increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face such outages and delays in the
future. These outages and delays could reduce the level of Internet usage and
traffic on our systems. In addition, the Internet could lose its viability due
to delays in the development or adoption of new standards and protocols to
handle increased levels of activity or due to increased governmental regulation.
If the Internet infrastructure is not adequately developed or maintained, use of
our products and services may be reduced.
WE MAY BE HELD LIABLE FOR CONTENT THAT WE OBTAIN FROM THIRD PARTIES, INCLUDING
GOVERNMENT AGENCIES.
Because we aggregate and distribute sometimes private and sensitive public
information over the Internet, we may face potential liability for defamation,
negligence,
14
<PAGE> 18
invasion of privacy and other claims based on the nature and content of the
material that is published on our network. Most of the agreements through which
we obtain consent to disseminate this information do not contain indemnity
provisions in our favor. These types of claims have been brought, sometimes
successfully, against online services and Web sites in the past. In addition,
some of the content provided on our network is drawn from data compiled by other
parties, including governmental and commercial sources. This data may have
errors. If our content is improperly used or we supply incorrect information, it
could result in unexpected liability.
CONCERNS OVER TRANSACTIONAL SECURITY MAY HINDER THE GROWTH OF OUR BUSINESS.
A significant barrier to electronic commerce is the secure transmission of
confidential information over public networks. Any breach in our security could
expose us to a risk of loss or litigation and possible liability. We rely on
encryption and authentication technology licensed from third parties to provide
secure transmission of confidential information. As a result of advances in
computer capabilities, new discoveries in the field of cryptography or other
developments, a compromise or breach of the algorithms we use to protect
customer transaction data may occur. Because we provide information released
from various government entities, we may represent an attractive target for
security breaches.
A compromise of our security, whether real or perceived, could severely
harm our business. A party who is able to circumvent our security measures could
misappropriate proprietary information, including customer credit card
information, or cause interruptions or incur direct damage to our business.
Also, should hackers obtain sensitive data and information, or create bugs or
viruses in an attempt to sabotage the functionality of our products and
services, we may receive negative publicity, incur liability to our customers or
lose the confidence of the governments with which we contract, any of which may
cause the termination or modification of our government contracts.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. However, protection may not be available at a reasonable
price or at all. We are not aware of any past or current breaches in our
security, nor are we aware of any attempts to breach our security.
GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT THE OPERATION AND GROWTH OF
OUR BUSINESS.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address these issues including user privacy,
pricing, and the characteristics and quality of products and services. An
increase in regulation or the application of existing laws to the Internet could
significantly increase our cost of operations and harm our business. For
example, the Federal Communications Commission may, in the future, reconsider
its ruling that Internet access service is not "telecommunications" and may
decide that Internet service providers must pay a percentage of their gross
revenues as a "universal service contribution." If the Federal Communications
Commission were to require universal service contributions from providers of
Internet access or Internet backbone services, our costs of doing business may
increase, and we may not be able to recover these costs from our customers. As a
result, our business and financial condition could be harmed.
15
<PAGE> 19
OUR BUSINESS MAY BE AFFECTED NEGATIVELY BY YEAR 2000 ISSUES.
We cannot assure you that the software systems that we use for systems
management, network monitoring, quality assurance, applications and information
and transaction processing do not contain undetected errors or defects
associated with Year 2000 data functions. Further, we cannot assure you that our
network systems acquired from third parties do not contain undetected errors or
defects. If any such errors or defects do exist, we may incur material costs to
resolve them.
Because our products and services depend significantly on information
provided by and transactions conducted with our government clients, our ability
to deliver services and transactions properly to our customers depends on these
government clients being Year 2000 ready. We cannot assure you that our
government clients are Year 2000 ready. If they are not, their information
systems may be disrupted and our ability to provide services and transactions
curtailed. Our business, results of operations and financial condition would be
harmed as a result.
In addition, the software and systems of financial institutions, utility
companies, Internet access companies, third-party service providers and others
outside of our control may not be Year 2000 ready. If these entities are not
Year 2000 ready, a systemic failure beyond our control could result, including a
prolonged Internet, telecommunications or general electrical failure. This type
of failure would make it difficult or impossible to use the Internet or access
our network. If a prolonged failure of this type occurs, our business and
financial condition would be harmed.
OUR SYSTEMS MAY FAIL OR LIMIT USER TRAFFIC.
We cannot assure you that during the occurrence of fire, floods,
earthquakes, power loss, telecommunications failures, break-ins and similar
events that the modem banks and direct dial-up connections we have to serve as
back-up systems will not prevent damage to our systems or cause interruptions to
our services. Computer viruses, electronic break-ins or other similar disruptive
problems could cause users to stop visiting our network and could cause our
clients to terminate agreements with us. If any of these circumstances occurred,
our business could be harmed.
Our systems must accommodate a high volume of traffic and deliver
frequently updated information. These systems may experience interruptions due
to any failure or delay by government agencies in the transmission or receipt of
this information. In addition, our users depend on Internet service providers,
online service providers and other Web site operators for access to our systems.
Many of these providers and operators have experienced significant outages in
the past due to system failures unrelated to our systems, holidays and heavy
user traffic, and could experience the same outages, delays and other
difficulties in the future. Any of these system failures could harm our
business, results of operations and financial condition.
RISKS PARTICULAR TO THIS OFFERING
THE EXERCISE OF YOUR RIGHTS IS IRREVOCABLE.
Once you exercise your rights, you may not revoke the exercise. You will
not receive interest on your subscription funds delivered to our subscription
agent upon the exercise of your rights pending delivery of certificates for your
shares and the return of any funds not applied to the purchase of such shares.
16
<PAGE> 20
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK SO THE TRADING PRICE
MAY BE LESS THAN THE SUBSCRIPTION PRICE.
There has been no public market for our common stock, and we cannot assure
you that an active public market will develop. The subscription price for the
rights was determined by our board of directors based on, among other
considerations, an independent valuation of our business, our assets and other
recognized criteria of investment value, such as book value, cash flow, losses
and financial condition. Notwithstanding the independent calculation which can
be considered speculative given DemandStar's limited operating history, the
subscription price is not necessarily indicative of the market price of our
common stock after the offering, which price may fall below the subscription
price. We cannot assure you that if a trading market develops in our common
stock, that the stock will trade at prices in excess of the subscription price
at any time after the date of this prospectus.
HTE'S VOTING CONTROL FOR THE FORSEEABLE FUTURE AFTER THIS OFFERING COULD PREVENT
A CHANGE OF CONTROL.
Our Series A preferred stock and common stock generally vote as one class
on all matters presented to shareholders for consideration. On each shareholder
vote, our common stock is entitled to one vote and our Series A preferred stock
is entitled to vote a percentage of our votes generally ranging from 19.9% to
50%. Prior to the closing of the rights offering, all outstanding shares of our
Series A preferred stock will be issued to HTE. Thus, as a result of ownership
of our capital stock by HTE and by four of our directors who are also directors
of HTE, HTE will have effective voting control of DemandStar since HTE will have
upon the closing of this offering, assuming all rights are exercised,
approximately 29.1% voting control. As a result, HTE's directors and officers
will be able to control the outcome of substantially all matters submitted to
our shareholders for approval, including the election of directors and any
proposed merger, liquidation, transfer or encumbrance of a substantial portion
of its assets, or amendment to our charter to change our authorized
capitalization or otherwise. This concentration of voting power may also have
the effect of delaying or preventing a change in control of DemandStar even if
it would be beneficial to our shareholders. So long as HTE holds all of the
outstanding shares of Series A preferred stock, its minimum percentage of voting
control will be 19.9%. Assuming 19.9% constitutes effective control, then HTE
will always maintain effective control. Further, if any of DemandStar's
shareholders, individually or as a voting group, hold 10% or more of
DemandStar's outstanding common stock and HTE holds all of the Series A
preferred stock, the Series A preferred stock will provide HTE with additional
voting power equal to the greater of 19.9% or the voting percentage held by each
such 10% shareholder or 10% voting group, plus 10,000 votes. However, that
additional voting power cannot exceed 50% after taking into account all of HTE's
voting stock.
YOU WILL NOT KNOW THE ACTUAL PERCENTAGE OF COMMON STOCK HTE WILL OWN AND CONTROL
UNTIL AFTER THE CLOSE OF THE RIGHTS OFFERING.
HTE's actual ownership percentage and control will depend on the number of
rights that are exercised by holders of rights. The fewer the rights exercised,
the greater the percentage of common stock HTE will control.
17
<PAGE> 21
THE PRESENCE OF INTERLOCKING DIRECTORS AND OFFICERS BETWEEN HTE AND DEMANDSTAR
WILL CREATE POTENTIAL CONFLICTS OF INTEREST.
Some of our directors and officers also are directors, officers or
employees of HTE and, in most cases, either own, or hold an option to purchase,
equity securities of HTE. As a result, these executive officers have inherent
conflicts of interest when making decisions related to transactions between us
and HTE. HTE's ability to control matters listed above together with the
potential conflicts of interest of its directors and executive officers who also
serve as directors and executive officers of DemandStar, could adversely affect
the trading price and liquidity of our common stock. These factors could limit
the price that investors might be willing to pay for our common stock in the
future.
MANAGEMENT PERSONNEL SERVING BOTH HTE AND DEMANDSTAR MAY SUFFER COMPETING CLAIMS
ON THEIR TIME WHICH MAY PLACE DEMANDS ON DEMANDSTAR'S RESOURCES.
Personnel serving as both our officers and key employees and those of HTE
have committed to devote varying amounts of their business time to us. Messrs.
Gornto and Markey are the only officers of DemandStar who are also officers of
HTE. Mr. Gornto devotes all of his business time to HTE and DemandStar, dividing
the time equally between the two companies. Mr. Markey spends approximately 1 to
4 days a month of his business time on DemandStar matters and 1 to 2 days a
month of his business time on HTE matters. In addition, Susan Falotico, an
officer of HTE, currently devotes approximately 70% of her business time to HTE
and approximately 30% of her business time to DemandStar; however, in the near
future, the amount of business time she will devote to DemandStar is expected to
decrease to approximately 10% of her total time. The competing claims upon each
officer's time and energies could divert his attention from our affairs, placing
additional demands on our resources. The efforts of all or any of these
individuals may be insufficient to meet both our needs and those of HTE. If we
were deprived of access to key members of our management team or other
personnel, or lose access to such services altogether, our business, prospects,
results of operations and financial condition could be materially adversely
affected.
THE TERMS OF THE HTE-DEMANDSTAR INTERCOMPANY AGREEMENTS WERE NEGOTIATED IN THE
CONTEXT OF A PARENT-SUBSIDIARY RELATIONSHIP AND MAY NOT BE ON AS FAVORABLE TERMS
AS THIRD-PARTY AGREEMENTS.
In contemplation of the rights offering, we have entered into, or will be
entering into, intercompany agreements with HTE including the investment
distribution agreement, the tax sharing and indemnity agreement, the services
agreement and the registration rights agreement, for the purpose of defining our
on-going relationship with HTE following the rights offering. We cannot assure
you that the terms of these agreements, or the related transactions, will be
effected on terms at least as favorable to us as could have been obtained from
unaffiliated third parties.
WE MAY HAVE LIABILITIES IF WE ARE DEEMED A MEMBER OF HTE'S CONSOLIDATED TAX
GROUP.
If the rights offering is not fully subscribed, we may be deemed a member
of HTE's consolidated tax group under federal income tax law until the
DemandStar securities held by HTE do not constitute either 80% of the voting
power or the market value of DemandStar's outstanding stock. Each member of a
consolidated group for federal income
18
<PAGE> 22
tax purposes is severally liable for the federal income tax liability of each
other member of the consolidated group. Similar rules may apply under state
income tax laws. If HTE or members of its consolidated tax group, other than us
and our subsidiaries, fail to pay tax liabilities arising prior to the time that
we are no longer a member of HTE's consolidated tax group, we could be required
to make payments in respect of these tax liabilities. Such payments could
materially adversely affect our financial condition.
INVESTORS DO NOT KNOW THE IDENTITY OF ALL OF THE PERSONS WHO WILL SERVE AS
DIRECTORS.
We currently have four directors, who are also officers and/or directors of
HTE. DemandStar expects to propose the expansion of the board to add one or two
additional persons, at least one of which will be unaffiliated with HTE and
DemandStar. Therefore, investors do not know the identity of all the persons who
will serve on our board and be responsible for our affairs. We have not
currently identified any particular person whom we propose serve as an
additional director.
The interests of HTE may conflict with the interests of other shareholders,
and the actions it takes or approves may be contrary to those desired by the
other shareholders. This concentration of ownership may also have the effect of
delaying, preventing or deterring an acquisition of DemandStar by a third party.
OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY USE THE PROCEEDS IN WAYS THAT MAY NOT INCREASE OUR OPERATING
RESULTS OR MARKET VALUE.
We intend to use all of the net proceeds from this offering to fund
anticipated operating losses, to develop new products and services, to expand
into new geographic markets, to further develop our infrastructure and
technology, and for working capital and other general corporate purposes. We
have not designated any specific use for any specific portion of the net
proceeds. Therefore, our management will retain significant flexibility in
applying the net proceeds of this offering and may use the proceeds in ways in
which you do not agree. Until the proceeds are needed, we plan to invest them in
investment-grade, interest-bearing securities. The failure of our management to
apply such funds effectively could harm our business.
YOU ARE UNLIKELY TO RECEIVE DIVIDENDS FOR THE FORESEEABLE FUTURE.
We have not paid dividends on our common stock and we cannot assure you
that we will achieve sufficient earnings to pay cash dividends on our common
stock in the near future. Further, we intend to retain any future earnings to
fund the development and expansion of our operations. Therefore, we do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. It is unlikely that an investor in our common stock will derive current
income from dividends resulting from ownership of our common stock. This means
that your potential for economic gain from ownership of our common stock depends
on an appreciation in value of our common stock and will only be realized upon a
sale of the stock at a price higher than your purchase price.
A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK WILL BE ELIGIBLE FOR FUTURE SALE.
Upon the closing of this offering, there will be issued and outstanding
20,732,351 shares of our common stock, assuming all rights for the 18,811,330
shares offered under
19
<PAGE> 23
this prospectus are exercised. Of that amount outstanding, 18,811,330 shares
that we are offering will be freely tradeable without restriction, except for
any shares purchased by "affiliates" of ours as defined in Rule 144 under the
Securities Act, and 1,921,021 shares will be "restricted securities" as that
term is in Rule 144. Such restricted securities will be available for public
sale only if registered under the Securities Act or if sold in accordance with
Rule 144. Under Rule 144, a person who is not our affiliate and who has held
restricted securities for a period of one year may sell a limited number of
shares to the public in ordinary brokerage transactions, and after holding the
securities for two years, may freely trade them. Under Rule 144, affiliates of
ours holding restricted securities may only sell them after holding them for one
year and only within the parameters of Rule 144 governing the timing, manner and
volume of sales of such shares.
Following consummation of the rights offering, HTE will hold 1,250,000
shares of restricted DemandStar stock. HTE also has the right to acquire an
additional 1,250,000 shares of DemandStar stock pursuant to the conversion of
its Series A preferred stock and the exercise of its warrants. In addition,
Messrs. Ramos, Gornto, Markey and Moses have the right to acquire an aggregate
of 500,000 shares upon exercise of their warrants. The issued and outstanding
shares held by HTE will be available for resale under Rule 144 in June 2000. In
addition, DemandStar has entered into a registration rights agreement with HTE
which grants to HTE registration rights with respect to shares of DemandStar
common stock that it holds. These registration rights effectively allow HTE to
sell all of its shares of common stock approximately one year after the closing
of the rights offering and to participate as a selling shareholder in future
public offerings by DemandStar.
In addition, 4,000,000 shares of our common stock are reserved for issuance
under our 1999 Employee Incentive Compensation Plan. Following the consummation
of the rights offering, we intend to file a registration statement on Form S-8
under the Securities Act covering the shares reserved for issuance under the
1999 Employee Incentive Compensation Plan. This registration statement will
automatically become effective upon filing.
We are also likely to issue large amounts of additional common stock in the
future in connection with our plans to raise additional capital and in
connection with possible acquisitions. These shares will become available for
resale at various dates in the future.
Sales under Rule 144 may have a depressive effect on the market price of
our common stock due to the potential increased number of publicly held
securities. The timing and amount of sales of common stock made pursuant to
other filed registration statements could also have a negative impact on the
market price of our common stock. Our outstanding stock options and warrants are
likely to be exercised, if at all, at a time when we otherwise could obtain a
price for the sale of our common stock that is higher than the exercise price
per share of such options or warrants. Any such exercise or the possibility of
such exercise may impede our efforts to obtain additional financing through the
sale of additional securities or make such financing more costly.
IT IS DIFFICULT TO PREDICT WHETHER A MARKET FOR OUR STOCK WILL DEVELOP, AND THE
MARKET PRICE OF OUR STOCK WILL LIKELY BE VOLATILE.
Prior to the closing of the rights offering you could not purchase
DemandStar common stock publicly. There is no assurance that a trading market
will develop after the closing of the offering. If a trading market does in fact
develop for our common stock, it will initially be on the NASD OTC Electronic
Bulletin Board, or quoted on what is commonly known as the "pink sheets," and
there can be no assurance that it will be
20
<PAGE> 24
sustained. As a result, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the price of our common stock.
We cannot assure you that investors will develop an interest in our common
stock so that a trading market develops or, if a trading market does develop,
how active that trading market will be or whether it will be sustained. A number
of specific factors that may affect the price and liquidity of our securities,
include:
- actual or anticipated fluctuations in our quarterly operating results;
- announcements of new contracts or applications;
- operating results that vary from investors' expectations as to our future
financial performance or changes in financial estimates;
- announcements of technological innovations or new services by us or our
competitors;
- announcements by us or our competitors of significant contracts,
acquisitions, joint ventures, capital commitments, the results of the
rights offering and the status size of our network;
- announcements by third parties of significant claims or proceedings
against us;
- future sales or issuances of equity by us;
- change in the status of our intellectual property rights; and
- the operating and stock price performance of other comparable companies.
In addition, the stock market in general has experienced extreme price and
volume volatility that has especially affected the market prices of securities
of many Internet-related companies. Stock prices for Internet-related companies
are often influenced by rapidly changing perceptions about the future of the
Internet or the results of other Internet or technology companies, rather than
specific developments relating to the issuer of that particular stock. If our
stock price is volatile, a securities class action may be brought against us.
Class action litigation could result in substantial costs and divert our
management's attention and resources.
IT MAY BE DIFFICULT FOR INVESTORS TO SELL OUR COMMON STOCK IF OUR COMMON STOCK
IS NOT LISTED ON NASDAQ.
An investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of our common stock. After the closing of this
offering, and if we meet the initial listing criteria, we intend to file an
application to Nasdaq for quotation of our common stock on the Nasdaq SmallCap
Market or the Nasdaq National Market System. If our application is approved, the
continued trading of our common stock on Nasdaq will be conditioned upon
DemandStar meeting Nasdaq's criteria for continued listing.
The NASD, which administers Nasdaq, requires that, in order for a company's
securities to be listed for quotation on the Nasdaq SmallCap Market, the company
must meet the following initial criteria:
- at least $4,000,000 in net tangible assets, or $50,000,000 in market
capitalization, or $750,000 of net income in 2 of the last 3 fiscal
years;
- a public float of at least 1,000,000 shares;
21
<PAGE> 25
- a market value of the public float of at least $5,000,000;
- a minimum bid price of at least $4.00 per share;
- at least 300 round lot shareholders; and
- at least 3 registered and active market makers.
Continued inclusion on the Nasdaq SmallCap Market requires the following:
- at least $2,000,000 in net tangible assets, or a $35,000,000 market
capitalization or $500,000 in net income in 2 of the last 3 fiscal years;
- a public float of at least 500,000 shares;
- a market value of the public float of at least $1,000,000;
- a minimum bid price of at least $1.00 per share; and
- at least 2 registered and active market makers.
The NASD requires that in order for a company's securities to be listed for
quotation on the Nasdaq National Market System, where that company does not have
a two-year operating history and does not have a pre-tax income of $1,000,000 in
the last fiscal year or two of the last three fiscal years, the company must
meet the following initial criteria:
- a market capitalization of at least $75,000,000 or total assets and total
revenue each of at least $75,000,000 for the most recently completed
fiscal year or two of the last three most recently completed fiscal
years;
- a public float of at least 1,100,000 shares;
- a market value of the public float of at least $20,000,000;
- a minimum bid price of at least $5.00 per share;
- at least 400 round lot shareholders; and
- at least 4 registered and active market makers.
For continued inclusion on Nasdaq National Market System, a company must
continue to maintain the criteria set forth in the above bullet points, except
that (1) the market capitalization, or each of total assets and revenues,
requirement is $50,000,000, and (2) the market value of the public float
requirement is $15,000,000.
If the Company fails to meet any of these criteria, or once listed for
quotation it fails to maintain the minimum criteria, the common stock will be
traded on the NASD OTC Electronic Bulletin Board or in what is currently
referred to as the "pink sheets." As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of our common stock.
OUR STOCK MAY BE DEEMED "PENNY STOCK" WHICH MAY REDUCE TRADING ACTIVITY IN THE
SECONDARY MARKET.
Our common stock is being offered to rights holders at $1.00 per share. If
the trading market for the common stock that subsequently develops is below
$5.00 per share, and the common stock is not quoted on the Nasdaq system, the
common stock will be subject to the penny stock rules and purchasers of shares
may find it more difficult to sell their
22
<PAGE> 26
shares. Securities deemed "penny stocks" are subject to additional informational
requirements in connection with any trades made in the penny stock. The
Commission has adopted rules that regulate broker-dealer practices in connection
with transactions in penny stocks. Penny stocks generally are equity securities
with a price of less than $5.00, other than securities registered on national
securities exchanges or quoted on the Nasdaq system, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system. The penny stock rules require a broker-
dealer, prior to a transaction in a penny stock not otherwise exempt from those
rules, to deliver a standardized risk disclosure document prepared by the
Commission, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. The broker-dealer also must
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from those rules the broker-
dealer must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for a stock that
becomes subject to the penny stock rules.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The rights offering price is substantially higher than the pro forma net
tangible book value of each outstanding share of common stock. After giving
effect to the rights offering on a maximum offering basis, assuming rights are
exercised for 18,811,330 shares, and assuming the purchase of 656,821 restricted
shares by officers and directors of DemandStar upon exercise of their rights, a
purchaser of the common stock will incur immediate and substantial dilution of
about $0.20 per share, or 20% of such purchaser's investment in the common stock
at an offering price of $1.00 per share, in that the net tangible book value of
the common stock after the offering will be approximately $0.80 per share.
INVESTORS WILL EXPERIENCE FURTHER DILUTION UPON THE CONVERSION OF PREFERRED
STOCK AND THE EXERCISE OF OPTIONS AND WARRANTS.
We currently intend to finance a significant amount of the growth in the
DemandStar network with shares of our common stock or other securities, cash or
a combination of these items. We currently have 100,000,000 authorized shares of
common stock. Upon the conclusion of the rights offering, we will have
20,732,351 shares of common stock outstanding, assuming maximum exercise of all
rights. We initially have 4,000,000 shares of common stock reserved for options
awarded or to be awarded under DemandStar's 1999 Employee Incentive Compensation
Plan. In addition, we have 1,000,000 shares reserved for the exercise of
warrants issued to HTE and DemandStar officers and directors, and 750,000 shares
reserved for issuance upon the conversion of the Series A preferred stock.
Accordingly, immediately following the closing of the rights offering, we will
have 73,517,649 authorized but unissued and unreserved shares of common stock,
assuming maximum exercise of all rights. Consequently, we will be able to
finance our growth or acquisitions by issuing significant amounts of additional
shares of common stock without obtaining shareholder approval of such issuances
provided we comply with any applicable Nasdaq rules and regulations. To the
extent we use common stock for all or a portion of
23
<PAGE> 27
the consideration to be paid for future acquisitions, dilution may be
experienced by existing shareholders, including the purchasers of common stock
in the rights offering.
IF THE SHARES OF COMMON STOCK HELD BY HTE ARE DILUTED BELOW 35% OF THE
OUTSTANDING, INVESTORS MAY EXPERIENCE FURTHER DILUTION BECAUSE HTE WILL CONTINUE
TO BE ENTITLED TO 35% OF THE TOTAL DIVIDENDS PAID TO SHAREHOLDERS AND 35% OF THE
TOTAL NET ASSETS DISTRIBUTED UPON LIQUIDATION.
The Series A preferred stock held by HTE may in the future also result in
additional dilution to the common shareholders. If at the time of a common stock
dividend the shares of DemandStar common stock owned by HTE have been diluted
below 35% of DemandStar's total outstanding shares of common stock as of the
record date for the dividend, then so long as all of our Series A preferred
stock is owned by HTE, HTE will be entitled to receive a dividend amount, which,
when added to the dividends to be received by HTE with respect to its common
stock, will equal 35% of the total dividend amount paid to all holders of
DemandStar Series A preferred stock and common stock. In the event of a
liquidation, if the shares of common stock held by HTE are diluted below 35% of
DemandStar's total outstanding shares of common stock, then so long as all of
our Series A preferred stock is owned by HTE, HTE will be entitled to receive
liquidating distributions which, when added to the liquidating distribution to
be received by HTE with respect to its common stock, will constitute 35% of the
total net assets distributed to all holders of DemandStar Series A preferred
stock and common stock. The 35% figure will be proportionately adjusted if at
anytime following the closing of the rights offering HTE sells common stock
which reduces its DemandStar common shareholdings below 35% of DemandStar's
outstanding common stock.
YOU SHOULD BE AWARE OF THE TAX EFFECTS OF THE RECEIPT AND EXERCISE OF RIGHTS.
In the case of a right transferred to a holder of HTE common stock in
respect of that stock, the fair market value of the right will be taxable as
follows:
(1) first, as a dividend, up to the amount of HTE's current and/or
accumulated earnings and profits, if any, attributable to the right;
(2) then, as a non-taxable reduction of the shareholder's basis in the
stock on which the right was distributed, up to the amount thereof; and
(3) finally, if there is any excess between one and two above, as gain
recognized as if the HTE common stock had been sold.
Such a right holder will not recognize any gain or loss on exercise of the
right.
In the case of a right transferred to a holder of an HTE stock option who
is a director or employee of HTE, or a subsidiary of HTE, or to an employee of
HTE, or a subsidiary of HTE, no income or gain will be realized on receipt of
the right, but on exercise the rights holder will recognize ordinary income
equal to the excess, if any, of the fair market value, as of the exercise date,
of the DemandStar common stock received on the exercise of the right over the
exercise price for the right. Although it should be the better view that the
rules in the preceding paragraph apply to rights received with respect to HTE
common stock in the case of an HTE shareholder that also holds HTE stock options
or is an employee or director of HTE, it nevertheless is possible that the rules
set forth in this paragraph would apply to those rights.
24
<PAGE> 28
THE ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE DOCUMENTS MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.
If HTE were ever to lose voting control over us, provisions within our
charter and by-laws could make it more difficult for a third party to gain
control of us, even if a change in control might be beneficial to our
shareholders. This could adversely affect the market price of our common stock.
These provisions include, without limitation:
- the elimination of the right to act by written consent by shareholders
other than HTE so long as it holds a controlling interest in us;
- the elimination of the right to call special meetings of the shareholders
by shareholders other than holders of not less than 50% of the votes
entitled to be cast at a special meeting;
- the creation of a staggered board of directors; and
- the ability of the board of directors to designate and issue preferred
stock without shareholder consent.
SUBSCRIBERS ACQUIRING 20% OR MORE OF OUR COMMON STOCK MAY NOT HAVE VOTING RIGHTS
UNDER FLORIDA'S CONTROL-SHARE ACQUISITIONS STATUTE.
Subscribers exercising rights to acquire 20% or more of DemandStar's common
stock may not have voting rights for these shares under Florida's Control-Share
Acquisitions Statute. Florida law prohibits the voting of shares in a
publicly-held Florida corporation that are acquired in a control-share
acquisition unless the holders of a majority of the corporation's voting shares,
exclusive of shares held by officers of the corporation, inside directors or the
acquiring party approve the granting of voting rights as to the shares acquired
in the control-share acquisition. A control-share acquisition is defined as an
acquisition that immediately thereafter entitles the acquiring party to 20% or
more of the total voting power in an election of directors. The statute applies
to Florida corporations having at least 100 shareholders, with their principal
business, offices or assets located in Florida, and either more than 10% of
their shareholders are Florida residents, more than 10% of the issued and
outstanding shares are held by Florida residents, 1,000 shareholders reside in
Florida.
THE OFFERING HAS BEEN APPROVED BY CALIFORNIA BLUE SKY AUTHORITIES BECAUSE OF THE
OFFERING'S DEMINIMUS NATURE IN CALIFORNIA AND THE FACT THAT DEMANDSTAR WAS NOT
REQUIRED TO DEMONSTRATE COMPLIANCE WITH SOME OF ALL OF CALIFORNIA'S MERIT
REGULATIONS.
The offering of the rights in California, and the shares of common stock
issuable upon the exercise of the rights, have been approved by the California
Department of Corporations because it deems the amount of securities being
offered and sold in California pursuant to the offering to be deminimus and
because the rights are being distributed, and the common stock sold, in
California only to existing shareholders, as of the record date, of DemandStar's
parent, HTE and its employees who were employees of HTE in accordance with the
terms of this offering. In addition, also due to the reasons stated in the
preceding sentence, the California Department of Corporations, for purposes of
this offering, will not require DemandStar's compliance with some or all of the
merit regulations as found in Title 10, California Code of Regulations, Rule
260.140 et seq.
