-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LpmtjKC+03BdIuO6+NLniU1lBiIBUur6qQN0B8oPoS3YBQ34jwC8OL861vwSg5og uuj8N3R2IdsgEH25QhZkCg== 0000950134-03-010782.txt : 20030731 0000950134-03-010782.hdr.sgml : 20030731 20030731170902 ACCESSION NUMBER: 0000950134-03-010782 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYLER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000860731 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 752303920 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10485 FILM NUMBER: 03815402 BUSINESS ADDRESS: STREET 1: 2800 W MOCKINGBIRD LANE CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2147547800 MAIL ADDRESS: STREET 1: 2121 SAN JACINTO STREET STREET 2: SUITE 3200 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: TYLER CORP /NEW/ DATE OF NAME CHANGE: 19930328 FORMER COMPANY: FORMER CONFORMED NAME: TYLER THREE INC DATE OF NAME CHANGE: 19600201 10-Q 1 d07837e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2003 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number 1-10485 TYLER TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2303920 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 5949 SHERRY LANE, SUITE 1400 DALLAS, TEXAS 75225 (Address of principal executive offices) (Zip code) (972) 713-3700 (Registrant's telephone number, including area code) 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 [ ] Number of shares of common stock of registrant outstanding at July 29, 2003: 40,399,432 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TYLER TECHNOLOGIES, INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except per share amounts) (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Revenues: Software licenses $ 6,157 $ 5,264 $ 11,617 $ 10,578 Software services 9,541 5,832 17,247 10,824 Maintenance 11,698 10,269 22,633 19,584 Appraisal services 7,356 10,988 14,107 18,771 Hardware and other 1,383 1,252 2,856 2,770 -------- -------- -------- -------- Total revenues 36,135 33,605 68,460 62,527 Cost of revenues: Software licenses 1,519 1,394 3,063 2,463 Software services and maintenance 14,565 12,241 27,847 23,751 Appraisal services 5,139 7,257 9,887 12,662 Hardware and other 1,049 1,005 2,156 2,209 -------- -------- -------- -------- Total cost of revenues 22,272 21,897 42,953 41,085 -------- -------- -------- -------- Gross profit 13,863 11,708 25,507 21,442 Selling, general and administrative expenses 10,061 8,596 19,162 16,491 Amortization of acquisition intangibles 725 831 1,510 1,665 -------- -------- -------- -------- Operating income 3,077 2,281 4,835 3,286 Realized gain on sale of investment in H.T.E., Inc. - - 23,233 - Legal fees associated with investment in H.T.E., Inc. - (160) - (285) Interest income (expense) 137 (5) 146 32 -------- -------- -------- -------- Income before income tax provision 3,214 2,116 28,214 3,033 Income tax provision 1,233 826 8,937 1,181 -------- -------- -------- -------- Net income $ 1,981 $ 1,290 $ 19,277 $ 1,852 ======== ======== ======== ======== Earnings per common share: Basic $ 0.05 $ 0.03 $ 0.43 $ 0.04 ======== ======== ======== ======== Diluted $ 0.04 $ 0.03 $ 0.42 $ 0.04 ======== ======== ======== ======== Weighted average common shares outstanding: Basic 42,881 47,647 44,408 47,517 ======== ======== ======== ======== Diluted 44,796 50,405 46,259 50,066 ======== ======== ======== ========
See accompanying notes. 1 TYLER TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share amounts)
June 30, 2003 December 31, (Unaudited) 2002 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 15,436 $ 13,744 Short-term investments 12,113 - Accounts receivable (less allowance for losses of $932 in 2003 and $690 in 2002) 35,593 33,510 Prepaid expenses and other current assets 4,177 4,009 Deferred income taxes 1,197 1,197 ----------- ------------ Total current assets 68,516 52,460 Property and equipment, net 6,418 6,819 Other assets: Investment in H.T.E., Inc. - 27,196 Goodwill 46,298 46,298 Software, net 22,747 21,933 Customer base and other acquisition intangibles, net 14,208 14,655 Sundry 755 484 ----------- ------------ $ 158,942 $ 169,845 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,352 $ 2,390 Accrued liabilities and other current liabilities 11,378 11,186 Net current liabilities of discontinued operations 354 442 Income taxes payable 3,466 - Deferred revenue 30,015 26,208 ----------- ------------ Total current liabilities 47,565 40,226 Long-term obligations, less current portion - 2,550 Deferred income taxes 4,418 8,413 Commitments and contingencies Shareholders' equity: Preferred stock, $10.00 par value; 1,000,000 shares authorized, none issued - - Common stock, $.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued in 2003 and 2002 481 481 Additional paid-in capital 156,558 156,898 Accumulated deficit (21,677) (40,954) Accumulated other comprehensive income - unrealized gain on securities available-for-sale, net of tax - 7,418 Treasury stock, at cost: 7,748,537 and 1,928,636 shares in 2003 and 2002, respectively (28,403) (5,187) ----------- ------------ Total shareholders' equity 106,959 118,656 ----------- ------------ $ 158,942 $ 169,845 =========== ============
See accompanying notes. 2 TYLER TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended June 30, ------------------------- 2003 2002 -------- -------- Cash flows from operating activities: Net income $ 19,277 $ 1,852 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 4,281 4,218 Realized gain on sale of investment in H.T.E., Inc. (23,233) - Non-cash charges - 289 Discontinued operations - non-cash charges and changes in operating assets and liabilities (88) (47) Changes in operating assets and liabilities, exclusive of effects of discontinued operations 5,514 583 -------- -------- Net cash provided by operating activities 5,751 6,895 -------- -------- Cash flows from investing activities: Proceeds from sale of investment in H.T.E., Inc. 39,333 - Purchases of short-term investments (15,113) - Proceeds from sales of short-term investments 3,000 - Investment in software development costs (3,450) (3,562) Additions to property and equipment (773) (1,472) Proceeds from dispositions related to discontinued operations - 1,783 Other (562) (7) -------- -------- Net cash provided (used) by investing activities 22,435 (3,258) -------- -------- Cash flows from financing activities: Purchase of treasury shares (23,868) - Payments on notes payable (2,891) (53) Payment of debt of discontinued operations - (179) Proceeds from exercise of stock options 265 1,598 Debt issuance costs - (185) -------- -------- Net cash (used) provided by financing activities (26,494) 1,181 -------- -------- Net increase in cash and cash equivalents 1,692 4,818 Cash and cash equivalents at beginning of period 13,744 5,271 -------- -------- Cash and cash equivalents at end of period $ 15,436 $ 10,089 ======== ========
See accompanying notes. 3 Tyler Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (Tables in thousands, except per share data) (1) Basis of Presentation We prepared the accompanying condensed consolidated financial statements following the requirements of the Securities and Exchange Commission ("SEC") and accounting principles generally accepted in the United States, or GAAP, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted for interim periods. Balance sheet amounts are as of June 30, 2003 and December 31, 2002 and operating result amounts are for the three and six months ended June 30, 2003 and 2002, and include all normal and recurring adjustments that we considered necessary for the fair summarized presentation of our financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes included in our latest Form 10-K for the year ended December 31, 2002. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. Although we have a number of operating subsidiaries, separate segment data has not been presented as they meet the criteria set forth in SFAS (Statement of Financial Accounting Standards) No. 131, "Disclosures About Segments of an Enterprise and Related Information" to be presented as one segment. In addition, certain other amounts for the previous year have been reclassified to conform to the current year presentation. (2) Discontinued Operations Discontinued operations includes our former information and property records services segment for which our Board of Directors approved a formal plan of disposal in December 2000 and two non-operating subsidiaries related to a formerly owned subsidiary that we sold in December 1995. The business units within the discontinued information and property records services segment were sold in 2000 and 2001. In June 2002, we renegotiated the proceeds from a May 2001 sale transaction and received cash of approximately $800,000 and a subordinated note receivable amounting to $200,000 to fully settle a promissory note and other contingent consideration in connection with the original sale transaction. In June 2002, we also sold the building of a business unit included in the information and property records service segment. Net proceeds from the sale totaled $961,000. In our opinion and based upon information available at this time, we believe that our remaining net liabilities related to discontinued operations are adequate. One of our non-operating subsidiaries is involved in various claims for work-related injuries and physical conditions relating to a formerly-owned subsidiary that we sold in 1995. See Note 10 - Commitments and Contingencies. (3) Cash, Cash Equivalents and Short-term Investments Cash equivalents include items almost as liquid as cash, such as money market investments and certificates of deposits with insignificant interest rate risk and original maturities of three months or less at the time of purchase. For purposes of the statements of cash flows, we consider all investments with original maturities of three months or less to be cash equivalents. Short-term investments include investments in short-term mutual corporate and municipal bond funds. In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", we determine the appropriate classification of debt and equity securities at the time of purchase and re-evaluate the classification as of each balance sheet date. At June 30, 2003, we classified these investments in bond funds as available-for-sale securities pursuant to SFAS No. 115. Investments which are classified as available-for-sale are recorded at fair value and unrealized holding gains and losses, net of the related tax effect, if any, are not reflected in earnings but are reported as a separate component of other comprehensive income (loss) until realized. We made the initial mutual fund investments of $15.0 million on March 28, 2003 and there were minimal unrealized holding gains and losses as of June 30, 2003. Realized gains and losses are determined on the specific identification method and are reflected in income. Other than the gain on the sale of our investment in H.T.E., Inc. (see Note 4 - Investment in H.T.E., Inc.), there were minimal realized gains or losses relating to short-term investments for the three or six months ended June 30, 2003. 