<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 2000
REGISTRATION STATEMENT NO. 333-32730
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
THE CONCOURS GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8742 76-0521812
(State of incorporation) (Primary standard industrial (I.R.S. Employer
classification code number) Identification No.)
</TABLE>
3 KINGWOOD PLACE, 800 ROCKMEAD DRIVE
KINGWOOD, TEXAS 77339
(281) 359-3464
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices)
RONALD P. CHRISTMAN
3 KINGWOOD PLACE, 800 ROCKMEAD DRIVE
KINGWOOD, TEXAS 77339
(281) 359-3464
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies To:
<TABLE>
<S> <C>
DONALD W. BRODSKY JULIE T. SPELLMAN
KAREN BRYANT CRAVATH, SWAINE & MOORE
JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION WORLDWIDE PLAZA
1100 LOUISIANA ST., SUITE 1800 825 EIGHTH AVENUE
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10019
(713) 951-3300 (212) 474-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 7, 2000
PROSPECTUS
[THE CONCOURS GROUP, INC. LOGO]
2,500,000 SHARES
THE CONCOURS GROUP, INC.
COMMON STOCK
$ PER SHARE
------------------
This is an initial public offering of common stock. We currently expect the
initial public offering price to be between $20.00 and $22.00 per share. Our
common stock has been approved for quotation on the Nasdaq National Market under
the symbol "CCGP".
------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Concours (before expenses) $ $
</TABLE>
The underwriters named in this prospectus may purchase up to 375,000
additional shares of common stock from us to cover any over-allotments. The
underwriters expect to deliver the shares to purchasers on or about ,
2000.
------------------
SALOMON SMITH BARNEY
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
, 2000
<PAGE> 3
[BACK OF FRONT COVER]
WE HELP
COMPANIES
CHANGE
THEIR FUTURE.
[CONCOURS LOGO]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Forward-Looking Statements; Market Data..................... 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Unaudited Pro Forma Financial Data.......................... 18
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 37
Management.................................................. 56
Related Transactions and Recent Acquisition................. 68
Principal Stockholders...................................... 69
Description of Capital Stock................................ 70
Shares Eligible for Future Sale............................. 75
Material United States Federal Tax Considerations for
Foreign Holders........................................... 76
Underwriting................................................ 79
Legal Matters............................................... 81
Experts..................................................... 81
Where You Can Find Additional Information................... 81
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------
Until , 2000, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because this is only a summary, it may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully, including the "Risk Factors" section and our
consolidated financial statements and the notes to those statements, before
deciding to invest in our common stock.
OUR COMPANY
We deliver management and strategy consulting, research and executive
education services which enable our clients to improve their performance and
competitiveness. Currently we focus our services on advising Global 1000 and
mid-size corporations in developing and deploying eBusiness strategies. We
believe an eBusiness is a business that combines technology and human resource
strategies to adapt and thrive in the new economy where business is being
transformed by the capabilities of the Internet and other information
technologies. We designed our operating model to enable us to rapidly evolve our
services to anticipate and meet the needs of our clients in fast-changing
markets.
We currently provide consulting services in the following areas:
- eBusiness and business strategy;
- eBusiness solution implementation planning and management;
- information technology strategy, implementation planning and management;
and
- custom executive education.
Our operating model is based on four core capabilities:
- Re.sults(R) research -- an ongoing series of 90-day research projects to
discover and develop innovative management techniques, including current
and future best practices;
- Subscription-based multi-client programs -- a set of advisory conferences
that bring together senior executives of clients who annually subscribe
to a program and that provides these senior executives with new ideas and
guidance on the pressing business issues and challenges they face;
- Mindshare marketing -- an ongoing series of briefing materials on
contemporary management issues that we distribute to over 15,000 senior
executives as a means of gaining their attention, or "mindshare;" and
- A dedicated salesforce of experienced sales professionals who develop new
client relationships and maintain relationships with existing clients.
We use these four capabilities to help us:
- build long-term relationships with senior business and technology
executives;
- generate a flow of new ideas and consulting techniques; and
- develop new consulting engagements and other business opportunities.
All of our multi-client programs and a portion of our Re.sults research projects
are subscription-based, which provides us with a recurring revenue stream.
1
<PAGE> 6
We have grown rapidly since our founding in January 1997. Our revenue has
increased from $8.8 million in 1997 to $26.1 million in 1999, a compound annual
growth rate of approximately 72%. From January 1997 through June 30, 2000, we
lost approximately $17.5 million, and we anticipate a net loss at least through
2000. Based upon total revenue during 1999, our top ten clients in North America
were:
- Arrow Electronics, Inc.;
- Ashland Inc.;
- Borg-Warner Automotive, Inc.;
- Cargill, Incorporated;
- CarrAmerica Realty Corporation;
- International Paper Company;
- Novartis AG;
- Schneider Electric SA;
- A. Schulman Inc.; and
- The United Illuminating Company.
Of these ten clients, eight used all three of our consulting, research and
multi-client services during 1999. For each of the last two years, over 75% of
our multi-client and research clients renewed their subscriptions for at least
one program.
OUR MARKET OPPORTUNITY
We believe there are significant opportunities for management and strategy
consulting firms that can provide comprehensive, advanced eBusiness strategies
and solutions in time frames that enable clients to meet the demands of their
rapidly changing industries. Although many Internet professional service firms
are beginning to offer strategy services, we seek to differentiate ourselves by
providing a combination of critical capabilities that together help clients
improve their performance and competitiveness in the new Internet-based economy.
These capabilities are:
- eBusiness and business strategy;
- human resource and organizational expertise;
- research-based advanced solutions; and
- industry-leading ideas.
In 1999, International Data Corporation estimated that spending on Internet
consulting services will grow from $425 million in 1998 to $4.4 billion in 2003,
a compound annual growth rate of approximately 60%.
OUR SOLUTION
We focus first and foremost on clients' business outcomes and critical
business objectives, and then create solutions tailored to meet those
objectives. Below are the key components of how we deliver client solutions:
- Advanced solutions. We focus on providing clients with advanced solutions
that combine the latest technological capabilities, business and human
resource practices and innovative operating models. We constantly evolve
our advanced solutions, many of which stem from our Re.sults research
projects, so that we continually update our services.
- Comprehensive solutions. We believe there is more to eBusiness than
simply installing Web sites and other information systems, and that it
takes more than technology to effect significant business improvement. We
create comprehensive solutions to assist clients in transforming their
organizations into eBusinesses.
- Senior professionals. We have assembled a group of highly skilled
consulting professionals from established firms who average over twelve
years of relevant industry experience. Our professionals have expertise
in numerous industries and business processes.
- Speed of execution. Our methods are designed to share insights
immediately and provide measurable value quickly. We typically structure
projects to be completed within 15 to 90 days.
2
<PAGE> 7
OUR STRATEGY
We are committed to creating an industry-leading, multinational management
and strategy consulting, research and executive education firm that is at the
leading edge of business practices and adjusts rapidly to the future needs of a
growing client base. To achieve our goal, we are pursuing the following growth
initiatives:
- continue to develop and expand our services to anticipate and meet our
clients' changing needs;
- continue geographic expansion;
- continue to attract and retain highly qualified professionals;
- reformat and redistribute our Re.sults research; and
- grow our multi-client programs and the amount of consulting services
provided to multi-client participants.
OUR OFFICES
We were incorporated in Delaware in January 1997. Our principal executive
offices are located at 3 Kingwood Place, 800 Rockmead Drive, Kingwood, Texas
77339 and our telephone number at that location is (281) 359-3464.
3
<PAGE> 8
THE OFFERING
Common stock offered....... 2,500,000 shares
Common stock outstanding
after this offering........ 11,727,388 shares
Use of proceeds............ Working capital, capital expenditures, expansion of
our international operations, potential
acquisitions of, or investments in, complementary
businesses and other general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market
symbol..................... CCGP
The number of shares of common stock outstanding after this offering as
indicated above is based on 5,870,604 shares outstanding as of June 30, 2000,
plus 3,356,784 shares of common stock to be issued and outstanding upon the
automatic conversion of all of our outstanding convertible preferred stock upon
the consummation of this offering. This number excludes:
- 3,491,850 shares of common stock issuable upon the exercise of stock
options outstanding as of June 30, 2000; and
- 50,000 shares of common stock issuable upon the exercise of warrants
outstanding as of June 30, 2000.
As of June 30, 2000, options to purchase 606,750 shares of common stock
were exercisable at a weighted average exercise price of $3.15 per share. All
outstanding stock options had a weighted average exercise price of $6.37 per
share. See "Management -- Our Stock Option Plans" and note 8 to our consolidated
financial statements included elsewhere in this prospectus. All warrants
outstanding as of June 30, 2000 had an exercise price of $5.00 per share. See
"Description of Capital Stock."
Unless otherwise indicated, all information contained in this prospectus
assumes no exercise of the 30-day option granted to the underwriters to purchase
up to 375,000 additional shares of our common stock to cover over-allotments, if
any.
RECENT ACQUISITION
On February 29, 2000, we purchased all of the outstanding shares of capital
stock of Cepro AB, a Swedish management consulting firm, from Cepro's
stockholders in exchange for a total of 1,221,000 shares of our common stock
valued at an estimated $12,210,000. Cepro provides consulting services for
businesses throughout Sweden in areas such as strategic planning, financial
analysis, e-commerce, marketing, information management, and executive and
organizational development. Each employee of Cepro entered into an employment
agreement as part of the acquisition. See "Related Transactions and Recent
Acquisition" for a more detailed description of our acquisition of Cepro. Unless
otherwise indicated, the description of our business and operating data provided
for any date or period prior to March 1, 2000 in this prospectus does not
include the business or operating data of Cepro.
4
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial data below for 1997, 1998 and 1999 is
derived from our audited financial statements. The summary historical financial
data below as of June 30, 2000 and for the six month periods ended June 30, 1999
and 2000, is derived from our unaudited financial statements prepared on a basis
consistent with our audited financial statements and the notes to those
statements. Operating results for the first six months of 2000 include results
of operations of Cepro since February 29, 2000. The summary unaudited pro forma
financial data below is derived from the pro forma financial statements included
elsewhere in this prospectus. The financial data is qualified in its entirety
by, and should be read in conjunction with, "Unaudited Pro Forma Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of Concours
and Cepro and the notes to those statements included elsewhere in this
prospectus.
Both the unaudited pro forma statement of operations and balance sheet are
adjusted for the conversion of all of our outstanding convertible preferred
stock into 3,356,784 shares of common stock upon consummation of this offering.
In addition, the pro forma statement of operations is adjusted for the effects
of the following transactions that took place during February 2000:
- the issuance of 805,425 shares of common stock upon conversion of $4.0
million of convertible debt held by Infologix (BVI) Limited, our largest
stockholder, and the sale to them of 750,000 shares of common stock for
$6.0 million,
- the repayment of our $1.0 million bank line of credit,
- the sale of 1,546,784 shares of Series B convertible redeemable preferred
stock for $15.0 million to Thayer Equity Investors IV, L.P. and Thayer
CGI Partners LLC, and
- the acquisition of Cepro for 1,221,000 shares of our common stock,
as if the transactions had occurred on January 1, 1999. The pro forma statement
of operations data includes adjustments that are based upon available
information and various assumptions and estimates that we believe are
reasonable. You should not rely on this summary information to indicate the
consolidated operating results we might have obtained had these events actually
occurred. Also, you should not rely on this summary information to indicate the
operating results we may achieve in the future.
5
<PAGE> 10
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION,
(JANUARY 22, 1997) YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
THROUGH ---------------------------------- ---------------------------------------
DECEMBER 31, PRO FORMA PRO FORMA
1997 1998 1999 1999 1999 2000 2000
-------------------- --------- --------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue.............. $ 8,812 $ 15,951 $ 26,080 $ 32,876 $ 11,544 $ 24,045 $ 25,300
Costs and expenses of
services................. 5,775 12,996 19,732 25,248 9,382 14,970 15,588
------- --------- --------- ---------- ---------- ---------- ----------
Gross margin............... 3,037 2,955 6,348 7,628 2,162 9,075 9,712
Other costs and
expenses(1).............. 4,059 8,694 13,271 17,598(2) 6,404 10,394 11,343(2)
------- --------- --------- ---------- ---------- ---------- ----------
Operating loss............. $(1,022) $ (5,739) $ (6,923) $ (9,970) $ (4,242) $ (1,319) $ (1,631)
======= ========= ========= ========== ========== ========== ==========
Net loss attributable to
common stockholders...... $ (974) $ (5,665) $ (7,177) $ (10,309) $ (4,293) $ (3,763) $ (1,627)
======= ========= ========= ========== ========== ========== ==========
Net loss per share
attributable to common
stockholders, basic and
diluted.................. $ (0.43) $ (1.73) $ (2.32) $ (1.15) $ (1.39) $ (0.74) $ (0.18)
======= ========= ========= ========== ========== ========== ==========
Shares used in computing
basic and diluted net
loss per share
attributable to common
stockholders............. 2,270,630 3,279,447 3,088,248 8,986,457 3,085,219 5,065,273 9,006,629
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- ------------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
1997 1998 1999 2000 2000 2000(3)
------ ------- ------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $1,485 $ 1,056 $ 705 $14,289 $14,289 $60,774
Working capital................................ 76 (2,033) (5,134) 13,465 13,465 59,980
Total assets................................... 4,058 5,804 8,848 39,874 39,874 86,359
Long-term debt, net of current portion......... -- -- 4,000 -- -- --
Total stockholders' equity (deficit)........... 364 (1,372) (8,187) 10,062 27,375 73,890
</TABLE>
------------------
(1) Includes costs and expenses for sales and marketing, general and
administrative and stock-based compensation for all applicable personnel.
(2) Includes $3.1 million for 1999 and $1.5 million for 2000 of amortization of
intangibles related to the acquisition of Cepro and $0.2 million for 1999
and $0.7 million for 2000 of amortization of stock-based compensation.
(3) Adjusted to reflect the sale of 2,500,000 shares of common stock in this
offering at an assumed offering price of $21.00 per share and after
deducting estimated underwriting discounts and offering expenses payable by
us and the application of our net proceeds from the offering. See
"Capitalization."
6
<PAGE> 11
RISK FACTORS
You should consider carefully these risk factors together with all of the
other information included in this prospectus before you decide to purchase
shares of our common stock.
RISKS RELATED TO OUR BUSINESS
IF WE DO NOT ACHIEVE AND SUSTAIN PROFITABILITY, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS.
We have a limited operating history, and our operating costs have exceeded
our revenue in each quarter since our founding in January 1997. We have incurred
cumulative net losses of approximately $17.5 million from January 1997 through
June 30, 2000, and we anticipate a net loss at least through 2000. Our revenue
may not continue to grow. You should not expect our future revenue growth to
equal our recent growth rates. Growing companies like ours frequently encounter
difficulties in the rapidly evolving consulting industry. If our business
strategy is unsuccessful or revenue does not grow, we may never achieve
profitability.
THE LOSS OF MEMBERS OF OUR SENIOR MANAGEMENT OR OF A SIGNIFICANT NUMBER OF OUR
SENIOR CONSULTANTS COULD RESULT IN SIGNIFICANT LOSSES OF CLIENT RELATIONSHIPS.
We may not retain the services of our senior management and senior
consultants, as no employment agreements exist between us and these individuals.
The key members of our senior management are Dr. Christman, Ms. Erickson, Dr.
Keehan and Dr. Vitalari. If any of these members of senior management or a
significant number of our senior consultants leave, they would be difficult to
replace and personal relationships are a critical element of obtaining and
maintaining clients. For example, if any of these members of senior management
or senior consultants joins a competitor or forms a competing company, some of
our clients might choose to use their services. In addition, clients, other
companies and competitors seeking to develop capabilities similar to ours may
hire away some of these individuals. Significant losses of client relationships
would result in loss of market share and a decline in revenue unless or until we
develop new client relationships to offset these losses. We do not carry any
insurance covering the loss of any of our senior management or senior
consultants.
IF WE DO NOT ATTRACT AND RETAIN CONSULTING PROFESSIONALS AND EXPERIENCED SALES
PROFESSIONALS, PARTICULARLY THOSE WITH INTERNET AND EBUSINESS EXPERIENCE, WE MAY
BE UNABLE TO COMPETE OR TO GROW.
Competition for qualified consultants and experienced sales professionals
is intense, and the industry turnover rate for them is high. Due to the recent
growth of the Internet, and in particular electronic commerce, the number and
availability of individuals who have the requisite experience and expertise in
these areas is even more limited than in the past. Many of our competitors have
substantially greater financial resources than we do to attract and compensate
qualified professionals. As competition for these highly skilled individuals
intensifies, we may need to increase compensation. Any inability to recruit and
retain a sufficient number of qualified professionals would harm our ability to
compete and harm our reputation among clients and in the job market.
Additionally, it would hinder the growth of our business.
IF WE DO NOT KEEP PACE WITH THE CHANGING REQUIREMENTS OF OUR CLIENTS AND DO NOT
ACCURATELY ANTICIPATE MARKET TRENDS, OUR COMPETITIVE POSITION WILL SUFFER AND
OUR REVENUE MAY DECLINE.
Our success depends on our ability to develop strategic eBusiness, business
and information technology solutions that keep pace with evolving industry
standards, eBusiness and business trends, information technology and client
preferences. We strive to anticipate rapidly evolving industry trends and adapt
our research and analysis to meet the changing information needs of our clients.
We may fail to continually provide helpful and timely research and analysis of
developments and trends.
The industry sectors we service change frequently and often fundamentally.
These changes include the introduction of new products and services and the
obsolescence of old products and services, shifting
7
<PAGE> 12
strategies and market positions of major industry participants, and changing
objectives and expectations of the users of our clients' products and services.
This environment of rapid and continuous change challenges our ability to
provide our clients with current and timely research and analysis on issues of
importance, which is required to remain competitive. Positive referrals from
clients are often critical in obtaining new clients. A failure or inability to
meet a client's expectations could damage our reputation and we may be unable to
attract new business.
The process of internally researching, developing, launching and gaining
client acceptance of services is time-consuming and expensive. If delays or
failures during development or implementation, lack of market acceptance or the
inability to enhance existing services occur, we may be unable to keep or
attract clients.
OUR QUARTERLY REVENUE AND OPERATING RESULTS ARE LIKELY TO FLUCTUATE, WHICH MAY
CAUSE THE MARKET PRICE OF OUR STOCK TO DECLINE.
Our quarterly revenue and operating results have fluctuated in the past and
are likely to continue to fluctuate from quarter to quarter. During 1999, our
quarterly revenue varied from $5.2 million in the first quarter to $7.7 million
in the fourth quarter. If our quarterly revenue and operating results fall below
the expectations of securities analysts or investors, the price of our common
stock could fall substantially. Our quarterly results may fluctuate for many
reasons, including:
- an inability to expand our client base and retain current clients;
- the beginning and completion of significant contracts during a quarter;
- seasonality during the summer vacation and holiday periods;
- terminations, cancellations, deferrals or modifications of consulting
engagements by clients leading to underutilization of our employees;
- declines in renewal rates for membership subscriptions to our
multi-client or research programs;
- a decrease in the demand for eBusiness consulting services;
- the emergence and success of new and existing competition;
- varying operating costs and capital expenditures related to the
introduction of new services or expansion of our business operations and
infrastructure, both domestically and internationally, including the
hiring of new employees; and
- costs related to any future acquisitions.
We have experienced disruptions in our operations from some of the factors
listed above. For example, our gross margin decreased significantly in the
fourth quarter of 1998 to negative 17% from 22% in the preceding third quarter
because we hired consultants in preparation for our new eBusiness related
consulting services and expanded our operations in Europe. We also have
experienced, and expect to continue to experience, fluctuations in our quarterly
revenue growth rates primarily as a result of seasonality during the summer
vacation period, particularly in our European operations, and customers
requesting the completion of significant projects in the second quarter in
anticipation of the summer vacation period. For example, in 1999 our revenue for
the third quarter as compared to the second quarter grew at 7% as compared to
revenue growth at 23% in the second quarter over the first quarter and 14% in
the fourth quarter over the third quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations -- Third Quarter 2000" for a discussion of our current
expectations as to revenue and net loss in the third quarter of 2000 as compared
to the second quarter of 2000. Our stock price may decline if investors react
unfavorably to our revenue growth in any quarter being lower than revenue growth
in the previous quarter. We expect to experience fluctuations in our quarterly
revenue and operating results again in the future.
8
<PAGE> 13
BECAUSE OF OUR LACK OF LONG-TERM CONTRACTS WITH CONSULTING CLIENTS, OUR REVENUE
MAY BE UNPREDICTABLE AND MAY NOT BE ADEQUATE TO COVER OUR COSTS.
Our consulting clients retain us on an engagement-by-engagement basis. Our
operating expenses are relatively fixed and cannot be reduced on short notice to
compensate for unanticipated large variations in the number or size of
consulting engagements or in subscriptions. We incur costs based on our
expectations of future revenue, and our failure to accurately predict our
revenue could result in our costs exceeding our actual revenue. Our services
sometimes involve multiple engagements or stages, and there is a risk that
clients may choose not to retain us for additional stages of a project or could
cancel or delay additional planned projects due to general business or financial
conditions of the client. When a client defers, modifies or cancels an
engagement or chooses not to retain us for additional phases of a project, we
may be unable to rapidly redeploy our employees to other engagements to minimize
underutilization of our employees.
IF WE FAIL TO MAINTAIN SUBSTANTIAL SUBSCRIPTION LEVELS AND RENEWALS, OUR
RECURRING REVENUE WILL DECLINE.
We derived 31% of our revenue in 1999 from our subscription-based
multi-client and research programs. These programs are also important sources
for new business for our consulting services. Our recurring revenue depends on
our ability to achieve and sustain substantial renewal rates on existing
subscriptions and to add new subscribers. Our ability to do so requires us to
deliver consistent, high-quality and timely programs, research and analysis with
respect to issues, developments and trends that subscribers view as important.
IF WE DO NOT MANAGE OUR GROWTH AND PURSUE ACQUISITIONS EFFECTIVELY, THE QUALITY
OF OUR SERVICES MAY DECLINE AND WE MAY SUFFER LOSSES.
The total number of our employees increased from 45 as of December 31, 1997
to 196 as of June 30, 2000. We expanded internationally in 1999 and 2000 by
opening offices in Australia, France, Germany, the Netherlands, Sweden and the
United Kingdom. We have expended, and will continue to expend, significant
financial and managerial resources in increasing our international operations.
Because our management must continue to devote significant time and attention to
managing our European expansion and the integration of Cepro, and will need to
do so for any businesses we may acquire in the future, the quality of our
services and our ability to develop relationships with new clients may suffer.
We may pursue acquisitions of other management consulting firms or
complementary businesses that operate in areas or markets in which we may not
have any experience. We may use a portion of the net proceeds of this offering
for future acquisitions or investments and issue stock that would dilute our
current stockholders' percentage ownership. We have limited experience in
acquisition activities and may have to devote substantial time and resources to
complete potential acquisitions. We may be unsuccessful in identifying or
completing an acquisition even if we use substantial resources for acquisitions.
In addition, if adequate funds are not available to us on reasonable terms, we
may be unable to take advantage of acquisition opportunities.
If the attention of our management team is diverted toward pursuing
acquisitions and integrating any acquired business, they will have less time to
service current clients and develop new clients. Any completed acquisition could
result in the loss of our investment, which could be substantial. Moreover, even
successful acquisitions may involve investment related expenses and amortization
of acquired assets, which could adversely affect our operating results.
IF WE FAIL TO REALIZE BENEFITS FROM OUR RECENT ACQUISITION OF CEPRO, WE COULD
INCUR LOSSES.
Achieving the expected benefits from the Cepro acquisition will depend in
part on the integration of operations and personnel in a timely and efficient
manner to minimize the risk that the acquisition will result in the loss of
clients or key employees and to minimize the diversion of the attention of
management. We must demonstrate to Cepro's clients that the acquisition will not
lower client service standards and demonstrate to Cepro personnel that our
business cultures are compatible. To accomplish
9
<PAGE> 14
this, we must commit substantial resources. Failure to integrate the business of
Cepro could result in the loss of our substantial investment in this
acquisition. If we successfully acquire companies in the future, we will face
similar risks as those described for our Cepro acquisition.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO RISKS THAT MAY WORSEN OUR OPERATING
LOSSES OR REDUCE OUR PROFITABILITY.
We are exposed to financial and operational risks inherent in our
international operations in Australia, France, Germany, the Netherlands, Sweden
and the United Kingdom. Our international revenue is subject to fluctuations in
currency exchange rates and may be subject to tax withholding rates in these
countries that exceed those in the United States. These countries also impose a
range of restrictions on our employment policies that increase our operating
costs in these countries. These factors may make operations more difficult to
conduct internationally, and may worsen our operating losses or hinder our
ability to achieve profitability.
COMPETITION IN THE CONSULTING INDUSTRY IS INTENSE, AND WE MAY NOT BE ABLE TO
COMPETE SUCCESSFULLY.
We compete for clients and experienced personnel with an increasing number
of competitors that have significantly greater financial, technical, marketing
and public relations resources, longer operating histories, larger number of
clients and greater brand recognition than we do. In addition, the lack of any
significant barriers to entry into this industry permits new entrants that
intensify competition.
We compete with:
- traditional consulting firms and large systems integrators, such as
Computer Sciences Corporation and Electronic Data Systems Corporation, in
the areas of business systems strategy, eBusiness application design and
consulting services to chief information officers and information
technology, or IT, organizations;
- general management and strategy consulting firms, such as Bain & Company,
Booz-Allen & Hamilton, Inc., The Boston Consulting Group and McKinsey &
Company, in the areas of business strategy, business model design and
executive team counseling;
- Internet professional services firms, such as Diamond Technology
Partners, Incorporated, and eBusiness implementation firms, such as
Sapient Corporation, Scient Corporation and Viant Corporation, in the
areas of eBusiness strategy and business model design services;
- internal strategy and IT departments of potential clients;
- the Internet professional services groups of large technology companies,
such as IBM Corporation and Oracle Corporation; and
- small specialty firms in both North America and Europe.
The principal competitive factors in obtaining our consulting engagements
include:
- focus on the client's specific needs;
- ability to develop and sustain long-term client relationships;
- eBusiness experience and expertise;
- industry, business process and general business expertise;
- business model as well as technical architecture and information systems
design skills;
- project management and change management skills;
- cost and speed of delivery of services; and
- objectivity of advice provided.
10
<PAGE> 15
The principal competitive factors in obtaining participants for our multi-client
programs and research projects include:
- breadth of subject matter coverage;
- quality of programming and events; and
- innovative and practical research and recommendations.
IF WE ARE UNABLE TO ATTRACT WELL-KNOWN ACADEMICS AND EXPERIENCED INDUSTRY
PRACTITIONERS AS CONTRIBUTORS TO OUR SERVICES, THE QUALITY OF OUR SERVICES AND
OUR CLIENT BASE WOULD DECLINE.
We do not have exclusive relationships or binding agreements with any of
the members of our advisory board or the well-known academics and experienced
industry practitioners who currently participate in our multi-client programs or
Re.sults(R) research projects. Any of them may terminate their relationship with
us or work for a competitor at any time, which could cause a decline in the
quality of our services and cause us to lose clients. Competition for the time
and services of these individuals is intense.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE WOULD LOSE VALUABLE
ASSETS AND THE QUALITY OF OUR SERVICES COULD DECLINE.
Our intellectual property consists of our research reports, educational
materials and publications, as well as all reusable methodologies, techniques
and expertise developed through our research, consulting engagements and other
activities. The unauthorized use of our intellectual property by third parties
or their independent development of similar intellectual property could cause
the value of our services to decline significantly. If we resort to legal
proceedings to enforce our intellectual property rights, the proceedings could
be burdensome and expensive and the outcome could be uncertain. We rely on a
combination of trademark, service mark, copyright and trade secret laws to
protect our intellectual property, along with confidentiality and non-compete
agreements with our employees. We depend on our clients to respect the copyright
on our materials, to limit distribution of our materials to within their
organizations and to use the materials we provide for their internal business
purposes only. Our protection efforts may be unsuccessful and unauthorized
parties may copy or infringe upon aspects of our intellectual property. Existing
trade secret, copyright and trademark laws offer only limited protection, and
may not be available, and if available, may not be adequately enforced in every
country where we offer or may offer our services. Our competitors also may
independently develop similar materials, methodologies, techniques and
expertise, and we would have no claim against them.
CLAIMS AGAINST US ALLEGING INTELLECTUAL PROPERTY INFRINGEMENT COULD RESULT IN
LITIGATION COSTS, MONETARY DAMAGES AND THE LOSS OF VALUABLE ASSETS.
Other parties may assert infringement claims against us or claim that we
have violated their intellectual property rights. These claims, even if not
true, could result in significant legal and other costs and may distract our
management. If any of these claims were to prevail, we could be forced to pay
damages, comply with injunctions or cease offering some of our services.
RISKS RELATED TO THE OFFERING AND OWNERSHIP OF OUR STOCK
BECAUSE OUR STOCK PRICE MAY BE VOLATILE OR DECLINE, YOU MAY BE UNABLE TO RESELL
YOUR SHARES AT A PROFIT.
Before this offering, there was no market for our stock. The initial public
offering price for our shares was determined by negotiations between us and the
underwriters and may not be indicative of future market value.
11
<PAGE> 16
In recent years, the stock market has experienced significant price and
volume fluctuations, particularly for technology-related or Internet-related
stock such as ours. Therefore, the market price of our stock could be subject to
wide fluctuations for reasons unrelated to our operating performance, such as:
- the market's valuation of our industry;
- the performance of similar companies;
- news announcements and other developments with respect to our industry
and our competitors;
- the volatility of the Nasdaq National Market; and
- changes in general economic conditions.
Our stock price also may fluctuate due to announcements by us that investors
view as unfavorable, including announcements about the occurrence of any of the
risks we have described in this section.
BECAUSE THE VALUE OF YOUR INVESTMENT IN OUR COMMON STOCK WILL BE IMMEDIATELY
DILUTED, YOU MAY NOT RECEIVE THE FULL AMOUNT OF YOUR INVESTMENT IF YOU SELL YOUR
SHARES.
If you purchase our common stock in this offering, you will pay more for
your shares than the amount paid by existing stockholders or future stockholders
that acquire shares by exercising options granted before this offering, based on
the net tangible book value per share of our common stock. The net tangible book
value dilution to new investors in this offering will be $15.67 per share at an
assumed initial public offering price of $21.00 per share. The exercise of
outstanding options and warrants will result in further dilution to you. See
"Dilution" for a more complete description of how the value of your investment
in our common stock will be diluted upon completion of this offering.
A LARGE NUMBER OF SHARES WILL BE ELIGIBLE FOR FUTURE SALE AND MAY DEPRESS OUR
STOCK PRICE.
After this offering, shares owned by our current stockholders and holders
of options and warrants to acquire our common stock, assuming exercise of all
options and warrants outstanding as of June 30, 2000, are expected to constitute
approximately 83.6% of the outstanding shares of our common stock, or 81.6% if
the underwriters' over-allotment option is exercised in full. Following the
expiration of a 180-day lock-up period to which all of the shares held by our
current stockholders and warrant holders will be subject or earlier, at the
discretion of Salomon Smith Barney Inc., the holders whose shares are subject to
that lock-up period could dispose of their shares. Furthermore, as of June 30,
2000 there were 3,491,850 options to purchase our common stock outstanding at an
average exercise price of $6.37 per share. Sales of substantial amounts of our
common stock in the public market following this offering, or the perception
that these sales could occur, could cause the market price of our stock to
decline. A price decline would decrease the value of your investment in our
common stock and could impede our ability to raise capital through the issuance
of additional shares of our common stock or other equity securities.
After this offering, the holders of approximately 5,202,210 shares of our
common stock will have rights to require us to file registration statements
covering their shares, or to include their shares in registration statements
that we may file for ourselves or other stockholders. The exercise of these
registration rights and the sale of a large number of shares could cause the
price of our common stock to decline. Furthermore, if we must include in a
company-initiated registration statement shares held by those holders, those
sales could impair our ability to raise needed capital by depressing the price
at which we could sell our common stock.
BECAUSE OUR EXISTING STOCKHOLDERS CONTROL US AND WE ARE A DELAWARE CORPORATION
WITH A CLASSIFIED BOARD OF DIRECTORS, YOUR VOTE HAS LIMITED INFLUENCE AND YOU
MAY NOT RECEIVE THE POTENTIAL BENEFITS OF ANY PROPOSED ACQUISITION OF US.
Our executive officers, directors and holders of more than 5% of our
outstanding common stock will, in the aggregate, have the ability to vote a
majority of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, would be able to influence
significantly all matters requiring stockholder approval, including the election
of our board of directors and the approval
12
<PAGE> 17
of mergers or other business combination transactions. This concentration of
ownership, along with our classified board of directors and provisions of
Delaware law that might enable our management to resist a change of control or
an acquisition, could have the effect of delaying or preventing a change in
control of us or discourage a potential acquiror from paying you a premium over
the market price for your shares of our common stock.
13
<PAGE> 18
FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and actual uncertainties. Such
statements include, in particular, statements about our plans, strategies and
prospects under the headings "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." You
can identify certain forward-looking statements by our use of forward-looking
terminology such as the words "may," "will," "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of many factors, including but not
limited to the factors described in the "Risk Factors" section and elsewhere in
this prospectus. We are not obligated to update or revise these forward-looking
statements to reflect new events or circumstances.