25
<PAGE> 29
Accordingly, this offering will not be subject to a merit review by the
California Department of Corporations. Those merit regulations contain minimum
price parameters for a stock offering and provide that an unseasoned company
selling securities in California should demonstrate to the Department of
Corporations that it has a reasonable anticipation of profitability within a
reasonable period of time. In addition, those regulations generally provide that
the company's corporate governance documents should meet certain shareholder
democracy standards of the California Department of Corporations such as equal
voting rights among equity holders, and that founders' shares of an issuer be
subject to restrictions as to amount issued and transferability.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties, which may include statements about our:
- business strategy;
- plans for hiring additional personnel;
- plans for the introduction of new government products and services;
- anticipated sources of funds, including the proceeds from this offering,
to fund our operations for the twelve months following the date of this
prospectus; and
- plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
Such statements can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "anticipate," "estimate," "plan," "intend,"
"continue" or other similar or comparable terminology. These statements discuss
future expectations and predictions and other forward-looking information.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot assure you that our expectations will be
correct. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus. When considering
such forward-looking statements, you should keep in mind these risk factors and
other cautionary statements in this prospectus.
THE OFFERING
DemandStar is distributing no-cost rights to HTE which, in turn, is
distributing those rights, at no cost, to:
- holders of outstanding shares of HTE common stock on March 6, 2000;
- persons entitled to HTE stock options as of December 16, 1999 and who are
also employees or directors of HTE, or a subsidiary of HTE, as of
February 1, 2000; and
- persons who are employees of HTE, or a subsidiary of HTE, as of February
1, 2000.
26
<PAGE> 30
Each holder of shares of HTE common stock on the record date of March 6,
2000 will receive one right for every share of HTE common stock owned on that
date. Investors should be aware that generally to be considered a shareholder of
HTE common stock as of the record date, an HTE shareholder would have had to
acquire HTE shares of common stock on or before two business days before the
record date since it takes three days, with the third day being the settlement
date, to process an acquisition of publicly traded stock. Each person who held
HTE stock options as of December 16, 1999 pursuant to an HTE stock option
agreement, who is also an employee or director of HTE, or a subsidiary of HTE,
as of February 1, 2000, will receive one right for each share that he has such a
vested option and/or unvested option to acquire. Each person who is an employee
of HTE, or a subsidiary of HTE, as of February 1, 2000 will receive 200 rights.
Each right will carry a basic subscription privilege which entitles the holder
to purchase one share of DemandStar common stock. No fractional rights or shares
will be issued. We are offering up to 18,811,330 shares in the aggregate.
At the closing of the rights offering, HTE will purchase the 18,811,330
shares of DemandStar common stock being registered in this offering for the
price of $1.00 per share. The aggregate purchase price will be evidenced by a
non-interest bearing promissory note payable to DemandStar in the principal
amount of $18,811,330, which shall be delivered and immediately thereafter
repaid at the closing of the offering from the proceeds received from investors
who exercise their rights and purchase DemandStar common stock from the shares
purchased by HTE pursuant to the non-interest bearing note.
Immediately after the closing of the offering, DemandStar will file a
post-effective amendment to this registration statement to de-register any
underlying shares of common stock not subscribed for by rights holders at
closing. The note will provide that such de-registered restricted shares shall
be redeemed by DemandStar in exchange for the then outstanding balance due under
the note.
PURPOSE OF THE OFFERING
HTE, which 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, is, through this rights offering,
spinning off its Internet-based subsidiary, DemandStar. The rights offering is
essentially DemandStar's initial public offering. The rights offering is
different than a traditional initial public offering in that it is initially
directed only to HTE's shareholders, option holders, directors and employees.
This offering is also different than a typical spin-off in that HTE
shareholders, option holders and employees will be offered a right to buy
DemandStar common stock instead of DemandStar common stock being issued only to
HTE shareholders and without consideration. The primary purpose of the offering
is to obtain additional capital, create an initial public market for our common
stock and facilitate future access to public markets. DemandStar believes that
the rights offering has an advantage over a traditional initial public offering
because it gives DemandStar the opportunity to offer its common stock to persons
who already have an initial interest in DemandStar.
The rights offering should benefit HTE shareholders by:
- allowing our Internet business, with its own unique market opportunity
and risk/reward profile, to be evaluated by investors independently of
HTE's other
27
<PAGE> 31
traditional businesses, which should increase DemandStar's financial
flexibility in the capital markets;
- enabling HTE shareholders to increase or decrease their level of direct
investment in us by acquiring our common stock initially in the rights
offering and, thereafter, in the open market and/or selling any of our
common stock distributed to them;
- allowing HTE and us to pursue different operating strategies, given our
different business environments and competitive market conditions; and
- permitting HTE to benefit from increases, if any, in the market value of
its retained equity interest in us.
In addition, the rights offering should provide HTE benefits by rewarding
HTE employees and option holders.
On March 6, 2000, the record date for determining eligible HTE
shareholders, the closing sale price for HTE common stock, which is traded on
the Nasdaq National Market System, was $3 3/16 per share. The value of a share
of DemandStar common stock was appraised at $0.79 as of December 12, 1999,
pursuant to an appraisal conducted by Southeast Appraisal Resource Associates,
Inc.
EXPIRATION DATE
The rights will expire at 5:00 p.m., EST, on , 2000 unless
extended by us. In no case will we extend the time to exercise the rights past
, 2000. After expiration of the offering period, unexercised rights
will be null and void and no longer exercisable by the holder. We will not be
obligated to honor any purported exercise of rights received by the subscription
agent after the expiration time, regardless of when the documents relating to
such exercise were sent, except when you have timely transmitted the documents
under the guaranteed delivery procedures described below. Notice of any
extension of the expiration time will be made through a press release issued by
DemandStar.
SUBSCRIPTION PRIVILEGES
Each right grants to each HTE shareholder as of the record date of March 6,
2000 a subscription privilege which entitles him to purchase one share of
DemandStar common stock. Investors should be aware that generally to be
considered a shareholder of HTE common stock as of the record date, an HTE
shareholder would have had to acquire HTE shares of common stock on or before
two business days before the record date since it takes three days, with the
third day being the settlement date, to process an acquisition of publicly
traded stock. In addition, each person who held HTE stock options as of December
16, 1999 pursuant to an HTE stock option agreement, and who is also an employee
or director of HTE, or a subsidiary of HTE, as of February 1, 2000, will receive
one right for each share that he has such a vested and/or unvested option to
acquire. Furthermore, each person who is an employee of HTE, or a subsidiary of
HTE, as of February 1, 2000 will receive 200 rights. We will send you
certificates representing shares that you purchase with your subscription
privilege as soon as practicable after the rights offering closes.
28
<PAGE> 32
DETERMINATION OF SUBSCRIPTION PRICE
Prior to the rights offering, there has been no public market for
DemandStar's common stock. Our board determined the subscription price based
upon, among other considerations, an independent valuation of our business by
Southeast Appraisal Associates, Inc. as of December 12, 1999. In estimating the
fair market value of DemandStar's common stock, Southeast Appraisal Resource
Associates, Inc. employed a form of sales comparison approach, being revenue
multiples, and a discounted cash approach. Together with the independent
valuation conducted by Southeast Appraisal Resource Associates, Inc., our board
considered our business potential and prospects and the fact that we are an
early-stage company. We believe, however, that any valuation of our business,
given its limited history, is highly speculative. Accordingly, the actual value
or resale value of our common stock may be significantly higher or lower than
the subscription price for the rights.
PLAN OF DISTRIBUTION -- SUBSCRIPTION AGENT, BROKER-DEALER AND INFORMATION AGENT
DemandStar is making this rights offering directly to eligible HTE
shareholders, option holders, employees and directors. For purposes of complying
with the blue sky securities laws of Delaware, Idaho, Illinois, Maryland, Oregon
and Utah, DemandStar will engage the services of a licensed broker-dealer to act
as DemandStar's broker-dealer of record in those 6 states. Such broker-dealer
will not receive any compensation or other remuneration for such services, but
will be reimbursed for its accountable expenses up to an agreed upon amount.
DemandStar will also indemnify such broker-dealer against specified liabilities,
including liabilities under the Securities Act, which it may incur in connection
with services rendered by it. Where shares are held indirectly through a broker,
bank or other institution, DemandStar will reimburse the institutions'
reasonable out-of-pocket costs in distributing this prospectus and other
materials to beneficial owners of the stock.
Under the securities laws of the states, the rights may not be distributed
and the underlying securities sold unless the securities have been registered or
qualified for sale in the states or an exemption from that requirement is
available and is complied with by DemandStar.
DemandStar has appointed its transfer agent, Continental Stock Transfer &
Trust Company, to assist with the rights offering in the role of subscription
agent. You should deliver your subscription certificate, payment of the
subscription price and notice of guaranteed delivery, if applicable, to the
subscription agent. The address to which these documents and payment should be
delivered is:
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, NY 10004
Telephone: (212) 509-4000 (x-535)
Facsimile: (212) 616-7610
The subscription agent will hold all subscriptions and subscription
proceeds in escrow until the earlier of the termination or close of the rights
offering and the acceptance or rejection of the subscription by DemandStar. The
subscription agent will be responsible for delivering stock certificates and
refunds to rights holders if the rights offering is terminated or if a
subscription certificate is rejected. Subscription proceeds will be held in the
escrow
29
<PAGE> 33
account. Subscribers may not withdraw funds from the escrow account. Escrowed
proceeds will be released to DemandStar on the date that the applicable
subscription certificate is accepted by DemandStar. DemandStar will pay the fees
and expenses of the subscription agent in connection with the rights offering.
DemandStar may also engage the services of an information agent to assist
DemandStar in the provision of information related to the offering to
prospective investors. In exchange for services provided by any such information
agent, DemandStar would expect to pay a customary fee and reimbursement of
reasonable expenses incurred.
If you have questions or need assistance concerning the procedure for
exercising the rights, or if you would like additional copies of this
prospectus, the Instructions for Subscription Certificates or the Notice of
Guaranteed Delivery, you should contact us, whereupon we may direct you to our
information agent if we have retained one.
EXERCISE OF RIGHTS
You may exercise your rights, in whole or in part, by delivering to the
subscription agent, at or prior to 5:00 p.m., EST, on , 2000, or such
later date as to which DemandStar may extend the rights offering:
- Your properly completed and duly executed subscription certificate; and
- Any required signature guarantees or other supplemental documentation;
and
- Your payment in full of $1.00 per share of DemandStar common stock
subscribed for under the subscription privilege.
DemandStar may reject any subscription documents the subscription agent
receives after 5:00 p.m., EST, on , 2000, regardless of when the
documents were originally mailed.
METHOD OF PAYMENT
Payments for the shares must be made in U.S. dollars for the full number of
shares you have subscribed for either by:
- check or bank draft drawn upon a U.S. bank payable to Continental Stock
Transfer & Trust Company, as subscription agent, or
- wire transfer of immediately available funds to the subscription agent.
For detailed wiring instructions, contact the Reorganization Department
at Continental Stock Transfer & Trust Company at (212) 509-4000 (x-535).
Any wire transfer of funds should clearly indicate the identity of the rights
holder who is paying the subscription price by the wire transfer. Evidence of
such wire transfer should be delivered to the subscription agent via facsimile
at (212) 616-7610. The subscription price will be deemed to have been received
by the subscription agent only upon:
- clearance of any uncertified check,
- receipt by the subscription agent of any certified check or bank draft
drawn upon a U.S. bank or
- receipt of good funds in the subscription agent's account designated
above.
30
<PAGE> 34
- --------------------------------------------------------------------------------
IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID IN
THIS MANNER MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF
RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL
CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE DATE ON WHICH THE
RIGHTS EXPIRE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARED BY SUCH DATE
AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK,
MONEY ORDER OR WIRE TRANSFER OF FUNDS.
- --------------------------------------------------------------------------------
GUARANTEED DELIVERY PROCEDURES
If you want to exercise your rights, whether in whole or in part, but time
will not permit your subscription certificate to reach the subscription agent on
or prior to 5:00 p.m., EST, on , 2000, you may exercise your rights
if you satisfy the following guaranteed delivery procedures:
- You send, and the subscription agent receives, payment in full for each
share of common stock being purchased through the subscription privilege
in the method described above under "The Offering -- Method of Payment,"
on or prior to 5:00 p.m., EST, on , 2000;
- You send, and the subscription agent receives, on or prior to 5:00 p.m.,
EST, on , 2000, a notice of guaranteed delivery,
substantially in the form provided with the attached instructions, from a
member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or correspondent in the United States.
The notice of guaranteed delivery must state your name, the number of
rights that you hold, and the number of shares of common stock that you
wish to purchase under the subscription privilege. The notice of
guaranteed delivery must guarantee the delivery of your subscription
certificate to the subscription agent within three business days
following the date of the notice of guaranteed delivery; and
- You send, and the subscription agent receives, your properly completed
and duly executed subscription certificate and the related nominee holder
certification, if applicable, including any required guarantees, within
three business days following the date of your notice of guaranteed
delivery. The notice of guaranteed delivery may be delivered to the
subscription agent in the same manner as your subscription certificate at
the addresses set forth above under "The Offering -- Plan of
Distribution -- Subscription Agent, Soliciting Agent and Information
Agent" or may be transmitted to the subscription agent by facsimile
transmission, to facsimile number (212) 616-7610. You can obtain
additional copies of the form of notice of guaranteed delivery by
requesting it from the subscription agent at the same address.
SIGNATURE GUARANTEES
Your signature on each subscription certificate must be guaranteed by an
Eligible Guarantor Institution, as defined in Rule 17Ad-15 of the Securities
Exchange Act of 1934, and required under the standards and procedures adopted by
the subscription agent.
31
<PAGE> 35
Eligible Guarantor Institutions include banks, brokers, dealers, credit unions,
national securities exchanges and savings associations.
Signatures on the subscription certificate do not need to be guaranteed if:
- the subscription certificate provides that the shares of common stock to
be purchased are to be delivered directly to the record owner of such
rights; or
- the subscription certificate is submitted for the account of a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the United States.
SHARES HELD FOR OTHERS
If you hold shares of HTE common stock for others on March 6, 2000, you
should provide a copy of this prospectus to the respective beneficial owners of
those shares as soon as possible, ascertain such beneficial owners' intentions
and obtain instructions with respect to the rights, as set forth in the
instructions we have provided to you for your distribution to the beneficial
owners. If the beneficial owner so instructs, you should complete subscription
certificates and submit them to the subscription agent with the proper payment.
If you hold shares of HTE common stock for the account(s) of more than one
beneficial owner, you may exercise the number of rights to which all such
beneficial owners in the aggregate otherwise would have been entitled had they
been direct record holders of HTE common stock on the record date for the rights
offering, provided that, you, as a nominee record holder, make a proper showing
to the subscription agent by submitting the form entitled "Nominee Holder
Certification" which we will provide to you with your rights offering materials.
If you are a beneficial owner of HTE common stock or you will receive your
rights through a broker, custodian bank or other nominee, we will ask your
broker, custodian bank or other nominee to notify you of this rights offering.
If you wish to exercise your rights, you will need to contact your broker,
custodian bank or nominee and request it to effect the transaction in accordance
with your instructions. To indicate your decision with respect to your rights,
you should complete and return to your broker, custodian bank or other nominee
the form entitled "Beneficial Owners Election Form." You should receive this
form from your broker, custodian bank or other nominee with the other rights
offering materials. If you wish to obtain a separate rights certificate, you
should contact the nominee as soon as possible and request that a separate
rights certificate be issued to you. You should be aware that nominee record
holders may establish deadlines for receiving instructions from beneficial
holders significantly in advance of the expiration date for the rights.
AMBIGUITIES IN EXERCISE OF THE RIGHTS
If you do not specify the number of rights being exercised on your
subscription certificate, or if your payment is not sufficient to pay the total
subscription price for all of the shares that you indicate you wish to purchase,
you will be deemed to have exercised the maximum number of rights that could be
exercised for the amount of the payment that the subscription agent receives
from you.
32
<PAGE> 36
If your payment exceeds the total subscription price for all of the rights
shown on your subscription certificate, your payment will be applied in the
following order:
- to subscribe for the number of shares, if any, that you indicated on the
subscription certificate(s) that you wished to purchase through your
subscription privilege; and
- to subscribe for shares of common stock until your subscription privilege
has been fully exercised.
Any excess payment remaining after the foregoing allocation will be returned to
you as soon as practicable following the closing of the rights offering by mail,
without interest or deduction.
OUR DECISIONS ARE BINDING
All questions concerning the timeliness, validity, form and eligibility of
any exercise of rights will be determined by us and our determinations will be
final and binding. We reserve the right, in our sole discretion, to waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as we determine in
our sole discretion. We reserve the right, in our sole discretion, to reject any
subscriptions not properly submitted or the acceptance of which would, in the
opinion of our counsel, be unlawful. Neither HTE, DemandStar, the information
agent, if any, the soliciting agent, if any, nor the subscription agent will be
under any duty to give notification of any defect or irregularity in connection
with the submission of subscription certificates or incur any liability for
failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising rights or requests for additional copies of this prospectus should be
directed to DemandStar at (407) 975-0000, whereupon we may direct you to our
subscription agent or our information agent, if we have retained one.
RIGHT TO TERMINATE OR MODIFY RIGHTS OFFERING
We may withdraw the rights and terminate the rights offering at any time
prior to the expiration of the rights, for any reason. If we withdraw the rights
and terminate the rights offering, any funds received from rights holders will
be promptly refunded by the subscription agent without interest or penalty. The
DemandStar board of directors, in its sole discretion, may amend the terms and
conditions of the rights and the offering at any time prior to the expiration of
the rights.
33
<PAGE> 37
- --------------------------------------------------------------------------------
THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATE SHOULD BE READ
CAREFULLY AND FOLLOWED IN DETAIL. DO NOT SEND SUBSCRIPTION CERTIFICATES TO HTE
OR TO DEMANDSTAR. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND
PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE
ELECTION AND RISK OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL, IT IS RECOMMENDED
THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT AT
OR PRIOR TO 5:00 P.M., EST, ON , 2000.
- --------------------------------------------------------------------------------
RESTRICTIONS ON TRANSFERABILITY OF RIGHTS
The subscription rights may be exercised, in whole or in part, by the
persons to whom the rights are granted. You may, however, transfer your rights
to spouses and lineal descendants only. Otherwise, your subscription rights are
not transferable.
PROCEDURES FOR DEPOSITORY TRUST COMPANY PARTICIPANTS
We expect that you will be able to exercise your subscription privilege
through the facilities of the Depository Trust Company. If your rights are held
of record through the Depository Trust Company, you may exercise your basic
subscription privilege by instructing the Depository Trust Company to transfer
your rights from your account to the account of the subscription agent, together
with certification as to the aggregate number of rights you are exercising and
the number of shares of our common stock you are subscribing for under your
subscription privilege and your subscription price payment for each share you
subscribed for under your subscription privilege.
MINIMUM SUBSCRIPTION AMOUNT
We are conducting the rights offering on a best efforts basis. Thus, we
cannot guarantee that any of our shares will be sold. The rights offering is not
conditioned upon DemandStar's receipt of subscriptions for any minimum number of
shares of DemandStar common stock. However, we may cancel the rights offering at
any time prior to its completion, in which case all subscription payments will
be returned without interest or penalty.
NO REVOCATION
Once you exercise your subscription privilege, you may not revoke that
exercise. Rights not exercised prior to their expiration will be null and void
as of and after such time.
NO BOARD RECOMMENDATION
An investment in DemandStar common stock must be made in accordance with
each investor's evaluation of his or its best interest. Neither the board of
directors of HTE nor the board of directors of DemandStar makes any
recommendation regarding whether rights holders should exercise their rights.
34
<PAGE> 38
NO FRACTIONAL SHARES
If you are an HTE option holder subscribing for a fraction of a share, the
number of shares you will be entitled to receive will be rounded up to the
nearest whole number.
STATE AND FOREIGN SECURITIES LAW
The rights may not be exercised by any person, and neither this prospectus,
nor the subscription certificate shall constitute an offer to sell or a
solicitation of an offer to purchase any shares of DemandStar common stock in
any jurisdiction in which such transactions would be unlawful.
No action has been taken in any jurisdiction outside the United States to
permit offers and sales of the rights or the offer, sale or distribution of the
shares of DemandStar common stock. Consequently, DemandStar may reject
subscriptions that relate to the exercise of rights by any holder of rights
outside the United States, and DemandStar may also reject subscriptions from
holders in jurisdictions within the United States and DemandStar may refuse to
distribute rights to any eligible subscriber if DemandStar or HTE should
determine that it may not lawfully issue securities to such subscribers.
DemandStar and HTE may do so even if it could qualify the securities for sale or
distribution by taking other actions or modifying the terms of the offering or
the distribution in such jurisdictions which either corporation may decline to
do in its sole discretion. In such event, rights holders who are residents of
these jurisdictions will not be eligible to participate in the rights offering.
Subscription certificates will not be mailed to eligible subscribers whose
addresses are outside the United States or who have an APO or FPO military
address, but will be held by the subscription agent for their account. To
exercise such rights, these subscribers must notify the subscription agent by
the expiration date and must establish to the satisfaction of the subscription
agent that such exercise is permitted under applicable law.
35
<PAGE> 39
USE OF PROCEEDS
The primary purposes of this offering are to obtain additional capital,
create a public market for the common stock and facilitate future access to
public markets. The gross proceeds to be received by DemandStar from the rights
offering depends on the number of shares purchased in the rights offering. No
assurance can be given as to the actual number of shares that will be purchased.
Regardless of the number of shares purchased, DemandStar has estimated that the
expenses for the offering will be approximately $522,576.
We estimate that the net proceeds we will receive from the rights offering,
assuming all rights are exercised, will be $18,288,754. Our calculation of net
proceeds is net of estimated offering expenses of $522,576 payable by us.
Assuming all rights are exercised in the offering over the next 12 months,
DemandStar intends to use the net proceeds that it receives from the offering
and HTE's investment in the following areas, which are listed in direct
correlation to their order of priority:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
USE OF PROCEEDS DOLLAR AMOUNT PERCENT
- --------------- ------------- -----------
<S> <C> <C>
Working capital to hire additional employees and to cover
the costs, including overhead, required to enable us to
fulfill new and existing demand for products and
services and to create new products and services....... $7,300,000 39.92%
Working capital to enable us to expand into new
geographic markets by hiring of additional sales and
marketing personnel, attending trade shows, and
developing additional marketing materials.............. 3,000,000 16.40%
Payment on the HTE loan, which loan was used for our
operations and at February 29, 2000 had an outstanding
principal balance of $1,750,000, is accruing interest
at 8% per annum and has a maturity date of October 31,
2004................................................... 200,000 1.09%
Capital expenditures for additional technology,
infrastructure and operating platforms................. 1,200,000 6.56%
General working capital and other general corporate
purposes............................................... 6,588,754 36.03%
</TABLE>
To staff the expansion described above, we plan to hire approximately 20 to
35 people in research and development to create new products and services, 30 to
45 people in operations to satisfy existing demand, and 30 to 50 sales and
marketing people to expand into new markets. The mix of hiring will depend on
market response to new sales and marketing effort. Also, the hiring will depend
on the level of experience of the people involved. In general, our goal is to
hire people in anticipation of the expansion of our business.
In addition, in the ordinary course of business we evaluate potential
acquisitions of businesses and technologies. Although we have no current
commitments or agreements with respect to any acquisition, we might in the
future use a portion of the proceeds to pay for acquisitions.
Even though the foregoing discussion pertains to the allocation of proceeds
over 12 months, management estimates that gross proceeds of $12,500,000 will be
sufficient to meet our capital needs for the next 18 months following the
closing of the rights offering.
36
<PAGE> 40
This is not an underwritten offering and therefore no assurance can be
given as to the number of rights that will be exercised. Officers and directors
of DemandStar have committed to purchase a total of 656,821 restricted shares
and up to an additional 718,568 restricted shares from unsubscribed rights for
minimum proceeds in this offering of $1,375,389. These proceeds, plus $1,500,000
from the sale of Series A preferred stock and the sale of $2,000,000 of Series B
preferred stock will result in approximately $4,352,813 of net proceeds to
DemandStar, after deducting estimated offering expenses of $522,576. Such funds
would be sufficient for DemandStar's operations for three to four months under
DemandStar's current growth plan. However, those proceeds could be extended by
scaling back DemandStar's growth plan and using those funds to meet its existing
contractual commitments for its products and for general working capital and
general corporate purposes. To continue operations beyond that period of time,
DemandStar would need to obtain additional equity and/or debt financing. It
currently has a line of credit from HTE in the amount of $1,750,000, which, as
of February 29, 2000, has been fully drawn down. Other possible sources of funds
may include financial lending institutions, bridge financing from institutional
investors, and/or additional debt and/or equity offerings. We currently have not
identified alternative financing sources, other than HTE's line of credit
extended to DemandStar and the commitment of HTE and officers and directors of
DemandStar to purchase $2,000,000 of Series B preferred stock if a minimum of
5,000,000 shares are not purchased in the offering. We may not be able to obtain
additional financing on favorable terms or at all.
Pending the uses set forth above, the net proceeds of this offering will be
invested in short-term, investment-grade, interest-bearing investments or
accounts.
The amounts we actually spend for these purposes may vary significantly and
will depend on a number of factors, including the number of rights exercised,
our future revenue and cash generated by operations and the other factors
described under "Risk Factors." Therefore, we will have broad discretion in the
way we use the net proceeds.
DIVIDEND POLICY
DemandStar has not declared or paid any cash dividends on its common stock
since its inception and does not expect to pay any cash dividends on its common
stock in the foreseeable future. DemandStar currently intends to retain future
earnings, if any, to finance the expansion of its business.
37
<PAGE> 41
DILUTION
As of December 31, 1999, DemandStar had a negative net tangible book value
available to common shareholders of approximately $(1,290,770), or approximately
$(1.03) per share of common stock. Net tangible book value per share of common
stock represents the amount of DemandStar's tangible assets less total
liabilities and preferred stock liquidation value, divided by 1,250,000 shares.
After giving effect to the sale of maximum number of shares offered hereby at
the subscription offering price of $1.00 per share, the purchase of 656,821
restricted shares by officers and directors of DemandStar upon exercise of their
rights, and the application by DemandStar of the estimated gross proceeds, the
pro forma net tangible book value as of December 31, 1999, would have been
$16,677,381 or $0.80 per share. This represents an immediate increase in net
tangible book value of $1.83 per share to HTE as the sole existing shareholder
and an immediate dilution of $0.20 per share to new investors purchasing shares
in the offering. The following table illustrates the per share dilution in net
tangible book value per share to new investors in the offering.
<TABLE>
<CAPTION>
MAXIMUM OFFERING
----------------
<S> <C>
Offering price per share.................................... $ 1.00
------
Net tangible book value per common share as of December
31, 1999, prior to the offering........................ (1.03)
Increase in net tangible book value per common share
resulting from the offering............................ 1.83
------
Pro Forma net tangible book value per common share as of
December 31, 1999, after the offering..................... $ 0.80
======
Dilution to new DemandStar common shareholders.............. $ 0.20
======
Percentage Dilution......................................... 20%
</TABLE>
The following table summarizes the number of shares of our common stock
purchased from us, the total consideration paid and the average price per share
paid by (i) our existing shareholders at December 31, 1999 and (ii) new
investors purchasing shares of our common stock in the offering, assuming the
maximum offering and the purchase of 656,821 restricted shares by officers and
directors of DemandStar upon exercise of their rights, and before deducting the
underwriting discounts and commissions and our estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------------------------------
TOTAL CONSIDERATION
SHARES PURCHASED PAID
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 1,250,000 6.0% $ 800,000 3.9% $0.64
New investors................ 19,468,151 94.0% $19,468,151 96.1% $1.00
---------- ----- ----------- -----
Total........................ 20,718,151 100.0% $20,268,151 100.0% $0.98
========== ===== =========== =====
</TABLE>
38
<PAGE> 42
CAPITALIZATION
The following table sets forth the capitalization of DemandStar as of
December 31, 1999, on a pro forma basis to give effect to HTE's $1,500,000
investment. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the financial statements and related notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Note payable to HTE..................................... $ 1,306,885 $ 1,306,885
----------- -----------
Series B preferred stock(1)............................. -- --
----------- -----------
Shareholders' equity:
Series A preferred stock(2)........................... -- 1,500,000
Common stock.......................................... 125 125
Additional paid-in capital............................ 812,413 812,413
Accumulated deficit................................... (1,138,842) (1,138,842)
----------- -----------
Total shareholders' equity......................... (326,304) 1,173,696
----------- -----------
Total capitalization............................... $ 980,581 $ 2,480,581
=========== ===========
</TABLE>
- -------------------------
(1) See "Description of Securities -- Series B Preferred Stock" for information
regarding the terms of this security.
(2) See "Description of Securities -- Series A Preferred Stock" for information
regarding the terms of this security. See also "Related Party
Transactions -- Investment and Distribution Agreement."
39
<PAGE> 43
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
DemandStar's financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The financial information as
of December 31, 1999, and for the period from June 18, 1999 to December 31,
1999, reflects the financial position and results of operations of DemandStar.
The financial information as of December 31, 1998, and for the year ended
December 31, 1998, and for the period from January 1, 1999 to June 17, 1999,
reflects the financial position and results of operations of the Predecessor.
The following selected financial information has been derived from and is
qualified by reference to DemandStar's financial statements audited by Arthur
Andersen LLP, independent certified public accountants, included elsewhere
herein.
<TABLE>
<CAPTION>
INFORMATION ON DEMAND, INC.
(PREDECESSOR) DEMANDSTAR.COM, INC.
