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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-26194
SEER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3556562
(State of incorporation) (I.R.S. Employer
Identification No.)
8000 Regency Parkway, Cary, North Carolina 27511
(Address of principal executive offices, including Zip Code)
(919) 380-5000
(Registrant's telephone number, including area code)
-------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 12, 1996 was approximately $21,316,926.00. There were
11,635,100 shares of Common Stock outstanding as of December 12, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof.
Exhibit Index appears on Page E-1.
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SEER TECHNOLOGIES, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 1996
Table of Contents
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Item Page
Number Number
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<C> <S> <C>
PART I
1. Business......................................................................................... 1
2. Properties....................................................................................... 9
3. Legal Proceedings................................................................................ 9
4. Submission of Matters to a Vote of Security Holders.............................................. 9
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............................ 10
6. Selected Financial Data.......................................................................... 10
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 12
8. Financial Statements and Supplementary Data...................................................... 19
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 19
PART III
10. Directors and Executive Officers of the Registrant............................................... 19
11. Executive Compensation........................................................................... 20
12. Security Ownership of Certain Beneficial Owners and Management................................... 20
13. Certain Relationships and Related Transactions................................................... 20
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................. 20
SIGNATURES............................................................................................ 26
INDEX TO FINANCIAL STATEMENTS......................................................................... F-1
INDEX TO EXHIBITS..................................................................................... E-1
</TABLE>
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PART I
Item 1. Business.
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GENERAL
Seer Technologies, Inc. ("Seer" or the "Company"), a software leader and
pioneer in a $2 billion market, which is expected to reach $7 billion by 2001,
enables Fortune 1000 companies to efficiently run their businesses and maintain
a competitive edge by providing a suite of enabling software technology and
services. This suite contains application development software, middleware and,
in 1997, componentware, currently under development in Seer's labs. Companies
use this to build new applications and integrate existing large-scale, mission-
critical, distributed applications that can be simultaneously deployed across
entire enterprises to thousands of end users around the world.
Seer has a blue chip customer base, including some of the largest companies
in the world, such as Credit Suisse, Federated Department Stores, Den Danske
Bank, Sikorsky Aircraft, and Wells Fargo Bank. These organizations face the need
to develop highly reliable software systems processing as few as 10 transactions
per day or in excess of 10 million transactions per day. The systems they
develop need to be distributed to up to thousands of concurrent end users, who
may be based on virtually any hardware platform, including the Internet and
intranets, in multiple locations.
In addition, Seer's alliances with leading information technology companies
like International Business Machines Corporation ("IBM"), Microsoft Corp.,
Hewlett-Packard Company, Tandem Computer, Inc., and AT&T Corp., allow access to
the most important and timely platform information.
Seer's products have consistently achieved the highest accolades from its
customers. That strength gives management a foundation on which to build a
profitable and growing company. Under the direction of a new chief executive
officer, Thomas A. Wilson, who joined the company in September 1996, the Company
is implementing a plan to transition Seer from a technology-driven company to a
market-driven company and to achieve improved results in 1997 and beyond. This
transition is critical, because it will allow Seer to properly present and prove
to the marketplace, for the first time, that it stands alone in the
marketplace - because of its current suite of enabling technology, coupled with
the future technology being developed and tested in Seer labs.
The Company was incorporated in March 1990 as a joint endeavor between IBM
and CS First Boston Securities Corporation ("FBS"). Although IBM now holds less
than a one percent equity interest in the Company, it remains an important
strategic partner. In June and September 1994, the investment firm of Welsh,
Carson, Anderson and Stowe VI L.P. ("WCAS"), together with certain of its
affiliates, acquired an approximately 83.9% equity interest in the Company. The
Company completed its initial public offering of 3,093,397 shares of Common
Stock in July 1995, and sold 2,094,143 shares of Series A Convertible Preferred
Stock ("Preferred Stock") to WCAS and certain of its affiliates in August 1996.
Each share of Preferred Stock may be converted at the holder's option into one
share of Common Stock, subject to adjustment under certain circumstances.
Holders of Preferred Stock are entitled to vote together with the holders of
Common Stock on all matters to be voted on by the Company's stockholders. As of
December 12, 1996, WCAS and its affiliates had the power to vote 66.4% of the
outstanding voting stock of the Company.
Financial Information About Industry Segments
The Company operates in only one business segment. See the Company's
consolidated financial statements at Item 14.
1
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PRODUCTS AND SERVICES
Seer*HPS
Seer*HPS (High Productivity System) is a scalable, flexible application
development environment, which allows organizations to design, build and deploy
robust network-centric applications. Specifically, Seer*HPS gives development
organizations the ability to:
. Create distributed computing applications among diverse servers;
. Seamlessly integrate mainframe systems with distributed applications;
. Easily build and deploy applications across multiple operating systems,
databases, protocols and communication paradigms;
. Choose development approaches;
. Develop reusable application components;
. Employ team-based development; and
. Quickly utilize add-on templates, models and integration packages.
Business needs today dictate network-centric applications which can execute
across multiple operating platforms including the Internet and intranet. In
addition, these applications may need to routinely process high volumes of
transactions per second and/or serve thousands or tens of thousands of
concurrent end users. Seer*HPS is specifically architected to produce
applications that meet these complex, mission-critical needs.
Seer*HPS accomplishes this with several key features, including a
sophisticated workgroup repository and integrated middleware which, in turn,
provide for:
. Automated application partitioning: Automatically partition multi-tier,
distributed computing applications to take full advantage of the appropriate
processing power, data, and presentation resources on the most suitable
platform.
. Mainframe connectivity: Easily integrate a mainframe into a distributed
application to take full advantage of the existing application resources, high
volume transaction throughput, and ability to support thousands of concurrent
end users inherent in mainframe systems.
. Fault tolerant options: Integrated middleware provides data-dependent and
alternative transaction routing and server replication which allows an
application to remain active seven days a week, twenty-four hours a day.
In addition, complex network-centric systems often require a team approach
to development. Seer*HPS addresses these critical needs by providing a multi-
user development repository.
Repositories can be scaled to support all levels of development, from the
department (5-20 developers) to the enterprise (20-100+ developers). The
Seer*HPS development repository is specifically designed to support concurrent,
team-based development with specialized project management and application
development coordination features.
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Mainframe connectivity
Preserving and extending mainframe assets is a major concern for many
organizations - legacy data, applications, and investments simply cannot be
discarded. In addition, mainframes offer significant computing and data storage
capabilities.
Seer*HPS is ideal for IT organizations needing a full life cycle, model-
based development environment for the enterprise or a construction-oriented
development product for the department. In both cases, Seer*HPS provides a
robust development and deployment product suite for building large-scale,
complex network-centric applications.
To expand or extend the life of these assets, Seer*HPS provides a complete
integration solution for mainframe-based applications. Options include:
. Mainframe development: Seer*HPS offers a Windows NT and OS2 workstation-based
development environment and a mainframe development option.
. Mainframe application extension: Alternatively, existing mainframe CICS
applications can be integrated into distributed computing applications running
on Windows NT or UNIX servers and Windows clients via Seer*HPS's integrated
middleware.
Technology Independence
Seer*HPS incorporates sophisticated middleware and a complete development
environment to provide developers an open, turn-key infrastructure for network-
centric applications. Developers are shielded from the complexities associated
with building applications for multiple operating platforms, databases,
networking protocols, communication paradigms, and languages. Using Seer*HPS, IT
organizations can easily build and deploy, and even re-deploy, applications for
multiple platforms including the Internet and intranet from a single design.
Industry Standard Development Environment
Seer*HPS provides developers with the comfort of using the industry
standard Windows NT platform or IBM's OS/2 platform. The workgroup repository
may reside on either Windows NT, HP-UX, Solaris, or AIX, and can connect to an
enterprise repository on MVS-based devices.
This allows IT organizations to "standardize" development on the platform
of choice while leveraging corporate investments in existing systems and
provides an open route to future network configurations.
Flexible Development Approach
There is no "silver bullet" approach for developing complex network
applications today. Most IT organizations use varying methods based on the type
of application to be delivered.
An enterprise will typically employ a rigorous method or model-driven
approach, whereas a department needing to quickly deploy a smaller scale
client/server application will use a construction or
3
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Rapid Application Development (RAD) approach. Seer*HPS supports both the model-
driven and construction approaches for building network-centric applications.
When a model-driven approach is used, Seer*HPS developers can automatically
generate network-centric applications based on their models. No manual
transformations are required. Using a construction approach, developers actually
prototype and test applications from the developer's workstation.
Additionally, Seer offers a complete methodology product and consulting
service for those IT organizations that do not have a formal development method.
Team Based Development
The most robust application ever built is of little use if not delivered
when needed. Seer*HPS can speed the development and deployment process through
an integrated multi-user repository. Complex applications can be broken down
into smaller components that can be developed by different members of a
development team.
Reuse of these components enables future applications to be built faster,
with a higher assurance of quality, and with improved and consistent "look and
feel" through standardization. The Seer*HPS repository can support development
teams from five to 100+ developers. True scalability from the department to the
enterprise is provided.
Proven in Production
Seer has been bringing mission-critical computing power to application
development for nearly a decade. Seer*HPS significantly expands upon the
Company's proven record for delivering innovative network-centric development
products.
Seer*HPS is designed in a modular way to allow the development environment
to grow and change as the needs of the users change. Add-on enhancements include
modules, templates, and integration packages. Additional developer seats,
repositories, and execution server platforms may be easily and simply
integrated.
NetEssential
Since 1990, Seer has provided client/server tools that have helped
customers at leading companies build and deploy large-scale, complex distributed
systems serving thousands of end users. NetEssential has been the middleware
engine enabling the interoperability and management of these applications across
multiple platforms.
NetEssential middleware is the operational and management "glue" that
application developers use to integrate new, enhanced, and legacy applications
without regard to the application environment. NetEssential sits between the
network or operating system layer and the application layer. It enables
developers of new applications to focus on solving business needs rather than
understanding the intricacies of each combination of operating system, protocol,
Relational Database Management Systems (RDBMS), and communication paradigms.
4
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NetEssential allows incorporation of legacy systems into new distributed
computing systems, thereby extending the life of (and investment in) existing
applications, enables applications to be ported from one platform to another
quickly and easily, provides increased managability of distributed applications
across the enterprise, and gives IT management additional ways to build high
availability into the applications. Most importantly, NetEssential is proven
technology-already successfully in use around the world in some of the most
demanding computing environments.
NetEssential 3.0, a standalone version of Seer's middleware that management
plans to launch in fiscal 1997, represents the latest advances in middleware
technology. Applications built using this technology are already in production
successfully worldwide at a variety of challenging computing sites. These
applications include the back office functions of a multi-national banking
operation, the trading desk applications at one of the world's foremost
securities company, decision support systems at major retail and manufacturing
companies, and customer billing applications at a large telecommunications
operation.
SALES AND MARKETING
Sales
The Company's direct sales staff has substantial knowledge of the Company's
products, as well as general experience in the software industry. Seer's field
sales force is headed by three General Managers, each of whom is assigned a
different geographic responsibility - one for the Americas, one for Europe,
Middle East and Africa ("EMEA") and one for the Asia Pacific region. Their
respective operations are divided into new sales and existing customer
partnerships. The Company's sales strategy emphasizes (i) decentralized,
geographically-based management, (ii) direct and indirect sales channels,
(iii) existing account management, (iv) compensation based on achievement of
specific sales objectives and (v) the establishing of additional marketing
partnerships. Revenue for each of the Americas, the EMEA and the Asia Pacific
regions for fiscal 1996 were $42.3 million, $49.5 million and $5.1 million,
respectively. As a percentage of the Company's total revenue, the Americas, EMEA
and the Asia Pacific regions for fiscal 1996 accounted for 43.7%, 51.1% and
5.3%, respectively.
The Company's products have historically been designed for use primarily in
large-scale, complex computing environments. A customer's decision to use
Seer*HPS involves a substantial financial commitment, including the license
cost, consulting and deployment service costs and training expenses as well as a
substantial commitment of personnel resources. Accordingly, a decision to
purchase Seer products typically has been made by a customer's senior
management. As a result, the sales cycle for Seer*HPS historically has been
relatively lengthy, averaging nine to 12 months. The Company's sales process
follows a "solution selling" methodology based on identifying and meeting the
needs of a business.
The Company's sales strategy will continue to involve a complete evaluation
of the customer's business followed by the identification and sale of products
that will meet the customer's immediate production requirements and provide it
with flexibility to scale up or down in the future.
Marketing
Because the Seer solution operates across numerous hardware platforms,
databases, application types and operating systems, a key component of the
Company's marketing strategy is the establishment of strategic alliances with
key vendors in the computer industry. Accordingly, the Company maintains
strategic marketing alliances with systems vendors (including AT&T, Compaq,
Hewlett-Packard, Intel and IBM), with database vendors (such as Informix, Oracle
and Sybase) and with Microsoft, the leading vendor of desktop operating systems
and productivity applications and a recent entrant into the client/server
operating systems sub-market.
5
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These alliances provide for the joint marketing of the participants'
products and enable the Company to:
. Establish and maintain marketing relationships with strategic hardware
and software vendors to ensure that joint opportunities deliver the
most effective solutions to Seer and its customers; and
. Obtain pre-release software, equipment loans and discounts for
development, quality assurance, support, prototyping and other
development activities that enable Seer to demonstrate and deliver more
comprehensive solutions to its customers in a more timely fashion.
The Company's most important strategic alliance, both historically and at
present, is with IBM, one of the Company's original stockholders. Transactions
resulting from the Company's relationship with IBM accounted for approximately
65%, 70% and 65% of the Company's revenues for fiscal 1996, fiscal 1995 and
fiscal 1994 respectively, and an even greater portion of the Company's
international revenues for each of those periods. Seer's relationship with IBM
exists on both a formal (in terms of a series of contractual relationships) and
an informal basis.
For example, the Company has entered into a series of cross-industry
marketing agreements with IBM pursuant to which IBM markets the Company's
products on a non-exclusive basis in the United States, Canada, Puerto Rico and
the Asia/Pacific region, excluding Japan. In Japan, IBM has a non-exclusive
right to market and an exclusive right to distribute Seer products and services
to the financial services industry until September 1997. In Europe, IBM acts as
a non-exclusive marketer and distributor of the Company's products to IBM
customers. Although IBM plays a significant role in introducing the Company to
new customers in international markets, the Company's sales force is actively
involved in virtually all sales of the Company's product and provides crucial
support for the selling process.
The Company's marketing team consists of a Senior Vice President, Worldwide
Marketing, who oversees a Director of Marketing Programs and a Product
Management Director. A series of product managers responsible for different
products and applications reports to the Product Management Director and
addresses functionality and delivery programs.
TARGET MARKETS
In general, Seer's target market is the global Fortune 500 companies who
need to construct large-scale, complex mission-critical client/server
applications. This need is derived from a business situation and/or opportunity
in which management has decided to build an application rather than purchase
one. Typically, these decisions are driven by the need for companies to maintain
or establish competitive differentiation within their respective marketplaces.
Budgets for these projects typically fall in the millions of dollars.
From a systems environment standpoint, these companies have the need to
deploy applications across multiple operating systems, databases and computing
platforms. The mainframe plays a key role in their enterprise computing
environments both from a legacy and new systems development standpoint. The
application will be required to scale from hundreds of users to potentially
thousands of end users. The application profile includes:
. Complex business logic;
. Transaction-based processing;
. Distribution across multiple computing platforms; and
. High performance and throughput.
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Seer addresses this market with two integrated solutions and plans to add a
third by the end of fiscal 1997. First, with its middleware product,
NetEssential, Seer provides customers with a middleware infrastructure allowing
distributed application components to be interoperated and managed in a
heterogeneous systems environment without re-architecture of their existing or
legacy applications.
Then, with the Company's completely integrated application development
toolset, Seer*HPS, companies can build new repository-based, model-driven
distributed applications that can be integrated with their existing and legacy
applications leveraging NetEssential Middleware to link and manage distributed
applications.
Finally, by the end of fiscal 1997, Seer plans to market its application
assets to the finance industry. Seer's application asset library is currently
made up of templates that support 20 major functional areas of global securities
processing.
In addition, Seer has recently acquired the exclusive right to market the
Cambridge Model. The Cambridge Model enables banks and financial institutions to
manage their information, products, risk and customer service on a local or
worldwide basis. It allows the rapid development of applications employing
reusable objects and supports the migration of legacy systems and the
establishment of data warehouses while supporting business process re-
engineering. Seer provides the model and necessary services as standalone or
packaged with Seer*HPS.
Together or offered separately, these three initiatives offer customers a
comprehensive suite of products and seeks to address the lucrative distributed
computing application market.
CUSTOMERS
Industries that are significantly represented in the Company's customer
base include banking, insurance, retail, manufacturing, data processing, public
utilities and transportation. A partial list of the Company's worldwide
customers using Seer*HPS is set forth below.
Industry Customer Name
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Transportation The Atchinson, Topeka and Santa Fe Railway Company
Manufacturing Sikorsky Aircraft Corporation
Retail Sales Federated Department Stores, Inc.