This prospectus contains market data related to us and our industry. This
data has been included in the studies published by International Data
Corporation. These studies assume that certain events, trends and activities
will occur and make estimates based on those assumptions. Some of those
assumptions are that:
- customers' purchasing behavior will not dramatically change in terms of
their decision to outsource or insource projects;
- no catastrophic failure of the Internet will occur;
- the positive market forces outweigh the negative forces to sustain
continued growth of business consulting services;
- the number of people online and the total number of hours spent online
will increase significantly over the next few years; and
- Internet security and privacy concerns will be adequately addressed.
If International Data Corporation is wrong about any of its assumptions,
then its estimates also may be wrong. For example, the markets for worldwide
consulting services generally or Internet consulting services specifically may
not grow over the next few years at the rates International Data Corporation
estimates, if at all.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
14
<PAGE> 19
USE OF PROCEEDS
We estimate that the net proceeds to us from our sale of shares of common
stock in this offering will be approximately $46.5 million, assuming an initial
public offering price of $21.00 per share and after deducting the underwriting
discount and commissions and estimated offering expenses payable by us. If the
underwriters fully exercise their over-allotment option, we estimate we will
receive approximately an additional $7.3 million in net proceeds.
The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in our industry and to
facilitate our future access to public capital markets. Since equity is an
important component of our employee compensation, we believe that it is
necessary to provide a public market for our common stock to attract and retain
qualified professionals.
We expect to use the net proceeds for working capital, capital
expenditures, expansion of our international operations, potential acquisitions
of, or investments in, complementary businesses and other general corporate
purposes. The amount and timing of these expenditures will vary depending on a
number of factors, including the amount of cash generated by our operations,
competitive and technological developments, future changes in our business
objectives and the growth rate of our business.
We have not yet determined the amount of net proceeds to be used
specifically for each of these purposes. Accordingly, management will have
significant flexibility in applying the net proceeds of this offering, and you
may not agree with the choices our management makes in using these proceeds.
Until this money is used, we intend to place these amounts in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds for use in the operation and
expansion of our business, and do not plan to declare or pay any cash dividends
in the foreseeable future. Consequently, stockholders will need to sell their
shares of common stock in order to realize a return on their investment, if any.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000, on
an actual, pro forma and pro forma as adjusted basis.
- The "Actual" column reflects our capitalization as of June 30, 2000, on a
historical basis.
- The "Pro Forma" column reflects our capitalization as of June 30, 2000,
assuming the automatic conversion of 1,810,000 shares of Series A
convertible preferred stock and 1,546,784 shares of Series B convertible
redeemable preferred stock into 3,356,784 shares of common stock which
will take place upon the consummation of this offering.
- The "Pro Forma as Adjusted" column reflects our capitalization as of June
30, 2000, with the preceding pro forma adjustment, plus the receipt of
the estimated net proceeds from our sale of shares of common stock in
this offering, assuming an initial public offering price of $21.00 per
share.
The table below excludes the 4,440,857 shares of common stock reserved for
issuance under our stock option plans as well as non-stock option plan grants.
As of June 30, 2000, a total of 3,491,850 shares are subject to outstanding
options, of which 606,750 were exercisable. The exercisable options had a
weighted average exercise price of $3.15 per share, and all outstanding stock
options had a weighted average exercise price of $6.37 per share. See
"Management -- Our Stock Option Plans" and note 8 to our consolidated financial
statements included elsewhere in this prospectus. The table below also excludes
the 50,000 shares of common stock issuable upon the exercise of warrants
outstanding as of June 30, 2000, with an exercise price of $5.00 per share. The
table below should be read in conjunction with the consolidated financial
statements of Concours and Cepro and the notes to those statements and the pro
forma consolidated financial statements and the notes to those statements, all
of which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 14,289 $ 14,289 $ 60,804
======== ======== ========
Mandatorily redeemable preferred stock, $ 0.01 par value,
5,000,000 shares authorized; 3,356,784 shares issued and
outstanding actual, no shares pro forma and no shares pro
forma as adjusted......................................... $ 17,313 $ -- $ --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $ 0.01 par value, 50,000,000 shares
authorized; 6,185,354 shares issued actual, 9,542,138
shares issued pro forma and 12,042,138 shares issued
pro forma as adjusted.................................. 62 95 120
Additional paid-in capital................................ 35,212 52,492 98,982
Deferred compensation..................................... (6,494) (6,494) (6,494)
Treasury stock, at cost, 314,750 shares................... (675) (675) (675)
Accumulated other comprehensive income (loss)............. (120) (120) (120)
Retained earnings (deficit)............................... (17,923) (17,923) (17,923)
-------- -------- --------
Total stockholders' equity (deficit).............. 10,062 27,375 73,890
-------- -------- --------
Total capitalization.............................. $ 27,375 $ 27,375 $ 73,890
======== ======== ========
</TABLE>
16
<PAGE> 21
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was $16.0
million, or approximately $1.73 per share. Pro forma net tangible book value per
share represents the amount of total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding, after giving effect
to the pro forma adjustment for the automatic conversions of preferred stock in
connection with the offering described under "Capitalization" above. For
investors in our common stock, dilution is the per share difference between the
assumed initial public offering price of $21.00 per share and the pro forma net
tangible book value of our common stock immediately after completing this
offering. This represents an immediate increase in net tangible book value of
$3.60 per share to existing stockholders and an immediate dilution of $15.67 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $21.00
Pro forma net tangible book value per share before this
offering............................................... $1.73
Increase per share attributable to new investors.......... 3.60
-----
Pro forma net tangible book value per share after this
offering.................................................. 5.33
------
Dilution per share to new investors......................... $15.67
======
</TABLE>
The following table sets forth as of June 30, 2000, on a pro forma basis as
described above under "Capitalization," the number of shares of common stock
purchased from us, the total consideration paid and the average price per share
paid by current stockholders and new investors, before deducting the
underwriting discount and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 9,227,388 78.7% $43,197,610 45.1% $ 4.68
New stockholders.............. 2,500,000 21.3 52,500,000 54.9 21.00
---------- ----- ----------- -----
Total............... 11,727,388 100.0% $95,697,610 100.0% $ 8.16
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding. As of June 30, 2000, there were options outstanding to
purchase a total of 3,491,850 shares of common stock with a weighted average
exercise price of $6.37 per share and warrants outstanding to purchase a total
of 50,000 shares of common stock at an exercise price of $5.00 per share. If any
of these options or warrants are exercised, your investment will be further
diluted. Furthermore, additional options will be granted in the future. See
"Shares Eligible for Future Sale," "Management -- Our Stock Option Plans" and
note 8 to our consolidated financial statements included elsewhere in this
prospectus.
17
<PAGE> 22
UNAUDITED PRO FORMA FINANCIAL DATA
EXAMINATION REPORT
To the Board of Directors of
The Concours Group, Inc.:
We have examined the pro forma adjustments reflecting the transactions
described in the introduction to the unaudited pro forma condensed consolidated
statements of operations and the notes to those statements of operations and the
application of those adjustments to the historical amounts in the accompanying
unaudited pro forma condensed consolidated statements of operations of The
Concours Group, Inc. and subsidiaries for the year ended December 31, 1999, and
for the six months ended June 30, 2000. The historical condensed consolidated
statements of operations are derived from the historical financial statements of
The Concours Group, Inc. and of Cepro AB, which were audited by us, appearing
elsewhere herein. Such pro forma adjustments are based upon management's
assumptions described in the introduction to the unaudited pro forma condensed
consolidated statements of operations and the notes to those statements of
operations. Our examination was made in accordance with standards established by
the American Institute of Certified Public Accountants and, accordingly,
included such procedures as we considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transactions occurred at an earlier date. However, the pro forma condensed
statements of operations are not necessarily indicative of the results of
operations that would have been attained had the above-mentioned transactions
actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above mentioned
transactions described in the notes to the unaudited pro forma condensed
consolidated statements of operations, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma column reflects the
proper application of those adjustments to the historical financial statement
amounts in the pro forma condensed consolidated statements of operations for the
year ended December 31, 1999, and for the six months ended June 30, 2000.
ARTHUR ANDERSEN LLP
Houston, Texas
August 7, 2000
18
<PAGE> 23
UNAUDITED PRO FORMA FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1999 and for the six month period
ended June 30, 2000, have been derived from the application of pro forma
adjustments to our historical consolidated financial statements and those of
Cepro which are included elsewhere in this prospectus. The operating results for
the six month period ended June 30, 2000 include results of operations of Cepro
since its acquisition on February 29, 2000. The unaudited pro forma condensed
consolidated statements of operations reflect the results of our operations as
if the following had occurred on January 1, 1999:
- the issuance as of February 1, 2000 of common stock to Infologix (BVI)
Ltd., our largest stockholder, upon its conversion of convertible debt
and its purchase of our common stock for cash;
- the repayment on February 17, 2000 of our line of credit;
- the issuance as of February 29, 2000 of our common stock in the Cepro
acquisition;
- the issuance as of February 29, 2000 of our Series B convertible
redeemable preferred stock for cash; and
- the automatic conversion of all outstanding shares of our Series A and
Series B convertible preferred stock into common stock upon the
consummation of this offering.
The pro forma condensed consolidated financial statements are based on
available information and various assumptions and estimates that we believe are
reasonable, but which are subject to change. You should not rely on these
statements as an indication of the consolidated operating results we might have
obtained had these events actually occurred on such dates, nor should you rely
on these statements as an indication of the operating results that we may
achieve in the future.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and those of Cepro and the notes to these
statements included elsewhere in this prospectus.
19
<PAGE> 24
THE CONCOURS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
----------------------
CONCOURS CEPRO(2) ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Consulting................................................ $ 15,738 $6,796 $ -- $ 22,534
Continuous service and other.............................. 10,342 -- -- 10,342
---------- ------ ------- ----------
Total revenue....................................... 26,080 6,796 -- 32,876
Costs and expenses:
Consulting (exclusive of stock-based compensation of
$98).................................................... 11,487 5,516 -- 17,003
Continuous service and other (exclusive of stock-based
compensation of $4)..................................... 8,245 -- -- 8,245
---------- ------ ------- ----------
Gross margin........................................ 6,348 1,280 -- 7,628
Sales and marketing....................................... 6,876 133 -- 7,009
General and administrative (exclusive of stock-based
compensation of $81).................................... 6,201 1,118 -- 7,319
Amortization of intangibles............................... 11 -- 3,076(3) 3,087
Stock-based compensation(1)............................... 183 -- -- 183
---------- ------ ------- ----------
Operating income (loss)............................. (6,923) 29 (3,076) (9,970)
Interest income (expense), net............................ (254) 1 255(4) 2
---------- ------ ------- ----------
Income (loss) before provision for income taxes........... (7,177) 30 (2,821) (9,968)
Provision for income taxes................................ -- 19 19(5) --
---------- ------ ------- ----------
Net income (loss)........................................... (7,177) 11 (2,802) (9,968)
Preferred stock accretion................................... -- -- (341)(6) (341)
---------- ------ ------- ----------
Net income (loss) attributable to common stockholders....... $ (7,177) $ 11 $(3,143) $ (10,309)
========== ====== ======= ==========
Net income (loss) per share, basic and diluted.............. $ (2.32) $ (1.15)
Shares used in computing basic and diluted net income (loss)
per share................................................. 3,088,248 8,986,457(7)
</TABLE>
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
CONCOURS CEPRO(2) ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Consulting................................................ $ 18,275 $1,231 $ -- $ 19,506
Continuous service and other.............................. 5,770 24 -- 5,794
---------- ------ ------- ----------
Total revenue....................................... 24,045 1,255 -- 25,300
Costs and expenses:
Consulting (exclusive of stock-based compensation of
$204)................................................... 10,292 597 -- 10,889
Continuous service and other (exclusive of stock-based
compensation of $9)..................................... 4,678 21 -- 4,699
---------- ------ ------- ----------
Gross margin........................................ 9,075 637 -- 9,712
Sales and marketing (exclusive of stock-based compensation
of $29)................................................. 4,090 15 -- 4,105
General and administrative (exclusive of stock-based
compensation of $477)................................... 4,517 421 -- 4,938
Amortization of intangibles............................... 1,068 -- 513(3) 1,581
Stock-based compensation(1)............................... 719 -- -- 719
---------- ------ ------- ----------
Operating income (loss)............................. (1,319) 201 (513) (1,631)
Interest income (expense), net............................ (2,173) -- 2,458(4) 285
---------- ------ ------- ----------
Income (loss) before provision for income taxes........... (3,492) 201 1,945 (1,346)
Provision for income taxes................................ 144 26 73(5) 97
---------- ------ ------- ----------
Net income (loss)........................................... (3,636) 175 2,018 (1,443)
Preferred stock accretion................................... (127) -- (57)(6) (184)
---------- ------ ------- ----------
Net income (loss) attributable to common stockholders....... $ (3,763) $ 175 $ 1,961 $ (1,627)
========== ====== ======= ==========
Net income (loss) per share, basic and diluted.............. $ (0.74) $ (0.18)
Shares used in computing basic and diluted net income (loss)
per share................................................. 5,065,273 9,006,629(7)
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
20
<PAGE> 25
THE CONCOURS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(1) Includes stock-based compensation for all applicable personnel.
(2) For the year ended December 31, 1999 and for the six months ended June 30,
2000, translations of Swedish kronor, or SEK, into U.S. dollars have been
made at the 1999 yearly average conversion rate of 1.00 SEK equals 0.1210
U.S. dollars and the 2000 average conversion rate of 1.00 SEK equals 0.11454
U.S. dollars. These translations are not representations that SEK have been,
could have been, or can be in the future converted into U.S. dollars at this
or any other rate of exchange.
(3) Records the amortization related to $4,650,000 in purchase price allocated
to the value of the workforce over a three-year period and the amortization
related to $7,629,699 in goodwill over a five-year period related to the
acquisition of Cepro.
(4) Reflects the reduction in interest expense of $255,000 for the year ended
December 31, 1999 and $2,458,000 for the six months ended June 30, 2000,
assuming all of our debt was retired on January 1, 1999.
(5) Eliminates a tax provision of $19,000 for the year ended December 31, 1999
and $73,000 for the six months ended June 30, 2000, on a combined basis.
(6) Records the accretion of issuance costs of $2,104,329 on the Series A and
Series B mandatorily redeemable preferred stock to the liquidation value of
$19,290,000 over a five year period, which represents the period through the
earliest redemption date.
(7) Shares used in computing pro forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ---------
<S> <C> <C>
Historical weighted average shares outstanding....... 3,088,248 5,065,273
Shares issued in the acquisition of Cepro, net of
235,000 shares held in escrow...................... 986,000 319,637
Shares issued upon conversion of convertible debt.... 805,425 137,188
Shares issued for cash............................... 750,000 127,747
Shares issuable upon conversion of Series A and
Series B convertible preferred stock............... 3,356,784 3,356,784
--------- ---------
Total shares used in computing basic and diluted net
loss per share..................................... 8,986,457 9,006,629
========= =========
</TABLE>
21
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below for 1997, 1998 and 1999 is
derived from our audited consolidated financial statements. The selected
consolidated financial data as of June 30, 2000, and for the six month periods
ended June 30, 1999 and 2000, is derived from our unaudited financial statements
prepared on a basis consistent with our audited consolidated financial
statements and the notes to those statements included elsewhere in this
prospectus. The following data is qualified in its entirety by, and should be
read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEARS ENDED SIX MONTHS ENDED
(JANUARY 22, 1997) DECEMBER 31, JUNE 30,
THROUGH ----------------------- -----------------------
DECEMBER 31, 1997 1998 1999 1999 2000
--------------------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Consulting............................... $ 4,878 $ 8,529 $ 15,738 $ 6,705 $ 18,275
Continuous service and other............. 3,934 7,422 10,342 4,839 5,770
---------- ---------- ---------- ---------- ----------
Total revenue...................... 8,812 15,951 26,080 11,544 24,045
Costs and expenses:
Consulting (exclusive of stock-based
compensation of $--, $19, $98, $58 and
$204, respectively).................... 2,791 6,769 11,487 5,384 10,292
Continuous service and other (exclusive
of stock-based compensation of $--, $1,
$4, $1 and $9, respectively)........... 2,984 6,227 8,245 3,998 4,678
---------- ---------- ---------- ---------- ----------
Gross margin....................... 3,037 2,955 6,348 2,162 9,075
Sales and marketing (exclusive of
stock-based compensation of $--, $--,
$--, $-- and $29, respectively)........ 2,378 3,964 6,876 3,414 4,090
General and administrative (exclusive of
stock-based compensation of $--, $18,
$81, $32 and $477, respectively)....... 1,681 4,692 6,201 2,899 4,517
Amortization of intangibles.............. -- -- 11 -- 1,068
Stock-based compensation(1).............. -- 38 183 91 719
---------- ---------- ---------- ---------- ----------
Operating loss..................... (1,022) (5,739) (6,923) (4,242) (1,319)
Interest income (expense), net............. 48 74 (254) (51) (2,173)
Income taxes............................... -- -- -- -- 144
---------- ---------- ---------- ---------- ----------
Net loss................................... (974) (5,665) (7,177) (4,293) (3,636)
Preferred stock accretion.................. -- -- -- -- 127
---------- ---------- ---------- ---------- ----------
Net loss attributable to common
stockholders............................. $ (974) $ (5,665) $ (7,177) $ (4,293) $ (3,763)
========== ========== ========== ========== ==========
Net loss per share attributable to common
stockholders, basic and diluted.......... $ (0.43) $ (1.73) $ (2.32) $ (1.39) $ (0.74)
Shares used in computing basic and diluted
net loss per share attributable to common
stockholders............................. 2,270,630 3,279,447 3,088,248 3,085,219 5,065,273
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999 2000
------ ------- ------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $1,485 $ 1,056 $ 705 $14,289
Working capital............................................. 76 (2,033) (5,134) 13,465
Total assets................................................ 4,058 5,804 8,848 39,874
Long-term debt, net of current portion...................... -- -- 4,000 --
Total stockholders' equity (deficit)........................ 364 (1,372) (8,187) 10,062
</TABLE>
---------------
(1) Includes stock-based compensation for all applicable personnel.
22
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with "Selected
Consolidated Financial Data" and our consolidated financial statements and the
notes to those statements included elsewhere in this prospectus. The following
discussion contains forward-looking statements that involve risks, uncertainties
and assumptions such as statements of our plans, objectives, expectations and
intentions. Our actual results may differ materially from those discussed in
these forward-looking statements because of the risks and uncertainties inherent
in future events, particularly those identified in "Risk Factors."
OVERVIEW
We deliver management and strategy consulting, research and executive
education services which enable our clients to improve their performance and
competitiveness. We designed our operating model to enable us to rapidly evolve
our services to anticipate and meet the needs of our clients in fast-changing
markets. We have grown rapidly since our founding in January 1997. Our revenue
increased from $8.8 million in 1997 to $26.1 million in 1999, a compound annual
growth rate of approximately 72%. We provided services to a total of 154 clients
during 1997, 290 clients during 1998 and 400 clients during 1999. Our
consulting, multi-client and research professionals increased from 27 at
December 31, 1997 to 119 at June 30, 2000, including 39 consultants of Cepro,
which we acquired on February 29, 2000.
In the second half of 1998, we began offering new eBusiness related
consulting services and expanded our operations to Europe. These actions caused
higher operating losses in 1998 and 1999, which we funded through private
placements of equity in 1998 and convertible debt in 1999. We aggressively
expanded our staff of consultants in the United States from 19 at December 31,
1997 to 39 at December 31, 1998 in anticipation of generating significant
revenue from our newly developed eBusiness related consulting services and other
services in 1999. In late 1998, we began establishing operations in the United
Kingdom, Germany, France and the Netherlands, and incurred significant start-up
expenses and operating losses in 1998 and 1999. By December 31, 1999, we
employed 24 people in Europe, including seven consultants, seven sales
professionals and four multi-client professionals. On November 18, 1999, we
acquired Inforesma, a Swedish provider of multi-client programs, for
approximately $118,000 in cash and the issuance of 25,000 shares of our common
stock valued at $7.00 per share. On February 29, 2000, we purchased all the
outstanding shares of stock of Cepro, a Swedish management consulting firm, in
exchange for a total of 1,221,000 shares of our common stock valued at $10.00
per share.
A total of 235,000 shares of our common stock issued to the selling Cepro
stockholders are being held in escrow for three years as security for the
indemnity given by the selling Cepro stockholders under the purchase agreement.
These escrowed shares, and an additional 230,000 shares issued to the selling
Cepro stockholders, are subject to a repurchase right. We have the right to
repurchase each former Cepro stockholder's portion of these shares at a price of
$10.00 per share if the selling stockholder's employment is terminated before
March 1, 2003. Shares that we repurchase under this repurchase right will be
recorded as treasury stock.
Because the acquisition of Cepro has been accounted for as a purchase, our
consolidated statements of operations for the first six months of 2000 reflect
the results of Cepro since the date of the acquisition. The purchase price was
allocated to the fair value of the assets acquired and liabilities assumed,
including $4.7 million for the value of the workforce and $7.6 million of
goodwill. The workforce is being amortized over three years and the goodwill is
being amortized over five years.
Consulting revenue is comprised of professional fees and reimbursable
out-of-pocket expenses for consulting services rendered to clients. Reimbursable
out-of-pocket expenses comprised 11% of consulting revenue in 1999, 11% in 1998
and 10% in 1997. We currently provide our clients with consulting services in
eBusiness and business strategy; eBusiness solution implementation planning and
management; IT strategy, implementation planning and management; and custom
executive education. Our consulting engagements are priced on a time and
materials basis. Revenue is recognized as services are performed.
23
<PAGE> 28
Consulting costs consist primarily of the employee-related expenses of our
consultants and other direct project costs, such as third-party vendor charges
and out-of-pocket expenses associated with the delivery of consulting services.
These costs are expensed as incurred.
Continuous service revenue is comprised of subscription-based membership
fees from our multi-client and research programs. Other revenue represents fees
from client participation in individual research projects and from the sale of
reports from completed research projects. Our multi-client programs bring
together specified populations of executives with well-known academics,
experienced industry practitioners and our senior consultants to discuss the
pressing management issues and challenges they face. Our research consists of
90-day projects designed to develop new business strategies and management
techniques, deliver new ideas and techniques for our multi-client programs,
mindshare marketing and consulting practice. Memberships in our various
continuous service programs are sold as renewable, time-based subscriptions.
Subscriptions generally are for one year, are non-refundable, may begin in any
calendar month and entitle the subscribing member to participate in conferences,
meetings and teleconferences for the duration of the subscription period.
Subscription fees and most other revenue are recorded as deferred revenue, when
invoiced, and are recognized as revenue ratably over the subscription period or,
in the case of other revenue, ratably over the term of the related projects.
Revenue derived from the sale of reports from completed research projects is
recognized upon delivery of the reports. Continuous service and other costs
primarily include costs related to the production and delivery of multi-client
and research services, including compensation of research personnel, fees for
third-party speakers, the production of published materials, the organization of
member meetings and all associated support services. These costs are expensed as
incurred.
To date, a majority of our revenue has been derived from our consulting
services. During 1999, 60% of our revenue was derived from consulting services
and 40% was derived from continuous services and other. We expect that our
consulting services will continue to account for an increasing majority of our
total revenue in the foreseeable future. No single client accounted for more
than 10% of our total revenue during 1998 or 1999.
Sales and marketing expenses consist primarily of salaries, commissions and
related expenses of our direct salesforce and telemarketing professionals and
the costs related to the production and distribution of our mindshare marketing
and other direct mail materials. General and administrative expenses consist
primarily of salaries for executive and senior management, finance, IT and
various administrative groups along with associated employee benefits,
facilities costs, office supplies and related expenses, depreciation and
amortization and all other corporate costs.
Stock-based compensation consists of expenses arising from a limited number
of our option grants. Stock-based compensation represents the difference between
the exercise price of options to purchase our common stock and the fair value of
these shares at the date of grant. We have recorded aggregate deferred
compensation totaling $7.3 million in connection with certain stock option
grants through June 30, 2000, and we recorded stock-based compensation expense
of $38,000 in 1998, $183,000 in 1999 and $719,000 for the six months ended June
30, 2000.
For all stock options issued through June 30, 2000, we expect to record
amortization expense for deferred compensation as follows: $1.7 million during
2000, $1.9 million during 2001, $1.7 million during 2002, $1.5 million during
2003 and $0.4 million during 2004. The amount of compensation expense to be
recorded in future periods would decrease if unvested options for which deferred
compensation has been recorded are subsequently canceled.
Although we have experienced substantial revenue growth since 1997, our
operating costs and expenses exceeded our revenue in each quarter since our
founding in January 1997. From January 1997 through June 30, 2000, we incurred
cumulative net losses of approximately $17.5 million. Primarily due to our
expansion in Europe and the amortization of intangibles related to the recent
Cepro acquisition, including goodwill and the purchase price allocated to the
value of the workforce, we anticipate a net loss from operations through at
least 2000. Due to our limited operating history and the fast-changing nature of
24
<PAGE> 29
our industry, it is difficult for us to predict future results, and future
revenue growth may not equal or exceed our recent growth rates.
As of December 31, 1999, our net operating loss carryforwards were
approximately $12.5 million and expire at various dates beginning in 2004.
Utilization of the net operating losses may be limited due to U.S. and foreign
tax laws. See note 5 to our consolidated financial statements included elsewhere
in this prospectus.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
consolidated statements of operations data as a percentage of total revenue and
data for the costs and expenses of consulting and of continuous services and
other, which are presented as a percentage of the related revenue.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION YEARS ENDED SIX MONTHS ENDED
(JANUARY 22, 1997) DECEMBER 31, JUNE 30,
THROUGH ----------------- ------------------
DECEMBER 31, 1997(1) 1998(1) 1999(1) 1999(1) 2000(1)
-------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
REVENUE:
Consulting............................. 55% 53% 60% 58% 76%
Continuous service and other........... 45% 47% 40% 42% 24%
Total revenue.................. 100% 100% 100% 100% 100%
COSTS AND EXPENSES:
Consulting(2).......................... 57% 79% 73% 80% 56%
Continuous service and other(3)........ 76% 84% 80% 83% 81%
Gross margin................... 34% 19% 24% 19% 38%
Sales and marketing.................... 27% 25% 26% 30% 17%
General and administrative............. 19% 29% 24% 25% 19%
Amortization of intangibles............ 0% 0% 0% 0% 4%
Stock-based compensation(4)............ 0% 1% 1% 1% 3%
Operating loss................. (12%) (36%) (27%) (37%) (5%)
INTEREST INCOME (EXPENSE), NET........... 1% 0% (1%) 0% (9%)
INCOME TAXES............................. 0% 0% 0% 0% 1%
NET LOSS................................. (11%) (36%) (28%) (37%) (15%)
</TABLE>
---------------
(1) Unless otherwise indicated in this table, all numbers are expressed as a
percentage of total revenue.
(2) Expressed as a percentage of consulting revenue.
(3) Expressed as a percentage of continuous service and other revenue.
(4) Includes stock-based compensation for all applicable personnel.
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
Revenue
Total revenue for the six month period ended June 30 increased 108% from
$11.5 million in 1999 to $24.0 million for the comparable period in 2000. In
those same periods, consulting revenue rose from $6.7 million to $18.3 million,
an increase of 173%, and continuous service and other revenue increased 19% from
$4.8 million to $5.8 million.
North America. Total revenue for the six month period ended June 30 was
$10.6 million in 1999 and $17.7 million for the comparable period in 2000, an
increase of 67%. In those same periods, consulting revenue grew 110% from $6.2
million in 1999 to $13.1 million in 2000. The growth in consulting revenue
reflects a $5.7 million increase in revenue from our eBusiness services.
Continuous service and other revenue increased 6% from $4.4 million in the six
months ended June 30, 1999 to $4.6 million in the six months ended June 30,
2000, primarily due to an increase in the number of subscriptions for existing
programs.
25
<PAGE> 30
Europe. 1999 activities were primarily start-up in nature and total revenue
through June 30, 1999 was only $0.9 million. In 2000, total revenue for the six
month period ended June 30 was $6.3 million, consulting revenue was $5.2 million
and continuous service and other revenue was $1.1 million. European consulting
revenue includes Cepro consulting revenue of $2.9 million since its acquisition
on February 29, 2000.
Costs and expenses of services
In total, costs and expenses of services for the six month periods ended
June 30 rose 60% from $9.4 million in 1999 to $15.0 million for the comparable
period in 2000. Consulting costs and expenses for the same period increased 91%
from $5.4 million to $10.3 million, while continuous service costs and expenses
were $4.0 million in 1999 compared to $4.7 million in 2000, an increase of 17%.
North America. Total costs and expenses of services for the six month
period ended June 30 were $8.1 million in 1999 and $10.7 million for the
comparable period in 2000, an increase of 32%. Consulting costs and expenses for
the same periods increased 49% from $4.8 million in 1999 to $7.1 million in 2000
due primarily to an increase in the average number of consultants from 36 in
1999 to 43 in 2000 and higher project related expenses associated with the
increase in consulting revenue. Continuous service costs increased from $3.4
million in 1999 to $3.6 million in 2000.
Europe. Total costs and expenses of services for the six month period ended
June 30 were $1.3 million in 1999 and $4.2 million for the comparable period in
2000, with the acquisition of Cepro accounting for $1.7 million of this
increase. Consulting costs and expenses in Europe increased from $0.6 million in
1999 to $3.2 million in 2000. The Cepro acquisition accounted for $1.6 million
of the increase; the remainder was due to an increase in the average consulting
headcount of other European operations from five in 1999 to nine in 2000 and
higher project related expenses associated with the increase in consulting
revenue. Continuous service costs increased from $0.6 million in 1999 to $1.0
million in 2000.
Gross margin
Our overall gross margin for the six month period ended June 30 increased
from 19% in 1999 to 38% for the comparable period in 2000. Consulting gross
margin improved from 20% to 44% and continuous service and other gross margin
increased from 17% to 19%.
North America. The overall gross margin for the six month period ended June
30 improved from 23% in 1999 to 39% for the comparable period in 2000. Our
consulting gross margin rose from 23% in 1999 to 46% in 2000, reflecting higher
consulting revenue and consultant utilization. Our continuous service and other
gross margin decreased from 23% in 1999 to 21% in 2000 due to the timing of
conferences, offset by the rate of revenue growth due to the sales of new
memberships.
Europe. Our total costs and expenses of services for the six month period
ended June 30, 1999 exceeded total revenue by $0.3 million, reflecting the
start-up nature in operations. For the six month period ended June 30, 2000,
overall European gross margin was 33%; our consulting gross margin was 38% and
our continuous service and other gross margin was 9%.
Sales and marketing
Total sales and marketing costs and expenses for the six month period ended
June 30 increased 20% from $3.4 million in 1999 to $4.1 million for the
comparable period in 2000. Sales and marketing costs and expenses in North
America were $2.7 million in 1999 and $3.0 million in 2000. As a percentage of
revenue, these expenses decreased from 25% in the 1999 period to 17% in the 2000
period due to sales and marketing spending growing at a slower rate than the
rate of revenue growth. In Europe, sales and marketing costs and expenses for
the six month period ended June 30 increased from $0.8 million in 1999 to $1.1
million for the comparable period in 2000, reflecting an increase in average
sales and marketing headcount from five in 1999 to seven in 2000 and the general
growth in our business. As a percentage of revenue, these expenses decreased
from 80% in the 1999 period to 18% in the 2000 period due to sales and marketing
spending growing at a slower rate than the rate of revenue growth.
26
<PAGE> 31
General and administrative
Total general and administrative costs and expenses increased 56% from $2.9
million in the six month period ended June 30, 1999 to $4.5 million in the six
month period ended June 30, 2000, with the acquisition of Cepro accounting for
approximately $0.6 million of the increase. North American general and
administrative costs and expenses increased from $2.1 million in 1999 to $3.0
million in 2000. This increase was due to additional staff, facilities,
equipment and general growth in our business. As a percentage of revenue, these
expenses decreased from 20% in the 1999 period to 17% in the 2000 period as
general and administrative spending grew at a slower rate than the rate of
revenue growth. General and administrative costs and expenses in Europe
increased from $0.8 million in 1999 to $1.6 million in 2000, with $0.6 million
due to the Cepro acquisition. As a percentage of revenue, these expenses
decreased from 81% in 1999 to 25% in 2000 as general and administrative spending
grew at a slower rate than the rate of revenue growth.
Amortization of intangibles
Amortization of intangibles increased from $ -- in the six month period
ended June 30, 1999 to $1.1 million in the same period of 2000, due primarily to
intangibles associated with the acquisition of Cepro.
Stock-based compensation
Stock-based compensation increased from $91,000 for the six month period
ended June 30, 1999 to $719,000 for the comparable period in 2000. A total of
$58,000 and $204,000, respectively, related to consulting, $1,000 and $9,000,
respectively, related to continuous service and other, $ -- and $29,000,
respectively, related to sales and marketing and $32,000 and $477,000,
respectively, related to general and administrative expenses. The increase
related to general and administrative expenses was primarily a result of
compensation recorded for stock option grants to advisory board members and
stock options granted to a non-profit organization.