----------------------------------- --------------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
FOR THE YEAR JANUARY 1, 1999 JUNE 18, 1999
ENDED TO TO
DECEMBER 31, 1998 JUNE 17, 1999 DECEMBER 31, 1999
----------------- --------------- --------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ 33,718 $ 132,135 $ 196,855
Operating expenses:
Marketing and advertising... 12,350 15,866 304,800
Research and development.... 125,010 136,279 136,100
General and
administrative........... 177,069 250,349 651,520
Depreciation and
amortization............. -- -- 215,969
--------- --------- -----------
Total operating
expenses............... 314,429 402,494 1,308,389
--------- --------- -----------
Operating loss................ (280,711) (270,359) (1,111,534)
Interest expense.............. -- -- 27,308
--------- --------- -----------
Loss before income tax
benefit..................... (280,711) (270,359) (1,138,842)
Income tax benefit............ -- -- --
--------- --------- -----------
Net loss................. $(280,711) $(270,359) $(1,138,842)
========= ========= ===========
Basic and diluted net loss per
common share................ $ (0.91)
===========
Weighted average number of
common shares outstanding... 1,250,000
===========
</TABLE>
<TABLE>
<CAPTION>
INFORMATION ON
DEMAND, INC.
(PREDECESSOR)
----------------- DEMANDSTAR.COM, INC.
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- --------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash......................................... $ 17,564 $ 127,733
Working deficit.............................. (208,613) (301,640)
Total assets................................. 19,255 1,311,391
Note payable to HTE.......................... -- 1,306,885
Total shareholder's deficit.................. (208,613) (326,304)
</TABLE>
40
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements, including the related
notes, appearing elsewhere in this prospectus. This description contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ significantly from the results discussed in the
forward-looking statements as a result of the various factors set forth under
"Risk Factors" and elsewhere in this prospectus.
GENERAL
DemandStar is a provider of Internet-based procurement systems for
government agencies. DemandStar's procurement systems enable governments to
purchase goods and services more efficiently and at lower administrative costs
while at the same time providing valuable services to businesses selling to
government agencies. HTE has financed our operations since our inception. These
cash flows are not indicative of the cash flows that would have resulted had
DemandStar been operating as a separate stand-alone company during the periods
presented.
DemandStar intends to enhance the features of its Internet business by
improving on its existing "user-friendly" systems, and the addition of new
features such as "blueprint downloading" capability. Blueprint downloading will
allow agencies to submit blueprints electronically and allow vendors to retrieve
the blueprints over the Internet. We believe that our operating expenses will
significantly increase as a result of the financial commitments related to the
development of marketing channels, system improvement and other capital
expenditures. We expect to incur losses and generate negative cash flow from
operations for the foreseeable future. In view of the rapidly changing nature of
our business and our limited operating history, we believe that our historical
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
The year ended December 31, 1998 was primarily a year of startup
operations. Our predecessor focused on research, development and initialization
of our predecessor's concept. There were minimal sales and marketing efforts
during this year. The purchase of the business and net assets of Information On
Demand, Inc. by DemandStar in June of 1999 enabled DemandStar to accelerate the
growth and development of ideas, as well as increase sales and marketing
efforts.
41
<PAGE> 45
RESULTS OF OPERATIONS
The following table shows certain statement of operations data expressed as
a percentage of revenue:
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
----------------------------------- -----------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JANUARY 1, 1999 JUNE 18, 1999
YEAR ENDED TO TO
DECEMBER 31, 1998 JUNE 17, 1999 DECEMBER 31, 1999
----------------- --------------- -----------------
<S> <C> <C> <C>
Revenue.......................... 100.0% 100.0% 100.0%
Operating expenses:
Marketing and advertising...... 36.6 12.0 154.8
Research and development....... 370.8 103.1 69.1
General and administrative..... 525.1 189.5 331.0
Depreciation and
amortization................ -- 0.0 109.7
------ ------ ------
Total operating expenses.... 932.5 304.6 664.6
------ ------ ------
Operating loss................... (832.5) (204.6) (564.6)
Interest expense................. -- -- 13.9
------ ------ ------
Loss before benefit for income
taxes.......................... (832.5) (204.6) (578.5)
Benefit for income taxes......... -- -- --
------ ------ ------
Net loss.................... (832.5)% (204.6)% (578.5)%
====== ====== ======
</TABLE>
REVENUES
Revenues include amounts received from vendors for registration fees and
bid document mailings. Total revenues increased by 876% to $328,990 for the year
ended December 31, 1999, from $33,718 for the year ended December 31, 1998. The
increase in revenues is due primarily to the increased marketing effort in 1999
compared to the 1998 focus on research and development.
OPERATING EXPENSES
MARKETING AND ADVERTISING EXPENSES. Marketing and advertising expenses
increased 2496% to $320,666 for the year ended December 31, 1999, from $12,350
for the year ended December 31, 1998. The increase in marketing and advertising
expenses is directly related to the increase in revenues and primarily resulted
from an increased marketing strategy to promote DemandStar.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 118% to $272,379 for the year ended December 31, 1999, from $125,010
for the year ended December 31, 1998. In 1998, research and development was
focused on product development. During the year ended December 31, 1999, the
focus was on expanding our products' features and functionality and improving
the stability and scalability of DemandStar's systems to support the growth that
is anticipated.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
which include the costs of corporate operations, finance and accounting, human
resources and other general operations, increased 409% to $901,869 for the year
ended December 31, 1999, from $177,069 for the year ended December 31, 1998. The
increase in general and administrative expenses is directly related to the
growth in the volume of revenues and expenses. This growth was necessary to
support the general operations and infrastructure of DemandStar.
42
<PAGE> 46
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $215,969
resulted from the acquisition of our predecessor by DemandStar and the purchase
of miscellaneous equipment and leasehold improvements during the year ended
December 31, 1999. There were no comparable expenses in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the purchase of our predecessor by DemandStar in June 1999, the
operations were funded primarily through cash generated from operations and
capital contributed from the sole shareholder of our predecessor.
In conjunction with the purchase of our predecessor, HTE purchased
1,250,000 shares of DemandStar's common stock for $800,000. In addition to the
stock purchase, HTE also loaned DemandStar $200,000 to purchase the business and
specified net assets of our predecessor and $1,106,885 to fund operations, the
terms of which loan were evidenced by a five-year term promissory note payable
to HTE and dated October 31, 1999. As of December 31, 1999, the balance under
the note was $1,306,885. To address the funding needs of DemandStar, in December
1999, our board of directors authorized management to (1) file a registration
statement with the Commission on Form S-1 to pursue a rights offering of our
common stock, (2) execute an investment and distribution agreement with HTE, and
(3) execute a Conditional Series B Stock Purchase Agreement with HTE and
DemandStar officers and directors.
Management believes that the funds generated by the transactions noted
above will be sufficient to fund operations for at least the next 18 months
provided DemandStar receives at least $12,500,000 in gross proceeds from the
rights offering. Management also believes that DemandStar is dependent on the
proceeds of this offering to meet the cash required to continue to support
future operating expenses necessary to develop marketing channels and support
the technical infrastructure of DemandStar. If at least $12,500,000 is not
raised in the rights offering, DemandStar may be required to seek additional
capital through subsequent debt and/or equity financing. For example, if only
$4,352,813 of cash is available from the rights offering, which assumes exercise
of rights by management of DemandStar and HTE's contingent contributions net of
estimated offering expenses, that amount will satisfy the cash requirements of
DemandStar for approximately three to four months under DemandStar's current
growth plan. However, these proceeds could be extended by scaling back
DemandStar's growth plan and using those funds to meet its existing contractual
commitments for its products and for working capital and general corporate
purposes. If offering proceeds are insufficient for DemandStar to fully
implement its business plan, DemandStar will be required to seek additional debt
and/or equity funding. We currently have not identified alternative financing
sources, other than HTE's line of credit extended to DemandStar and HTE's
commitment to purchase $2,000,000 of Series B preferred stock if a minimum of
5,000,000 shares are not purchased in the offering. Other possible sources of
funds may include financial lending institutions, bridge financing from
institutional investors and/or additional debt and/or equity offerings. If
DemandStar receives only the minimum proceeds from the rights offering, and
additional funding is not available, or is available only on disadvantageous
terms, DemandStar's ability to continue its business and operations will be
adversely affected.
We anticipate spending approximately $25,500,000 in cash for the years 2000
and 2001 to develop and enhance products and services, expand marketing efforts,
hire additional resources and to meet financial commitments related to
development of
43
<PAGE> 47
marketing channels, future strategic relationships and other capital
expenditures. This will result in a significant increase in operating expenses.
Based on current estimates, DemandStar expects to receive approximately
$13,000,000 in cash related to sales. This would result in a deficit of
$12,500,000 which, based on current estimates, must be obtained through this
rights offering or other methods, as the minimum amount needed to remove the
threat of a going concern. In the event all funding is not received, management
believes it can revise its operating plan to reduce costs to such a level that
we will be able to fund operations for the next twelve months.
Net cash used in operating activities totaled $54,534 and $923,018 for the
years ended December 31, 1998 and 1999, respectively. The increase in the net
cash used primarily resulted from the increased operations and loss experienced
in 1999.
Net cash used in investing activities, comprised of capital expenditures
and cash paid for acquisitions, totaled $1,119,354 in the year ended December
31, 1999. There were no comparable cash flows for the year ended December 31,
1998. The cash used in 1999 was primarily related to the acquisition of our
predecessor by DemandStar.
Net cash provided by financing activities totaled $72,098 and $2,157,326
for the year ended December 31, 1998 and 1999, respectively. The cash provided
during 1998 reflects the capital contributed by the sole shareholder of our
predecessor. The cash provided during 1999 includes contributions of the sole
shareholder of our predecessor, along with the purchase of common stock by HTE
and funding under the note payable to HTE.
YEAR 2000 READINESS
The Year 2000 issue results from computer systems using two digits rather
than four to represent the year so that a date using "00" is recognized as the
year 1900 rather than the year 2000. In addition, the Year 2000 is a leap year,
and some computer programs may not properly provide for February 29, 2000. This
situation may disrupt the operation of both our and third party's computer
systems.
We did not experience a problem with the Year 2000 rollover and believe
that our proprietary software and systems are Year 2000 compliant.
Because our products and services depend significantly on information
provided by and transactions conducted with our government clients, our ability
to deliver services and transactions properly to our customers depends on these
government clients being Year 2000 ready. We cannot assure you that our
government clients are Year 2000 ready. If they are not, their information
systems may be disrupted and our ability to provide services and transactions
curtailed. Our business, results of operations and financial condition would be
harmed as a result.
In addition, the software and systems of financial institutions, utility
companies, Internet access companies, third-party service providers and others
outside of our control may not be Year 2000 ready. If these entities are not
Year 2000 ready, a systemic failure beyond our control could result, including a
prolonged Internet, telecommunications or general electrical failure. This type
of failure would make it difficult or impossible to use the Internet or access
our network. If a prolonged failure of this type occurs, our business and
financial condition would be harmed. We do not have a contingency plan as such
in the event of third party Year 2000 failures. However, we believe we should be
able to identify alternative vendors if the need arises.
44
<PAGE> 48
BUSINESS
OVERVIEW
We are a provider of Internet-based procurement systems for governmental
agencies. Our procurement systems enable government agencies to purchase goods
and services more efficiently and at lower administrative costs while at the
same time providing valuable services to businesses selling to government
agencies. By allowing government agencies to become members in our online
network for free, we accept the responsibility of distributing various bid
requests and associated documents to vendors. This reduces administrative costs
of the member agencies. It also increases an agency's efficiency because it no
longer has to manage the distribution. The vendors pay a membership fee to get
the benefit of "real time" notification of new bid opportunities. Real time
notification occurs through either email or fax broadcast, depending on the
vendor's choice. The DemandStar system handles all goods and services that
agencies acquire through a mandatory bid process. Typically, agencies use a
mandatory bid process for procurement of all goods and services above an
agency-specific dollar amount that are not an emergency or sole-source
procurement item or service, which amount is typically around $5,000, but varies
from agency to agency.
Our services are provided at no cost to participating governmental
agencies. Businesses that provide goods and services to agencies are provided
the opportunity to register with us as member vendors for an annual fee. These
services, which are included in a member vendor's annual fee and provided at
no-cost to governmental agencies, include the following:
- Membership management, which allows the administrator to control which
users have access, which users may view and submit bids, and who has
administrative control.
- Notification, by e-mail and/or fax, of bid/request for proposal
opportunities to member vendors.
- Web-enabled database of all procurement information from participating
agencies.
In addition to the services listed above, vendors may request a "hard copy"
of bid information. In such case, the vendor is then charged a fee which varies
with the complexity of the document requested.
DemandStar began offering services to Florida governmental agencies in May
1998. DemandStar now serves over two dozen governmental agencies and over
thirty-five hundred vendors, primarily in Florida where we chose to concentrate
our initial marketing efforts. Our contracts with our government clients have
one to five year terms, of which three-year terms are the most typical and are
non-exclusive with respect to the information provided by the government agency.
We intend to increase our revenues by selling our existing products and services
throughout the United States to governmental agencies at the federal, state and
local levels, as well as internationally. We are also developing and intend to
deliver new products and services to our constituent governmental agencies and
vendors.
OUR HISTORY
We were formed as "HTE-IOD, Inc.," a Florida corporation, on June 1, 1999.
On June 18, 1999, we acquired the business and specified net assets of our
predecessor,
45
<PAGE> 49
Information On Demand, Inc., a Florida corporation formed in June 1997. In
connection with that acquisition, we changed our name to "Information On Demand,
Inc." On December 21, 1999, we changed our name to "DemandStar.com, Inc." Our
predecessor initially developed and marketed our "fax-on-demand" system through
which it delivered to vendors information on agencies' requests for proposals
(bid requests) by facsimile. Shortly thereafter, our predecessor developed an
Internet delivery system and commenced marketing that system in June, 1998.
We have a limited operating history. We have a history of significant
losses, with a net loss of ($1,138,842) for the period from June 18, 1999 to
December 31, 1999. We anticipate that we will continue to incur significant
losses into the foreseeable future. In that 1999 was our first year of
operation, our accumulated deficit is the same as our net loss. Our auditors
have expressed a "going concern" opinion.
INDUSTRY BACKGROUND
THE GOVERNMENT PROCUREMENT MARKET
Our primary market focuses are local and state government procurement
agencies. According to the U.S. Census Bureau as cited by VAR Business, a trade
magazine, there are approximately 85,000 local government "business units"
consisting of approximately 3,043 counties, 19,279 municipalities, 16,656
townships and towns, 14,422 school districts and 31,555 special districts.
Government procurement practices are highly regulated and have not substantially
changed in the past twenty years. Because government agencies are spending
public dollars to procure goods and services, the process requires several steps
and restrictions that do not apply to the private procurement industry. It is
these extra steps that can lead to inefficiencies and additional expense.
Although electronic procurement systems are available, they are typically legacy
systems which are viewed as expensive to obtain and maintain and do not connect
different procurement agencies. The inability to connect with other agencies
leads to the duplication of efforts which is time consuming and costly.
DemandStar was developed in cooperation with several forward thinking
procurement agencies in order to address the deficiencies in their current
practices.
TRADITIONAL GOVERNMENT PROCUREMENT PRACTICES
Historically, vendors who wish to sell goods or services to a particular
governmental agency are required to submit an application to that agency in
order to be placed on the agency's vendor list. Vendors usually describe what
goods or services they provide or wish to provide to the agency by means of
commodity codes. Although there are several national coding systems, e.g.,
National Institute of Government Purchasing and Standard Industry Code, many
agencies have adopted their own proprietary coding systems. This has sometimes
developed from past practices or may be dictated by their existing or previous
legacy accounting and general finance computer systems. This has led to
frustration on the part of the vendor because there is no universally accepted
form or coding system. Many smaller businesses simply do not have the time or
human resources to apply to agencies outside their immediate service areas,
thereby limiting their potential sales reach. To date, very few agencies have
charged vendors to be on their vendor list. Because of resource limitations,
most agencies rarely attempt to update their vendor databases. Historically,
vendors rarely notify agencies when they go out of business or change location.
This leads to a large amount of inaccurate data in the agency's system.
46
<PAGE> 50
When an agency determines it has a need for a particular good or service in
excess of the agency's "bid threshold", which is the dollar threshold over which
the agency must ask for bids, it develops a written bid or request for proposal.
The agency then advertises the bid/request for proposal opportunity in several
ways:
- Notifying vendors on its vendor list by sending them a postcard or letter
or in some cases sending the entire bid package;
- Advertising in the legal section of local newspapers, usually at an
average cost of $100-$200 per ad per day;
- Posting bid requests on bulletin boards in the agency's building; or
- Selectively distributing the bid request to other bid reporting services
such as the Dodge Report.
Vendors who are interested in reviewing the bid/request for proposal
opportunity and who have not received the entire package with the first
notification are then required to request a copy of the bid package from the
agency. Most agencies have provided the duplication and mailing of the package
to the vendor at no cost. Many agencies preprint the packages and sometimes
experience substantial waste if demand is less than anticipated.
Vendors wishing to submit a bid must fill out the forms included in the bid
package and return them, usually with multiple copies, to the agency by a
predetermined date and time. The bids are opened publicly and the results are
tabulated and posted for public inspection. After appropriate review of the
vendor by agency staff, awards are made. During the interval between
announcement of the bid and the award, agencies may field multiple requests for
information from vendors and other sources for a listing of vendors requesting
bid packages as well as award information. Since this is public information in
most states, this places an additional clerical burden on procurement staffs.
Regulations permit governmental agencies to use other agencies' contracts
instead of writing their own. Traditionally, there has not been a good way for
agency personnel to learn of other existing contracts for similar goods and
services. Regional purchasing cooperatives and other initiatives have proven to
be limited in scope and geographic reach. Many agencies rely on simply calling
their peers in neighboring agencies, a time consuming and often inefficient
practice.
Needs for goods and services below the bid thresholds are typically
solicited by telephone or fax in what is called a phone or fax quote. Because of
staffing limitations, agencies typically are only required to solicit three
phone or fax quotes for any given item.
THE LIMITS OF TRADITIONAL GOVERNMENT TRANSACTION METHODS
Traditionally, government agencies have transacted, and in many cases
continue to transact, with businesses and citizens using processes that are
inconvenient and labor-intensive, require extensive paperwork and use large
amounts of scarce staff resources. Transactions and information requests are
often made in person or by mail and are processed manually, increasing the
potential for errors and the need for numerous revisions and follow-up. Even
newer methods, including telephone response systems, tape exchanges and dial-up
computer networks, rely on multiple systems and potentially incompatible data
formats, and require significant expertise and expenditures to introduce and
maintain. As a
47
<PAGE> 51
result, businesses and citizens often have no choice but to face costly delays
to complete essential tasks. These delays include waiting in line at a
government agency, waiting for answers by telephone or waiting for responses by
mail. Businesses and citizens encounter further inconvenience and delay because
they usually can work with government agencies only during normal business
hours. Even when electronic alternatives are available, they often require a
cumbersome process of multiple contacts with different government agencies.
Increases in the level of economic activity and in the population have
exacerbated these problems and increased the demand for new services.
GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business electronically.
Continued future growth in Internet usage is expected to be driven by the large
and growing number of personal computers installed in homes and offices; the
decreasing cost of personal computers; easier, faster and cheaper access to the
Internet; improvements in network infrastructure; the proliferation of Internet
content; and, the increasing familiarity with and acceptance of the Internet by
governments, businesses and consumers. In addition, the volume of electronic
commerce has grown in parallel with the Internet itself. Forrester Research, a
market research firm, estimates that business-to-business electronic commerce
will reach $1.3 trillion by 2003, and The Yankee Group, a Boston-based Internet
research firm, estimates that business-to-business electronic commerce will
reach $541 billion in 2003.(1)
EMERGENCE OF THE INTERNET AS A MEDIUM FOR ELECTRONIC GOVERNMENT
The growing acceptance of the Internet and electronic commerce presents a
significant opportunity for the development of electronic government, in which
government agencies conduct transactions and distribute information over the
Internet. By using the Internet, government agencies can increase the number and
efficiency of interactions with constituents without increasing expenditures or
demands on current personnel. In addition, regardless of physical distance,
businesses and citizens can obtain government information quickly and easily
over the Internet. This Internet-based interaction reduces costs for both
government and users and decreases response times compared to providing the same
data by mail or special purpose dial-up computer connections.
CHALLENGES TO THE IMPLEMENTATION OF ELECTRONIC GOVERNMENT SERVICES
Despite the potential benefits of electronic government, barriers to
creating successful Internet-based services often preclude governments from
implementing them. Some of these barriers are similar to those the private
sector encounters, including:
- the high cost of implementing and maintaining Internet technology in a
budget-constrained environment;
- the financial, operational and technology risks of moving from older,
established technologies to rapidly evolving Internet technologies;
- ---------------
1"Business-to-Business E-Commerce: The True Future of the 'Net?"eBusiness World
(visited June 3, 1999)http://ebusiness.dci.com/articles/9906031.htm.
48
<PAGE> 52
- the need to quickly assess the requirements of potential customers and
cost-effectively design and implement electronic government services that
are tailored to meet these requirements; and
- the intense competition for qualified technical personnel.
Governments also face some unique challenges that exacerbate the difficulty
of advancing to Internet-based services, including:
- lengthy and political appropriations processes that make it difficult for
governments to acquire resources and to develop Internet services
quickly;
- a diverse and substantially autonomous group of government agencies that
have adopted varying and fragmented approaches to providing information
and transactions over the Internet;
- a lack of a marketing function that assures that services are designed to
meet the needs of businesses and citizens and that they are aware of
their availability; and
- security and privacy concerns that are amplified by the confidential
nature of the information and transactions available from and conducted
with governments and the view that government information is part of the
public trust.
THE DEMANDSTAR METHOD
In cooperation with selected public procurement officials, DemandStar has
developed a number of services that address their current problems while
positioning the agencies to harness the power of e-commerce. Many procurement
officials have expressed a desire to exploit the Internet but have not had the
resources to develop dynamic web sites. Our Internet-based innovative products
and services, coupled with our policy of providing these services free of charge
to governmental agencies, has led to a rapidly spreading knowledge of DemandStar
in its markets, and an acceptance of DemandStar as an industry innovator in
governmental purchasing, enabling us to enter into contracts with over two dozen
governmental agencies.
Our Internet-based products and services offer governmental agencies and
their vendors the opportunity to more efficiently and seamlessly communicate
regarding bids, goods and services. By using our Internet-based procurement
systems, government agencies are able to save administrative costs in bid
notification and follow-up. Since regulations permit government agencies to use
other agencies' contracts instead of writing their own, they are able to locate
such other agency's contracts more easily by searching our sites for information
about other existing contracts for similar goods and services. Further,
DemandStar is able to provide governmental agencies with a larger vendor
database from which to comparison shop and order goods and services for which
they are not required to obtain bids. Similarly, vendors are able to save time
and expense by registering with DemandStar only once for multiple agencies.
Member vendors receive "real time" bid notifications and are able to immediately
download the bid request or request for proposal at any time of day. We have
initially focused our marketing efforts primarily in Florida and to date have
over two dozen contracts with agencies representing various cities, counties,
school districts, utility districts and aviation authorities throughout Florida.
We also have contracts with an agency in each of Minnesota and Virginia, and are
also currently negotiating contracts with agencies in other states.
49
<PAGE> 53
VENDOR SOLICITATION
When DemandStar signs a contract for services with a participating public
procurement agency, the governmental agency provides DemandStar with its vendor
lists from which DemandStar solicits vendors for purposes of receiving automatic
announcement of future bid opportunities. Vendors who choose not to join
DemandStar's network may still request bid packages and may still submit bids to
the agency, but they will not receive automatic notification via the Internet.
Although it is difficult to judge the response rate of vendors because of the
varying accuracy of the agency's existing vendor database, vendor registration
rates have ranged from 50% to 85%. Vendors pay a subscription fee to receive
information from all participating agencies within a geographic area.
To date, approximately 20% of DemandStar's member vendors elect to
subscribe to multiple counties. This is significant in that as the total vendor
database grows, DemandStar becomes more attractive to agencies that have small
vendor databases. Agencies generally desire to have a large vendor database
because they believe the greater number of vendors notified, the more
competitive bids they will receive.
Cost savings to an agency vary depending on the size of the agency and the
number of vendors.
VENDOR NOTIFICATION
Agencies contracting with DemandStar are required to enter all bids above
their bid threshold into the system. Vendors are assured they will receive
announcement for virtually all of the opportunities that match their goods and
services.
When a participating agency enters a bid into the DemandStar system, a
query is performed to select out those vendors who match at least one of the
commodity codes chosen by the agency and who have registered to receive
information from that governmental agency. The bid announcement is then sent to
the matching vendors either by fax or e-mail. The fax announcement includes an
order form for those wishing a hard copy of the bid. Vendors receiving
electronic notification receive an e-mail announcing the bid and an accompanying
hyperlink which when clicked on, logs the vendor onto DemandStar's website and
takes the vendor directly to the subject bid information. Vendors registered
with DemandStar can download bid documents at no charge from DemandStar's
website. Vendors requesting hardcopies of the bid pay a per page duplication
cost plus shipping and handling.
WEB LINKING
Many agencies have recognized the need to develop a bid information page on
the Internet but because of budgetary constraints have not had the resources to
do so. DemandStar offers to develop, maintain and host the bid information page
of the agency's web site. The bids information page, which is a dynamically
generated page, is created by a query to DemandStar's web-enabled database. This
results in up-to-date bid information with no day-to-day intervention by
DemandStar staff. Informational technology staff from the agency are relieved of
the task of developing and maintaining such a dynamic web page and because the
links are directed to DemandStar's servers, they feel comfortable with the fact
that there is no penetration of the existing firewall.
50
<PAGE> 54
FAX ON DEMAND SERVICES
Several years ago, agencies starting exploring fax-on-demand technology as
a way to automate their information processes. Several agencies invested in the
technology while others found the cost prohibitive. Several agencies have
abandoned the system because of the demand on human and telephone resources. A
typical fax-on-demand installation costs between $12,000 and $50,000 and
requires dedicated incoming telephone lines. The learning curve can be steep and
the system usually requires a system administrator and daily maintenance. It is
generally accepted among agencies that while fax-on-demand is desirable, the
Internet is rapidly surpassing it.
DemandStar maintains a large-scale fax-on-demand system in its office. The
system allows DemandStar to offer an individual fax-on-demand telephone number
for every participating agency. Because the scripting is identical for every
agency, development and implementation time is minimal. DemandStar has developed
a unique document numbering scheme used by all participating agencies that
allows vendors quick access to standard information. Because some small or
disadvantaged businesses may have access to a fax machine but not the Internet,
this allows the agency another means of communicating with these smaller yet
often politically vocal vendors. By offering the fax-on-demand system, as well
as Internet access to the information, agencies can assure the governing bodies
that they are not excluding the smaller businesses from participating in the bid
process.
Because routine bid information such as plan holder's lists and award
information are available on both the Internet and the fax-on-demand, agencies
have directed vendors to these sources thereby freeing them of the burden of
fielding large volumes of incoming telephone calls, eliminating clerical
responsibilities and allowing the agency more time for bid development and
analysis.
Initially, a large majority of vendors used the fax-on-demand services to
obtain packages. Currently, over 50% of vendors use the Internet services
instead.
WEB-ENABLED DATABASE OF PROCUREMENT INFORMATION
Agency personnel enter all bid information into DemandStar's web-enabled
database and therefore are responsible for the accuracy of the information.
Since agency personnel have the responsibility for information input and update,
the number of personnel needed by DemandStar to handle the large volume of bid
information is minimized.
All agencies enter information into a common database using common codes,
which has several advantages. First, it allows agencies to search for similar
bids without the necessity of calling other agencies. Second, it allows all this
information to be shared without requiring any changes to an agency's internal
systems. Because it is more convenient for vendors to register in one place, the
agencies are enjoying a larger and more accurate vendor list. Many agencies have
experienced an appreciable increase in the number of vendors responding to bid
opportunities because a larger number of vendors are being notified.
Our system has comprehensive reporting capabilities that allow agencies to
fulfill their departmental policies with minimal effort. Soon to be released
minority vendor reporting functions will further enable the agencies to meet
strict minority and disadvantaged business reporting requirements. Vendor search
and reporting functions will enable vendors
51
<PAGE> 55
to see how much activity they have had using DemandStar as well as searching for
new potential markets for their goods and services.
Because the information displayed on both the agencies' and DemandStar's
site is derived from this web-enabled database, DemandStar can provide the
vendor with the most current and accurate bid information with little or no
intervention from DemandStar personnel. This will enable DemandStar to service a
large number of client agencies without an equally large number of DemandStar
personnel.
DOCUMENT PRODUCTION AND DISTRIBUTION SERVICES
Historically, most agencies have shouldered the cost of producing,
duplicating and mailing bid packages to those vendors who request copies. Some
agencies even pay for overnight services upon request of a vendor. Depending on
the size of the agency and the volume of documents requested, these costs can
easily be in the tens of thousands of dollars per year. In addition to the
production and postage costs, it also takes a significant amount of staff time
to produce and distribute these packages. Many agencies simply make an educated
guess as to the number of copies they will need for a particular project and
contract the work to either an internal or external print shop. Too large an
estimate can lead to wasted copies while too few can lead to vendors having to
wait for their packages. Since most bids are time-sensitive, this latter
scenario is unacceptable to most vendors.
DemandStar offers document production and distribution services to its
client agencies. DemandStar has the equipment necessary to reproduce everything
from standard letter sized black and white to full size blueprint and
architectural drawings. Requests for packages by vendors are produced and
shipped within 24 hours of receipt. Vendors are charged a per page fee based on
the size of the page and whether it is black and white or color. A handling fee
and postage is added to the cost and an invoice is sent with the package.