Finance/Banking Banca Commerciale Italiana
Credit Suisse (Schweizerische Kreditanstalt)
Key Services Corporation
Wells Fargo Bank
Government Data Processing Datacentralen A/S
As indicated above, the Company's customers are leading companies in a
broad range of industries that typically have a need for high-performance
software applications. A significant number of the Company's customers deploy
Seer*HPS to provide key strategic applications that enhance the competitiveness
of their core business and allow them to bring new products to market more
quickly. For example, key strategic applications for which Seer*HPS has been
used by the following customers include:
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Key Services This large American bank used Seer*HPS software to develop
Corporation an automated Total Customer Service system. The system,
which customer service representatives use 24 hours a day,
seven days a week, handles up to 1,200 calls per hour and
one million calls per month. Using Seer*HPS, Key Services is
able to reduce response times and the time required for each
call, increasing customer satisfaction while reducing costs.
Banca This large Italian bank is using Seer*HPS for its Scala 6
Commerciale project to overhaul the bank's information systems. The
Italiana focus of this project is to download the processing function
from a central site to over 900 branches connected in real
time, allowing branches to handle customer accounts and
databases and improve customer service. One funds transfer
application developed in Seer*HPS has been deployed to over
15,000 workstations.
Federated This leading U.S. retailer selected Seer for its migration
Department from a mainframe system containing 13 million megabytes of
Stores, Inc. data to a multi-tiered, distributed processing environment.
The system this client is developing will give associates in
500 stores across the country immediate access to crucial
business data, improving personal service and speeding
product development.
Datacentralen A/S A centralized Danish government computer service bureau
selected Seer software as a pivotal part of its move from
its legacy mainframe environment to a three-tiered
client/server architecture. Seer is helping Datacentralen
develop advanced, platform-independent systems for the
finance ministry and tax administration. A system currently
in development for the central government wage system will
manage wages for over 200,000 people monthly
The Company seeks to form "customer partnerships" whereby it works with a
customer to design a computer system that will meet the customer's production
requirements and long-term strategic needs. Seer has also formed customer
advisory boards that meet with customers approximately twice a year to obtain
feedback regarding the Company's products and services. In addition, the Company
holds annual customer conferences to present new information and address
customer concerns. It also receives a great deal of feedback through its
consulting services regarding the effectiveness of the Company's products in
meeting customer needs.
RESEARCH AND PRODUCT DEVELOPMENT
The Company believes that the timely development of new products and
enhancements to existing products is essential to maintain its competitive
position. Delays or difficulties associated with new products or product
enhancements could have a material adverse effect on the Company's business,
operating results and financial condition. The Company conducts research and
development to enhance its existing products and to build new products, both
complementary to the existing product line and in new functional areas.
COMPETITION
The market for client/server application development tools and related
consulting services is intensely competitive and characterized by rapid changes
in technology and evolving industry standards. To maintain or improve its
position in this market, the Company must continue to enhance its current
products and develop new products in a timely fashion. The Company believes that
competition in the large-scale client/server applications tools market is based
primarily on functionality, scalability and resulting application performance.
The Company believes that Seer*HPS competes favorably in each of these areas.
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The Company's competition is different in each of its market areas. In the
mainframe-based systems market, the Company's products compete directly with
products such as Texas Instruments' Composer, Anteres Alliance Group's Object
Star, and Arthur Andersen & Co.'s Foundation. In the middleware market, the
principal competitive products for NetEssential are Peer Logic's Pipes, Open
Environment Corporation's Entera, Precise Software's PRECISE, and TIBCO's
Rendezvous. Several of the Company's competitors have longer operating
histories; greater financial, technical, sales, marketing and other resources;
greater name recognition; more extensive marketing, distribution and sales
networks; and a larger, more established customer base.
EMPLOYEES
As of September 30, 1996, Seer had a total of 758 employees. Of these
employees, 186 were engaged in software sales, marketing and technical support,
55 in administration, 161 in research and development and 356 in consulting and
training. The Company's continued success is dependent on its ability to attract
and retain qualified employees. To date the Company believes it has been
successful in this endeavor. However, due to the intense competition for
personnel in the software industry, there can be no assurance that the Company
will be successful in the future. The Company's employees are not represented by
a union or a collective bargaining agreement, and the Company considers its
relations with its employees to be good.
Item 2. Properties.
The Company's principal executive offices are located in approximately
106,000 feet of leased space in Cary, North Carolina. As of September 30, 1996,
the Company also leased 27 additional offices to provide consulting services to
its clients and to facilitate the distribution of its products. In the United
States, Seer's offices are located in New York, New York; Boston, Massachusetts;
Washington, D.C.; Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; and San
Francisco, California. The Company also leases office space abroad in Canberra,
Melbourne and Sydney, Australia; Sao Paulo, Brazil; Mexico City, Mexico;
Toronto, Canada; Copenhagen, Denmark; Gent, Belgium; London, England (2
offices); Paris, France; Frankfurt, Germany; Rome, Italy; Milan, Italy; Madrid,
Spain; Nieuwegein, The Netherlands; Singapore; Hong Kong; Capetown, South Africa
and Stockholm, Sweden. The Company also maintains an office in Limerick, Ireland
on a set fee arrangement.
Item 3. Legal Proceedings.
From time to time, the Company is a party to routine litigation incidental
to its business. As of the date of this Report, the Company was not engaged in
any legal proceedings that are expected, individually or in the aggregate, to
have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The Common Stock of the Company is traded on the Nasdaq Stock Market under
the symbol SEER. The Company has never declared or paid any cash dividends on
its Common Stock. The Company anticipates that all of its earnings will be
retained for the operation and expansion of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future. The Company's
credit agreements contain certain restrictive covenants which, among other
things, require the Company to maintain a minimum tangible net worth and
restrict the Company's ability to pay dividends. The chart below sets forth the
high and low stock prices for the quarters since the commencement of trading
following the Company's initial public offering on June 30, 1995.
Fiscal Year 1995 Fiscal Year 1996
Quarter High Low High Low
------- ---- --- ---- ---
1st N/A N/A $19.00 $10.75
2nd N/A N/A $13.50 $4.875
3rd $22.00 $20.25 $10.00 $4.75
4th $22.00 $13.00 $ 8.00 $5.00
The closing price of the Common Stock on September 30, 1996 was $6.00 per
share. As of December 12, 1996, the Company had 298 registered shareholders of
record.
Item 6. Selected Financial Data.
The following selected financial data is derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included herein.
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SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<S>
Nine Fiscal
Fiscal Year Ended Months Ended Year Ended
Sept. 30, Sept. 30, Dec. 31,
---------------------------------------- ------------ ----------
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
(in thousands, except per share
amounts)
Total revenue $ 96,943 $117,180 $82,693 $48,901 $21,466 $20,039
Gross profit 38,609 72,542 44,901 29,378 12,836 11,508
Income (loss) from operations (45,112) 9,254 3,451 1,972 (1,717) (278)
Net income (loss) (31,582) 5,152 2,361 980 (2,501) 333
Pro forma net income per
common share (2.76) 0.45 0.21 0.09
======= ======== ======= =======
Pro forma weighted average
common shares outstanding 11,445 11,507 10,986 10,919
======= ======== ======= =======
Balance Sheet Data:
Working capital $ 3,963 $ 34,087 $ 4,777 $ 3,928 $ 5,232 6,677
Total assets 78,804 76,444 37,363 25,049 15,318 14,705
Total Debt 14,379 - 2,700 - - -
Senior redeemable
preferred stock - - 13,195 - - -
Series A preferred stock 12,302 - - 20,875 17,844 16,000
Total stockholders' equity
(capital deficiency) 30,053 48,438 (2,096) (12,934) (10,820) (6,441)
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The Company has three categories of revenue: software products, maintenance
and services. Software products revenue is comprised primarily of fees from
licensing the Company's proprietary software products and, to a much lesser
extent, from product development contracts. Maintenance revenue is comprised of
fees for maintaining, supporting and providing periodic upgrades of the
Company's software products. Services revenue is composed primarily of fees for
consulting and training services.
Consistent with the American Institute of Certified Public Accountants
Statement of Position 91-1, "Software Revenue Recognition," the Company
allocates a portion of the software license fee to initial period maintenance
when the maintenance period is greater than three months. The remainder is
recognized as license fee revenue upon delivery of the software product to, and
acceptance by, the customer. Revenue from the initial period and subsequently
priced maintenance agreements is recognized ratably over the term of the
agreement. Consulting and training services revenue is recognized as the
services are performed.
The Company's revenues vary from quarter to quarter, with the largest
portion of revenue typically recognized in the last month of each fiscal quarter
and the third and fourth quarters of each fiscal year. The Company believes that
these patterns are partly attributable to the Company's sales commission
policies, which compensate sales personnel for meeting or exceeding quarterly
and annual quotas, and to the budgeting and purchasing cycles of customers.
Furthermore, as the size of individual sales is large, a single account may have
a significant impact on a quarter. In addition, the substantial commitment of
executive time and financial resources historically required of a potential
customer to make a decision to purchase the Company's products increases the
risk of quarter-to-quarter fluctuations. The Company typically does not have a
material backlog of unfilled software orders, and product revenue in any quarter
is substantially dependent upon orders received in that quarter. In addition,
the Company's services revenue may fluctuate from quarter to quarter due to the
completion or commencement of significant assignments, the number of working
days in a quarter and the utilization rate of services personnel. Because the
Company's operating expenses are based on anticipated revenue levels and are
relatively fixed over the short term, variation in the timing of recognition of
specific anticipated revenue can cause significant variations in operating
results from quarter to quarter. Fluctuations in operating results may result in
volatility in the price of the Company's common stock.
In fiscal year 1997, management intends to implement certain changes in the
Company's business practices. The focus of these efforts is to better align
products to customer needs and to establish long-term "partnerships" between the
Company and its customers. These changes are expected to lessen the impact on
revenues of individual sales to a customer and reduce the variations in
operating results from quarter to quarter.
This report contains forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause its actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
Company's performance, development and results of operations may be affected by
the risks presented by: (i) continued market acceptance of the Company's
technology; (ii) fluctuations in quarterly operating results and volatility of
the price of the Company's common stock; (iii) competition; (iv) the Company's
reliance on its relationship with IBM; (v) customer concentration; (vi) the
potential failure to meet product delivery dates; (vii) matters relating to
international operations; and (viii) intellectual property and proprietary
rights. Other risks are also presented. The Company's Registration Statement on
Form S-1 (Registration N. 33-92050) contains a full description of the risks
presented by the Company's operations.
12
<PAGE>
Results of Operations
The following table sets forth, for the years indicated, the Company's
results of operations expressed as a percentage of revenue.
<TABLE>
<CAPTION>
For the Years Ended September 30,
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Revenue:
Software products 29.7% 47.3% 45.7%
Maintenance 13.6% 9.5% 8.9%
Services 56.7% 43.2% 45.4%
------ ----- -----
Total 100.0% 100.0% 100.0%
Cost of revenue:
Software products 1.6% 0.5% 0.4%
Maintenance products 8.6% 6.4% 5.1%
Services 50.0% 31.2% 40.2%
------ ----- -----
Total 60.2% 38.1% 45.7%
Gross profit 39.8% 61.9% 54.3%
Operating expenses:
Sales and marketing 45.4% 33.6% 28.0%
Research and product development 17.3% 12.4% 14.2%
General and administrative 20.5% 8.0% 7.9%
Restructuring charges 3.1% - -
------ ----- -----
Total 86.3% 54.0% 50.1%
Other income (expense), net (0.2)% (0.4)% (0.1)%
------ ----- -----
Income (loss) before taxes (46.7)% 7.5% 4.1%
Income tax provision (benefit) (14.1)% 3.1% 1.3%
------ ----- -----
Net income (loss) (32.6)% 4.4% 2.8%
====== ===== =====
</TABLE>
13
<PAGE>
The following table sets forth data for total revenue by geographic origin as a
percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States 31.3% 27.5% 37.0%
Mexico/Canada 6.0% 4.4% 2.4%
South America 6.4% 3.1% 3.3%
Europe 48.2% 57.4% 50.4%
Middle East/Africa 2.8% 3.3% -
Asia Pacific 5.3% 4.3% 6.9%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Year Ended September 30, 1996 Compared to the Year Ended September 30, 1995
Revenue. The Company's total revenue decreased 17% for fiscal year 1996 as
compared to the previous year. The decrease was primarily attributable to a
decrease in software products revenue, which was partially offset by increases
in maintenance revenue and services revenue. Total revenue remained relatively
constant in the Asia Pacific region and increased 3% in North and South America.
In the Europe, Middle East, and Africa region, total revenue declined by 30%.
Software products. Software products revenue decreased 48% in fiscal year
1996 as compared to fiscal year 1995. While the Company was able to continue to
build business with existing customers, the lack of direction and focus both
internally and externally had a significant impact on the Company's ability to
reach new customers, resulting in a decline in the sales of new software
licenses. Software product sales to new customers as a percentage of total
software products revenue declined from approximately 60% in fiscal year 1995 to
27% in fiscal year 1996.
Maintenance. Maintenance revenue increased 18% in fiscal year 1996 as
compared to fiscal year 1995. Because substantially all of the Company's
existing customers have historically renewed their maintenance contracts, the
increase for fiscal year 1996 is primarily a result of new customers added
during fiscal year 1995 and the first three quarters of fiscal year 1996. As a
result of declining software sales during fiscal year 1996, maintenance revenue
is not expected to increase significantly from fiscal year 1996 to fiscal year
1997.
Services. Services revenue for the fiscal year 1996 increased 9% as
compared to the previous year. The increase in services revenue is due primarily
to services related to license sales made in the third and fourth quarters of
fiscal year 1995, as well as the expanded use of the Seer*HPS family of products
by existing customers for more numerous and complex applications.
Gross Profit. Total gross profit for fiscal year 1996 decreased 47% from
the previous year. Total gross margin decreased to 40% for fiscal year 1996 as
compared to 62% in fiscal year 1995. These decreases are due primarily to the
decrease in software revenue as a percentage of total revenue in fiscal year
1996.
Software gross margin decreased to 95% for fiscal year 1996 as compared to
99% for fiscal year 1995. The decline is a result of lower software revenue and
higher software amortization during fiscal year 1996. The $1.0 million increase
in amortization resulted from costs associated with Seer*HPS 5.3, which began to
be amortized when it became generally available in the first quarter of fiscal
year 1996, and Seer*HPS for Windows NT (previously named Seer/7000), which began
14
<PAGE>
to be amortized when it became generally available in the fourth quarter of
fiscal year 1996.
Maintenance gross margins increased to 37% for fiscal year 1996 as compared
to 33% for fiscal year 1995. The improvement in maintenance gross margins for
fiscal year 1996 was primarily due to an 18% increase in revenue from first year
and renewal contracts, offset by an 11% increase in associated headcount and
other expenses.
Services margins for fiscal year 1996 decreased to 12% as compared to 28%
for fiscal year 1995. The decline in services margin is primarily a result of a
34% increase in the costs associated with headcount, outside contractors and
other consulting obligations while services revenue increased by only 9% for
fiscal year 1996.
Sales and Marketing Expense. Sales and marketing expense for fiscal year
1996 increased 12% as compared to the previous year. The increase is the result
of the expansion of the Company's sales force worldwide prior to the
restructuring discussed below, as well as an increase in certain commissions.
Average sales and marketing headcount increased 10% during fiscal year 1996 as
compared to fiscal year 1995. The 1996 amounts were also impacted by $.9 million
of marketing expenses recorded in conjunction with the sale of software to a
large customer in Europe and an increase of $.2 million in commissions paid to
IBM for sales of the Company's software products in South America made by IBM.
Research and Product Development Expense. Research and product development
expense increased 16% for fiscal year 1996 compared to fiscal year 1995. The
increase is primarily a result of personnel additions to develop and test new
products. Costs associated with headcount and outside contractors which were
expensed increased 13% for the fiscal year 1996 from the fiscal year 1995.
Capitalization of costs related to the development of Seer*HPS for Windows NT
(previously named Seer/7000), partially offset the impact of personnel additions
on the year's research and development expense in comparison to the prior year.
Costs capitalized for software development increased approximately $.7 million
for fiscal year 1996.
General and Administrative Expense. General and administrative expenses for
fiscal year 1996 were most significantly impacted by certain nonrecurring
adjustments. In the fourth quarter of fiscal year 1996, the Company recorded
allowances of $10.1 million for certain accounts receivable whose collection is
considered uncertain and for a specific product-related settlement. Excluding
these nonrecurring charges, general and administrative expense increased only 4%
from fiscal year 1995 as a result of increased headcount in the first half of
the fiscal year 1996 prior to the restructuring discussed below.
Restructuring Charges. During the third quarter of fiscal year 1996, the
Company developed and implemented a reorganizational plan which included, among
other things, a 9% staff reduction (75 employees) and the abandonment of certain
leased facilities. The Company recorded a restructuring charge of $3.0 million,
which consisted of approximately $1.4 million in personnel-related charges and
approximately $1.6 million of costs associated with carrying vacated leased
space until the lease expiration date. To date, the Company has paid
approximately $1.4 million in cash related to the restructuring. The Company
believes the accrued restructuring costs of $1.6 million at September 30, 1996
represents its remaining cash obligations.
Management is developing a plan for an additional restructuring which will
occur during the first quarter of fiscal year 1997.