Interest income (expense), net
Net interest expense increased from $51,000 for the six months ended June
30, 1999 to $2.2 million for the same period in 2000. The increase was due to
$2.4 million of non-cash interest expense recognized on the conversion of notes
payable to an affiliate of Infologix on February 1, 2000, offset by investment
earnings on our cash and cash equivalents. The non-cash interest expense
represents the difference between the conversion price as stated in the stock
purchase and debt conversion agreement, which replaced the terms in the original
note agreements, and the fair value of our common stock at the date of
conversion.
Income taxes
Income taxes increased from $ -- for the six month period ended June 30,
1999 to approximately $144,000 for the comparable period in 2000. The increase
is attributable to the acquisition of Cepro, which was profitable in 2000.
THREE MONTHS ENDED JUNE 30, 1999 AND 2000
Revenue
Total second quarter revenue increased 117% from $6.4 million in 1999 to
$13.9 million in 2000. In those same periods, consulting revenue rose from $3.8
million to $10.9 million, an increase of 188%, and continuous service and other
revenue increased 14% from $2.6 million to $3.0 million.
North America. Second quarter total revenue was $5.8 million in 1999
compared to $10.2 million in 2000, an increase of 76%. In those same periods,
consulting revenue grew 122% from $3.5 million in 1999 to $7.8 million in 2000.
The growth in consulting revenue reflects a $3.1 million increase in revenue
from our eBusiness services. Second quarter continuous service and other revenue
increased 5% from $2.3 million in 1999 to $2.4 million in 2000, primarily due to
an increase in the number of subscriptions for existing programs.
27
<PAGE> 32
Europe. 1999 activities were primarily start-up in nature and second
quarter revenue was only $0.6 million. In 2000, total second quarter revenue was
$3.7 million: consulting revenue was $3.1 million and continuous service and
other revenue was $0.6 million. European consulting revenue includes Cepro
consulting revenue of $2.1 million in the second quarter.
Costs and expenses of services
In total, second quarter costs and expenses of services rose 74% from $4.9
million in 1999 to $8.6 million in 2000. Second quarter consulting costs and
expenses increased 121% from $2.7 million in 1999 to $6.0 million in 2000, while
continuous service costs and expenses were $2.2 million in 1999 compared to $2.6
million in 2000, an increase of 16%.
North America. Second quarter total costs and expenses of services were
$4.1 million in 1999 compared to $6.1 million in 2000, an increase of 50%.
Second quarter consulting costs and expenses increased 77% from $2.4 million in
1999 to $4.2 million in 2000 due primarily to an increase in the average number
of consultants from 34 in 1999 to 45 in 2000 and higher project related expenses
associated with the increase in consulting revenue. Second quarter continuous
service costs increased from $1.7 million in 1999 to $1.9 million in 2000.
Europe. Second quarter total costs and expenses of services were $0.8
million in 1999 compared to $2.5 million in 2000, with the acquisition of Cepro
accounting for $1.3 million of this increase. Second quarter consulting costs
and expenses in Europe increased from $0.4 million in 1999 to $1.8 million in
2000. The Cepro acquisition accounted for $1.3 million of the increase; the
remainder was due to an increase in the average consulting headcount of other
European operations from five in 1999 to nine in 2000 and higher project related
expenses associated with the increase in consulting revenue. The second quarter
continuous service costs increased from $0.5 million in 1999 to $0.6 million in
2000.
Gross margin
Our overall second quarter gross margin increased from 23% in 1999 to 38%
in 2000. Consulting gross margin improved from 28% to 45% and continuous service
and other gross margin decreased from 15% to 13%.
North America. The overall second quarter gross margin improved from 29% in
1999 to 40% in 2000. Our consulting gross margin rose from 33% in 1999 to 47% in
2000, reflecting higher consulting revenue and consultant utilization. Our
continuous service and other gross margin decreased from 24% in 1999 to 18% in
2000 primarily due to the timing of conferences falling in different quarters
during the two years.
Europe. Our total costs and expenses of services in the second quarter of
1999 exceeded total revenue by $0.3 million, reflecting the start-up nature in
operations. In 2000, overall second quarter European gross margin was 32% and
our consulting gross margin was 39%. Our continuous service and other gross
margin costs exceeded related revenue by $21,000, which was primarily the result
of the timing of conferences falling in different quarters during the two years.
Sales and marketing
Total sales and marketing costs and expenses increased 32% from $1.6
million in the second quarter of 1999 to $2.1 million in the second quarter of
2000. Sales and marketing costs and expenses in North America were $1.2 million
in the second quarter of 1999 and $1.6 million in the second quarter of 2000. As
a percentage of revenue, these expenses decreased from 21% in the 1999 period to
15% in the 2000 period due to sales and marketing spending growing at a slower
rate than the rate of revenue growth. In Europe, second quarter sales and
marketing costs and expenses increased from $0.4 million in 1999 to $0.6 million
in 2000, reflecting an increase in average sales and marketing headcount from
five in 1999 to seven in 2000 and the general growth in our business. As a
percentage of revenue, these expenses decreased from 64% in the 1999 period to
15% in the 2000 period due to sales and marketing spending growing at a slower
rate than the rate of revenue growth.
28
<PAGE> 33
General and administrative
Total second quarter general and administrative costs and expenses
increased 76% from $1.5 million in 1999 to $2.7 million in 2000, with the
acquisition of Cepro accounting for approximately $0.5 million of the increase.
North American second quarter general and administrative costs and expenses
increased from $1.2 million in 1999 to $1.7 million in 2000. This increase was
due to additional staff, facilities, equipment and general growth in our
business. As a percentage of revenue, these expenses decreased from 20% in the
1999 period to 16% in the 2000 period as general and administrative spending
grew at a slower rate than the rate of revenue growth. General and
administrative costs and expenses in Europe increased from $0.4 million in the
second quarter of 1999 to $1.0 million in the second quarter of 2000, with $0.5
million of the increase due to the Cepro acquisition. As a percentage of
revenue, these expenses decreased from 61% in 1999 to 27% in 2000 as general and
administrative spending grew at a slower rate than the rate of revenue growth.
Amortization of intangibles
Amortization of intangibles increased from $ -- in the second quarter of
1999 to $0.8 million in the same period of 2000, due primarily to intangibles
associated with the acquisition of Cepro.
Stock-based compensation
Stock-based compensation increased from approximately $46,000 for the
second quarter of 1999 to $418,000 for the second quarter of 2000. A total of
$33,000 and $168,000, respectively, related to consulting, $1,000 and $7,000,
respectively, related to continuous services and other, $ -- and $29,000
respectively, related to sales and marketing, and $12,000 and $214,000,
respectively, related to general and administrative expenses. The increase
related to general and administrative expenses was primarily a result of
compensation recorded for stock option grants to advisory board members in the
second quarter of 2000.
Interest income (expense), net
Net interest expense increased from approximately $37,000 in the second
quarter of 1999 to net interest income of $228,000 for the second quarter of
2000. Net interest income for the second quarter of 2000 was primarily due to
investment earnings on cash and cash equivalents.
Income taxes
Income taxes increased from $ -- for the second quarter of 1999 to
approximately $97,000 in the second quarter of 2000. The increase is
attributable to the acquisition of Cepro, which was profitable for the second
quarter of 2000.
YEARS ENDED DECEMBER 31, 1998 AND 1999
Revenue
Total revenue increased 63% from $16.0 million in 1998 to $26.1 million in
1999. Consulting revenue was up 85%, increasing from $8.5 million in 1998 to
$15.7 million in 1999. Continuous service and other revenue was $7.4 million in
1998 compared to $10.3 million in 1999, an increase of 39%.
North America. Total revenue was $15.9 million in 1998 compared to $23.4
million in 1999, an increase of 47%. Consulting revenue grew 69% from $8.4
million in 1998 to $14.2 million in 1999. This increase primarily reflects
strong demand for our new eBusiness consulting services. Continuous service
revenue increased 23% from $7.4 million in 1998 to $9.1 million in 1999. Of this
increase, $0.8 million was due to an increase in the number of subscriptions to
existing multi-client programs and $0.9 million was due to addition of new
multi-client programs for senior eBusiness and HR executives.
Europe. 1998 activities were primarily start-up in nature and we recognized
only $0.1 million of revenue. In 1999, our first full year of operation in
Europe, consulting revenue was $1.5 million and continuous service revenue was
$1.2 million.
29
<PAGE> 34
Costs and expenses of services
Total costs and expenses of services rose 52% from $13.0 million in 1998 to
$19.7 million in 1999. Consulting costs and expenses rose from $6.8 million in
1998 to $11.5 million in 1999, an increase of 70%. Continuous service costs and
expenses increased 32% from $6.2 million in 1998 to $8.2 million in 1999.
North America. Total cost and expenses of services were $12.7 million in
1998 compared to $16.7 million in 1999, an increase of 31%. Costs and expenses
of consulting increased 48% from $6.6 million in 1998 to $9.8 million in 1999.
The increase primarily reflects the growth in the number of consultants in North
America from an average of 27 in 1998 to an average of 35 in 1999 and an
increase in other project related expenses associated with higher consulting
revenue. Although North American consulting revenue rose 69% compared to 1998,
the average number of consultants we employed grew only 30% because we increased
the utilization of the consultants we hired in 1998. Costs and expenses of
continuous service increased from $6.1 million in 1998 to $6.9 million in 1999.
This increase was primarily due to cost of the new multi-client programs for
senior eBusiness and HR executives and the overall growth in the number of
memberships.
Europe. In 1999, our first full year of operations in Europe, total costs
and expenses of services were $3.1 million; costs and expenses of consulting
were $1.7 million and costs and expenses of continuous service were $1.4
million.
Gross margin
Our overall gross margin increased from 19% in 1998 to 24% in 1999.
Consulting gross margin improved from 21% to 27% and continuous service and
other gross margin increased from 16% to 20%.
North America. The overall gross margin improved from 20% in 1998 to 29% in
1999. Our consulting gross margin rose from 22% in 1998 to 31% in 1999. As 1999
progressed, the demand for our eBusiness consulting services accelerated and we
increased the utilization of the consultants we hired in 1998. Our continuous
service and other gross margin improved from 18% in 1998 to 25% in 1999 as the
growth in revenue due to increased memberships exceeded the rate of growth of
related costs and expenses.
Europe. 1999 costs and expenses of consulting exceeded consulting revenue
by $0.2 million and the costs and expenses of continuous service and other also
exceeded continuous service and other revenue by $0.2 million. This reflects the
start-up nature of operations in Europe during 1999.
Sales and marketing
Total sales and marketing costs and expenses increased 73% from $4.0
million in 1998 to $6.9 million in 1999. Sales and marketing costs and expenses
in North America rose from $3.7 million in 1998 to $5.2 million in 1999, or 39%.
This increase reflects higher costs associated with mindshare marketing and
direct mail programs to support our new eBusiness and multi-client service and
the general growth in our business. As a percentage of revenue, these expenses
decreased from 24% in 1998 to 22% in 1999 due to sales and marketing spending
growing at a slower rate than the growth in revenue. Sales and marketing costs
and expenses in Europe during our first full year of operation increased from
$0.2 million in 1998 to $1.7 million in 1999. This was primarily due to the
increase in the number of sales professionals from three at December 31, 1998 to
seven at December 31, 1999 and an increase in mindshare marketing and direct
mail activities in 1999.
General and administrative
Total general and administrative costs and expenses increased by 32% from
$4.7 million in 1998 to $6.2 million in 1999. North American general and
administrative costs and expenses increased by 16% from $4.0 million in 1998 to
$4.6 million in 1999. This increase was due to additional staff, facilities,
equipment and general growth in our business. As a percentage of revenue, these
expenses decreased from 25% in 1998 to 20% in 1999 as general and administrative
spending grew at a slower rate than the rate of revenue growth. General and
administrative costs and expenses in Europe increased from $0.7 million in
30
<PAGE> 35
1998 to $1.6 million in 1999 reflecting a full year of operation and spending
for additional staff, facilities and equipment to support our European
operations.
Stock-based compensation
Stock-based compensation increased from $38,000 in 1998 to $183,000 in
1999. Of these amounts, $19,000 and $98,000, respectively, related to
consulting, $1,000 and $4,000, respectively, related to continuous service and
other and $18,000 and $81,000, respectively, related to general and
administrative expenses. The increases were a result of a full year of
amortization on grants issued in 1998 and various stock options grants issued to
employees throughout 1999.
Interest income (expense), net
Net interest income in 1998 was $0.1 million compared to net interest
expense of $0.3 million in 1999. This reflects the interest expense associated
with the 1999 issuance of convertible debt and draws against our bank line of
credit.
YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenue
Total revenue increased 81% from $8.8 million in 1997 to $16.0 million in
1998. No revenue was generated in Europe in 1997 and only approximately $0.1
million of revenue was generated in Europe in 1998. Consulting revenue in North
America grew 73% from $4.9 million in 1997 to $8.4 million in 1998 reflecting an
increasing number of clients. Continuous service and other revenue in North
America increased 88% from $3.9 million in 1997 to $7.4 million in 1998. This
was primarily due to an increase in the number of subscriptions for our existing
multi-client and research programs, an increase in the average price per
subscription for our multi-client programs and an increase in the number of
research projects.
Costs and expenses of services
Total costs and expenses of services rose 125% from $5.8 million in 1997 to
$13.0 million in 1998, with costs of approximately $0.3 million incurred in
Europe. The costs and expenses of consulting in North America increased 136%
from $2.8 million in 1997 to $6.6 million in 1998. The increase primarily
reflects the growth of the number of consultants in North America from an
average of nine in 1997 to an average of 27 in 1998. We aggressively hired
consultants in 1998, both in support of higher 1998 consulting revenue and in
anticipation of future demand for our emerging eBusiness consulting services.
The costs and expenses of continuous service and other increased from $3.0
million in 1997 to $6.1 million in 1998. This increase was primarily due to the
development cost of expanding the content of our existing multi-client programs,
the growth in the number of memberships and the cost of completing more research
projects in 1998 than in 1997.
Gross margin
Our overall gross margin declined from 34% in 1997 to 19% in 1998. Our
consulting gross margin in North America declined from 43% in 1997 to 22% in
1998 primarily as the result of hiring consultants in preparation for our new
eBusiness consulting services. Continuous service and other gross margin was 24%
in 1997 compared to 18% in 1998. This decline was primarily due to the costs and
expenses of delivering our multi-client and research services growing at a rate
faster than the growth in continuous service and other revenue.
Sales and marketing
Total sales and marketing costs and expenses increased 67% from $2.4
million in 1997 to $4.0 million in 1998, with start-up activities in Europe
during 1998 accounting for 14% of this increase. Sales and marketing expenses in
North America rose from $2.4 million to $3.7 million, or 57%. The increase was
31
<PAGE> 36
primarily due to the increase in the average number of sales and telemarketing
professionals from seven in 1997 to 14 in 1998. As a percentage of revenue,
these expenses decreased from 27% in 1997 to 24% in 1998 due to sales and
marketing spending growing at a slower rate than the rate of revenue growth.
General and administrative
Total general and administrative costs and expenses increased by 179% from
$1.7 million in 1997 to $4.7 million in 1998. European start-up expenses in 1998
of $0.7 million accounted for 23% of this increase. North American general and
administrative costs and expenses increased by 137% from $1.7 million in 1997 to
$4.0 million in 1998. This increase was due to additional staff, facilities,
equipment and general growth in our business. As a percentage of revenue,
general and administrative expenses increased from 19% in 1997 to 25% in 1998 as
we invested in our infrastructure to support continued growth.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly operating results for
each of the ten quarters ended June 30, 2000. We prepared this unaudited
information on the same basis as the audited consolidated financial statements
appearing elsewhere in this prospectus. We believe all necessary adjustments to
present fairly the quarterly results, consisting only of normal recurring
adjustments, are included. These unaudited quarterly results should be read in
conjunction with our consolidated financial statements, together with the
related notes, included elsewhere in this prospectus. The operating results in
any quarter are not necessarily indicative of the results that may be expected
for any future period. We expect that our quarterly results may fluctuate
significantly. See, for example, our discussion regarding seasonality and our
current expectations as to revenue and net loss in the third quarter of 2000
under "-- Third Quarter 2000" below. We believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that you
should not rely on these comparisons as indicators of future performance.
32
<PAGE> 37
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES, SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Consulting............................. $ 2,149 $ 2,442 $ 2,365 $ 1,573 $ 2,928 $ 3,777
Continuous service and other........... 1,695 1,622 1,913 2,192 2,246 2,593
--------- --------- --------- --------- --------- ---------
Total revenue.................... 3,844 4,064 4,278 3,765 5,174 6,370
Costs and expenses:
Consulting............................. 1,463 1,534 1,811 1,980 2,666 2,718
Continuous service and other........... 1,029 1,247 1,540 2,411 1,790 2,208
--------- --------- --------- --------- --------- ---------
Gross margin..................... 1,352 1,283 927 (626) 718 1,444
Sales and marketing.................... 698 810 1,035 1,420 1,802 1,613
General and administrative............. 759 802 1,044 2,069 1,389 1,509
Amortization of intangibles............ -- -- -- -- -- --
Stock-based compensation(4)............ -- -- -- 38 45 46
--------- --------- --------- --------- --------- ---------
Operating loss................... (105) (329) (1,152) (4,153) (2,518) (1,724)
Interest income (expense), net.......... 32 25 13 4 (14) (37)
Income taxes............................ -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net loss................................ $ (73) $ (304) $ (1,139) $ (4,149) $ (2,532) $ (1,761)
========= ========= ========= ========= ========= =========
Net loss attributable to common
stockholders........................... $ (73) $ (304) $ (1,139) $ (4,149) $ (2,532) $ (1,761)
========= ========= ========= ========= ========= =========
Net loss per share attributable to
common stockholders, basic and
diluted................................ $ (0.02) $ (0.09) $ (0.35) $ (1.27) $ (0.82) $ (0.57)
========= ========= ========= ========= ========= =========
Shares used in computing basic and
diluted net loss per share attributable
to common stockholders................. 3,302,762 3,311,047 3,245,092 3,258,951 3,085,901 3,084,544
========= ========= ========= ========= ========= =========
Revenue(1):
Consulting............................. 55.9% 60.1% 55.3% 41.8% 56.6% 59.3%
Continuous service and other........... 44.1 39.9 44.7 58.2 43.4 40.7
Total revenue.................... 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Consulting(2).......................... 68.1 62.8 76.6 125.9 91.1 72.0
Continuous service and other(3)........ 60.7 76.9 80.5 110.0 79.7 85.2
Gross margin..................... 35.2 31.6 21.7 (16.6) 13.9 22.7
Sales and marketing.................... 18.2 19.9 24.2 37.7 34.8 25.3
General and administrative............. 19.7 19.8 24.4 55.0 26.9 23.7
Amortization of intangibles............ 0.0 0.0 0.0 0.0 0.0 0.0
Stock-based compensation(4)............ 0.0 0.0 0.0 1.0 0.9 0.8
Operating loss................... (2.7) (8.1) (26.9) (110.3) (48.7) (27.1)
Interest income (expense), net.......... 0.8 0.6 0.3 0.1 (0.2) (0.5)
Income taxes............................ 0.0 0.0 0.0 0.0 0.0 0.0
Net loss................................ (1.9)% (7.5)% (26.6)% (110.2)% (48.9)% (27.6)%
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 2000 2000
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES, SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Consulting............................. $ 4,031 $ 5,003 $ 7,393 $ 10,883
Continuous service and other........... 2,759 2,745 2,801 2,968
--------- --------- --------- ---------
Total revenue.................... 6,790 7,748 10,194 13,851
Costs and expenses:
Consulting............................. 2,898 3,205 4,276 6,016
Continuous service and other........... 1,905 2,343 2,108 2,570
--------- --------- --------- ---------
Gross margin..................... 1,987 2,200 3,810 5,265
Sales and marketing.................... 1,603 1,862 1,968 2,122
General and administrative............. 1,475 1,824 1,864 2,653
Amortization of intangibles............ -- 11 276 792
Stock-based compensation(4)............ 45 47 301 418
--------- --------- --------- ---------
Operating loss................... (1,136) (1,544) (599) (720)
Interest income (expense), net.......... (81) (122) (2,400) 228
Income taxes............................ -- -- 47 98
--------- --------- --------- ---------
Net loss................................ $ (1,217) $ (1,666) $ (3,046) $ (590)
========= ========= ========= =========
Net loss attributable to common
stockholders........................... $ (1,217) $ (1,666) $ (3,074) $ (689)
========= ========= ========= =========
Net loss per share attributable to
common stockholders, basic and
diluted................................ $ (0.39) $ (0.54) $ (0.68) $ (0.12)
========= ========= ========= =========
Shares used in computing basic and
diluted net loss per share attributable
to common stockholders................. 3,084,929 3,098,068 4,497,086 5,633,461
========= ========= ========= =========
Revenue(1):
Consulting............................. 59.4% 64.6% 72.5% 78.6%
Continuous service and other........... 40.6 35.4 27.5 21.4
Total revenue.................... 100.0 100.0 100.0 100.0
Costs and expenses:
Consulting(2).......................... 71.9 64.1 57.8 55.3
Continuous service and other(3)........ 69.0 85.4 75.3 86.6
Gross margin..................... 29.3 28.4 37.4 38.0
Sales and marketing.................... 23.6 24.0 19.3 15.3
General and administrative............. 21.7 23.6 18.3 19.2
Amortization of intangibles............ 0.0 0.1 2.7 5.7
Stock-based compensation(4)............ 0.7 0.6 3.0 3.0
Operating loss................... (16.7) (19.9) (5.9) (5.2)
Interest income (expense), net.......... (1.2) (1.6) (23.5) 1.6
Income taxes............................ 0.0 0.0 0.5 0.7
Net loss................................ (17.9)% (21.5)% (29.9)% (4.3)%
</TABLE>
------------------
(1) Unless otherwise indicated in this table, all numbers are expressed as a
percentage of total revenue.
(2) Expressed as a percentage of consulting revenue.
(3) Expressed as a percentage of continuous service and other revenue.
(4) Includes stock-based compensation for all applicable personnel.
Third Quarter 2000
We have experienced, and expect to continue to experience, fluctuations in
our quarterly revenue in the third quarter of each year primarily as a result of
seasonality during the summer vacation period, particularly in our European
operations, and customers requesting the completion of significant projects in
the second quarter of each year in anticipation of the summer vacation period.
Primarily because of these factors, we are uncertain as to whether the trends
evidenced in the first two quarters of 2000 will continue in the third quarter
of 2000. We believe that in the third quarter of 2000 our revenue may be below,
and our net loss may be greater than, the levels reported in the second quarter
of 2000, but believe that our revenue will be greater than, and our net loss
will be less than, the levels reported in the first quarter of 2000 and the
third quarter of 1999.
33
<PAGE> 38
Gross margin
In the second half of 1998, we hired consultants in preparation for our new
eBusiness related consulting services and expanded our operations to Europe.
These actions resulted in lower consultant utilization and a decrease in our
gross margin, particularly in the fourth quarter of 1998 and the first quarter
of 1999. Since this time, gross margin has increased significantly due to higher
consultant utilization and increased European revenue.
Our gross margin may not continue to improve. The establishment of new
practice areas, the hiring of consultants and further geographic expansion
could, from time to time, adversely affect our gross margins. Our consultants
are employed on a full-time basis and, therefore, we incur substantially all of
our employee-related costs even during times of low utilization.
LIQUIDITY AND CAPITAL RESOURCES
From our founding in January 1997 through December 31, 1997, we funded our
operations primarily through internally generated cash. In 1998 and 1999, we
funded our operations primarily through the private sale of equity and
convertible debt securities to Infologix (BVI) Ltd., our largest stockholder.
Net proceeds from the sale of common and convertible preferred stock from
January 1997 through December 31, 1999 totaled $5.6 million. Net proceeds from
the issuance of convertible debt to an affiliate of Infologix totaled $4.0
million. In addition, we had a $1.0 million line of credit with Bank One with
interest at the Bank One index rate plus 0.5 percent that was fully drawn at
December 31, 1999 and repaid in full in February 2000. This line of credit has
been terminated.
On February 1, 2000, we issued 750,000 shares of common stock to Infologix
for $6.0 million. A portion of these funds was used to repay our $1.0 million
bank line of credit. Effective February 29, 2000, we sold 1,546,784 shares of
Series B convertible redeemable preferred stock to Thayer Equity Investors IV,
L.P. and Thayer CGI Partners LLC for $15.0 million. This preferred stock is
automatically convertible into common stock on a share-for-share basis upon the
consummation of this offering.
Cash provided by operations in 1997 totaled $0.5 million. Cash used in
operations for 1998 was $3.8 million and for 1999 was $5.0 million. Cash used by
operations in 1998 and 1999 resulted from costs incurred to support the
significant growth and development of our programs and operations in 1998 and
1999, including our expansion into Europe. Cash used in operations in the six
month period ended June 30, 2000 was $4.4 million. A significant amount of cash
provided by operations is deferred revenue arising from subscriptions to our
multi-client programs. These subscriptions are generally annually renewable
memberships payable by members at the beginning of the membership term, which
can occur in any calendar month. Historically, uncollectible accounts receivable
have not been material to our operations.
Net accounts receivable increased $2.9 million from $3.6 million at
December 31, 1998 to $6.5 million at December 31, 1999. European operations,
which we started in late 1998, accounted for $0.9 million of this increase. The
remaining increase was due to the growth in our U.S. consulting revenue and an
increase in the number of U.S. subscription-based multi-client memberships
renewed at December 31, 1999 compared to December 31, 1998. Accounts payable and
accrued liabilities increased $3.0 million from $1.6 million at December 31,
1998 to $4.6 million at December 31, 1999. European operations accounted for
$0.6 million of this increase. The remaining increase was due to higher accounts
payable reflecting expanding U.S. operations and higher accruals for employee
incentive compensation driven by increasing U.S. revenue. Deferred revenue
increased $1.9 million from $5.6 million at December 31, 1998 to $7.5 million at
December 31, 1999. European operations accounted for $0.8 million of this
increase with the remainder resulting from the increase in U.S.
subscription-based multi-client memberships renewed at December 31, 1999.
Net accounts receivable increased from $6.5 million at December 31, 1999 to
$9.7 million at June 30, 2000, or $3.2 million. The acquisition of Cepro
accounted for $0.7 million of the increase. The remainder of the increase was
due to the overall increase in consulting and continuous service and other
revenue.
34
<PAGE> 39
Prepaid expenses and other increased $1.3 million from $0.7 million at December
31, 1999 to $2.0 million at June 30, 2000, primarily resulting from the
acquisition of Cepro, which accounted for $0.8 million of prepaid expenses and
other at June 30, 2000. The remainder of the increase related to deposits paid
for facilities, speakers and entertainers for future conferences. Other assets
increased by $1.3 million from $0.1 million as of December 31, 1999 to $1.4
million at June 30, 2000 as a result of the costs of the initial public
offering. Accounts payable decreased $1.0 million from $2.0 million at December
31, 1999 to $1.0 million at June 30, 2000, while accrued liabilities increased
$2.4 million from $2.5 million at December 31, 1999 to $4.9 million at June 30,
2000, primarily due to $1.1 million of accrued liabilities for Cepro at June 30,
2000 and an increase in accruals for employee incentive compensation as a result
of the growth in revenue.
Cash used in investing activities totaled $0.3 million in 1997, $0.5
million in 1998 and $0.4 million in 1999 for the purchase of computers and other
property and equipment. Cash used in investing activities of $0.8 million in the
six month period ended June 30, 2000 reflects out-of-pocket expenses related to
the Cepro acquisition and the purchases of computers and other property and
equipment.
Cash provided by financing activities was $1.3 million in 1997 and $3.9
million in 1998. These cash flows came primarily from the proceeds of the
private sale of common and convertible preferred stock to Infologix. Cash
provided by financing activities in 1999 was $5.1 million; the proceeds from the
issuance of convertible debt to an affiliate of Infologix provided $4.0 million
and draws on our line of credit provided $1.0 million. Cash provided by
financing activities for the six month period ended June 30, 2000 was $18.9
million representing the proceeds from the issuances of common stock and Series
B convertible redeemable preferred stock, less the repayment of our bank line of
credit.
As of June 30, 2000, we had cash and cash equivalents of $14.3 million.
We believe that our current cash and cash equivalents, internally generated
funds, the proceeds received by us from private equity financings, and the
proceeds of this offering will be sufficient to meet our working capital and
capital expenditure requirements for the foreseeable future.
MARKET RISK
Our exposure to market risk is confined to our cash and cash equivalents
which have maturities of less than three months. We plan to invest in U.S.
government debt obligations and investment grade commercial paper, which we
believe are subject to limited credit risk. We currently do not hedge interest
rate exposure. Because of the short-term maturities of our investments, we do
not believe that an increase in market rates would have any material negative
impact on the realized value of our investment portfolio.
We have foreign currency risk as a result of our operations in foreign
countries. All transactions made by our foreign subsidiaries have been made in
the local currency of each country in which we operate. Additionally, we do not
own a significant amount of assets through our foreign locations. Accordingly,
we have not had any material exposure to foreign currency rate fluctuations.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" which provides guidance related to revenue
recognition based on interpretations and practices followed by the SEC. We
believe that our revenue recognition policy is in compliance with SAB 101 and do
not believe that adoption of this Staff Accounting Bulletin has had a material
impact on our financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting of Derivative Financial
Instruments and for Hedging Activities," which will be effective for fiscal year
2001. This statement was amended by SFAS No. 138 in June 2000 to further clarify
SFAS No. 133. These statements establish accounting and reporting standards
requiring that every derivative instrument, including derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. These statements also require
35
<PAGE> 40
that changes in the derivative's fair value be recognized in earnings unless
specific hedge accounting criteria are met. SFAS 133 and SFAS 138 are not
anticipated to have a significant impact on our financial position or results of
operations when adopted, since we currently do not engage in hedging activities.
36
<PAGE> 41
BUSINESS
OVERVIEW
We deliver management and strategy consulting, research and executive
education services which enable our clients to improve their performance and
competitiveness. Currently we focus our services on advising Global 1000 and
mid-size corporations in developing and deploying eBusiness strategies. We
designed our operating model to enable us to rapidly evolve our services to
anticipate and meet the needs of our clients in fast-changing markets.
We currently provide consulting services in the following areas:
- eBusiness and business strategy;
- eBusiness solution implementation planning and management;
- IT strategy, implementation planning and management; and
- custom executive education.
We differentiate our consulting services through the seniority and
experience of our consultants, who average over twelve years of relevant
industry experience; speed of delivery of services to clients, with engagements
generally structured to be completed within 15 to 90 days; and the integration
of our latest research into client engagements and internal practice
development. We often enter consulting engagements through a process of
executive enlightenment in which we identify and articulate critical ideas,
issues and questions surrounding new business initiatives. We are then
frequently retained on a noncompetitive basis to advise on strategy development
and related implementation planning and management.
Our operating model is based on four core capabilities: Re.sults(R)
research projects, subscription-based multi-client programs, mindshare marketing
and a dedicated salesforce. We use these four capabilities to help us build
long-term relationships with senior business and technology executives, generate
a flow of new ideas and consulting techniques, and develop new consulting
engagements and other business opportunities. All of our multi-client programs
and a portion of our Re.sults research projects are subscription-based, which
provide us with a recurring revenue stream.
During 1999, our top ten clients in North America based upon total revenue
were:
- Arrow Electronics, Inc.;
- Ashland Inc.;
- Borg-Warner Automotive, Inc.;
- Cargill, Incorporated;
- CarrAmerica Realty Corporation;
- International Paper Company;
- Novartis AG;
- A. Schulman, Inc.;
- Schneider Electric SA; and
- The United Illuminating Company.
Our top five clients in Europe during this period based upon total revenue
were:
- Fort James Europe Limited;
- Internationale Nederlanden Groep (ING);
- Rio Tinto plc;
- Societe Generale d'Entreprises; and
- Svenska Kullager Fabriken.
Of these 15 clients, eight used all three of our consulting, research and
multi-client services during 1999. From our founding in January 1997 through
June 30, 2000, we performed consulting services for a total of 281 clients. As
of June 30, 2000, 273 clients were participating in one or more of our
multi-client or research programs. For each of the last two years, over 75% of
our multi-client and research clients renewed their subscriptions for at least
one program.
37
<PAGE> 42
We have grown rapidly since our founding in January 1997. Our revenue
increased from $8.8 million in 1997 to $26.1 million in 1999, a compound annual
growth rate of approximately 72%. On February 29, 2000, we acquired Cepro, a
Swedish management consulting firm, expanding our existing European operations.
As of June 30, 2000, we employed a total of 196 people in our offices in
Houston, Boston, London, Paris, Munich, Amsterdam, Gothenburg (Sweden) and
Stockholm, of which 48 are Cepro employees.
INDUSTRY BACKGROUND
Driven by the accelerating pace of technological change, today's ongoing
transformation to a new economy based on Internet and information technology is
fundamentally altering how businesses operate and compete. Responding to this
transformation, companies are reevaluating the performance of their
organizations and exploring new business strategies. As a result, many senior
business and technology executives turn to external consultants and research
professionals, who possess specific subject knowledge, to gain industry-leading
advice on management and operational challenges. In 1999, International Data
Corporation estimated that worldwide consulting services will increase from
$52.4 billion in 1998 to $102.8 billion in 2003, a compound annual growth rate
of approximately 14%.