Agencies are encouraged to send DemandStar an electronic copy of the bid
package. DemandStar then posts the bid package to both the agency's and
DemandStar's web sites. Vendors may view and download the bid package, but they
are unable to alter its content. Vendors are rapidly realizing the time and cost
savings of downloading the package versus requesting and paying for hard copies.
Member vendors can download the packages at no cost. Non-member vendors pay a
download fee. An internal audit done by DemandStar revealed that the percentage
of packages downloaded versus hardcopies has been increasing. DemandStar expects
this trend to accelerate and is carefully balancing its acquisition of new
duplication equipment with estimated future demand. DemandStar plans to post
blueprints on the website. This will allow vendors to view and download these
prints at no charge. Downloading construction documents will permit vendors to
incorporate these documents into estimating and planning software packages they
currently utilize.
VENDOR SERVICES
Vendor information can be entered either by the vendor himself through the
website or by DemandStar staff in the case of a hard copy registration. In
either case, a confirmation notice is sent to the member vendor either by e-mail
or regular mail. This confirmation letter issues a username and password and
lists the various commodity codes in a file. Vendors are reminded that they are
responsible for maintaining the accuracy of their information should any changes
in their business occur, e.g., new phone or fax
52
<PAGE> 56
number or new e-mail address. Vendors can modify any portion of their file
through the DemandStar website.
Vendors are advised via their services agreement that DemandStar does not
guarantee 100% notification of bid opportunities. Multiple attempts are made to
notify matching vendors until at least 90% of matching vendors are reached. As
time and staff permits, additional efforts are made to those vendors that were
unable to be notified by the standard methods.
Current vendors are notified automatically when new agencies, counties or
states are added, allowing them the opportunity to add them to their profile.
DemandStar customer service representatives are available to answer vendor
questions through e-mail or toll-free telephone numbers.
DemandStar has developed programs directed at smaller or less
technologically sophisticated vendors. A program announcement is mailed to such
vendors inviting them to attend the free DemandStar-sponsored program. Vendors
who attend are taught how to use the DemandStar system and are given a resource
kit containing local Internet access information, rates as well any current
promotions by computer companies. The purpose of the seminar is to alleviate
such vendors' apprehension that this technology might exclude them from the
bidding process. The seminar educates vendors on the ease-of-use of the systems
involved, regardless which procurement option such vendors choose. By explaining
the fax technique alternative at the seminar, DemandStar demonstrates that an
entry-level use of our system requires only a simple fax machine.
NEW PRODUCTS AND SERVICES
DemandStar continues to develop enhancements to its existing products and
services. Feedback from vendors and current and potential client agencies is
relayed to DemandStar's development team. We are beta testing an electronic
pre-qualification process for major road construction projects. This process
eliminates several labor-intensive steps in the process of pre-qualifying
contractors for major construction projects. Before the DemandStar system,
pre-qualification required that the vendor complete a lengthy paper resume which
contained questions about previous projects, capabilities, insurance, claims,
problem resolution, bond capacity, and personnel. Vendors would complete this
paperwork for each bid. The agency would then collect, review and analyze all
pre-qualification documents. Our system allows vendors to pre-qualify online and
allows agencies to review and analyze the pre-qualification responses online.
Vendors enter the pre-qualification information once and can update the
information online. When a vendor wishes to bid on a new job, the vendor updates
the information. The agency reviews the information before each new project.
The technology is also being utilized in the development of an electronic
minority vendor registration and certification. This process is applicable to
any agency that has a minority certification process.
DemandStar intends to enhance the features of its Internet business by
improving on its existing "user-friendly" systems, and the addition of new
features such as "blueprint downloading" capability. Blueprint downloading will
allow agents to submit blueprints electronically and allow vendors to retrieve
the blueprints over the Internet.
53
<PAGE> 57
INSTALLATION, TRAINING AND IMPLEMENTATION
It takes approximately 90 days from the initial signing of a contract with
an agency to the date of full implementation of our Internet-based procurement
systems. Included in that time-frame is appropriate training for the users. This
is a substantially shorter time-frame than the customary 12 to 18 month ranges
for installation, training and implementation that customized software providers
generally face.
CURRENT CONTRACTS
We have initially focused our marketing efforts primarily in Florida and
have entered into over two dozen contracts with agencies representing various
cities, counties, school districts, airport authorities and utility districts
throughout Florida. We are currently negotiating contracts with agencies in
other states.
Each of these agencies operates under a separate contract, which provides,
among other things, that DemandStar will be responsible for notifying vendors of
the agency's solicitation of bids, and that DemandStar will charge vendors for
the notification service. Most contracts generally have a term of three years
with options to renew at one year increments. Contracts are cancelable by either
party upon 30 days' notice. Our contracts with agencies do not grant us
exclusive rights to information provided by the agencies. The contracts
typically grant us exclusive rights to notification by email or fax.
SALES AND MARKETING
Our overall marketing strategy is to offer a complete procurement systems
network that both vendors and governmental procurement agencies will consider an
outstanding value. Contracting with a greater number of agencies not only serves
to attract more vendors and hence more revenue, but it also increases the size
of the bid library available to the agencies through the connectivity of
DemandStar's website.
To date, our marketing efforts have focused primarily on individualized
presentations to agencies and presentations at regional and state meetings of
governmental purchasing agencies and procurement departments. Our sales and
marketing staff consisted of our former President, Ronald Brown, until July
1999, when two additional sales and marketing personnel were hired. With the
funding we receive from HTE and this rights offering, we plan to hire additional
sales and marketing personnel for rolling out our products and services to
governmental agencies throughout the United States. Further, we plan to expand
our product presentations to trade shows and other meeting venues of
governmental procurement departments and purchasing agencies, in addition to
continuing to make individualized agency presentations.
COMPETITION
We believe that the principal factors upon which we compete are:
- understanding of government needs;
- the quality, reliability and fit of electronic government services;
- the speed and responsiveness to the needs of businesses and citizens; and
- cost-effectiveness.
Although the market for online information services is rapidly evolving and
intensely competitive, we believe we compete favorably with respect to the
above-listed factors. In
54
<PAGE> 58
order to be successful in the future, we must continue to respond promptly and
effectively to the challenges of technological change and our competitors'
innovations. In most cases, the principal substitute for our services is a
government-designed and managed service that integrates other vendors'
technologies, products and services. Companies that have expertise in marketing
and providing technical electronic services to government entities may begin to
compete, or may intensify their current competition, with us by further
developing their services and increasing their focus on this piece of their
business and market share. In addition, companies specializing in
business-to-business purchasing services may enter the government market and
companies providing general Internet business services to businesses may also
target governments in order to enable such governments to eliminate or reduce
the need to outsource their purchasing requirements. Examples of our current and
potential competitors are as follows:
(1) System integrators and enterprise resource planning companies, including
American Management Systems, SAP, Oracle and PeopleSoft.
(2) Traditional government enterprise software providers, who also compete
with HTE, including J.D. Edwards, SCT and Tyler.
(3) Companies that publish catalogs and bids, including Thomas Publishing,
Ziff-Davis and F.W. Dodge Division of McGraw-Hill.
(4) Traditional and Internet consulting companies, including Andersen
Consulting, IBM, USWeb, Razorfish, eForce, Viant, AppNet and Sapient.
(5) Internet companies specializing in maintenance, repair and operations and
catalog purchasing, including Trilogy, Procurenet, Agentics, MRO.com,
Concur, Commerce One, PurchasePro, Ariba and Buysense.com, which is a
joint venture of Ariba and AMS, Inc.
(6) Companies that set up Internet community sites and exchanges, including
VerticalNet, Tradex and fastxchange.
(7) Companies that set up specialized and generalized request for
proposal/request for quote sites, including InternetRFP,
Governmentbids.com, RapidRegistration, Govcon.com, BidSite, Bidnet,
Compnet, Worldbid, RFQdata, Wiznet, Powersourcing and Vsource.
(8) Smaller and regional software and/or consulting companies that may have
existing relationships with local governments.
It is difficult to determine the number of competitors in each of the above
categories because of the proliferation of software companies and Internet-based
e-commerce companies. However, we estimate that there are at least 12 large or
national competitors in each of categories (1) through (5) above, and many other
companies of varying sizes competing in each of categories (4) through (8).
Many of our existing and potential competitors are national or
international in scope, may have greater resources, and may devote a
significantly greater amount of resources to development of their products and
services than we do. These resources could enable our competitors to initiate
severe price cuts or take other measures in an effort to gain market share.
Additionally, in some geographic areas, we may face competition from smaller
consulting firms with established reputations and political relationships with
potential government clients. There can be no assurances that we will be able to
successfully
55
<PAGE> 59
compete with new or existing competitors. If we do not compete effectively, or
if we experience any pricing pressures, reduced margins or loss of market share
resulting from increased competition, our business and financial condition may
be materially adversely affected.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely on a combination of nondisclosure and other contractual
arrangements with governments, our employees and third parties, and privacy and
trade secret laws to protect and limit the distribution of the proprietary
software, documentation and processes we have developed in connection with the
electronic government products and services we offer. If we fail to adequately
protect our intellectual property rights and proprietary information or if we
become involved in litigation relating to our intellectual property rights and
proprietary technology, our business could be harmed. Any actions we take may
not be adequate to protect our proprietary rights and other companies may
develop technologies that are similar or superior to our proprietary technology.
Although we believe that our products and services do not infringe on the
intellectual property rights of others and that we have all rights needed to use
the intellectual property employed in our business, it is possible that we could
in the future become subject to claims alleging infringement of third party
intellectual property rights. Any claims could subject us to costly litigation,
and may require us to pay damages and develop non-infringing intellectual
property or acquire licenses to the intellectual property that is the subject of
the alleged infringement.
TECHNOLOGY AND OPERATIONS
DemandStar operates a combination of fax-on-demand and Internet services.
While we anticipate having to maintain some fax-on-demand services for the
foreseeable future, the primary emphasis of development will be on
Internet-related products and services. All applications are proprietary and are
developed and reside on redundant servers located on our site. Other than an
Internet connection, there are no other local hardware or software requirements
for our client agencies and vendors. Agencies and vendors access the system via
any standard web browser using DemandStar-issued user name and passwords. Having
all software centrally located eliminates the need for on-site installation
and/or service.
DemandStar uses enterprise application servers that have redundant hard
drives and processors and the information is backed up to tape daily and the
tapes stored off site. The system is scaleable and DemandStar does not
anticipate any significant hardware capacity issues. Additional servers and hard
disc storage space can be added without significant disruption of service.
Multiple T1 telephone lines serve the telephone and web servers.
Multiple layers of security including secure socket layers, proxy servers
and hardware and software firewalls were installed to protect against
unauthorized access to either the data or system hardware. The servers are
locked in an access-controlled room. Access to varying levels of data is
restricted by multiple levels of user access codes. All servers and local
machines are protected by anti-virus software.
A fundamental requirement to conduct business via the Internet is the
secure transmission of information over public networks. If our agency and
vendor clients are not confident in the security of e-commerce, they may not
renew their contracts or registrations which would severely harm our business.
We cannot assure you that advances in computer capabilities, new discoveries in
the field of cryptography, or other
56
<PAGE> 60
developments will not result in the compromise or breach of the algorithms we
use to protect content and transactions on our websites or proprietary
information in our databases. Anyone who is able to circumvent our security
measures could misappropriate proprietary, confidential information or cause
interruptions in our operations. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Further, a well-publicized compromise of security could deter people
from using the Internet to conduct transactions that involve transmitting
confidential information. Our failure to prevent security breaches, or
well-publicized security breaches affecting the Internet in general could
adversely affect our business.
FACILITIES
Currently, all of DemandStar's operations are housed in approximately 5200
square feet of office space in Maitland, Florida pursuant to a lease that
expires August 2001 and has a monthly fee of approximately $8,700. Approximately
1100 square feet are used for document fulfillment operations while the
remainder is used for administration, development and support. Our current
facility has adequate capacity for approximately 15 to 20 more employees.
Additional employees could be housed in the space if multiple shifts in certain
work areas are established. The facility has adequate telephone and power and is
located near major transportation arteries. Although there is no additional
space for expansion in the current facility, there is adequate additional office
space at comparable rates nearby.
EMPLOYEES
As of March 22, 2000, DemandStar had 45 full-time and 4 part-time
employees. Of these, 8 are in development, 11 are in operations, 21 are in sales
and marketing, and 9 are in administration. None are represented by labor unions
and we consider relationships with our employees to be excellent. We envision
hiring additional staff in all areas as our service area grows. Contracting with
agencies in different time zones will necessitate extending our current hours of
operation.
SOURCES OF REVENUE
Currently, DemandStar has two sources of revenue. Approximately 85% of
revenues come from vendor subscriptions. Vendors pay an annual fee that depends
on the number of counties or states they wish to register for and the mode of
notification, i.e., fax versus e-mail. The other source of revenue is from
document fulfillment services where we provide hard copies of the bid documents
instead of a download. We intend to expand our sources of revenue to include
business-to-business commerce fees, advertising, and other transactional fees
associated with electronic catalog orders placed by agencies or vendors.
DemandStar is investigating various pricing models for existing and future
services. We plan to further cultivate existing markets while developing new
markets for current and future products.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings
arising in the ordinary course of our business. However, we are not currently
subject to any material legal proceedings.
57
<PAGE> 61
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of DemandStar are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
O. F. Ramos......................... 41 Chief Executive Officer, President
and Director -- Class I
Bernard B. Markey................... 35 Chairman of the Board and
Director -- Class I
L. A. Gornto, Jr.................... 57 Chief Financial Officer, Executive
Vice President, Secretary and
Director -- Class III
Edward S. Jordan.................... 39 Chief Operating Officer and Vice
President
William Knox North.................. 43 Chief Technology Officer and Vice
President
Edward A. Moses..................... 57 Director -- Class II
</TABLE>
Mr. O. F. Ramos was appointed as Chief Executive Officer, President and a
director of DemandStar in November 1999. Mr. Ramos joined HTE in June 1998 and
was appointed to the HTE board of directors in August 1998. He served as
Executive Vice President of HTE and President of HTE-UCS, Inc., a wholly-owned
subsidiary of HTE, from June 1998 through November 1999. From 1986 to 1998, Mr.
Ramos served as the President and Chief Executive Officer of UCS, Inc., a
privately-held company specializing in field data collection and consulting. As
the co-founder of UCS, Inc., he was responsible for the corporate direction and
financial development of that company and for overseeing operations. Prior to
1986, Mr. Ramos served in various engineering and management capacities at
Motorola, Inc., a publicly-held communications and semi conductor company, where
he was responsible for the development and manufacturing of diverse software and
hardware products.
Mr. Bernard B. Markey was appointed as a director and Chairman of the Board
in November 1999 and, pursuant to his part-time employment agreement, is only
committed to devote up to 200 hours annually to his DemandStar duties. Mr.
Markey has been a director of HTE since 1995. Mr. Markey is a Managing Partner
of Advest New Century Capital, a private equity firm which he joined in
September 1999. Mr. Markey served in several capacities for Meridian Venture
Partners, a privately-held venture capital fund, from 1988 through September
1999. Specifically, he was an Associate for the fund from 1988 through 1993. He
then served as a Vice President of the fund from 1993 through 1995, and as a
General Partner of the fund from 1995 through September 1999.
Mr. L. A. Gornto, Jr. was appointed as Chief Financial Officer, Secretary,
director of DemandStar in November 1999 and has served as DemandStar's Executive
Vice President and General Counsel since its inception in June 1999. Mr. Gornto
is only committed to devote up to 200 hours annually to his DemandStar duties
pursuant to the terms of his part-time employment agreement with DemandStar. Mr.
Gornto joined HTE in January 1997 and serves as a director of HTE and as HTE's
Executive Vice President, Secretary
58
<PAGE> 62
and General Counsel. From January 1997 until November 1997, he served as HTE's
Chief Financial Officer. Since 1988, Mr. Gornto has been engaged in the private
practice of law in Central Florida and provides legal services to HTE as General
Counsel. From 1985 to 1987, Mr. Gornto served as Senior Vice
President -- Finance and Chief Financial Officer of Jerrico, Inc., formerly a
publicly-traded company and holding company of Long John Silvers, a seafood
restaurant chain. From 1977 to 1985, he was engaged in the private practice of
law and also served as a management consultant. From 1968 to 1977, he served as
Executive Vice President and Chief Financial Officer and a director of Red
Lobster Restaurants, a seafood restaurant chain and formerly a subsidiary of
General Mills, Inc.
Mr. Edward S. Jordan was appointed Chief Operating Officer and a Vice
President of DemandStar in December 1999. From November 1995 to December 1999,
Mr. Jordan served as Chief Executive Officer (Americas) of Mosaic Software,
Inc., a software company. There, his responsibilities included establishing
corporate offices in the United States, establishing strategic corporate
partnerships, creating direct and re-seller channels in North America, Latin
America and the Caribbean, and introducing a new software product for electronic
funds transfer into North and South America. From February 1994 to October 1995,
he served as Group Manager and Engineering Manager for UCS, Inc., responsible
for three divisions developing distributed applications.
Mr. William Knox North was appointed Chief Technology Officer and a Vice
President of DemandStar in December 1999. From 1986 to 1999, Mr. North served as
the Vice President of Engineering of UCS, Inc., a privately held Florida
corporation that was acquired by HTE in June 1998. As the co-founder of UCS,
Inc., he was responsible for the technical direction and oversaw project
management of that company. Prior to 1986, Mr. North served in various
engineering and management capacities at Motorola, Inc., where he was
responsible for the various software and hardware projects for several portable
radios and paging terminals.
Mr. Edward A. Moses was appointed as a director of DemandStar in November
1999 and serves as a part-time consultant to DemandStar. Mr. Moses was appointed
as a member of HTE's board of directors in December 1998. Mr. Moses has served
as dean of the Roy E. Crummer Graduate School of Business at Rollins College
since 1994, and as a professor and NationsBank professor of finance since 1989.
From 1985 to 1989, he served as dean and professor of finance at the University
of North Florida. He has also served in academic and administrative positions at
the University of Tulsa, Georgia State University and the University of Central
Florida, and currently serves as a faculty member in the Graduate School of
Banking of the South. Mr. Moses also serves as a director of CNL Health Care
Properties, Inc., a publicly-held real estate holding company.
STAGGERED BOARD OF DIRECTORS
Our articles of incorporation and bylaws provide that our board of
directors are divided into three classes of directors, with the classes to be as
nearly equal in number as possible. Mr. Markey and Mr. Ramos serve as Class I
directors, whose terms expire at the 2003 annual shareholders' meeting. Mr.
Moses serves as a Class II director, whose term expires at the 2001 annual
shareholders' meeting. Mr. Gornto serves as a Class III director, whose term
expires at the 2002 annual shareholders' meeting.
59
<PAGE> 63
COMMITTEES OF THE BOARD
We do not currently have a Compensation Committee, but intend to appoint
one following the closing of the rights offering. All decisions concerning
compensation are made by the board of directors. Mr. Ramos, DemandStar's Chief
Executive Officer, participates in all discussions and decisions regarding
salaries and incentive compensation for all employees and consultants of
DemandStar, except that he is excluded from discussions regarding his own salary
and incentive compensation.
Within 120 days from the date of this prospectus, DemandStar's board of
directors plans to establish an Audit Committee, which will consist of at least
two independent directors, to meet periodically with management and DemandStar's
independent auditors and to review the results and scope of the audit and other
services provided by DemandStar's independent auditors, DemandStar's accounting
procedures and the adequacy of DemandStar's internal controls. Currently, the
entire board performs the duties of an audit committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Markey, Chairman of the Board of DemandStar, serves on HTE's
Compensation Committee. In addition, Mr. Moses, a director of DemandStar, also
serves on HTE's Compensation Committee. Accordingly, an interlocking
relationship exists between Messrs. Markey and Moses, as board members of
DemandStar, and the members of HTE's Compensation Committee. Other than Messrs.
Markey and Moses, none of our executive officers or directors presently serve,
or in the past served, on the compensation committee of another company whose
directors or executive officers served on our board of directors. In addition,
members of our board of directors own capital stock of DemandStar and have other
interests in DemandStar, such as their ownership of DemandStar warrants, as
further described in "Related Party Transactions -- Transactions Involving
Management."
COMPENSATION OF DIRECTORS
To date, DemandStar has not paid compensation to any of its directors for
acting in such capacity. DemandStar is currently reviewing its policy on
compensation of outside directors in the future. The Company reimburses all
directors for the expenses incurred in attending meetings of the board of
directors. Beginning after the closing of the rights offering, directors who are
not full-time employees will receive $1,000 per board or committee meeting
attended and directors who are officers and full-time employees of DemandStar
will receive no additional compensation for service as directors. All directors
are eligible for option grants under DemandStar's 1999 Employee Incentive
Compensation Plan. During fiscal year 1999, DemandStar granted each of the four
directors an option to acquire 10,000 shares of DemandStar common stock. The
option has an exercise price of $1.00 per share and vests in equal thirds over a
three-year period. After the rights offering, we plan to appoint at least one
additional director who is not affiliated with DemandStar. Each such independent
director so elected will receive options to purchase 10,000 shares of DemandStar
common stock at a price per share equal to its fair market value on the date of
grant.
60
<PAGE> 64
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by (i) DemandStar to
its Chief Executive Officer during the fiscal year ended December 31, 1999, and
(ii) our predecessor or DemandStar to its former President for services
performed on our predecessor's or DemandStar's behalf during the year ended
December 31, 1998, the period from January 1, 1999, to June 17, 1999, and the
period from June 18, 1999, to October 31, 1999. Ronald Brown was the sole
compensated executive officer of DemandStar during the periods indicated in
clause (ii) above. Mr. Brown no longer serves as an officer of DemandStar.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
-------------------------------- ------------------------------
NAME AND PRINCIPAL OTHER RESTRICTED OPTIONS ALL OTHER
POSITION PERIOD/YEAR ENDED SALARY BONUS COMPENSATION STOCK AWDS. SARS(#) LTIP COMPENSATION
- ------------------ ----------------- ------- ------- ------------ ----------- --------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
O. F. Ramos............ 12/31/99 $40,000 $ -0- $ -0- -0- 1,000,000 -0- -0-
President and CEO
Ronald Brown........... 01/01/98-12/31/98 39,770 -0- -0- -0- -0- -0- $ -0-
Former President 01/01/99-06/17/99 42,000 -0- -0- -0- -0- -0- -0-
06/18/99-10/31/99 55,160 -0- 34,805(2) -0- -0- -0- 34,805
</TABLE>
- -------------------------
(1) The amounts reflected in the above table do not include any amounts for
perquisites and other personal benefits extended to such officers. The
aggregate amount of such compensation for each such officer is less than 10%
of the total annual salary and bonus.
(2) Represents additional compensation received by Mr. Brown for a vehicle that
was purchased by the company.
61
<PAGE> 65
STOCK OPTION INFORMATION
The following table sets forth information with respect to stock options
granted in fiscal 1999 to the officers listed in the Summary Compensation Table.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED STOCK PRICE
SECURITIES TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED YEAR PER SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
O. F. Ramos.................................... 1,000,000(2) 71.4% $1.00 (3) $628,895 $1,593,742
President and CEO
Ronald Brown................................... -0- n/a -0- n/a -0- -0-
Former President
</TABLE>
- -------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based on the initial public offering price. These
assumptions are not intended to forecast future appreciation of our stock
price. The potential realizable value computation does not take into account
federal or state income tax consequences of option exercises or sales of
appreciated stock.
(2) Options to purchase 10,000 shares of DemandStar common stock were granted to
Mr. Ramos on November 1, 1999 in connection with his agreement to serve as a
member of the DemandStar board. Such options vest in equal thirds on
November 1, 2000, 2001 and 2002. Options to purchase 990,000 shares of
DemandStar were granted to Mr. Ramos pursuant to the terms of his employment
agreement with DemandStar effective November 1, 1999. Of such amount, (a)
400,000 qualified options vest in equal amounts of 100,000 on December 1,
1999, November 1, 2000, November 1, 2001 and November 1, 2002; (b) 90,000
non-qualified options vest in equal amounts of 22,500 on December 1, 1999,
November 1, 2000, November 1, 2001 and November 1, 2002; (c) 250,000
non-qualified options vest in nearly equal thirds on November 1, 2000,
November 1, 2001 and November 1, 2002 based upon and subject to the trading
price of DemandStar's common stock achieving specified levels ranging from
$10 to $30 per share, but in any event the options will vest nine and
one-half years from the date of grant, subject to the optionee being
employed by DemandStar at that time; and (d) 250,000 non-qualified options
vest in nearly equal sixths at the end of six consecutive six-month periods
based upon DemandStar achieving performance criteria determined by the board
for each such period, but in any event the options will vest nine and
one-half years from the date of grant, subject to the optionee being
employed by DemandStar at that time. All vested options remain unexercised
as of the date of this prospectus.
(3) The options expire 10 years from the date of grant.
62
<PAGE> 66
DemandStar did not grant any options during the year ended 1998, the period
from January 1, 1999, to June 17, 1999, and the period from June 18, 1999 to
October 31, 1999. See "-- Employment Agreements," "-- Consulting Agreements" and
"-- 1999 Employee Incentive Compensation Plan" below for further information
with respect to stock options granted subsequent to October 31, 1999.
EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENT WITH O. F. RAMOS. Effective November 1, 1999,
DemandStar entered into an employment agreement with O. F. Ramos, under which
Mr. Ramos serves as DemandStar's chief executive officer for an initial period
ending on December 31, 2002. The agreement provides for an annual salary of
$160,000 and incentive compensation payments based on performance. The agreement
also provides that, upon the termination of the executive's employment or death,
DemandStar will pay to the executive's estate any unpaid base salary and any
accrued but unpaid incentive compensation through the date of termination. In
the event an executive is terminated without Cause, as defined in the agreement,
DemandStar will pay to such executive any unpaid base salary, any accrued but
unpaid incentive compensation through the date of termination, and in specified
cases, additional payment of salary, incentive compensation and benefits for up
to twelve months after the date of termination.
Pursuant to the employment agreement, Mr. Ramos has been granted qualified
and non-qualified options under DemandStar's 1999 Employee Incentive
Compensation Plan to purchase an aggregate of 990,000 shares of DemandStar
common stock at $1.00 per share, comprised of:
- 400,000 qualified options which vest in equal amounts of 100,000 on
December 1, 1999 and on November 1 of each of the next three years
thereafter;
- 90,000 non-qualified options which vest in equal amounts of 22,500 on
December 1, 1999 and on November 1 of each of the next three years
thereafter;
- 250,000 non-qualified options which vest in nearly equal amounts on each
of the first three anniversaries of the agreement based upon and subject
to the trading price of DemandStar's common stock achieving specified
levels ranging from $10 to $30 per share; however, in any event, all such
options which have not vested in accordance with such vesting schedule
will vest nine and one-half years from the date of grant, subject to the
optionee being employed by DemandStar at that time; and
- 250,000 non-qualified options which vest in nearly equal amounts at the
end of consecutive six-month periods based upon DemandStar achieving
performance criteria determined by the board for each such period;
however, in any event, all such options which have not vested in
accordance with such vesting schedule will vest nine and one-half years
from the date of grant, subject to the optionee being employed by
DemandStar at that time.
These options expire ten years from the date of grant, provided, however,
that if Mr. Ramos' employment is terminated during the initial term without
Cause, he can exercise all vested non-qualified options within one year from the
date of such termination. In the event of a change of control as defined in the
agreement, some of his options will vest based upon the value of the transaction
causing the change of control and some of his options will convert to a more
favorable vesting schedule.
63
<PAGE> 67
The agreement contains confidentiality provisions and also prohibits the
executive from competing with DemandStar during the term of the agreement and
for two years thereafter. Upon resignation, DemandStar shall pay Mr. Ramos any
unpaid base salary and any accrued but unpaid incentive compensation through the
date of resignation.
PART-TIME EMPLOYMENT AGREEMENTS WITH MESSRS. MARKEY AND GORNTO. Effective
December 15, 1999, DemandStar entered into part-time employment agreements with
Bernard B. Markey and L. A. Gornto, Jr. with initial periods ending on December
31, 2002, under which Mr. Markey serves as a financial assistant to DemandStar's
principal executive officers and Mr. Gornto serves as Chief Financial Officer,
Executive Vice President, Secretary and General Counsel. Each agreement provides
for an annual salary of $12,000 for up to 200 hours of each such executive's
time per year. If either executive is required to devote more than 16 hours of
time in any particular month, then he will be paid $1,000 per day in addition to
his base salary. Further, Mr. Gornto's agreement provides for a mutually agreed
higher compensation amount if he devotes more than 40 hours in any calendar
month. Pursuant to the employment agreements, each executive has been granted,
pursuant to DemandStar's 1999 Employee Incentive Compensation Plan, qualified
options to purchase an aggregate of 90,000 shares of DemandStar common stock at
$1.00 per share, with 22,500 vesting on December 15, 1999 and the remaining
67,500 vesting in equal thirds on November 1, 2000, November 1, 2001 and
November 1, 2002. The agreements contain confidentiality provisions and also
prohibit the executives from competing with DemandStar during the term of the
agreement and for two years thereafter.
EMPLOYMENT AGREEMENTS WITH MESSRS. JORDAN AND NORTH. In December 1999,
DemandStar entered into employment agreements with each of Edward Jordan, who
serves as Chief Operating Officer and a Vice President, and William Knox North,
who serves as Chief Technology Officer and a Vice President. Each agreement
provides for an annual salary of $120,000 and incentive compensation payments
based on performance. Mr. Jordan's agreement provides for the grant of qualified
options under DemandStar's 1999 Employee Incentive Compensation Plan to purchase
an aggregate of 100,000 shares of DemandStar common stock for $1.00 per share,
which options vest in equal amounts of 25,000 over four years. Mr. North's
agreement provides for the grant of qualified options to purchase an aggregate
of 100,000 shares of DemandStar common stock at $1.00 per share, which options
vest in equal thirds over the next three years.