Provision for Income Taxes. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Income taxes decreased from an expense of $3.7 million for
fiscal year 1995 to a benefit of ($13.7) million for fiscal year 1996. The
15
<PAGE>
effective income tax rate decreased from 41.5% for fiscal year 1995 to 30% for
fiscal year 1996. The decrease in the effective rate of 11.5% is primarily
attributed to lower foreign withholding taxes related to foreign software
license agreements and utilization of foreign tax credits.
The Company has net deferred tax assets of $17.6 million as of September
30, 1996, of which $4.7 million consists of foreign tax credits, research and
development tax credits, and alternative minimum tax credits. With respect to
deferred tax assets related to net operating loss carryforwards, it is the
opinion of management that is is more likely than not that the realization of
these deferred tax assets will occur in the future based on current earnings
forecasts, tax planning strategies, which include the potential sale of a line
of business and/or product assets, and reversals of future book-tax timing
differences.
With respect to foreign tax credits, research and development tax credits
and alternative minimum tax credits, management believes, based on several
factors, that the available objective evidence creates sufficient uncertainty
regarding the potential realization of these deferred tax assets due to the fact
that the net operating loss must be utilized before these credits. As a result,
valuation allowances have been recorded for foreign tax credits, research and
development tax credits, and alternative minimum tax credits. The factors which
create sufficient uncertainty include the unpredictability of the geographic
source of future software licenses, certain tax rules related to foreign source
income and foreign tax credits, and the historical level of annual foreign
withholding taxes. Management believes that, based on the available evidence, it
is more likely than not that the Company will not realize the deferred tax
assets related to foreign tax credits, research and development tax credits, and
the alternative minimum tax credits. The Company will continue to assess the
potential realization of these deferred tax assets based on actual and projected
operating results.
Year Ended September 30, 1995 Compared to the Year Ended September 30, 1994
Revenue. The Company's total revenues increased 42% to $117.2 million for
fiscal year 1995 from $82.7 million for the previous year.
Software products. Software products revenue for fiscal year 1995 increased
by 47% to $55.4 million as compared to $37.8 million in the previous year. The
increase occurred in the Europe, Middle East and Africa region where software
product revenue increased by 113% during fiscal year 1995 as a result primarily
of three purchases of the Company's Seer*HPS product which exceeded $5 million
each. The total software products revenue associated with these purchases was
$21.4 million. During fiscal year 1995 the Company expanded its selling and
marketing efforts in those regions and has gained continued market acceptance of
its products which allowed the Company to record sales to eighteen new customers
totaling $11.7 million in the North and South America region and six new
customers totaling $2.3 million in the Asia/Pacific region.
Maintenance. Maintenance revenue for fiscal year 1995 increased by 52% to
$11.1 million as compared to $7.3 million in the previous year. Because
substantially all of the Company's existing customers have historically renewed
their maintenance contracts, the increase is a result primarily of the Company
recording a full year of revenue for new customers added during fiscal year
1994. For fiscal year 1995, $10.3 million of maintenance revenue was generated
from customers that purchased software products prior to September 30, 1994.
Services. Services revenue for fiscal year 1995 increased 35% to $50.6
million as compared to $37.6 million in the previous year. The increase is
primarily due to expanded use of the Seer*HPS product by existing customers for
more numerous and complex applications. Approximately 85.4% of the Company's
services revenue, or $43.2 million, was generated from customers that purchased
software prior to September 30, 1994.
Gross Profit. Total gross profit for fiscal year 1995 increased 62% to
$72.5 million as compared to $44.9 million for the previous year. Total gross
16
<PAGE>
margin increased to 61.9% for fiscal year 1995 as compared to 54.3% in the
previous year primarily as a result of improving margins in the services area.
Software gross margin decreased to 99.0% for fiscal year 1995 as compared to
99.2% for the previous year as a result of higher amortization of capitalized
software, which is the largest component of the cost of software, in fiscal year
1995. Maintenance gross margins decreased to 32.9% for fiscal year 1995 as
compared to 42.3% in the previous year as a result primarily of pricing
discounts provided to several customers on long term maintenance commitments.
Additionally, the customer support staff was increased during the year to
accommodate the Company's growth. Average headcount in the customer support
department increased to 34 for fiscal year 1995 compared to 22 in the previous
year. Services gross margin increased to 27.7% for fiscal year 1995 compared to
11.4% for the previous year as a result of better utilization of the existing
consulting staff during fiscal year 1995. Average services headcount increased
by 13% to 313 during fiscal year 1995 compared to 278 in the previous year.
Sales and Marketing Expense. Sales and marketing expenses for fiscal year
1995 increased 70% to $39.4 million as compared to $23.1 million for the
previous year. Additionally, sales and marketing expense as a percent of revenue
increased to 33.6% for fiscal year 1995 compared to 28.0% in the previous year.
These increases are a result of the increased expansion of the Company's
worldwide sales force, increased promotional spending and the establishment of a
business development staff during fiscal year 1995 to develop strategic
relationships and alternate distributions channels for the Company's product.
Research and Product Development Expense. Research and product development
expenses for fiscal year 1995 increased 23% to $14.5 million compared to $11.8
million in the previous year. Research and product development costs relate
primarily to development efforts related to Seer*HPS version 5.3 and continuing
development of new products. Research and development expenses as a percent of
revenue decreased to 12.4% for fiscal year 1995 compared to 14.2% in the
previous year.
General and Administrative Expense. General and administrative expenses for
fiscal year 1995 increased 43% to $9.4 million compared to $6.6 million in the
previous year as a result primarily of personnel additions necessary to manage
and support the Company's growth. General and administrative expenses as a
percent of revenue increased to 8.0% for fiscal year 1995 compared to 7.9% in
the previous year.
Provision for Income Taxes. Income tax expense fiscal year 1995 increased
to $3.7 million from $1.0 million for fiscal year 1994. The effective income tax
rate increased to 41.5% for fiscal year 1995 from 30.5% for fiscal year 1994.
The increase in the effective rate of 11% is a result of increased profitability
of the Company and changes in the valuation allowance for certain deferred tax
assets. Also, the effective rate for fiscal year 1994 included a benefit from a
previous net operating loss carryforward which was not applicable in computing
the effective rate for fiscal year 1995.
Liquidity and Capital Resources
During fiscal year 1996, the Company's operating and capital requirements
were financed primarily through cash received from its initial public offering
during fiscal year 1995, borrowings under its credit facilities, and cash
received from the issuance of convertible preferred stock.
Cash used in operations increased to $36.2 million for fiscal year 1996
compared to $12.2 million and $.6 million for fiscal years 1995 and 1994,
respectively. The increased use of cash in operations in fiscal year 1996 is a
result of increases in operating expenses to support headcount growth in the
first half of fiscal year 1996, as well as declining software product sales. See
"Results of Operations" above. Cash flow from operations has also been
unfavorably impacted by an increase in the time of collection for the Company's
accounts receivable during fiscal year 1996, due partially to extended payment
terms granted to certain software customers.
Cash used in investing activities decreased to $4.4 million for fiscal year
1996 compared to $5.2 million for fiscal year 1995 and $4.3 million for fiscal
year 1994. The 1996 decrease was primarily the result of a $1.5 million decrease
in capital expenditures during fiscal year 1996 as compared to fiscal year 1995,
while the 1995 increase was a result of an increase in capital expenditures
during that year. Capital expenditures in fiscal year 1995 were primarily for
purchases of computer equipment for software development and support associated
with the Company's new product development. As of September 30, 1996, the
Company did not have any material commitments for capital expenditures.
17
<PAGE>
Cash provided by financing activities during fiscal year 1996 of $27.3
million resulted primarily from the Company's sale of Series A Convertible
Preferred Stock (the "Preferred Stock") in August 1996, which provided $12.3
million, net of associated costs. Net borrowings under the Company's lines of
credit also increased to $14.4 million for fiscal year 1996. Cash provided by
financing activities during fiscal year 1995 of $29.8 million resulted primarily
from the Company's initial public offering of Common Stock, which provided $49.4
million, net of associated costs. Proceeds of the offering were used to redeem
the Senior Redeemable Preferred Stock and accrued dividends of $15.6 million and
$15.1 million in borrowings under the Company's credit agreements. Cash provided
by financing activities during fiscal year 1994 resulted from net borrowings
under the Company's line of credit.
At September 30, 1996, the Company maintained two credit facilities (the
"Revolving Facility" and the "Guaranteed Facility") which provide for combined
borrowings of up to $32.5 million for working capital purposes based on the
Company's eligible accounts receivable, as defined in the loan agreements. The
Revolving Facility allows for borrowings of up to $20 million, bears interest at
the London Interbank Offered Rate ("LIBOR") plus 3.0%, and is collateralized by
the Company's accounts receivable and other assets. The Guaranteed Facility
allows for borrowings of up to $12.5 million and bears interest at LIBOR plus
1.25% or the higher of .5% plus the prime rate or the rate quoted by the Federal
Reserve, depending on the type of advance, as defined in the loan agreement. The
Guaranteed Facility is guaranteed by the Company's principal stockholder, Welsh,
Carson, Anderson, & Stowe VI, L.P. ("WCAS"), pursuant to an agreement with the
Company. Borrowings are made under the facilities based upon a ratio, defined in
the loan agreements, which varies with the Company's tangible net worth. The
facilities require the Company's compliance with various covenants, which among
other things, require the Company to maintain a minimum tangible net worth and
limit the amount of dividends and other payments by the Company. As of September
30, 1996, the Company had outstanding borrowings of $10.6 million under the
Revolving Facility and $3.8 million under the Guaranteed Facility. The interest
rates for the Revolving Facility and the Guaranteed Facility were 8.5% and
8.25%, respectively, at September 30, 1996. The facilities expire on September
30, 1997. The Company intends to renegotiate and extend the credit facilities;
however, there can be no assurance that the credit facilities can be extended on
acceptable terms.
Beginning in fiscal year 1995, the Company entered into foreign exchange
forward contracts to hedge the exposures that arise from foreign exchange rate
movements between dates that foreign currency denominated receivables are
recorded and the date they are paid. The Company does not engage in foreign
currency speculation. The Company has a line of credit of $3.5 million available
from the lender to enter foreign exchange contracts with the lender. The
aggregate notional amount of foreign exchange contracts outstanding from the
lender cannot exceed $23.3 million. At September 30, 1996 the aggregate notional
amount of foreign exchange contracts outstanding from the lender was $22.7
million.
During August 1996, the Company sold 2,094,143 shares of Preferred Stock to
WCAS and certain WCAS affiliates, resulting in gross proceeds to the Company of
$12.5 million. The net proceeds from the sale of the Preferred Stock, which
totaled $12.3 million, were used for general corporate purposes. The sale of the
Preferred Stock was made in a private transaction exempt from the registration
requirements of the federal securities laws.
Each share of Preferred Stock may be converted at any time at the option of
the holder into shares of Common Stock at a conversion rate of one common share
for each share of Preferred Stock, subject to adjustment upon the occurrence of
certain events. The Preferred Stock is not entitled to receive dividends in any
fixed amount but will receive dividends on an as converted basis in the event
18
<PAGE>
that a dividend is paid on the Common Stock. The Preferred Stock will rank
senior in right of payment to the Common Stock. In the event of any liquidation,
dissolution or winding up of the Company, holders of Preferred Stock will be
entitled to receive a liquidation preference of $5.969 per share before payment
is made or assets are distributed to holders of the Common Stock. In addition,
the holders of Preferred Stock are entitled to vote together with the holders of
Common Stock on all matters to be voted on by the stockholders of the Company.
The Company is subject to certain restrictions while shares of Preferred
Stock remain outstanding, including restrictions on the Company's ability to
declare dividends, purchase or redeem any outstanding shares of Common Stock,
create or authorize the creation of additional classes of capital stock of the
Company, increase the authorized amount of Preferred Stock, or create or
authorize the creation of any securities convertible into shares of Preferred
Stock or any other class of capital stock of the Company.
The Company believes that existing cash on hand and additional borrowings
under its lines of credit will be sufficient to finance its operations and
expected working capital and capital expenditure requirements for at least the
next twelve months. Thereafter, the Company's liquidity will depend upon the
results of future operations, as well as available sources of financing. There
can be no assurance that the Company will be able to meet its loan covenants,
achieve its operating plan or, if needed, obtain additional financing on
acceptable terms, and the failure to do so may have an adverse impact on the
Company's business and operations.
Recent Accounting Pronouncements
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), which is generally effective for fiscal years beginning after
December 15, 1995. SFAS No. 121 is not anticipated to have a material effect on
the financial position or results of operations of the Company.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which is generally effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 is not anticipated to have a
material effect on the financial position or results of operations of the
Company.
Item 8. Financial Statements and Supplementary Data.
The information required by this item appears beginning on page F-1 of this
report. (See Items 14(a)(1) and (2).
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is incorporated by reference to
information included under the captions "Election of Directors," "Executive
Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders.
19
<PAGE>
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to
information included under the captions "Election of Directors - Director
Compensation" and "- Compensation Committee Interlocks and Insider
Participation," "Executive Compensation," "Compensation Committee Report on
Executive Compensation" and "Stock Performance Graph" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to
information included under the caption "Beneficial Ownership of Common Stock" in
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
information included under the caption "Election of Directors - Compensation
Committee Interlocks and Insider Participation" in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements
The following financial statements of the Company and the related
report of independent accountants thereon are set forth
immediately following the Index of Financial Statements which
appears on page F-1 of this report:
Report of Independent Accountants
Consolidated Balance Sheets at September 30, 1996 and 1995
Consolidated Statements of Operations for each of the three years
in the period ended September 30, 1996
Consolidated Statements of Changes in Stockholders' Equity
(Capital Deficiency) for each of the three years in the period
ended September 30, 1996
Consolidated Statements of Cash Flows for each of the three years
in the period ended September 30, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
20
<PAGE>
3. (a) Exhibits:
The following exhibits are filed as part of this Report.
Parenthetical references indicate incorporation by reference
to documents previously filed by the Company with the
Securities and Exchange Commission (Commission File No. 0 -
26194).
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation (Exhibit 3.1 to the
Company's Registration Statement on Form S-1,
No. 33-92050), as amended to include the
Certificate of Designation of Series A Convert-
ible Preferred Stock of the Company (Exhibit 4.4
to the Quarterly Report on Form 10-Q for the
period ended June 30, 1996)
3.2 Amended and Restated By-Laws of the Company
(Exhibit 3.2 to the Company's Registration
Statement on Form S-1, No. 33-92050)
4.1 Specimen Common Stock certificate (Exhibit 4.1
to the Company's Registration Statement on Form
S-1, No. 33-92050)
4.2 See Exhibits 3.1 and 3.2 for the provisions of
the Company's Certificate of Incorporation and
Bylaws governing the rights of holders of
securities of the Company
4.3 Specimen Preferred Stock certificate (Exhibit
4.3 to the Quarterly Report on Form 10-Q for the
period ended June 30, 1996)
10.1 Software Agreement, dated March 7, 1990, among
the Company, FBC, FBS and FBTI, with amendment
thereto (Exhibit 10.1 to the Company's Registra-
tion Statement on Form S-1, No. 33-92050)
10.2 Services Agreement, dated March 8, 1990, among
the Company, FBPC and FBC (Exhibit 10.2 to the
Company's Registration Statement on Form S-1,
No. 33-92050)
10.3 License Agreement, dated March 7, 1990, between
the Company and IBM (Exhibit 10.3 to the
Company's Registration Statement on Form S-1,
No. 33-92050)
10.4 Software Escrow Agreement, dated March 7, 1990,
among the Company, IBM and Data Securities
International, Inc. as Escrow Agent (Exhibit 10.4
to the Company's Registration Statement on Form
S-1, No. 33-92050)
10.5 Bill of Sale and Assumption Agreement, dated
March 8, 1990, among the Company, FBC, FBTI, FBS
and FBPC (Exhibit 10.5 to the Company's
Registration Statement on Form S-1, No. 33-92050)
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<PAGE>
10.6 Form of Employee's Non-Competition,
Confidentiality and Invention Assignment
Agreement (Exhibit 10.6 to the Company's
Registration Statement on Form S-1, No.
33-92050)
10.7 Form of Consultant's Non-Competition,
Confidentiality and Invention Assignment
(Exhibit 10.7 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.9 International Software Marketing Agreement,
dated June 7, 1993, between the Company and IBM
(Exhibit 10.9 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.10 Product Remarketing Supplement to International
Software Marketing Agreement, dated June 10,
1993, between the Company and IBM (Asia and
Pacific Rim) (Exhibit 10.10 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.11 Master Distribution Agreement, dated February
27, 1992, between the Company and IBM Japan
Ltd., with amendments thereto (Exhibit 10.11 to
the Company's Registration Statement on Form S-
1, No. 33-92050)
10.12 Seer Product License Agreement, dated February
27, 1992, between the Company and IBM Japan Ltd.