This ongoing transformation is significantly changing the ways in which
businesses interact with their employees, customers, suppliers and other
business partners. To thrive in the new economy, we believe that businesses must
not only develop and implement new technology strategies, but must also
transform their operational and human resources practices so that all employees
think and act in terms of the new economy. We believe the speed of this
transformation creates a market for quick access to leading eBusiness management
practices and solutions to achieve these changes. We believe that Global 1000
and mid-size corporations are turning increasingly to outside consulting firms
to develop comprehensive eBusiness strategies and solutions. In 1999,
International Data Corporation estimated that spending on Internet consulting
services will grow from $425 million in 1998 to $4.4 billion in 2003, a compound
annual growth rate of approximately 60%.
We believe there are significant opportunities for management and strategy
consulting firms that can provide comprehensive, advanced eBusiness strategies
and solutions in time frames that allow clients to meet the demands of their
rapidly changing industries. We believe many traditional management and strategy
consulting firms continue to engage in lengthy consulting engagements, do not
focus on rapidly completing projects with measurable outcomes, and are not based
on leading eBusiness solutions and innovative management practices. Although
many Internet professional service firms are beginning to offer strategy
services, we seek to differentiate ourselves by providing a combination of
critical capabilities -- eBusiness and business strategy, human resource and
organizational expertise, research-based advanced solutions and industry-leading
ideas -- that help clients improve their performance and competitiveness in the
new economy.
CONCOURS APPROACH TO MARKET
Our four core capabilities are:
- Re.sults research. We believe a key to success in the consulting industry
is the ability to continuously innovate and offer clients leading
business strategies and up-to-date management techniques, including both
current and future best practices. We developed our own research
methodology, called Re.sults, to implement 90-day projects to satisfy the
rapidly evolving needs of our clients. Our clients pay to participate in
Re.sults projects and influence the selection of topics. Well-known
academics and experienced industry practitioners participate in our
research. In addition to direct value to our clients, these Re.sults
research projects provide new ideas and techniques for our consulting
practice, multi-client programs and mindshare marketing. We also believe
that the opportunity for clients to participate in high-quality,
forward-looking research helps us to attract and retain our consulting
professionals.
38
<PAGE> 43
- Subscription-based multi-client programs. We believe a continuous flow of
new clients and repeat business from past clients is critical to our
success. We designed our multi-client programs to foster new business for
our consulting services and to help build and maintain long-term
relationships with our clients. These programs bring together specific
groups of executives -- including chief executive officers, executives
responsible for eBusiness initiatives, chief information officers and
human resource executives -- to discuss with well-known academics,
experienced industry practitioners and our senior consultants the
pressing management issues and challenges they face. Executives subscribe
on an annual basis, attend conferences, participate in conference calls
and receive selected Re.sults research recommendations and other
Concours-developed content. Many of our current consulting clients first
participated in one or more of our multi-client programs before hiring us
for consulting engagements. Our multi-client programs also help sustain
our relationships with past consulting clients and potentially generate
future consulting business with them.
- Mindshare marketing. A key challenge in management and strategy
consulting is gaining the attention or "mindshare" of executives. We find
that when we obtain mindshare -- often by a process of executive
enlightenment in which we identify and articulate critical business
challenges executives face -- we often are retained on a non-competitive
basis to advise on strategy development and related implementation
planning and management. At the center of our executive mindshare
marketing program are an ongoing series of briefing materials on
contemporary management issues that we periodically distribute free of
charge to over 15,000 executives. These briefing materials represent the
latest perspectives from our Re.sults research and consulting field
experience. Our Re.sults research and multi-client programs also
contribute to our mindshare marketing by gaining and maintaining the
attention of executives by providing them with new and improved ideas and
management techniques.
- Dedicated salesforce. We believe two of the keys to sustained growth are
developing new client relationships and maintaining long-term
relationships with clients who use our services repeatedly over time. Our
dedicated salesforce, whose members average over twelve years of sales
experience, identify prospects, develop and help maintain client
relationships, manage the sale of new business and represent the full
range of our services. Because the salesforce handles initial
prospecting, our consultants can focus on providing advice to clients and
converting these prospects into actual engagements.
These core capabilities create vital assets -- new business opportunities,
client relationships, new ideas and management techniques -- that improve the
performance and drive the growth of our consulting services. The relationship
between our core capabilities and our consulting services is multi-faceted. Our
consultants participate in research projects, and our researchers participate in
consulting engagements. Individual consultants initiate and develop client
relationships and work with the salesforce to develop prospects into new
clients. Research draws upon the latest consulting field experience, while
consulting extends research output into detailed consulting methods and tools.
The collective wisdom of our firm -- from consulting, research, education and
sales -- is tapped to create the publications behind our mindshare marketing
program. Our core capabilities are designed and scaled to support new services
we may develop without requiring a significant expansion of personnel or other
resources.
THE CONCOURS SOLUTION
Our goal is to provide client-focused management and strategy consulting,
research and executive education services. We designed our solutions to work in
ways that create significant value for our clients. We focus first and foremost
on their business outcomes and critical business objectives, and then create
solutions tailored to meet those objectives. We blend the benefits traditionally
delivered through executive education and consulting into each engagement,
developing the client's capabilities to learn, change and improve. Below are the
key components of how we deliver client solutions:
- Advanced solutions. We focus on providing clients with advanced solutions
that combine the latest technological capabilities, business and human
resource practices and innovative operating models.
39
<PAGE> 44
We constantly develop advanced solutions, many of which stem from our
Re.sults research projects, so that we can continually update our
services. We believe our focus on future best practices has established
us as a leading provider of eBusiness solutions.
- Comprehensive solutions. We take a comprehensive approach to create
solutions for each client's situation -- analyzing business strategy,
performance of key business processes, management methods, technology and
organizational capabilities. We believe there is more to eBusiness than
simply installing Web sites and other information systems, and that it
takes more than technology to effect significant business improvement.
Our eBusiness solutions allow clients to transform their organizations
into eBusinesses.
- Senior professionals. Our group of skilled consulting professionals come
from established firms and average over twelve years of relevant industry
experience. Our professionals are experts in numerous industries and
business processes. They bring extensive hands-on experience and
practical insight to each engagement. Because their expertise is
continually refreshed through our ongoing research on business,
technology and human capital management issues, our consultants provide
the client with knowledge of current and future best practices and
leading management techniques. Most significantly from our clients'
standpoint, senior consultants interact with our clients on a day-to-day
basis.
- Speed of execution. We design our methods to share insights immediately
and provide measurable value quickly. We typically structure projects to
be completed within 15 to 90 days. Experience and research insights
permit our senior consultants to assess each situation quickly, establish
direction and formulate working analyses and action plans at the initial
stages of our engagements. We put forward our best thinking from the
beginning and bring a sense of urgency that imparts momentum to our
clients.
GROWTH STRATEGY
We are committed to creating an industry-leading, multinational management
and strategy consulting, research and executive education firm that is at the
leading edge of business practices and adjusts rapidly to the future needs of a
growing client base. To achieve this goal, we are pursuing the following growth
initiatives:
- Continue to develop and expand our services. Our core capabilities of
research, multi-client programs, mindshare marketing and a dedicated
salesforce enable us to enhance existing consulting services regularly,
to launch new consulting services and multi-client programs
opportunistically, and to anticipate and meet our clients' evolving
needs. For example, in late 1998, we published briefing material on key
HR management issues. In 1999, we created a multi-client program for
senior HR executives and conducted two research projects on
organizational issues in eBusiness. We are now expanding our consulting
practice in eBusiness compensation strategy and organizational
transformation. We will continue to use our core capabilities in this way
to develop and expand our consulting services.
- Continue geographic expansion. We believe that significant opportunities
exist for our services beyond our current locations, including serving
existing and new clients in other markets. Our multi-client and research
services enable us to enter new markets, establish relationships with
senior business and technology executives and then leverage this market
penetration to introduce and expand our other services. For example, in
1999 we rapidly built our multi-client programs and Re.sults research
projects in Europe and then used this presence to establish a consulting
practice. We opened five offices in Europe, and more than 60 corporations
have participated in our subscription-based programs or used our
consulting services in Europe. In February 2000, we acquired Cepro, which
increased the number of our European consulting professionals from eight
to 48. In May 2000, we formed Concours Group Asia Pacific Pty. Ltd., a
wholly owned Australian company registered under the laws of New South
Wales, with five employees and an office in Australia.
40
<PAGE> 45
- Continue to attract and retain highly qualified professionals. We believe
we attract highly qualified professionals for a variety of reasons. Our
operating model enables senior consulting professionals to focus on
developing and delivering client engagements while spending relatively
little time identifying new prospects. Re.sults research provides our
consultants with an efficient way to develop new management techniques
and consulting methods in conjunction with well-known academics and
experienced industry practitioners. Interaction among our senior
professionals creates an intellectually stimulating environment that
promotes the continual sharing of ideas. Our compensation structures are
competitive and include stock or options for all employees.
- Reformat and redistribute our Re.sults research. Because our research
focuses on emerging management and strategic issues, the Re.sults reports
have extended shelf life. We can distribute and repurpose these reports
to create both value to new clients and revenue growth opportunities for
us. We believe there may be attractive opportunities to establish
relationships with distributors to resell these reports in areas where it
does not yet make sense for us to establish operations, license the
consulting methods stemming from our research to other companies, or
reformat research materials as components of executive education courses,
including for delivery through distance learning as that market matures.
- Grow multi-client programs and consulting engagements with these
clients. Our multi-client program relationships enable us to cross-sell
our services, spurring growth of both existing and new services. Through
these programs, we have ongoing relationships with a wide range of senior
executives -- CEOs, executives responsible for eBusiness initiatives,
senior HR executives, CIOs and other general managers and executive team
members -- who are potential buyers of our consulting services. We will
continue to work aggressively to increase these relationships by growing
the membership of established programs and opportunistically launching
new ones. Our multi-client and research services provide an effective
method of introducing potential clients to Concours through the initial
sale of lower priced, subscription-based services.
CONCOURS GROUP SERVICES
We currently provide our clients with consulting services in eBusiness and
business strategy; eBusiness solution implementation planning and management; IT
strategy, implementation planning and management; and custom executive
education. Additionally, our subscription-based multi-client programs and
Re.sults research projects are packaged as services, generate recurring revenue
and play vital roles in developing new ideas and consulting techniques.
Consulting Services
Our consulting services enable Global 1000 and mid-size corporations to
develop and execute business strategies, especially strategies to adapt and
thrive as eBusinesses. We work with senior executives to develop business
strategies, design innovative operating models, create or re-shape
organizations, design operational and management processes, develop skills and
capabilities and create business opportunities through technological innovation.
We work with clients in situations that require experienced, knowledgeable,
senior advisors with new insights. Our capabilities encompass business strategy,
organizational effectiveness and process design -- all backed with extensive
expertise in IT and HR. Our consulting services leverage our understanding and
experience with eBusiness, as well as the future best practices developed by
Re.sults research, to provide clients with innovative approaches to solving
their eBusiness and business problems. We design our methods to share insights
immediately and provide measurable value quickly. We organize our engagements
around a shared focus on the client's business objectives. Our consulting
engagements are typically priced on a time and materials basis.
41
<PAGE> 46
eBusiness and Business Strategy
Our strategy consulting helps clients establish eBusiness and business
objectives, launch eBusiness initiatives, accelerate underlying business
processes, build inter-business relationships and develop technical and
organizational infrastructures for eBusinesses. Specifically, we provide
extensive consulting services in:
- Executive awareness -- creating executive team understanding of the
opportunities, pressures and threats posed by the latest business
conditions and trends.
- Technology and industry assessment -- analyzing changing customer
expectations and behaviors, analyzing current and potential competitors,
assessing the impact of disruptive information technologies, conducting
technology and vendor scans and identifying eBusiness opportunities.
- Strategy development -- identifying the client's assets, assessing
channel options and conflicts, creating future scenarios of the
marketplace and competitive landscape, and developing a portfolio of
strategic initiatives.
To facilitate and structure the development and implementation of these
strategies, over the last two years we developed a proprietary eBusiness
planning methodology called the eBusiness Playbook(SM) from a series of Re.sults
research projects. The Playbook is a fast, agile strategy tool much like a
sports team's playbook. The Playbook process includes considering eBusiness
scenarios and options, focusing on desired outcomes, identifying specific
strategic moves and countermoves, committing to capability building and a
flexible game plan, and executing specific moves with speed and determination.
We developed the Playbook because we believe that lengthy planning
processes and single-scenario strategic plans are not effective due to the
fast-changing eBusiness markets. Strategy development and deployment must be
both fast and flexible. The Playbook helps clients rapidly recognize the
developments in their industries and then organize their eBusiness possibilities
into ambitious, focused projects with testable business outcomes. The Playbook
enables clients to set eBusiness direction, make decisions, marshal resources
and move quickly into action.
eBusiness Solutions Implementation Planning and Management
In addition to developing strategies and operating models for eBusiness, we
advise clients on the business, technology and human issues of implementation
planning and management. These consulting services include:
- Strategy deployment -- includes assessing the organization's readiness
for eBusiness, identifying marketplace partners for eBusiness initiatives
and implementers for eBusiness systems, establishing funding methods and
program offices for managing a portfolio of eBusiness initiatives,
developing management methods and performance metrics, coaching
executives on their roles in eBusiness leadership and assisting in the
project management of specific eBusiness initiatives.
- Organizational transformation and change management -- includes
developing organizational and operating models for eBusinesses, creating
management and organizational alignment around eBusiness initiatives,
developing role definitions, competency models and compensation plans for
eBusiness staff and implementing change management programs to transition
people and resources into their new eBusiness roles.
- Process design -- includes redesign and acceleration of supply chains and
other operational business processes to deliver goods and services at the
fast-pace of eBusiness, as well as redesign of enterprise management
processes, such as finance and human resources, both to enable eBusiness
initiatives and to improve their efficiency through Internet-based
technology.
Information Technology Strategy, Implementation Planning and Management
Our broad expertise in IT encompasses not only technology, systems
architecture and implementation planning, but also the management processes of
strategic planning, capability development, cost
42
<PAGE> 47
management and performance measurement. We offer a wide range of IT services for
CIOs, IT organizations and their businesses, including:
- Developing IT strategies and plans, as well as aligning IT strategies,
resources and project portfolios with the strategies and outcomes of
clients' businesses.
- Improving IT delivery processes such as systems development and customer
support.
- Improving IT management processes such as cost and asset management,
vendor management and performance measurement.
- Improving working relationships between IT and the rest of the business,
especially with executive management.
- Assessing and developing the capabilities and business-orientation of IT
staff and designing IT organizational structures for complex and diverse
businesses.
- Developing technology architectures, selecting applications and
technologies, and selecting and managing implementation vendors.
- Accelerating key projects, such as Enterprise Resource Planning
implementations, by focusing such key projects on business results and
managing them to completion.
Custom Executive Education
All of our consulting engagements include components of executive education
and often executive coaching. We also perform engagements in which the primary
objective is custom executive development programs and organizational
development. Our executive coaching is geared to help individual executives
quickly adapt to changing roles and business conditions. Our custom executive
development programs are focused on the knowledge and behaviors executive teams
need to make informed and inspired decisions and to lead their organizations to
achieve their business outcomes. Our organizational development consulting
imparts specific management skills and overall organizational effectiveness. Our
action-learning approaches develop executive team understanding, alignment,
urgency, confidence and leadership. Due to market demand, today much of our
executive education emphasizes eBusiness markets, opportunities and transition
strategies.
Subscription-Based Multi-Client Programs
We design our multi-client programs to anticipate the needs of
participating executives for information, to equip them with innovative and
useful points of view and management techniques that increase their individual
effectiveness, to develop true peer networks and to improve the alignment of
executive teams. We assist executives in becoming technology-savvy business
leaders rather than technology managers. On an annual basis, a representative
program includes two or three conferences exclusively for the participating
business executives, quarterly teleconferences on contemporary management issues
and participation in two specified Re.sults research projects. Multi-client
programs may also include five or six general conferences for the participating
executives and their senior executive colleagues or personal telephone
consultations with our consultants.
Listed below are the three categories of multi-client programs being
offered in 2000, together with their senior executive participants. All three
categories are offered in both North America and Europe:
- CIO programs -- for chief information officers;
- Business executive programs -- for chief executive officers, senior human
resources executives, divisional presidents, and executive team members;
and
- eBusiness programs -- for senior executives responsible for eBusiness
strategy and implementation.
43
<PAGE> 48
Conferences feature discussions led by well-known academics, experienced
industry practitioners or our senior consultants, and provide ample opportunity
for participants to interact. Participants are exposed to Concours-developed
content, experience the quality of our work, interact with our senior
professionals and learn about our services. Thus, the programs also function as
sources of specific business opportunities, often initiated by clients at
conferences and followed up by our dedicated salesforce after the events.
Memberships in the various multi-client programs are available as renewable
one-year subscriptions and may begin in any calendar month. As of June 30, 2000,
the annual subscription price for multi-client programs ranged from
approximately $24,000 to $45,000.
Re.sults Research Projects
Our research team delivers 90-day research projects that provide innovative
management techniques, including both current and future best practices at the
intersection of business, technology and human resources management. Presently,
we conduct approximately 15 Re.sults research projects per year. We strive to
provide the highest quality research product to both our clients and our
consulting practice. Clients may participate in individual research projects,
participate in all or a group of research projects on a subscription basis or
purchase the results of any completed research projects.
Each Re.sults project addresses a pressing contemporary management issue,
often one that businesses are facing for the first time. Each project typically
brings together our senior consultants, well-known academics, experienced
industry practitioners and approximately ten to 30 member companies with common
interests who help shape the project and share their experience. Each project
culminates in a concise, pragmatic and highly readable report addressed to
senior executives. These reports contain a combination of current and future
best practices, innovative management techniques, pragmatic action plans and
illustrative case studies.
The Re.sults process provides a series of benefits:
- Clients. For our clients, Re.sults research provides a significant head
start in resolving management issues at a fraction of the cost of
conventional consulting methods. Clients follow through with local
implementations of our recommendations on their own, or with the
assistance of our consultants.
- Consulting Services. For our consulting practice, Re.sults research
provides us with a stream of new points of view, frameworks and
techniques that we convert into specific tools for assessment,
decision-making and implementation within consulting engagements.
- Consulting Professionals. For our consultants, Re.sults research provides
the opportunity for regular intellectual renewal, both by participating
in research projects and by learning about and employing the research
outputs.
- Content. For our mindshare marketing, multi-client programs and executive
education services, Re.sults research provides new ideas and consulting
techniques.
Re.sults research projects help build ongoing relationships with clients
and sometimes generate new business opportunities for follow-up consulting
services. They also deepen our relationships with the academics and industry
practitioners who participate in our research.
As of June 30, 2000, the price for participation in an individual research
project ranged from $5,000 to $9,750, or $19,750 for the project coupled with
on-site educational, assessment or implementation assistance. We offer a
one-year subscription program in which a client can participate in all projects
and in two special member conferences. As of June 30, 2000, the fee for this
program ranged from $60,000 to $75,000. Subscriptions may begin in any calendar
month. Clients also may subscribe to groups of three to five projects. Our
multi-client program members may participate in individual Re.sults research
projects at a discounted rate. Companies that do not participate in a research
project can also purchase the results after a project is completed. In this
case, we bundle copies of the report with either a telephone
44
<PAGE> 49
consultation or an on-site briefing with one of our professionals, thereby
bringing extra value to the client and creating a new business opportunity.
From our founding in January 1997 through June 30, 2000, we completed 43
Re.sults research projects, with four more in development or in the sales and
marketing phase. Current projects focus on key eBusiness topics; however, the
Internet and its commercial applications have been topics from our inception.
Approximately half of our projects have been on eBusiness-related topics.
Following is a list of current and completed projects, in reverse chronological
order.
CURRENT RE.SULTS PROJECTS
- Making Sense of Emerging Electronic Marketplaces
- Leading IT in Internet Time
- Developing an eBusiness Scorecard
- How to Spin-off an eBusiness
COMPLETED RE.SULTS PROJECTS
- Electronic Supply Chain Management
- Competitive Strategies for eBusiness
- Electronic Customer Relationship Management
- Making IT a Center of Business Innovation
- A Business Performance Scorecard for HR
- Succeeding with Shared Services
- Application Service Providers
- Web-Enabling Enterprise Systems
- Succeeding as a Digiprise
- Focusing IT Professionals on Business Results
- The Committed and Self-Reliant Employee
- Cutting IT Costs While Building Capability
- Mastering Computer-Telephony Integration
- Information-Enabled Research and Development
- Delivering Large-Scale Systems Projects
- Moving from eCommerce to eBusiness
- Developing Technology Leadership at the Top
- Managing IT Vendor and Contractor Relationships
- Purchasing Management in the Digital Age
- Business Systems Development in Real-Time
- Human Resources Management in a Technology- Driven Environment
- Mapping and Leveraging Channel Power
- Today's Business Opportunities in Emerging Technology
- Capitalizing on Enterprise Systems and Infrastructure
- Transforming the Organizational Structure of IT
- Managing and Exploiting Corporate Intranets
- Implementing an IT Performance Scorecard
- Inventory Management in the Digital Age
- Developing Global Systems and Infrastructure
- Managing the Desktop for Business Productivity
- IT Implications of Mergers and Acquisitions
- Managing the New Infrastructure
- Leveraging Human Capital in IT
- Managing Enterprise IT Assets
- A Business Scorecard for the IT Organization
- Security and Privacy on Public Infrastructure
- Managing Customer Knowledge
- Policy and Procedures Manual for Internet and Intranet Activities
- Do's and Don'ts of Internet Commerce
- Getting Serious about Knowledge Management
- Mastering the Network Computer
- Implementing Enterprise Systems
- Applications Development in the Era of the Internet
45
<PAGE> 50
CLIENTS
We have a diverse base of clients in various industries, primarily
consisting of Global 1000 and mid-size corporations. From our founding through
June 30, 2000, we performed consulting services for a total of 281 clients. As
of June 30, 2000, a total of 273 clients participated in our subscription-based
multi-client and research programs. Listed below, in alphabetical order, are our
top 20 consulting clients in North America during 1999, which are all located in
the United States, and our top 20 clients in North America for our
subscription-based multi-client and research programs, in each case based upon
total revenue. Also listed below for 1999 are our top ten consulting clients in
Europe and our top ten clients in Europe for our subscription-based multi-client
and research programs.
TOP 20 NORTH AMERICAN
CONSULTING CLIENTS IN 1999
21st Century Insurance Company
Arrow Electronics, Inc.
Ashland Inc.
Ball Aerospace & Technologies Corporation
Borden Chemicals, Inc.
Borg-Warner Automotive, Inc.
Cargill, Incorporated
CarrAmerica Realty Corporation
Fort James Corporation
Internal Revenue Service
International Paper Company
Lanoga Corporation
North Pacific Group, Inc.
Novartis AG
Rohm & Haas Company
Schneider Electric SA
A. Schulman, Inc.
The Thomson Corporation
United Illuminating Company
Williams-Sonoma, Inc.
TOP 20 NORTH AMERICAN
SUBSCRIPTION-BASED PROGRAM CLIENTS IN 1999
American Greetings Corporation
CMS Energy
Cargill, Incorporated
FPL Group, Inc./Florida Power & Light Company
Illinois Power
Johnson & Johnson
LG&E Energy Corporation
Marriott International, Inc.
Northrop Grumman Corporation
Novartis AG
Panasonic Industrial Co.
Pfizer Inc.
Rohm & Haas Company
Royal Bank Financial Group
Schneider Electric SA
Shell Chemical Company
Principal Financial Group
Thomson Corporation
Unocal Corporation
Warner-Lambert Company
TOP TEN EUROPEAN
CONSULTING CLIENTS IN 1999
Association Generale des Institutions de Retraite des Cadres
Avis Europe plc
Electricite de France -- Gaz de France
Fort James Europe Limited
Informationstechnik fur Systeme GmbH
Internationale Nederlanden Groep (ING)
IMJV Management BV (International Music Joint Venture)
Rio Tinto plc
Societe Generale d'Entreprises
Svenska Kullager Fabriken
TOP TEN EUROPEAN
SUBSCRIPTION-BASED PROGRAM CLIENTS IN 1999
AM Informatik GmbH
Cable & Wireless plc
Glaxo Wellcome plc
Internationale Nederlanden Groep (ING)
Norwich Union plc
Societe Nationale des Chemins de Fer Francais
Svenska Kullager Fabriken
Systematics AG
The Post Office (UK)
The Scottish Provident Institution (UK)
The clients listed above together generated over 59% of our total revenue
worldwide for 1999. Based on total revenue worldwide in 1999, our top 20 clients
for both consulting services and subscription-based programs were all North
American clients. In 1998 and 1999, no customer accounted for more than 10% of
our total revenue.
REPRESENTATIVE ENGAGEMENTS
The following case studies are representative of the type of eBusiness
assignments we undertake on behalf of our clients. Besides profiling
engagements, these cases illustrate the strength of our operating model, how we
leverage our research work and how we blend the disciplines of IT and HR into
eBusiness
46
<PAGE> 51
solutions. The engagements below represent important work recently performed for
the clients, but do not represent all of the consulting services we performed
for them.
ENGAGEMENT ONE
Challenge: A Fortune 50 manufacturing company operating globally was
not addressing the opportunities and competitive threats
created by the new economy. It needed both to develop an
eBusiness strategy and to mobilize its organization
around implementing that strategy.
Solution: The global CIO, a multi-client program member, brought
Concours into relationships with the CEO and executive
management team members. Beginning in June 1999, we first
developed and delivered a four-session custom education
program, based on recent research, for top executives on
how to leverage information technology across the
business, especially in eBusiness initiatives. Because of
the success of this custom executive education, our
strategy consultants are now key members of the CEO's
eBusiness development team. We developed an
enterprise-level eBusiness strategy to help meet the
corporation's growth ambitions, as well as eBusiness
Playbooks for multiple divisions. We now work with the
client to identify leverageable digital assets, structure
and govern a growing portfolio of eBusiness initiatives,
develop staffing plans for eBusiness initiatives and
deliver management education programs throughout the
corporation. We began performing consulting services for
this client in October 1997, and we continue to perform
consulting and other services for the client.
ENGAGEMENT TWO
Challenge: The merger of two major natural resources companies drove
the need for coordinated IT, HR and eBusiness strategies
to capitalize on the merger and position the company to
compete in eBusiness markets.
Solution: Executives from both companies participated in our
multi-client programs prior to the merger. Beginning in
April 1999, in connection with the merger, we assisted in
consolidating the IT organizations and in developing an
enterprise-wide IT strategy and capability transformation
plan. We also helped reorient an enterprise resource
planning project by providing project management
assistance and refocusing the project on business
outcomes. We were awarded this initial work in a
competitive process over other firms after our business
development team of senior consultants and a sales
executive demonstrated the breadth of our relevant
research and experience. The Executive Vice President of
HR then selected us to partner in the development of an
HR strategy for eBusiness, in large part we believe
because of the mix of IT, HR and eBusiness expertise
demonstrated in our work with the new IT organization. We
now work with the client to deploy these strategies and
to utilize eBusiness technology and techniques to improve
supply chain performance. All of these engagements
leveraged our latest research in eBusiness, IT and HR
management. We began performing consulting services for
this client in August 1998, and we continue to perform
consulting and other services for the client.
47
<PAGE> 52
ENGAGEMENT THREE
Challenge: An international manufacturer and distributor saw its
industry changing and wanted to move more aggressively
into eBusiness markets.
Solution: The client is a multi-client program member and regular
participant in Re.sults research projects. In March 1999,
the CIO arranged for senior Concours consultants to brief
the executive team on eBusiness issues and the eBusiness
Playbook approach to strategy development and execution.
We then developed a Playbook with a range of specific
eBusiness initiatives, including new sales and
distribution channels, channel partner services, spin-off
opportunities and technology-enabled product design
improvements. We continue to assist with the deployment
of selected eBusiness initiatives, and to work with the
CIO and IT organization to enhance their technology and
organizational platform to support eBusiness initiatives
and business growth. We began performing consulting
services for this client in December 1997, and we
continue to perform consulting and other services for the
client.
ENGAGEMENT FOUR
Challenge: A financial services company needed to revamp its IT
capabilities to support business growth targets and
enable eBusiness initiatives.
Solution: The company is a multi-client program member, and the
initial engagement came about in August 1997 through a
long-standing relationship between the CIO and members of
our salesforce. Applying the content of one of our
mindshare marketing thought pieces, we first helped the
CIO and IT management team to frame the issues and
challenges they faced. The CIO then engaged us to assist
with the transformation of the IT organization, starting
with changing the project mix to focus on projects with
greater business impact. This work also included
improving IT delivery processes, cost structures,
performance measurement, skills levels and mix, staff
retention rate and customer satisfaction. Based on the
success of this work, we now assist the business
management team with the conception and development of
eBusiness initiatives. This includes both conducting
custom executive education and designing the operating
model and marketplace partner strategy for creating an
eBusiness spin-off that will be in competition with the
parent company. We began performing consulting services
for this client in August 1997, and we continue to
perform consulting and other services for the client.
SALES AND MARKETING
Our sales and marketing strategy has two primary components: a dedicated
salesforce and our mindshare marketing program. The sales efforts of our
salesforce in the United States are supported by a team of three telemarketing
professionals. As of June 30, 2000, our salesforce consisted of 23 dedicated
sales executives, seven of which were based in Europe.
Our sales executives make calls on executives at companies that are not yet
clients as well as help maintain access to and relationships with past and
present clients. The members of our salesforce focus their efforts on CEOs or
other senior executives. Our sales executives pursue opportunities generated
through the multi-client programs and Re.sults research projects, through
responses to our mindshare marketing thought pieces and through referrals. Our
salesforce represents the full range of our services and also cross-sells our
services to existing clients. After a sales executive identifies a prospect for
consulting services, an appropriate consultant is typically brought in to meet
with the prospect and convert the
48
<PAGE> 53
prospect into an actual engagement. We compensate our salesforce with a
combination of a base salary and incentive compensation.
Each telemarketer is assigned two or three sales executives to support in
their sales efforts. The telemarketers typically start the sales process through
use of our extensive database, in which client contacts and marketing and
business development opportunities are maintained. This central database can be
used to track new opportunities and current client status. Telemarketers set up
appointments for the sales executives, probe for the client's or potential
client's needs and generate interest in our services. Telemarketers receive a
base salary plus incentive compensation for appointments that actually result in
meetings. Our salesforce and telemarketers allow our consultants to focus on
providing advice to clients and converting prospects into actual engagements
instead of prospecting for new business themselves.
The second primary component of our sales and marketing strategy is our
executive mindshare marketing program. At the center of this program are thought
piece documents on contemporary management issues, which we periodically
distribute free of charge to over 15,000 executives. Our strategy is to share
selected ideas and techniques to capture the attention and interest of key
executives. These thought pieces typically do not directly market our services
by soliciting participation in our programs or research or use of our consulting
services. Our mindshare marketing program also helps build our marketplace
identity through brand name recognition.
To bolster the sales and marketing efforts by our salesforce, telemarketers
and mindshare marketing program, we employ other market development efforts
designed to build our brand name and recognition in the marketplace. For
example, we use direct mail to invite targeted executives to participate in
specific Concours conferences as our guests. We also send targeted executives
thought pieces of likely interest together with direct solicitations to
participate in related multi-client programs or research or to use our
consulting services. Additionally, our sales and marketing efforts include
seminars and briefings that target senior executives, public speaking
opportunities, speaking opportunities at industry conferences, public relations
programs with industry analysts and press and use of our Web site.
OUR INTELLECTUAL PROPERTY, KNOWLEDGE MANAGEMENT, ADVISORS AND SPEAKERS
Consulting, research and executive education are knowledge-intensive
activities. In the past, the ability to acquire and transfer knowledge from
accumulated experience was enough to attract and serve clients. Today, the
amount of electronically available information is enormous and the proprietary
life of knowledge is rapidly shrinking. Therefore, we continuously seek to
identify, incorporate and disseminate new ideas and consulting techniques, and
to keep abreast of business, technology and HR issues and trends. We utilize our
accumulated knowledge and experience to develop innovative solutions for our
clients and to provide them with what we believe are the latest and best
management and strategy techniques available.
New ideas and techniques are generated by our consultants, advisory board
members and other third-party participants in our multi-client programs and
research projects, as well as by our client engagements. Our Re.sults research
projects generate a large amount of forward-looking reports and other materials
to which we retain ownership, including the ability to sell and license the
material elsewhere. We have developed relationships with well-known academics,
experienced industry practitioners and independent management consultants. These
experts lead discussions at our conferences, participate in our research
projects and, on occasion, participate in client engagements.
Intellectual Property
Our intellectual property consists of our research reports, educational
materials and publications, as well as all reusable methodologies, techniques
and expertise developed through our research, consulting engagements and other
activities. We believe that this intellectual property has significant and
ongoing value, but we also believe in the need to constantly update and develop
new intellectual property to stay ahead of business trends, meet the needs of
our clients today and anticipate their future needs. We also
49
<PAGE> 54
believe that the skills and processes through which our employees develop new
intellectual property are also valuable.