CONSULTING AGREEMENTS
CONSULTING AGREEMENT WITH EDWARD MOSES. On December 15, 1999, DemandStar
entered into a three-year consulting Agreement with Edward Moses, a director of
DemandStar, pursuant to which Mr. Moses provides consulting services with
respect to strategic planning, operations matters, growth and development
matters and other areas as requested by DemandStar. In exchange for these
services, DemandStar granted Mr. Moses options to purchase an aggregate of
90,000 shares of DemandStar common stock at $1.00 per share, with 22,500 vesting
upon the execution of the agreement and the remaining 67,500 vesting in equal
thirds on each anniversary of the effective date of the consulting agreement.
CONSULTING AGREEMENT WITH RONALD BROWN. On December 7, 1999, DemandStar
entered into a one year consulting agreement with its founder, Ronald D. Brown
and his company, Ibis Information Services, Inc., for consulting services to be
provided from time
64
<PAGE> 68
to time with respect to corporate, business, marketing, e-commerce and other
general business matters. Although Mr. Brown is not required to devote any
particular amount of time under the agreement, he agreed to participate in up to
six business trips between December 7, 1999 and March 31, 2000 in connection
with existing and prospective customers; devote up to 40 hours in attendance at
meetings until March 31, 2000, and devote up to 10 hours per month of telephone
consulting with DemandStar's Chief Executive Officer and other DemandStar
personnel designated by the Chief Executive Officer. Under the consulting
agreement, Mr. Brown will be paid a total of $150,000, payable in 24 equal
semi-monthly payments of $6,250 each. Further, DemandStar agreed to pay Mr.
Brown the premium cost of his family health insurance coverage under his COBRA
election, in addition to reimbursing Mr. Brown reasonable business expenses he
incurs in rendering services under the consulting agreement.
ANNUAL INCENTIVE COMPENSATION BONUSES
DemandStar may adopt an incentive compensation bonus program for its
executive officers pursuant to which distributions may be made annually based on
the Company's earnings and on each participating officer's contributions to the
Company's profits and other corporate goals. Distributions will be made from a
pool, the amount of which is to be established by DemandStar's board of
directors. Individual distributions from the pool will be generally based on a
percentage of the participating officer's base salary.
1999 EMPLOYEE INCENTIVE COMPENSATION PLAN
The following is a summary of DemandStar's 1999 Employee Incentive
Compensation Plan.
SHARES AVAILABLE FOR AWARDS; ANNUAL PER-PERSON LIMITATIONS. Under the
Plan, the total number of shares of common stock that may be subject to the
granting of awards under the Plan at any time during the term of the Plan shall
be equal to 4,000,000 shares, plus the number of shares with respect to which
awards previously granted under the Plan that terminate without being exercised,
and the number of shares that are surrendered in payment of any awards or any
tax withholding requirements. The Plan limits the number of shares which may be
issued pursuant to incentive stock options to 4,000,000 shares.
In addition, the Plan imposes individual limitations on the amount of
certain awards in part to comply with Section 162(m) of the Internal Revenue
Code. Under these limitations, during any fiscal year the number of options,
stock appreciation rights, restricted shares of common stock, deferred shares of
common stock, shares as a bonus or in lieu of other DemandStar obligations, and
other stock-based awards granted to any one participant may not exceed 1,000,000
for each type of such award, subject to adjustment. The maximum amount that may
be paid out as an annual incentive award or other cash award in any fiscal year
to any one participant is $1,000,000, and the maximum amount that may be earned
as a performance award or other cash award in respect of a performance period by
any one participant is $2,000,000.
The committee which administers the Plan is authorized to adjust the
limitations described in the two preceding paragraphs and is authorized to
adjust outstanding awards, including adjustments to exercise prices of options
and other affected terms of awards, in the event that a dividend or other
distribution, recapitalization, forward or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, share exchange or
other similar corporate transaction or event affects the common stock so that an
65
<PAGE> 69
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of participants. The committee is also authorized to adjust performance
conditions and other terms of awards in response to these kinds of events or in
response to changes in applicable laws, regulations or accounting principles.
ELIGIBILITY. The persons eligible to receive awards under the Plan are the
officers, directors, employees and independent contractors of DemandStar and its
subsidiaries. No independent contractor will be eligible to receive any awards
other than stock options. An employee on leave of absence may be considered as
still in the employ of DemandStar or a subsidiary for purposes of eligibility
for participation in the Plan. As of December 15, 1999, all executive officers,
directors, and employees of DemandStar were eligible to participate in the Plan,
and 22 persons had options granted under the Plan.
ADMINISTRATION. The Plan is to be administered by a committee designated
by the board consisting of not less than three directors, each member of which
must be a "non-employee director" as defined under Rule 16b-3 of the Exchange
Act and an "outside director" for purposes of Section 162(m) of the Internal
Revenue Code. However, except as otherwise required to comply with Rule 16b-3 of
the Exchange Act, or Section 162(m) of the Internal Revenue Code, the board may
exercise any power or authority granted to the committee. Subject to the terms
of the Plan, the committee or the board is authorized to:
- select eligible persons to receive awards,
- determine the type and number of awards to be granted and the number of
shares of common stock to which awards will relate,
- specify times at which awards will be exercisable or settleable,
including performance conditions that may be required as a condition
thereof,
- set other terms and conditions of awards,
- prescribe forms of award agreements,
- interpret and specify rules and regulations relating to the Plan, and
- make all other determinations that may be necessary or advisable for the
administration of the Plan.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The committee or the board is
authorized to grant stock options, including both incentive stock options, which
can result in potentially favorable tax treatment to the participant, and
non-qualified stock options, and stock appreciation rights entitling the
participant to receive the amount by which the fair market value of a share of
common stock on the date of exercise, or defined "change in control price"
following a change in control, exceeds the grant price of the stock appreciation
right. The exercise price per share subject to an option and the grant price of
an stock appreciation right are determined by the committee, but in the case of
an incentive stock option must not be less than the fair market value of a share
of common stock on the date of grant. For purposes of the Plan, the term "fair
market value" means the fair market value of common stock, awards or other
property as determined by the committee or the board or under procedures
established by the committee or the board. Unless otherwise determined by the
committee or the board, the fair market value of common stock as of any given
date shall be the closing sales price per share of common stock as reported on
the principal stock exchange or market on which common stock is
66
<PAGE> 70
traded on the date as of which such value is being determined or, if there is no
sale on that date, then on the last previous day on which a sale was reported.
The maximum term of each option or stock appreciation right, the times at which
each option or stock appreciation right will be exercisable, and provisions
requiring forfeiture of unexercised options or stock appreciation rights at or
following termination of employment generally are fixed by the committee or the
board, except that no option or stock appreciation right may have a term
exceeding ten years. Options may be exercised by payment of the exercise price
in cash, shares that have been held for at least 6 months, outstanding awards or
other property having a fair market value equal to the exercise price, as the
committee or the board may determine from time to time. Methods of exercise and
settlement and other terms of the stock appreciation rights are determined by
the committee or the board. stock appreciation rights granted under the Plan may
include "limited stock appreciation rights" exercisable for a stated period of
time following a change in control of DemandStar, as discussed below.
RESTRICTED AND DEFERRED STOCK. The committee or the board is authorized to
grant restricted stock and deferred stock. Restricted stock is a grant of shares
of common stock which may not be sold or disposed of, and which may be forfeited
in the event of specified terminations of employment, prior to the end of a
restricted period specified by the committee or the board. A participant granted
restricted stock generally has all of the rights of a stockholder of DemandStar,
unless otherwise determined by the committee or the board. An award of deferred
stock confers upon a participant the right to receive shares of common stock at
the end of a specified deferral period, subject to possible forfeiture of the
award in the event of specified terminations of employment prior to the end of a
specified restricted period. Prior to settlement, an award of deferred stock
carries no voting or dividend rights or other rights associated with share
ownership, although dividend equivalents may be granted, as discussed below.
DIVIDEND EQUIVALENTS. The committee or the board is authorized to grant
dividend equivalents conferring on participants the right to receive, currently
or on a deferred basis, cash, shares of common stock, other awards or other
property equal in value to dividends paid on a specific number of shares of
common stock or other periodic payments. Dividend equivalents may be granted
alone or in connection with another award, may be paid currently or on a
deferred basis and, if deferred, may be deemed to have been reinvested in
additional shares of common stock, awards or otherwise as specified by the
committee or the board.
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The committee or the
board is authorized to grant shares of common stock as a bonus free of
restrictions, or to grant shares of common stock or other awards in lieu of
DemandStar obligations to pay cash under the Plan or other plans or compensatory
arrangements, subject to such terms as the committee or the board may specify.
OTHER STOCK-BASED AWARDS. The committee or the board is authorized to
grant awards that are denominated or payable in, valued by reference to, or
otherwise based on or related to shares of common stock. Such awards might
include convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares of common stock, purchase rights for shares of common
stock, awards with value and payment contingent upon performance of DemandStar
or any other factors designated by the committee or the board, and awards valued
by reference to the book value of shares of common stock or the value of
securities of or the performance of specified subsidiaries or
67
<PAGE> 71
business units. The committee or the board determines the terms and conditions
of such awards.
PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS. The right of a
participant to exercise or receive a grant or settlement of an award, and the
timing thereof, may be subject to such performance conditions, including
subjective individual goals, as may be specified by the committee or the board.
In addition, the Plan authorizes specific annual incentive awards, which
represent a conditional right to receive cash, shares of common stock or other
awards upon achievement of pre-established performance goals and subjective
individual goals during a specified fiscal year. Performance awards and annual
incentive awards granted to persons whom the committee expects will, for the
year in which a deduction arises, be "covered employees" will, if and to the
extent intended by the committee, be subject to provisions that should qualify
such awards as "performance-based compensation" not subject to the limitation on
tax deductibility by DemandStar under Section 162(m) of the Internal Revenue
Code. For purposes of Section 162(m), the term "covered employee" means
DemandStar's chief executive officer and each other person whose compensation is
required to be disclosed in DemandStar's filings with the SEC by reason of that
person being among the four highest compensated officers of DemandStar as of the
end of a taxable year. If and to the extent required under Section 162(m), any
power or authority relating to a performance award or annual incentive award
intended to qualify under Section 162(m) is to be exercised by the committee and
not the board.
Subject to the requirements of the Plan, the committee or the board will
determine performance award and annual incentive award terms, including the
required levels of performance with respect to specified business criteria, the
corresponding amounts payable upon achievement of such levels of performance,
termination and forfeiture provisions and the form of settlement. In granting
annual incentive or performance awards, the committee or the board may establish
unfunded award "pools," the amounts of which will be based upon the achievement
of a performance goal or goals based on one or more of business criteria
described in the Plan including, for example, total shareholder return, net
income, pretax earnings, EBITDA, earnings per share, and return on investment.
During the first 90 days of a fiscal year or performance period, the committee
or the board will determine who will potentially receive annual incentive or
performance awards for that fiscal year or performance period, either out of the
pool or otherwise.
After the end of each fiscal year or performance period, the committee or
the board will determine:
(1) the amount of any pools and the maximum amount of potential annual
incentive or performance awards payable to each participant in the
pools, and
(2) the amount of any other potential annual incentive or performance
awards payable to participants in the Plan.
The committee or the board may, in its discretion, determine that the
amount payable as an annual incentive or performance award will be reduced from
the amount of any potential award.
OTHER TERMS OF AWARDS. Awards may be settled in the form of cash, shares
of common stock, other awards or other property, in the discretion of the
committee or the board. The committee or the board may require or permit
participants to defer the settlement of all or part of an award in accordance
with such terms and conditions as the committee or the board may establish,
including payment or crediting of interest or
68
<PAGE> 72
dividend equivalents on deferred amounts, and the crediting of earnings, gains
and losses based on deemed investment of deferred amounts in specified
investment vehicles. The committee or the board is authorized to place cash,
shares of common stock or other property in trusts or make other arrangements to
provide for payment of DemandStar's obligations under the Plan. The committee or
the board may condition any payment relating to an award on the withholding of
taxes and may provide that a portion of any shares of common stock or other
property to be distributed will be withheld, or previously acquired shares of
common stock or other property be surrendered by the participant, to satisfy
withholding and other tax obligations. Awards granted under the Plan generally
may not be pledged or otherwise encumbered and are not transferable except by
will or by the laws of descent and distribution, or to a designated beneficiary
upon the participant's death, except that the committee or the board may, in its
discretion, permit transfers for estate planning or other purposes subject to
any applicable restrictions under Rule 16b-3 of the Exchange Act.
Except to the extent required by law, awards under the Plan are generally
granted without a requirement that the participant pay consideration in the form
of cash or property for the grant, as distinguished from the exercise. The
committee or the board may, however, grant awards in exchange for other awards
under the Plan, awards under other DemandStar plans, or other rights to payment
from DemandStar, and may grant awards in addition to and in tandem with such
other awards, rights or other awards.
ACCELERATION OF VESTING; CHANGE IN CONTROL. The committee or the board
may, in its discretion, accelerate the exercisability, the lapsing of
restrictions or the expiration of deferral or vesting periods of any award, and
such accelerated exercisability, lapse, expiration and if so provided in the
award agreement, vesting shall occur automatically in the case of a "change in
control" of DemandStar, as defined in the Plan, including the cash settlement of
stock appreciation rights and "limited stock appreciation rights" which may be
exercisable in the event of a change in control. In addition, the committee or
the board may provide in an award agreement that the performance goals relating
to any performance based award will be deemed to have been met upon the
occurrence of any "change in control." Upon the occurrence of a change in
control and if so provided in the award agreement, stock options and limited
stock appreciation rights, and other stock appreciation rights which so provide,
may be cashed out based on a defined "change in control price," which will be
the higher of:
(1) the cash and fair market value of property that is the highest price
per share paid, including extraordinary dividends, in any
reorganization, merger, consolidation, liquidation, dissolution or sale
of substantially all assets of DemandStar, or
(2) the highest fair market value per share, generally based on market
prices, at any time during the 60 days before and 60 days after a
change in control.
For purposes of the Plan, the term "change in control" generally means (a)
approval by shareholders of any reorganization, merger or consolidation or other
transaction or series of transactions if persons who were shareholders
immediately prior to such reorganization, merger or consolidation or other
transaction do not, immediately thereafter, own more than 50% of the combined
voting power of the reorganized, merged or consolidated company's then
outstanding, voting securities, or a liquidation or dissolution of DemandStar or
the sale of all or substantially all of the assets of DemandStar, unless the
reorganization, merger, consolidation or other corporate transaction,
liquidation, dissolution or sale is subsequently abandoned, or (b) a change in
the composition of the board such that the
69
<PAGE> 73
persons constituting the board on the date the award is granted, and subsequent
directors approved by such board (or approved by such subsequent directors),
cease to constitute at least a majority of the board, or (c) the acquisition by
any person, entity or "group", within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act, of more than 30% of either the then outstanding
shares of DemandStar's common stock or the combined voting power of DemandStar's
then outstanding voting securities entitled to vote generally in the election of
directors excluding, for this purpose, any acquisitions by:
(1) DemandStar or its subsidiaries,
(2) any person, entity or "group" that as of the date on which the award is
granted owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of a controlling interest, or
(3) any employee benefit plan of DemandStar or its subsidiaries.
AMENDMENT AND TERMINATION. The board may amend, alter, suspend,
discontinue or terminate the Plan or the committee's authority to grant awards
without further shareholder approval, except shareholder approval must be
obtained for any amendment or alteration if such approval is required by law or
regulation or under the rules of any stock exchange or quotation system on which
shares of common stock are then listed or quoted. Thus, shareholder approval may
not necessarily be required for every amendment to the Plan which might increase
the cost of the Plan or alter the eligibility of persons to receive awards.
Shareholder approval will not be deemed to be required under laws or
regulations, such as those relating to incentive stock options, that condition
favorable treatment of participants on such approval, although the board may, in
its discretion, seek shareholder approval in any circumstance in which it deems
such approval advisable. Unless earlier terminated by the board, the Plan will
terminate at such time as no shares of common stock remain available for
issuance under the Plan and DemandStar has no further rights or obligations with
respect to outstanding awards under the Plan.
OUTSTANDING OPTIONS. As of the date of this prospectus, DemandStar has
granted options to purchase a total of 2,270,000 shares of common stock under
the Plan, including:
- options to purchase 1,000,000 shares granted to Mr. Ramos;
- options to purchase 100,000 shares granted to each of Messrs. Markey,
Gornto and Moses;
- options to purchase 150,000 shares granted to each of Messrs. Jordan and
North; and
- options to purchase an aggregate of 670,000 shares granted to employees
of DemandStar.
The exercise price of these options is equal to $1.00 per share. All
options expire ten years from the date of grant.
70
<PAGE> 74
RELATED PARTY TRANSACTIONS
TRANSACTIONS INVOLVING MANAGEMENT
LEGAL SERVICES. L. A. Gornto, Jr., DemandStar's General Counsel, has
performed legal services for DemandStar through his law firm, L. A. Gornto, Jr.,
P.A., for which DemandStar paid approximately $40,700 from DemandStar's
inception through February 2000, and from which office rent, secretarial and
other expenses incurred by Mr. Gornto in providing such services were paid.
CONDITIONAL PURCHASE OF SERIES B PREFERRED STOCK. HTE and Messrs. Gornto,
Markey, Moses and Ramos, officers and directors of DemandStar, have agreed,
pursuant to the terms of a Conditional Series B Stock Purchase Agreement, to
purchase in the aggregate 2,000,000 shares of DemandStar's Series B preferred
stock for an aggregate purchase price of $2,000,000 only in the event that less
than $5,000,000 in rights are exercised in the aggregate. HTE will purchase
1,000,000 shares of Series B preferred stock and each of Messrs. Gornto, Markey,
Moses and Ramos will each purchase 250,000 shares of Series B preferred stock.
In conjunction with, and as an inducement to HTE and the individuals to commit
to the conditional purchase of Series B preferred stock, DemandStar, in January
2000, issued HTE and such individuals warrants entitling them to purchase an
aggregate of 1,000,000 shares of DemandStar common stock at an exercise price of
$2.00 per share. HTE received warrants to purchase 500,000 shares of DemandStar
common stock and each individual received warrants to purchase 125,000 shares of
DemandStar common stock. Such warrants are currently exercisable and will expire
January 1, 2002. The exercise price and number of shares of common stock
issuable upon the exercise of each of the warrants may be adjusted to protect
against the possible dilutive effects of events such as stock splits, stock
dividends, reorganization, recapitalization, merger or sale of all or
substantially all of DemandStar's assets.
EMPLOYMENT AND CONSULTING AGREEMENTS WITH OFFICERS AND
DIRECTORS. DemandStar has entered into employment agreements with each of
Messrs. Ramos, Gornto, Markey, Jordan and North. In addition, DemandStar has
entered into consulting agreements with each of Messrs. Moses and Brown. See
"Executive Compensation -- Employment Agreements" and "-- Consulting
Agreements."
AGREEMENT OF COMMITMENT TO EXERCISE RIGHTS. Messrs. Ramos, Markey, Gornto,
North and Moses, executive officers and/or directors of DemandStar, have entered
into an agreement with DemandStar to subscribe for an aggregate of 656,821
restricted shares of common stock, which amount reflects the total number of
rights to which they will be entitled. Pursuant to the same agreement, Messrs.
Markey, North, Ramos and Jordan, officers and directors of DemandStar, have
agreed to purchase additional shares in the rights offering in an amount
representing the lesser of (a) an aggregate of 718,568 restricted shares of
common stock or (b) the number of shares of unsubscribed common stock available
on the closing date of the rights offering.
TRANSACTIONS INVOLVING HTE
HTE has provided DemandStar with administrative and management services,
including payroll, consulting and legal.
HTE and DemandStar have entered into, or prior to the consummation of the
rights offering will have entered into, a number of agreements for the purpose
of defining their
71
<PAGE> 75
continuing relationship. These agreements are summarized below. Each of these
agreements has been negotiated in the context of a parent-subsidiary
relationship and, therefore, will not be the result of negotiations between
independent parties with separate representation. Thus, we cannot guarantee you
that each of these agreements or the related transactions will be on as
favorable terms as could have been obtained from unaffiliated third parties.
INVESTMENT AND DISTRIBUTION AGREEMENT. Under the investment and
distribution agreement executed by HTE and DemandStar, HTE is obligated to
contribute to DemandStar $1,000,000 in cash in exchange for 500,000 shares of
Series A preferred stock, with an option to purchase an additional 250,000
shares for $500,000 to expire on June 30, 2000. HTE contributed the $1,000,000
for 500,000 shares of Series A preferred stock in January 2000. In February
2000, HTE exercised its option to purchase the additional 250,000 shares of
Series A preferred stock for $500,000 in cash. Under the agreement, DemandStar
must reserve from its authorized and unissued shares of common stock the number
of shares of common stock into which the Series A preferred stock is convertible
from time to time.
The investment and distribution agreement provides that HTE and DemandStar
will indemnify each other with respect to any future losses that might arise
from the rights offering as a result of any untrue statement or alleged untrue
statement in any rights offering or the omission or alleged omission to state a
material fact in any rights offering (1) in DemandStar's case, except to the
extent the statement was based on information provided by HTE and (2) in HTE's
case, only to the extent the loss relates to information supplied by HTE.
SERVICES AGREEMENT. The services agreement will provide that HTE will
provide to DemandStar management and administrative services. The administrative
services to be provided by HTE, through its employees, will include financial
reporting, accounting, auditing, tax, office services, payroll and human
resources as well as management consulting services. DemandStar will pay HTE for
these services at the estimated cost of providing such services. The services
agreement shall continue until terminated by either party upon 120 days' notice.
Under the Services Agreement, HTE is charging DemandStar a monthly services fee
equal to 5% of DemandStar's operating expenses for general administrative
matters for DemandStar, plus expenses incurred by HTE for directed allocations
of HTE employees for specific projects such as sales, the registration statement
for the rights offering, consulting services, and similar expenses. For the
period from June 18, 1999 to December 31, 1999, HTE charged DemandStar
approximately $183,500 for management and administrative services. That amount
represents the accrued monthly services fees for that period, plus expenses
accrued to date for directed allocations of time for various projects, including
time devoted by HTE employees to the registration statement for this rights
offering, sales projects and charges incurred for consulting services. As
DemandStar increases its infrastructure and hires additional staff, HTE expects
to allocate less of its resources to administrative and management services for
DemandStar.
TAX SHARING AND INDEMNITY AGREEMENT. The tax sharing and indemnity
agreement, which is conditioned upon HTE and DemandStar being deemed part of a
consolidated tax group, will define the parties' rights and obligations with
respect to the filing of returns, payments, deficiencies and refunds of federal,
state and other income, franchise or other taxes relating to DemandStar's
business for periods prior to and including the date on which DemandStar ceases
to be a member of HTE's consolidated tax group and with
72
<PAGE> 76
respect to tax attributes of DemandStar after it is no longer a member of HTE's
consolidated tax group. For periods ending on or before the last day of the
taxable year in which DemandStar ceases to be a part of HTE's consolidated tax
group, HTE will be responsible for:
- filing both consolidated federal tax returns for the HTE affiliated group
and combined or consolidated state tax returns for any group that
includes a member of the HTE affiliated group, including, in each case,
DemandStar for the relevant periods of time that DemandStar was a member
of the applicable group, and
- paying the taxes relating to those returns, including any subsequent
adjustments resulting from the redetermination of those tax liabilities
by the applicable taxing authorities. DemandStar is responsible for
reimbursing HTE for its share of those taxes, if any. DemandStar is also
responsible for filing returns and paying taxes relating to it for
periods that begin before and end after DemandStar ceases to be a part of
HTE's consolidated tax group. This agreement is intended to allocate the
tax liability between HTE and DemandStar as if they were separate taxable
entities. HTE and DemandStar have also agreed to cooperate with each
other and to share information in preparing those tax returns and in
dealing with other tax matters.
REGISTRATION RIGHTS AGREEMENT. The registration rights agreement which
DemandStar and HTE have entered into provides for DemandStar's grant of rights
to HTE with respect to the registration under the Securities Act of the shares
of DemandStar common stock owned by HTE at the closing of the rights offering.
The registration rights agreement entitles HTE to demand DemandStar, not more
than once in any 365-day period commencing on the first anniversary of the
closing of the rights offering and on not more than three occasions after HTE no
longer owns a majority of the voting power of the outstanding capital stock of
DemandStar, to file a registration statement under the Securities Act covering
the registration of DemandStar common stock held by HTE, including in connection
with an offering by HTE of its securities that are exchangeable for its common
stock. HTE's demand registration rights contain various limitations, including
that the registration cover a number of shares of DemandStar common stock held
by HTE having a fair market value of at least $3,000,000 at the time of the
request for registration and that DemandStar may be able to temporarily defer a
demand registration to the extent it conflicts with another public offering of
securities by DemandStar or would require DemandStar to disclose material
non-public information. HTE is also able to require DemandStar to include
DemandStar common stock held by HTE in a registration by DemandStar of its
securities so long as specified conditions are satisfied. The underwriters for
the offering, however, may limit or exclude from the offering DemandStar common
stock held by HTE.
73
<PAGE> 77
DemandStar and HTE will share equally the out-of-pocket fees and expenses
of a demand registration and HTE will pay its pro rata share of underwriting
discounts, commissions and related selling expenses. DemandStar will pay all
expenses associated with a piggyback registration, except that HTE will pay its
pro rata share of the selling expenses. The registration rights agreement
contains indemnification and contribution provisions:
- by HTE for the benefit of DemandStar and related persons, as well as any
potential underwriter; and
- by DemandStar for the benefit of HTE and related persons, as well as any
potential underwriter.
HTE's demand registration rights will terminate on the date that HTE owns,
on a fully converted or exercised basis with respect to the securities held by
HTE, common stock representing less than 10% of the then issued and outstanding
voting stock of DemandStar. HTE's piggyback registration rights will terminate
when it is able to sell all of its DemandStar common stock, including all common
stock available upon exercise of all conversion and subscription privileges,
under Rule 144 within a three month period. HTE may transfer its registration
rights to any transferee of common stock that represents, on a fully converted
or exercised basis, at least 20% of the then issued and outstanding voting stock
of DemandStar at the time of transfer; provided, however, that the transferee
will be limited to:
- two demand registrations if the transfer conveys less than a majority but
more than 30%, and
- one demand registration if the transfer conveys 30% or less of the then
issued and outstanding voting stock of DemandStar.
HTE LOAN. From DemandStar's inception through December 31, 1999, HTE
advanced DemandStar an aggregate of $1,306,885, which has been utilized
primarily to acquire the business and certain specified assets from the
Predecessor and to finance DemandStar's operating losses. DemandStar's
obligation to repay such advances are evidenced by a five-year unsecured term
note, effective as of October 31, 1999, bearing interest at a rate of 8% per
annum. The total principal amount of the note is $1,750,000, all of which has
been drawn down as of February 29, 2000. In that the entire amount available
under this facility has been drawn down, principal and accrued interest thereon
shall be due and payable annually for the term in principal installments of
$200,000 at the end of the first year, $250,000 at the end of the second year,
$350,000 at the end of the third year, $450,000 at the end of the fourth year
and the balance of $500,000 at maturity of the note. Notwithstanding the
foregoing, at the earlier of (1) the maturity date of the note, or (2) the date
of effectiveness of a public offering of DemandStar common stock yielding gross
proceeds of at least $10,000,000, the entire outstanding balance of the note
shall be due and payable. After taking into consideration DemandStar's cash on
hand, all other capital resources available and DemandStar's need for cash,
DemandStar may elect to prepay all or a portion of the note from proceeds from
the rights offering or subsequently thereafter, although it is not required to
do so pursuant to the terms of the note.
HTE PAYMENT FOR DEMANDSTAR REGISTERED COMMON STOCK. Upon the closing of
the rights offering, HTE will purchase the 18,811,330 shares of DemandStar
common stock
74
<PAGE> 78
being registered in this offering for the price of $1.00 per share. The
aggregate purchase price will be evidenced by a non-interest bearing promissory
note payable to DemandStar in the principal amount of $18,811,330, which shall
be delivered and immediately thereafter repaid at the closing of the offering
from the proceeds received from investors who exercise their rights and purchase
DemandStar common stock. Immediately after the closing of the offering,
DemandStar will file a post-effective amendment to this registration statement
to de-register any underlying shares of common stock not subscribed for by
rights holders at closing. The note will provide that such de-registered
restricted shares shall be redeemed by DemandStar in exchange for the then
outstanding balance due under the note from shares purchased by HTE pursuant to
the non-interest bearing note.
EARN-OUT OBLIGATIONS. On June 18, 1999, DemandStar acquired the business
and specified net assets from our predecessor for $1,000,000 in cash. DemandStar
agreed to pay up to an additional $2,000,000 in cash over a three-year period
beginning June 18, 1999, if DemandStar meets the following operating profit
targets: $476,771 for year ended June 30, 2000; $5,719,412 for year ended June
30, 2001; and $10,144,111 for year ended June 30, 2002.
75
<PAGE> 79
SECURITY OWNERSHIP OF DEMANDSTAR
The following table sets forth information known to DemandStar regarding
beneficial ownership of DemandStar common stock as of December 31, 1999, and as
adjusted to reflect the sale of common stock at a maximum number of shares for
(1) each executive officer and director of DemandStar who beneficially owns
shares; (2) each shareholder known to DemandStar to beneficially own 5% or more
of DemandStar's outstanding securities; and (3) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL BEFORE AFTER MAXIMUM
NAME OF BENEFICIAL OWNER OWNERSHIP OFFERING OFFERING(1)(2)
- ------------------------ -------------------- -------- --------------
<S> <C> <C> <C>
H.T.E., Inc........................... 1,250,000 100% 6.0%
1000 Business Center Dr
Lake Mary, FL 32746
All executive officers and -0- -0- 3.2%(3)
directors as a group..................