4 (4) Investment in H.T.E., Inc. On March 25, 2003, we received cash proceeds of $39.3 million in connection with a transaction to sell all of our 5.6 million shares of H.T.E., Inc. ("HTE") common stock to SunGard Data Systems Inc. for $7.00 cash per share, pursuant to a Tender and Voting Agreement dated February 4, 2003. Our original cost basis in the HTE shares was $15.8 million. After transaction and other costs, we recorded a realized gross gain of $23.2 million ($16.2 million after income taxes of $7.0 million, including the utilization for tax purposes and reduction in valuation allowance for accounting purposes related to a capital loss carryforward amounting to $1.1 million on a tax effected basis). Our 5.6 million shares of HTE represented an ownership interest of approximately 35%. Under GAAP a 20% investment in the voting stock of another company creates the presumption that the investor has significant influence over the operating and financial policies of that company, unless there is evidence to the contrary. As disclosed in our previous filings, Tyler's management concluded that no such influence existed. Thus, we accounted for our investment in HTE pursuant to the provisions of SFAS No. 115. Accordingly, our investment in HTE was previously classified as an available-for-sale security. As of December 31, 2002, we had an unrealized holding gain of $11.4 million ($7.4 million after income tax of $4.0 million), which was included as a component of other comprehensive income. (5) Shareholders' Equity In April 2003, we commenced a modified "Dutch Auction" tender offer to purchase up to 4.2 million shares of our common stock at a price not greater than $4.00 and not less than $3.60 per share. In accordance with the SEC rules, we had the right to purchase an additional amount of shares not to exceed 2% of our outstanding shares (approximately 907,000 shares) without amending or extending our offer. Approximately 6.0 million shares of common stock were properly tendered and not withdrawn at prices at or below $4.00 per share. We exercised our right to purchase an additional 2% of our outstanding shares without amending or extending our offer. As a result, in May 2003, we purchased 5.1 million shares of our common stock at a cash purchase price of $4.00 per share and estimated transaction costs of approximately $150,000, for a total cost of $20.6 million. The final shares purchased reflect a pro-ration factor equal to 85% of the shares tendered. During the six months ended June 30, 2003, we also repurchased 875,200 shares for an aggregate purchase price of $3.3 million. As of July 29, 2003 our Board of Directors has authorized us to repurchase up to an additional 2.0 million shares of Tyler common stock. (6) Income Tax Provision For the three and six months ended June 30, 2003, we had an income tax provision of $1.2 million and $8.9 million, respectively. The income tax provision for the six months ended June 30, 2003, included $7.0 million (after utilization of a capital loss carryforward amounting to $1.1 million on a tax effected basis) related to the realized gain from the sale of our investment in HTE (see Note 4 - Investment in H.T.E., Inc.). We had an effective income tax rate of 38.4% and 31.7% for the three months and six months ended June 30, 2003, respectively compared to an effective income tax rate of 39.0% and 38.9% for the three and six months ended June 30, 2002. The effective income tax rates are estimated based on projected pre-tax income for the entire fiscal year and the resulting amount of income taxes. The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 35% primarily due to the utilization of the capital loss carryforward in 2003, state income taxes and non-deductible meals and entertainment costs. 5 (7) Earnings Per Share The following table details the reconciliation of basic earnings per share to diluted earnings per share:
Three months ended Six months ended June 30, June 30, -------------------- ------------------- 2003 2002 2003 2002 -------- -------- --------- ------- Numerator for basic and diluted earnings per share: Net income............................... $ 1,981 $ 1,290 $ 19,277 $ 1,852 ======== ======== ========= ======= Denominator: Weighted-average basic common shares 42,881 47,647 44,408 47,517 outstanding.................................. Assumed conversion of dilutive securities: Employee stock options................. 1,088 1,587 1,088 1,500 Warrants............................... 827 1,171 763 1,049 -------- -------- --------- ------- Potentially dilutive common shares........... 1,915 2,758 1,851 2,549 -------- -------- --------- ------- Weighted-average common shares outstanding, assuming full dilution....................... 44,796 50,405 46,259 50,066 ======== ======== ========= ======= Basic earnings per share..................... $ 0.05 $ 0.03 $ 0.43 $ 0.04 ======== ======== ========= ======= Diluted earnings per share................... $ 0.04 $ 0.03 $ 0.42 $ 0.04 ======== ======== ========= =======
(8) Stock Compensation In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," we elected to account for our stock-based compensation under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," as amended and related interpretations including FASB Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions involving Stock Compensation," an interpretation of APB Opinion No. 25, issued in June 2000. In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" was issued to amend SFAS No. 123. This statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Accordingly, under APB No. 25's intrinsic value method, compensation expense is determined on the measurement date; that is, the first date on which both the number of shares the option holder is entitled to receive, and the exercise price, if any, are known. Compensation expense, if any, is measured based on the award's intrinsic value - the excess of the market price of the stock over the exercise price on the measurement date. The exercise price of all of our stock options granted equals the market price on the measurement date. Therefore we have not recorded any compensation expense related to grants of stock options. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 for awards granted after December 31, 1994, as if we had accounted for our stock-based awards to employees under the fair value method of SFAS No. 123, and is as follows:
Three months ended Six months ended June 30, June 30, ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Net income....................................................... $ 1,981 $ 1,290 $ 19,277 $ 1,852 Add stock-based employee compensation cost included in net income, net of related tax benefit.................................... -- -- -- -- Deduct total stock-based employee compensation expense determined under fair-value-based method for all rewards, net of related tax benefit................................................... 477 529 933 988 -------- -------- -------- -------- Pro forma net income............................................. $ 1,504 $ 761 $ 18,344 $ 864 ======== ======== ======== ======== Pro forma net income per basic share............................. $ 0.04 $ 0.02 $ 0.41 $ 0.02 ======== ======== ======== ======== Pro forma net income per diluted share........................... $ 0.03 $ 0.02 $ 0.40 $ 0.02 ======== ======== ======== ========
6 (9) Comprehensive Income The components of comprehensive income are as follows:
Three months ended Six months ended June 30, June 30, --------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Net income.......................................................... $ 1,981 $ 1,290 $ 19,277 $ 1,852 Other comprehensive income: Reclassification adjustment for unrealized gain related to investment in H.T.E., Inc. (net of deferred tax expense of $3,995)......................................................... -- -- (7,418) -- Change in fair value of investment in H.T.E., Inc. (net of deferred tax benefit of $40 for the three months ended June 30, 2002 and deferred tax expense of $3,778 for the six months ended June 30, 2002).................................................. -- (72) -- 11,562 -------- -------- -------- -------- Total comprehensive income $ 1,981 $ 1,218 $ 11,859 $ 13,414 ======== ======== ======== ========
(10) Commitments and Contingencies One of our non-operating subsidiaries, Swan Transportation Company ("Swan"), has been and is currently involved in various claims raised by hundreds of former employees of a foundry that was once owned by an affiliate of Swan and Tyler. These claims are for alleged work related injuries and physical conditions resulting from alleged exposure to silica, asbestos, and/or related industrial dusts during the plaintiff's employment at the foundry. We sold the operating assets of the foundry on December 1, 1995. As a non-operating subsidiary of Tyler, the assets of Swan consist primarily of various insurance policies issued to Swan during the relevant time periods and restricted cash of $555,000 at June 30, 2003. Swan tendered the defense and indemnity obligations arising from these claims to its insurance carriers, who, prior to December 20, 2001, entered into settlement agreements with approximately 275 of the plaintiffs, each of whom agreed to release Swan, Tyler, and its subsidiaries and affiliates from all such claims in exchange for payments made by the insurance carriers. On December 20, 2001, Swan filed a petition under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The bankruptcy filing by Swan was the result of extensive negotiations between Tyler, Swan, their respective insurance carriers, and an ad hoc committee of plaintiff attorneys representing substantially all of the then known plaintiffs. Swan filed its plan of reorganization in February 2002. The principal features of the plan of reorganization include: (a) the creation of a trust, which is to be funded principally by fifteen insurance carriers pursuant to certain settlement agreements executed pre-petition between Swan, Tyler, and such carriers; (b) the implementation of a claims resolution procedure pursuant to which all present and future claimants may assert claims against such trust for alleged injuries; (c) the issuance of certain injunctions under the federal bankruptcy laws requiring any such claims to be asserted against the trust and barring such claims from being asserted, either now or in the future, against Swan, Tyler, all of Tyler's affected affiliates, and the insurers participating in the funding of the trust; and (d) the full and final release of each of Swan, Tyler, all of Tyler's affected affiliates, and the insurers participating in the funding of the trust from any and all claims associated with the once-owned foundry by all claimants that assert a claim against, and receive compensation from, the trust. 7 The confirmation hearings on Swan's plan of reorganization were held on December 9, 2002. The plan of reorganization received the affirmative vote of approximately 99% of the total votes cast. All objections to the plan were resolved prior to the confirmation hearing, and the terms and conditions of the plan (including the issuance of the injunctions) are therefore not subject to appeal. The confirmation order for the plan of reorganization was signed by the bankruptcy court and district court judges and entered by the United States Bankruptcy Court for the District of Delaware on July 22, 2003. The confirmation order discharges, releases, and extinguishes all of the foundry-related obligations and liabilities of Tyler, Swan, their affected affiliates, and the insurers participating in the funding of the trust. Further, the confirmation order includes the issuance of injunctions that channel all present and future foundry-related claims into the trust and forever bar any such claims from being asserted, either now or in the future, against Swan, Tyler, their affected affiliates, and the participating insurers. In order to receive the benefits described above, we have agreed, among other things, to transfer all of the capital stock of Swan to the trust (net assets of Swan at June 30, 2003 were $309,000) so that the trust can directly pursue claims against insurers who have not participated in the funding of the trust. In addition, we have agreed to contribute $1.5 million in cash to the trust, which is due as follows: $750,000 within ten days of the confirmation order becoming a final order; $500,000 on the first anniversary of the date the confirmation order becomes a final order; and $250,000 on the second anniversary of the date the confirmation order becomes a final order. Absent an appeal, the confirmation order will become a final order on August 21, 2003. Other than ordinary course, routine litigation incidental to our business and except as described herein, there are no material legal proceedings pending to which we or our subsidiaries are parties or to which any of our properties are subject. (11) Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board ("FASB") issued FIN 46, "Consolidation of Variable Interest Entities", which requires the consolidation of variable interest entities. FIN 46 is applicable to variable interest entities created after January 31, 2003. Variable interest entities created prior to February 1, 2003 must be consolidated effective July 1, 2003. We adopted FIN 46 in the quarter ended June 30, 2003, and it did not have a material impact on our financial position or results of our operations. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 was adopted in the quarter ended June 30, 2003 and it did not have a material impact on our financial position or results of our operations. 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS The statements in this discussion that are not historical statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our business, financial condition, business strategy, plans and the objectives of our management, and future prospects. In addition, we have made in the past and may make in the future other written or oral forward-looking statements, including statements regarding future operating performance, short- and long-term revenue and earnings growth, the timing of the revenue and earnings impact for new contracts, backlog, the value of new contract signings, business pipeline, and industry growth rates and our performance relative thereto. Any forward-looking statements may rely on a number of assumptions concerning future events and be subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual results to differ materially from such statements. These include, but are not limited to: our ability to improve productivity and achieve synergies from acquired businesses; technological risks associated with the development of new products and the enhancement of existing products; changes in the budgets and regulating environments of our government customers; competition in the industry in which we conduct business and the impact of competition on pricing, revenues and margins; with respect to customer contracts accounted for under the percentage-of-completion method of accounting, the performance of such contracts in accordance with our cost and revenue estimates; our ability to maintain health and other insurance coverage and capacity due to changes in the insurance market and the impact of increasing insurance costs on the results of operations; the costs to attract and retain qualified personnel, changes in product demand, the availability of products, economic conditions, changes in tax risks and other risks indicated in our filings with the Securities and Exchange Commission. The factors described in this paragraph and other factors that may affect Tyler, its management or future financial results, as and when applicable, are discussed in Tyler's filings with the Securities and Exchange Commission, on its Form 10-K for the year ended December 31, 2002. Except to the extent required by law, we are not obligated to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. When used in this Quarterly Report, the words "believes," "plans," "estimates," "expects," "anticipates," "intends," "continue," "may," "will," "should", "projects", "forecast", "might", "could" or the negative of such terms and similar expressions as they relate to Tyler or our management are intended to identify forward-looking statements. GENERAL Tyler provides integrated software systems and related services for local governments. We develop and market a broad line of software products and services to address the information technology (IT) needs of cities, counties, schools and other local government entities. We provide professional IT services to our customers, including software and hardware installation, data conversion, training and product modifications, along with continuing maintenance and support for customers using our systems. We also provide property appraisal outsourcing services for taxing jurisdictions. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following the requirements of accounting principles generally accepted in the United States (GAAP) for interim periods and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition and amortization and potential impairment of intangible assets and goodwill. As these are condensed financial statements, one should also read our Form 10-K for the year ended December 31, 2002 regarding expanded information about our critical accounting policies and estimates. 9 ANALYSIS OF RESULTS OF OPERATIONS The following table sets forth items from our unaudited condensed consolidated financial statements and the percentage change in the amounts between the periods presented. The amounts shown in the table are in thousands, except per share data. Revenues and expenses can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.
Three months ended June 30, Six months ended June 30, ----------------------------- ----------------------------- 2003 2002 Change 2003 2002 Change -------- -------- ------ -------- -------- ------ Revenues: Software licenses $ 6,157 $ 5,264 17% $ 11,617 $ 10,578 10% Software services 9,541 5,832 64 17,247 10,824 59 Maintenance 11,698 10,269 14 22,633 19,584 16 Appraisal services 7,356 10,988 (33) 14,107 18,771 (25) Hardware and other 1,383 1,252 10 2,856 2,770 3 -------- -------- -------- -------- Total revenues 36,135 33,605 8 68,460 62,527 9 Cost of revenues: Software licenses 1,519 1,394 9 3,063 2,463 24 Software services and maintenance 14,565 12,241 19 27,847 23,751 17 Appraisal services 5,139 7,257 (29) 9,887 12,662 (22) Hardware and other 1,049 1,005 4 2,156 2,209 (2) -------- -------- -------- -------- Total cost of revenues 22,272 21,897 2 42,953 41,085 5 % of revenues 61.6% 65.2% 62.7% 65.7% Gross profit 13,863 11,708 18 25,507 21,442 19 % of revenues 38.4% 34.8% 37.3% 34.3% Selling, general and administrative expenses 10,061 8,596 17 19,162 16,491 16 % of revenues 27.8% 25.6% 28.0% 26.4% Amortization of acquisition intangibles 725 831 (13) 1,510 1,665 (9) -------- -------- -------- -------- Operating income 3,077 2,281 35 4,835 3,286 47 Realized gain on sale of investment in H.T.E., Inc. - - 23,233 - Legal fees associated with investment in H.T.E., Inc. - (160) - (285) Interest income (expense) 137 (5) 146 32 -------- -------- -------- -------- Income before income tax provision 3,214 2,116 28,214 3,033 Income tax provision 1,233 826 8,937 1,181 -------- -------- -------- -------- Effective income tax rate 38.4% 39.0% 31.7% 38.9% Net income $ 1,981 $ 1,290 $ 19,277 $ 1,852 ======== ======== ======== ======== Diluted earnings per share $ 0.04 $ 0.03 $ 0.42 $ 0.04 ======== ======== ======== ======== Cash flows provided by operating activities $ 5,646 $ 4,702 $ 5,751 $ 6,895 Cash, cash equivalents and short-term investments at June 30 27,549 10,089 Capital expenditures: Software development costs 1,668 2,023 3,450 3,562 Property and equipment 454 807 823 1,472
10 REVENUES The following table compares the components of revenue as a percent of total revenues for the periods presented:
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Software licenses 17.0% 15.7% 17.0% 16.9% Software services 26.4% 17.4% 25.2% 17.3% Maintenance 32.4% 30.6% 33.1% 31.3% Appraisal services 20.4% 32.7% 20.6% 30.0% Hardware and other 3.8% 3.6% 4.1% 4.5% ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
Software license revenues. Software license revenues increased $893,000, or 17% for the three months ended June 30, 2003, compared to the same period last year. In addition, the second quarter of 2003 was the seventh consecutive quarter in which our software license revenues increased compared to the same period in the prior year. The second quarter increase included $723,000 for one property appraisal and tax software system and an increase of approximately $600,000 from sales of our legacy courts and justice software. Our property appraisal and tax software license volume varies from period to period depending on the special needs and timing of our customers. Local government taxing entities normally reappraise real properties from time to time to update values for tax assessment purposes and to maintain equity in the taxing process. While some of these taxing jurisdictions contract with our property appraisal and tax division to perform these reappraisals, it is not always necessary for the customer to purchase new software in order to process the appraisals. In some cases, a customer may simply add smaller appraisal software modules to enhance the functionality of its existing software. Higher courts and justice software sales were driven primarily by two large contracts. Increases in property appraisal and tax software and legacy courts and justice software were offset somewhat by lower recording systems and financial and city solutions software. Software license revenues increased $1.0 million, or 10%, for the six months ended June 30, 2003, compared to the same period last year. Approximately one-half of this increase relates to sales of our legacy courts and justice software with the remaining increase coming equally from property appraisal and tax software and financial and city solutions software. Software services revenues. For the three months ended June 30, 2003, software services revenues increased $3.7 million, or 64%, compared to the same period in 2002. For the six months ended June 30, 2003, software services revenues increased $6.4 million, or 59%, compared to the same period in 2002. The increase in software services revenues was attributable to the following factors: - Services related to implementation of Odyssey Case Management system, our new courts and justice product. We recognized approximately $800,000 and $1.9 million for services performed in the three and six months ended June 30, 2003, respectively, under our $11.0 million contract with the State of Minnesota to implement and install Odyssey Case Management system. We signed the contract in July 2002 and it includes both software license and software services. To date, no software license revenues have been recognized. Under this contract we have recorded approximately $3.8 million of service revenue from inception to June 30, 2003. We expect to perform approximately 70% of the implementation by the end of this calendar year. The remainder of the implementation is expected to be performed after this year; and - Software services related to the increase in software contracts signed in late 2002 and in the first half of 2003. Typically, contracts for software licenses include services such as installation of the software, converting the customers' data to be compatible with the software and training customer personnel to use the software. In addition we also experienced slight increases in application service provider contracts and consulting services related to financial and city solutions software. Services related to financial and city solutions software and property appraisal and tax software each contributed approximately one-third of the quarter and year-to-date increases. Maintenance revenues. Maintenance revenues for the quarter ended June 30, 2003 increased $1.4 million, or 14%, compared to the prior year quarter. Maintenance revenues for the six months ended June 30, 2003, increased $3.0 million, or 16%, compared to the six months ended June 30, 2002. We provide maintenance and support services for our software products, third party software and hardware. The maintenance revenue increase was due to growth in our installed customer base and slightly higher rates on certain product lines. 11 Appraisal services revenues. For the three and six months ended June 30, 2003, appraisal services revenues decreased $3.6 million, or 33%, and $4.7 million, or 25%, respectively, compared to the same periods of 2002. The decrease is related to the completion and progression of several major appraisal contracts. During the six months ended June 30, 2003, we signed a new six year contract to provide Nassau County, New York Board of Assessors (Nassau County Extension) with updated property assessments and additional property appraisal and tax software. The following table contains the appraisal services revenues recorded on significant contracts for the periods presented:
Appraisal revenue recorded ------------------------------------- Three months ended Six months ended June 30, June 30, Total appraisal Appraisal ------------------ ---------------- revenues revenues Contract 2003 2002 2003 2002 per contract earned to date completion date ------ ------- ------- ------- --------------- -------------- ------------------- Nassau County, New York Board of Assessors $ - $ 3,500 $ 300 $ 6,000 $ 29,500 $ 29,500 First quarter 2003 Lake County, Indiana 2,100 2,100 4,600 3,000 15,300 13,500 Estimated late 2003 Indiana Revaluations 250 1,700 700 3,100 10,600 10,100 Estimated late 2003 Nassau County Extension 1,600 - 2,000 - 25,300 2,000 Fiscal 2009