We rely on a combination of trademark, service mark, copyright and trade
secret laws to protect our intellectual property along with confidentiality and
non-compete agreements with our employees. We depend on our clients to respect
the copyright on our materials, to limit distribution of our materials to within
their organizations and to use the intellectual property we provide for their
internal business purposes only. Our clients are not required to enter into any
contractual obligations with respect to their use of our intellectual property.
In addition, we use our best efforts to limit access to, or distribution of, all
confidential information generated in the course of our business or disclosed to
us by clients or others.
We own United States registrations for the marks The Concours Group(R), The
IT Concours(R), The Senior Executive Concours(R), Re.sults(R), eConcours(R) and
Human Resources Concours(R). We have a pending application for the mark
eBusiness Playbook(SM). Each trademark, trade name or service mark of any other
company appearing in this prospectus belongs to its holder.
We own European Community Trademark registrations for the marks The
Concours Group(R), Re.sults(R), The IT Concours(R) and The Senior Executive
Concours(R) and have pending European Community Trademark applications for the
marks eConcours(SM), Human Resources Concours(SM) and eBusiness Playbook(SM).
The European Community Trademark provides protection in the United Kingdom,
Austria, France, Germany, Belgium, Luxembourg, the Netherlands, Spain, Portugal,
Italy, Greece, Denmark, Finland, Sweden and Ireland.
Additionally, we own a Mexican trademark registration for the mark The
Concours Group(R) and have pending applications in Mexico for eConcours(SM) and
Human Resources Concours(SM).
We pursue the protection of our trademarks in the United States and several
foreign jurisdictions. Policing unauthorized use of our copyrighted material and
marks is difficult and expensive. Our efforts to project our intellectual
property rights may not deter misappropriation of our intellectual property. In
addition, our competitors may adopt product or service names similar to ours,
impeding our ability to build brand identity and possibly leading to customer
confusion. Our competitors also may independently develop similar methodologies,
techniques and expertise, and we would have no claim against them. We may be
subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of our business. We may
incur substantial expenses in defending against these third-party infringement
claims, regardless of their merit.
Knowledge Management
Our internal Web site, operated on a secure server, functions as the
central repository for our intellectual capital, including research products,
consulting proposals and work products, conference agendas and presentations and
a variety of other information such as audio archives of important
teleconferences. The site also contains employee directories and other
administrative information and tools.
We also maintain a public Web site, which serves as a guide to our services
such as upcoming multi-client events and past, present and future research
projects. It includes facilities for clients to view meeting agendas, preview
venues and register for conferences, as well as to request copies of thought
pieces and other documents. Accessible via the public Web site are
password-protected members-only areas associated with each Re.sults research
project that contain documents and a bulletin board for posting questions and
discussing issues.
Our own research on knowledge management teaches us that technological
tools for organizing information are essential -- but not sufficient -- to reach
the goal of knowledge sharing. Knowledge is shared best when knowledgeable
people are in direct contact with one another. Thus, we place great emphasis on
tracking who among our consultants and researchers has what expertise, on
polling the "wisdom of Concours" to make rapid contact with a range of
expertise, on sharing wisdom and experience whenever asked and on using Re.sults
research projects as vehicles for developing and packaging new knowledge.
50
<PAGE> 55
Advisory Board
We have relationships with well-known academics, industry practitioners and
independent management consultants. Several of them are members of our advisory
board. This affiliation is outlined in simple letters of agreement. These
letters do not require specific duties of advisors, but cover:
- fees paid for participating in our events;
- fees paid for contributing to research projects;
- referral fees and commissions for introducing us to non-clients;
- the terms of any stock options granted to them in connection with
appointment to the advisory board; and
- reimbursement for travel expenses.
Advisory board members work with us in various ways including: leading
discussions at multi-client program conferences, participating in Re.sults
research projects, referring consulting or other business to Concours and
sometimes participating in consulting engagements and executive education
programs. We also look to advisory board members individually or collectively
for specific advice, for example, on issues to explore and companies to study in
upcoming research projects.
Advisory board affiliation is of indefinite duration and either party may
terminate it at any time. The arrangement is non-exclusive. Members of the
advisory board are stockholders and/or optionholders. Robert J. Dole and Debra
Engel, members of our board of directors, also serve on our advisory board.
Their biographical information can be found in the section entitled
"Management." As of June 30, 2000, the advisory board consisted of:
Homa Bahrami is an international educator, advisor and author, working
with executives in knowledge-based companies on how technology is
transforming and reshaping the workplace. She is a Senior Lecturer at the
Haas School of Business, University of California, Berkeley, where she has
been teaching since 1986. She is the co-author of "Managerial Psychology:
Managing Behavior in Organizations."
Judy Bardwick is a clinical Professor of Psychiatry at the University
of California at San Diego and an international management consultant with
San Diego-based Bardwick and Associates. Professor Bardwick has authored
over 100 papers, articles and books, including Danger in the Comfort Zone
and In Praise of Good Business. She is a fellow of the American
Psychological Association and the Society of Fellows at the University of
Michigan.
Marvin Bressler is Professor of Sociology, Emeritus, and Roger
Williams Straus Professor of the Social Sciences, Emeritus, at Princeton
University, where for over 20 years he was chair of the Sociology
Department. He is a recognized authority on the social aspects of
education, is a frequent contributor to professional journals and is the
author or co-author of seven books, including Quality and Equality in
Education, Evaluation of the Effectiveness of Educational Systems and
Student Activism: The Active Decades.
James Cash is the James E. Robison Professor of Business
Administration at Harvard Business School, where he served as Chairman of
the MBA Program from 1992 to 1995 during the redesign of the MBA Program.
He is currently researching the prevalence of information technology at the
individual, organizational and inter-organizational/industrial levels in
service organizations.
Eric Clemons is Professor of Operations and Information Management at
The Wharton School. He has a total of 25 years of experience on the
faculties of The Wharton School, Cornell University and Harvard Business
School. Professor Clemons is a specialist in channel strategy and the
competitive application of information technology. He is a member of the
editorial board of the Journal of Management Information Systems and the
Journal of Electronic Commerce.
51
<PAGE> 56
Peter Cochrane is the Chief Technologist for British Telecom and
consultant to a broad range of international companies, as well as a
renowned writer, broadcaster and educator. For the past decade he has been
involved with business and market transformation through technology
businesses in the .com space. In 1999, he was appointed to the Collier
Chair in the Public Understanding of Science and Technology at Bristol
University, United Kingdom.
Caretha Coleman is a principal of Coleman Consulting, where her
practice includes 25 years of business experience working in the Silicon
Valley. A human resources professional, she has spent the last six years
helping start-ups and high growth companies build the organizations they
need to compete in the new economy.
Lynda Gratton is a Professor of Organizational Behavior at London
Business School and Dean of its MBA program. She also directs the school's
Executive Human Resource Strategy Program.
Mark Millemann, founder of Millemann & Associates, a management
consulting firm based in Portland, Oregon, has extensive experience as a
consultant to CEOs and executive teams of major global corporations. He
specializes in counseling senior executives, individually and as teams, to
understand and adjust their roles, effectiveness, and communication and
leadership styles. He is a regular lecturer at executive conferences, and
his recent publications focus on what it takes to lead sustainable
transformational change.
F. E. "Pete" Peterson is the retired senior vice president of human
resources for Hewlett-Packard Company, where he had worldwide
responsibility for HR activities including staffing, diversity,
compensation, and HR information systems. He has served on the boards or
advisory committees of several national associations and HR-related
start-up companies and is a Fellow of the National Academy of Human
Resource Management.
Kevin Sullivan is an investor with the Angels Forum LLC and a
consultant in Silicon Valley. He has been a senior executive in human
resources for nearly 30 years, most recently as executive vice president at
Wells Fargo Bank, and before that senior vice president of HR at Apple
Computer. He has been a member of the board of directors of Silicon Valley
Joint Ventures and Inroads of Northern California and is currently a member
of the Advisory Boards of Decisis and Icarian Software.
Dave Ulrich, Professor of Business Administration at the University of
Michigan Business School, is on the core faculty of the Michigan Executive
Program and co-director of the Michigan Human Resource Executive Program
and Advanced Human Resource Executive Program. He is co-author of
Organizational Capability, The Boundaryless Organization, Human Resource
Champions, and most recently, Results-Based Leadership.
James Wetherbe is the FedEx Professor of Excellence and Director of
the Center for Cycle Time Research at the University of Memphis, as well as
Professor of MIS at the University of Minnesota. He is a leading authority
on the use of computers and information systems to improve organizational
performance and competitiveness. He is the author of 17 books and over 200
articles.
Well-known Academics and Experienced Industry Practitioners
A variety of other academics, industry practitioners and independent
consultants work with us periodically as discussion leaders at multi-client
program conferences or as participants in Re.sults research projects. These
people are engaged on a time-and-materials basis through oral or written
agreements either directly or with their respective agents or representatives.
Their relationships with Concours are non-exclusive, and their participation in
one program or project does not mean that they will participate in any future
programs or projects. Some of the well-known academics and experienced industry
practitioners that have participated in multi-client programs to date include:
Jim Champy serves as Chairman, Perot Systems Consulting Practice, and
is the author of Reengineering the Corporation and Reengineering
Management.
52
<PAGE> 57
Jim Collins is author of the best seller Built to Last and a
management educator and consultant.
Clayton Christensen is a Professor at Harvard Business School and
author of The Innovator's Dilemma: When New Technologies Cause Great Firms
to Fail.
Peter Drucker has been called the father of modern management and is
the author of thirty-one books ranging from The End of Economic Man,
published in 1938, to his most recent work entitled, Management Challenges
for the 21st Century, published in 1999.
Bran Ferren is a nationally recognized, award winning
designer/technologist working in theater, film special effects, product
design, architecture and the sciences.
Nicholas Negroponte is the founder and Director of the Media
Laboratory at Massachusetts Institute of Technology, an interdisciplinary,
multi-million dollar research center of intellectual and technological
resources focusing exclusively on the study and experimentation of future
forms of human and machine communication.
Lester Thurow has been a Professor of Management and Economics at
Massachusetts Institute of Technology since 1968.
PEOPLE AND CULTURE
We have grown from 45 people at the end of 1997 to 108 people at the end of
1999. As of June 30, 2000, we had a total of 196 employees, of which 48 are
Cepro employees. Of the 148 employees, not including Cepro employees, 65 were
consulting professionals with nine of these professionals based in Europe, 15
were directly responsible for our multi-client or research programs, 23 were
involved in sales and marketing and 45 were involved in management and
administrative, human resources, finance, accounting, legal, information systems
and administrative functions. Of the 48 Cepro employees, 39 are consulting
professionals and nine are involved in administrative functions.
Culture
Our core values include collaboration, client-focus, speed of delivery,
excellence in our outputs and straightforward communication. Our culture,
however, is not homogenous. We accommodate cultural, as well as operational,
variations across our business. We believe high performance comes from people
who feel they are at the front lines of their business, rather than performing
secondary duties. Thus, we strive to make all employees feel they are on the
front lines of their respective endeavors, and to have them exercise
correspondingly high degrees of accountability.
Cultural accommodation is essential to our acquisition philosophy. An
acquisition is assimilated by linking the acquired entity to our client
relationship and intellectual capital development activities, adopting the
common information systems for firm-wide functions such as financial reporting
and making use of firm-wide communications infrastructure such as e-mail,
voicemail, and Web site. Our philosophy is to otherwise leave an acquired
company operationally and culturally intact, so that its staff can remain on the
front lines in its industry. We work together on a day-to-day basis in two ways:
in the context of client engagements that draw upon expertise from multiple
parts of Concours, and through participation in our core research and
multi-client activities.
Recruiting Senior Professionals
We attract and employ experienced professionals with strong track records
of individual accomplishment. Our consulting and research professionals have an
average of over twelve years of relevant industry experience. We believe we
excel in complex business and technology environments primarily because of the
quality and experience of our consultants and our extensive research activity.
We believe our success will depend on our ability to continue to attract, retain
and motivate new and existing senior professionals. In 2000, we are expanding
our recruiting activities for consulting and research professionals to include
53
<PAGE> 58
on-campus recruitment of MBA candidates with approximately five to ten years of
relevant industry experience.
Retention
There is significant competition for consultants with the skills required
to perform the services we offer. We believe we have been successful in our
efforts to retain consultants because of our emphasis on continued professional
development as well as financial rewards and incentives.
Compensation
We structure our compensation programs are structured to attract and retain
highly skilled professionals. We compensate our employees through a combination
of regular cash compensation, performance-based cash incentive compensation and
participation in our stock option incentive plans. We believe our compensation
programs are competitive.
Employee Relations
Our employees are not represented by any union or collective bargaining
arrangement and are retained on an at-will basis. However, the regulations of
certain European countries in which we operate, including Sweden, may make it
difficult for us to terminate certain of those at-will employees. Additionally,
those regulations govern the amount of vacation time that must be granted to
employees, which is significantly more vacation than in the United States. We
consider our relations with employees to be good.
ACQUISITION PHILOSOPHY
From time to time, we will seek strategic acquisitions to further
accelerate our growth. We evaluate potential acquisitions based on strategic and
geographical fit. Our acquisition focus is on consulting or product firms with
complementary services, similar values and characteristics, and whose services
are or will be bought by our existing clients. Our philosophy is to acquire
quality firms and leave their cultures intact, but then link them to our core
capabilities to provide new business opportunities, relationships and practice
ideas to drive their growth beyond their historical growth rate. We expect to
drive additional revenue by cross-marketing into each other's customer base.
See "Related Transactions and Recent Acquisition" for a detailed
description of the Cepro acquisition. On November 18, 1999, we acquired
Inforesma, a Swedish provider of subscription-based multi-client programs. The
purchase price for Inforesma was approximately $118,000 in cash and the issuance
of 25,000 shares of our common stock valued at $7.00 per share.
COMPETITION
The pace of business and technological change, the variety of consulting
firms and their offerings and the low barriers to entry for Internet
professional services and other specialist firms together create a very dynamic
and competitive marketplace.
Our consulting services compete with:
- traditional "big 5" consulting firms and large systems integrators such
as Computer Sciences Corporation and Electronic Data Systems Corporation
in the areas of business systems strategy, eBusiness application design
and deployment and consulting services to CIOs and IT organizations;
- general management and strategy consulting firms such as Bain & Company,
Booz-Allen & Hamilton, Inc., The Boston Consulting Group and McKinsey &
Company in the areas of business strategy, business model design and
executive team counseling;
- Internet professional services firms such as Diamond Technology Partners,
Incorporated and eBusiness implementation firms such as Sapient
Corporation, Scient Corporation and Viant Corporation which also provide
eBusiness strategy and business model design services;
54
<PAGE> 59
- internal strategy and IT departments of potential clients;
- the Internet professional services groups of large technology companies;
and
- small specialty firms in both North America and Europe.
Many of our competitors have longer operating histories, larger client
bases, greater brand recognition and significantly greater financial, technical,
marketing and public relations resources than we do. Greater resources may
enable a competitor to respond more quickly to new or emerging technologies and
changes in customer requirements and to devote greater resources to the
development, promotion and sale of its products and services than we do.
We believe that what clients look for in a management and strategy
consulting firm today include:
- focus on the client's specific needs;
- eBusiness experience and expertise;
- industry, business process and general business expertise;
- business model as well as technical architecture and information systems
design skills;
- project management and change management skills;
- speed of delivery; and
- objectivity of advice provided.
Additional competitive factors in our industry, some of which are beyond
our control, include: the ability of our competitors to hire, retain and
motivate experienced consulting professionals, the effectiveness of our
marketing and sales, the ability to develop and sustain long-term client
relationships, the ability to adjust and, when necessary, reinvent our services
in the face of client and industry change and the price at which competitors
offer comparable services.
Our multi-client programs and research projects compete with the Corporate
Executive Board Company and other executive education services and research
firms. Competitive factors in these markets include breadth of subject matter
coverage, quality of programming and events, and levels of both innovation and
practicality in research findings and recommendations.
We believe we presently compete effectively on all these levels, but we may
be unable to compete effectively in the future due to the evolution of the
market for our services. In addition, some of our competitors may develop
superior services that have greater customer acceptance than the services we
offer.
DESCRIPTION OF FACILITIES
Our headquarters are located in a leased facility in Kingwood, Texas
consisting of approximately 5,970 square feet of office space pursuant to a
lease expiring in September 2002. We also have leased office space in Watertown,
Massachusetts, consisting of approximately 8,300 square feet, pursuant to a
lease expiring May 2007. We also lease office facilities in Amsterdam,
Gothenburg (Sweden), London, Munich and Paris on a variety of lease terms
ranging from month-to-month to eight years. In 1999, our total lease expense was
$341,000. We plan to continue occupancy of the offices of Cepro in Stockholm,
pursuant to a lease expiring September 2004, covering approximately 15,580
square feet at an annual rate of approximately $371,000. We currently do not own
any real property. We anticipate that additional office space will be required
as business expands. We believe we will be able to obtain suitable space as
needed.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation incidental to the
conduct of our business. We are currently not a party to any material legal
proceedings.
55
<PAGE> 60
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald P. Christman............ 60 Chairman of the Board, Chief Executive Officer and
President
Tamara J. Erickson............. 46 President -- Consulting
Lynn D. Keehan................. 50 Executive Vice President
Nicholas P. Vitalari........... 47 Executive Vice President and Director
Jeffrey J. Weiner.............. 45 Chief Financial Officer
Robert J. Dole................. 76 Director
Debra Engel.................... 48 Director
Donald K. Grierson............. 65 Director
Hans G. Lindroth............... 42 Director
Barry Romeril.................. 56 Director
David H. Shaffer............... 57 Director
</TABLE>
Ronald P. Christman, Ph.D. is our founder, Chairman of the Board, Chief
Executive Officer and President. Dr. Christman has served in such positions and
as a director on the board of directors since Concours' founding in January
1997. From February 1986 through November 1996, Dr. Christman served as
President of CSC Index Research/Advisory Services, where he was responsible for
its research and development, marketing and multi-client services. Dr. Christman
received his Ph.D. in Nuclear Science from North Carolina State University in
1966 after receiving his Bachelor of Science in Physics in 1962 from Randolph
Macon College in Ashland, Virginia.
Tamara J. Erickson is our President -- Consulting, a position she has held
since November 1998. From October 1997 through November 1998, she was an
independent consultant with Black Brook Partners, a strategy consulting firm.
From April 1996 through September 1997, Ms. Erickson was Managing Partner, North
America for PA Consulting, a management consulting firm. She spent 19 years,
from 1977 through April 1996, with Arthur D. Little, Inc., her latest position
being Chairwoman of Innovation Associates and Senior Vice President. She also
served from 1991 to 1995, as Managing Director of Arthur D. Little's management
consulting business in the United States and Canada, including consulting
services in the areas of strategy, organization, information systems and
operations management. Ms. Erickson is a director of PerkinElmer, Inc., where
she is a member of the audit, governance and compensation committees. Ms.
Erickson is the co-author of the book, Third Generation R&D: Managing the Link
to Corporate Strategy, published in April 1991 by Harvard Business School Press.
She received a Bachelor of Arts in Biological Sciences from the University of
Chicago in 1976 and a M.B.A. from the Harvard Graduate School of Business
Administration in 1978.
Lynn D. Keehan, Ph.D. is our co-founder and Executive Vice President, a
position she has held since January 1997. From January 1997 until March 18,
2000, Dr. Keehan also served as a member of our board of board of directors.
From March 1985 through October 1996, Dr. Keehan was part of Dr. Christman's
team at CSC Index Research/Advisory Services, where she last served as Senior
Vice President. Previously, Dr. Keehan spent ten years in Washington, D.C. with
The Urban Institute, the United States Department of Energy and the Alliance To
Save Energy, managing interdisciplinary research projects. She left Washington,
D.C. in 1982 to co-found a small Boston-based consulting firm, which was
acquired by CSC Index. Dr. Keehan received a Bachelor of Arts in Psychology from
the University of Connecticut in 1971 and completed her Ph.D. in Psychology from
The George Washington University in 1976.
Nicholas P. Vitalari, Ph.D. is our co-founder, a member of our board of
directors and our Executive Vice President, positions he has held since January
1997. From April 1990 through November 1996,
56
<PAGE> 61
Dr. Vitalari was with CSC Index Research/Advisory Services where he last served
as Senior Vice President and Global Practice Leader. During the 1980's, he
co-founded Project NOAH, a National Science Foundation project funded to assess
the impact of microcomputers and information services on business. Dr. Vitalari
has consulted with various Fortune 500 companies on eBusiness strategy, the
strategic use of IT, fast-cycle time to market methods, transformation of the IT
organization and the use of IT to increase corporate agility. Dr. Vitalari is a
former professor of management and computer science at the University of
California Irvine Graduate School of Management. He earned an M.B.A. in
Quantitative Methods in 1997 and a Ph.D. in MIS in 1981 from the University of
Minnesota. Dr. Vitalari received a Bachelor of Science in Business
Administration from Marquette University in 1975.
Jeffrey J. Weiner has served as our Chief Financial Officer since October
1998, when he joined us. From September 1991 to January 1998, he served as Vice
President -- Finance of BSG Corporation, an IT company specializing in custom
development of client-server based information systems. Previously, Mr. Weiner
served in various financial positions with Anadrill Schlumberger and
Schlumberger Limited and was in the New York City office of the accounting firm
Price Waterhouse for five years, where he last served in the position of Senior
Auditor. He has been a Certified Public Accountant since 1983. Mr. Weiner
received a M.B.A. in International Finance from St. John's University, New York,
New York in 1986, and his B.B.A. in Accounting from Bernard M. Baruch College,
City University of New York in 1978.
Robert J. Dole was elected as a director on April 28, 2000. He has been a
special counsel with Verner, Liipfert, Bernhard, McPherson and Hand since 1997.
Senator Dole was his party's nominee for President in 1996 and for Vice
President in 1976. He was a U.S. Senator from 1968 to 1996, during which time he
served as Senate Majority Leader, Minority Leader and Chairman of the Senate
Finance Committee. Senator Dole was also a U.S. Representative from 1960 to
1968. He is also a director of TB Wood's Corporation and Community Health
Systems, Inc. Senator Dole received a BA in History and an L.L.B. in 1952 from
Washburn University.
Debra Engel was elected as one of our directors on March 18, 2000. She is a
director, investor and advisor to a number of organizations in Silicon Valley.
She serves on the board of directors for Aspect Communications and Beyondwork
and is the Chairwoman of the board of directors for ON-SITE Dental Care. She is
on the Advisory Boards for Icarian Corporation, Hire Systems and Decisis. She
also serves the nonprofit community as a member of the board of directors for
the Community Foundation of Silicon Valley, the Center for Excellence in
Nonprofits and the Center for Innovation at Foothill College. She is a Senior
Fellow and an executive committee member of the board of directors for the
American Leadership Forum, is the Advisory Board Co-chair and past Chairwoman of
the board of directors for the Career Action Center, and is an Executive Fellow
for the Center of Technology and Innovation at Santa Clara University. From
November 1983 through August 1998, Ms. Engel was with 3Com Corporation, an
electronic connectivity and networking systems company, where she last served as
Senior Vice President for Corporate Services. Prior to joining 3Com, she served
as Hewlett Packard's Corporate Staffing Manager and as Personnel Manager for its
Avondale Division. Ms. Engel holds a Master of Science degree in Industrial
Relations from Iowa State University which she received in 1976 and a Bachelor
of Science degree in Psychology from Iowa State University which she received in
1973.
Donald Grierson was elected as a director on August 4, 2000. He currently
serves as President and Chief Executive Officer of ABB Vetco Gray Inc., an oil
service company, positions he has held since 1991, and as a board member for ABB
Lummus Global since 1999. Mr. Grierson is also a director of both Alpha
Technologies Group, Inc. and Parametric Technology Corporation. Previously, he
served as a director of Ungerman-Bass, Inc., Oracle Systems and Cadence Design
Systems. Mr. Grierson previously held numerous executive positions in General
Electric, including Senior Vice President and Group Executive. Mr. Grierson
graduated from the University of Ohio with a Bachelor of Science degree in
Mechanical Engineering in 1957, and received a MBA from Xavier University in
1961.
Hans G. Lindroth has served as a director since August 1998. He currently
serves as a Vice President of Lingfield AB, a Swedish venture capital firm that
is an affiliate of Infologix. Prior to joining
57
<PAGE> 62
Lingfield AB in October 1999, he was an officer of Lemshaga Consulting AB, a
Swedish consulting firm. From 1990 to 1998, Mr. Lindroth held a variety of
senior management positions with Marieberg AB, a large newspaper publishing
enterprise in Scandinavia. Mr. Lindroth is currently a director of Saztec Inc.,
a Nasdaq listed information conversion company. Mr. Lindroth is a frequent
speaker at Internet-related seminars in Europe. Mr. Lindroth graduated from the
University of Stockholm with a Bachelor of Teaching degree in 1985, and received
a Master of Political Science degree from the University of Linkoping in 1986.
Barry Romeril was elected as a director effective as of March 18, 2000. He
is a director, Vice Chairman and Chief Financial Officer of Xerox Corporation, a
position he has held since 1998. He has been employed at Xerox Corporation since
1993 in a variety of positions. He also serves as a director of Fuji Xerox, a
joint venture company between Xerox Corporation and Fuji Photo. Before joining
Xerox, Mr. Romeril was a director for British Telecommunications Plc. In
addition to his duties on the board of directors at Xerox, Mr. Romeril serves as
a director of Billiton Plc, and booktech.com, Inc. Mr. Romeril is a member of
the Council of Financial Executives of The Conference Board, a New York-based
worldwide business organization. He is also a Board member of the Private Sector
Council, a Washington-based organization of U.S. companies that make
recommendations on improving government efficiency. Mr. Romeril, a British
citizen, graduated from Oxford University in 1966 with an honors degree in
Politics, Philosophy and Economics. He is also a Certified Accountant and a
Fellow of the Association of Corporate Treasurers.
David H. Shaffer was elected as a director on August 4, 2000. He currently
serves as Executive Vice President and Chief Operating Officer and a director of
The Thomson Corporation, where he is responsible for the business strategy and
management of Thomson's information activities. He is also Chairman of the Board
of T&S Incorporated, the principal business of which is investments. Mr. Shaffer
is also a board member and publisher of the Black Book Group and a member of the
Advisory Board of Kellogg Graduate School of Management at Northwestern
University. Prior to joining Thomson in 1998, he was Chairman of the Board and
Chief Executive Officer of Jostens Learning Corporation, a developer of K-12
Educational Software, from July 1995 to April 1998. Mr. Shaffer was Chairman,
President and Chief Executive Officer of Macmillian Inc., from February 1990 to
December 1993, and a member of Maxwell Communications Corporation PLC's board of
directors from June 1989 to January 1992. Previously, Mr. Shaffer was President
and Chairman of Official Airline Guides, Inc. and Vice Chairman of Thomas Cook
Travel Inc. Mr. Shaffer graduated with a Masters degree in Management from
Northwestern University in 1983.
BOARD OF DIRECTORS
The number of directors on our board is currently fixed at eight. The board
of directors is divided into three classes: Class I, whose term expires at the
annual meeting of the stockholders to be held in 2001; Class II, whose term
expires at the annual meeting of the stockholders to be held in 2002; and Class
III, whose term expires at the annual meeting of stockholders to be held in
2003. At each annual meeting of stockholders after the initial classification,
each elected director serves from the time of his election and qualification
until the third annual meeting following his election. The Class I directors are
Mr. Grierson and Dr. Vitalari; the Class II directors are Ms. Engel and Messrs.
Romeril and Shaffer and the current Class III directors are Dr. Christman,
Senator Dole and Mr. Lindroth. This classification of the board of directors may
delay or prevent changes in control of our management. All of our officers serve
at the discretion of the board of directors. There are no family relationships
among our directors and officers of Concours.
Committees of the Board
The board of directors has established the following standing committees:
audit, nominating and compensation committees.
58
<PAGE> 63
Audit Committee. The audit committee is comprised entirely of the following
independent directors: Messrs. Grierson, Romeril and Shaffer. Mr. Romeril is the
chairman. The audit committee reviews the preparation and scope of the audit of
our annual consolidated financial statements, reviews drafts of such statements,
makes recommendations as to the engagement and fees of the independent auditors,
and monitors the functioning of our accounting and internal control systems by
meeting with representatives of management and the independent auditors. This
committee has direct access to our independent auditors and counsel and performs
such other duties relating to the maintenance of our proper books of account and
records and other matters as the board of directors may assign from time to
time. Additionally, to maintain our listing on Nasdaq, we will be required to
maintain an audit committee consisting of at least three independent directors.
Independent directors are persons who are neither officers nor employees of
Concours or our subsidiaries or any other person who has a relationship with any
person or entity which, in the opinion of the board of directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
Nominating Committee. The nominating committee reviews the performance of
directors and recommends persons to be management's nominees for directorships.
The nominating committee considers nominees recommended by stockholders, upon
timely, written request by a stockholder addressed to any member of the
committee. Dr. Christman, Mr. Lindroth and Mr. Romeril are the members of the
nominating committee.
Compensation Committee. The compensation committee consists of Ms. Engel
and Mr. Shaffer. Ms. Engel is the chair of the committee. The compensation
committee has sole authority to administer our stock option plans, although it
has no discretion as to the award of stock options under the 2000 Director Stock
Option Plan. The compensation committee also reviews and makes recommendations
regarding the compensation levels of our executive officers. Dr. Christman's
salary was set by the compensation committee in February 1997 as then
constituted, and has remained at that level since that time.
MEETINGS OF THE BOARD OF DIRECTORS
During 1999, the board of directors met on two occasions. All of the
directors attended. There were no meetings of the committees of the board, as
they acted by written consent.
COMPENSATION OF DIRECTORS
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees receive no fees
for attendance in person at meetings of the board of directors or committees of
the board of directors, but are reimbursed for travel expenses and other
out-of-pocket costs incurred in connection with the attendance at meetings of
the board of directors. Mr. Romeril, Ms. Engel, Mr. Lindroth and Mr. Sokolow, in
consideration for their service on the board of directors, each received 15,000
options to purchase shares of common stock on March 18, 2000, with one-third
vesting upon each anniversary date of the grant until fully vested. In addition,
Ms. Engel received 5,000 options to purchase shares of common stock on March 14,
2000, in consideration for her service to date on the advisory board. Senator
Dole received 15,000 options to purchase shares of common stock on April 28,
2000 with one-third vesting upon each anniversary date of the grant until fully
vested in consideration for his service on the board of directors, and 25,000
options that vest ratably over four years in consideration for his joining our
advisory board. On August 4, 2000, Messrs. Grierson and Shaffer each received
15,000 options to purchase shares of common stock in consideration for their
service on the board of directors, with one-third vesting upon each anniversary
date of grant until fully vested. See "-- Director Stock Option Plan."
The Delaware General Corporation Law provides that a company may indemnify
its directors and officers as to certain liabilities. Our certificate of
incorporation and bylaws provide for the indemnification of our directors and
officers to the fullest extent permitted by law. The effect of such provisions
is to indemnify our directors and officers against all costs, expenses and
liabilities incurred by them in
59
<PAGE> 64
connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with us. The directors will not be liable for
monetary damages to us or our stockholders except for those arising from:
- any breach of a director's duty of loyalty to Concours or our
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derives any improper personal
benefit.
We may obtain liability insurance and enter into contractual arrangements
with them to effectuate these provisions. The foregoing provisions are not
intended to limit the liability of directors or officers for any violation of
federal securities law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1999, Dr. Christman was the only member of our
compensation committee who was also an officer or employee of Concours. Mr.
Shaffer, who joined the Compensation Committee on August 4, 2000, is an
executive officer and director of The Thomson Corporation, a significant client
of ours that paid us $475,183 in fees for fiscal year 1999, $416,867 in fees for
the six months ended June 30, 2000, and is contractually obligated to pay
$443,462 in estimated additional fees for consulting services as of the date of
this prospectus.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
We do not have any employment agreements with our executive officers named
above. We have entered into non-competition agreements with Dr. Christman, Ms.
Erickson, Dr. Keehan, Dr. Vitalari and Mr. Weiner. The agreements provide that
until their termination, for whatever reason, and for twelve months after their
employment with us terminates, they will not solicit business of the type we
perform from any of our clients, or render services of the type we perform for
any of our clients. For a period of three years, or 12 months in the case of Ms.
Erickson and Mr. Weiner, following their termination, they will not solicit any
of our employees.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth certain summary information regarding
compensation paid or accrued to or on behalf of our Chief Executive Officer for
his services and each of our four most highly compensated executive officers,
determined as of the end of 1999, for the fiscal years ended December 31, 1998
and 1999.