</TABLE>
- -------------------------
(1) After giving effect to the issuance of 18,811,330 shares of common stock
upon the closing of the rights offering.
(2) Does not reflect the percentage of HTE's beneficial ownership upon full
conversion of the Series A preferred stock held by HTE and full exercise of
the warrants issued to HTE. Assuming (a) full conversion of the 750,000
shares of Series A preferred stock, and (b) full exercise of the warrants
granted to HTE to purchase 500,000 shares of DemandStar common stock, HTE
would beneficially own 2,500,000 shares of outstanding DemandStar common
stock. Assuming the HTE conversions/exercises discussed above plus (i) the
full exercise of the warrants granted to DemandStar employees and directors
to purchase 500,000 shares of DemandStar common stock and (ii) the full
exercise of the vested options to purchase 190,000 shares of DemandStar
common stock, total DemandStar common stock outstanding would be 22,672,351
shares assuming maximum exercise of all rights. Accordingly, the percentage
of HTE's beneficial ownership of DemandStar common stock outstanding after
the offering would be 11.0%, assuming maximum exercise of all rights.
(3) Does not reflect the agreement of DemandStar officers and directors to
purchase an aggregate of up to 718,568 restricted shares of DemandStar
common stock from the pool of unsubscribed rights at the closing. Assuming
such purchase of 718,568 restricted shares, the percentage of beneficial
ownership of all executive officers and directors as a group after the
offering would be 6.6%, assuming maximum exercise of rights.
DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Immediately following the consummation of the rights offering, DemandStar's
authorized capital stock will consist of 100,000,000 shares of DemandStar common
stock, par value $.0001 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share, of which 2,000,000 shares are designated as Series A
preferred stock, 4,000,000
76
<PAGE> 80
shares are designated Series B preferred stock, and 4,000,000 shares are
undesignated. Upon closing of the rights offering, DemandStar will have
outstanding 750,000 shares of Series A preferred stock, 2,000,000 shares of
Series B preferred stock in the event that less than $5,000,000 in rights are
exercised, and 20,732,351 shares of common stock, assuming maximum exercise of
all rights. The following summary description of DemandStar's capital stock and
other securities is qualified in its entirety by reference to DemandStar's
amended and restated articles of incorporation and amended and restated bylaws,
each of which is filed as an exhibit to the registration statement of which this
prospectus forms a part and to the applicable provisions of the Florida Business
Corporation Act.
COMMON STOCK
The holders of the outstanding common stock are entitled to receive and
share ratably dividends if, as and when declared by the board of directors out
of funds legally available with respect to DemandStar's outstanding common
stock. See "Dividend Policy." In addition, in the event of a liquidation,
dissolution or winding-up of DemandStar, the holders of common stock are
entitled to share equally and ratably in the net assets of DemandStar, if any,
remaining after paying all debts and liabilities of DemandStar and payment of
all liquidation preferences of any outstanding shares of preferred stock,
including the Series A and Series B preferred stock. In specified circumstances,
as described below, the holders of common stock may be required to share
dividend's or distribution of net assets on dissolution, liquidation or
winding-up of DemandStar with HTE as the holder of the Series A preferred stock.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders, except for
shareholders who have acquired their shares in a control-share acquisition under
Florida statutes. See "-- Anti-Takeover Effects of Florida Law and
Charter -- Florida Law," below. Holders of common stock do not have cumulative
voting rights. Holders of common stock vote together with the holders of the
Series A preferred stock as a single class on almost all matters presented to
shareholders for a vote.
No common stock is subject to redemption or has preemptive rights to
purchase additional shares of common stock. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
the rights offering will be fully paid and nonassessable. The rights,
preferences, and privileges of the holders of common stock are subject to, and
may be adversely affected by the rights of holders of DemandStar's Series A
preferred stock and the holders of Series B preferred stock, and shares of any
class or series of preferred stock which DemandStar may designate and issue in
the future.
PREFERRED STOCK
The DemandStar board has the authority, without further shareholder
approval, to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the number of shares constituting the series and the
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by the DemandStar shareholders. The
issuance of preferred stock by the DemandStar board could adversely affect the
rights of holders of
77
<PAGE> 81
common stock. As of the date of this prospectus, except for the Series A
preferred stock, there are no shares of preferred stock designated or
outstanding.
The potential issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of DemandStar and may discourage
bids for DemandStar common stock at a premium over its market price and may
adversely affect the market price of, and the voting and other rights of the
holders of, the DemandStar common stock. DemandStar has no current plans to
issue any shares of preferred stock other than the Series A preferred stock
other than pursuant to the Conditional Series B Stock Purchase Agreement.
SERIES A PREFERRED STOCK
The DemandStar board of directors designated 2,000,000 shares of preferred
stock as Series A preferred stock, $0.01 par value per share. The following is a
summary of the terms of the Series A preferred stock.
Before the closing of the rights offering, as the sole shareholder of the
Series A preferred stock, HTE will be issued 750,000 shares of Series A
preferred stock for HTE's $1,500,000 investment. So long as HTE remains the sole
shareholder of the Series A preferred stock, upon the liquidation of DemandStar,
HTE generally shall be entitled to receive $2.00 per share, subject to
adjustment, or a total liquidation preference of $1,500,000 prior to any
distribution of net assets to the holders of common stock or other equity
securities ranking junior to the Series A preferred stock. However, HTE, as the
holder of the Series A preferred stock, shall not be entitled to any dividends
or additional distributions, whether upon dissolution, liquidation or winding up
of DemandStar, unless at the time the dividend or distribution is declared, the
percentage of the outstanding DemandStar common stock held by HTE is less than
35% of DemandStar's total outstanding shares of common stock as a result of
disposition of DemandStar common stock by HTE. If HTE's actual percentage is
below 35%, then HTE, as the holder of Series A preferred stock, will be entitled
to receive a percentage of the dividend or distribution amount declared which is
equal to the difference between 35% and HTE's actual percentage as of the
applicable record date and the holders of the common stock, including HTE with
respect to its DemandStar common stock, are entitled to receive the balance of
the dividend or distribution amount. The holders of both the Series A preferred
stock and the holders of the DemandStar common stock are entitled to receive
such amounts on an equal priority basis. For example, if on the date of
DemandStar's liquidation, HTE's DemandStar common stock holdings have been
diluted to 20% of the outstanding common stock, and $20,000,000 is available for
distribution after the satisfaction of all liabilities and payment of all
liquidation preferences of any outstanding shares of preferred stock, including
the Series A preferred stock and any other preferred stock issued and
outstanding with senior liquidation preferences to the DemandStar common stock,
then DemandStar would distribute $3,000,000 with respect to the Series A
preferred stock and $17,000,000 with respect to the common stock. The $3,000,000
distributed with respect to the Series A preferred stock represents 15% of the
amount distributed or the difference between 35% and HTE's actual percentage of
20%.
If at any time HTE's actual percentage is less than 35% and HTE transfers
or otherwise disposes of any DemandStar common stock, then the 35% will be
reduced to the percentage equal to the amount that HTE's remaining DemandStar
common stock constitutes of all of DemandStar's outstanding common stock.
78
<PAGE> 82
The conversion rate for the Series A preferred stock is as follows: each
share of Series A preferred stock shall be convertible into one share of fully
paid non-assessable DemandStar common stock, on a one-for-one basis, subject to
adjustments, at either the election of the holder of the Series A preferred
stock or, automatically upon either the sale of substantially all of
DemandStar's assets or a merger of DemandStar in which DemandStar does not
survive such merger. The conversion price for such conversion shall be $2.00 per
each share of DemandStar common stock received as a result of such conversion.
The conversion rate is subject to positive and negative adjustments from
time to time in the event of the following:
- the issuance of DemandStar common stock as a dividend or distribution;
- the combination, subdivision or reclassification of DemandStar common
stock;
- the sale of DemandStar common stock at a price, or the issuance of
options, warrants or convertible securities with an exercise or
conversion price per share, less than the lower of the $2.00 per share or
the then current market price of the DemandStar common stock, except upon
the issuance of options granted to employees, officers, directors,
stockholders or consultants pursuant to existing stock option plans and
future stock option plans approved by the DemandStar shareholders; or
- the distribution to all holders of DemandStar common stock of evidences
of DemandStar's indebtedness or assets, including securities, but
excluding cash dividends or distributions paid out of net income.
No fractional shares of DemandStar common stock are issuable upon the
conversion of Series A preferred stock surrendered for conversion. Any shares of
Series A preferred stock converted resulting in fractional shares of DemandStar
common stock shall be redeemed at the then effective conversion price per share,
which shall be paid as promptly as possible when funds are available for such
payment.
In almost all matters presented to shareholders for a vote, including the
election of directors or any merger, liquidation, sale of assets or charter
amendment proposals, the holders of the Series A preferred stock and the common
stock vote as a single class. As a class, the holders of Series A preferred
stock shall be entitled to vote a number of shares equal to 19.9% of all of
DemandStar's voting capital stock, less the number of shares of DemandStar
voting stock, other than the number of shares of Series A preferred stock owned
by HTE. However, at no time shall Series A preferred stock voting rights be less
than two times the number of Series A preferred shares outstanding; and, so long
as 750,000 Series A preferred shares are outstanding, the Series A preferred
stock shall be entitled to the 19.9% vote referenced above. Further, in the
event any shareholder group of DemandStar, as a group, other than HTE and its
affiliated entities, own greater than 10% of DemandStar's outstanding common
stock, then the holders of Series A preferred stock, as a group, shall have a
number of votes equal to the greater of:
(1) 19.9%, as may be adjusted under the terms of the Series A preferred
stock; or
(2) 10,000 votes plus that number of votes possessed by any person or group
owning in excess of 10% of the DemandStar outstanding common stock.
79
<PAGE> 83
Notwithstanding the preceding, the total voting rights of the Series A preferred
stock when combined with HTE's entire amount of voting rights, whether pursuant
to DemandStar Series A preferred stock or DemandStar common stock, shall not
exceed 50% of all the DemandStar voting stock.
Cumulative voting for the election of directors is not provided for in
DemandStar's articles of incorporation, which means that the holders of the
Series A preferred stock will control all shareholder votes. Each share of
common stock is entitled to one vote in all matters presented to shareholders.
The common stock is not entitled to preemptive rights and may not be redeemed.
SERIES B PREFERRED STOCK
The DemandStar board of directors designated 4,000,000 shares of preferred
stock as Series B preferred stock, $.01 par value per share. The following is a
summary of the terms of the Series B preferred stock.
HTE and Messrs. Gornto, Markey, Moses and Ramos, officers and directors of
DemandStar, have agreed, pursuant to the terms of a Conditional Series B Stock
Purchase Agreement, to purchase in the aggregate 2,000,000 shares of
DemandStar's Series B preferred stock for an aggregate purchase price of
$2,000,000 only in the event that less than $5,000,000 in rights are exercised
in the aggregate. HTE will purchase 1,000,000 shares of Series B preferred stock
and each of Messrs. Gornto, Markey, Moses and Ramos will each purchase 250,000
shares of Series B preferred stock. In conjunction with, and as an inducement to
HTE and the individuals to commit to the conditional purchase of Series B
preferred stock, DemandStar, in January 2000, issued HTE and such individuals
warrants entitling them to purchase an aggregate of 1,000,000 shares of
DemandStar common stock at an exercise price of $2.00 per share. HTE received
warrants to purchase 500,000 shares of DemandStar common stock and each
individual received warrants to purchase 125,000 shares of DemandStar common
stock. Such warrants are currently exercisable and will expire on January 1,
2002. The exercise price and number of shares of common stock issuable upon the
exercise of each of the warrants may be adjusted to protect against the possible
dilutive effects of events such as stock splits, stock dividends,
reorganization, recapitalization, merger or sale of all or substantially all of
DemandStar's assets.
With respect to dividend rights and rights upon dissolution, liquidation or
winding-up of DemandStar, the Series B preferred stock ranks senior to the
common stock and junior to the Series A preferred stock. Upon the occurrence of
such an event, the proceeds remaining after the satisfaction of all liabilities
and payment of and all other preferred stock preference amounts superior to the
Series B preferred stock, the holders of the Series B preferred stock, will be
entitled to the original issue price of $1.00 per share together with accretions
as discussed below and all accumulated and unpaid dividends prior to any
distribution of net assets to the holders of any equity securities ranking
junior to the Series B Preferred Stock, including the common stock.
The Series B preferred stock will accrue dividends on the liquidation
amount of the stock at the rate of 6% per annum. The dividends are cumulative,
but shall not be payable unless and until declared by the board of directors.
The dividends are payable through accretion of the liquidation preference or
additional shares of Series B Preferred Stock until June 15, 2002 at which time
dividends will be payable in cash. Securities that rank junior or on parity with
the Series B preferred stock may not be repurchased and no
80
<PAGE> 84
dividends may be declared with respect to such securities if DemandStar is in
default with respect to the Series B preferred dividends or the repurchase of
Series B preferred stock.
Following the second anniversary of the later of (1) the closing date of
the rights offering or (2) June 30, 2000, DemandStar may be required to
mandatorily redeem all or a portion of the Series B preferred stock at the
election of the holders of the Series B preferred stock. The redemption price
will equal the liquidation value of the shares being redeemed plus all accrued
and unpaid cash dividends.
RIGHTS
DemandStar is granting rights through HTE to holders of HTE common stock on
March 6, 2000, to holders of HTE stock options on December 16, 1999 who are also
employees or directors of HTE, or a subsidiary of HTE, as of February 1, 2000,
and to employees of HTE, or a subsidiary of HTE, as of February 1, 2000. The
rights are each exercisable for one share of DemandStar common stock at an
exercise price of $1.00 per share. Rights may not be transferred, in whole or in
part, except to spouses and lineal descendants of the rights holder. Unless
extended, the rights expire on , 2000.
WARRANTS
Currently, there are 1,000,000 warrants outstanding. Each warrant entitles
its holder to purchase one share of DemandStar common stock at an exercise price
of $2.00 per share, subject to specified adjustments, for a period of two years
ending on January 1, 2002.
Each warrant may be exercised by surrendering the warrant certificate, with
the form of election to purchase on the reverse side of the warrant certificate
properly completed and executed, together with payment of the exercise price to
the subscription agent. The warrants may be exercised in whole or from time to
time in part. If less than all of the warrants evidenced by a warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining number of warrants.
Holders of the warrants are protected against dilution of the equity
interest represented by the underlying shares of common stock upon the
occurrence of events such as stock splits and the issuance of stock dividends.
If DemandStar merges, reorganizes, recapitalizes or is acquired in such a way as
to terminate the warrants, the warrants may be exercised immediately prior to
such action. In the event of DemandStar's liquidation, dissolution or winding
up, holders of warrants are not entitled to participate in the distribution of
assets. For the life of the warrants, the holders are given the opportunity to
profit from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the then book value of the common stock
held by other investors and would result in a dilution of their percentage
ownership of DemandStar's common stock.
Holders of the warrants are entitled to piggy-back registration rights with
respect to the common stock underlying the warrants. The holders are entitled,
subject to specified limitations, to require DemandStar to include their
registrable securities in future registration statements DemandStar files under
the Securities Act.
81
<PAGE> 85
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW AND CHARTER
CHARTER
Provisions of DemandStar's articles and bylaws may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt.
BOARD OF DIRECTORS
DemandStar's amended and restated articles provide that, except as
otherwise fixed by the provisions of a certificate of designation containing the
rights of the holders of any class or series of preferred stock, the number of
the directors of DemandStar will be fixed from time to time exclusively through
a resolution adopted by a majority of the total number of directors which
DemandStar would have if there were no vacancies. The articles divide our board
of directors into three classes, with regular three-year terms and initial terms
of one year for the Class I directors, two years for the Class II directors and
three years for the Class III directors.
The articles provide that except as otherwise provided for or fixed by a
certificate of designation containing the rights of the holders of any class or
series of preferred stock, newly created directorships resulting from any
increase in the number of directors and any vacancies on the DemandStar board
resulting from death, resignation, disqualification, removal or other cause will
be filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of DemandStar's board, and not by the
shareholders. Any director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until the
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the DemandStar board will shorten the term
of any incumbent director. Subject to the rights of holders of preferred stock,
any director may be removed from office only for cause by the affirmative vote
of the holders of at least 66 2/3% of the voting power of all voting stock then
outstanding, voting together as a single class.
These provisions preclude a third party from removing incumbent directors
and simultaneously gaining control of the DemandStar board by filling the
vacancies created by removal with its own nominees. Under the classified board
provisions described above, it would take at least two elections of directors
for any individual or group to gain control of the DemandStar board.
Accordingly, these provisions could discourage a third party from initiating a
proxy contest, making a tender offer or otherwise attempting to gain control of
DemandStar.
SPECIAL MEETINGS OF SHAREHOLDERS
DemandStar's articles provide that a special meeting of shareholders can be
called only by the chairman of the board of directors, a majority of the members
of the board of directors, or the holders of not less than 50% of all votes
entitled to be cast on any issue proposed to be considered at such meeting. So
long as HTE continues to hold 50% or more of the voting power of all classes of
outstanding capital stock of DemandStar, a special meeting may be called by HTE,
the chairman of the board, the chief executive officer, the president or a
majority of the members of the board. This provisions would make it more
difficult for shareholders to take actions opposed by the board of directors.
82
<PAGE> 86
WRITTEN CONSENT
Under DemandStar's articles, the shareholders of DemandStar may not take
action in writing without a meeting of the shareholders after the date on which
HTE no longer beneficially owns at least 50% of the voting power of all classes
of outstanding capital stock.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
DemandStar's articles require that timely notice in writing be provided by
shareholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of shareholders. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of DemandStar not less than 120 days nor more than
180 days prior to the first anniversary of the date of DemandStar's notice of
annual meeting provided with respect to the previous year's annual meeting of
shareholders. If no annual meeting of shareholders was held in the previous year
or the date of the annual meeting of shareholders has been changed to be more
than 30 days earlier than the date contemplated by the previous year's notice of
annual meeting, such notice by the shareholder must be delivered or received not
later than the close of business on the 5th day following the date on which
notice of the date of the annual meeting is given to shareholders or made
public, whichever first occurs. To be timely with respect to a special meeting,
a shareholder's notice must be delivered to or mailed and received at
DemandStar's principal office not later than the close of business on the fifth
day following the date on which notice of a special meeting is given to
shareholders or the public, whichever occurs first.
DemandStar's articles also specify requirements as to the form and content
of a shareholder's notice. These provisions may preclude shareholders from
timely bringing matters before, or from nominations for directors at, an annual
meeting of shareholders.
AUTHORIZED BUT UNISSUED SHARES
Upon consummation of this offering, DemandStar will be authorized to issue
additional common stock and up to 4,000,000 shares of preferred stock in one or
more series, having terms fixed by the board of directors without shareholder
approval, including voting, dividend or liquidation rights that could be greater
than or senior to the rights of holders of common stock. The existence of
authorized but unissued and unreserved shares of common stock and preferred
stock may enable the board of directors to issue shares to persons friendly to
current management which would render more difficult or discourage an attempt to
obtain control of the DemandStar by means of a proxy contest, tender offer,
merger or otherwise, and thereby protect the continuity of DemandStar's
management. Issuance of shares of common stock or preferred stock could also be
used as an anti-takeover device.
AMENDMENTS
The articles provide that the affirmative vote of the holders of at least
66 2/3% of DemandStar's voting stock, voting together as a single class, is
required to amend provisions of the articles relating to shareholder action
without a meeting; the calling of special meetings; the number, election and
term of the DemandStar directors; the filling of
83
<PAGE> 87
vacancies; and the removal of directors. The articles further provide that the
related by-laws described above (including the shareholder notice procedure) may
be amended only by the DemandStar board or by the affirmative vote of the
holders of at least 66 2/3% of the voting power of the outstanding shares of
voting stock, voting together as a single class.
FLORIDA LAW
DemandStar will be subject to several anti-takeover provisions that apply
to a public corporation organized under Florida law, unless the corporation
elects to opt out of those provisions in its articles or bylaws. DemandStar has
not elected to opt out of those provisions and has no intentions to do so.
CONTROL-SHARE ACQUISITION
Florida law prohibits the voting of shares in an issuing public Florida
corporation that are acquired in a control-share acquisition unless the holders
of a majority of the corporation's voting shares, exclusive of shares held by
officers of the corporation, inside directors or the acquiring party approve the
granting of voting rights as to the shares acquired in the control share
acquisition. A control-share acquisition is defined as an acquisition that
immediately thereafter entitles the acquiring party to 20% or more of the total
voting power in an election of directors. An issuing public corporation is
defined as having at least 100 shareholders, with its principal place of
business, principal office or substantial assets located in Florida and either
more than 10% of its shareholders reside in Florida, more than 10% of its shares
are owned by Florida residents, or 1,000 shareholders reside in Florida.
The DemandStar board has specifically determined that it does not approve
of the acquisition of 20% or more of the issued and outstanding common stock of
DemandStar by any person or entity except for HTE and officers and directors of
DemandStar who purchase shares pursuant to agreements approved by the board
prior to the date of this prospectus. Accordingly, it is management's position
that any such non-approved persons acquiring 20% or more of the common stock
pursuant to the rights offering would not have voting rights with respect to
shares acquired.
AFFILIATED TRANSACTIONS
Florida law contains an "affiliated transaction" provision that prohibits a
publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless:
- the transaction is approved by a majority of disinterested directors
before the person becomes an interested shareholder;
- the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or
- the transaction is approved by the holders of two-thirds of the
corporation's voting shares other than those owned by the interested
shareholder.
An interested shareholder is defined as a person who together with
affiliates and associates beneficially owns more than 10% of the corporation's
outstanding voting shares.
84
<PAGE> 88
This may include takeover attempts that might result in a premium over the
market price for the shares held by shareholders.
LIABILITY OF DIRECTORS; INDEMNIFICATION
DemandStar's articles provide that DemandStar may indemnify its executive
officers and directors to the fullest extent permitted by law whether now or
hereafter. 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:
(1) 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;
(2) deriving an improper personal benefit from a transaction;
(3) voting for or assenting to an unlawful distribution; and
(4) willful misconduct or a conscious disregard for the best interests of
DemandStar in a proceeding by or in the right of DemandStar 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.
DemandStar has entered into indemnification agreements with its officers
and directors containing provisions which may require DemandStar to, among other
things, indemnify its officers and directors against liabilities that may arise
by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. DemandStar also intends to obtain, prior to the
completion of the rights offering, officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act.
At present, there is no pending litigation or proceeding involving a
director, officer, associate or other agent of DemandStar for which
indemnification is being sought. DemandStar is also not aware of any threatened
litigation that may result in claims for indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for DemandStar common stock is Continental
Stock Transfer & Trust Company.
85
<PAGE> 89
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the rights offering, there has been no market for the DemandStar
common stock, and there can be no assurance that a significant public market for
the DemandStar common stock will develop or be sustained after this offering.
Future sales of substantial amounts of DemandStar common stock, including shares
issued upon exercise of outstanding options and warrants, in the public market
after this offering could adversely affect market prices prevailing from time to
time and could impair DemandStar's ability to raise capital through the sale of
its equity securities.
Upon completion of the rights offering, DemandStar will have outstanding
750,000 shares of Series A preferred stock, 2,000,000 shares of Series B
preferred stock in the event that less than $5,000,000 in rights are exercised,
and 20,732,351 shares of common stock. The 20,732,351 shares of common stock
assumes maximum exercise of all rights and includes the 14,200 shares of
DemandStar restricted common stock granted to employees of DemandStar and HTE
pursuant to HTE's Employee Incentive Compensation Plan, the 1,250,000 shares of
common stock held by HTE, and the 656,821 restricted shares to be received by
officers and directors of DemandStar upon exercise of their rights. DemandStar
also reserved 4,000,000 shares for options awarded or to be awarded under the
1999 Employee Incentive Compensation Plan. In addition, DemandStar also reserved
750,000 shares of common stock for issuance upon conversion of the Series A
preferred stock and 1,000,000 shares for issuance upon exercise of the warrants.
The shares of common stock issued in the rights offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by an "affiliate" of DemandStar, as that term
is defined in Rule 144, may generally be sold only in compliance with Rule 144,
as described below. All of the outstanding shares of common stock owned by HTE
and any entity controlled by it, and the shares purchased by directors and
officers of DemandStar pursuant to exercise of their rights will be "restricted
securities" as that term is defined in Rule 144, and may be sold only if
registered under the Securities Act or in accordance with an applicable
exemption from such registration, such as Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a shareholder who has beneficially owned for at
least one year shares privately acquired directly or indirectly from DemandStar
or from an affiliate of DemandStar, and persons who are affiliates of DemandStar
who have acquired the shares in registered transactions, will be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of outstanding shares of common stock, or 207,324 shares
immediately after completion of the rights offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 must also meet requirements relating to the
manner and notice of sale and the availability of current public
information about DemandStar. Under Rule 144(k), a person who is not
deemed to have been an affiliate of DemandStar at any time during the
three months preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least one year, including the holding period
of any prior owner except an affiliate, is entitled to sell such shares
without
86
<PAGE> 90
complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
DemandStar has entered into a registration rights agreement with HTE under
which HTE has demand and piggyback registration rights. HTE can exercise these
privileges any time one year after the closing of the rights offering to sell
all of the common stock it holds until its beneficial ownership falls below 10%
of DemandStar's outstanding common stock.
Holders of the warrants are entitled to piggy-back registration rights with
respect to the common stock underlying the warrants. The holders are entitled,
subject to specified limitations, to require DemandStar to include their
registrable securities in future registration statements DemandStar files under
the Securities Act.
DemandStar also anticipates that following the closing of the rights
offering it will file registration statements on Form S-8 covering the common
stock that may be issued upon the exercise of options granted under the 1999
Employee Incentive Compensation Plan. Shares of common stock that are acquired
and offered under these registration statements generally may be resold in the
public market without restriction or limitation, except in the case of
affiliates of DemandStar, whom generally may only resell these shares in
accordance with each provision of Rule 144, other than the holding period
requirement.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material Federal income tax
consequences of the acquisition, ownership and exercise or lapse of a right and
of the acquisition, ownership and disposition of the common stock that may be
acquired on its exercise. This discussion is based on the current provisions of
the Internal Revenue Code of 1986, as amended, existing and proposed Treasury
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Any change, which may or may not be
retroactive, could alter the tax consequences described herein. This discussion
is addressed to a person that will hold a right and the DemandStar common stock
acquired on exercise of a right as a capital asset and that, for Federal income
tax persons, is a U.S. citizen or resident or a domestic corporation,
partnership, trust or estate. This summary does not purport to deal with all
aspects of taxation that may be relevant to a particular person in light of his
particular circumstances or to taxpayers subject to special treatment under the
Federal income tax law, including financial institutions, broker-dealers,
foreign persons or persons holding rights or DemandStar stock as part of a
straddle, "synthetic security" or other integrated investment, including a
"conversion transaction".
Neither HTE nor DemandStar has obtained, or will obtain, a private letter
ruling from the Internal Revenue Service or an opinion of tax counsel with
respect to any Federal income tax consequences of the rights distribution. HTE
believes that the relevant material Federal income tax consequences should be as
described below. However, no assurance can be provided that positions contrary
to those described below will not be taken by the Internal Revenue Service or by
a court.
RIGHTS TRANSFERRED TO HOLDERS OF SHARES OF HTE COMMON STOCK
Rights transferred to a holder of shares of HTE common stock in respect of
that stock generally should be subject to the federal income tax rules
applicable to investment
87
<PAGE> 91
options, or warrants. A transfer by HTE of investment options should be treated
as a distribution of property by HTE to the shareholder in an amount equal to
the fair market value on the date of the distribution of the rights distributed.
That distribution should be taxable, first, as a dividend to the extent of the
current and/or accumulated earnings and profits, if any, of HTE as of the end of
the taxable year in which the distribution takes place which are attributable to
the shares of HTE common stock owned by that shareholder; second, as a
non-taxable reduction of the shareholder's basis in his shares of HTE common
stock, on a share-by-share basis, to the extent thereof; and third, as gain
recognized as though there had been a sale or exchange of HTE common stock. HTE
does not anticipate having any accumulated earnings and profits through December
31, 1999; however, HTE cannot predict whether it will have current earnings and
profits thereafter. A rights holder's basis in a right subject to these rules
will be equal to its fair market value on the date of distribution, and his
holding period in that right will begin on the day after the date of
distribution.
The portion of a distribution constituting a dividend will be eligible for
the dividends received deduction otherwise generally available to a corporate
holder of HTE common stock. In the case of any corporate shareholder that has
not held a share of HTE common stock for more than two years on the distribution
announcement date, unless that corporate holder has held its HTE stock during
the entire period HTE has been in existence, the portion, if any, of the
distribution taxable as a dividend will be subject to the provisions of Section
1059 of the Internal Revenue Code applicable to "extraordinary dividends" if the
amount taxable as a dividend is at least 10% of the holder's basis in the share
of HTE common stock. Section 1059 sometimes aggregates dividends paid within
specified time periods. If Section 1059 applies to a corporate holder, the
untaxed portion of the dividend, if any, would reduce the corporate holder's tax
basis in its HTE common stock, on a share-by-share basis, but not below zero,
and any excess generally would be taxable as capital gain.
Holders of rights should be aware that, upon corporate transactions that
change the capital structure of DemandStar, including, for example,
recapitalizations and stock dividends, a change in the exercise price of the
rights or a failure of the rights to adjust the exercise price in the manner
required, could give rise to a constructive distribution on the rights, and such
a distribution would be taxable as a dividend to the holders of rights to the
extent of DemandStar's current and accumulated earnings and profits.