(Exhibit 10.12 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.13 Master Distribution and License Agreement,
dated April 6, 1992, between the Company and IBM
Ireland Information Services Ltd. ("IISL")
(Exhibit 10.13 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.14 Cooperative Solution Supplier Program , dated
April 2, 1992, between the Company and IBM
Canada Ltd., with amendment thereto. (Exhibit
10.14 to the Company's Registration Statement
on Form S-1, No. 33-92050)
10.15 Master Distribution and License Agreement, dated
December 30, 1993, between the Company and IBM
Australia Limited (Exhibit 10.15 to the Company's
Registration Statement on Form S-1, No. 33-
92050)
10.16 Project Viking Funding Agreements, dated
September 4, 1992, between the Company and IBM
(Exhibit 10.16 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.17 License Agreement, dated March 21, 1995,
between the Company and Seer Technologies
Benelux B.V. (Exhibit 10.17 to the Company's
Registration Statement on Form S-1, No. 33-92050)
22
<PAGE>
10.18 License Agreement, dated March 20, 1995, between
the Company and Seer Technologies Ireland
Limited (Exhibit 10.18 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.19 $25,000,000 Credit Facility, dated February 24,
1994, between the Company and NationsBank, N.A.
(Carolinas) (Exhibit 10.19 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.20 Lease Agreement, dated July 30, 1991, between the
Company and Regency Park Corporation (Cary, NC),
with Addenda thereto (Exhibit 10.21 to the
Company's Registration Statement on Form S-1,
No. 33-92050)
10.22 Lease Agreement, dated December 25, 1992,
between the Company and Capital & Counties
(London, England ) (Exhibit 10.22 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.23 Preferred Stock Purchase Agreement, dated
March 7, 1990, among the Company, International
Business Machines Corporation ("IBM") , First
Boston Securities Corporation ("FBS"), The First
Boston Corporation ("FBC") , First Boston
Princeton Corp. ("FBPC "), and First Boston
Technologies, Inc. ("FBTI" ), with amendment
thereto (Exhibit 10.25 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.24 Stockholders Agreement, dated March 7, 1990,
among the Company, FBS and IBM, with amendment
thereto (Exhibit 10.24 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.25 Significant Stockholders Agreement, dated
March 8, 1990, among the Company, FBS, IBM and
Eugene F. Bedell (Exhibit 10.25 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.26* Restricted Stock Purchase Plan of the Company
(Exhibit 10.26 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.27* Form of Restricted Stock Purchase Agreement
(Exhibit 10.27 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.28* Stock Restriction Agreement, dated March 8, 1990,
among the Company, FBS, IBM and the management
stockholders named therein, with amendment thereto
(Exhibit 10.28 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.29* Form of Stock Option and Restricted Stock
Purchase Plan of the Company (Exhibit 2.9 to the
Company's Registration Statement on Form S-1,
No. 33-92050)
23
<PAGE>
10.30* Form of Stock Option Plan for Non-Employee
Directors of the Company (Exhibit 10.30 to the
Company's Registration Statement on Form S-1,
No. 33-92050)
10.31* Form of Incentive Stock Option Agreement
(Exhibit 10.31 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.32 Stock Purchase Agreement dated June 15, 1994
among the Company, Welsh, Carson, Anderson &
Stowe VI, L.P., WCA Management Corporation,
WCAS Information Partners, L.P., CS First Boston
Securities Corporation, and International
Business Machines Corporation (Exhibit 10.32 to
the Company's Registration Statement on Form
S-1, No. 33-92050)
10.33 Securities Purchase and Exchange Agreement,
dated September 30, 1994, among the Company,
WCAS Capital Partners II, L.P., WCA Management
Corporation, WCAS Information Partners, L.P.,
CS First Boston Securities Corporation, and
International Business Machines Corporation
(Exhibit 10.33 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.34 Software License Agreement between the Company
and Banca Commerciale Italiana (Exhibit 10.34 to
the Company's Registration Statement on Form S-
1, No. 33-92050)
10.35 Form of Indemnification Agreement (Exhibit
10.35 to the Company's Registration Statement
on Form S-1, No. 33-92050).
10.36* First Amendment to Stock Option and Restricted
Stock Purchase Plan (Exhibit 10.1 to the
Company's Report on Form 10-Q for the Quarterly
Period Ended June 30, 1995, No. 0-26194)
10.37 Lease for additional space at the Company's
Cary, N.C. headquarters (Exhibit 10.37 to the
Company's Registration Statement on Form S-1,
No. 33-92050)
10.38 Sublease of space at the Company's Cary, N.C.
headquarters (Exhibit 10.38 to the Company's
Registration Statement on Form S-1, No.
33-92050)
10.39 Credit Agreement and related Promissory Note
between Seer Technologies, Inc. and Nations-
Bank, N.A. and related Guaranty between the
Company and WCAS, all dated July 15, 1996
(Exhibit 10.39 to the Quarterly Report on Form
10-Q for the period ended June 30, 1996)
10.40 Second Consolidated Amendment Agreement dated
July 19, 1996 between Seer Technologies, Inc.
and Nations Bank (Exhibit 10.40 to the Quarterly
Report on Form 10-Q for the period ended June 30,
1996)
10.41 Preferred Stock Purchase Agreement dated August
8, 1996, among the Company, WCAS and certain WCAS
affiliates named therein (Exhibit 10.41 to the
Quarterly Report on Form 10-Q for the period
ended June 30, 1996).
10.42 Stock Agreement dated August 8, 1996, between the
Company and WCAS (Exhibit 10.42 to the Quarterly
Report on Form 10-Q for the period ended June 30,
1996).
10.43* Employment Agreement, dated August 8, 1996,
between the Company and Thomas A. Wilson.
24
<PAGE>
10.44 Third Consolidated Agreement dated August 20,
1996 between Seer Technologies, Inc. and Nations
Bank
10.45* Employment Agreement, dated September 23,
1996, between the Company and Steven Dmiszewicki
11.1 Statement regarding Computation of Earnings
Per Share
21.1 Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
______________
* Management contract or compensatory plan or agreement.
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the period covered by this
Report.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEER TECHNOLOGIES, INC.
By: /s/ Thomas A. Wilson
---------------------------------------
Thomas A. Wilson
President and Chief Executive Officer
Date: December 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: December 30, 1996 /s/ Robert A. Minicucci
---------------------- ------------------------------------------
Robert A. Minicucci
Chairman of the Board
Date: December 30, 1996 /s/ Thomas A. Wilson
---------------------- ------------------------------------------
Thomas A. Wilson
President and Chief Executive Officer
Director
Date: December 30, 1996 /s/ Steven Dmiszewicki
---------------------- ------------------------------------------
Steven Dmiszewicki
Senior Vice President and Chief Financial
Officer
Date: December 30, 1996 /s/ Bruce K. Anderson
---------------------- ------------------------------------------
Bruce K. Anderson
Director
Date: December 30, 1996 /s/ Frank T. Cary
---------------------- ------------------------------------------
Frank T. Cary
Director
Date: December 30, 1996 /s/ Anthony J. deNicola
---------------------- ------------------------------------------
Anthony J. deNicola
Director
Date: December 30, 1996 /s/ George L. McTavish
---------------------- ------------------------------------------
George L. McTavish
Director
26
<PAGE>
SEER TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
September 30, 1996
Page No.
Report of Independent Accountants .............................. F-2
Financial Statements
Consolidated Balance Sheets..................................... F-3
Consolidated Statements of Operations........................... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Capital Deficiency) ......................................... F-5
Consolidated Statements of Cash Flows........................... F-6
Notes to Consolidated Financial Statements...................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
_________________
To the Stockholders of Seer
Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Seer
Technologies, Inc. as of September 30, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity (capital
deficiency), and cash flows for each of the three years in the period ended
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Seer
Technologies, Inc. as of September 30, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1996 in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Washington, D.C.
November 7, 1996
F-2
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 377 $13,650
Trade accounts receivable, less allowance
for doubtful accounts 42,938 42,949
Prepaid expenses and other current assets 4,116 4,071
Deferred income taxes 4,621 964
------- -------
Total current assets 52,052 61,634
Trade accounts receivable, net 3,803 5,004
Property and equipment, net 6,459 6,828
Capitalized software costs, net 3,057 2,425
Deferred income taxes, net of valuation allowance 12,971 51
Other assets 462 502
------- -------
TOTAL ASSETS $78,804 $76,444
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand $14,379 $ -
Accounts payable 3,487 2,976
Accrued expenses:
Compensation 3,920 5,553
Commissions 4,401 5,312
Other 8,463 4,179
Deferred revenue 10,853 7,134
Income taxes payable 2,586 2,393
------- -------
Total current liabilities 48,089 27,547
Deferred revenue 662 459
Commitments and contingencies (Notes 17 and 18)
Stockholders' equity:
Series A convertible preferred stock, $0.01
par value, 2,094,143 and 0 shares authorized,
issued and outstanding at September 30, 1996
and 1995, respectively; $5.969 per share
liquidation preference (aggregate liquidation
value of $12,500,000) 21 -
Common stock, $0.01 par value, 20,000,000 shares
authorized in 1996 and 1995, respectively;
11,612,107 and 11,351,948 shares issued and
outstanding at September 30, 1996 and 1995,
respectively 116 114
Additional paid-in capital - preferred stock 12,281 -
Additional paid-in capital - common stock 57,544 56,541
Cumulative translation adjustments (505) (395)
Accumulated deficit (39,404) (7,822)
------- -------
Total stockholders' equity 30,053 48,438
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $78,804 $76,444
======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Software products $28,795 $ 55,419 $37,815
Maintenance 13,182 11,142 7,312
Services 54,966 50,619 37,566
-------- -------- -------
Total operating revenue 96,943 117,180 82,693
Cost of revenue:
Software products 1,562 568 295
Maintenance 8,303 7,471 4,220
Services 48,469 36,599 33,277
-------- -------- -------
Total cost of revenue 58,334 44,638 37,792
Gross profit 38,609 72,542 44,901
Operating expenses:
Sales and marketing 44,054 39,405 23,127
Research and product development 16,789 14,523 11,765
General and administrative 19,878 9,360 6,558
Restructuring charges 3,000 - -
-------- -------- -------
Total operating expenses 83,721 63,288 41,450
-------- -------- -------
Income (loss) from operations (45,112) 9,254 3,451
Other income (expense):
Interest income 648 254 32
Interest expense (802) (701) (88)
-------- -------- -------
Other expense, net (154) (447) (56)
-------- -------- -------
Income (loss) before provision for income taxes (45,266) 8,807 3,395
Income tax provision (benefit) (13,684) 3,655 1,034
-------- -------- -------
Net income (loss) $(31,582) $ 5,152 $ 2,361
======== ======== =======
Primary earnings (loss) per common and common equivalent share $ (2.76) $ 0.45 $ 0.21
======== ======== =======
Weighted average common and common equivalent shares outstanding 11,445 11,507 10,986
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock Common Stock
----------------- ------------------ --------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------ ---------- ------ ------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 $ - $ - $ - 1,473,158 $ 15
Issuance of common shares
Issuance of restricted stock grants 118,815 1
Corporation expense for restricted stock grants
Accretion of Series A preferred stock to
mandatory redemption account
Recapitalization (Note 6) 2,384,615 24 98,816 1
Cumulative translation adjustment
Net income
--------- --- ---------- ---- ------- --- ---------- ----
Balance at September 30, 1994 2,384,615 24 98,816 1 1,591,973 16
Issuance of common shares 2,970,987 30
Repurchase of common shares (2,486)
Accretion of Senior redeemable preferred stock
to mandatory redemption account
Senior redeemable preferred stock dividends earned
Conversion of Series B preferred stock to
common shares (2,384,615) (24) (98,816) (1) 6,593,842 66
Conversion of Series C preferred stock to
common shares 197,632 2
Cumulative translation adjustment
Net income
--------- --- ---------- ---- ------- --- ---------- ----
Balance at September 30, 1995 11,351,948 114
Issuance of convertible preferred shares 2,094,143 21
Issuance of common shares 260,159 2
Cumulative translation adjustment
Net loss
--------- --- ---------- ---- ------- --- ---------- ----
Balance at September 30, 1996 2,094,143 $21 - $ - - $ - 11,612,107 $116
========= === ========== ==== ======= === ========== ====
</TABLE>
<TABLE>
<CAPTION>
Total
Additional Additional Stockholders'
Paid-in Paid-in Cumulative Equity/
Capital Capital Translation Accumulated Unearned (Capital
Preferred Common Adjustments Deficit Compensation Deficiency)
---------- ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 $ - $ - $(112) $(12,837) $ - $(12,934)
Issuance of common shares 64 64
Issuance of restricted stock grants 752 (654) 99
Corporation expense for restricted stock grants 654 654
Accretion of Series A preferred stock to
mandatory redemption amount (816) (2,498) (3,314)
Recapitalization (Note 6) 10,969 10,994
Cumulative translation adjustment (20) (20)
Net income 2,361 2,361
------- ------- ----- -------- ----- --------
Balance at September 30, 1994 10,969 (132) (12,974) (2,096)
Issuance of common shares 48,787 48,797
Repurchase of common shares (22) (22)
Accretion of Senior redeemable preferred stock to
mandatory redemption account (1,940) (1,940)
Senior redeemable preferred stock dividends earned (1,190) (1,190)
Conversion of Series B preferred stock to
common shares (42) (1)
Conversion of Series C preferred stock to
common shares (1) 1
Cumulative translation adjustment (263) (263)
Net income 5,152 5,152
------- ------- ----- -------- ----- --------
Balance at September 30, 1995 56,541 (395) (7,822) 48,438
Issuance of convertible preferred shares 12,281 12,302
Issuance of common shares 1,003 1,005
Cumulative translation adjustment (110) (110)
Net income (31,582) (31,582)
------- ------- ----- -------- ----- --------
Balance at September 30, 1996 $12,281 $57,544 $(505) $(39,404) $ - $ 30,053
======= ======= ===== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (31,582) $ 5,152 $ 2,361
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 4,475 2,740 2,212
Deferred income taxes (16,577) 145 (1,160)
Provision for uncollectible accounts 10,158 773 -
Compensation expense for restricted stock grants - - 753
Changes in assets and liabilities:
Trade accounts receivable (9,043) (23,771) (10,229)
Prepaid expenses and other assets 28 (2,389) (566)
Accounts payable and accrued expenses 2,444 5,635 5,212
Deferred revenue 3,922 (492) 772
---------- ---------- ---------
Net cash used in operating activities (36,175) (12,207) (645)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,768) (4,239) (3,186)
Capitalization of software development costs (1,600) (929) (1,100)
---------- ---------- ---------
Net cash used in investing activities (4,368) (5,168) (4,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common shares 602 48,797 64
Issuance of preferred shares 12,500 - -
Preferred stock issuance costs (198) - -
Repurchase of common shares - (22) -
Preferred stock dividend - (1,190) -
Redemption of Senior Redeemable Preferred Stock - (15,135) -
Net borrowings under lines of credit 14,379 (2,700) 2,700
---------- ---------- ---------
Net cash provided by financing activities 27,283 29,750 2,764
Effect of exchange rate changes on cash (13) (3) (20)
---------- ---------- ---------
Net increase (decrease) in cash and
cash equivalents (13,273) 12,372 (2,187)
Cash and cash equivalents:
Beginning of period 13,650 1,278 3,465
---------- ---------- ---------
End of period $ 377 $ 13,650 $ 1,278
========== ========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 1,596 $ 1,549 $ 2,161
========== ========== =========
Interest $ 846 $ 701 $ 88
========== ========== =========
</TABLE>
Noncash Financing Activities:
During 1996, the Company issued 75,000 shares of its common stock to Welsh,
Carson, Anderson, & Stowe IV ("WCAS") in exchange for WCAS's guaranty of up
to $12,500 of the Company's line of credit. The market value of the capital
stock on the date of issuance, approximately $403, was capitalized and is
being amortized over the life of the guaranty. Approximately $67 of the
guaranty-related cost was amortized during the fiscal year ended September
30, 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SEER TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
Note 1. Summary of Operations and Significant Accounting Policies
Operations
SEER Technologies, Inc. ("SEER" or the "Company") designs, develops, markets and
supports software products and related services that enable its customers to
create, distribute and manage large-scale mission-critical information
processing applications that utilize client/server technologies. SEER's
application development tools, related software products and consulting services
reduce the time, cost and risk involved in developing, deploying and maintaining
complex client/server applications and enable efficient integration of those
applications with the customer's existing systems.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions are eliminated in consolidation.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated to U.S.
dollars at the current exchange rate as of the balance sheet date. The resulting
translation adjustment is recorded as a separate component of stockholders'
equity. Statement of operations items are translated at average rates of
exchange during each reporting period. Transaction gains and losses are included
in current operations. Realized and unrealized net losses (gains) for
transactions denominated in foreign currencies were $556, $264, and ($170),
respectively, for the fiscal years ended September 30, 1996, 1995, and 1994.
Revenue Recognition
Revenue from the non-exclusive licensing of existing software products is
recognized when the software is accepted and delivered or installed by the
customer in accordance with the terms of the contract and only if no significant
vendor obligations remain and collection of the resulting receivables is deemed
probable. For license agreements where maintenance is bundled with the software
license for a time period greater than three months, an appropriate portion of
the license fees is deferred and amortized over the initial maintenance period.
Revenue from recurring maintenance contracts is recognized ratably over the
maintenance contract period, which is typically twelve months. Maintenance
revenue which is not yet earned is included in deferred revenue.
Revenue from consulting and training services is recognized as services are
performed.
Proceeds from product development contracts are recorded as deferred revenue
when collected and the revenue is recognized as the development work is
performed.