60
<PAGE> 65
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------ ALL OTHER
COMMON
ANNUAL COMPENSATION
------------------------------ ANNUAL COMPENSATION($)
BONUS RESTRICTED STOCK ----------------------
NAME AND ------------------ STOCK UNDERLYING LIFE
PRINCIPAL POSITION YEAR SALARY($) CASH($) STOCK($) AWARDS OPTIONS INSURANCE($) 401(K)($)
------------------ ---- --------- ------- -------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald P. Christman.... 1999 300,000 -- -- -- -- -- --
Chief Executive 1998 300,000 -- -- -- -- -- --
Officer
1997 300,000 -- -- -- -- -- --
Lynn D. Keehan......... 1999 206,000 200,000 -- -- -- -- --
Executive Vice 1998 206,000 200,000 -- -- -- -- --
President 1997 200,000 200,000 -- -- -- -- --
Nicholas P. Vitalari... 1999 257,500 39,456 -- -- -- -- --
Executive Vice 1998 257,500 -- -- -- -- -- --
President 1997 250,000 -- -- -- -- -- --
Tamara J. Erickson..... 1999 264,586 92,975(2) -- -- 20,000 -- --
President, Consulting 1998 31,251(1) -- -- -- 80,000 -- --
1997 -- -- -- -- -- -- --
Jeffrey J. Weiner...... 1999 172,000 -- -- -- 55,000 -- --
Chief Financial 1998 35,759(1) -- -- -- 35,000 -- --
Officer
1997 -- -- -- -- -- -- --
</TABLE>
------------------
(1) Reflects compensation for the portion of 1998 during which Ms. Erickson and
Mr. Weiner were employed. Ms. Erickson commenced employment in November 1998
and Mr. Weiner in October 1998.
(2) 90,000 of which was paid during 1999 and the remainder was paid during 2000.
Option Grants in Fiscal 1999
The following table contains information concerning the grant of stock
options during the year ended December 31, 1999 to the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SHARES OF OPTIONS APPRECIATION FOR STOCK
COMMON STOCK GRANTED EXERCISE OPTION TERM(1)(2)
UNDERLYING TO EMPLOYEES PRICE EXPIRATION --------------------------
NAME OPTIONS GRANTED IN 1999 PER SHARE DATE 5% 10%
---- --------------- ------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Christman.......... -- -- -- -- -- --
Lynn D. Keehan............... -- -- -- -- -- --
Nicholas P. Vitalari......... -- -- -- -- -- --
Tamara J. Erickson........... 20,000 3.28% $5.00 11/1/09 $62,889 $159,374
Jeffrey J.
Weiner -- 1/1/99........... 35,000 5.74% $2.82 01/1/09 $62,072 $157,302
Jeffrey J.
Weiner -- 11/1/99.......... 20,000 3.28% $5.00 11/1/09 $62,889 $159,374
</TABLE>
------------------
(1) Options were granted at an exercise price believed by the compensation
committee to be equal to the fair market value at the date of grant. The
potential realizable value is calculated based upon SEC regulations assuming
that the fair market value on the date of grant, which the board of
directors determined to be the exercise price, appreciates at either 5% or
10% per year, for the ten-year terms of the options and that each option is
exercised and sold on the last day of its term for the appreciated stock
price.
(2) There is a substantial disparity between the exercise price of our
outstanding options and the initial public offering price. If potential
realizable value were calculated using an estimated initial public offering
price of $21.00 per share as the beginning price, rather than each option's
exercise price, the potential realizable value at 5% per annum appreciation
would be $1.0 million and the potential realizable value at 10% per annum
appreciation would be $2.5 million.
61
<PAGE> 66
Stock Option Exercises in 1999 and Fiscal Year-End Option Values
None of the executive officers named in the Summary Compensation Table
exercised any outstanding stock options during 1999 or in any prior period. The
following table sets forth information on the year-end value of the outstanding
options held by the named executive officers at December 31, 1999.
<TABLE>
<CAPTION>
VALUE OF OUTSTANDING OPTIONS
AT DECEMBER 31, 1999
---------------------------------------------------------
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
AT FISCAL YEAR-END AT FISCAL YEAR-END
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald P. Christman........................... -- -- -- --
Lynn D. Keehan................................ -- -- -- --
Nicholas P. Vitalari.......................... -- -- -- --
Tamara J. Erickson............................ 20,000 80,000 $103,600 $370,800
Jeffrey J. Weiner............................. 8,750 81,250 $ 45,325 $377,275
</TABLE>
------------------
(1) There was no public trading market for the common stock at December 31,
1999. Accordingly, these values have been calculated by determining the
difference between the exercise price per share and the fair market value on
December 31, 1999. It was determined by an independent third-party valuation
that the common stock had a fair market value of $8.00 per share on December
31, 1999.
REPURCHASE RIGHTS OF OUR EXECUTIVE OFFICERS
If a Cepro employee terminates his or her employment prior to March 3,
2003, Dr. Christman, Dr. Keehan, Dr. Vitalari and Robert Forsyth, one of our
initial and current stockholders, have the right to repurchase up to 230,000
repurchasable non-escrowed shares of our common stock if we, Infologix and four
Cepro senior consultants decline their prior right to repurchase the shares. Dr.
Christman, Dr. Keehan, Dr. Vitalari and Mr. Forsyth, in that order, each have
ten days to elect to repurchase the repurchasable shares. We granted all of
these rights as part of our acquisition of Cepro.
OUR STOCK OPTION PLANS
Options to purchase a total of 4,440,857 shares of common stock have been
authorized under the following eight stock option plans currently in place: the
1997 Employee Stock Option Plan, the 1998 Employee Stock Option Plan, the 1998
European Equity Compensation Plan, the 1999 Employee Stock Option Plan, the 2000
Employee Stock Option Plan, the 2000 International Equity Compensation Plan, the
2000 Senior Executive Performance Plan and the 2000 Director Stock Option Plan
and by separate board authorizations. As of June 30, 2000, there were
outstanding options to purchase a total of 3,491,850 shares of common stock,
including options to purchase 105,000 shares granted under separate
authorizations, of which options to purchase 606,750 shares were exercisable. As
of that date, the weighted average exercise price of the outstanding options was
$6.37.
United States Employee Stock Option Plans
General. Since our formation in 1997, our board of directors adopted and
our stockholders subsequently approved employee stock option plans for 1997,
1998, 1999 and 2000. Other than differing amounts of options reserved under the
plans, the terms of the plans are substantively the same. The 1997 Employee
Stock Option Plan provides for the grant of options to purchase up to 460,857
shares of our common stock. The 1998 Employee Stock Option Plan provides for the
grant of options to purchase up to 675,000 shares of our common stock. The 1999
Employee Stock Option Plan provides for the grant of options to purchase up to
700,000 shares of our common stock. The 2000 Employee Stock Option Plan provides
for the grant of options to purchase up to 1,000,000 shares of our common stock.
Awards Under the Employee Stock Option Plans. Options under the employee
stock option plans may be made in the form of incentive stock options,
non-qualified stock options or any combination
62
<PAGE> 67
thereof. Options may only be granted to employees or non-employees who are under
a written contract with us, or a subsidiary of which we own 50% or more, to
provide consulting or advisory services to us or a subsidiary, as the board of
directors or the compensation committee in its discretion selects. Only our
employees are eligible to receive grants of incentive stock options. Generally,
if any option terminates, expires, or is canceled or surrendered as to any
shares of common stock, new options may be granted covering such shares.
Administration. The employee stock option plans are administered by the
compensation committee. The compensation committee is authorized to:
- adopt rules and regulations for carrying out the purposes of the employee
stock option plans;
- construe, interpret and implement the provisions of the employee stock
option plans or any option;
- adopt, amend and rescind administrative and interpretive rules and
regulations relating to the employee stock option plans or any option;
- make appropriate adjustments to the exercise price and number of shares
subject to the employee stock option plans and options in accordance with
such plans;
- make determinations and perform all acts necessary or advisable for
administering the employee stock option plans;
- correct any defect or supply any omission or reconcile any inconsistency
in the employee stock option plans or any option;
- make certain modifications to the employee stock option plans as
necessary to effectuate the intent of the plans;
- change the date on which any option may be exercised; and
- select eligible persons to whom options will be granted.
The determinations of the compensation committee are made in its sole
discretion and are conclusive.
Option Grants. The compensation committee determines the terms and
conditions of options. Options may generally be exercised as to 25% of the
shares covered by the particular option on the first anniversary of the date of
grant and an additional 25% of the shares covered by the particular option may
be exercised on each of the anniversaries of the date of grant in each of the
following three years. The compensation committee may alter the date on which an
option may be exercised; however, no option may be exercised prior to the first
anniversary of the date of grant, and no option may be exercised after the
expiration of ten years from the date of grant, which period is reduced to five
years for certain stockholders owning more than 10% of the total combined voting
power of all classes of our stock or our subsidiaries' stock on the date of
grant. The purchase price per share payable upon the exercise of an option is
established by the compensation committee at the time of grant, and, in the case
of an incentive stock option, the option exercise price must be equal to at
least 100% of the fair market value of our common stock on the date of grant
and, in the case of any person owning more than 10% of the total combined voting
power of all classes of our stock or our subsidiaries' stock on the date of
grant, at least 110% of the fair market value of a share of our common stock on
the date of grant. The option exercise price is generally payable in cash or an
equivalent thereof. The compensation committee may require other arrangements be
made or conditions met before an option may be exercised.
Incentive stock options are not transferrable by the grantee other than by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order. Non-qualified stock options may be transferable if so
determined by the compensation committee, in its sole discretion.
63
<PAGE> 68
Termination of Employment or Service. In general, upon the earliest event
to occur of the following:
- the death of a grantee;
- the total and permanent disability of a grantee;
- the date on which a grantee ceases to be employed by or under contract to
us or a subsidiary of us or, the date on which a grantee ceases to be a
member of our board of directors, unless the grantee continues to be an
employee or under contract to us or a subsidiary of us;
the grantee's unvested options will automatically and without notice terminate
and become null and void. Additionally, the grantee has 90 days after the event
to exercise any vested options or the options will automatically and without
notice terminate and become null and void. The transfer of an employee's
employment between us and a subsidiary is not deemed to be a termination of the
employee's employment under the employee stock option plans. If however, the
grantee commits actions including, but not limited to any act of malfeasance or
wrongdoing affecting us or a subsidiary, any unexercised portion of the options
held by the grantee immediately terminate and are null and void.
Other Features. The board of directors may amend, suspend, or terminate the
employee stock option plans or any option; provided, however, that no such
amendment may alter any provision of the employee stock option plans or any
option without compliance with any applicable stockholder approval requirements
or requirements of any stock market on which our common stock is listed for
trading or substantially impair any option previously granted to any grantee
without the consent of the grantee. In the event of a stock dividend, or a
recapitalization resulting in a stock split, combination or exchange of shares,
appropriate adjustments will be made to the maximum number of shares subject to
being optioned under the employee stock option plans and number of shares and
exercise price per share then subject to outstanding options. In the event of
any other corporate transaction, the compensation committee may change the
exercise price or number of shares subject to the options or both, if
appropriate, in its sole discretion.
European and International Stock Option Plans
General. Since commencing European operations in 1998, our board of
directors adopted and our stockholders subsequently approved the 1998 European
Equity Compensation Plan which provides for the grant of awards to purchase up
to 600,000 shares of our common stock, and the 2000 International Equity
Compensation Plan, which provides for the grant of awards to purchase up to
600,000 shares of our common stock, collectively the "International Stock Option
Plans". Generally, if any awards are forfeited, terminate, expire unexercised,
settle in cash in lieu of stock or are exchanged for other awards, the shares of
common stock which were previously subject to the awards remain available for
awards under the International Stock Option Plans to the extent of such
forfeiture or expiration. If any shares of common stock are used as payment of
the purchase price of common stock upon exercise of an option, such shares of
common stock are available for awards under the International Stock Option
Plans.
Awards Under the International Stock Option Plans. Awards under the
International Stock Option Plans may be made in the form of:
- deferred compensation stock options;
- non-qualified stock options;
- stock appreciation rights;
- restricted awards; or
- any combination thereof.
64
<PAGE> 69
Awards generally may only be made to employees or non-employees who are
under a written contract with us, or a subsidiary of which we own 50%, to
provide consulting or advisory services to us or a subsidiary, as the board of
directors or the compensation committee in its discretion selects.
Administration. The International Stock Option Plans are administered by
the compensation committee. The compensation committee is authorized to:
- adopt rules and regulations for carrying out the purposes of the
International Stock Option Plans;
- adopt, amend and rescind administrative and interpretive rules and
regulations relating to the International Stock Option Plans or any
award;
- construe the terms of the International Stock Option Plans or any award;
- make appropriate adjustments to the number of shares and price per share
subject to the International Stock Option Plans and options in accordance
with such plans;
- make determinations and perform all acts necessary or advisable for
administering the International Stock Option Plans;
- correct any defect or supply any omission or reconcile any inconsistency
in the International Stock Option Plans or any award;
- make certain modifications to the International Stock Option Plans as
necessary to effectuate the intent of the plans;
- change the date on which any option may be exercised; and
- select eligible persons to whom options will be granted.
The determinations of the compensation committee are made in its sole
discretion and are conclusive.
Option Grants. The compensation committee determines the terms and
conditions of options. Deferred compensation stock options are exercisable in
accordance with the terms of the grant thereof as established by the
compensation committee. Non-qualified stock options may generally be exercised
as to 25% of the shares covered by the particular option on the first
anniversary of the date of grant and an additional 25% of the shares covered by
the particular option may be exercised on each of the anniversaries of the date
of grant in each of the following three years. The compensation committee may
alter the date on which a non-qualified option may be exercised, however no
non-qualified option may be exercised prior to the first anniversary of the date
of grant, and no non-qualified option may be exercised after the expiration of
10 years from the date of grant. The purchase price per share payable upon the
exercise of an option is established by the compensation committee at the time
of grant. The option exercise price is generally payable in cash or an
equivalent thereof. The compensation committee may require other arrangements be
made or conditions met before an option may be exercised. Options may be
transferable if so determined by the compensation committee, in its sole
discretion.
Stock Appreciation Rights and Restricted Awards. The compensation committee
may grant stock appreciation rights and restricted awards under the
International Stock Option Plans. As of June 30, 2000, there are no stock
appreciation rights or restricted awards outstanding.
Termination of Employment or Service. If a participant's employment by us
or a subsidiary terminates by reason of the participant's death or if the
participant's death occurs within three months after the termination of his or
her employment, any award otherwise exercisable may be exercised for a period of
one year from that date or, if shorter, the expiration of the stated term of the
award. If a participant's employment by us or a subsidiary terminates by reason
of the participant's disability, any award otherwise exercisable may generally
be exercised for a period of one year from that date or, if shorter, the
expiration of the stated term of the award. If a participant's employment by us
or a subsidiary terminates for any reason other than retirement, any award
otherwise exercisable may be exercised for a period of three months or, if
shorter, the expiration of the stated term of the award. Any right of exercise
65
<PAGE> 70
under a non-vested award held by the participant at the time of his or her
termination by death, disability or otherwise is generally extinguished and
terminated. The transfer of an employee's employment between us and a subsidiary
is not deemed to be a termination of the employee's employment under the
International Stock Option Plans. If however, a participant commits actions
including, but not limited to any act of malfeasance or wrongdoing affecting us
or a subsidiary, any unexercised portion of the options held by the participant
immediately terminate and are null and void.
Other Features. The board of directors may amend, suspend, or terminate the
International Stock Option Plans or any award; provided, however, that no such
amendment may alter any provision of the International Stock Option Plans or any
award without compliance with any applicable stockholder approval requirements
or requirements of any stock market on which our common stock is listed for
trading or substantially impair any award previously granted to any participant
without the consent of such participant. In the event of a stock dividend, or a
recapitalization resulting in a stock split, combination or exchange of shares,
appropriate adjustments may be made by the board of directors in its sole
discretion to reflect such change with respect to the maximum number of shares
which may be sold or awarded to any participant; the number of shares covered by
each outstanding award and the price per share of outstanding awards. In the
event of any other corporate transaction, the compensation committee may change
the exercise price or number of shares subject to the options or both, if
appropriate, in its sole discretion.
2000 Senior Executive Performance Plan
Our board of directors adopted, and our stockholders subsequently approved,
the 2000 Senior Executive Performance Plan which provides for the grant of
options to purchase up to 175,000 shares of our common stock. Similar to the
employee stock option plans, both incentive and non-qualified options or any
combination thereof, may be issued under the 2000 Senior Executive Performance
Plan. Options may generally be exercised as to 33 1/3% of the shares covered by
the particular option on the first anniversary of the date of grant and an
additional 33 1/3% of the shares covered by the particular option may be
exercised on each of the anniversaries of the date of grant and in each of the
following two years. With respect to the award of options, administration of the
2000 Senior Executive Performance Plan, transferability of options, termination
of the option period, and other plan features, the 2000 Senior Executive
Performance Plan is substantially similar to the employee stock option plans.
As of June 30, 2000, all 175,000 options reserved under the 2000 Senior
Executive Performance Plan are outstanding. Pursuant to the 2000 Senior
Executive Performance Plan, 75,000 options were granted to Dr. Christman; 50,000
options were granted to Dr. Vitalari; and 50,000 options were granted to Dr.
Keehan. The options granted under the 2000 Senior Executive Performance Plan
vest ratably over a 3 year period.
Director Stock Option Plan
We adopted an option plan for non-employee directors called the 2000
Director Option Plan. A total of 125,000 shares of common stock are reserved for
issuance under the 2000 Director Option Plan. Pursuant to the terms of the plan,
this number increases annually, beginning in 2001, by the lesser of:
- 100,000 shares;
- 1% of our outstanding shares of our common stock; or
- such lesser amount as the board of directors approves.
Under that plan, each non-employee director is granted options to purchase
15,000 shares of our common stock on the date he or she becomes a director.
Directors may not hold options to purchase more than 65,000 shares per director
at any one time under this plan. On the day after each annual meeting of the
stockholders, each non-employee director is automatically granted options on
that date to purchase an additional 5,000 shares of our common stock, subject to
the 65,000 share maximum.
66
<PAGE> 71
The options are granted at an exercise price equal to the fair market value
on the date of grant. The 15,000 shares that are granted upon becoming a
director vest over three years, with one-third vesting each year on the
anniversary date of the grant until fully vested. Additional shares that are
granted under the director plan vest over three years, with one-third vesting
each year on the anniversary date of the grant until fully vested. On March 18,
2000, Mr. Romeril, Ms. Engel, Mr. Lindroth and Mr. Sokolow each received options
to purchase 15,000 shares. Mr. Sokolow has since resigned as a director and his
options terminated effective August 4, 2000. On April 28, 2000, Senator Dole
received options to purchase 15,000 shares. On August 4, 2000, Messrs. Grierson
and Shaffer each received options to purchase 15,000 shares.
2000 EMPLOYEE STOCK PURCHASE PLAN
Recently, our board of directors adopted and our stockholders subsequently
approved the 2000 Employee Stock Purchase Plan. The plan will have a 10 year
term and provide eligible employees the opportunity to acquire our common stock
at a discount through payroll deductions. The plan is intended to comply with
Section 423 of the Internal Revenue Code. The compensation committee of the
board of directors will administer the plan.
The plan will become effective and the first offering period will begin on
the effective date of this offering and will end on December 31, 2000.
Subsequently, six month offering periods will begin on January 1 and July 1 of
each year. For the offering period ending December 31, 2000, and for the year
2001, 200,000 shares of common stock are reserved for issuance under the plan.
Commencing January 1, 2002, 400,000 shares will be available each year for
issuance under the plan. All employees who work for at least 20 hours per week
for 5 months or more per year will be eligible to participate in the plan,
provided they do not own 5% or more of our voting stock.
Eligible employees may make payroll deductions of up to 15% of their gross
regular salary, but not more than $21,250 per year, to purchase shares under the
plan. Eligible employees may purchase shares for 85% of the lower of the price
of our common stock on the first business day or last business day of each
offering period. If an employee holds stock purchased under the plan for the
required period, generally 18 months, then, upon sale of the shares, the 15%
difference between the purchase price and the closing price on the applicable
measurement date is taxed at ordinary income tax rates and the remaining taxable
gain is taxed at capital gains rates. If an employee does not hold purchased
shares for the required period, all taxable gain on sale of those shares is
taxed at ordinary income tax rates.
LIMITATION ON OUR COMPENSATION DEDUCTION
Section 162(m) of the Internal Revenue Code limits the deduction we may
take for otherwise deductible compensation payable to certain executive officers
to the extent that compensation paid to such officers for a year exceeds $1.0
million, unless such compensation meets certain requirements. We believe that
compensation realized from options that have been granted under the employee
stock option plans generally will satisfy the requirements of Section 162(m).
67
<PAGE> 72
RELATED TRANSACTIONS AND RECENT ACQUISITION
RECENT CONVERSION OF CONVERTIBLE DEBT INTO AND PURCHASE OF COMMON STOCK
Infologix (BVI) Limited, a British Virgin Islands entity, is our largest
stockholder. On February 1, 2000, Infologix acquired from us 1,555,425 shares of
our common stock. Of these shares, 805,425 shares were acquired upon conversion
of $4.0 million principal amount of convertible debt, plus accrued interest. An
additional 750,000 shares were purchased for $6.0 million. Infologix also owns
warrants to purchase 50,000 shares of common stock for $5.00 per share which
were exchanged for certain rights of an affiliate to receive options to purchase
shares under a loan agreement with us. These warrants are currently exercisable.
A portion of these funds were used to repay a $1.0 million revolving bank credit
facility. Upon repayment of this facility, a letter of credit provided for us by
an affiliate of Infologix was returned. As a result of these transactions,
Infologix holds approximately 47.3% of our common stock outstanding as of June
30, 2000, assuming the exercise of their outstanding warrants to purchase 50,000
shares of our common stock and the conversion of their 1,810,000 shares of
Series A convertible preferred stock.
PURCHASE OF SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
Pursuant to an investment agreement effective February 29, 2000, we sold a
total of 1,546,784 shares of Series B convertible redeemable preferred stock to
Thayer Equity Investors IV, L.P., a Delaware limited partnership, and Thayer CGI
Partners LLC, a Delaware limited liability company, for $15.0 million. Upon
consummation of this offering, all of these shares will be converted into
1,546,784 shares of common stock, which represent approximately 20.0% of the
common stock outstanding as of June 30, 2000.
ACQUISITION OF CEPRO
On February 29, 2000, we purchased all of the outstanding shares of stock
of Cepro, a Swedish management consulting firm, from Cepro's stockholders in
exchange for a total of 1,221,000 shares of our common stock valued on February
29, 2000 at an estimated $12,210,000. At that date, Mr. Lindroth was a director
of both Cepro and of Concours. Cepro employs approximately 40 consultants who
help businesses in areas such as strategic planning, financial analysis,
e-commerce, marketing, information management, and executive and organizational
development. Each employee of Cepro entered into an employment agreement as part
of the acquisition.
A total of 465,000 of our shares issued to the selling Cepro stockholders
have a repurchase right, described below, associated with them. The remaining
756,000 shares have no repurchase right. A total of 235,000 of the shares
subject to repurchase issued to the former Cepro stockholders are being held in
escrow for three years as security for the indemnity given by the selling Cepro
stockholders under the purchase agreement. If there is a breach of the purchase
agreement, those shares, or a portion of them depending upon the amount of
damage to us, must be conveyed back to us to pay the obligation under the
indemnity. That pool of 235,000 escrowed shares, however, will be reduced in
number if employees leave and will revert back to us. Cepro employees must
remain employed by Cepro until March 1, 2003 to be permitted to keep all of
their escrowed shares as well as their other shares as to which repurchase
rights are associated. The repurchase right permits us to repurchase the
escrowed shares of a Cepro employee departing prior to March 1, 2003 for $10.00
per share. As to the remaining 230,000 shares -- net of 756,000 shares with no
repurchase right and 235,000 escrowed shares -- if a Cepro employee leaves Cepro
before March 1, 2003, the Cepro employee must sell some of his or her shares
back to us, or to Infologix and we have a right of first refusal. The Cepro
employee must sell shares to other individuals, as described below, if we or
Infologix does not elect to repurchase the shares. As with the escrowed shares,
the repurchase price is $10.00 per share. We do not expect to repurchase a
significant portion of the 465,000 shares, as this would only occur if a
significant number of employees were to leave Cepro.
If we decline to repurchase the repurchasable non-escrowed shares,
Infologix then acquires the purchase right. The individuals who have the right
to purchase these shares if we and Infologix do not repurchase the shares are:
Cepro senior consultants Michael Collins, Bo Hedberg, Ake Magnusson and Cepro's
managing director Jan Roy. If these individuals do not elect to purchase the
shares, the following individuals have that repurchase right: Dr. Christman, Dr.
Keehan, Dr. Vitalari and Robert Forsyth, one of our initial and current
stockholders. If no election is made to purchase shares subject to the
repurchase rights described above, the departing employee may keep them.
68
<PAGE> 73
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 30, 2000, and as adjusted to reflect
the sale of the shares of common stock offered by this prospectus, by each
person who is known to Concours to own beneficially more than 5% of the
outstanding shares of our common stock, each director, and persons nominated to
become a director, each of our executive officers named in the Summary
Compensation Table above, and all current directors and executive officers as a
group. As of June 30, 2000, 5,870,604 shares were outstanding. The calculation
of beneficial ownership after the offering also assumes the conversion of our
preferred stock into 3,356,784 shares of our common stock and 2,500,000 shares
of our common stock sold pursuant to this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
------------------------- -------------------------
NAME OF BENEFICIAL OWNER(2) NUMBER PERCENT NUMBER PERCENT
--------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Infologix (BVI) Limited(3)..................... 3,655,426 47.29% 3,655,426 35.73%
Thayer Equity Investors IV, L.P. and Thayer CGI
Partners LLC(4).............................. 1,546,784 20.85% 1,546,784 15.60%
Ronald P. Christman(5)......................... 2,291,499 39.03% 2,291,499 27.38%
Lynn D. Keehan................................. 385,714 6.57% 385,714 4.61%
Nicholas P. Vitalari(6)........................ 300,000 5.11% 300,000 3.58%
Tamara J. Erickson............................. 20,000 * 20,000 *
Jeffrey J. Weiner.............................. 17,500 * 17,500 *
Robert J. Dole................................. -0- -0- -0- -0-
Debra Engel.................................... 1,250 * 1,250 *
Donald K. Grierson(7).......................... -0- -0- -0- -0-
Hans G. Lindroth(8)............................ 3,670,290 47.48% 3,670,290 35.88%
Barry Romeril.................................. -0- -0- -0- -0-
David H. Shaffer(7)............................ -0- -0- -0- -0-
Leonard J. Sokolow(9).......................... 71,429 1.22% 71,429 *
All executive officers and directors as a group
(10 persons)................................. 6,071,968 78.15% 6,071,968 59.13%
</TABLE>
------------------
* Less than one percent.
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which that person, directly or indirectly,
through any contract, arrangement, undertaking, relationship or otherwise
has or shares voting power or investment power and as to which that person
has the right to acquire that voting or investment power within 60 days.
Percentage of beneficial ownership as to any person as of a particular date
is calculated by dividing the number of shares beneficially owned by the sum
of the number of shares outstanding as of that date and the number of shares
as to which that person has the right to acquire voting and/or investment
power within 60 days.
(2) Except as set forth in the footnotes to this table and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by such stockholder.
(3) The address for Infologix (BVI) Limited is c/o Insinger de Beaufort, P.O.
Box 565, 28-30 The Parade, St. Helier, Jersey, Channel Islands, UK JE4 8XY.
The individuals who hold the ultimate investment and voting power over the
shares held by Infologix are Cristian Bovet, Johannes Burger, Martyn
Crespel, and Fredrik Wallenberg: the four directors of the Domain
Foundation, an entity existing under the laws of Lichtenstein and the
ultimate owner of Infologix.
(4) The address for Thayer Equity Investors IV, L.P. and Thayer CGI Partners LLC
is 1455 Pennsylvania Ave., N.W., Suite 350, Washington, D.C. 20004. The
individuals who hold the ultimate investment power over the shares held by
Thayer Equity Investors IV, L.P. are: Frederic Malek, Carl Rickertsen,
Jeffrey Goettman and Susan Gallagher. The individuals who hold the ultimate
investment power over the Shares held by Thayer CGI Partners LLC are
Frederic Malek and Carl Rickertsen.
(5) Includes 1,691,499 shares of common stock held by other persons who have
granted Dr. Christman the right to vote their shares pursuant to irrevocable
proxies which expire on the third anniversary date of the effective date of
this registration statement or upon the earlier sale of all or a portion of
shares covered by proxy in which event the proxy will no longer cover the
portion of shares which are sold. These proxies cover 300,000 shares of
common stock owned by Nicholas P. Vitalari and the two irrevocable trusts of
Dr. Vitalari's minor children, 385,714 shares held by Lynn D. Keehan and
1,005,785 shares held by others as of April 30, 2000. Dr. Christman is also
the beneficial owner of the remaining 600,000 shares, 300,000 of which he
holds directly.
(6) Includes 20,000 shares held in two irrevocable trusts of which Dr.
Vitalari's minor children are the beneficiary and Dr. Vitalari disclaims all
beneficial ownership.
(7) Messrs. Grierson and Shaffer joined the board on August 4, 2000, and did not
own any of our common stock as of that date.
(8) Includes 14,864 shares owned directly by Mr. Lindroth and 3,655,426 shares
held by Infologix, with whom he is affiliated.
(9) Mr. Sokolow resigned from the board of directors effective August 4, 2000.
69
<PAGE> 74
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $ 0.01 per share, and 5,000,000 shares of preferred stock, $ 0.01 par
value per share. As of June 30, 2000, there were outstanding:
- 5,870,604 shares of common stock;
- 1,810,000 shares of Series A convertible preferred stock, all of which
will be automatically converted into 1,810,000 shares of our common stock
upon consummation of this offering;
- 1,546,784 shares of Series B convertible redeemable preferred stock, all
of which will be automatically converted into 1,546,784 shares of our
common stock upon consummation of this offering;
- options to purchase a total of 3,491,850 shares of common stock, of which
options to purchase 606,750 shares are exercisable as of such date; and
- warrants to purchase 50,000 shares of common stock at an exercise price
of $5.00 per share.
There will be 11,727,388 shares of common stock outstanding after giving
effect to the sale of the shares of common stock to the public in this offering
assuming:
- complete conversion of the Series A and Series B convertible preferred
stock;
- no exercise of the underwriters' over-allotment option; and
- no exercise of outstanding stock options or warrants.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted on by stockholders and have no cumulative voting rights.
Each share of our common stock has identical rights and privileges in every
respect. Subject to the prior rights and preferences applicable to shares of the
preferred stock, the holders of shares of common stock are entitled to receive
such dividends, payable in cash, stock, or otherwise, out of funds legally
available, when and if declared from time to time by the board of directors. In
the event of our liquidation, dissolution or winding up, the holders of shares
of the common stock will be entitled to share ratably in all assets remaining
after the payment of liabilities, subject to the rights of any then outstanding
preferred stock or any series thereof. The common stock has no preemptive,
subscription or conversion rights and there are no redemption or sinking fund
provisions in our certificate of incorporation. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of holders of shares of any preferred stock or series of
preferred stock currently outstanding or that we may designate or issue in the
future. The issued and outstanding shares of our common stock are fully paid and
non-assessable.
PREFERRED STOCK
Our board of directors is empowered, without stockholder approval, to cause
shares of preferred stock to be issued from time to time in one or more series,
and the board of directors may determine the numbers of shares of each series
and the designation, powers, privileges, preferences and rights and the
qualifications, limitations and restrictions of the shares of each series. The
specific matters that our board of directors may determine include:
- the designation of each series;
- the number of shares of each series;
- the rate of any dividends;
70
<PAGE> 75
- whether any dividends shall be cumulative or non-cumulative;
- the terms of any redemption;
- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of our company;
- rights and terms of any conversion or exchange; and
- restrictions on the issuance of shares of the same series or any other
series.
SERIES A CONVERTIBLE PREFERRED STOCK
Infologix owns a total of 1,810,000 shares of Series A convertible
preferred stock, which were initially issued by us for $4,080,000. Infologix is
the only holder of the Series A convertible preferred stock. Upon consummation
of this offering, all of the shares of the Series A convertible preferred stock
will be converted into 1,810,000 shares of our common stock on a share for share
basis.
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
We have issued 1,546,784 shares of Series B convertible redeemable
preferred stock to Thayer and its affiliates for $15.0 million. As of June 30,
2000, Thayer and its affiliates are the only holders of the Series B convertible
redeemable preferred stock. Upon consummation of this offering, all of the
shares of the Series B convertible redeemable preferred stock will be converted
into 1,546,784 shares of our common stock on a share for share basis. Prior to
the conversion of the Series B convertible redeemable preferred stock, its
holders had the right to elect a member of the board of directors, subject to
the approval of our board of directors. On April 28, 2000, Senator Dole was
nominated by Thayer as holder of the Series B convertible preferred stock and
approved by our board of directors.
OPTIONS
A total of 4,440,857 shares of common stock are reserved for issuance
pursuant to options granted or to be granted under the following eight stock
option plans currently in place: the 1997 Employee Stock Option Plan, the 1998
Employee Stock Option Plan, the 1998 European Equity Compensation Plan, the 1999
Employee Stock Option Plan, the 2000 Employee Stock Option Plan, the 2000
International Equity Compensation Plan, the 2000 Senior Executive Performance
Plan and the 2000 Director Stock Option Plan and by separate board
authorizations. As of June 30, 2000, there were outstanding options to purchase
a total of 3,491,850 shares of common stock, including options to purchase
105,000 shares granted under separate authorizations, of which options to
purchase 606,750 shares were exercisable as of that date.
WARRANTS
Infologix owns warrants that entitle it to purchase 50,000 shares of our
common stock for $5.00 per share. These warrants are currently exercisable and
expire on December 31, 2009.