A holder of rights subject to the rules applicable to investment options
will not recognize any gain or loss on exercise of the right. The rights
holder's tax basis in the DemandStar common stock acquired on exercise will be
equal to the sum of the price paid for the DemandStar common stock on exercise
of the right and the rights holder's tax basis in the right exercised. The
rights holder's holding period for the DemandStar common stock acquired on
exercise of a right will begin on the date of exercise.
Upon a sale, exchange or other taxable disposition of a right, subject to
the rules applicable to investment options, the rights holder will recognize
capital gain or loss equal to the difference between the amount realized for the
right and the rights holder's tax basis in the right. That gain or loss will be
capital gain or loss and, because the rights cannot be held for more than one
year, will be short-term capital gain or loss.
If a holder of a right subject to the investment options rules fails to
exercise the right and it lapses unexercised, the rights holder will recognize a
short-term capital loss, on the date the right expires, in an amount equal to
the rights holder's tax basis in the right.
88
<PAGE> 92
The foregoing discussion also assumes, in the case of an HTE shareholder
that also holds HTE stock options or is an employee of HTE, or a subsidiary of
HTE, that the rules of the Internal Revenue Code applicable to investment
options would apply to the rights that person acquires as a distribution on his
HTE common stock. Although HTE believes it should be the better view that those
rules would apply to those rights, it nevertheless is possible, in the case of
those types of recipients of rights, that the rules set forth below in
"-- Rights Transferred to Holders of HTE Options and HTE Directors and
Employees" would apply to the rights they receive in respect of their HTE common
stock.
RIGHTS TRANSFERRED TO HOLDERS OF HTE OPTIONS AND HTE DIRECTORS AND EMPLOYEES
The taxation of a right transferred to a holder of an HTE option who is a
director or employee of HTE, or a subsidiary of HTE, or to an employee of HTE,
or a subsidiary of HTE, generally should be subject to federal income tax rules
applicable to compensation, that is, the provisions of Section 83 of the
Internal Revenue Code, which apply to a transfer of property in connection with
the performance of services.
Pursuant to the rules of Section 83 of the Internal Revenue Code, such a
rights holder should not be taxable on the receipt of the right. On exercise of
a right, the rights holder will recognize ordinary income equal to the excess,
if any, of (1) the fair market value, on the date of exercise of the right, of
the shares of DemandStar common stock acquired on exercise of the right over (2)
the exercise price for the right. If such a rights holder is an employee of HTE,
or a subsidiary of HTE, that income will be subject to the withholding of
federal income tax. The tax basis in DemandStar common stock acquired on
exercise of a right subject to the compensation rules will be equal to its fair
market value on the date of exercise of the right, and his holding period for
that stock will begin on that date. DemandStar will be entitled to a deduction
for Federal income tax purposes equal to the amount of ordinary income taxable
to such a rights holder, provided that amount constitutes an ordinary and
necessary business expense for DemandStar and is reasonable in amount, and
either the employee includes that amount in income or DemandStar timely
satisfies its reporting requirements with respect to that amount.
DEMANDSTAR COMMON STOCK
The Federal income tax rules generally applicable to common stock will
apply to the DemandStar common stock issued on exercise of a right. Holders of
that stock should be aware that, upon corporate transactions that change the
capital structure of DemandStar, including, for example, recapitalizations and
stock dividends, a change in the exercise price of the rights or a failure of
the rights to adjust the exercise price in the manner required, could give rise
to a constructive distribution on the DemandStar common stock, and such a
distribution would be taxable as a dividend to the holders of DemandStar common
stock to the extent of DemandStar's current and accumulated earnings and
profits.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting by HTE and DemandStar to the Internal Revenue
Service, and the rules regarding backup withholding at a rate of 31%, will apply
in respect of rights distributed to Investor Optionees and in respect of
DemandStar common stock.
89
<PAGE> 93
LEGAL MATTERS
The validity of the DemandStar common stock offered hereby will be passed
upon by Greenberg Traurig, P.A., Orlando, Florida.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits an schedules which are part
of the registration statement. For further information with respect to
DemandStar and the common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference room in Washington, DC. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from the SEC's website at
http://www.sec.gov.
Upon completion of this offering, DemandStar will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms, DemandStar's website and the website of the SEC referred
to above. Information on our website does not constitute a part of this
prospectus.
90
<PAGE> 94
DEMANDSTAR.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEMANDSTAR.COM, INC. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants..... F-2
Balance Sheets......................................... F-3
Statements of Operations............................... F-4
Statements of Shareholder's Deficit.................... F-5
Statements of Cash Flows............................... F-6
Notes to Financial Statements.......................... F-7
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Combined Statement
of Operations......................................... F-18
Unaudited Pro Forma Combined Statement of Operations... F-19
</TABLE>
F-1
<PAGE> 95
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder of DemandStar.com, Inc.:
We have audited the accompanying balance sheet of Information On Demand,
Inc. (the Predecessor, a Florida corporation) as of December 31, 1998, and the
related statements of operations, shareholder's deficit and cash flows for the
year then ended, and for the period from January 1, 1999, to June 17, 1999, and
the accompanying balance sheet of DemandStar.com, Inc., a Florida corporation
(the Company), as of December 31, 1999, and the related statements of
operations, shareholder's deficit and cash flows for the period from June 18,
1999, to December 31, 1999. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Predecessor as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, and for the period from January 1, 1999, to June 17, 1999, and
the financial position of the Company as of December 31, 1999, and the results
of its operations and its cash flows for the period from June 18, 1999, to
December 31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ Arthur Andersen LLP
Orlando, Florida,
February 4, 2000
F-2
<PAGE> 96
THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD ASSETS ACQUIRED AND
LIABILITIES ASSUMED BY THE COMPANY. SUCH ACCOUNTING RESULTS IN INCREASED
AMORTIZATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL
STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL
RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF
OPERATIONS, AND CASH FLOWS OF THESE TWO SEPARATE ENTITIES.
DEMANDSTAR.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
INFORMATION ON
DEMAND, INC.
(PREDECESSOR) DEMANDSTAR.COM, INC.
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash....................................... $ 17,564 $ 127,733
Accounts receivable........................ 1,691 8,593
Prepaid assets............................. -- 92,844
--------- -----------
Total current assets..................... 19,255 229,170
--------- -----------
PROPERTY AND EQUIPMENT, NET
(NOTE 2)................................. -- 108,855
--------- -----------
OTHER ASSETS:
Deposits................................... -- 8,900
Intangible assets (Note 3):
Customer lists and vendor database, net of
accumulated amortization of $53,031 at
December 31, 1999........................ -- 245,268
Goodwill, net of accumulated amortization
of $155,503 at December 31, 1999......... -- 719,198
--------- -----------
Total other assets....................... -- 973,366
--------- -----------
Total assets............................. $ 19,255 $ 1,311,391
========= ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities... $ 123,399 $ 191,558
Current portion of note payable (Note 7)... -- 200,000
Deferred revenue........................... 104,469 139,252
--------- -----------
Total current liabilities................ 227,868 530,810
--------- -----------
NOTE PAYABLE, LESS CURRENT PORTION (NOTE
7)....................................... -- 1,106,885
--------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 3 AND
8)
SHAREHOLDER'S DEFICIT (NOTE 4):
Common stock: $ .0001 par value,
100,000,000 shares authorized and
1,250,000 shares issued and outstanding
as of December 31, 1999.................. -- 125
Additional paid-in capital................. -- 812,413
Shareholder's capital...................... 72,098 --
Accumulated deficit........................ (280,711) (1,138,842)
--------- -----------
Total shareholder's deficit.............. (208,613) (326,304)
--------- -----------
Total liabilities and shareholder's
deficit............................... $ 19,255 $ 1,311,391
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 97
THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD ASSETS ACQUIRED AND
LIABILITIES ASSUMED BY THE COMPANY. SUCH ACCOUNTING RESULTS IN INCREASED
AMORTIZATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL
STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL
RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF
OPERATIONS, AND CASH FLOWS OF THESE TWO SEPARATE ENTITIES.
DEMANDSTAR.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INFORMATION ON DEMAND, INC.
(PREDECESSOR) DEMANDSTAR.COM, INC.
----------------------------------- --------------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
FOR THE YEAR JANUARY 1, 1999 JUNE 18, 1999
ENDED TO TO
DECEMBER 31, 1998 JUNE 17, 1999 DECEMBER 31, 1999
----------------- --------------- --------------------
<S> <C> <C> <C>
Revenue.......................... $ 33,718 $ 132,135 $ 196,855
Operating Expenses:
Marketing and advertising...... 12,350 15,866 304,800
Research and development....... 125,010 136,279 136,100
General and administrative..... 177,069 250,349 651,520
Depreciation and
amortization................ -- -- 215,969
--------- --------- -----------
Total operating expenses.... 314,429 402,494 1,308,389
--------- --------- -----------
Operating loss................... (280,711) (270,359) (1,111,534)
Interest expense................. -- -- 27,308
--------- --------- -----------
Loss before income tax benefit... (280,711) (270,359) (1,138,842)
--------- --------- -----------
Income tax benefit (Note 6)...... -- -- --
--------- --------- -----------
Net loss....................... $(280,711) $(270,359) $(1,138,842)
========= ========= ===========
Basic and diluted loss per common
share.......................... $ (0.91)
===========
Weighted average number of common
shares outstanding............. 1,250,000
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 98
DEMANDSTAR.COM, INC.
STATEMENTS OF SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
SHAREHOLDER'S ACCUMULATED
INFORMATION ON DEMAND, INC. (THE PREDECESSOR) CAPITAL DEFICIT TOTAL
- --------------------------------------------- ------------- ----------- ---------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1998.................... $ -- $ -- $ --
Issuance of common stock.................. 72,098 -- 72,098
Net loss.................................. -- (280,711) (280,711)
-------- --------- ---------
BALANCE, DECEMBER 31, 1998.................. 72,098 (280,711) (208,613)
Issuance of common stock.................. 50,441 -- 50,441
Net loss.................................. -- (270,359) (270,359)
-------- --------- ---------
BALANCE, JUNE 17, 1999...................... $122,539 $(551,070) $(428,531)
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
DEMANDSTAR.COM, INC. --------------------- PAID-IN ACCUMULATED
(THE COMPANY) SHARES AMOUNT CAPITAL DEFICIT TOTAL
- -------------------- ------------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON
STOCK AT INCEPTION... 1,250,000 $125 $799,875 $ -- $ 800,000
Net loss............. -- -- -- (1,138,842) (1,138,842)
Compensation from
stock options..... -- -- 12,538 -- 12,538
--------- ---- -------- ----------- -----------
BALANCE, DECEMBER 31,
1999................. 1,250,000 $125 $812,413 $(1,138,842) $ (326,304)
========= ==== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 99
THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD ASSETS ACQUIRED AND
LIABILITIES ASSUMED BY THE COMPANY. SUCH ACCOUNTING RESULTS IN INCREASED
AMORTIZATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL
STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL
RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF
OPERATIONS, AND CASH FLOWS OF THESE TWO SEPARATE ENTITIES.
DEMANDSTAR.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INFORMATION ON DEMAND, INC.
(PREDECESSOR) DEMANDSTAR.COM, INC.
----------------------------------- --------------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
FOR THE YEAR JANUARY 1, 1999 JUNE 18, 1999
ENDED TO TO
DECEMBER 31, 1998 JUNE 17, 1999 DECEMBER 31, 1999
----------------- --------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $(280,711) $(270,359) $(1,138,842)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... -- -- 215,969
Compensation from stock options..... -- -- 12,538
Changes in operating assets and
liabilities, net of effects from
acquisition:
Increase in accounts receivable... (1,691) (2,663) (8,593)
Increase in prepaid assets........ -- -- (92,844)
Increase in deposits.............. -- -- (8,900)
Increase in accounts payable and
accrued liabilities............ 123,399 146,634 191,558
Increase (decrease) in deferred
revenue........................ 104,469 66,232 (33,748)
--------- --------- -----------
Net cash used in operating
activities................... (54,534) (60,156) (862,862)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition............. -- -- (1,000,000)
Capital expenditures.................. -- (3,064) (116,290)
--------- --------- -----------
Net cash used in investing
activities................... -- (3,064) (1,116,290)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions of capital.............. 72,098 50,441 --
Proceeds from issuance of common
stock............................... -- -- 800,000
Borrowings under note payable......... -- -- 1,306,885
--------- --------- -----------
Net cash provided by financing
activities................... 72,098 50,441 2,106,885
--------- --------- -----------
Net increase (decrease) in cash....... 17,564 (12,779) 127,733
Cash, beginning of period............. -- 17,564 --
--------- --------- -----------
Cash, end of period................... $ 17,564 $ 4,785 $ 127,733
========= ========= ===========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest................ $ -- $ -- $ --
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 100
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND FUNDING
Information On Demand, Inc. (the Predecessor) was formed as a Florida
corporation in June 1997 and commenced operations in January 1998. No financial
statements of the Predecessor have been presented for 1997, as there was no
activity during 1997. The Predecessor was an S corporation. On June 1, 1999,
H.T.E., Inc. (HTE), formed a wholly-owned subsidiary, HTE-IOD, Inc., by
purchasing 1,250,000 shares for $800,000 and advancing $200,000 of cash. On June
18, 1999, HTE-IOD, Inc. purchased the business and certain net assets of the
Predecessor. See Note 3. On August 23, 1999, HTE-IOD, Inc. changed its name to
Information On Demand, Inc. and on December 21, 1999, its name was changed to
DemandStar.com, Inc. (the Company). The Company is a provider of Internet-based
procurement systems for governmental agencies, which operates primarily in
Florida. Businesses that provide goods and services to agencies enrolled in the
Company's program are provided the opportunity to register with the Company as
registered vendors for an annual fee. The Company operates as a single business
unit.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements as of December 31, 1999, and for the
period from June 18, 1999, to December 31, 1999, reflect the financial position
and results of operations and cash flows of the Company. The accompanying
financial statements as of December 31, 1998, and for the year ended December
31, 1998, and for the period from January 1, 1999, to June 17, 1999, reflect the
financial position and results of operations and cash flows of the Predecessor.
The accompanying financial statements of the Predecessor are not necessarily
comparable to the accompanying financial statements of the Company, due to the
1999 acquisition. See Note 3. On December 17, 1999, the Company's board of
directors approved a 1,250-to-1 stock split for the Company's common stock,
effective December 21, 1999. All share and per share information contained
herein have been adjusted to reflect the split.
LIQUIDITY/GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Accordingly, the financial statements
do not include any adjustments that might result from the Company's inability to
continue as a going concern. The Predecessor and the Company have generated
losses since inception and have relied on capital contributions and loans from
shareholders to fund operations. Management expects to continue to generate
losses during the next twelve months and, based on the current operating budget,
does not anticipate having sufficient cash on hand or available through current
lending arrangements to fund operations. To address this funding need, in
December 1999, the Company's board of directors authorized management to (i)
file a registration statement with the U.S. Securities and Exchange Commission
on Form S-1 to
F-7
<PAGE> 101
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
pursue a rights offering of the Company's common stock, (ii) execute an
investment and distribution agreement with HTE covering HTE's purchase of Series
A preferred stock (See Note 4), and (iii) execute a Conditional Series B Stock
Purchase Agreement with HTE and certain Company employees and directors (See
Note 4). Management believes that the funds generated by the transactions noted
above will be sufficient to fund operations for at least the next twelve months.
In the event all the funding is not received, management believes it can revise
its operating plan to reduce costs to such a level that the Company will be able
to fund operations for the next twelve months.
PROPERTY AND EQUIPMENT
Property and equipment 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 property and equipment are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Computer equipment.......................................... 3-5
Leasehold improvements...................................... 2
Furniture and fixtures...................................... 7
</TABLE>
Depreciation and amortization expense related to property and equipment of
approximately $7,400 is included in depreciation and amortization expense in the
accompanying statement of operations for the period from June 18, 1999, to
December 31, 1999, of the Company. No depreciation expense was incurred by the
Predecessor in 1998 and 1999.
INTANGIBLE ASSETS
Intangible assets represent identifiable assets, such as customer lists and
vendor database, along with amounts paid in excess of the fair market value of
net assets purchased in the acquisition and is being amortized using the
straight-line method over a period of 36 months. Amortization expense related to
intangible assets of approximately $208,500 is included in depreciation and
amortization expense in the accompanying statement of operations for the period
from June 18, 1999, to December 31, 1999, of the Company. No amortization
expense was incurred by the Predecessor in 1998 and 1999.
DEFERRED REVENUE AND REVENUE RECOGNITION
DemandStar.com, Inc. earns revenues primarily by providing notification of
agency bid proposals to vendors of governmental agencies. Revenue for such
notification is deferred and recognized ratably over the terms of agreements
with these vendors, as services are typically billed at the beginning of the
agreement term. The typical term for these agreements is one year.
F-8
<PAGE> 102
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
Revenue for fax on demand and document fulfillment services is recognized
when the requested documents are provided to vendors.
INCOME TAXES
The Predecessor elected to be taxed as an S corporation for both federal
and state income tax reporting purposes. Accordingly, the losses related to
periods presented for the Predecessor are includable in the personal income tax
returns of the Predecessor's shareholder. The operating results of the Company
are included in the consolidated federal and state income tax returns of HTE.
The Company's income tax provision is computed as if it were filing separate
federal and state tax returns. The Company accounts for income taxes using an
asset and liability approach that 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 generally considers all expected
future events other than enactments of changes in the tax laws or rates. Changes
in tax laws or rates will be recognized in the future years in which they occur.
STOCK-BASED COMPENSATION
The Company measures compensation expense for stock options issued to
employees using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25). Under APB No. 25, if the exercise price of the Company's
stock options equals or exceeds the estimated fair value of the underlying stock
on the date of the grant, no compensation expense is generally recognized. For
stock options granted to non-employees, compensation cost is measured using the
fair value based method. Additionally, the Company has provided pro forma
disclosures of net income and earnings per share as if the fair value based
method had been applied to all stock options issued by the Company as required
by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123). See Note 5. As the stock options issued to
employees have had no intrinsic value at the date of grant, no compensation
expense related to stock options issued has been recorded.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, accounts receivable, accounts payable and
accrued liabilities, approximate fair value due to the short-term maturities of
these assets and liabilities. The fair value of the note payable is
approximately $1,045,000. The fair value was estimated as the discounted amount
of future cash flows using a discount rate of 8%.
NET LOSS PER SHARE
The Company's basic and diluted net loss per share are found in the
accompanying statements of operations. Basic and diluted per share information
are the same as the Company generated a net loss and had no outstanding
potential common stock
F-9
<PAGE> 103
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
instruments. Earnings per share information for the Predecessor has not been
presented as this information is not meaningful given the Predecessor's capital
structure.
RESEARCH AND DEVELOPMENT
Research and development expense includes expenses incurred by the Company
or Predecessor for research, design and development of proprietary technology.
Research and development costs are expensed as incurred. Software development
costs are required to be capitalized when a product's technological feasibility
has been established by completion of a working model of the product and ending
when a product is available for general release to customers. To date,
completion of a working model of the Company's product and general release have
substantially coincided. As a result, the Company and Predecessor have not
capitalized any software development costs because such costs have not been
significant.
LONG-LIVED ASSETS
The Company reviews its long-lived assets, intangible assets and goodwill
for impairment whenever circumstances indicate that the carrying amount of an
asset may not be recoverable. Due to the Company's current operating and cash
flow loss combined with its historical operating and cash flow loss, the Company
has reviewed its long-lived assets, intangible assets and goodwill for
impairment. Management believes the expected future cash flows (undiscounted and
without interest charges) is sufficient to recover the carrying amount of its
long-lived assets, intangible assets and goodwill as stated in the accompanying
balance sheet. An impairment loss shall be recognized if the sum of the expected
future cash flows (undiscounted and without interest charges) for the Company is
less than the carrying amount of the asset. If an impairment loss is recognized,
the reduced carrying amount of the asset shall be accounted for its new cost.
For a depreciable asset, the new cost shall be depreciated over the asset's
remaining useful life. There has been no material impairment reflected in the
accompanying financial statements.
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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME
Comprehensive income is equal to net loss presented in the accompanying
financial statements.
F-10
<PAGE> 104
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999, consisted of the following:
<TABLE>
<S> <C>
Computer equipment.......................................... $ 94,607
Leasehold improvements...................................... 20,382
Furniture and fixtures...................................... 1,301
--------
116,290
Less -- Accumulated depreciation............................ (7,435)
--------
$108,855
========
</TABLE>
3. BUSINESS COMBINATION
On June 18, 1999, the Company purchased the business and certain net assets
of the Predecessor for $1 million in cash. The Company could pay up to an
additional $2,000,000 in cash over a three-year period from the purchase date
for the purchase if certain financial targets set forth in the Agreement for
Sale and Purchase of Assets are attained. The net assets acquired consisted of
$1,173,000 of intangible assets and $173,000 of deferred revenue for vendor
agreements. The purchase was accounted for using the purchase method of
accounting and, accordingly, the operating results from June 18, 1999, to
December 31, 1999, of the purchased business have been included in the
accompanying statement of operations of the Company for the same period and will
continue to be reflected going forward.
4. SHAREHOLDER'S DEFICIT
On December 22, 1999, the Company filed a registration statement with the
U.S. Securities and Exchange Commission on Form S-1 in contemplation of a rights
offering to HTE shareholders and employees and the sale of Series A and Series B
preferred stock. Immediately following the consummation of the rights offering,
the Company's authorized preferred stock will consist of 10,000,000 shares with
a par value of $.01 per share, of which 2,000,000 shares are designated as
Series A preferred stock, 4,000,000 shares are designated as Series B preferred
stock, and 4,000,000 shares are undesignated. As of December 31, 1999, no
preferred stock was issued or outstanding.
Under the terms of the rights offering, the Company intends to distribute
rights to the shareholders and employees of HTE that will entitle each holder to
purchase shares of common stock at $1 per share.
5. STOCK COMPENSATION PLAN
In December 1999, the Company's board of directors approved the 1999
Employee Incentive Compensation Plan (the Plan). The Plan provides that awards
may be granted to the Company's key officers, employees, consultants, advisors
and directors or others designated by the board of directors at the fair market
value at the date of grant. Awards under the Plan may take the form of stock
options, share appreciation rights or restricted
F-11
<PAGE> 105
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
5. STOCK COMPENSATION PLAN (CONTINUED)
stock. The Plan limits the number of shares which may be issued pursuant to
incentive stock options to 4,000,000 shares. As of December 31, 1999, the
Company had not awarded share appreciation rights or restricted stock under the
Plan.
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, 1999, and changes
during the period ending on that date is presented below:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
EMPLOYEES NON-EMPLOYEES
---------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at inception.... -- $ -- -- $ --
Granted................... 1,310,000 1.00 90,000 $1.00
Exercised................. -- -- -- --
Forfeited................. -- -- -- --
--------- ----- ------ -----
Outstanding at end of
year...................... 1,310,000 $1.00 90,000 $1.00
========= ===== ====== =====
Options exercisable at year
end....................... 167,500 $1.00 22,500 $1.00
Weighted-average fair value
of options granted during
the year.................. $0.26 $0.52
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AT AVERAGE WEIGHTED- EXERCISABLE AT WEIGHTED-
DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
TYPE EXERCISE PRICE 1999 CONTRACTUAL LIFE EXERCISE PRICE 1999 EXERCISE PRICE
- ------------- -------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Employees $1.00 1,310,000 9.9 $1.00 167,500 $1.00
Non-Employees $1.00 90,000 10.0 $1.00 22,500 $1.00
</TABLE>
The fair value of options granted during the fiscal year ended December 31,
1999, 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 transferrable. 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
F-12
<PAGE> 106
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
5. STOCK COMPENSATION PLAN (CONTINUED)
option grant was estimated on the date of grant based on the following
weighted-average assumptions for options granted during 1999:
<TABLE>
<CAPTION>
STOCK OPTION PLAN
-------------------
FOR THE PERIOD FROM
JUNE 18, 1999 TO
DECEMBER 31, 1999
-------------------
<S> <C>
Weighted-average expected life (in years)................. 4.9
Weighted-average risk-free interest rate.................. 6.15%
Volatility -- employees................................... 0%
Volatility -- non-employees............................... 60%
Dividend yield............................................ --
</TABLE>
The compensation from stock options of $12,538 was related to options
granted to a consultant and was calculated at the fair value using the
Black-Scholes options valuation model as described above. This expense is
included in general and administrative expenses in the statement of operations
for the period from June 18, 1999, to December 31, 1999. Had compensation cost
related to employees 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>
FOR THE PERIOD FROM
JUNE 18, 1999 TO
DECEMBER 31, 1999
-------------------
<S> <C>
Net loss attributable to common shareholders:
As reported............................................. $(1,138,842)
Pro forma............................................... (1,195,778)
Basic and diluted earnings per share:
As reported............................................. $ (0.91)
Pro forma............................................... (0.96)
</TABLE>
The effects of applying SFAS No. 123 on pro forma disclosures of net income
and earnings per share for fiscal 1999 are not likely to be representative of
the pro forma effects on net income and earnings per share in future years.
6. INCOME TAXES
No provision for income taxes has been recorded in the accompanying
financial statements for the Predecessor, as the taxable losses related to the
periods presented are includable in the personal income tax returns of the
Predecessor's shareholder.
F-13
<PAGE> 107
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
The provision for income taxes for the period from June 18, 1999, to
December 31, 1999, differs from the amount computed by applying the U.S. federal
corporate tax rate of 34 percent to income before provision for income taxes as
follows:
<TABLE>
<S> <C>
U.S. federal income tax rate................................ 34.0%
Valuation allowance....................................... (34.0)
-----
Effective tax rate.......................................... 0.0%
=====
</TABLE>
Deferred income taxes consisted of the following as of December 31, 1999:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
-------- ---------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Deferred revenues............................. $ 9,952 $ -- $ 9,952
Net operating loss (NOL) carryforwards........ -- 422,248 422,248
-------- --------- ---------
Total assets............................... 9,952 422,248 432,200
-------- --------- ---------
Valuation allowance............................. (9,952) (422,248) (432,200)
-------- --------- ---------
Net deferred tax assets.................... $ -- $ -- $ --
======== ========= =========
</TABLE>
The Company had NOL carryforwards as of December 31, 1999, of approximately
$1,093,000 available to offset future taxable income. The NOL carryforwards
expire in 2019. Utilization of the NOL is dependent on generating sufficient
future taxable income. Due to uncertainties regarding the Company's ability to
realize the benefits of its deferred tax assets through future operations, a
valuation allowance has been established that completely offsets the NOL as of
December 31, 1999.
7. RELATED PARTY TRANSACTIONS
The Predecessor used office space owned by the shareholder for which rent
of approximately $6,300 and $4,200 was paid for the year ended December 31,
1998, and for the period from January 1, 1999 to June 17, 1999, respectively.
This rent charge is included in general and administrative expenses in the
accompanying statements of operations of the Predecessor. During the period from
June 18, 1999, to December 31, 1999, the Company paid approximately $21,800 to a
member of the board of directors for legal services provided by the member to
the Company, which is included in general and administrative expenses in the
accompanying statement of operations of the Company.
HTE charges the Company a management fee for finance, accounting,
management and basic processing services based on a percentage of total
expenses. The total of these charges was $52,000 for the period from June 18,
1999, to December 31, 1999, which is included in general and administrative
expenses in the accompanying statement of operations of the Company.
Certain payroll and other administrative costs of HTE were allocated to the
Company based on actual time and expenses incurred on the Company's behalf.
These costs totaled approximately $131,500 for the period from June 18, 1999, to
December 31, 1999.
F-14
<PAGE> 108
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
During 1999, the Company borrowed money from HTE to acquire the business
and certain net assets of the Predecessor and fund its operations under an
informal lending arrangement. On October 31, 1999, the Company entered into an
unsecured loan agreement which has a principal amount of $1,750,000 (the Loan)
with HTE. Borrowings outstanding under the Loan as of December 31, 1999, totaled
$1,306,885 with an available balance of $443,115. Interest at a rate of eight
percent, which totaled approximately $27,300, was charged by HTE and is included
in accounts payable and accrued liabilities in the accompanying balance sheet as
of December 31, 1999. The unpaid principal balance is due at the earlier of the
following maturity schedule which is payable on the anniversary of the note
through 2004 or the date of the effectiveness of a secondary public offering of
the Company's common stock yielding gross proceeds of at least $10,000,000.
Scheduled principal reductions of the Loan, by year, were as follows as of
December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
2000............................... $ 200,000
2001............................... 250,000
2002............................... 350,000
2003............................... 450,000
2004............................... 56,885
----------
$1,306,885
==========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under certain long-term non-
cancelable operating lease agreements with varying terms and conditions.
Future aggregate minimum rental payments under these agreements are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
<S> <C>
2000........................................................ $185,918
2001........................................................ 126,740
2002........................................................ 32,551
2003........................................................ 7,106
2004........................................................ 2,690
--------
$355,005
========
</TABLE>
Rent expense under operating leases totaled approximately $23,500 and
$20,200 for the Predecessor for the year ended December 31, 1998, and the period
from January 1, 1999, to June 17, 1999, respectively. The Company had rent
expense under operating leases totaling approximately $79,700 for the period
from June 18, 1999, to December 31, 1999, which is included in general and
administrative expenses in the accompanying statement of operations of the
Company.
F-15
<PAGE> 109
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
EMPLOYMENT AGREEMENTS
In December 1999, the former sole shareholder of the Predecessor
voluntarily resigned and concurrently entered into a one-year consulting
arrangement whereby the Company is obligated to pay him $150,000.