The Company typically does not grant to its customers a contractual right to
return software products. Accordingly, no provision for estimated returns is
recorded at the time of sale. When approved by management, however, the Company
will accept returns of certain software products and will provide an allowance
for those specific transactions.
F-7
<PAGE>
Cost of Revenue
The primary components of the Company's cost of revenue for its software
products are packaging and distribution costs and software amortization. The
primary components of the Company's cost of revenue for maintenance are payments
under various distribution and marketing agreements with IBM and customer
support. A portion of the costs related to customer support are deferred and
recognized as the service is provided. The primary component of the Company's
cost of revenue for services is compensation expense. Consulting and training
services revenue and the cost of such revenue includes reimbursable client-
related expenses.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments with a maturity of three months or less from the date of purchase.
For these instruments, the carrying amount is a reasonable estimate of fair
value. The Company places substantially all cash and cash equivalents with
various financial institutions in both the United States and several foreign
countries. At times, such cash and cash equivalents may be in excess of FDIC
insurance limits.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets as follows:
Leasehold improvements The lesser of the lease term
or estimated useful life
Furniture and fixtures 3 to 5 years
Office equipment 3 years
Computer equipment 4 years
Expenditures for repairs and maintenance are charged to expense as incurred. The
cost and related accumulated depreciation of property and equipment are removed
from the accounts upon retirement or other disposition and any resulting gain or
loss is reflected in operations.
Software Costs
The Company capitalizes certain software costs after technological feasibility
of the product has been established. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenue, estimated economic life and
changes in software and hardware technologies.
All capitalized software costs are amortized over related sales on a product-by-
product basis at the greater of the amount computed using (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues or (b) the straight-line method over the remaining
estimated economic life of the product. Generally, an original estimated
economic life of three years is assigned to capitalized software costs, once the
product is available for general release to customers. Costs incurred prior to
the establishment of technological feasibility are charged to research and
development expense.
Research and Product Development
Research and product development costs are expensed as incurred.
F-8
<PAGE>
Forward Exchange Contracts
The Company conducts its business in various foreign currencies. As a result, it
is subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign currency transactions are recorded and
the date they are consummated. The Company enters into foreign exchange forward
contracts to hedge the effect of fluctuating foreign currencies on its results
of operations (see Note 12). Gains and losses associated with exchange rate
fluctuations on forward contracts are recorded currently as income or loss as
they offset corresponding gains and losses on the foreign currency denominated
assets or liabilities being hedged. The gains and losses are computed by
multiplying the foreign currency amounts of the forward contracts by the
difference between the spot rate at the balance sheet date and the spot rate at
the date of inception of the forward contracts. The costs of the forward
contracts are recorded as expense over the lives of the contracts.
Income Taxes
The provision for income taxes includes United States federal, state and foreign
income taxes, each currently payable and deferred, as determined in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". This statement requires that all deferred tax
asset and liability balances be determined by application to temporary
differences of the tax rate expected to be in effect when taxes will become
payable or receivable. Temporary differences are differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future years.
The Company's temporary differences consist primarily of accelerated
depreciation, deferred revenue and capitalized software costs.
Earnings Per Share
Primary earnings per share is based on the weighted average number of common
shares and common share equivalents outstanding during the period. The Series B
and Series C convertible preferred shares issued that were automatically
converted upon the effective date of the public offering have been included as a
common share equivalent for the years ended September 30, 1995 and 1994. Stock
options issued to employees during the twelve months immediately preceding the
initial filing date of the public offering have been included in the calculation
for the years ended September 30, 1995 and 1994 as if they were outstanding for
1995 and 1994, using the treasury stock method. The pro forma per share data for
1995 and 1994 is presented giving effect to the number of shares whose proceeds
would be necessary to pay the redemption value and accrued dividends on the
Senior Redeemable Preferred Stock on the effective date of the public offering.
All common stock equivalents are excluded from the primary earnings per share
calculation for the fiscal year ended September 30, 1996 since their inclusion
would be antidilutive. Presentation of fully diluted earnings per share is not
required for fiscal years 1996, 1995, or 1994.
Accounting 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 amounts could differ from these estimates.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the 1996 presentation. Such reclassifications had no
effect on previously reported net income or stockholders' equity.
F-9
<PAGE>
Note 2. Property and Equipment
Property and equipment consists of the following at September 30:
1996 1995
--------- ---------
Computer equipment $ 12,137 $ 10,302
Leasehold improvements 2,112 1,857
Office equipment 1,257 1,014
Furniture and fixtures 2,529 2,108
--------- ---------
18,035 15,281
Less accumulated depreciation and
amortization (11,576) (8,453)
--------- ---------
$ 6,459 $ 6,828
========= =========
Depreciation expense was $3,137, $2,419, and $2,003 for the fiscal years ended
September 30, 1996, 1995, and 1994, respectively.
Note 3. Capitalized Software Costs
For the fiscal years ended September 30, 1996, 1995 and 1994, the Company
capitalized $1,600, $929, and $1,100, respectively, of internal costs related to
developing software for sale. During the fiscal years ended September 30, 1996,
1995 and 1994, the Company recognized $968, $309, and $195, respectively, of
expense related to the amortization of these costs, which is recorded in cost of
revenues, software products, in the Consolidated Statements of Operations.
Accumulated amortization of capitalized software costs is $1,591, $623, and $314
at September 30, 1996, 1995 and 1994, respectively.
Note 4. Accounts Receivable
Trade accounts receivable consists of the following at September 30:
1996 1995
--------- ---------
Current trade accounts receivable $ 52,693 $ 43,599
Less: Allowance for doubtful accounts (9,351) (650)
Unamortized discount (404)
--------- ---------
$ 42,938 $ 42,949
========= =========
Noncurrent trade accounts receivable $ 4,185 $ 5,590
Less: Unamortized discount (382) (586)
--------- ---------
$ 3,803 $ 5,004
========= =========
All noncurrent receivables were unbilled at September 30, 1996. Approximately
$4,830 of current trade receivables were unbilled at September 30, 1996. There
were no unbilled accounts receivable at September 30, 1995.
Discounts on receivables with payment terms in excess of one year were
calculated based on an imputed interest rate of 10% and 7.4% for fiscal years
ended September 30, 1996 and 1995, respectively.
The provision for uncollectible amounts was $10,158 and $773 for the years ended
September 30, 1996 and 1995, respectively. Write-offs of accounts receivable
were $1,457 and $123 for the years ended September 30, 1996 and 1995,
respectively. There were no write-offs or provisions for uncollectible amounts
during the year ended September 30, 1994.
F-10
<PAGE>
Note 5. Credit Facilities
At September 30, 1996, the Company maintained two credit facilities (the
"Revolving Facility" and the "Guaranteed Facility") which provide for combined
borrowings of up to $32,500 for working capital purposes based on the Company's
eligible accounts receivable, as defined in the loan agreements. The Revolving
Facility allows for borrowings of up to $20,000, bears interest at the London
Interbank Offered Rate ("LIBOR") plus 3.0%, and is collateralized by the
Company's accounts receivable and other assets. The Guaranteed Facility allows
for borrowings of up to $12,500 and bears interest at LIBOR plus 1.25% or the
higher of .5% plus the prime rate or the rate quoted by the Federal Reserve,
depending on the type of advance, as defined in the loan agreement. The
Guaranteed Facility is guaranteed by the Company's principal stockholder, Welsh,
Carson, Anderson, & Stowe VI, L.P. ("WCAS"), pursuant to an agreement with the
Company (the "Guaranty Agreement"). Borrowings are made under the facilities
based upon a ratio, defined in the loan agreements, which varies with the
Company's tangible net worth. The facilities require the Company's compliance
with various covenants, which among other things, require the Company to
maintain a minimum tangible net worth and limit the amount of dividends and
other payments by the Company. As of September 30, 1996, the Company had
outstanding borrowings of $10,579 under the Revolving Facility and $3,800 under
the Guaranteed Facility. The interest rates for the Revolving Facility and the
Guaranteed Facility were 8.5% and 8.25%, respectively, at September 30, 1996.
The facilities expire on September 30, 1997. It is the Company's intention to
renegotiate and extend the credit facilities; however, there can be no assurance
that the credit facilities can be extended on acceptable terms.
In connection with the Guaranty Agreement, the Company issued 75,000 shares of
its common stock to WCAS. The market value of the capital stock on the date of
issuance, approximately $403, was capitalized and is being amortized over the
life of the guaranty. Approximately $67 of the guaranty-related cost was
amortized during the fiscal year ended September 30, 1996.
Additionally, the Company has a line of credit of $3,500 available from the
lender to enter foreign exchange contracts with the lender. The aggregate
notional amount of foreign exchange contracts outstanding from the lender cannot
exceed $23,333. At September 30, 1996 the aggregate notional amount of foreign
exchange contracts outstanding from the lender was $22,651.
The Company believes that existing cash on hand and additional borrowings under
its lines of credit will be sufficient to finance its operations and expected
working capital and capital expenditure requirements for at least the next
twelve months. Thereafter, the Company's liquidity will depend upon the results
of future operations, as well as available sources of financing. There can be no
assurance that the Company will be able to meet its loan covenants, achieve its
operating plan or, if needed, obtain additional financing on acceptable terms,
and the failure to do so may have an adverse impact on the Company's business
and operations.
Note 6. Recapitalization and Initial Public Offering
During 1994, the Company effected a plan of recapitalization ("the
"Recapitalization") which was completed in two phases.
The first phase was completed in July 1994 when a group of investors ("the
Investment Group") purchased 80% (2,728,292 shares) of the Company's outstanding
Series A mandatorily redeemable cumulative convertible preferred stock ("Series
A Preferred Stock") from International Business Machines Corporation ("IBM") and
CS First Boston Securities Corporation ("FBS"). In addition, the Investment
Group purchased 91,491 shares of common stock from selling stockholders.
The second phase was completed on September 30, 1994 in a series of transactions
which resulted in the issuance of newly authorized classes of preferred stock
and the retirement of the Series A Preferred Stock, among other things. The
second phase transactions were as follows:
. The Investment Group purchased 572,892 additional shares of Series A
Preferred Stock from IBM and FBS.
. The Company purchased 346,182 shares of common stock from selling
stockholders and retired these shares.
F-11
<PAGE>
. The Investment Group exchanged 916,569 shares of Series A Preferred Stock and
91,491 shares of common stock for 151,350 shares of newly issued Senior
Redeemable Preferred Stock and 446,189 shares of common stock.
. The Investment Group exchanged its 2,384,615 remaining shares of Series A
Preferred Stock for newly issued Series B Preferred Stock.
. IBM and FBS exchanged their remaining shares of Series A Preferred Stock
(98,816 shares) for newly issued Series C Preferred Stock. In conjunction
with the Recapitalization, the Series A Preferred Stock was retired and
canceled. No further shares of Series A Preferred Stock are authorized for
issuance.
In July 1995, the Company completed its initial public offering of 3,093,397
shares of common stock (the "Common Stock"), of which 2,953,487 shares were sold
by the Company and 139,910 shares were sold by selling stockholders. The Company
received net proceeds from the initial public offering of $49,441. A series of
transactions occurred in conjunction with the initial public offering:
. Issuance of 6,593,842 shares of Common Stock upon the automatic conversion
and retirement of all outstanding Series B Convertible Preferred Stock
(2.76516 common shares for each Series B share).
. Issuance of 197,632 shares of Common Stock upon the automatic conversion and
retirement of all outstanding Series C Convertible Preferred Stock (2 common
shares for each Series C share).
. Payment of the accrued Senior Redeemable Preferred Stock Dividend of $417;
and accretion and redemption of the Senior Redeemable Preferred Stock at a
cost of $15,135.
. Repayment of $15,103, representing all principal and accrued interest
outstanding under the Company's revolving credit facility agreement with a
commercial bank.
Note 7. Convertible Preferred Stock
During August 1996, the Company sold 2,094,143 shares of its newly authorized
Series A Convertible Preferred Stock (the "Preferred Stock") to WCAS and certain
WCAS affiliates, resulting in gross proceeds to the Company of $12,500. The net
proceeds from the sale of the Preferred Stock were used for general corporate
purposes. Approximately $198 of expenses were incurred in connection with the
stock issuance and have been recorded in the Consolidated Statement of
Stockholders' Equity (Capital Deficiency) as an offset to the Preferred Stock
proceeds. The sale of the Preferred Stock was made in a private transaction
exempt from the registration requirements of the federal securities laws.
Each share of Preferred Stock may be converted at any time at the option of the
holder into shares of Common Stock at a conversion rate of one common share for
each share of Preferred Stock, subject to adjustment upon the occurrence of
certain events. The Preferred Stock is not entitled to receive dividends in any
fixed amount but will receive dividends on an as converted basis in the event
that a dividend is paid on the Common Stock. The Preferred Stock will rank
senior in right of payment to the Common Stock. In the event of any liquidation,
dissolution or winding up of the Company, holders of Preferred Stock will be
entitled to receive a liquidation preference of $5.969 per share before payment
is made or assets are distributed to holders of the Common Stock. In addition,
the holders of Preferred Stock are entitled to vote together with the holders of
Common Stock on all matters to be voted on by the stockholders of the Company.
The Company is subject to certain restrictions while shares of Preferred Stock
remain outstanding, including restrictions on the Company's ability to declare
dividends, purchase or redeem any outstanding shares of its Common Stock, create
or authorize the creation of additional classes of capital stock of the Company,
increase the authorized amount of Preferred Stock, create or authorize the
creation of any securities convertible into shares of Preferred Stock or any
other class of capital stock of the Company.
F-12
<PAGE>
Note 8. Stock Option and Restricted Stock Purchase Plans
Prior to September 30, 1994, the Company had a restricted stock purchase plan
for employees under which the sale of 1,700,000 shares of its common stock had
been authorized. Certain employees of the Company purchased common stock at its
fair value on the date of grant. Fair value was determined by the Company's
management and Board of Directors. The shares were restricted as to the right of
sale and other disposition until certain vesting requirements were met over a
period of four years (certain shares were subject to acceleration based on
achievement of certain performance objectives) from the date of grant issuance.
In conjunction with the Recapitalization (Note 6), all shares of common stock
issued under this plan were fully vested. This restricted stock purchase plan
was terminated at September 30, 1994.
In connection with the Recapitalization, the Company adopted the Stock Option
and Restricted Stock Purchase Plan pursuant to which certain employees and
officers of the Company have been or will be granted stock options to acquire up
to a maximum of 2,400,000 shares of the Company's common stock. Prior to October
1, 1996, options granted under this plan vested based on performance in part at
the end of each fiscal year from 1995 to 1998, as defined in the plan. Effective
October 1, 1996, the vesting provisions were amended so that the options vest in
one-third increments on October 1 each subsequent fiscal year.
During the fiscal year ended September 30, 1995, the Company adopted the Stock
Option Plan for Non-Employee Directors, pursuant to which non-employee directors
can acquire up to 200,000 shares of the Company's common stock, with a maximum
of 10,000 options available per non-employee director. The options vest in one-
third increments on each of the first through third anniversaries of the grant
date.
At September 30, 1995, exercise prices for all options issued pursuant to these
plans ranged from $3.25 to $18.00 per share. During the fiscal year ended
September 30, 1996, the Company exchanged all options with exercise prices of
$7.50 or more per share for options with an exercise price of $6.38 per share.
Subsequent to this exchange, stock options were issued with an exercise price of
$18 per share.
Activity related to these plans for the fiscal years ending September 30, 1996
and 1995 is as follows:
1996 1995
--------- ---------
Outstanding at beginning of year 2,147,650 -
Granted 735,450 2,219,000
Exercised (185,159) -
Forfeited (581,696) (71,350)
--------- ---------
Outstanding at end of year 2,116,245 2,147,650
========= =========
As defined in the plan documents, 184,348 shares were vested or exercisable at
September 30, 1996. Exercise prices of the outstanding options at September 30,
1996 range from $3.25 to $18 per share.
Note 9. Related Party Transactions
Prior to the Recapitalization discussed in Note 6, IBM and FBS were majority
shareholders of the Company.
The Company had purchases of $357 from IBM for the year ended September 30,
1994. The Company provided products and related services to IBM, which acted as
distributor of the Company's product (see Note 10 for further discussion),
amounting to approximately $53,306 of the Company's revenues for the year ended
September 30, 1994.
The Company was paid $2,369 for services provided to FBS for the year ended
September 30, 1994.
Effective with the Recapitalization, IBM and FBS held only a nominal equity
interest in the Company. Accordingly, effective October 1, 1994, transactions
with these parties are no longer considered related party transactions.
Effective with the Initial Public Offering in June, 1995, FBS sold its interest
in the Company.
F-13
<PAGE>
Note 10. Significant Customers and Concentration of Credit Risk
No one customer accounted for more than 10% of operating revenue for the fiscal
year ended September 30, 1996. During the fiscal years ended September 30, 1995
and 1994 there were sales to one major customer that exceeded 10% of operating
revenue. Revenues from this customer, Banca Commerciale Italiana, were $20,457
and $8,831 or 17% and 11% of revenues for the years ended September 30, 1995 and
1994, respectively.