COST OF REVENUES Cost of software license revenues. For the three and six months ended June 30, 2003, cost of software license revenues increased $125,000, or 9%, and $600,000, or 24%, respectively, compared to the same prior year periods. During 2002, we had several products in the development stage, which were released throughout the year. Once a product is released, we begin to expense the costs associated with the development over the estimated useful life of the product. Development costs consist mainly of personnel costs, such as salary and benefits paid to our developers, rent for related office development space and capitalized interest costs. Cost of software service and maintenance revenues. For three months and six months ended June 30, 2003, cost of software services and maintenance revenues increased $2.3 million, or 19%, and $4.1 million, or 17%, respectively, compared to the same periods of 2002. These increases are consistent with the higher professional services and maintenance revenues for the same periods, although software services and maintenance revenues grew at a more rapid rate than the cost of those revenues, which is reflective of more efficient utilization of our support and maintenance staff and economies of scale. As a percentage of related revenues, cost of software services and maintenance was 69% for the second quarter of 2003 compared to 76% for the second quarter of 2002. Cost of software services and maintenance was 70% of related revenues for the six months ended June 30, 2003, compared to 78% for the same period of 2002. Cost of appraisal services revenues. Costs of appraisal services revenues decreased $2.1 million, or 29%, for the three months ended June 30, 2003, compared to the same prior year period. For the six months ended June 30, 2003, cost of appraisal services revenues decreased $2.8 million, or 22%, compared to the same period in 2002. The decrease is consistent with the decrease in appraisal services revenues, which declined 33% and 25% for the three and six months ended June 30, 2003, respectively. We often hire temporary employees to assist in appraisal projects whose term of employment generally ends with the projects' completion. As a percentage of related revenues, cost of appraisal services was 70% for the three and six months ended June 30, 2003 compared to 66% and 67% for the same periods of 2002. GROSS MARGIN For the three and six months ended June 30, 2003, our overall gross margin increased to 38% and 37% from 35% and 34% for the same periods of 2002, respectively. The improvement in our gross margin was mainly due to higher software services and maintenance revenues without a corresponding increase in personnel costs reflecting a more efficient utilization of our support and maintenance staff and economies of scale. 12 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses, or SG&A, increased $1.5 million, or 17%, and $2.7 million, or 16%, for the three and six months ended June 30, 2003, respectively, compared to the same periods in the prior year. For the three and six months ended June 30, 2003, SG&A as a percent of revenue increased to 28% from 26% for the same prior year periods. The increase in SG&A is related primarily to higher commissions, which is the result of higher revenues. In addition, annual salary adjustments, higher performance bonuses, higher health and other insurance expenses, additional marketing personnel and slightly higher research and development costs contributed to higher SG&A. AMORTIZATION OF ACQUISITION INTANGIBLES For the three and six months ended June 30, 2003, amortization of acquisition intangibles was approximately $725,000 and $1.5 million, compared to $831,000 and $1.7 million for the same periods in 2002. The decrease in amortization from the prior year is related to certain of our acquisition intangibles becoming fully amortized during the first six months of 2003. Acquisition intangibles are composed of the excess of the purchase price over the fair value of net tangible assets acquired that is allocated to acquired and amortizable software and customer base, with the remainder allocated to goodwill that is not subject to amortization. The estimated useful lives of acquired software and customer base are 5 years and 20 to 25 years, respectively. REALIZED GAIN ON SALE OF INVESTMENT IN H.T.E., INC. On March 25, 2003, we received cash proceeds of $39.3 million in connection with a transaction to sell all of our 5.6 million shares of H.T.E., Inc. ("HTE") common stock to SunGard Data Systems Inc. for $7.00 cash per share. Our original cost basis in the HTE shares was $15.8 million. After transaction and other costs, we recorded a gross realized gain of $23.2 million ($16.2 million or $0.35 per diluted share after income taxes of $7.0 million for the six months ended June 30, 2003). See Note 4 in the Notes to the Condensed Consolidated Financial Statements. LEGAL FEES ASSOCIATED WITH INVESTMENT IN H.T.E., INC. During the three and six months ended June 30, 2002, we incurred approximately $160,000 and $285,000, respectively, of legal and other costs associated with legal matters concerning various tort claims HTE alleged against us and HTE's attempted redemption of our 5.6 million shares for $1.30 per share. In September 2002, HTE released us from all tort claims and a court declared HTE's reported redemption of our shares was invalid. In March 2003, we sold for cash our entire investment in HTE for $7.00 per share. INTEREST INCOME (EXPENSE) For the three months ended June 30, 2003, we had net interest income of $137,000, compared to interest expense of $5,000 for same period of 2002. For the six months ended June 30, 2003, we had net interest income of $146,000, and $32,000 of interest income in the six months ended June 30, 2002. The increase in interest income is related to higher cash levels, including $39.3 million in cash received upon the sale of our investment in HTE in late March 2003, which we invested in short-term investments. INCOME TAX PROVISION For the three months ended June 30, 2003, we had an income tax provision of $1.2 million. For the six months ended June 30, 2003, we had an income tax provision of $8.9 million, which included $7.0 million (after reduction in valuation allowance related to the utilization of a capital loss carryforward amounting to $1.1 million on a tax effected basis) relating to the realized gain from the sale of our investment in HTE. We had an effective income tax rate of 38.4% for the three months ended June 30, 2003 compared to an effective income tax rate of 39.0% for the three months ended June 30, 2002. For the six months ended June 30, 2003, we had an effective income tax rate of 38.5% (excluding the effect of the HTE gain) compared to an effective rate of 38.9% for the same prior year period. The effective income tax rates are estimated based on projected pre-tax income for the entire fiscal year and the resulting amount of income taxes. The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 35% primarily due to the utilization of the capital loss carryforward in 2003, state income taxes and non-deductible meals and entertainment costs. 13 NET INCOME Net income was $2.0 million in the three months ended June 30, 2003, compared to $1.3 million for the three months ended June 30, 2002. Net income was $19.3 million in the six months ended June 30, 2003, including a $16.2 million realized gain after income taxes relating to the sale of our investment in HTE. This compares to net income of $1.9 million in the six months ended June 30, 2002. For the second quarter of 2003, diluted earnings per share was $0.04 compared to $0.03 for the second quarter of 2002. For the six months ended June 30, 2003 and 2002, diluted earnings per share was $0.42 and $0.04, respectively. Diluted earnings per share for the six months ended June 30, 2003 included $0.35 per share related to our net realized gain on the sale of our investment in HTE after income taxes. During the three and six months, diluted earnings per share was positively impacted by the repurchase of our shares of common stock on the open market and through our modified Dutch Auction tender offer. FINANCIAL CONDITION AND LIQUIDITY On March 5, 2002, we entered into a new $10.0 million revolving credit agreement with a bank, which matures January 1, 2005. Our borrowings are limited to 80% of eligible accounts receivable and interest is charged at either the prime rate or at the London Interbank Offered Rate plus a margin of 3%. The credit agreement is secured by our personal property and the common stock of our operating subsidiaries. The credit agreement is also guaranteed by our operating subsidiaries. In addition, the credit agreement contains covenants that require us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans. As of June 30, 2003, we are in compliance with those covenants. As of June 30, 2003, our bank has issued outstanding letters of credit totaling $7.5 million under our credit agreement to secure performance bonds required by some of our customer contracts. Our borrowing base under the credit agreement is limited by the amount of eligible receivables and was reduced by the letters of credit at June 30, 2003. At June 30, 2003, we had no outstanding bank borrowings under the credit agreement and had an available borrowing base of $2.5 million. As of June 30, 2003, our balance in cash and cash equivalents was $15.4 million and we had short-term investments of $12.1 million, compared to a cash balance of $13.7 million at December 31, 2002. Cash and short-term investments increased primarily due to the $39.3 million cash received in March 2003 as consideration in connection with the transaction to sell our 5.6 million shares of HTE common stock to SunGard Data Systems Inc. At June 30, 2003, our day's sales outstanding ("DSO's") (accounts receivable divided by the quotient of annualized quarterly revenues divided by 360 days) were 89 compared to DSO's of 94 at June 30, 2002. In May 2003, we completed a modified "Dutch Auction" tender offer whereby we purchased 5.1 million shares of our common stock at a cash purchase price of $4.00 per share and incurred estimated transaction costs of approximately $150,000, for a total cost of $20.6 million. In addition, during the six months ended June 30, 2003, we repurchased in the open market 875,200 shares for an aggregate purchase price of $3.3 million. As of July 29, 2003 our Board of Directors has authorized us to repurchase up to an additional 2.0 million shares of our common stock. During the first quarter of 2003, we purchased $15.0 million of short-term investments. The investments are principally low-risk funds that consist primarily of short-term mutual corporate and municipal bond funds. The interest and capital gains generated from these investments were re-invested in the funds. For the first three and six months of 2003, the interest and capital gains were $76,000. During the second quarter of 2003, we sold $3.0 million of our short-term investments. On March 28, 2003, we retired an outstanding $2.5 million 10% promissory note payable. The note was due in January 2005 and paid interest quarterly. In June 2003, we made an estimated federal income tax payment in the amount of $5.0 million. The payment was made primarily due to the $23.2 million realized gain on the sale of our investment in HTE common stock, and also because of the increase in estimated taxable income for the tax year ending December 31, 2003. During the six months ended June 30, 2003, we received $265,000 from the exercise of options to purchase 162,000 shares of our stock under our employee stock option plan. At June 30, 2003, our capitalization consisted entirely of $107.0 million of shareholders' equity, since we have no long-term debt outstanding at June 30, 2003. During the first six months of 2003, we made capital expenditures of $4.2 million, including $3.5 million for software development 14 costs. The other expenditures related to computer equipment and expansions related