REGISTRATION RIGHTS
At any time during the three year period beginning six months after the
closing of this offering, the holders of 3,605,426 shares of common stock and
the holders of warrants to purchase 50,000 shares of common stock have the right
to require us to register their shares of common stock on Form S-1 for sale
under the Securities Act on two separate occasions. In addition, at any time
beginning six months after the closing of this offering, the holders of
approximately 1,546,784 shares of common stock have the right to require us to
register their shares of common stock on Form S-1 for sale under the Securities
Act on two separate occasions. Under an agreement with these stockholders, each
set of stockholders outlined above has the right to have their shares of common
stock included in any registration statement demanded by the other group of
stockholders outlined above. These stockholders also have the right, if we
propose to register any of our securities for sale for our own account, to have
their shares included in that registration.
71
<PAGE> 76
These stockholders also have the right to require us to register their shares of
common stock on Form S-3 when we become eligible to use this form.
All of the registration rights are subject to conditions and limitations,
including the right of the underwriters to limit the number of shares included
in a registration and to exclude holders' shares from a registration initiated
by us for our account under some circumstances. We have agreed to pay the
expenses of those registrations in most cases. We are not required to honor
demands for registration within twelve months after the effective date of any
registration statement, other than on Form S-3. Our board of directors may defer
requests for registrations from these stockholders for periods ranging from 90
days to 12 months if it determines in good faith that such a registration would
be detrimental to us.
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Some provisions of our amended and restated certificate of incorporation,
our amended and restated bylaws and Delaware law could have the effect of making
it more difficult for a third party to acquire a majority of our outstanding
voting stock, even if doing so would be beneficial to our stockholders.
Section 203 of the Delaware General Corporation Law
We are a Delaware corporation and subject to Section 203 of the Delaware
General Corporation Law. Generally, Section 203 prohibits a publicly held
Delaware corporation from engaging in a business combination with an interested
stockholder for a period of three years after the time a stockholder became an
interested stockholder unless various conditions are satisfied, which are
described below. Thus, it may make an acquisition of or change in control of us
more difficult. The prohibitions in Section 203 do not apply if the following
occur:
- before the time the stockholder became an interested stockholder, our
board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced; or
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by our board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder.
Under Section 203, a business combination includes the following:
- any merger or consolidation of us with the interested stockholder;
- any sale, lease, exchange or other disposition, except proportionately as
one of our stockholders, to or with the interested stockholder of our
assets having an aggregate market value equal to 10% or more of either
the aggregate market value of all of our assets or the aggregate market
value of all of our outstanding stock;
- certain transactions resulting in the issuance or transfer by us of our
stock to the interested stockholder;
- various transactions involving us which have the effect of increasing the
proportionate share of any class or series of our stock which is owned by
the interested stockholder; and
- various transactions in which the interested stockholder receives
financial benefits provided by us.
72
<PAGE> 77
Under Section 203, an interested stockholder generally is one of the following:
- any person who owns 15% or more of our outstanding voting stock;
- any person who is an affiliate or associate of us and was the owner of
15% or more of our outstanding voting stock at any time within the
three-year period prior to the date on which it is sought to be
determined whether that person is an interested stockholder; or
- the affiliates or associates of that person.
Because Infologix and Thayer will each, individually or through their
affiliates, own more than 15% of our voting stock before we become a public
company and upon completion of the offering, Section 203 by its terms is
currently not applicable to business combinations with them even though they
owns 15% or more of our outstanding stock. If any other person acquires 15% or
more of our outstanding stock in the future, that person will be subject to the
provisions of Section 203.
Classified board of directors
Our amended and restated bylaws provide for the board of directors to be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the board of directors will be elected each
year. Our bylaws also provide that at least three of our directors will be
"disinterested and independent directors." Holders of a majority of the
outstanding shares of capital stock entitled to vote at an election of directors
will be able to remove directors only for cause. This provision may be amended
only by the affirmative vote of 80% of our directors or by a majority vote of
our stockholders.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our amended and restated bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices, not less
than 60 days nor more than 90 days prior to the scheduled date of the annual
meeting, regardless of any postponement, deferral or adjournment of that
meeting. However, if less than 70 days' notice or prior public disclosure of the
date of the annual meeting is given or made to stockholders, a stockholder's
notice will be timely if delivered or mailed and received not later than the
close of business on the tenth day following the earlier of the day on which the
notice of the date of the meeting was mailed or the day on which the public
disclosure was made. Our amended and restated bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may prevent stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
Limitations on Changes of Control of Concours
The provisions of our amended and restated certificate of incorporation and
amended and restated bylaws described above, as well as the provisions of
Section 203 could have the following effects:
- delaying, deferring or preventing a change in control;
- delaying, deferring or preventing the removal of existing management;
- deterring potential acquirors from making an offer to our stockholders;
or
- limiting any opportunity for our stockholders to realize premiums over
prevailing market prices of our common stock in connection with offers by
potential acquirors.
Any of the above could occur, notwithstanding that a majority of our
stockholders might benefit from such a change in control or offer.
73
<PAGE> 78
LISTING
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "CCGP".
TRANSFER AGENT
Our transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. Their telephone number is (212) 936-5100.
74
<PAGE> 79
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the offering, 11,727,388 shares of common stock will
be outstanding, or 12,102,388 shares of common stock if the underwriters'
over-allotment option is exercised in full. Of those shares of common stock,
2,500,000 shares, or 2,875,000 shares if the over-allotment option is exercised,
sold by us in this offering will be freely tradeable without restriction or
further registration under the Securities Act, unless held by an affiliate of
ours, as defined under the Securities Act. Any such affiliate will be subject to
the resale limitations of Rule 144 adopted under the Securities Act.
The remaining 9,277,388 shares of common stock outstanding at June 30, 2000
on a pro forma basis, including 50,000 warrants to purchase our common stock,
constitute restricted securities for purposes of Rule 144. Restricted securities
may not be resold except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption therefrom, including the exemption
provided by Rule 144. Some holders of these shares have rights to have their
shares registered under the Securities Act in the future, but may not exercise
such registration rights, and have agreed along with us that they will not sell,
transfer or otherwise dispose of any of their shares, for 180 days following the
completion of this offering.
In general, under Rule 144, a person who is deemed to be an affiliate of
ours is entitled to sell within any three-month period a number of shares
beneficially owned for at least one year that does not exceed the greater of
1.0% of the then outstanding shares of common stock or the average weekly
trading volume of the outstanding shares of common stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice and the availability of
current public information about us. However, a person who is not deemed to be
an affiliate of ours at any time during the 90 days preceding a proposed sale
and who has beneficially owned restricted securities for at least two years is
entitled to sell such shares under Rule 144 without regard to the volume, manner
of sale or notice requirements.
We, together with each of our executive officers and directors and some of
our existing stockholders who, collectively, upon completion of the offering,
will own an aggregate of 885,407 shares of common stock, have agreed not to
sell, pledge, or otherwise dispose of any shares of common stock or securities
convertible into or exercisable for shares of common stock for a period of 180
days following the date of this prospectus without the prior written consent of
Salomon Smith Barney as representative for the underwriters.
We have reserved an aggregate of 4,440,857 shares of common stock for
issuance upon exercise of options granted or to be granted under our various
stock option plans and under separate board authorizations. See
"Management -- Our Stock Option Plans" and note 8 to our consolidated financial
statements included elsewhere in this prospectus. We intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock reserved for issuance under these plans. This
registration statement is expected to be filed as soon as practicable after the
consummation of the offering and will automatically become effective upon
filing. Shares issued under our stock option plans after such registration
statement is filed may thereafter be sold in the public market, subject,
however, to the limitations imposed by Rule 144 on affiliates of ours, the
lock-up agreements described above and any transfer or vesting restrictions
imposed on options at the time of grant.
An increase in the number of shares of common shares that may come
available for sale in the public market may adversely affect the market price
prevailing from time to time of the common stock in the public market and could
impair our ability to raise additional capital through the sale of our equity
securities.
75
<PAGE> 80
MATERIAL UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR FOREIGN HOLDERS
GENERAL
In the opinion of Jenkens & Gilchrist, A Professional Corporation, the
following are material United States federal income and estate tax
considerations that are generally applicable to foreign holders of our common
stock as of the date of this prospectus. A "foreign holder" is a person or
entity who or which is not:
- an individual U.S. citizen or resident alien;
- a domestic corporation, or other entity taxable as a corporation created
or organized under U.S. state or federal law;
- an estate whose income is includable in gross income for U.S. purposes
regardless of its source; or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and at least one U.S.
person has authority to control all substantial decisions of the trust.
This opinion only applies to you only if you hold our common stock as a
capital asset for tax purposes. In addition, this opinion does not address all
of the United States federal tax consequences that may be relevant to you in
light of your particular circumstances including, but not limited to if you are
a member of a class of holders subject to special rules, such as:
- a partner in a partnership holding our common stock;
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
- a bank;
- a life insurance company;
- a tax-exempt organization;
- a person that holds our common stock as part of a straddle or a hedging,
integrated, constructive sale or conversion transaction for tax purposes;
- a person whose functional currency for tax purposes is not the U.S.
dollar;
- a person liable for alternative minimum tax; or
- a person that owns, or is treated as owning, 5% or more of our common
stock.
The explanation of material United States federal tax laws set out below is
based on the Internal Revenue Code of 1986, as amended, existing and proposed
regulations, IRS rulings and pronouncements, reports of congressional
committees, judicial decisions and current administrative rulings and practice,
all as of the date of this document, and which are subject to change. Any such
change could be retroactive and change the United States federal tax
consequences discussed below. No advance ruling from the Internal Revenue
Service with respect to these matters has been requested. Accordingly, it is
possible that the United States federal tax consequences may differ from those
described below. No foreign law nor United States state or local tax
considerations are discussed.
ALL FOREIGN HOLDERS ARE URGED TO CONSULT THEIR PROFESSIONAL TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES APPLICABLE, INCLUDING APPLICABILITY OF
UNITED STATES FEDERAL INCOME TAX LAW, STATE AND LOCAL TAX LAWS, THE TAX LAWS OF
ANY OTHER JURISDICTION TO WHICH THEY MAY BE SUBJECT; POSSIBLE FUTURE CHANGES IN
UNITED STATES FEDERAL INCOME TAX LAWS; AND ANY PENDING OR PROPOSED LEGISLATION.
76
<PAGE> 81
Dividends
You generally will be subject to withholding of U.S. federal income tax at
a rate of 30% or such lower rate as may be specified by an applicable income tax
treaty in connection with dividends paid on our common stock unless the
dividends are effectively connected with your conduct of a trade or business in
the United States and, if required by an income tax treaty, such dividends are
attributable to a permanent establishment.
If the dividends are effectively connected or are attributable to permanent
establishment, you generally will be subject to U.S. federal income tax at
ordinary U.S. federal income tax rates on a net income basis. In addition, any
effectively connected dividends received by a non-U.S. corporation may also,
under certain circumstances, be subject to an additional "branch profits tax" at
a rate of 30% or such lower rate as may be specified by an applicable income tax
treaty.
If you are eligible for a reduced rate of withholding pursuant to an
applicable income tax treaty, you may be required to submit documentation to
avail yourself of that treaty and may be able to obtain a refund of any excess
amounts withheld by us by filing an appropriate claim for refund with the
Internal Revenue Service.
Sale or Other Disposition of Common Stock
You will not be subject to U.S. federal income tax on any gain recognized
in connection with the sale or other disposition of our common stock unless:
- your gain is effectively connected with a trade or business that you
conduct in the United States and, if required by an income tax treaty,
such gain is attributable to a permanent establishment;
- you are an individual and are present in the United States for at least
183 days in the taxable year of the sale or other disposition, and
certain other conditions are met;
- you are an expatriate subject to the provisions of U.S. federal income
tax law applicable to certain United States expatriates, or
- Concours is or has been a United States real property holding corporation
for U.S. federal income tax purposes at any time during the shorter of:
- the 5-year period preceding such sale or disposition or
- the period that you held our common stock.
We do not believe that we were, are, nor do we expect to become, a United States
real property holding corporation.
Effectively connected gains realized by a non-U.S. corporation may also,
under certain circumstances, be subject to an additional branch profits tax at a
rate of 30% or such lower rate as may be specified by an applicable income tax
treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends
- United States backup withholding tax generally will not apply to
dividends paid to a foreign holder at an address outside the United
States unless we or our paying agent knows that the payee is not a
foreign holder.
- Under applicable Treasury regulations, we are required to report annually
to the Internal Revenue Service and to each foreign holder the amount of
dividends paid to such foreign holder and the amount of tax withheld with
respect to such dividends. This information may be made available to the
tax authorities in the foreign holder's country or residence under the
provisions of an applicable income tax treaty or agreement.
77
<PAGE> 82
Sale Through a U.S. Office of a Broker
The payment of proceeds in connection with the sale or other disposition of
our common stock to or through a United States office of a broker generally will
be subject to information reporting and backup withholding at a rate of 31%
unless the foreign holder either certifies its status as a foreign holder under
penalties of perjury or otherwise establishes an exemption from backup
withholding.
Sale Through a Foreign Office of a Broker
The payment of proceeds in connection with the sale or other disposition of
our common stock to or through a foreign office of a United States broker or
foreign broker with certain types of relationships with the United States is not
subject to backup withholding. The broker is, however, required to report the
sale to the Internal Revenue Service unless it has documentary evidence in its
files that the seller is a foreign holder and certain other conditions are
satisfied, or the holder otherwise establishes an exemption.
Backup Withholding is not an Additional Tax
Generally speaking, a foreign holder may take a credit against its U.S.
federal income tax liability for amounts withheld under the backup withholding
rules and it may obtain a refund of any excess amounts withheld under such rules
by filing the appropriate claim for refund with the Internal Revenue Service.
New Treasury Regulations
Final United States Treasury regulations, effective for payments made after
December 31, 2000, may affect the procedures to be followed by a foreign holder
in establishing its foreign status for purposes of the rules applicable to
withholding, backup withholding and information reporting. Foreign holders
should consult their tax advisors concerning such Treasury regulations.
UNITED STATES FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is not a
citizen or resident as specifically defined for U.S. federal estate tax
purposes, of the United States at the time of death, will be included in such
individual's gross estate for U.S. federal estate tax purposes, unless an
applicable estate treaty provides otherwise.
78
<PAGE> 83
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated , 2000, each underwriter named below has severally agreed to
purchase and we have agreed to sell to each underwriter, the number of shares
set forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Salomon Smith Barney Inc. ..................................
U.S. Bancorp Piper Jaffray Inc. ............................
William Blair & Company, L.L.C..............................
---------
Total.............................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of various legal matters by counsel and to various other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., U.S. Bancorp Piper
Jaffray Inc. and William Blair & Company, L.L.C. are acting as representatives,
propose to offer some of the shares directly to the public at the public
offering price set forth on the cover page of the prospectus and some of the
shares to various dealers at the public offering price less a concession not in
excess of $ per share. The underwriters may allow, and those dealers may
reallow, a concession not in excess of $ per share on sales to certain other
dealers. If all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 375,000 additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent this
option is exercised, each underwriter will be obligated, subject to various
conditions, to purchase a number of additional shares approximately
proportionate to each underwriter's initial purchase commitment.
We, our officers and directors and all of our other stockholders have
agreed, that, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities convertible
into or exchangeable for our common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.
At our request, the underwriters have reserved up to five percent of the
shares of common stock for sale, at the initial public offering price, to our
employees and friends through a directed share program. The number of shares of
common stock available for sale to the general public in the public offering
will be reduced to the extent these persons purchase those directed shares. Any
directed shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered by this
prospectus. We have agreed to indemnify the underwriters against certain
liabilities and expenses, including liabilities under the Securities Act of
1933, in connection with sales of the directed shares.
Before this offering, there was no public market for our common stock.
Consequently, the initial public offering price for the shares will be
determined by negotiations between us and the representatives. Among the factors
to be considered in determining the initial public offering price are our record
of operations, current financial condition, future prospects, our markets, the
economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded
79
<PAGE> 84
companies considered comparable to us. We cannot assure you, however, that the
prices at which the shares will sell in the public market after this offering
will not be lower than the price at which they are sold by the underwriters or
that an active trading market in our common stock will develop and continue
after this offering.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "CCGP".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO
EXERCISE FULL EXERCISE
---------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total............................................. $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
"Covered" short sales are sales of shares made in an amount up to the number of
shares represented by the underwriters' over-allotment option. Transactions to
close out the covered syndicate short involve either purchases of the common
stock in the open market after the distribution has been completed or the
exercise of the over-allotment option. The underwriters may also make "naked"
short sales of shares in excess of the over-allotment option. The underwriters
must close out any naked short position by purchasing shares of common stock in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the shares in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of bids
for or purchases of shares in the open market while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the Nasdaq National Market or in the
over-the-counter market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.
A prospectus in electronic format may be made available on the Web site
maintained by one or more of the underwriters. The underwriters may agree to
allocate a number of shares to underwriters for sale to their online brokerage
account holders. The representatives will allocate shares to underwriters that
may make Internet distributions on the same basis as other allocations.
Most of the shares to be sold in this offering will be sold to U.S.
purchasers, but a limited number of shares may be sold to non-U.S. purchasers.
If and to the extent that any shares are offered or sold in the United
Kingdom, each representative agrees that it:
- will not offer or sell any shares to persons in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments, whether as principal or agent, for
the purposes of their businesses or in other circumstances which do not
80
<PAGE> 85
constitute an offer to the public in the United Kingdom under the Public
Offers of Securities Regulation 1995;
- will comply with all applicable provisions of these regulations and of
the Financial Services Act 1986 with respect to anything done by it in
relation to the shares of common stock offered hereby in, from or
otherwise involving the United Kingdom; and
- will only issue or pass on in the United Kingdom any document received by
it in connection with the issue of these shares if that person is of a
kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a
person to whom any document may otherwise lawfully be issued or passed
on.
We estimate that the total expenses of this offering, excluding the
underwriting discount and commissions, will be $2,310,500.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
The underwriters may, from time to time, engage in transactions with and
perform services for us in the ordinary course of their business.
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be
passed upon for us by Jenkens & Gilchrist, A Professional Corporation, Houston,
Texas, and for the underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of The Concours Group, Inc. and Cepro
AB included elsewhere in this prospectus to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP, independent
public accountants, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the SEC under the
Securities Act concerning the common stock offered by this prospectus. This
prospectus, which is part of the registration statement, omits certain
information, exhibits, schedules and undertakings contained in the registration
statement. For further information pertaining to us and our common stock, we
refer you to our registration statement and its exhibits and schedules.
Statements contained in this prospectus as to the contents or provisions of any
documents referred to in this prospectus are not necessarily complete, and in
each instance where a copy of the document has been filed as an exhibit to the
registration statement, we refer you to the exhibit for a more complete
description of the matters involved.
You may read and copy all or any portion of the registration statement
without charge at the office of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the registration statement may be obtained from the SEC at
prescribed rates from the Public Reference Section of the SEC at the above
address and at the SEC's regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the SEC electronically are
publicly available through the SEC's website at http://www.sec.gov. The
registration statement, including all exhibits and amendments to the
registration statement, has been filed electronically with the SEC.
81
<PAGE> 86
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC.
We intend to furnish our stockholders with annual reports containing
audited consolidated financial statements and make available quarterly reports
for the first three quarters of each year containing unaudited interim
consolidated financial information.
82
<PAGE> 87
THE CONCOURS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
The Concours Group, Inc. --
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations and Comprehensive
Loss................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
and Mandatorily Redeemable Preferred Stock............. F-5
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-8
Cepro AB --
Report of Independent Public Accountants.................. F-23
Consolidated Income Statements............................ F-24
Consolidated Balance Sheets............................... F-25
Consolidated Statements of Cash Flows..................... F-26
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-27
Notes to Consolidated Financial Statements................ F-28
</TABLE>
F-1
<PAGE> 88
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The Concours Group, Inc.:
We have audited the accompanying consolidated balance sheets of The
Concours Group, Inc., and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations and comprehensive loss,
stockholders' equity (deficit) and mandatorily redeemable preferred stock and
cash flows for the period from inception (January 22, 1997) through December 31,
1997, and for the years ended December 31, 1998 and 1999. These consolidated
financial statements are the responsibility of Concours' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Concours
Group, Inc., and subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations and cash flows for the period from
inception (January 22, 1997) through December 31, 1997, and for the years ended
December 31, 1998 and 1999, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 1, 2000
F-2
<PAGE> 89
THE CONCOURS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1998 1999 2000
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 1,056,169 $ 705,169 $ 14,288,812
Accounts receivable, net of allowance for doubtful
accounts of $106,525, $33,182 and $131,897,
respectively........................................... 3,592,123 6,475,455 9,655,975
Prepaid expenses and other............................... 494,095 720,480 2,019,114
----------- ------------ ------------
Total current assets.............................. 5,142,387 7,901,104 25,963,901
Property and equipment, net of accumulated depreciation of
$246,861, $563,693 and $795,341, respectively............ 629,681 713,178 1,136,763
Intangible assets, net..................................... -- 164,062 11,375,962
Other assets............................................... 31,594 69,284 1,396,954
----------- ------------ ------------
Total assets...................................... $ 5,803,662 $ 8,847,628 $ 39,873,580
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 952,425 $ 2,034,600 $ 961,494
Accrued liabilities...................................... 672,301 2,518,418 4,861,027
Line of credit........................................... -- 1,000,000 --
Deferred revenue......................................... 5,550,856 7,481,924 6,675,914
----------- ------------ ------------
Total current liabilities......................... 7,175,582 13,034,942 12,498,435
Convertible debt........................................... -- 4,000,000 --
----------- ------------ ------------
Total liabilities................................. 7,175,582 17,034,942 12,498,435
----------- ------------ ------------
Mandatorily redeemable preferred stock, $ 0.01 par value,
5,000,000 shares authorized, 3,356,784 shares issued and
outstanding; aggregate liquidation preference of
$19,290,000.............................................. -- -- 17,313,083
----------- ------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $ 0.01 par value, 5,000,000 shares
authorized, 1,810,000 shares issued and outstanding;
aggregate liquidation preference of $4,290,000......... 18,100 18,100 --
Common stock, $ 0.01 par value, 50,000,000 shares
authorized, 3,355,929, 3,385,929 and 6,185,354 shares
issued, respectively................................... 33,559 33,859 61,853
Additional paid-in capital............................... 6,281,618 7,070,578 35,211,840
Notes receivable from employees.......................... (206,250) -- --
Deferred compensation.................................... (575,859) (782,357) (6,493,731)
Treasury stock, at cost, 222,250, 272,250 and 314,750
shares, respectively................................... (312,563) (462,563) (674,638)
Accumulated other comprehensive income (loss)............ 28,398 (33,375) (120,414)
Retained earnings (deficit).............................. (6,638,923) (14,031,556) (17,922,848)
----------- ------------ ------------
Total stockholders' equity (deficit).............. (1,371,920) (8,187,314) 10,062,062
----------- ------------ ------------
Total liabilities and stockholders' equity
(deficit)....................................... $ 5,803,662 $ 8,847,628 $ 39,873,580
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 90
THE CONCOURS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEARS ENDED THREE MONTHS ENDED
(JANUARY 22, 1997) DECEMBER 31, JUNE 30,
THROUGH ------------------------- -------------------------
DECEMBER 31, 1997 1998 1999 1999 2000
------------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Consulting......................... $ 4,877,641 $ 8,528,990 $15,737,811 $ 3,777,103 $10,882,598
Continuous service and other....... 3,934,352 7,422,401 10,342,584 2,593,657 2,968,015
----------- ----------- ----------- ----------- -----------
Total revenue................ 8,811,993 15,951,391 26,080,395 6,370,760 13,850,613
Costs and expenses:
Consulting (exclusive of
stock-based compensation of $--,
$19,338, $97,829, $33,346,
$167,689, $58,696 and $204,482,
respectively).................... 2,791,042 6,768,927 11,487,450 2,718,523 6,016,183
Continuous service and other
(exclusive of stock-based
compensation of $--, $1,081,
$4,473, $225, $7,406, $550, and
$9,244, respectively)............ 2,984,050 6,227,271 8,245,391 2,208,365 2,570,254
----------- ----------- ----------- ----------- -----------
Gross margin................. 3,036,901 2,955,193 6,347,554 1,443,872 5,264,176
Sales and marketing (exclusive of
stock-based compensation of $--,
$--, $--, $--, $29,240, $-- and
$29,240, respectively)........... 2,377,399 3,963,623 6,875,831 1,612,788 2,121,554
General and administrative
(exclusive of stock-based
compensation of $--, $17,972,
$79,720, $11,934, $213,970,
$31,764 and $476,512,
respectively).................... 1,681,332 4,691,966 6,201,399 1,509,418 2,652,835
Amortization of intangibles........ -- -- 10,937 -- 792,075
Stock-based compensation........... -- 38,391 182,022 45,505 418,305
----------- ----------- ----------- ----------- -----------
Operating loss............... (1,021,830) (5,738,787) (6,922,635) (1,723,839) (720,593)
Interest income...................... 48,049 74,052 1,480 13 229,438
Interest expense..................... -- 407 255,426 36,740 1,275
----------- ----------- ----------- ----------- -----------
Net loss before provision for income
taxes.............................. (973,781) (5,665,142) (7,176,581) (1,760,566) (492,430)
Income taxes......................... -- -- -- -- 97,259
----------- ----------- ----------- ----------- -----------
Net loss..................... (973,781) (5,665,142) (7,176,581) (1,760,566) (589,689)
Preferred stock accretion............ -- -- -- -- 99,008
----------- ----------- ----------- ----------- -----------
Net loss attributable to common
stockholders....................... (973,781) (5,665,142) (7,176,581) (1,760,566) (688,697)
Comprehensive income (loss), foreign
currency translation adjustment.... -- 28,398 (61,773) 347,236 (70,098)
----------- ----------- ----------- ----------- -----------
Comprehensive loss................... $ (973,781) $(5,636,744) $(7,238,354) $(1,413,330) $ (758,795)
=========== =========== =========== =========== ===========
Net loss per share attributable to
common stockholders, basic and
diluted............................ $ (0.43) $ (1.73) $ (2.32) $ (0.57) $ (0.12)
=========== =========== =========== =========== ===========
Shares used in computing basic and
diluted net loss per share
attributable to common
stockholders....................... 2,270,630 3,279,447 3,088,248 3,084,544 5,633,461
=========== =========== =========== =========== ===========
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Consulting......................... $ 6,704,658 $18,275,123
Continuous service and other....... 4,839,760 5,769,455
----------- -----------
Total revenue................ 11,544,418 24,044,578
Costs and expenses:
Consulting (exclusive of
stock-based compensation of $--,
$19,338, $97,829, $33,346,
$167,689, $58,696 and $204,482,
respectively).................... 5,384,708 10,291,807
Continuous service and other
(exclusive of stock-based
compensation of $--, $1,081,
$4,473, $225, $7,406, $550, and
$9,244, respectively)............ 3,997,725 4,678,259
----------- -----------
Gross margin................. 2,161,985 9,074,512
Sales and marketing (exclusive of
stock-based compensation of $--,
$--, $--, $--, $29,240, $-- and
$29,240, respectively)........... 3,414,438 4,089,909
General and administrative
(exclusive of stock-based
compensation of $--, $17,972,
$79,720, $11,934, $213,970,
$31,764 and $476,512,
respectively).................... 2,898,737 4,516,640
Amortization of intangibles........ -- 1,067,799
Stock-based compensation........... 91,010 719,478
----------- -----------
Operating loss............... (4,242,200) (1,319,314)
Interest income...................... 1,452 287,035
Interest expense..................... 51,958 2,459,318
----------- -----------
Net loss before provision for income
taxes.............................. (4,292,706) (3,491,597)
Income taxes......................... -- 144,135
----------- -----------
Net loss..................... (4,292,706) (3,635,732)
Preferred stock accretion............ -- 127,412
----------- -----------
Net loss attributable to common
stockholders....................... (4,292,706) (3,763,144)
Comprehensive income (loss), foreign
currency translation adjustment.... 136,559 (87,039)
----------- -----------
Comprehensive loss................... $(4,156,147) $(3,850,183)
=========== ===========
Net loss per share attributable to
common stockholders, basic and
diluted............................ $ (1.39) $ (0.74)
=========== ===========
Shares used in computing basic and
diluted net loss per share
attributable to common
stockholders....................... 3,085,219 5,065,273
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 91
THE CONCOURS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
MANDATORILY REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
MANDATORILY ----------------------------------------------------------------------
REDEEMABLE PREFERRED SERIES A CONVERTIBLE NOTES
STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
----------------------- --------------------- ------------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EMPLOYEES
--------- ----------- ---------- -------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, INCEPTION (JANUARY
22, 1997).................... -- $ -- -- $ -- -- $ -- $ -- $ --
Issuance of preferred stock,
net of issuance costs of
$210,000................... -- -- 1,500,000 15,000 -- -- 1,275,000 --
Issuance of common stock..... -- -- -- -- 2,773,429 27,734 19,800 --
Net loss..................... -- -- -- -- -- -- -- --
--------- ----------- ---------- -------- --------- ------- ----------- ---------
BALANCE, DECEMBER 31, 1997.... -- -- 1,500,000 15,000 2,773,429 27,734 1,294,800 --
Issuance of preferred
stock...................... -- -- 310,000 3,100 -- -- 2,786,900 --
Issuance of common stock..... -- -- -- -- 240,000 2,400 1,197,600 --
Issuance of common stock to
employees for notes
receivable and cash........ -- -- -- -- 342,500 3,425 388,068 (390,000)
Purchase of 72,250 shares of
common stock with cash for
treasury................... -- -- -- -- -- -- -- --
Receipt of 150,000 shares of
common stock for
treasury................... -- -- -- -- -- -- -- 150,000
Collection of note receivable
from employee.............. -- -- -- -- -- -- -- 33,750
Foreign currency translation
adjustment................. -- -- -- -- -- -- -- --
Deferred compensation related
to grants of options to
purchase common stock...... -- -- -- -- -- -- 614,250 --
Amortization of deferred
compensation............... -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
--------- ----------- ---------- -------- --------- ------- ----------- ---------
BALANCE, DECEMBER 31, 1998.... -- -- 1,810,000 18,100 3,355,929 33,559 6,281,618 (206,250)
Issuance of common stock upon
exercise of stock
options.................... -- -- -- -- 5,000 50 9,638 --
Purchase of 50,000 shares of
common stock for
treasury................... -- -- -- -- -- -- -- --
Collection of notes
receivable from
employees.................. -- -- -- -- -- -- -- 206,250
Stock dividend............... -- -- -- -- -- -- 216,052 --
Issuance of common stock for
acquisition of business.... -- -- -- -- 25,000 250 174,750 --
Foreign currency translation
adjustment................. -- -- -- -- -- -- -- --
Deferred compensation related
to grants of options to
purchase common stock...... -- -- -- -- -- -- 388,520 --
Amortization of deferred
compensation............... -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- --
--------- ----------- ---------- -------- --------- ------- ----------- ---------
BALANCE, DECEMBER 31, 1999.... -- -- 1,810,000 18,100 3,385,929 33,859 7,070,578 --
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------------
ACCUMULATED
OTHER RETAINED
DEFERRED TREASURY COMPREHENSIVE EARNINGS
COMPENSATION STOCK INCOME (LOSS) (DEFICIT) TOTAL
------------ --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, INCEPTION (JANUARY
22, 1997).................... $ -- $ -- $ -- $ -- $ --
Issuance of preferred stock,
net of issuance costs of
$210,000................... -- -- -- -- 1,290,000
Issuance of common stock..... -- -- -- -- 47,534
Net loss..................... -- -- -- (973,781) (973,781)
----------- --------- -------- ------------ -----------
BALANCE, DECEMBER 31, 1997.... -- -- -- (973,781) 363,753
Issuance of preferred
stock...................... -- -- -- -- 2,790,000
Issuance of common stock..... -- -- -- -- 1,200,000
Issuance of common stock to
employees for notes
receivable and cash........ -- -- -- -- 1,493
Purchase of 72,250 shares of
common stock with cash for
treasury................... -- (162,563) -- -- (162,563)
Receipt of 150,000 shares of
common stock for
treasury................... -- (150,000) -- -- --
Collection of note receivable
from employee.............. -- -- -- -- 33,750
Foreign currency translation
adjustment................. -- -- 28,398 -- 28,398
Deferred compensation related
to grants of options to
purchase common stock...... (614,250) -- -- -- --
Amortization of deferred
compensation............... 38,391 -- -- -- 38,391
Net loss..................... -- -- -- (5,665,142) (5,665,142)
----------- --------- -------- ------------ -----------
BALANCE, DECEMBER 31, 1998.... (575,859) (312,563) 28,398 (6,638,923) (1,371,920)
Issuance of common stock upon
exercise of stock
options.................... -- -- -- -- 9,688
Purchase of 50,000 shares of
common stock for
treasury................... -- (150,000) -- -- (150,000)
Collection of notes
receivable from
employees.................. -- -- -- -- 206,250
Stock dividend............... -- -- -- (216,052) --
Issuance of common stock for
acquisition of business.... -- -- -- -- 175,000
Foreign currency translation
adjustment................. -- -- (61,773) -- (61,773)
Deferred compensation related
to grants of options to
purchase common stock...... (388,520) -- -- -- --
Amortization of deferred
compensation............... 182,022 -- -- -- 182,022
Net loss..................... -- -- -- (7,176,581) (7,176,581)
----------- --------- -------- ------------ -----------
BALANCE, DECEMBER 31, 1999.... (782,357) (462,563) (33,375) (14,031,556) (8,187,314)
</TABLE>
F-5
<PAGE> 92
THE CONCOURS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
MANDATORILY REDEEMABLE PREFERRED STOCK -- (CONTINUED)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
MANDATORILY ----------------------------------------------------------------------
REDEEMABLE PREFERRED SERIES A CONVERTIBLE NOTES
STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
----------------------- --------------------- ------------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EMPLOYEES
--------- ----------- ---------- -------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock upon
exercise of stock options
(unaudited)................ -- $ -- -- $ -- 23,000 $ 230 $ 48,563 $ --
Issuance of common stock
related to conversion of
debt (unaudited)........... -- -- -- -- 805,425 8,054 6,434,471 --
Issuance of common stock, net
of issuance costs of
$166,262 (unaudited)....... -- -- -- -- 750,000 7,500 5,826,238 --
Issuance of common stock for
acquisition of business
(unaudited)................ -- -- -- -- 1,221,000 12,210 12,197,790 --
Issuance of mandatorily
redeemable preferred stock,
net of issuance costs of
$1,894,329, including
90,000 options issued to a
consultant (unaudited)..... 1,546,784 13,105,671 -- -- -- -- 1,137,100 --
Conversion of Series A
preferred stock to
mandatorily redeemable
preferred stock
(unaudited)................ 1,810,000 4,080,000 (1,810,000) (18,100) -- -- (4,061,900) --
Purchase of 42,500 shares of
common stock for treasury
(unaudited)................ -- -- -- -- -- -- -- --
Stock dividend (unaudited)... -- -- -- -- -- -- 128,148 --
Issuance of options to
purchase common stock
(unaudited)................ -- -- -- -- -- -- 156,680 --
Foreign currency translation
adjustment (unaudited)..... -- -- -- -- -- -- -- --
Deferred compensation related
to grants of options to
purchase common stock
(unaudited)................ -- -- -- -- -- -- 6,274,172 --
Amortization of deferred
compensation (unaudited)... -- -- -- -- -- -- -- --
Preferred stock accretion
(unaudited)................ -- 127,412 -- -- -- -- -- --
Net loss (unaudited)......... -- -- -- -- -- -- -- --
--------- ----------- ---------- -------- --------- ------- ----------- ---------
BALANCE JUNE 30, 2000
(UNAUDITED).................. 3,356,784 $17,313,083 -- $ -- 6,185,354 $61,853 $35,211,840 $ --
========= =========== ========== ======== ========= ======= =========== =========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------------
ACCUMULATED
OTHER RETAINED
DEFERRED TREASURY COMPREHENSIVE EARNINGS
COMPENSATION STOCK INCOME (LOSS) (DEFICIT) TOTAL
------------ --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock upon
exercise of stock options
(unaudited)................ $ -- $ -- $ -- $ -- $ 48,793
Issuance of common stock
related to conversion of
debt (unaudited)........... -- -- -- -- 6,442,525
Issuance of common stock, net
of issuance costs of
$166,262 (unaudited)....... -- -- -- -- 5,833,738
Issuance of common stock for
acquisition of business
(unaudited)................ -- -- -- -- 12,210,000
Issuance of mandatorily
redeemable preferred stock,
net of issuance costs of
$1,894,329, including
90,000 options issued to a
consultant (unaudited)..... -- -- -- -- 1,137,100
Conversion of Series A
preferred stock to
mandatorily redeemable
preferred stock
(unaudited)................ -- -- -- -- (4,080,000)
Purchase of 42,500 shares of
common stock for treasury
(unaudited)................ -- (212,075) -- -- (212,075)
Stock dividend (unaudited)... -- -- -- (128,148) --
Issuance of options to
purchase common stock
(unaudited)................ -- -- -- -- 156,680
Foreign currency translation
adjustment (unaudited)..... -- -- (87,039) -- (87,039)
Deferred compensation related
to grants of options to
purchase common stock
(unaudited)................ (6,274,172) -- -- -- --
Amortization of deferred
compensation (unaudited)... 562,798 -- -- 562,798
Preferred stock accretion
(unaudited)................ -- -- -- (127,412) (127,412)
Net loss (unaudited)......... -- -- -- (3,635,732) (3,635,732)
----------- --------- --------- ------------ -----------
BALANCE JUNE 30, 2000
(UNAUDITED).................. $(6,493,731) $(674,638) $(120,414) $(17,922,848) $10,062,062
=========== ========= ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 93
THE CONCOURS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 22, 1997) YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
THROUGH ------------------------- -----------------------------
DECEMBER 31, 1997 1998 1999 1999 2000
------------------- ----------- ----------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $ (973,781) $(5,665,142) $(7,176,581) $(4,292,706) $(3,635,732)
Adjustments to reconcile net loss
to cash flows provided by (used
in) operating activities --
Depreciation and amortization.... 60,571 191,706 327,768 145,539 1,299,447
Loss on disposition of assets.... -- 5,989 -- -- --
Stock-based compensation......... -- 38,391 182,022 91,010 719,478
Non-cash interest expense........ -- -- -- -- 2,416,275
Changes in operating assets and
liabilities, net of businesses
acquired --
Accounts receivable, net....... (2,080,274) (1,511,849) (2,838,150) (90,328) (2,056,582)
Prepaid expenses and other..... (204,291) (289,804) (217,005) (302,120) (1,145,293)
Other assets................... -- (31,594) (37,690) 14,465 (1,326,027)
Accounts payable............... 465,436 486,989 1,075,407 1,321,472 (1,452,842)
Accrued liabilities............ 326,859 345,442 1,797,020 113,931 1,706,822
Deferred revenue............... 2,901,578 2,649,278 1,931,068 (412,260) (919,582)
----------- ----------- ----------- ----------- -----------
Net cash flows provided by
(used in) operating
activities................ 496,098 (3,780,594) (4,956,141) (3,410,997) (4,394,036)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of businesses, net of
cash acquired.................... -- -- (1,000) -- (268,430)
Purchase of property and
equipment........................ (348,507) (539,440) (398,024) (116,791) (529,358)
----------- ----------- ----------- ----------- -----------
Net cash flows used in
investing activities...... (348,507) (539,440) (399,024) (116,791) (797,788)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock......... -- (162,563) (150,000) (150,000) (212,075)
Net proceeds from issuance of
common and preferred stock....... 1,337,534 4,025,243 215,938 213,051 20,125,302
Net proceeds from convertible
debt............................. -- -- 4,000,000 2,000,000 --
Net proceeds from (repayments of)
line of credit................... -- -- 1,000,000 600,000 (1,050,721)
----------- ----------- ----------- ----------- -----------
Net cash flows provided by
financing activities...... 1,337,534 3,862,680 5,065,938 2,663,051 18,862,506
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on
cash and cash equivalents.......... -- 28,398 (61,773) 136,569 (87,039)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... 1,485,125 (428,956) (351,000) (728,168) 13,583,643
Cash and cash equivalents, beginning
of period.......................... -- 1,485,125 1,056,169 1,056,169 705,169
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period............................. $ 1,485,125 $ 1,056,169 $ 705,169 $ 328,001 $14,288,812
=========== =========== =========== =========== ===========
Supplemental data:
Cash paid for interest............. $ -- $ 871 $ 252,351 $ 49,208 $ 20,520
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 94
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(INCLUDING AMOUNTS RELATED TO UNAUDITED INTERIM PERIODS)
1. BUSINESS AND ORGANIZATION:
The Concours Group, Inc. (Concours), delivers management and strategy
consulting, research and executive education services which enable Concours'
clients to improve their performance and competitiveness by capitalizing on the
potential of business, technology and human assets. Concours' services are
currently focused on advising Global 1000 and mid-size corporations in
developing and deploying eBusiness strategies. Concours provides consulting
services in the following areas: (a) eBusiness and business strategy, (b)
eBusiness solution implementation planning and management, (c) information
technology strategy, implementation planning and management and (d) custom
executive education. Concours' services also include subscription-based
multi-client and research programs. Founded in January 1997 as a Delaware
corporation, Concours' offices in the United States include the corporate
headquarters in Kingwood, Texas, and an office in Watertown, Massachusetts. In
1998 and 1999, Concours established its European infrastructure and has offices
in London, Paris, Munich, Amsterdam and Gothenburg (Sweden).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The accompanying consolidated financial statements include the accounts of
Concours and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Unaudited Interim Financial Statements
The accompanying consolidated balance sheet as of June 30, 2000, the
consolidated statements of operations and comprehensive loss for the three and
six months ended June 30, 1999 and 2000, the statements of cash flows for the
six months ended June 30, 1999 and 2000, and the consolidated statement of
stockholders' equity (deficit) and mandatorily redeemable preferred stock for
the six months ended June 30, 2000, are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results for the interim
periods. Results for the three and six months ended June 30, 2000, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000.