The Company has entered into several marketing and distribution agreements with
IBM throughout the world. Transactions resulting from these agreements are as
follows for the fiscal years ended September 30:
1996 1995 1994
-------- -------- --------
Expenses incurred $ 4,907 $ 4,375 $ 3,470
Revenues generated $ 62,835 $ 81,862 $ 53,306
Percentage of revenues 65% 70% 65%
Percentage of outstanding
receivables 70% 70% 60%
As of September 30, 1996 and 1995, the Company had outstanding trade accounts
receivable primarily from 128 and 103 customers, respectively. It is the policy
of the Company to closely monitor all accounts receivable and to record a
provision for uncollectible accounts when the uncollectible amounts are
estimable. Generally, no collateral is required.
Note 11. Foreign and Domestic Operations and Export Sales
The following table presents a summary of operations by geographic region for
the fiscal years ended September 30:
Revenue
1996 1995 1994
--------- --------- --------
United Kingdom $ 28,512 $ 20,970 $ 12,515
Ireland 8,207 11,013 -
The Netherlands 3,056 6,223 661
Italy 5,805 3,847 2,583
Other 20,414 12,146 4,532
--------- --------- --------
Total 65,994 54,199 20,291
Intercompany eliminations (54,735) (38,009) (20,291)
--------- --------- --------
Total foreign revenue 11,259 16,190 -
Domestic revenue 85,684 100,990 82,693
--------- --------- --------
Total revenue $ 96,943 $ 117,180 $ 82,693
========= ========= ========
Operating income (loss)
1996 1995 1994
-------- ------ ------
United Kingdom $ 1,388 $1,238 $ 554
Ireland 253 345 -
The Netherlands 230 428 -
Italy 442 277 192
Other 289 316 352
-------- ------ ------
Total foreign operating income 2,602 2,604 1,098
Domestic operating income (loss) (47,868) 6,203 2,297
-------- ------ ------
Total operating income (loss) $(45,266) $8,807 $3,395
======== ====== ======
F-14
<PAGE>
Identifiable Assets
1996 1995 1994
------- ------- -------
United Kingdom $ 5,894 $ 4,696 $ 2,276
Ireland 1,453 694 -
The Netherlands 1,181 705 241
Italy 2,211 1,004 703
Other 4,557 3,008 678
------- ------- -------
Total 15,296 10,107 3,898
Intercompany eliminations (376) (3,009) (1,736)
------- ------- -------
Total foreign identifiable assets 14,920 7,098 2,162
Domestic assets 63,884 69,346 35,201
------- ------- -------
Total assets $78,804 $76,444 $37,363
======= ======= =======
The Company's foreign operations are reimbursed by the Company for their costs
plus an appropriate mark-up for profit. Operating income consists of revenues
less operating expenses and net interest and does not include income taxes.
Export sales for the fiscal years ended September 30, 1996, 1995, and 1994 were
$55,382, $84,965, and $52,095, respectively.
Note 12. Foreign Currencies and Forward Exchange Contracts
At September 30, 1996, the Company had approximately $789 and $30,843 U.S.
dollar equivalent cash and trade receivable balances, respectively, denominated
in foreign currencies. At September 30, 1995, the Company had approximately $566
and $24,462 U.S. dollar equivalent cash and trade receivable balances,
respectively, denominated in foreign currencies.
The more significant trade accounts receivable denominated in foreign currencies
as a percentage of total trade accounts receivable were as follows:
1996 1995
---- ----
Pound Sterling 17.3% 16.9%
Dutch Guilder 0.4% 8.6%
Danish Krona 1.2% 8.5%
Norwegian Krone 1.0% 5.0%
Deutsche Mark 9.5% 3.0%
Italian Lira 20.7% 2.0%
F-15
<PAGE>
The Company hedges the transaction exposures that arise from foreign exchange
rate movements between dates that foreign currency transactions are recorded and
the date they are consummated through foreign exchange forward contracts with a
U.S. commercial bank. The Company does not engage in foreign currency
speculation. The forward contracts are generally 60 to 90 day forward window
contracts having maturities of less than one year. The table below summarizes,
by currency, the contractual amounts of the Company's forward contracts for the
years ended September 30:
<TABLE>
<CAPTION>
1996
As of September 30, 1996
------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- --------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 3,116 $ (2,743) $ 373 $ 375 $ (2)
Pound Sterling 14,777 (8,693) 6,084 6,275 (191)
Danish Krona 5,515 (5,287) 228 226 2
Deutsche Mark 7,511 (2,937) 4,574 4,475 99
Dutch Guilder 3,952 (3,952) - - -
Italian Lira 14,803 (4,453) 10,350 10,461 (111)
Norwegian Krone 3,872 (3,594) 278 277 1
Other 2,804 (2,040) 764 771 (7)
------- -------- ------- ------- -----
Total $56,350 $(33,699) $22,651 $22,860 $(209)
======= ======== ======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
1995
As of September 30, 1996
------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- --------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Dutch Guilder $ 2,842 $ - $2,842 $2,835 $ 7
Norwegian Krone 2,078 - 2,078 2,020 58
Pound Sterling 1,849 (150) 1,699 1,663 36
Singapore Dollar 1,111 - 1,111 1,099 12
Other 2,598 (411) 2,187 2,155 32
------- ----- ------ ------ ----
Total $10,478 $(561) $9,917 $9,772 $145
======= ===== ====== ====== ====
</TABLE>
Unrealized gains and losses on forward contracts reflect changes in exchange
rates and are recorded directly in income, as they offset corresponding
unrealized gains and losses on the foreign currency denominated assets being
hedged (see Note 1). Forward contract liabilities related to unrealized losses
are recorded as other accrued expenses in the Consolidated Balance Sheet.
The Company is exposed to exchange related losses on forward contracts should a
transaction with a related forward exchange contract not be consummated by the
forward contract expiration date. In such instances, the Company extends or
repurchases the contract at the then prevailing market rates. Realized losses on
the extension or repurchase of contracts totaled $88 for the fiscal year ended
September 30, 1996.
Note 13. Restructuring Charges
During the third quarter of the fiscal year ended September 30, 1996, the
Company developed and implemented a reorganizational plan which included, among
other things, a 9% staff reduction (75 employees) and the abandonment of certain
leased facilities. The Company recorded a restructuring charge of $3,000, which
consisted of approximately $1,400 in personnel-related charges and approximately
$1,600 of costs associated with carrying vacated space until the lease
expiration date. To date, the Company has paid approximately $1,430 in cash
related to the restructuring. The Company believes the accrued restructuring
costs of $1,570 at September 30, 1996 represents its remaining cash obligations.
F-16
<PAGE>
Note 14. Income Taxes
The provision for income taxes consists of the following for the years ended
September 30:
1996 1995 1994
-------- -------- -------
Federal - current $ - $ 240 $ 9
State and local - current - 568 175
-------- -------- -------
- 808 184
Foreign taxes and withholdings 2,501 2,702 2,010
-------- -------- -------
Current taxes 2,501 3,510 2,194
-------- -------- -------
Federal - deferred (12,832) 105 (986)
State and local - deferred (3,353) 40 (174)
-------- -------- -------
Deferred taxes (16,185) 145 (1,160)
-------- -------- -------
Total income tax expense $(13,684) $ 3,655 $ 1,034
======== ======== =======
Seer Technologies, Inc. and its U.S. subsidiary file a consolidated Federal
income tax return. Foreign subsidiaries file income tax returns in their
respective countries. Foreign tax credit carryforwards of approximately $2,268
exist at September 30, 1996. These carryforwards expire from 1997 to 1999 if not
utilized. Federal alternative minimum tax credit carryforwards of $184, which
have no expiration period, also exist at September 30, 1996.
Income before provision for income taxes as shown in the Consolidated Statements
of Operations consists of the following for the years ended September 30:
1996 1995 1994
-------- -------- -------
Domestic $(47,868) $ 6,203 $ 2,297
Foreign 2,602 2,604 1,098
-------- -------- -------
$(45,266) $ 8,807 $ 3,395
======== ======== =======
A reconciliation of expected income tax at the statutory Federal rate with the
actual income tax expense (benefit) is as follows for the fiscal years ended
September 30:
1996 1995 1994
-------- -------- --------
Expected income tax expense (benefit)
at statutory rate (34%) $ (15,391) $ 2,995 $ 1,154
Increase (decrease) in income tax
expense resulting from:
Federal minimum tax - 127 9
Non Deductible Expenses 197 238 -
State income taxes (2,915) 374 1
Effect of foreign operations
including withholding taxes 2,505 1,104 587
Benefit of net operating loss
carryforward - - (68)
Other (92) 45 (40)
Change in valuation allowance for
deferred tax asset 2,012 (1,228) (609)
-------- -------- --------
$(13,684) $ 3,655 $ 1,034
======== ======== ========
F-17
<PAGE>
The components of net deferred tax assets are as follows for the years ended
September 30:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Current assets:
Deferred revenue $ 119 $ 314
Accrued Liabilities 1,142 97
Unrealized Foreign Exchange Loss 87 102
Bad Debt Expense 3,559 252
Other (286) 199
------- ------
Net current deferred tax asset 4,621 964
Noncurrent assets:
Depreciation 324 429
Deferred revenue 459 562
Foreign tax credits 2,268 760
Minimum tax credits 184 180
Research and development tax credit 2,282 -
Net operating loss carryforward 13,851 -
------- ------
Net noncurrent deferred tax asset 19,368 1,931
Valuation Allowance (5,234) (940)
Noncurrent liabilities:
Capitalized software costs (1,163) (940)
------- ------
Net deferred tax asset $17,592 $1,015
======= ======
</TABLE>
Due to the uncertainty related to the realization of the benefits of tax credit
carryforwards in future tax returns, the Company has placed a valuation
allowance against a portion of the otherwise recognizable net deferred tax asset
at September 30, 1996. Also, a valuation allowance of $500 was placed against
the net operating loss carryforward due to a favorable state tax ruling in
effect.
Net deferred tax assets as of September 30, 1996 are $17,592. It is the opinion
of management that it is more likely than not that the realization of these
deferred tax assets will occur in the future based on current earnings
forecasts, tax planning strategies, which include the potential sale of a line
of business and/or product assets, and reversals of future book-tax timing
differences.
Note 15. Employee Benefit Plan
The Company has a 401(k) plan for all employees and may make matching
contributions to the plan in such amounts as determined by the Board of
Directors. For the years ended September 30, 1996, 1995 and 1994, the Board of
Directors did not authorize any contributions to the 401(k) plan.
The Company also has employee benefit plans for each of its foreign
subsidiaries, as mandated by each country's laws and regulations. Expense
recognized under these plans for the periods ended September 30, 1996, 1995, and
1994 was $629, $400, and $161, respectively.
Note 16. Recent Accounting Pronouncements
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which is generally effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 is not anticipated to have a
material effect on the financial position or results of operations of the
Company.
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"),
which is generally effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 is not anticipated to have a material effect on the financial
position or results of operations of the Company.
F-18
<PAGE>
Note 17. Lease Commitments
The Company leases certain facilities and equipment under various operating
leases. Future minimum lease commitments on operating leases that have initial
or remaining non-cancelable lease terms in excess of one year as of September
30, 1996 are as follows:
1997 $ 4,357
1998 3,445
1999 1,398
---------
$ 9,200
=========
Rent expense for the fiscal years ended September 30, 1996, 1995 and 1994 was
$3,370, $2,524, and $1,657, respectively.
Note 18. Contingencies
Various lawsuits and claims have been brought against the Company in the normal
course of business. Management is of the opinion that the liability, if any,
resulting from these claims would not have a material effect on the financial
position or results of operations of the Company.
Note 19. Selected Quarterly Financial Data (Unaudited)
(Unaudited)
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996:
Net revenues $21,774 $26,191 $28,056 $ 20,922
Gross profit 9,962 10,945 13,269 4,433
Net loss (5,421) (4,929) (5,160) (16,072)
Net loss per share $( 0.48) $ (0.43) $ (0.45) $ (2.08)
1995:
Net revenues $26,499 $26,694 $30,506 $33,481
Gross profit 15,981 14,898 18,426 23,237
Net income 855 669 1,279 2,349
Net income per share $ 0.08 $ 0.06 $ 0.12 $ 0.18
Loss per share amounts for the first and second quarters of fiscal 1996 differ
from amounts previously reported in the Company's Quarterly Reports on Form 10-Q
due to an adjustment of the weighted average number of shares used to compute
primary earnings per share.
During the fourth quarter of fiscal year 1996, the Company recorded allowances
of $10,147 to provide for certain accounts receivable whose collection is
considered uncertain and for a specific product-related settlement. These
amounts are included in general and administrative expenses in the Consolidated
Statement of Operations.
F-19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
<S> <C> <C>
3.1 Certificate of Incorporation (Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-92050), as amended to
include the Certificate of Designation of Series A Convertible
Preferred Stock of the Company (Exhibit 4.4 to the Quarterly Report
on Form 10-Q for the period ended June 30, 1996)
3.2 Amended and Restated By-Laws of the Company (Exhibit 3.2 to the
Company's Registration Statement on Form S-1, No. 33-92050)
4.1 Specimen Common Stock certificate (Exhibit 4.1 to the
Company's Registration Statement on Form S-1, No. 33-92050)
4.2 See Exhibits 3.1 and 3.2 for the provisions of the Company's
Certificate of Incorporation and Bylaws governing the rights of
holders of securities of the Company
4.3 Specimen Preferred Stock certificate (Exhibit 4.3 to the Quarterly
Report on Form 10-Q for the period ended June 30, 1996)
10.1 Software Agreement, dated March 7, 1990, among the Company, FBC, FBS
and FBTI, with amendment thereto (Exhibit 10.1 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.2 Services Agreement, dated March 8, 1990, among the Company,
FBPC and FBC (Exhibit 10.2 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.3 License Agreement, dated March 7, 1990, between the Company
and IBM (Exhibit 10.3 to the Company's Registration Statement
on Form S-1, No. 33-92050)
10.4 Software Escrow Agreement, dated March 7, 1990, among the
Company, IBM and Data Securities International, Inc. as Escrow
Agent (Exhibit 10.4 to the Company's Registration Statement on
Form S-1, No. 33-92050)
10.5 Bill of Sale and Assumption Agreement, dated March 8, 1990,
among the Company, FBC, FBTI, FBS and FBPC (Exhibit 10.5 to
the Company's Registration Statement on Form S-1, No.
33-92050)
10.6 Form of Employee's Non-Competition, Confidentiality and
Invention Assignment Agreement (Exhibit 10.6 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.7 Form of Consultant's Non-Competition, Confidentiality and
Invention Assignment (Exhibit 10.7 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.8 Employment Agreement, dated March 8, 1990, between the
Company and Eugene F. Bedell (Exhibit 10.8 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.9 International Software Marketing Agreement, dated June 7, 1993,
between the Company and IBM (Exhibit 10.9 to the Company's
Registration Statement on Form S-1, No. 33-92050)
</TABLE>
E-1
<PAGE>
10.10 Product Remarketing Supplement to International Software
Marketing Agreement, dated June 10, 1993, between the
Company and IBM (Asia and Pacific Rim) (Exhibit 10.10 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.11 Master Distribution Agreement, dated February 27, 1992,
between the Company and IBM Japan Ltd., with amendments
thereto (Exhibit 10.11 to the Company's Registration Statement on
Form S-1, No. 33-92050)
10.12 Seer Product License Agreement, dated February 27, 1992,
between the Company and IBM Japan Ltd. (Exhibit 10.12 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.13 Master Distribution and License Agreement, dated April 6, 1992,
between the Company and IBM Ireland Information Services Ltd.
("IISL") (Exhibit 10.13 to the Company's Registration Statement
on Form S-1, No. 33-92050)
10.14 Cooperative Solution Supplier Program, dated April 2, 1992,
between the Company and IBM Canada Ltd., with amendment
thereto. (Exhibit 10.14 to the Company's Registration Statement
on Form S-1, No. 33-92050)
10.15 Master Distribution and License Agreement, dated December 30,
1993, between the Company and IBM Australia Limited (Exhibit
10.15 to the Company's Registration Statement on Form S-1, No.
33-92050)
10.16 Project Viking Funding Agreements, dated September 4, 1992,
between the Company and IBM (Exhibit 10.16 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.17 License Agreement, dated March 21, 1995, between the Company
and Seer Technologies Benelux B.V. (Exhibit 10.17 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.18 License Agreement, dated March 20, 1995, between the Company
and Seer Technologies Ireland Limited (Exhibit 10.18 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.19 $25,000,000 Credit Facility, dated February 24, 1994, between the
Company and NationsBank, N.A. (Carolinas) (Exhibit 10.19 to
the Company's Registration Statement on Form S-1, No.
33-92050)
10.20 Lease Agreement, dated July 30, 1991, between the Company and
Regency Park Corporation (Cary, NC), with Addenda thereto
(Exhibit 10.21 to the Company's Registration Statement on Form
S-1, No. 33-92050)
10.22 Lease Agreement, dated December 25, 1992, between the
Company and Capital & Counties (London, England) (Exhibit
10.22 to the Company's Registration Statement on Form S-1, No.