to internal growth. Capital expenditures were funded from cash generated from operations. As part of the plan of reorganization of Swan Transportation Company, one of our non-operating subsidiaries, we have agreed to contribute approximately $1.5 million over the next three years to a trust that was set up as a part of the reorganization. See Note 10 in the Notes to the Condensed Consolidated Financial Statements. We expect to pay $750,000 of the $1.5 million in late August 2003. The remaining amounts will be paid over the two subsequent years. Absent acquisitions, we believe our current cash balances and expected future cash flows from operations will be sufficient to meet our anticipated cash needs for working capital, capital expenditures and other activities through the next twelve months. If operating cash flows are not sufficient to meet our needs, we may borrow under our credit agreement. Item 4. Evaluation of Disclosure Controls and Procedures Based on their evaluation as of the end of the period covered by this quarterly report, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") believe, based on an evaluation performed under the supervision and with the participation of management, including our CEO and CFO, that the design and operation of our disclosure controls and procedures (as defined in Rules 13a - 14(c) and 15d - 14 under the Securities Exchange Act of 1934, as amended) are effective to ensure that material information relating to Tyler Technologies, Inc. is made known to them by others within our Company during the period in which this Report on Form 10-Q was being prepared. There have been no material changes in our internal controls over financial reporting that occurred during the period covered by the quarterly report which materially affected, or would be reasonably likely to affect, our internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings For a discussion of legal proceedings see Part I, Item 1. "Financial Statements - Notes to Condensed Consolidated Financial Statements - "Commitments and Contingencies" on page 7 of this document. Item 4. Submission of Matters to a Vote of Security Holders We held our annual meeting of stockholders on May 1, 2003. The results of the matters voted on at the meeting are as follows: With respect to the election of directors, our shares were voted as follows:
Number of Votes Number of Votes Nominee For Withheld - ------------------- --------------- --------------- John S. Marr 36,720,326 1,409,916 Ben T. Morris 37,994,641 135,601 G. Stuart Reeves 37,997,341 132,901 Michael D. Richards 37,996,841 133,401 Glenn A. Smith 36,747,979 1,382,263 John M. Yeaman 35,137,325 2,992,917
Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 10.1 Employment and Non-Competition Agreement between Tyler Technologies, Inc. and John S. Marr Jr. dated July 1, 2003 Exhibit 10.2 Employment and Non-Competition Agreement between Tyler Technologies, Inc. and John M. Yeaman dated July 1, 2003 15 Exhibit 31.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1 Certifications Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (a) Reports on Form 8-K filed during the three months ended June 30, 2003:
Form 8-K Item Reported Date Reported Exhibits Filed - ------------- -------- ---------------------------------------------- 5/19/03 5 News release issued by Tyler Technologies, Inc. dated May 16, 2003 announcing the final results of our modified "Dutch Auction" tender offer
Item 3 of Part I and Items 2, 3 and 5 of Part II were not applicable and have been omitted. 16 SIGNATURES Pursuant to the requirements 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. TYLER TECHNOLOGIES, INC. By: /s/ Theodore L. Bathurst ------------------------ Theodore L. Bathurst Vice President and Chief Financial Officer (principal financial officer and an authorized signatory) By: /s/ Terri L. Alford -------------------- Terri L. Alford Controller (principal accounting officer and an authorized signatory) Date: July 31, 2003 17 INDEX TO EXHIBITS (a) Exhibit 10.1 Employment and Non-Competition Agreement between Tyler Technologies, Inc. and John S. Marr Jr. dated July 1, 2003 Exhibit 10.2 Employment and Non-Competition Agreement between Tyler Technologies, Inc. and John M. Yeaman dated July 1, 2003 Exhibit 31.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1 Certifications Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EX-10.1 3 d07837exv10w1.txt EMPLOYMENT AND NON-COMPETITION AGREEMENT-MARR JR. EXHIBIT 10.1 EMPLOYMENT AND NON-COMPETITION AGREEMENT This Employment and Non-Competition Agreement (this "Agreement") is between Tyler Technologies, Inc., a Delaware corporation (the "Company"), and John S. Marr, Jr. ("Executive"). This Agreement will become effective upon the date it is executed by Executive as evidenced on the signature page hereto (the "Effective Date"). The Company desires to employ Executive under the terms and conditions set forth in this Agreement, Executive hereby representing that he is free from any other obligation of continuing employment with any other employer. Executive desires employment as an employee of the Company under the terms and subject to the conditions set forth in this Agreement. The non-competition and confidentiality obligations of Executive as set forth in this Agreement are a material inducement for the Company to enter into this Agreement, and the Company would not enter into this Agreement absent such covenants by Executive. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which all parties mutually acknowledge, the parties agree as follows: 1. Employment. The Company hereby employs Executive, and Executive hereby accepts such employment, on the terms and subject to the conditions set forth in this Agreement. 2. Duties of Executive. (a) Executive will serve in the capacity of Chief Operating Officer of the Company or such other capacity as may be assigned to Executive by the Board of Directors, which capacity will be commensurate with the education, experience, and skills of Executive. The Board of Directors will periodically review the duties of Executive, which will occur not less than annually. In all such capacities, Executive shall have all necessary power and authority to discharge his responsibilities. Executive will report to the Chief Executive Officer and the Board of Directors of the Company. (b) Executive will devote his full business time and effort to the performance of his duties and responsibilities as an executive of the Company, excluding vacation and reasonable absence due to illness. (c) Executive will perform his duties in a professional manner and will use his best efforts, skills, and abilities to promote, enhance, and preserve the business of the Company and its affiliates and the goodwill and relationships they have with their employees, agents, representatives, customers, suppliers, and other persons having business relations with any of them. (d) Executive shall observe and comply with the written rules and regulations of the Company with respect to its business and shall carry out and perform the directives and policies of the Company as the Board of Directors may from time to time state them to Executive in writing. 3. Employment Term. This Agreement shall commence as of the Effective Date and continue for a period of five (5) years; provided, however, that at the end of such initial term the term shall automatically extend for an additional year unless the Company provides, at least six (6) months prior to the end of such initial term or subsequent anniversary of the end of such initial term, written notice that it does not wish to extend the term. Notwithstanding the foregoing, this Agreement may be earlier terminated in accordance with Section 7 of this Agreement. 4. Compensation. (a) Base Salary. For services performed by Executive pursuant to this Agreement, the Company will pay Executive a minimum base salary at the rate of (i) during the first year of this Agreement, $275,000 per year and (ii) during the remainder of this Agreement, $300,000 per year (the "Base Salary"), which shall be payable in accordance with the Company's standard payroll practices but not less than monthly. The Base Salary shall not be subject to reduction, but may be increased at the discretion of the Compensation Committee of the Board of Directors or the Board of Directors as a whole. Any compensation that may be paid to Executive under any additional compensation or incentive plan or which may be otherwise authorized from time to time by the Board of Directors shall be in addition to the Base Salary to which Executive is entitled under this Agreement. (b) Annual Bonus. For each calendar year during the term of this Agreement, Executive shall be eligible to receive an annual performance bonus (the "Bonus"), which shall be established and paid in accordance with the incentive compensation plan set forth as Exhibit A (or as otherwise established by the Executive Committee and/or Compensation Committee of the Tyler Board of Directors). The Bonus will be paid in accordance with the Company's standard bonus payment practices. (c) Equity Grants. During the term of this Agreement, Executive shall be eligible and participate, in an appropriate manner relative to other senior executives of the Company and consistent with competitive pay practices generally, in any equity-based incentive compensation plan or program of the Company, including, without limitation, any plan or program providing for the grant of (i) options to purchase common stock of the Company, (ii) restricted stock of the Company, or (iii) similar equity-based units or interests. In consideration of the mutual promises contained herein, the Company shall grant Executive upon the execution of this Agreement options to purchase 500,000 shares of Company Common Stock, $.01 par value per share, subject to the terms and conditions of the Company's Amended and Restated Stock Option Plan and the Company's standard stock option agreement. 5. Executive Benefits. During the term of this Agreement, the Company shall provide Executive with all benefits made available from time to time by the Company to its senior executives and to its employees generally, including, without limitation, participation in medical and dental benefit plans and programs, disability and death insurance, 401-K plans, paid vacation, and other fringe benefits. 6. Reimbursement of Expenses. The Company shall reimburse Executive for all expenses actually and reasonably incurred by Executive in the business interests of the Company. Such reimbursement shall be made to Executive upon appropriate documentation of such expenditures in accordance with the Company's policies. 