9. SUBSEQUENT EVENTS
In January 2000, HTE purchased 500,000 shares of Series A Preferred Stock
for $1,000,000. In February 2000, HTE exercised its option to purchase an
additional 250,000 shares of Series A Preferred Stock for $500,000 in cash. Each
share of Series A Preferred Stock shall be convertible into one share of fully
paid common stock at either the election of the holder of the Series A Preferred
Stock or automatically upon the sale of substantially all of the Company's
assets or a merger of the Company. The conversion price for such conversion
shall be $2.00 per each share of DemandStar common stock received as a result of
such conversion. Upon liquidation of the Company, HTE, as sole shareholder of
the Series A Preferred Stock, generally shall be entitled to receive $2.00 per
share or a total liquidation preference of $1,500,000.
The Company also intends to enter into an agreement for the conditional
purchase of Series B Preferred Stock with HTE and certain employees and
directors of the Company (collectively the Buyers). Under the terms of this
agreement, in the event the rights offering raises less than $5,000,000, the
Buyers will agree to purchase 2,000,000 shares of Series B Preferred Stock for
$2,000,000. The Series B Preferred Stock will accrue dividends on the
liquidation amount of the stock at the rate of 6% per annum. The dividends are
cumulative, but shall not be payable unless and until declared by the board of
directors. The dividends are payable through accretion of the liquidation
preference or additional shares of Series B Preferred Stock until June 15, 2002,
at which time dividends will be payable in cash.
Following the second anniversary of the later of (i) the closing date of
the rights offering or (ii) June 30, 2000, the Company may be required to
mandatorily redeem all or a portion of the Series B Preferred Stock at the
election of the holders of the Series B Preferred Stock. The redemption price
will equal the liquidation value of the shares being redeemed plus all accrued
and unpaid cash dividends. In order to induce the Buyers to enter into the
conditional Series B Preferred Stock purchase agreement, the Company, in January
2000, issued warrants entitling the Buyers to purchase an aggregate of 1,000,000
shares of the Company's common stock at an exercise price of $2.00 per share.
F-16
<PAGE> 110
DEMANDSTAR.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 AND 1998
In January and February 2000, the following stock options were granted
under the Company's 1999 Employee Incentive Compensation Plan:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
DESCRIPTION TYPE OPTIONS GRANTED PRICE
- ----------- ---- --------------- --------
<S> <C> <C> <C>
Officer Qualified 100,000 $1.00
Two officers Non-qualified 100,000 $1.00
Various employees Non-qualified 670,000 $1.00
-------
Total Granted 870,000
=======
</TABLE>
In February 2000, HTE's board of directors granted, under its Employee
Incentive Compensation Plan, 100 shares of DemandStar common stock to each of
DemandStar's 36 employees (exclusive of officers and directors) and 106 of HTE's
management employees, for an aggregate of 14,200 shares.
F-17
<PAGE> 111
DEMANDSTAR.COM, INC.
INTRODUCTION TO UNAUDITED
PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations for the
year ended December 31, 1999, has been prepared to reflect the results of
operations of DemandStar.com Inc. ("DemandStar" or "the Company") as if the
acquisition of Information On Demand, Inc. ("IOD" or "the Predecessor") in June
1999 was completed on January 1, 1999.
The acquisition of IOD was treated under the purchase method of accounting
for financial reporting purposes. DemandStar purchased the business and certain
net assets of IOD for $1 million in cash. The Company could pay up to an
additional $2,000,000 in cash over a three-year period from the purchase date
for the purchase if certain financial targets set forth in the Agreement for
Sale and Purchase of Assets are attained. The net assets acquired consisted of
$1,173,000 of intangible assets and $173,000 of deferred revenue for vendor
agreements. As a result of this acquisition, the Form of Services Agreement
("the Agreement") was initiated by H.T.E., Inc. (HTE) and DemandStar. The
Agreement states that HTE will provide to DemandStar management and
administrative services through its employees. These services include financial
reporting, accounting, auditing, tax, office services, payroll, human resources,
as well as management consulting services. Since no services were provided to
the Predecessor by HTE prior to the acquisition, no allocation of expenses has
been made related to the Agreement. The costs incurred by the Predecessor and
recorded by the Predecessor for these services are comparable to the costs
charged by HTE to DemandStar for the services based on the level of activity.
The costs for these services are included in the general and administrative
expenses of the Predecessor since they were performed internally by the
employees of the Predecessor.
The Company believes that the assumptions used in preparing the unaudited
pro forma combined statement of operations contained herein provide a reasonable
basis on which to present the unaudited pro forma combined financial data. The
unaudited pro forma combined statement of operations is provided for
informational purposes only and should not be construed to be indicative of the
results of operations or financial position of the Company had the transaction
occurred on the date indicated and are not intended to project the Company's
results of operations for any future period. The unaudited pro forma combined
statement of operations should be read in conjunction with the separate
historical financial statements of the Company and IOD and in conjunction with
the related assumptions and notes to this unaudited pro forma combined statement
of operations. The historical financial statements of IOD for the period from
January 1, 1999, to June 17, 1999, were used in preparing the unaudited pro
forma combined statement of operations for the year ended December 31, 1999.
The unaudited pro forma combined statement of operations does not reflect
the expected increase in the level of expenses as a result of planned increases
to the marketing strategy, expansion of product features and functionality, or
increases in general and administrative expenses to support the Company's
growth. Such items are not reflected because they are not factually determinable
or estimable.
F-18
<PAGE> 112
DEMANDSTAR.COM, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INFORMATION ON
DEMAND, INC. DEMANDSTAR. ACQUISITION PRO FORMA
(PREDECESSOR) COM, INC. ADJUSTMENTS COMBINED
---------------- -------------- ------------ ------------
FOR THE PERIOD
FOR THE PERIOD FROM JUNE 18, FOR THE YEAR FOR THE YEAR
FROM JANUARY 1, 1999 TO ENDED ENDED
1999 TO JUNE 17, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999
---------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE......................... $ 132,135 $ 196,855 $ -- $ 328,990
OPERATING EXPENSES:
Marketing and advertising..... 15,866 304,800 -- 320,666
Research and development...... 136,279 136,100 -- 272,379
General and administrative.... 250,349 651,520 -- 901,869
Depreciation and
amortization............... -- 215,969 182,467(a) 398,436
--------- ----------- --------- -----------
Total operating
expenses............ 402,494 1,308,389 182,467 1,893,350
--------- ----------- --------- -----------
OPERATING LOSS.................. (270,359) (1,111,534) (182,467) (1,564,360)
INTEREST EXPENSE................ -- 27,308 18,209(b) 45,517
--------- ----------- --------- -----------
LOSS BEFORE INCOME TAX
BENEFIT....................... (270,359) (1,138,842) (200,676) (1,609,877)
INCOME TAX BENEFIT
(Note 6)...................... -- -- -- --
--------- ----------- --------- -----------
NET LOSS........................ $(270,359) $(1,138,842) $(200,676) $(1,609,877)
========= =========== ========= ===========
BASIC AND DILUTED LOSS PER
COMMON SHARE.................. $ (0.91) $ (1.29)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING..... 1,250,000 1,250,000
=========== ===========
</TABLE>
- ---------------
(a) To reflect the increase in amortization expense related to the customer list
and vendor database and goodwill recorded under the purchase method of
accounting. At the purchase date, the Company recorded $298,299 for customer
lists and vendor database and $874,701 for goodwill. The Company amortizes
intangibles over 3 years.
(b) To reflect the additional interest expense on the note payable to H.T.E.,
Inc., for the $200,000 advance from H.T.E., Inc., assuming the funds were
advanced on January 1, 1999.
F-19
<PAGE> 113
(DemandStar.com Logo)
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby are itemized below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 5,076
Nasdaq listing fee.......................................... 7,500*
Accounting fees and expenses................................ 55,000*
Legal fees and expenses..................................... 300,000*
Printing and engraving expenses............................. 60,000*
Subscription Agent, Transfer Agent and Registrar fees and
expenses.................................................. 45,000*
Blue sky fees and expenses (including legal)................ 40,000*
Miscellaneous............................................... 10,000*
--------
Total..................................................... $522,576*
========
</TABLE>
- -------------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The articles of incorporation and bylaws provide that DemandStar indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed proceeding by reason of the fact that he is or
was a director or officer of DemandStar or any other person designated by the
board of directors which may include any person serving at the request of
DemandStar as a director, officer, employee, agent, fiduciary or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise, in each case, against certain liabilities including
damages, judgments, amounts paid in settlement, fines, penalties and expenses
including attorneys' fees and disbursements, except where such indemnification
is expressly prohibited by applicable law, where such person has engaged in
willful misconduct or recklessness or where such indemnification has been
determined to be unlawful. Such indemnification as to expenses is mandatory to
the extent the individual is successful on the merits of the matter. Florida law
permits DemandStar to provide similar indemnification to employees and agents
who are not directors or officers. The determination of whether an individual
meets the applicable standard of conduct may be made by the disinterested
directors, independent legal counsel or the shareholders. Florida law also
permits indemnification in connection with a proceeding brought by or in the
right of DemandStar to procure a judgment in its favor. Insofar as
indemnification for liabilities arising under the SEC may be permitted to
directors, officers, or persons controlling DemandStar pursuant to the foregoing
provisions, DemandStar has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
II-1
<PAGE> 115
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In June 1999, DemandStar issued 1,000 shares of common stock to HTE. In
December 1999, DemandStar effected a 1,250-for-1 share stock split. These
securities were issued pursuant to an exemption from registration provided by
Section 4(2) of the Securities Act.
In January 2000, DemandStar issued warrants to HTE and certain of its
executive officers and directors to purchase up to 1,000,000 shares of common
stock at an exercise price of $2.00 per share. These securities were issued
pursuant to an exemption from registration provided by Section 4(2) of the
Securities Act.
In November 1999, December 1999, January 2000 and February 2000, DemandStar
issued stock options to current and future officers and employees of DemandStar
to purchase an aggregate of 1,030,000, 370,000, 770,000 and 100,000 shares of
common stock, respectively, at an exercise price of $1.00 per share. These
issuances were exempt from registration under the Securities Act in reliance on
Rule 701 promulgated under the Securities Act as offers and sales of securities
pursuant to certain compensatory benefit plans and contracts relating to
compensation in compliance with Rule 701.
In December 1999, certain officers and directors of DemandStar committed to
purchase a total of 656,821 shares of common stock in respect of rights they
will receive based upon their ownership of HTE common stock and options. In
addition, certain officers and/or directors of DemandStar committed to purchase
up to 718,568 shares of common stock from the pool of unsubscribed rights
available, if any. These sales were made, and the securities will be issued,
pursuant to an exemption from registration provided by Section 4(2) of the
Securities Act.
In the first quarter of fiscal 2000, DemandStar issued to HTE 750,000
shares of Series A preferred stock. These securities were issued pursuant to an
exemption from registration provided by Section 4(2) of the Securities Act.
In February 2000, HTE's board of directors granted, under its Employee
Incentive Compensation Plan, 100 shares of DemandStar common stock to each of
DemandStar's 36 employees (exclusive of officers and directors) and 106 of HTE's
management employees, for an aggregate of 14,200 shares. These securities were
issued pursuant to an exemption from registration under the Securities Act in
reliance on Rule 701 promulgated under the Securities Act as offers and sales of
securities pursuant to certain compensation benefit plans and contracts relating
to compensation in compliance with Rule 701.
No underwriters, brokers or other agents were or will be involved in any of
the above described transactions.
II-2
<PAGE> 116
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Except where indicated, the following exhibits have been previously
filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1 -- Amended and Restated Articles of Incorporation of DemandStar
3.2 -- Amended and Restated By-laws of DemandStar
4.1 -- Form of Specimen Stock Certificate for Common Stock
4.2 -- Form of Subscription Certificate for the Rights
4.3 -- Form of Warrant
4.4 -- Form of Subscription Agent Agreement between DemandStar and
Continental Stock Transfer & Trust Company, as Transfer
Agent
5.1 -- Opinion of Greenberg Traurig, P.A.*
10.1 -- 1999 Employee Incentive Compensation Plan
10.2 -- Investment and Distribution Agreement between DemandStar and
HTE
10.2.1 -- Amended and Restated Investment and Distribution Agreement
10.3 -- Form of Services Agreement between DemandStar and HTE
10.4 -- Form of Tax Sharing and Indemnity Agreement between
DemandStar and HTE
10.5 -- Registration Rights Agreement between DemandStar and HTE
10.6 -- Employment Agreement of O. F. Ramos
10.7 -- Employment Agreement of Bernard B. Markey
10.8 -- Employment Agreement of L. A. Gornto, Jr.
10.9 -- Employment Agreement of Edward Jordan
10.10 -- Employment Agreement of William Knox North
10.11 -- Consulting Agreement between DemandStar and Edward Moses
10.12 -- Consulting Agreement between DemandStar and Ronald Brown
10.13 -- Form of Indemnification Agreement between DemandStar and
each Executive Officer and Director
10.14 -- $1,750,000 Promissory Note issued by Information On Demand,
Inc. in favor of HTE
10.15 -- Conditional Series B Preferred Stock Purchase Agreement
10.16 -- Agreement for Sale and Purchase of Assets among Information
on Demand, Inc., HTE-IOD, Inc. and Ronald B. Brown
10.17 -- Commitment to Exercise Rights between DemandStar and Messrs.
Ramos, Markey, Gornto, Moses, Jordan and North
10.17.1 -- Amended and Restated Commitment to Exercise Rights
10.17.2 -- Second Amended and Restated Commitment to Exercise Rights
10.18 -- Office Lease between Concord Management, Ltd., CED
Construction Partners, Ltd. and Associated Housing
Development Partners V, Ltd., collectively the Landlord, and
HTE, as Tenant
10.19 -- Form of Promissory Note issued by HTE in favor of DemandStar
in the principal amount of $18,811,330
10.20 -- Form of Agreement between DemandStar and Janney Montgomery
Scott LLC*
23.1 -- Consent of Independent Certified Public Accountants*
23.2 -- Consent of Greenberg Traurig, P.A. (contained in Exhibit
5.1)*
24.1 -- Power of Attorney
27.1 -- Financial Data Schedule (for SEC use only)
99.1 -- Form of Letter to HTE Shareholders, Optionholders and
Employees
</TABLE>
II-3
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
99.2 -- Form of Instructions to HTE Shareholders, Optionholders and
Employees as to use of Subscription Certificates
99.3 -- Form of Notice of Guaranteed Delivery For Subscription
Certificates
99.4 -- Form of Letter to Securities Dealers, Commercial Banks,
Brokers, Trust Companies and Other Nominees
99.5 -- Form of Broker Letter to Clients
99.6 -- Form of Special Notice to Eligible HTE Shareholders or
Optionholders Whose Addresses are Outside the United States
99.7 -- Form of Nominee Holder Certification Form
</TABLE>
- -------------------------
* Filed herewith.
(b) No Financial Statements Schedules are filed a part of this registration
statement, other than Exhibit 27, the Financial Data Schedule.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; and
(iv) To reflect the results of this offering.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-4
<PAGE> 118
The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities 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
registration 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 Securities Act and will be governed by
the final adjudication of such issue.
If the registrant relies on Rule 430A under the Securities Act, the
registrant will:
(1) For purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Securities and Exchange
Commission declared it effective.
(2) For the purpose of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered therein and that
offering of such securities at that time as the initial bona fide offering
thereof.
II-5
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Maitland,
Florida, on March 23, 2000.
DEMANDSTAR.COM, INC.
By: /s/ O. F. RAMOS
-----------------------------------
O. F. Ramos
Chief Executive Officer,
President and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ O. F. RAMOS Chief Executive March 23, 2000
- --------------------------------------------------- Officer, President
O. F. Ramos and Director
(Principal Executive
Officer)
/s/ L. A. GORNTO, JR. Chief Financial March 23, 2000
- --------------------------------------------------- Officer (Principal
L. A. Gornto, Jr. Financial and
Accounting Officer),
Executive Vice
President, Secretary
and Director
* BERNARD B. MARKEY Chairman of the Board March 23, 2000
- ---------------------------------------------------
Bernard B. Markey
* EDWARD A. MOSES Director March 23, 2000
- ---------------------------------------------------
Edward A. Moses
*By: /s/ O. F. RAMOS
--------------------------------------------
O. F. Ramos
Attorney-in-Fact
*By: /s/ L. A. GORNTO, JR.
--------------------------------------------
L. A. Gornto, Jr.
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1 -- Amended and Restated Articles of Incorporation of DemandStar
3.2 -- Amended and Restated By-laws of DemandStar
4.1 -- Form of Specimen Stock Certificate for Common Stock
4.2 -- Form of Subscription Certificate for the Rights
4.3 -- Form of Warrant
4.4 -- Form of Subscription Agent Agreement between DemandStar and
Continental Stock Transfer & Trust Company, as Transfer
Agent
5.1 -- Opinion of Greenberg Traurig, P.A.*
10.1 -- 1999 Employee Incentive Compensation Plan
10.2 -- Investment and Distribution Agreement between DemandStar and
HTE
10.2.1 -- Amended and Restated Investment and Distribution Agreement
10.3 -- Form of Services Agreement between DemandStar and HTE
10.4 -- Form of Tax Sharing and Indemnity Agreement between
DemandStar and HTE
10.5 -- Registration Rights Agreement between DemandStar and HTE
10.6 -- Employment Agreement of O. F. Ramos
10.7 -- Employment Agreement of Bernard B. Markey
10.8 -- Employment Agreement of L. A. Gornto, Jr.
10.9 -- Employment Agreement of Edward Jordan
10.10 -- Employment Agreement of William Knox North
10.11 -- Consulting Agreement between DemandStar and Edward Moses
10.12 -- Consulting Agreement between DemandStar and Ronald Brown
10.13 -- Form of Indemnification Agreement between DemandStar and
each Executive Officer and Director
10.14 -- $1,750,000 Promissory Note issued by Information On Demand,
Inc. in favor of HTE
10.15 -- Conditional Series B Preferred Stock Purchase Agreement
10.16 -- Agreement for Sale and Purchase of Assets among Information
on Demand, Inc., HTE-IOD, Inc. and Ronald D. Brown
10.17 -- Commitment to Exercise Rights between DemandStar and Messrs.
Ramos, Markey, Gornto, Moses, North and Jordan
10.17.1 -- Amended and Restated Commitment to Exercise Rights
10.17.2 -- Seconded Amended and Restated Commitment to Exercise Rights
10.18 -- Office Lease between Concord Management, Ltd., CED
Construction Partners, Ltd. and Associated Housing
Development Partners V, Ltd., collectively the Landlord, and
HTE, as Tenant
10.19 -- Form of Promissory Note issued by HTE in favor of DemandStar
in the principal amount of $18,811,330
10.20 -- Form of Agreement between DemandStar and Janney Montgomery
Scott LLC*
23.1 -- Consent of Independent Certified Public Accountants*
23.2 -- Consent of Greenberg Traurig, P.A. (contained in Exhibit
5.1)*
24.1 -- Power of Attorney
27.1 -- Financial Data Schedule (for SEC use only)
99.1 -- Form of Letter to HTE Shareholders, Optionholders and
Employees
99.2 -- Form of Instructions to HTE Shareholders, Optionholders and
Employees as to use of Subscription Certificates
99.3 -- Form of Notice of Guaranteed Delivery For Subscription
Certificates
99.4 -- Form of Letter to Securities Dealers, Commercial Banks,
Brokers, Trust Companies and Other Nominees
99.5 -- Form of Broker Letter to Clients
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
99.6 -- Form of Special Notice to Eligible HTE Shareholders or
Optionholders Whose Addresses are Outside the United States
99.7 -- Form of Nominee Holder Certification Form
</TABLE>
- -------------------------
* Filed herewith.
Remainder previously filed.
<PAGE> 1
EXHIBIT 5.1
OPINION AND CONSENT OF GREENBERG TRAURIG, P.A.
March 23, 2000
DemandStar.com, Inc.
1551 Sandspur Road, Suite B
Maitland, Florida 32751
Gentlemen:
You have requested our opinion in connection with the Registration
Statement on Form S-1 (the "Registration Statement") of DemandStar.com, Inc., a
Florida corporation (the "Company"), relating to the issuance and distribution
of up to 18,811,330 subscription rights (the "Rights"), with each Right
entitling the holder thereof to purchase one share of the Company's common
stock, par value $.0001 per share (the "Common Stock"). Pursuant to the
Registration Statement, the Company is registering a total of 18,811,330 Rights
and 18,811,330 shares of Common Stock (the "Shares") to be issued upon exercise
of the Rights.
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, when the
Registration Statement becomes effective under the Securities Act of 1933, as
amended (the "Securities Act"), (i) the issuance of the Rights and the issuance
and sale of the Shares will have been duly authorized, and (ii) the subscribed
Shares will be validly 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. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required by Section 7 of the Securities Act or the rules and
regulations promulgated thereunder.
Sincerely,
/s/ GREENBERG TRAURIG, P.A.
-----------------------
<PAGE> 1
Exhibit 10.20
FORM
DEMANDSTAR.COM, INC.
1551 SANDSPUR ROAD
MAITLAND, FLORIDA 32751
Janney Montgomery Scott LLC
1801 Market Street
Philadelphia, PA 19103
Attn: Michael J. Mufson March __, 2000
Dear Sir:
DemandStar.Com, Inc. a Florida corporation (the "Company"), proposes
to distribute non-transferable rights to purchase shares of its common stock
("Rights") to persons who own shares, or options to purchase shares, of H.T.E.,
Inc., a Florida corporation ("HTE"), and to persons employed by HTE
(collectively, the "Offerees") in a transaction more fully described in the
Registration Statement and the Prospectus hereinafter defined (the "Offering").
The Company and HTE have requested that you agree to be identified to
certain state securities regulatory authorities as the broker of record in such
jurisdictions in connection with the Offering. You have not participated in the
preparation or distribution of the Registration Statement and the Prospectus
hereinafter mentioned, you are not to engage in the solicitation of any
Offerees, and you have not participated in an advisory or consulting capacity
to the Company or HTE in connection with the Offering.
We have agreed to compensate you by using our best efforts to have you
included as manager or co-manager of any underwritten public or private equity
financing by either HTE or the Company which commences prior to September 1,
2001. We have also agreed to reimburse your reasonable out of pocket expenses,
including legal fees and disbursements, in connection with this Agreement.
1. Representations of the Company and HTE. The Company and HTE jointly
and severally represent and warrant to you the following.
a. The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-93445), including the related preliminary prospectus, for the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of the
Rights and the underlying shares of the Company's common stock (the "Shares").
Copies of such registration statement and of each amendment thereto, if any,
including the related preliminary prospectus (meeting the requirements of Rule
430A of the rules and regulations of the Commission) heretofore filed by the
Company with the Commission have been delivered to you.
b. The term "Registration Statement" as used in this Agreement
shall mean such registration statement, including all exhibits and financial
statements, all information
<PAGE> 2
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Rights (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall
also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Rights and the Shares first filed with the
Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall also
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term "Preliminary Prospectus" as used in this Agreement shall mean each
preliminary prospectus included in such registration statement prior to the
time it becomes effective.
c. The Registration Statement has been declared effective under
the Securities Act, and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. The Company has
caused to be delivered to you copies of each Preliminary Prospectus and has
consented to the use of such copies for the purposes permitted by the
Securities Act.
d. The Company and HTE each has full corporate power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and HTE and constitutes a valid and binding obligation
of the Company and HTE enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium laws affecting creditors' rights
generally and except as to those provisions relating to indemnity for
liabilities arising under federal and state securities laws. The making and
performance of this Agreement by the Company and HTE and the consummation of
the transactions contemplated hereby (i) will not violate any provisions of the
Articles of Incorporation, Bylaws or other organizational documents of the
Company or HTE or any of their subsidiaries, and (ii) will not conflict with,
result in a material breach or material violation of, or constitute, either by
itself or upon notice or the passage of time or both, a material default under
(A) any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company, HTE or any of their
subsidiaries is a party or by which the Company, HTE or any of their
subsidiaries or any of their respective properties may be bound or affected, or
(B) any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company, HTE or any of its subsidiaries or
any of their respective properties. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body that has not already been obtained is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with the
Securities Act and the Blue Sky laws applicable to the Offering.
- 2 -
<PAGE> 3
e. The Registration Statement and the Prospectus comply, and on
the closing date of the Offering (the "Closing Date") the Prospectus will
comply, in all material respects, with the provisions of the Securities Act and
the rules and regulations of the Commission thereunder (the "Rules and
Regulations"); on the Effective Date, the Registration Statement did not
contain any untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the Prospectus
did not and, on the Closing Date, the Prospectus (as then amended or
supplemented, if amended or supplemented) will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
f. The Rights and the Shares are duly authorized, are validly
issued, fully paid and nonassessable and conform to the description thereof in
the Prospectus. No further approval or authority of the shareholders or the
Board of Directors of the Company or HTE will be required for the issuance of
the Rights or the Shares as contemplated by the Prospectus.
2. Covenants of the Company and HTE. The Company and HTE jointly and
severally covenant and agree with you as follows:
a. The Company will not file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you shall have objected
or which is not in compliance with the Securities Act or the Rules and
Regulations.
b. The Company will promptly notify you in the event of (i) the
request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement, (iii) the institution or notice of intended
institution of any action or proceeding for that purpose, (iv) the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Rights or Shares for sale in any jurisdiction, or (v) the
receipt by it of notice of the initiation or threatening of any proceeding for
such purpose. The Company will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be
issued, to obtain the withdrawal thereof at the earliest possible moment.
c. The Company will on or before the Closing Date deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you).
d. If at any time during the period in which a prospectus is
required by law to be delivered upon the issuance of the Rights or Shares, any
event relating to or affecting the Company shall occur as a result of which it
is necessary, in the opinion of counsel for the Company, to supplement or amend
the Prospectus in order to make the Prospectus not
- 3 -
<PAGE> 4
misleading in the light of the circumstances existing at the time it is
delivered to an Offeree, the Company will forthwith prepare and file with the
Commission a supplement to the Prospectus or an amended prospectus so that the
Prospectus as so supplemented or amended will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances existing at the
time such Prospectus is delivered to such purchaser, not misleading. Prior to
the filing thereof with the Commission, the Company will submit to you, for
your information, a copy of any post-effective amendment to the Registration
Statement and any supplement to the Prospectus or any amended prospectus
proposed to be filed.
e. Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
3. Indemnification.
a. The Company and HTE jointly and severally agree to indemnify
and hold harmless you and each person (including each partner or officer
thereof) who controls you within the meaning of Section 15 of the Securities
Act from and against any and all losses, claims, damages or liabilities, joint
or several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the common law or otherwise, and the Company and HTE
jointly and severally agree to reimburse you and each such controlling person
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any posteffective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The indemnity
agreements of the Company and HTE contained in this Section 3 (a) and the
representations and warranties of the Company and HTE contained in Section 1
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of the Rights and the delivery of and payment for the Shares.
- 4 -
<PAGE> 5
b. Each party indemnified under the provision of Section 3a
above agrees that, upon the service of a summons or other initial legal process
upon it in any action or suit instituted against it or upon its receipt of
written notification of the commencement of any investigation or inquiry of, or
proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such Section, it will promptly give
written notice (the "Notice") of such service or notification to the party or
parties from whom indemnification may be sought hereunder. No indemnification
provided for in such Section 3a shall be available to any party who shall fail
so to give the Notice if the party to whom such Notice was not given was
unaware of the action, suit, investigation, inquiry or proceeding to which the
Notice would have related and was prejudiced by the failure to give the Notice,
but the omission so to notify such indemnifying party or parties of any such
service or notification shall not relieve such indemnifying party or parties
from any liability which it or they may have to the indemnified party for
contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (the "Notice of Defense") to the indemnified party, to assume (alone or
in conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or
parties, by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i)
if the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under Section 4 for any legal
or other expenses subsequently incurred by the indemnified party or parties in
connection with the defense of the action, suit, investigation, inquiry or
proceeding, except that (A) the indemnifying party or parties shall bear the
legal and other expenses incurred in connection with the conduct of the defense
as referred to in clause (i) of the proviso to the preceding sentence and (B)
the indemnifying party or parties shall bear such other expenses as it or they
have authorized to be incurred by the indemnified party or parties. If, within
a reasonable time after receipt of the Notice, no Notice of Defense has been
given, the indemnifying party or parties shall be responsible for any legal or
other expenses incurred by the indemnified party or parties in connection with
the defense of the action, suit, investigation, inquiry or proceeding.
c. Neither the Company nor HTE will, without your prior written
consent, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim,
- 5 -
<PAGE> 6
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not you or any person who controls you within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of you and each such
controlling person from all liability arising out of such claim, action, suit
or proceeding.
4. Reimbursement of Certain Expenses. The Company and HTE hereby
jointly and severally agree to reimburse you on a monthly basis for all
reasonable legal and other expenses incurred in connection with investigating
or defending any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 3a of this Agreement,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligations under this Section 4 and the possibility that
such payments might later be held to be improper; provided, however, that (i)
to the extent any such payment is ultimately held to be improper, the persons
receiving such payments shall promptly refund them and (ii) such persons shall
provide to the Company, upon request, reasonable assurances of their ability to
effect any refund, when and if due.
Very truly yours,
H.T.E., INC.
By:
-------------------------------------
Title:
----------------------------------
DEMANDSTAR.COM, INC.
By:
-------------------------------------
Title:
----------------------------------
ACCEPTED AND AGREED
JANNEY MONTGOMERY SCOTT LLC
By:
-------------------------------------
Title:
----------------------------------
- 6 -
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report (and to all references to our firm) included in or made a part of
this registration statement on Form S-1.
/s/ Arthur Andersen LLP
Orlando, Florida,
March 23, 2000