33-92050)
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<PAGE>
10.23 Preferred Stock Purchase Agreement, dated March 7, 1990,
among the Company, International Business Machines
Corporation ("IBM"), First Boston Securities Corporation ("FBS"),
The First Boston Corporation ("FBC"), First Boston Princeton
Corp. ("FBPC"), and First Boston Technologies, Inc. ("FBTI"), with
amendment thereto (Exhibit 10.25 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.24 Stockholders Agreement, dated March 7, 1990, among the
Company, FBS and IBM, with amendment thereto (Exhibit 10.24
to the Company's Registration Statement on Form S-1, No.
33-92050)
10.25 Significant Stockholders Agreement, dated March 8, 1990, among
the Company, FBS, IBM and Eugene F. Bedell (Exhibit 10.25 to
the Company's Registration Statement on Form S-1, No.
33-92050)
10.26* Restricted Stock Purchase Plan of the Company (Exhibit 10.26 to
the Company's Registration Statement on Form S-1, No.
33-92050)
10.27* Form of Restricted Stock Purchase Agreement (Exhibit 10.27 to
the Company's Registration Statement on Form S-1, No.
33-92050)
10.28* Stock Restriction Agreement, dated March 8, 1990, among the
Company, FBS, IBM and the management stockholders named
therein, with amendment thereto (Exhibit 10.28 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.29* Form of Stock Option and Restricted Stock Purchase Plan of the
Company (Exhibit 2.9 to the Company's Registration Statement
on Form S-1, No. 33-92050)
10.30* Form of Stock Option Plan for Non-Employee Directors of the
Company (Exhibit 10.30 to the Company's Registration Statement
on Form S-1, No. 33-92050)
10.31* Form of Incentive Stock Option Agreement (Exhibit 10.31 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.32 Stock Purchase Agreement dated June 15, 1994 among the
Company, Welsh, Carson, Anderson & Stowe VI, L.P., WCA
Management Corporation, WCAS Information Partners, L.P., CS
First Boston Securities Corporation, and International Business
Machines Corporation (Exhibit 10.32 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.33 Securities Purchase and Exchange Agreement, dated September
30, 1994, among the Company, WCAS Capital Partners II, L.P.,
WCA Management Corporation, WCAS Information Partners,
L.P., CS First Boston Securities Corporation, and International
Business Machines Corporation (Exhibit 10.34 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.34 Software License Agreement between the Company and Banca
Commerciale Italiana (Exhibit 10.34 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.35 Form of Indemnification Agreement (Exhibit 10.35 to the
Company's Registration Statement on Form S-1, No. 33-92050)
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<PAGE>
<TABLE>
<S> <C> <C>
10.36* First Amendment to Stock Option and Restricted Stock Purchase
Plan (Exhibit 10.1 to the Company's Report on Form 10-Q for the
Quarterly Period Ended June 30, 1995, No. 0-26194)
10.37 Lease for additional space at the Company's Cary, N.C.
headquarters (Exhibit 10.2 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.38 Sublease of space at the Company's Cary, N.C. headquarters
(Exhibit 10.3 to the Company's Registration Statement on Form
S-1, No. 33-92050)
10.39 Credit Agreement and related Promissory Note between Seer
Technologies, Inc. and NationsBank, N.A. and related Guaranty
between the Company and WCAS, all dated July 15, 1996
(Exhibit 10.39 to the Quarterly Report on Form 10-Q for the
period ended June 30, 1996)
10.40 Second Consolidated Amendment Agreement dated July 19, 1996
between Seer Technologies, Inc. and NationsBank (Exhibit 10.40
to the Quarterly Report on Form 10-Q for the period ended June
30, 1996)
10.41 Preferred Stock Purchase Agreement dated August 8, 1996,
among the Company, WCAS and certain WCAS affiliates named
therein (Exhibit 10.41 to the Quarterly Report on Form 10-Q for
the period ended June 30, 1996)
10.42 Stock Agreement dated August 8, 1996, between the Company
and WCAS (Exhibit 10.42 to the Quarterly Report on Form 10-Q
for the period ended June 30, 1996)
10.43* Employment Agreement, dated August 8, 1996, between the E-5
Company and Thomas A. Wilson
10.44 Third Consolidated Amendment Agreement dated August 20, E-7
1996 between Seer Technologies, Inc. and NationsBank
10.45* Employment Agreement, dated September 23, 1996, between the E-18
Company and Steven Dmiszewicki
11.1 Statement Regarding Computation of Earnings per share E-21
21.1 Subsidiaries E-22
23.1 Consent of Coopers & Lybrand L.L.P. to incorporation of report E-25
of independent auditors in this Report into the Company's
Registration Statement on Forms S-8, Nos. 33-97856 and 33-97858
27.1 Financial Data Schedule
</TABLE>
______________
* Management contract or compensatory plan or agreement
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<PAGE>
EXHIBIT 10.43
WELSH, CARSON, ANDERSON & STOWE
320 PARK AVENUE
SUITE 2500
NEW YORK, NEW YORK 10022-6815
TELEPHONE NO.
(212) 893-9500
FACSIMILE NO.
(212) 893-9575
August 8, 1996
Mr. Thomas A. Wilson
President & Chief Executive Officer
LineWorks, Inc.
2040 Fortune Drive
San Jose, CA 95131
Dear Tom:
On behalf of the Board of Directors of Seer Technologies, Inc., this letter
will confirm the terms of your appointment.
Position: President and Chief Executive Officer; member of the
Board of Directors
Effective Date: The week of August 12, 1996
Salary: $280,000 per annum. The Company is on a September 30 fiscal
year. Review in one year by the Compensation Committee
of the Board. You will be entitled to twelve months of
salary in the event of termination.
Incentive
Compensation: 50% to 100% of salary to be paid at the end of the fiscal
year. For the fiscal year ending September 30, 1997 the
minimum bonus will be $140,000. After the first full
fiscal year the bonus will be determined by the
Compensation Committee which will evaluate the achievement
of the annual operating plan to determine the annual
bonus.
Equity: -300,000 stock options priced as of the market closing
price as of the date of acceptance. (Today's price $5.50).
-100,000 stock options with an exercise price of $18.00 per
share (the IPO price).
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<PAGE>
The above options will vest over four years, 25% per year.
In the first year 25% will vest as long as employment
continues through the end of the fiscal year, September 30,
1997. Thereafter vesting will occur based upon the
achievement of the annual operating plan. Make up provisions
for a missed year will be included.
In the event of a change of control prior to September 30,
1997 a minimum of 50% of the above options will vest.
Moving
Expenses: Up to $125,000 allowance will be provided to reimburse you
for any expenses associated with your move to the Cary,
North Carolina area. The Company will provide you with a
loan to be used as the equity payment for the purchase of a
home in the Cary, North Carolina area. This loan will be
repaid with the proceeds you receive from selling your
California home.
This letter cannot possible do an adequate job of explaining how
enthusiastic the entire Board is about your agreeing to lead Seer. We believe
that the situation is a superb matching of your impressive skills and the many
opportunities and challenges facing the Company. We look forward to working with
you to build a Company that will create significant shareholder value by
becoming a fast-growing industry leader.
Sincerely,
/s/ Robert A. Minicucci
-----------------------
Robert A. Minicucci
Chairman
Board of Directors
Seer Technologies, Inc.
RAM/bg
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<PAGE>
EXHIBIT 10.44
NORTH CAROLINA
WAKE COUNTY THIRD CONSOLIDATED AMENDMENT AGREEMENT
THIS THIRD CONSOLIDATED AMENDMENT AGREEMENT (the "Amendment Agreement"),
made and entered into as of this 20th day of August, 1996, by and between SEER
TECHNOLOGIES, INC., a Delaware corporation (the "Borrower"); and NATIONSBANK,
N.A.(formerly known as NationsBank N.A. (Carolinas)), a national banking
association with its principal office located in the city of Charlotte, North
Carolina (the "Bank"):
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower and the Bank have heretofore entered into a Loan
Agreement dated February 24, 1995 (the "Loan Agreement"), pursuant to which the
Bank agreed to establish for the Borrower a line of credit (the "Revolving
Credit") up to an aggregate principal amount at one time outstanding not in
excess of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), which
Revolving Credit is evidenced by the Borrower's Promissory Note dated February
24, 1995 (the "Note"); and
WHEREAS, the Revolving Credit is secured by a valid, perfected, first
priority lien with respect to all accounts receivable owned by the Borrower
pursuant to the terms of the Security Agreement dated February 24, 1995 (the
"Security Agreement"); and
WHEREAS, the Borrower and the Bank agreed to extend the maturity date of
the Revolving Credit to March 15, 1997, and to make certain other modifications
to the Loan Agreement and the Note, all as set forth in that certain First
Consolidated Amendment Agreement dated February 22, 1996 between the Bank and
the Borrower (the "First Amendment"); and
WHEREAS, due to certain covenant violations under the Loan Agreement (as
amended by the First Amendment), the Bank and the Borrower agreed to further
amendments to the Loan Agreement as set forth in that certain Second
Consolidated Amendment Agreement dated July 19, 1996 (the "Second Amendment");
and
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<PAGE>
WHEREAS, pursuant to the Second Amendment, the maturity date of the
Revolving Credit was changed to December 31, 1996 and the Borrower agreed to
grant the Bank additional security for the Revolving Credit pursuant to the
terms of that certain Intellectual Property Security Agreement between the
Borrower and the Bank dated July 19, 1996 (the "IP Security Agreement"); and
WHEREAS, the Borrower and the Bank entered into a Credit Agreement dated
July 15, 1996 (the "Credit Agreement"), pursuant to which the Bank agreed to
establish for the Borrower a credit facility (the "Guaranteed Facility") up to
an aggregate principal amount at one time outstanding not to exceed TWELVE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($12,500,000), which Guaranteed Facility
is evidenced by the Borrower's Promissory Note dated July 15, 1996 (the
"Guaranteed Note"); and
WHEREAS, the obligations of the Borrower under the Credit Agreement and the
Guaranteed Note are guaranteed by Welsh, Carson, Anderson & Stowe VI, L.P., a
Delaware limited partnership (the "Guarantor") pursuant to that certain Guaranty
Agreement dated July 15, 1996 (the "Guaranty"); and
WHEREAS, the Borrower has proposed to sell convertible preferred stock of
the Borrower to the Guarantor for a purchase price of Twelve Million Five
Hundred Thousand Dollars ($12,500,000), the proceeds of which sale the Borrower
proposes to use to reduce the outstanding borrowings under the Revolving Credit
(the "Preferred Stock Transaction"); and
WHEREAS, the Borrower has requested and the Bank has agreed to extend the
maturity date of the Revolving Credit to September 30, 1997, and to make certain
other modifications to the Loan Agreement upon the successful completion of the
Preferred Stock Transaction;
NOW, THEREFORE in consideration of the mutual covenants, promises and
conditions hereinafter set forth, it is hereby agreed as follows:
1. The term "Loan Agreement," as used herein and in the Loan Agreement, the
Note and all other loan documents executed in connection with the Revolving
Credit (collectively referred to herein as the "Loan Documents") shall have the
same meaning as the Loan Agreement dated February 24, 1995 as amended by the
First Amendment and the Second Amendment, except as hereby amended and modified.
Unless the context otherwise requires, all terms used herein without definition
shall have the definitions provided therefor in the Loan Agreement.
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<PAGE>
2. Subject to the conditions set forth in Paragraphs 5 and 6 hereof, the
Loan Agreement shall be and hereby is amended, effective as of the effective
date hereof, as follows:
(a) Paragraph 3(i) of the Loan Agreement is hereby amended by deleting
Paragraph 3(i) (the Current Ratio covenant) in its entirety.
(b) The first sentence of Paragraph 3(j) of the Loan Agreement is
hereby amended by deleting said sentence in its entirety and substituting
in lieu thereof the following:
"The Borrower will maintain Borrower's Tangible Net Worth in an
amount not less than $28,000,000 as at the last day of each fiscal
quarter of the Borrower; provided, however, that the Borrower shall be
permitted to reduce the Tangible Net Worth requirement by an amount up
to $10,000,000 in accounts receivable writedowns, deferred tax
writedowns and Bank approved restructuring charges."
(c) Paragraph 4(i) of the Loan Agreement is hereby amended by deleting
Paragraph 4(i) (the Liabilities to Net Worth covenant) in its entirety.
(d) Paragraph 10(b) of the Loan Agreement is hereby amended by
deleting said Paragraph 10(b) in its entirety and substituting in lieu
thereof the following:
"b) Unutilized Line of Credit Fee. The Borrower agrees to pay to
the Bank a commitment fee for the period from the closing of the Loan
to the maturity date of the Note at the rate per annum equal to three-
eights percent (3/8%) of the Unutilized Revolving Credit Commitment
(as defined herein), payable in arrears (i) on the last business day
of each fiscal quarter, beginning with the last business day of the
fiscal quarter ending March 31, 1996, and (ii) on the maturity date of
the Note. For purposes of this Loan Agreement, the term "Unutilized
Revolving Credit Commitment" shall mean, on the date of calculation
thereof, the difference between (i) $20,000,000 and (ii) the average
daily principal amount outstanding under the Note during the
immediately preceding fiscal quarter."
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<PAGE>
(e) Paragraph 10(c) of the Loan Agreement is hereby amended by
deleting said Paragraph 10(c) in its entirety and substituting in lieu
thereof the following:
"c) Borrowing Base Agreement. Bank agrees, upon the terms and
conditions set forth herein, to make Revolving Credit Advances to the
Borrower during the term of this Loan Agreement up to an aggregate
amount not exceeding $20,000,000; provided, however, Bank will not be
required and shall have no obligation to make any Revolving Credit
Advances (i) so long as a Default or an Event of Default has occurred
and is continuing; (ii) if, immediately after giving effect to each
advance, the balance due under the Loan exceeds the Borrowing Base; or
(iii) if, immediately after giving effect to each advance, the balance
due under the Loan exceeds $20,000,000. For purposes of this Loan
Agreement:
1) "Revolving Credit Advance" shall mean an amount paid by
Bank to the Borrower pursuant to this Loan Agreement and
evidenced by the Note.
2) "Borrowing Base" shall mean an amount equal to the sum of
(i) eighty percent (80%) of Eligible Domestic Accounts, and (ii)
sixty percent (60%) of Eligible Foreign Accounts, as determined
pursuant to the Borrowing Base Certificate.
3) "Accounts" means accounts, accounts receivables, chattel
paper, instruments and documents, whether now owned or hereafter
acquired by the Borrower.
4) "Borrowing Base Certificate" means a certificate in the
form attached hereto and marked as Schedule 1.
5) "Eligible Domestic Accounts" means those Accounts which
have been in existence for not more than ninety (90) days from
the date of the unpaid invoice as issued by the Borrower as
determined pursuant to the Borrowing Base Certificate; provided
there shall be excluded from Accounts the following: intercompany
or interaffiliate Accounts; foreign Accounts (i.e., Accounts with
an Account Debtor located outside the U.S. or Canada); general
provisions for credit memos; and Accounts which relate to
consigned Inventory.
E-10
<PAGE>
6) "Eligible Foreign Accounts" means those Accounts which
have been in existence for not more than ninety (90) days from
the date of the original invoice as issued by the Borrower as
determined pursuant to the Borrowing Base Certificate; provided
there shall be excluded from Accounts the following: Accounts
with Account Debtors that, to the Bank's satisfaction, are not of
investment grade or equivalent; intercompany or interaffiliate
Accounts; domestic Accounts (i.e., Accounts with an Account
Debtor located in the U.S. or Canada); general provisions for
credit memos; and Accounts which relate to consigned Inventory.
7) If at any time the Borrower's outstanding indebtedness to
the Bank pursuant to the Note (the "Outstanding Indebtedness")
exceeds the Borrowing Base, Borrower shall immediately make a
payment equal to the difference between (i) the Outstanding
Indebtedness and (ii) the Borrowing Base. If at any time the
Outstanding Indebtedness exceeds $20,000,000, Borrower shall
immediately make a payment equal to the difference between (i)
the Outstanding Indebtedness and (ii) $20,000,000. Borrower shall
provide Bank a Borrowing Base Certificate in a form satisfactory
to the Bank on the twentieth (20th) day of each month and at such
other times as Bank may request. Borrower shall submit to Bank
upon request, but not less frequently than monthly, a report
identifying all Accounts by Account Debtor, and reflecting the
aging thereof and containing sufficient information for Bank to
calculate the amount of Eligible Domestic Accounts and Eligible
Foreign Accounts. The Borrower shall submit to Bank upon request
such other reports and information as the Bank shall reasonably
request.
E-11
<PAGE>
8) During the term of this Loan Agreement, the Borrower may
use the Loan by borrowing, paying or prepaying such principal
amount, and re-borrowing all in accordance with the terms of this
Loan Agreement.
9) The Bank's Commercial Credit Services shall monitor the
Revolving Credit Advances and Borrowing Base, and shall conduct,
prepare and complete such audits of the Borrower's operations as
the Bank deems appropriate. The Borrower shall cooperate fully
with the Bank's Commercial Credit Services in the monitoring and
audit procedures. The Borrower shall provide the Bank's
Commercial Credit Services with such additional schedules,
reports and information as Bank may reasonably request. The
additional schedules, reports and information shall be in form
reasonably satisfactory to the Bank's Commercial Credit Services.