2 7. Early Termination. (a) It is the desire and expectation of each party that the employer-employee relationship will continue for the full term as set forth in Section 3 of this Agreement. The Company shall, however, be entitled to terminate Executive's employment at any time with or without Cause (as defined below), subject to the restrictions contained in this Section 7. (b) If Executive's employment is terminated by the Company without Cause prior to the expiration of this Agreement, the Company shall pay Executive a lump sum amount equal to Executive's Base Salary (i) still due for the remainder of the term of this Agreement or (ii) for a period of twenty-four (24) months, whichever is greater. Executive shall also be entitled to receive the benefits set forth in Section 5 for a period equal to the greater of twelve (12) months or the number of months then remaining on the term of this Agreement. A Change of Control (as defined below) shall be deemed to be a termination without Cause, unless otherwise agreed in writing by Executive. (c) If Executive dies, is unable to perform his duties and responsibilities as a result of a disability that continues for one hundred and eighty (180) consecutive days or more, voluntarily resigns from the Company, or is terminated by the Company for Cause (as defined below), the Company shall pay Executive (or his estate, executor, or legal representative, as the case may be) any accrued and unpaid Base Salary and finally determined and unpaid Bonus to the date employment ceases, and the Company's obligations to pay additional salary, cash compensation, or benefits shall terminate as of such date. In addition, if the Company terminates Executive due to disability, the Company will continue to pay the benefits outlined in Section 5 to Executive and Executive's dependents for a period equal to the greater of twelve (12) months or the number of months then remaining on the term of this Agreement. (d) For purposes of this Agreement, "Cause" means a determination by the Board of Directors of the Company that Executive has: (i) failed or been unable for any reason to devote substantially all of his time during normal business hours to the business of the Company and its affiliates (except for vacations and absence due to illness); (ii) been convicted of any felony; (iii) committed any act or engaged in any conduct that is fraudulent or constitutes malfeasance or a breach of fiduciary duties of Executive; (iv) persistently failed to abide by the corporate policies and procedures as set forth in the Company's employee handbook; (v) persistently failed to execute the reasonable and lawful instructions of the Company's Board of Directors relating to the operation of the Company's business; or (vi) committed any material or continuing breach of any of the terms of, or has materially or continually failed to perform any covenant contained in, this Agreement to be performed by Executive. With respect to (i), (iv), (v), and (vi) above, Executive may not be terminated for Cause unless Executive fails to cure such breach or failure of performance within thirty (30) days after written notice of such breach or failure. (e) For purposes of this Agreement, "Change of Control" means approval by the shareholders of the Company of a merger or consolidation of the Company into an unaffiliated entity, the dissolution or liquidation of the Company, the sale of all or substantially all of the assets of the Company, the acquisition by any person, entity, or group of more than 50% of the voting stock of the Company, or a change in 3 a majority of the Company's Board of Directors that was not approved by the then existing Board of Directors. 8. Confidential Information. (a) Executive acknowledges that the Company and its affiliates are continuously developing or receiving Confidential Information (as defined below), and that during Executive's employment, Executive will receive Confidential Information from the Company and its affiliates and will receive special training relating to the Company's and its affiliates' business methodologies. Executive further acknowledges and agrees that Executive's employment by the Company creates a relationship of confidence and trust between Executive, the Company and its affiliates that extends to all Confidential Information that becomes known to Executive. Accordingly, Executive will not disclose or use any Confidential Information, except in connection with the good faith performance of his duties as an officer and employee, and will take reasonable precautions against the unauthorized disclosure or use of Confidential Information. Upon the Company's request, Executive will execute and comply with a third party's agreement to protect its confidential and proprietary information. In addition, Executive will not solicit or induce the unauthorized disclosure or use of a third party's confidential or proprietary information for the benefit of the Company or its affiliates. (b) For purposes of this Agreement, "Confidential Information" means all written, machine-reproducible, oral and visual data, information, and material, including, without limitation, business, financial, and technical information, computer programs, documents, and records (including those that Executive develops in the scope of his employment) that (i) the Company and its affiliates, or any of their respective customers or suppliers treats as confidential or proprietary through markings or otherwise, (ii) relates to the Company and its affiliates, or any of their respective customers or suppliers or any of their respective business activities, products, or services (including software programs and techniques) and is competitively sensitive or not generally known in the relevant trade or industry, or (iii) derives independent economic value from not being known to, and is not generally ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. Confidential Information shall not include information or material that: (A) was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of Executive; (B) was lawfully received by Executive from a third party free of any obligation of confidentiality; (C) is approved by the Company for unrestricted public disclosure; or (D) is required to be disclosed in a judicial or administrative proceeding or by a governmental or regulatory authority, domestic or foreign. 9. Non Compete; No Solicitation. (a) Executive understands that, during the course of his employment by the Company, Executive will have access to and receive the benefit of Confidential Information (as defined in Section 8) and special training, as well as come into contact with customers and potential customers of the Company and its affiliates, which Confidential Information, training, knowledge, and contacts would provide invaluable benefits to competitors and potential competitors of the Company and its affiliates. To protect such entities' interest in this information and in these contacts and relationships, and in consideration for the Company entering into this Agreement, Executive agrees and covenants that for a period beginning on the 4 Effective Date of this Agreement and continuing until (i) if Executive voluntarily resigns or is terminated for Cause, the then remaining term of this Agreement, or (ii) if Executive is terminated without Cause pursuant to Section 7(b), the greater of one year or the then remaining term of this Agreement, Executive will not (without the prior written consent of the Company), directly or indirectly, (A) engage in any business that provides the same or competitive products or services as those provided by the Company and its affiliates in the State of Maine or in any other state in which the Company or its affiliates is conducting or conducts such business during the term of this Agreement or at the time of termination of Executive's employment hereunder, or (B) solicit or encourage or assist other persons or entities to solicit or encourage any customers of the Company or its affiliates to terminate or materially alter their relationship with the Company or its affiliates or to become a customer of any other person or entity competing with the Company or its affiliates, or (C) recruit, solicit or hire, or encourage or assist other persons or entities to recruit, solicit or hire, any employees of the Company or its affiliates. (b) Executive understands and agrees that the foregoing covenant is reasonable as to time, area, and scope and is necessary to protect the legitimate business interests of the Company and its affiliates. It is further agreed that such covenant will be regarded as divisible and will be operative as to time, area, and scope to the extent it may be so operative, and if any part of such covenant is declared invalid, unenforceable, or void as to time, area, or scope, the validity and enforceability of the remainder will not be affected. (c) Executive understands and acknowledges that the determination of damages in the event of a breach of any provision of this Section 9 would be difficult. Executive agrees that the Company or its affiliates, in addition to all other remedies it or any of them may have at law or in equity (and notwithstanding Section 19), will have the right to injunctive relief if there is a breach without the necessity of proving the inadequacy or unavailability of damages as an effective remedy. 10. Proprietary Rights. (a) Executive will disclose to the Company all works of authorship and inventions that Executive produces while employed by the Company, working alone or jointly with others, including all computer programs, documents, and records, together with all related ideas, know-how, and techniques. These disclosures will be considered Confidential Information. All copyrights, patent rights, and other intellectual property rights in and to works of authorship and inventions that Executive produces while employed by the Company, working alone or jointly with others, are intended to be and will be owned exclusively by the Company, except for such rights, interests, and works that are not assigned to the Company pursuant to Section 10(b). (b) Executive assigns to the Company all of his rights in and to all works of authorship and inventions that Executive produces while employed by the Company, working alone or jointly with others, and waives all rights therein. Executive agrees to sign, without additional compensation, all necessary documents and otherwise assist the Company, at its expense, to register and enforce all copyrights, patents, and other intellectual property rights. Executive appoints the Company as his attorney-in-fact for the sole purpose of executing all necessary documents relating to the registration or enforcement of any copyrights, patents, and other intellectual property rights produced while employed by the Company and 5 assigned to the Company in accordance with, and subject to the restrictions contained in, this Section 10. Notwithstanding the foregoing, Executive does not assign works of authorship or inventions which (i) Executive developed on his own time without using the Company's equipment, facilities, supplies, or Confidential Information, or (ii) do not relate to either (A) the Company's or its affiliates' business, (B) the Company's or its affiliates' actual or demonstrably anticipated research or development, or (C) work done by Executive for the Company. (c) The Company can waive the rights in any work of authorship or invention only through a written instrument signed by an officer of the Company after Executive has fully and completely disclosed in writing the existence and nature of that work or authorship or invention. 11. End of Employment (a) Executive agrees that all documents of any nature pertaining to the activities of the Company or its affiliates, or that include Confidential Information, in his possession now or at any time during the term of his employment, including, without limitation, memoranda, notebooks, notes, data sheets, records, and computer programs, are and shall be the property of the Company and that all copies thereof shall be surrendered to the appropriate entity upon termination of employment. (b) Executive authorizes the Company to offset any liquidated amounts payable or reimbursable to the Company by Executive against, and to withhold such amounts from, any amounts payable or reimbursable to Executive by the Company, including, without limitation, any base salary, bonus, other incentive compensation, and expense reimbursements to the maximum extent permitted by law. 12. Specific Performance. The parties hereby acknowledge and agree that the failure of either party to perform the agreements and covenants set forth in Section 8, Section 9, Section 10, and Section 11 of this Agreement will cause irreparable injury to the other party for which damages, even if available, may not be an adequate remedy. Accordingly, each party hereby consents, notwithstanding Section 19, to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of such party's obligations and to the granting by any court of the remedy of specific performance of such obligations. 13. Continuing Obligations. Executive acknowledges and agrees that the provisions of Section 8, Section 9, Section 10, and Section 11 will survive the termination or expiration of this Agreement. 14. Notices. Any notice, consent, demand, or request, or other communication to be given under this Agreement must be in writing and shall be deemed given or made when delivered in person or within three (3) days upon being sent certified mail, postage prepaid with return receipt requested, to the following addresses: If to the Company: Tyler Technologies, Inc. 5949 Sherry Lane, Suite 1400 Dallas, Texas 75225 If to Executive: Home address of Executive, as shown on current records of the Company 6 15. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto pertaining to the specific subject matter hereof and supersedes all prior agreements, whether written or oral, between the parties with respect to the terms and conditions of employment of Executive by the Company. 16. Modification. Any change or modification of this Agreement shall not be valid or binding upon the parties, nor will any waiver of any term or condition in the future be binding, unless the change or modification or waiver is in writing and signed by all parties hereto. 17. Waiver of Breach. The waiver by the Company of a breach of any provision of this Agreement by Executive will not operate or be construed as a waiver of any subsequent breach by Executive. 18. Governing Law. This Agreement is governed by, and will be construed in accordance with, the substantive laws of the State of Texas, without giving effect to any conflicts-of-law, rule, or principle that might require the application of the laws of another jurisdiction. 19. Arbitration. Any controversy, dispute, or claim arising under this Agreement will be finally settled by arbitration conducted in accordance with the American Arbitration Association Rules then in effect; provided, however, that the parties will be obligated to negotiate in good faith for a period of thirty (30) days to resolve such controversy, dispute, or claim prior to submitting the same to arbitration. Any such arbitration proceeding will take place in the City of Dallas, Texas, and the arbitrator will apply the laws of the State of Texas. Any decision rendered by the arbitrator will be final and binding and judgment thereon may be entered in any court having jurisdiction or application thereon may be made to such court for an order of enforcement as the case may require. The parties intend that this agreement to arbitrate be irrevocable. If arbitration is invoked in accordance with the provisions of this Agreement, the prevailing party will be entitled to receive from the other all costs, fees, and expenses pertaining to or attributable to such arbitration, including reasonable attorneys' fees. 20. Counterparts. This Agreement may be executed in one or more counterparts, each of which will constitute one document. [remainder of page intentionally left blank] 7 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and effective as of July 1, 2003. TYLER TECHNOLOGIES, INC., a Delaware corporation By: _____________________________ Name: John M. Yeaman Title: President and Chief Executive Officer EXECUTIVE By: ______________________________ Name: John S. Marr, Jr. 8 EMPLOYMENT AND NON-COMPETITION AGREEMENT EXHIBIT A INCENTIVE COMPENSATION PLAN 9 EX-10.2 4 d07837exv10w2.txt EMPLOYMENT AND NON-COMPETITION AGREEMENT-J YEAMAN EXHIBIT 10.2 EMPLOYMENT AND NON-COMPETITION AGREEMENT This Employment and Non-Competition Agreement (this "Agreement") is entered into by and between Tyler Technologies, Inc., a Delaware corporation (the "Company"), and John M. Yeaman ("Executive"). This Agreement will become effective upon the date it is executed by Executive as evidenced on the signature page hereto (the "Effective Date"). The Company desires to employ Executive under the terms and subject to the conditions set forth in this Agreement, Executive hereby representing that he is free from any other obligation of continuing employment with any other employer. Executive desires employment as an employee of the Company under the terms and subject to the conditions set forth in this Agreement. The non-competition and confidentiality obligations of Executive as set forth in this Agreement are a material inducement for the Company to enter into this Agreement, and the Company would not enter into this Agreement absent such covenants by Executive. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which all parties mutually acknowledge, the parties agree as follows: 1. Employment. The Company hereby employs Executive, and Executive hereby accepts such employment, on the terms and subject to the conditions set forth in this Agreement. 2. Duties of Executive. (a) Executive will serve in the capacity of President and Chief Executive Officer for the Company and, in addition, will serve in such other capacities and perform such other duties (including those that are consistent with the Company's bylaws) as may be assigned to Executive from time to time by the Board of Directors, which duties will be commensurate with the education, experience, and skills of Executive. The Board of Directors will periodically review the duties of Executive, which will occur not less than annually. In such capacities, Executive shall have all necessary powers to discharge his responsibilities. (b) Executive will devote his full business time and effort to the performance of his duties and responsibilities as an executive of the Company, excluding vacation time and reasonable absence due to illness. (c) Executive will perform his duties in a professional manner and will use his best efforts, skills, and abilities to promote, enhance, and preserve the business of the Company and its affiliates and the goodwill and relationships they have with their employees, agents, representatives, customers, suppliers, and other persons having business relations with any of them. (d) Executive shall observe and comply with the written rules and regulations of the Company with respect to its business and shall carry out and perform the directives and policies of the Company as the Board of Directors may from time to time state them to Executive in writing. 3. Employment Term. The term of this Agreement will commence as of the Effective Date and continue for a period of five (5) years; provided, however, that at the end of such initial term or subsequent renewal of such initial term, the term shall automatically extend for an additional one year period unless the Company provides, at least six months prior to the end of such initial term or subsequent renewal of such initial term, written notice that it does not wish to extend the term. Notwithstanding the foregoing, this Agreement may be earlier terminated in accordance with Section 7 of this Agreement. 4. Compensation. (a) Base Salary. For services performed by Executive pursuant to this Agreement, the Company will pay Executive during the first two years of this Agreement a minimum base salary at the rate of $325,000 per year (the "Base Salary"), which shall be payable in substantially equal installments in accordance with the Company's standard payroll practices but not less than monthly. During years three through five of this Agreement, Executive's Base Salary shall be set by the Compensation Committee of the Board of Directors, which will be consistent with Executive's contributions to the Company and Executive's then existing duties and responsibilities as such are assigned to him by the then existing board of directors. The Base Salary shall not be subject to reduction during the first two years, but may be increased at the discretion of the Compensation Committee of the Board of Directors or the Board of Directors as a whole. Any compensation that may be paid to Executive under any additional compensation or incentive plan of the Company or which may be otherwise authorized from time to time by the Board of Directors shall be in addition to the Base Salary to which Executive is entitled under this Agreement. (b) Annual Bonus. For each calendar year during the term of this Agreement, Executive shall be eligible to receive an annual performance bonus (the "Bonus"), which shall be established and paid at the discretion of the Compensation Committee of the Board of Directors or the Board of Directors as a whole. Executive's Bonus is targeted each year to equal up to 100% of Executive's Base Salary, which will be based on the performance of the Company and Executive's contributions to such performance. The Bonus will be paid in accordance with the Company's standard bonus payment practices. (c) Equity Grants. During the term of this Agreement, Executive shall be eligible and participate, in an appropriate manner relative to other senior executives of the Company and consistent with competitive pay practices generally, in any equity-based incentive compensation plan or program of the Company, including, without limitation, any plan or program providing for the grant of (i) options to purchase common stock of the Company, (ii) restricted stock of the Company, or (iii) similar equity-based units or interests. In consideration of the mutual promises contained herein, the Company shall grant Executive upon the execution of this Agreement options to purchase 200,000 shares of Company Common Stock, $.01 par value per share, subject to the terms and conditions of the Company's Amended and Restated Stock Option Plan and the Company's standard stock option agreement. 5. Executive Benefits. During the term of this Agreement, the Company shall provide Executive with all benefits made available from time to time by the Company to its senior executives and to its employees generally, including, without limitation, participation in medical and dental benefit plans and programs, disability and death insurance, 401-K plans, paid vacation, and other fringe benefits. 2 6. Reimbursement of Expenses. The Company shall reimburse Executive for all expenses actually and reasonably incurred by Executive in the business interests of the Company. Such reimbursement shall be made to Executive upon appropriate documentation of such expenditures in accordance with the Company's policies. 7. Early Termination. (a) It is the desire and expectation of each party that the employer-employee relationship will continue for the full term as set forth in Section 3 of this Agreement. The Company shall, however, be entitled to terminate Executive's employment at any time with or without Cause (as defined below), subject to the restrictions contained in this Section 7. (b) If Executive's employment is terminated by the Company without Cause prior to the expiration of this Agreement, the Company shall pay Executive a lump sum amount equal to two times the Executive's annual cash compensation (which includes salary and bonus only) paid by the Company to Executive during the immediately preceding twelve-month period. Executive shall also be entitled to receive the benefits set forth in Section 5 for a period equal to the greater of eighteen (18) months or the number of months then remaining on the term of this Agreement. A Change of Control (as defined below) shall be deemed to be a termination without Cause, unless otherwise agreed in writing by Executive. (c) If Executive dies, is unable to perform his duties and responsibilities as a result of a disability that continues for one hundred and eighty (180) consecutive days or more, voluntarily resigns from the Company, or is terminated by the Company for Cause, the Company shall pay Executive (or his estate, executor, or legal representative, as the case may be) any accrued and unpaid Base Salary and finally determined and unpaid Bonus to the date employment ceases, and the Company's obligations to pay additional salary, cash compensation, or benefits shall terminate as of such date. In addition, if the Company terminates Executive due to disability, the Company will continue to pay the benefits outlined in Section 5 to Executive and Executive's dependents for a period equal to the greater of eighteen (18) months or the number of months then remaining on the term of this Agreement. (d) For purposes of this Agreement, "Cause" means a determination by the Board of Directors that Executive has: (i) failed or been unable for any reason to devote substantially all of his time during normal business hours to the business of the Company and its affiliates (except for vacations and absence due to illness); (ii) been convicted of any felony; (iii) committed any act or engaged in any conduct that is fraudulent or constitutes malfeasance or a breach of fiduciary duties of Executive; (iv) persistently failed to abide by the corporate policies and procedures as set forth in the Company's employee handbook; (v) persistently failed to execute the reasonable and lawful instructions of the Board of Directors relating to the operation of the Company's business; or (vi) committed any material or continuing breach of any of the terms of, or has materially or continually failed to perform any covenant contained in, this Agreement to be performed by Executive. With respect to (i), (iv), (v), and (vi) above, Executive may not be terminated for Cause unless Executive fails to cure such breach or failure of performance within thirty (30) days after Executive's receipt of written notice of the breach or failure. 