Notwithstanding any provision of this Loan Agreement to the
contrary, the advance rates set forth in Paragraph 10(c)(2) above
may be adjusted by the Bank in its sole discretion, upon 15 days'
written notice to the Borrower, taking into account all
fluctuations of the value of the Accounts in light of the Bank's
experience and sound lending practices; provided, that in the
event such an adjustment results in an obligation on the part of
the Borrower to repay a portion of any Outstanding Indebtedness
pursuant to Paragraph 10(c)(7) above, such repayment shall be due
and payable within thirty (30) days of such adjustment.
(f) Schedule 1 to the Loan Agreement is hereby amended by deleting
said Schedule 1 in its entirety and substituting in lieu thereof Schedule 1
attached hereto and incorporated herein by reference.
(g) Paragraph 5 of the Loan Agreement is hereby amended to provide
that, as additional security for the Loan, the Borrower grants a security
interest in all fixed assets owned by the Borrower.
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<PAGE>
(h) Paragraph 4(a) is hereby amended by deleting the first sentence of
said Paragraph 4(a) and substituting in lieu thereof the following.
"(a) Except in favor of Bank, incur any additional indebtedness
for borrowed money, any additional contingent liability, or transfer
any of Borrower's assets, whether now owned or hereafter acquired,
except in the ordinary course of Borrower's business."
Except as amended hereby, the remaining sentences of Paragraph 4(a) shall
continue and remain unaffected.
(i) Paragraph 10(d) of the Loan Agreement is hereby amended by
deleting said Paragraph 10(d) in its entirety and substituting in lieu
thereof the following:
"d) Commitment Letter. The terms and conditions of the Commitment
Letter from the Bank to the Borrower dated July 19, 1996, are
incorporated herein by reference, but in the event of a conflict or
discrepancy between the terms of this Loan Agreement and the
Commitment Letter, the terms of this Loan Agreement shall control."
3. Subject to the conditions set forth in Paragraphs 5 and 6 hereof, the
Revolving Credit Note shall be and hereby is amended, effective as of the date
hereof, as follows:
(a) The Promissory Note is hereby amended by deleting the sum
"$25,000,000" in each and every place it occurs and substituting in lieu
thereof the sum "$20,000,000" in each such place.
(b) The payment schedule set forth in the Promissory Note is hereby
amended by deleting said payment schedule in its entirety and substituting
in lieu thereof the following:
"Principal shall be paid in full in a single payment on September
30, 1997. Interest thereon shall be paid monthly commencing on March
31, 1996, and continuing on the last day of each successive month
thereafter, with a final payment of all unpaid interest at the stated
maturity of this Note."
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<PAGE>
4. By the execution and delivery hereof, the Borrower hereby represents and
warrants to the Bank that as of the date hereof the Loan Agreement has been
reexamined and:
(a) The representations and warranties made by the Borrower in
Paragraph 1 of the Loan Agreement are true on and as of the date hereof;
(b) There has been no material change in the condition, financial or
otherwise, of the Borrower since the date of the most recent financial
reports of the Borrower received by the Bank, other than changes in the
ordinary course of business, none of which has been a materially adverse
change or other than ordinary operating losses consistent with past
performance;
(c) No authorization, approval or consent of any regulatory body is
necessary or required in connection with the lawful execution, delivery and
performance of this Amendment Agreement which has not been obtained; and
(d) The execution, delivery and performance of this Amendment
Agreement will not conflict with or result in the breach of any of the
provisions of or cause a default under, the articles of incorporation or
bylaws of the Borrower, or any applicable law, rule or regulation, or any
judgment, order, writ, injunction, decree of any court, administrative
agency or other instrumentality to which the Borrower is subject and will
not result in the creation or imposition of any security interest, lien,
charge or encumbrance on any of the assets of the Borrower except for the
liens created by the Security Agreement, the IP Security Agreement and as
contemplated in Section 5(d) below.
5. The effectiveness of this Amendment Agreement shall be subject to the
fulfillment of the following conditions precedent:
(a) The Borrower shall have delivered to the Bank a Borrower's
Affidavit to the effect that each of the Loan Documents has been reexamined
on behalf of the Borrower by the signatory thereto and that as of the date
of delivery of said certificate that, to the best of his knowledge, no
event has occurred and no condition exists which constitutes, or with the
giving of notice or lapse of time or both, would constitute, an event of
default under the Loan Agreement or any of the other Loan Documents.
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<PAGE>
(b) The Bank shall have received two (2) counterparts of this
Amendment Agreement duly executed by all signatories thereto.
(c) The Bank shall have received certified copies of resolutions of
the Board of Directors of the Borrower authorizing the execution and
delivery of, and the performance under, this Amendment Agreement and the
other Loan Documents.
(d) The Bank shall have received a duly executed Security Agreement,
UCC-1 Financing Statements and such other instruments as the Bank may
request to create and perfect a valid security interest in the Borrower's
fixed assets.
(e) The Bank shall have received an opinion of counsel reasonably
satisfactory to the Bank addressing corporate existence, authority,
execution and enforceability of this Amendment Agreement.
(f) The Borrower shall have consummated the Preferred Stock
Transaction and the proceeds thereof shall have been paid to the Bank and
applied to the outstanding balance of the Note.
6. All instruments and documents incident to the consummation of the
transactions contemplated hereby shall be satisfactory in form and substance to
the Bank and its counsel; the Bank shall have received copies of all additional
agreements, instruments and documents which it may reasonably request in
connection therewith, such documents, when appropriate, to be certified by
appropriate governmental authorities; and all proceedings of the Borrower
relating to the matters provided for herein, including the Preferred Stock
Transaction, shall be satisfactory to the Bank and its counsel.
7. This Amendment Agreement sets forth the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof and
supersedes any prior negotiations and agreements among the parties relative to
such subject matter. No promise, condition, representation or warranty, express
or implied, not herein set forth shall bind any party hereto and none of them
has relied on any such promise, condition, representation or warranty. Each of
the parties hereto acknowledges that, except as in this Amendment Agreement
otherwise expressly stated, no representations, warranties or commitments,
express or implied, have been made by any other party to the other. None of the
terms or conditions of this Amendment Agreement may be changed, modified, waived
or canceled orally or otherwise, except by writing, signed by the party to be
E-15
<PAGE>
charged therewith, specifying such change, modification, waiver or cancellations
of such terms or conditions, or of any proceeding or succeeding breach thereof,
unless expressly so stated. In the event of a conflict between the terms of the
Loan Documents and the terms of this Amendment Agreement, the terms of the Loan
Documents shall be construed in a manner consistent with the amendments and
modifications set forth in this Amendment Agreement.
8. Except as specifically amended, modified or supplemented, the Loan
Agreement, the Note, the Security Agreement and all of the other Loan Documents
are hereby confirmed and ratified in all respects and shall remain in full force
and effect according to their respective terms. In the event of a conflict
between the terms of the Loan Documents and the terms of this Amendment
Agreement, the terms of the Loan Documents shall be construed in a manner
consistent with the amendments and modifications set forth in this Amendment
Agreement.
9. All costs, fees and expenses incurred by the Borrower and the Bank in
connection with this Amendment Agreement and the satisfaction of all conditions
precedent hereunder whether incurred in connection with the preparation and
execution hereof or in connection with the parties' performance hereunder, shall
be paid by the Borrower, including without limitation, such reasonable
attorney's fees as Bank's counsel may charge and Bank's audit and ongoing
monitoring fees.
10. The parties hereto agree and acknowledge that the provisions of this
Amendment Agreement constitute amendments to, and not a novation of, the
indebtedness evidenced by the Revolving Credit Note.
11. This Amendment Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original against any party whose
signature appears thereon, and all of which shall together constitute one and
the same instrument.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment
Agreement to be duly executed under seal by their duly authorized
representatives, all as of the day and year first above written.
E-16
<PAGE>
SEER TECHNOLOGIES, INC., a
Delaware Corporation
By: /s/ Mark J. Baric
-----------------------------
Executive Vice President
ATTEST:
/s/ Dennis McKinnie
- ------------------------------
_____________ Secretary
[CORPORATE SEAL]
NATIONSBANK, N.A., a National
Banking Association
By: /s/ Jeffrey Lee
-----------------------------
Senior Vice President
ATTEST:
/s/ Holliday Shaw
- ----------------------------
Assistant Secretary
[CORPORATE SEAL]
E-17
<PAGE>
EXHIBIT 10.45
September 23, 1996
Mr. Steven Dmiszewicki
8605 Bell Grove Way
Raleigh, North Carolina 27615
Dear Steve:
This supersedes the letter sent to you on September 20, 1996.
I am delighted to extend our offer for you to rejoin Seer Technologies, Inc. The
details of your offer are:
Position: Senior Vice President & Chief Financial Officer; member of the
Executive Committee
Reporting to: President & Chief Executive Officer, Tom Wilson
Location: Cary, North Carolina
Compensation
You will be paid on the 15th and 30th of the month at a rate of $6,666.66 per
pay period ($160,000 annualized).
In addition, you will be eligible to participate in a discretionary bonus
program based upon the company's performance and attainment of your individual
goals. Your bonus potential is anticipated to be between 25-50% of base. For the
fiscal year ending September 30, 1997, your minimum bonus will be $40,000.00, so
long as you are an employee in good standing on the date bonuses are paid,
typically on December 15th.
In the event of your termination other than for cause during your first twenty-
four months with Seer, your base salary will be continued for twelve months, or
until you are employed full-time, whichever is sooner.
E-18
<PAGE>
Offer of Employment
Steve Dmiszewicki
23 Sept 96
Page 2 of 3
Benefits
As a full-time employee, you will be eligible for life, health and dental
insurance (including family coverage, if you opt for it) effective your first
day of work. Disability insurance becomes available after 90 days.
Vacation & Holiday
As a Vice President, you are entitled to four weeks of paid vacation, prorated
in the first year until December 31. In addition, Seer observes eight standard
holidays and provides for two "floating" personal choice holidays.
Stock
Subject to the approval of the Board of Directors, you will receive options to
purchase (a) 100,000 shares of Seer Technologies, Inc. stock upon commencing
employment with the company and, (b) an additional 50,000 options on October 1,
1997, so long as you are a full-time employee in good standing on that date.
Sign-On Bonus
Upon starting your employment with us, you will receive a bonus of $100,000.
This amount must be repaid to Seer if you resign from the company before January
1, 1998.
Requirements Prior to Your Start
As part of your employment offer, Seer requires that you sign certain non-
competition and assignment of invention agreements, copies of which are
enclosed, before you begin work. In compliance with the Immigration Reform Act
1986, you must show proof of your eligibility for employment in the United
States on your first day of work.
It is a fundamental policy of Seer that it does not hire employees or
consultants in order to obtain access to trade secrets or proprietary
information of any of their former employers. By accepting this job offer, you
represent that (I) you will not violate the terms of any non-competition, non--
disclosure and non-solicitation agreements to which you may be bound by any
prior employer and (ii) you will not use any files or materials in connection
with your employment with Seer that are trade secrets of or proprietary
information to another firm.
E-19
<PAGE>
Offer of Employment
Steve Dmiszewicki
23 Sept 96
Page 3 of 3
Statement on Employment at Will
I am delighted that you have expressed an interest in returning to Seer
Technologies. However, your employment with Seer is terminable at any time by
you or us and this letter does not guarantee employment or constitute an
employment agreement or contract for a year or for any other specified term.
I look forward to receiving your signed acceptance of our offer along with one
signed copy of the "Employee Non-Competition Agreement."
Sincerely,
Seer Technologies, Incorporated
/s/ Irene Y. Wong
Worldwide Director, Human Resources
Accepted: _________________________
Start Date: _______________________
E-20
<PAGE>
EXHIBIT 11.1
SEER TECHNOLOGIES, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended September 30,
-------------------------------------
(Pro Forma) (Pro Forma)
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Average common shares outstanding
(excluding convertible shares) 11,445 3,989 1,555
Common shares from conversion of
Series B Convertible Preferred Stock - 4,946 (1) 6,594
Common shares from conversion of
Series C Convertible Preferred Stock - 148 (1) 198
Shares issued for redemption of
Senior Preferred Stock - 648 (2) 864 (2)
Common stock equivalents - (4) 1,776 (3) 1,775 (3)
--------- -------- --------
Total common and common
equivalent shares outstanding 11,445 11,507 10,986
========= ======== ========
Net Income (loss) $ (31,582) $ 5,152 $ 2,361
========= ======== ========
Per share amount $ (2.76) $ 0.45 $ 0.21
========= ======== ========
FULLY DILUTED EARNINGS PER SHARE (5)
(1) Series B and C Convertible Preferred Stock were outstanding for three of
four quarters in 1995:
Series B shares of 6,594 X 75% = 4,946 shares
Series C shares of 198 X 75% = 148 shares
<S> <C> <C>
(2) Dividend - Senior Redeemable Preferred Stock 417 417
Principal - Senior Redeemable Preferred Stock 15,135 15,135
-------- --------
Total redemption value 15,552 15,552
Dividend by IPO price per share 18.00 18.00
-------- --------
Number of equivalent shares of common stock 864 864
========
Adjustment - outstanding for three of four
quarters in fiscal 1995 0.75
--------
Number of equivalent shares of common stock 648
========
</TABLE>
(3) Common stock equivalents presented assume a market price of $18.00 (the IPO
price) and are calculated using the treasury stock method.
(4) Common stock equivalents are not included since their effect on the earnings
per share calculation is antidilutive.
(5) Presentation of fully diluted earnings per share is not required for any of
the periods presented.
E-21
<PAGE>
EXHIBIT 21.1
SEER TECHNOLOGIES, INC.
List of Subsidiaries
DOMESTIC COMPANIES
Parent Company:
Seer Technologies, Inc.
Date of Incorporation:03/06/90
State of Incorporation:Delaware
Subsidiary:
Seer Technologies (Worldwide Holdings) Limited
Date of Incorporation:02/26/92
State of Incorporation:Delaware
FOREIGN SUBSIDIARIES
Argentina:
Seer Technologies de Argentine S.A.
Date of Incorporation:09/11/96
Australia:
Seer Technologies Australia Pty Limited
Date of Registration:08/09/93
Barbados:
Seer Technologies FSC, Inc.
Date of Registration:12/27/95
Benelux:
Seer Technologies Benelux B.V.
Date of Registration:09/25/92
E-22
<PAGE>
Brazil:
Seer Technologies do Brazil Ltda.
Date of Registration:12/09/93
Canada:
Seer Technologies Canada, Inc.
Domestic Province: Ontario
Date of Registration:05/18/94
Denmark:
Seer Technologies Denmark ApS
Date of Registration:04/01/94
France:
Seer Technologies France S.A.R.L.
Date of Registration:06/09/95
Germany:
Seer Technologies Europe (Deutschland) GmbH
Date of Registration:11/19/92
Hong Kong:
Seer Technologies Hong Kong Limited
Date of Registration:12/14/94
Ireland:
Seer Technologies Ireland Limited
Date of Registration:03/11/95
E-23
<PAGE>
Italy:
Seer Technologies Italia S.r.l.
Date of Registration:08/07/92
Mexico:
Seer Technologies de Mexico S.A. de C.V.
Date of Registration:11/08/95
Sweden:
Seer Technologies Nordic AB
Date of Registration:07/09/92
Singapore:
Seer Technologies Singapore Pty Limited
Date of Registration:02/11/95
South Africa:
Seer Technologies, Inc.
Date of Registration:06/18/96
Spain:
Seer Technologies Espana S.L.
Date of Registration:07/22/93
United Kingdom:
Seer Technologies (U.K.) Limited
Date of Registration:01/07/92
E-24
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
__________
We consent to the incorporation by reference in the registration statement
of Seer Technologies, Inc. on Forms S-8 (File Nos. 33-97856 and 33-97858) of our
reports dated November 7, 1996, on our audits of the consolidated financial
statements of Seer Technologies, Inc., as of September 30, 1996, and for the
years ended September 30, 1996, 1995 and 1994, which reports are included in
this Annual Report on Form 10-K.
/s/COOPERS & LYBRAND L.L.P.
Washington, D.C.
December 30, 1996
E-25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF
THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-START> OCT-01-1995 OCT-01-1994
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 377 13,650
<SECURITIES> 0 0
<RECEIVABLES> 56,878 49,189
<ALLOWANCES> 10,137 1,236
<INVENTORY> 0 0
<CURRENT-ASSETS> 52,052 61,634
<PP&E> 18,035 15,281
<DEPRECIATION> 11,576 8,453
<TOTAL-ASSETS> 78,804 76,444
<CURRENT-LIABILITIES> 48,089 27,547
<BONDS> 0 0
0 0
21 0
<COMMON> 116 114
<OTHER-SE> 29,916 48,324
<TOTAL-LIABILITY-AND-EQUITY> 78,804 76,444
<SALES> 0 0
<TOTAL-REVENUES> 96,943 117,180
<CGS> 0 0
<TOTAL-COSTS> 58,334 44,638
<OTHER-EXPENSES> 73,563 62,515
<LOSS-PROVISION> 10,158 773
<INTEREST-EXPENSE> 802 701
<INCOME-PRETAX> (45,266) 8,807
<INCOME-TAX> (13,684) 3,655
<INCOME-CONTINUING> (31,582) 5,152
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (31,582) 5,152
<EPS-PRIMARY> (2.76) 0.45
<EPS-DILUTED> (2.76) 0.45
</TABLE>