3 (e) For purposes of this Agreement, "Change of Control" means approval by the shareholders of the Company of a merger or consolidation of the Company into an unaffiliated entity, the dissolution or liquidation of the Company, the sale of all or substantially all of the assets of the Company, the acquisition by any person, entity, or group of more than 50% of the voting stock of the Company, or a change in a majority of the Company's Board of Directors that was not approved by the then existing Board of Directors. 8. Confidential Information. (a) Executive acknowledges that the Company and its affiliates are continuously developing or receiving Confidential Information (as defined below), and that during Executive's employment, Executive will receive Confidential Information from the Company and its affiliates and will receive special training relating to the Company's and its affiliates' business methodologies. Executive further acknowledges and agrees that Executive's employment by the Company creates a relationship of confidence and trust between Executive and the Company and its affiliates that extends to all Confidential Information that becomes known to Executive. Accordingly, Executive will not disclose or use any Confidential Information, except in connection with the good faith performance of his duties as an officer and employee, and will take reasonable precautions against the unauthorized disclosure or use of Confidential Information. Upon the Company's request, Executive will execute and comply with a third party's agreement to protect its confidential and proprietary information. In addition, Executive will not solicit or induce the unauthorized disclosure or use of a third party's confidential or proprietary information for the benefit of the Company or its affiliates. (b) For purposes of this Agreement, "Confidential Information" means all written, machine-reproducible, oral and visual data, information, and material, including, without limitation, business, financial, and technical information, computer programs, documents, and records (including those that Executive develops in the scope of his employment) that (i) the Company and its affiliates, or any of their respective customers or suppliers, treats as confidential or proprietary through markings or otherwise, (ii) relates to the Company and its affiliates, or any of their respective customers or suppliers or any of their respective business activities, products, or services (including software programs and techniques) and is competitively sensitive or not generally known in the relevant trade or industry, or (iii) derives independent economic value from not being known to, and is not generally ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. Confidential Information shall not include information or material that: (A) was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of Executive; (B) was lawfully received by Executive from a third party free of any obligation of confidentiality; (C) is approved by the Company for unrestricted public disclosure; or (D) is required to be disclosed in a judicial or administrative proceeding or by a governmental or regulatory authority, domestic or foreign. 9. Non Compete; No Solicitation. (a) Executive understands that, during the course of his employment by the Company, Executive will have access to and receive the benefit of Confidential Information (as defined in Section 8) and special training, as well as come into contact with the Company's and its affiliates' customers and potential customers, 4 which Confidential Information, training, knowledge, and contacts would provide invaluable benefits to competitors and potential competitors of the Company and its affiliates. To protect the Company's interest in this information and in these contacts and relationships, and in consideration for the Company entering into this Agreement, Executive agrees and covenants that for a period beginning on the Effective Date of this Agreement and continuing until (i) if Executive voluntarily resigns or is terminated for Cause, the then remaining term of this Agreement, or (ii) if Executive is terminated without Cause, the greater of two years or the then remaining term of this Agreement, Executive will not (without the prior written consent of the Company), directly or indirectly, (A) engage in any business that provides the same or competitive products or services as those provided by the Company and its affiliates in the State of Texas or in any other state in which the Company or its affiliates is conducting or conducts such business during the term of this Agreement or at the time of termination of Executive's employment hereunder, or (B) solicit or encourage or assist other persons or entities to solicit or encourage any customers of the Company or any of its affiliates to terminate or materially alter their relationship with the Company or its affiliates or to become a customer of any other person or entity competing with the Company or its affiliates, or (C) recruit, solicit or hire, or encourage or assist other persons or entities to recruit, solicit or hire, any employees of the Company or its affiliates. (b) Executive understands and agrees that the foregoing covenant is reasonable as to time, area, and scope and is necessary to protect the legitimate business interests of the Company and its affiliates. It is further agreed that such covenant will be regarded as divisible and will be operative as to time, area, and scope to the extent it may be so operative, and if any part of such covenant is declared invalid, unenforceable, or void as to time, area, or scope, the validity and enforceability of the remainder will not be affected. (c) Executive understands and acknowledges that the determination of damages in the event of a breach of any provision of this Section 9 would be difficult. Executive agrees that the Company or its affiliates, in addition to all other remedies it or any of them may have at law or in equity and notwithstanding Section 16, will have the right to injunctive relief if there is a breach without the necessity of proving the inadequacy or unavailability of damages as an effective remedy. 10. Notices. Any notice, consent, demand, or request, or other communication to be given under this Agreement must be in writing and shall be deemed given or made when delivered in person or within three (3) days upon being sent certified mail, postage prepaid with return receipt requested, to the following addresses: If to the Company: Tyler Technologies, Inc. 5949 Sherry Lane, Suite 1400 Dallas, Texas 75225 If to Executive: Home address of Executive, as shown on current records of the Company 11. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto pertaining to the specific subject matter hereof and supersedes all prior agreements, whether written or oral, between the parties with respect to the terms and conditions of employment of Executive by the Company. 5 12. Modification. Any change or modification of this Agreement shall not be valid or binding upon the parties, nor will any waiver of any term or condition in the future be binding, unless the change or modification or waiver is in writing and signed by both the Company and Executive. 13. Third Party Beneficiaries. If Executive dies prior to the expiration of the term of this Agreement, any monies that may be due him under this Agreement as of the date of his death will be paid to his estate. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of Executive. 14. Waiver of Breach. The waiver by the Company of a breach of any provision of this Agreement by Executive will not operate or be construed as a waiver of any subsequent breach by Executive. 15. Governing Law. This Agreement is governed by, and will be construed in accordance with, the substantive laws of the State of Texas, without giving effect to any conflicts-of-law, rule, or principle that might require the application of the laws of another jurisdiction. 16. Arbitration. Any controversy, dispute, or claim arising under this Agreement will be finally settled by arbitration conducted in accordance with the American Arbitration Association Rules then in effect; provided, however, that the parties will be obligated to negotiate in good faith for a period of thirty (30) days to resolve such controversy, dispute, or claim prior to submitting the same to arbitration. Any such arbitration proceeding will take place in the City of Dallas, Texas, and the arbitrator will apply the laws of the State of Texas. Any decision rendered by the arbitrator will be final and binding and judgment thereon may be entered in any court having jurisdiction or application thereon may be made to such court for an order of enforcement as the case may require. The parties intend that this agreement to arbitrate be irrevocable. If arbitration is invoked in accordance with the provisions of this Agreement, the prevailing party will be entitled to receive from the other all costs, fees, and expenses pertaining to or attributable to such arbitration, including reasonable attorneys' fees. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which will constitute one document. [Remainder of page intentionally left blank] 6 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and effective as of July 1, 2003. TYLER TECHNOLOGIES, INC., EXECUTIVE a Delaware corporation By: ________________________ By: __________________________ Name: G. Stuart Reeves Name: John M. Yeaman Title: Chairman of the Board By: ________________________ Name: H. Lynn Moore, Jr. Title: Vice President and General Counsel 7 EX-31.1 5 d07837exv31w1.txt CERTIFICATIONS PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATIONS I, John M. Yeaman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tyler Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the quarter covered by this report based on such evaluation, and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting Dated: July 31, 2003 By: /s/ John M. Yeaman ------------------ John M. Yeaman President and Chief Executive Officer CERTIFICATIONS I, Theodore L. Bathurst, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tyler Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the quarter covered by this report based on such evaluation, and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting Dated: July 31, 2003 By: /s/ Theodore L. Bathurst ------------------------- Theodore L. Bathurst Vice President and Chief Financial Officer EX-32.1 6 d07837exv32w1.txt CERTIFICATIONS PURSUANT TO SECTION 906 EXHIBIT 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Tyler Technologies, Inc. (the "Company") for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission (the "Report"), I, John M. Yeaman, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ John M. Yeaman ------------------ John M. Yeaman President and Chief Executive Officer Dated: July 31, 2003 A signed original of this written statement required by Section 906 has been provided to Tyler Technologies, Inc. and will be retained by Tyler Technologies, Inc. and furnished to the Securities and Exchange Commission upon request. Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Tyler Technologies, Inc. (the "Company") for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission (the "Report"), I, Theodore L. Bathurst, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes0Oxley Act of 2002, that, to my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Theodore L. Bathurst ------------------------ Theodore L. Bathurst Vice President and Chief Financial Officer Dated: July 31, 2003 A signed original of this written statement required by Section 906 has been provided to Tyler Technologies, Inc. and will be retained by Tyler Technologies, Inc. and furnished to the Securities and Exchange Commission upon request. -----END PRIVACY-ENHANCED MESSAGE-----