Revenue Recognition
A majority of revenue generated by Concours is consulting revenue, which is
comprised of professional fees and reimbursable out-of-pocket expenses.
Consulting engagements are priced on a time and materials basis. Revenue from
such fees is recognized as services are provided. Continuous service revenue is
comprised of subscription-based membership fees related to multi-client and
research programs. Other revenue represents fees from client participation in
individual research projects and from the sale of reports from completed
research projects. Memberships in our various continuous service programs are
sold as renewable, time-based subscriptions. Subscriptions generally are for one
year, are non-refundable, may begin in any calendar month and entitle the
subscribing member to participate in conferences, meetings and teleconferences
for the duration of the subscription period. Subscription fees and most other
revenue are recorded as deferred revenue when invoiced and are recognized
ratably over the subscription period or, in the case of other revenue, ratably
over the term of the related projects. Revenue derived from the sale of reports
from completed research projects is recognized upon delivery of the reports.
F-8
<PAGE> 95
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs and Expenses of Consulting and Continuous Service and Other
Costs and expenses of consulting and continuous service and other includes
payroll expenses directly associated with generation of revenue, consulting
fees, speaker fees, travel and entertainment expenses, conference facilities and
program expenses. Costs of consulting and continuous service and other are
expensed as incurred.
Cash and Cash Equivalents
Concours considers all short-term investments with an original maturity of
three months or less to be cash equivalents. As of December 31, 1998 and 1999,
and June 30, 2000, Concours had deposits in excess of federally insured limits.
Prepaid Expenses and Other
Prepaid expenses and other consists primarily of deposits for continuous
service programs, including conference facilities, speakers, entertainment and
promotion items, prepaid commissions and payments for brochures and agendas.
Property and Equipment
Property and equipment is carried at cost and depreciated on a
straight-line basis over the estimated useful economic lives of the related
assets. The estimated useful lives employed in computing depreciation are three
years for computer equipment and software and office equipment and five years
for furniture and fixtures. When property is retired or otherwise disposed of,
the cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in income. Maintenance and repairs are
charged to expense when incurred. Depreciation expense for property and
equipment for the period from inception (January 22, 1997) through December 31,
1997, for the years ended December 31, 1998 and 1999 and for the six months
ended June 30, 1999 and 2000, was $60,571, $191,706, $316,831, $145,539 and
$231,648, respectively, and was included in general and administrative expenses
in the accompanying statements of operations and comprehensive loss.
Intangible Assets
At December 31, 1999, the only component of intangible assets was a
noncompete agreement with the former owner of an acquired company (see Note 9).
The intangible asset is being amortized over the two-year life of the agreement.
At June 30, 2000, intangible assets also include goodwill of $7,121,052 and
workforce of $4,133,334 recorded in connection with the acquisition of Cepro AB
(see Note 11). Accumulated amortization at December 31, 1999 and June 30, 2000,
was $10,937 and $1,078,736, respectively. There were no intangible assets at
December 31, 1998.
F-9
<PAGE> 96
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued Liabilities
The components of accrued liabilities at December 31, 1998 and 1999, and
June 30, 2000 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1998 1999 2000
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll................................... $ 34,198 $ 339,233 $ 478,063
Accrued bonuses and commissions................... 351,676 1,591,245 2,602,135
Continuous service and other...................... -- -- 136,637
Other............................................. 286,427 587,940 1,644,192
-------- ---------- ----------
$672,301 $2,518,418 $4,861,027
======== ========== ==========
</TABLE>
Income Taxes
Concours accounts for income taxes using the liability method prescribed by
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Deferred income taxes reflect the impact of temporary differences
between financial accounting and tax bases of assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Loss
Concours has adopted SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components. Comprehensive income is the total of net income and all other
nonowner changes in equity. The only component of 1997 comprehensive loss for
Concours was net loss.
Net Loss Per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share," using the weighted average number of shares of common stock
outstanding. Shares associated with stock options and the convertible preferred
stock are not included because they are antidilutive due to losses incurred for
all periods presented.
Fair Value of Financial Instruments
The fair value of current assets and current liabilities approximates their
carrying value due to their short maturity.
Recent Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements," which provides guidance related to revenue
recognition based on interpretations and practices followed by the SEC.
Concours' management believes that its revenue recognition policy is in
compliance
F-10
<PAGE> 97
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with SAB 101 and does not believe that adoption of this Staff Accounting
Bulletin has had a material impact on Concours' financial position or results of
operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," was issued which will be effective for
fiscal year 2001. This statement was amended by SFAS No. 138 in June 2000 to
further clarify SFAS No. 133. These statements establish accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. These
statements also require that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. SFAS
133 and SFAS 138 are not anticipated to have a significant impact on Concours'
financial position or results of operations when adopted, since Concours
currently does not engage in hedging activities.
3. PROPERTY AND EQUIPMENT:
The components of property and equipment at December 31, 1998 and 1999, and
June 30, 2000 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1998 1999 2000
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software.................. $ 743,869 $1,105,887 $1,665,654
Office equipment................................. 43,819 60,238 70,368
Furniture and fixtures........................... 88,854 110,746 196,082
--------- ---------- ----------
876,542 1,276,871 1,932,104
Less -- Accumulated depreciation................. (246,861) (563,693) (795,341)
--------- ---------- ----------
$ 629,681 $ 713,178 $1,136,763
========= ========== ==========
</TABLE>
4. DEBT:
Line of Credit
Concours had a line of credit through a financial institution that provided
for borrowings of up to $1.0 million. Borrowings under the line of credit bore
interest at a rate of the Bank One index rate plus 0.5 percent (9.0 percent at
December 31, 1999) which was payable monthly. Borrowings under the line of
credit were not secured by any of Concours' assets but were secured by a $1.0
million letter of credit provided by an affiliate of Infologix (BVI) Ltd. At
December 31, 1999, Concours had a balance of $1.0 million outstanding under the
line of credit. There were no amounts outstanding under the line of credit at
December 31, 1998. On February 17, 2000, Concours paid off the outstanding
balance of the line of credit with proceeds from the sale of common stock to an
affiliate of that same stockholder, and the line of credit has terminated (see
Note 8).
Convertible Debt
During 1999, Concours received $4.0 million in cash from an affiliate of
Infologix (BVI) Ltd. in exchange for four unsecured convertible notes of $1.0
million each, bearing interest at rates ranging from 7.75 percent to 8.00
percent payable quarterly. On February 1, 2000, the convertible notes were
converted into 805,425 shares of Concours' common stock based on a conversion
price of $5.00 provided in the stock purchase and debt conversion agreement
dated February 1, 2000, which superceded and replaced the terms in the original
note agreements. Concours recognized non-cash interest expense of $2.4 million
F-11
<PAGE> 98
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
representing the difference between the conversion price and the fair value of
the common stock on the date of conversion.
5. INCOME TAXES:
Concours recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in different periods
in the financial statements and tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using currently enacted rates and laws. Deferred tax assets are evaluated for
realization based on a more-likely-than-not criteria in determining if a
valuation allowance should be provided.
At December 31, 1999, Concours has net operating loss (NOL) carryforwards
for federal income tax purposes of approximately $8.0 million. Since United
States tax laws limit the time during which NOLs may be applied against future
taxable income and tax liabilities, Concours may not be able to take full
advantage of its NOL carryforwards for federal income tax purposes. The
carryforwards will begin to expire in 2012 if not otherwise used. A change in
ownership, as defined by federal income tax regulations, could significantly
limit Concours' ability to utilize its carryforwards. Concours also has NOL
carryforwards for foreign income tax of approximately $4.5 million which begin
to expire in 2004. Due to limitations placed on utilization by the foreign tax
laws, Concours may not be able to take full advantage of the foreign NOL for tax
purposes. A valuation allowance has been established to fully offset Concours'
deferred tax assets as a result of these uncertainties regarding realization.
A reconciliation of the statutory federal income tax rate to Concours'
effective income tax rate for the period from inception (January 22, 1997)
through December 31, 1997, and for the years ended December 31, 1998 and 1999,
was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Taxes at statutory rate....................... $(308,038) $(1,301,251) $(1,276,722)
Taxes at foreign statutory rates.............. -- (336,194) (1,080,338)
Permanent differences and other............... -- -- (85,875)
Adjustment to deferred tax valuation
allowance................................... 308,038 1,637,445 2,442,935
--------- ----------- -----------
Tax provision, as reported.......... $ -- $ -- $ --
========= =========== ===========
</TABLE>
Significant components of Concours' deferred tax assets (liabilities) at
December 31, 1998 and 1999, were as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Federal net operating loss carryforwards................... $ 1,437,387 $ 2,705,957
Foreign net operating loss carryforwards................... 336,194 1,405,688
Depreciation and amortization.............................. (569) 18,824
Deferred revenue........................................... 193,422 121,732
Other items, net........................................... 59,757 216,925
----------- -----------
Total deferred tax assets........................ 2,026,191 4,469,126
Deferred tax valuation allowance........................... (2,026,191) (4,469,126)
----------- -----------
Net deferred tax assets.......................... $ -- $ --
=========== ===========
</TABLE>
F-12
<PAGE> 99
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EMPLOYEE BENEFIT PLAN:
In 1997, Concours adopted the Concours Group 401(k) Plan (the Plan), a
qualified retirement plan covering all of Concours' employees who are at least
21 years of age. Pursuant to the Plan, employees may elect to reduce their
current compensation by up to the statutorily prescribed annual limit and have
the amount of such reduction contributed to the Plan. The Plan permits, but does
not require, additional matching contributions by Concours on behalf of all
participants in the Plan. No contributions have been made to the Plan by
Concours.
7. COMMITMENTS AND CONTINGENCIES:
Operating Leases
Concours leases office space and equipment under long-term noncancelable
operating leases that expire at various dates through 2002. Rent expense for all
operating leases for the period from inception (January 22, 1997) through
December 31, 1997, for the years ended December 31, 1998 and 1999, and for the
six months ended June 30, 1999 and 2000 was $94,221, $154,510, $341,040,
$154,775 and $356,398, respectively. As of December 31, 1999, Concours had the
following rental commitments under non-cancelable operating leases:
<TABLE>
<S> <C>
Year ending December 31--
2000.................................................. $ 289,400
2001.................................................. 240,708
2002.................................................. 197,067
2003.................................................. 113,433
2004.................................................. 113,433
Thereafter............................................ 89,830
----------
Total......................................... $1,043,871
==========
</TABLE>
Claims
Concours is from time to time subject to legal proceedings and claims which
arise in the normal course of business. In the opinion of management, after
consultation with legal counsel, the amount of the ultimate liability with
respect to these actions will not have a material adverse effect on Concours'
financial position or results of its operations.
8. STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock
During 1997 and 1998, Concours issued 1,500,000 shares and 310,000 shares,
respectively, of Series A convertible preferred stock (Series A Preferred Stock)
for net cash proceeds of $1,290,000 and $2,790,000, respectively. Each share of
Series A Preferred Stock may be converted, at the option of the holder, into one
share of common stock. The holders of Series A Preferred Stock have voting
rights identical to those of holders of common stock based on the resulting
shares of common stock which could be acquired upon conversion. The conversion
ratio is subject to adjustment, as defined in the certificate of designation,
upon the occurrence of specified events that would be dilutive in nature.
Holders of Series A Preferred Stock are entitled to liquidation preferences over
holders of common stock. The Series A Preferred Stock is automatically
convertible into common stock upon consummation of an initial public offering of
Concours common stock.
F-13
<PAGE> 100
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series B Convertible Redeemable Preferred Stock
Effective February 29, 2000, Concours sold a total of 1,546,784 shares of
Series B convertible redeemable preferred stock (Series B Preferred Stock), par
value $0.01 per share, for $15.0 million before offering costs of $0.6 million.
Under the terms of the amended and restated certificate of designation of
the powers, rights and preferences of both the Series A and Series B Preferred
Stock, the convertible preferred stock has the following characteristics:
Dividends -- Holders of Series A and Series B Preferred Stock shall be
entitled to receive dividends at a cumulative rate of 8 percent per annum of the
original purchase price per share of such stock payable only in Series A and
Series B Preferred Stock. Dividends shall only accumulate and accrue if Concours
does not have an effective registration statement with the SEC for the sale of
its common stock on or before December 31, 2000. Such dividends shall be payable
only if a registration statement covering Concours' initial public offering of
its common stock is not declared effective before the end of 2000. No dividends
or other distributions may be declared or paid on the common stock until any and
all dividends declared on the Series A and Series B Preferred Stock have been
paid in full.
Liquidation Preference -- In the event of any liquidation, dissolution or
winding up of Concours, the holders of Series A and Series B Preferred Stock
shall be entitled to receive, in preference to the common stockholders, for each
respective class of convertible preferred stock, an amount per share equal to
the sum of the aggregate consideration paid for the stock (including
contributions to capital made pro rata by all of the holders of stock) plus the
aggregate amount of all accrued but unpaid dividends, divided by the number of
shares of stock outstanding. After liquidation preferences have been paid to the
holders of Series A Preferred Stock and then to the holders of Series B
Preferred Stock, the remaining assets of Concours shall be distributed to the
holders of common stock, and the holders of Series A and Series B Preferred
Stock, ratably on an as-converted basis. The aggregate liquidation preference of
Series A and Series B Preferred Stock was $19.3 million at June 30, 2000.
Voting Rights -- Each holder of the Series A and Series B Preferred Stock
shall have the same voting rights and vote with the holders of common stock with
respect to every matter voted on by the holders of the common stock.
Conversion -- Each share of Series A and Series B Preferred Stock may be
converted at any time at the option of the holder into one share of common
stock, subject to adjustment upon the occurrence of specified events that would
be dilutive in nature. Upon the consummation of a public offering of Concours'
common stock, all issued and outstanding shares of Series A and Series B
Preferred Stock automatically convert into common stock.
Redemption -- At any time after the fifth anniversary of the original
issuance of the Series B Preferred Stock and at the written request of a least
66 2/3 percent of the holders of the then outstanding shares of each of the
Series A and Series B Preferred Stock, Concours will redeem all of the shares of
the Series A and/or Series B Preferred Stock, as applicable, within one year
subsequent to the date the redemption election is received by Concours.
The Series A and Series B Preferred Stock is being accreted to liquidation
value through the earliest mandatory redemption date of March 1, 2005.
Common Stock
On February 1, 2000, Concours issued 750,000 shares of common stock for
$6.0 million to Concours' largest stockholder. A portion of these funds was used
to repay a $1.0 million bank line of credit (see Note 4).
F-14
<PAGE> 101
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The holders of the common stock are entitled to receive dividends when and
as declared by the board of directors. Under the terms of a voting trust
agreement (the voting trust) and a voting agreement, as amended (the voting
agreement), the majority of the common stockholders are subject to certain
rights of the trustee including the right to exercise all stockholders' voting
rights and powers and the right to elect three members of the board of
directors. Concours' president and chief executive officer is serving as the
trustee through the year 2019. The voting trust and the voting agreement
terminate upon the consummation of a qualified initial public offering of
Concours' common stock.
Notes Receivable from Employees
During 1998, Concours entered into two promissory notes receivable totaling
$390,000 in connection with the issuance of 340,000 shares of common stock to
two employees. The full-recourse notes were noninterest-bearing, were secured by
a pledge of the shares acquired and the employees' other assets and were payable
in full by January 2001. During 1998, one of the notes was reduced by $150,000
upon the receipt by Concours of 150,000 shares of Concours' common stock in
which the employee was not vested. The remaining portions of the notes were
collected in 1998 and 1999.
Stock Option Plans
Concours has adopted the 1997 Stock Option Plan, the 1998 Stock Option
Plan, the 1998 European Equity Compensation Plan and the 1999 Stock Option Plan
which provides for the issuance of 2,435,857 shares to employees, consultants
and advisors of Concours. Under all stock option plans, Concours grants to the
optionee an incentive option to purchase shares of Concours' common stock that
expires 10 years from the date of grant. The incentive options generally become
exercisable at annual increments of 25 percent beginning on the first
anniversary of the grant date. A portion of these options are subject to certain
acceleration provisions including a change of control of Concours and the
completion of a public offering of Concours' stock.
Effective January 1, 2000, the board of directors of Concours adopted the
2000 Employee Stock Option Plan, the 2000 Senior Executive Performance Plan, the
2000 Director Stock Option Plan and the 2000 International Equity Compensation
Plan. A total of 1,000,000; 175,000; 125,000 and 600,000 shares, respectively,
have been reserved for issuance to employees, consultants, advisors, senior
executives and directors under these plans. Options issued under the Employee
Stock Option Plan and International Equity Compensation Plan are generally
exercisable in installments of 25 percent per year beginning on the first
anniversary date of the grant. Options issued under the Senior Executive
Performance Plan and the 2000 Director Stock Option Plan are generally
exercisable in installments of 33 1/3 percent per year beginning on the first
anniversary date of the grant. Options expire 10 years from the date of grant.
F-15
<PAGE> 102
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the combined balance of the stock option plans as of December
31, 1997, 1998 and 1999, and as of June 30, 2000 and the activity during the
periods then ended was as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE EXERCISE
RESERVED SHARES PRICE SHARES PRICE
---------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance, at inception (January 1997)..... -- -- $ -- -- $ --
Shares reserved........................ 460,857 -- --
Granted................................ (432,500) 432,500 1.00
---------- ---------
Balance, December 31, 1997............... 28,357 432,500 1.00 -- --
Shares reserved........................ 1,975,000 --
Granted................................ (1,036,500) 1,036,500 2.08
Exercised.............................. -- (2,500) 1.00
Canceled or forfeited.................. 93,750 (93,750) 1.00
---------- ---------
Balance, December 31, 1998............... 1,060,607 1,372,750 1.82 105,625 1.00
Granted................................ (663,572) 663,572 4.16
Exercised.............................. -- (5,000) 1.94
Canceled or forfeited.................. 214,125 (214,125) 2.37
---------- ---------
Balance, December 31, 1999............... 611,160 1,817,197 2.61 461,697 1.94
Shares reserved (Unaudited)............ 1,900,000 -- --
Granted (Unaudited).................... (1,725,350) 1,830,350 10.06
Exercised (Unaudited).................. -- (23,000) 2.12
Cancelled or forfeited (Unaudited)..... 132,697 (132,697) 6.99
---------- ---------
Balance, June 30, 2000 (Unaudited)....... 918,507 3,491,850 6.37 606,750 3.15
========== =========
</TABLE>
Concours follows SFAS No. 123 which permits Concours to use the method of
accounting for employee stock options specified in Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Under APB Opinion No. 25, Concours recognizes as compensation
expense the excess of the estimated fair value of the common stock issuable upon
exercise of such options by employees over the aggregate exercise price of such
options at the date of grant. Any resulting compensation expense is amortized
ratably over the vesting period of each option. The compensation expense
resulting from such options was $38,391 and $182,022 during the years ended
December 31, 1998 and 1999, respectively. Stock-based awards to nonemployees,
including consultants and advisory board members, are accounted for at their
fair value in accordance with SFAS No. 123 and the Emerging Issues Task Force
Issue No. 96-18 "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
Since Concours accounts for the stock option plans under APB Opinion No. 25
and related interpretations, no compensation cost has been recognized for grants
to employees with exercise prices equal to or in excess of fair value at the
grant date. Had compensation expense for these plans been determined using the
fair value method as set forth in SFAS No. 123, Concours' pro forma net loss and
net loss per share (basic and diluted) would have increased to $(981,303) and
$(0.43), respectively, in 1997, $(5.9 million) and $(1.78), respectively, in
1998 and $(7.9 million) and $(2.50), respectively, in 1999. The pro forma
effects for fiscal 1997, 1998 and 1999 are not necessarily indicative of the pro
forma effects in future years. The weighted average fair value of options
granted was $0.80, $1.65 and $3.27 during 1997, 1998 and 1999, respectively. The
fair value was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
F-16
<PAGE> 103
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fiscal 1997, 1998 and 1999: expected volatility of 69.92 percent; risk-free
interest rates of 5.84 percent, 4.86 percent and 5.48 percent, respectively; and
expected lives of 10 years.
The number and weighted average fair value of options granted in 1997, 1998
and 1999 was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES FAIR VALUE SHARES FAIR VALUE SHARES FAIR VALUE
-------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Option price equals fair
market value.......... 432,500 $0.80 699,000 $2.07 264,072 $2.59
Option price greater
than fair market
value................. -- -- -- -- 135,000 4.00
Option price less than
fair market value..... -- -- 337,500 0.79 264,500 3.73
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ ----------------------------
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL WEIGHTED WEIGHTED
RANGE OF OUTSTANDING LIFE AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES SHARES (IN YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
--------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.00-$2.50 831,000 8.45 $1.26 314,250 $1.30
$2.51-$5.00 986,197 9.13 3.74 147,447 3.61
--------- -------
$1.00-$5.00 1,817,197 8.82 2.61 461,697 1.94
========= =======
</TABLE>
For stock options issued through June 30, 2000, Concours expects to record
amortization expense for deferred compensation as follows: $1,714,000 during
2000, $1,872,000 during 2001, $1,739,000 during 2002, $1,452,000 during 2003 and
$436,000 during 2004. The amount of compensation expense to be recorded in
future periods would decrease if unvested options for which deferred
compensation has been recorded are subsequently canceled.
From July 1, 2000 through August 4, 2000, Concours granted additional
options to purchase 100,500 shares of common stock at an exercise price of
$14.00. Concours expects to record deferred compensation of $402,000 related to
these grants and expects to record amortization expense for this deferred
compensation as follows: $41,000 during 2000, $111,000 during 2001, $111,000
during 2002, $97,000 during 2003 and $42,000 during 2004.
Warrants
As approved by the Board of Directors, Concours' largest stockholder was
granted a preemptive right such that they received rights to receive stock
options as those granted by Concours under the 1999 Stock Option Plan. At
December 31, 1999 the major stockholder had been granted rights to receive
53,572 shares at $5.00 per share pursuant to this agreement. The options were
recorded as a stock dividend to our major shareholder in 1999. On February 1,
2000, the 53,572 options were exchanged for 50,000 warrants to purchase common
stock. The warrants have an exercise price of $5.00 per share and are
exercisable for ten years. Concours recorded an additional stock dividend of
$128,148 during the six months ended June 30, 2000, related to the incremental
valuation of the 50,000 warrants as of February 1, 2000 compared to the original
valuation of the 53,572 options.
F-17
<PAGE> 104
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACQUISITION:
On November 18, 1999, Concours acquired Inforesma, a Swedish provider of
subscription-based multi-client programs, for approximately $118,000 in cash and
the issuance of 25,000 shares of common stock. The acquisition was accounted for
as a purchase and, accordingly, the total purchase price of $293,000 was
allocated to the assets acquired and liabilities assumed based on their
respective fair values. In conjunction with the acquisition, the former owner
entered into a two-year non-compete agreement with Concours.
10. SEGMENT AND GEOGRAPHICAL INFORMATION:
Management evaluates the performance of Concours' operations under two
separate business segments, consulting and continuous service and other, the
latter of which includes multi-client programs, subscription-based research
programs and individual research projects. The two segments are managed
separately because each business provides a different type of service, utilizes
different cost structures and billing methods and requires different resources
and marketing strategies.
Concours operates principally in the United States, with operations in
various locations in Europe. Revenue derived from Europe represented
approximately 10 percent of total revenue for the year ended December 31, 1999.
Prior to 1999, revenue generated in foreign countries was not significant to
Concours' operations. Concours' foreign operations are subject to local
government regulations and to the uncertainties of the economic and political
conditions of those areas.
No single customer accounted for 10 percent or more of total revenue for
the periods ended December 31, 1998 and 1999. In 1997, one customer accounted
for more than 10 percent of revenue.
F-18
<PAGE> 105
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial information for the reportable segments for the period from
inception (January 22, 1997) through December 31, 1997, for the years ended
December 31, 1998 and 1999, and for the six months ended June 30, 1999 and 2000
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue --
Consulting................................... $ 4,877,641 $ 8,528,990 $15,737,811 $ 6,704,658 $18,275,123
Continuous service and other................. 3,934,352 7,422,401 10,342,584 4,839,760 5,769,455
----------- ----------- ----------- ----------- -----------
$ 8,811,993 $15,951,391 $26,080,395 $11,544,418 $24,044,578
=========== =========== =========== =========== ===========
Net income (loss) --
Consulting................................... $ 1,374,227 $ 638,633 $ 1,899,601 $ 250,618 $ 4,511,634
Continuous service and other................. 432,375 210,987 1,195,127 393,715 738,793
All other:
Corporate overhead......................... (1,173,254) (3,597,400) (5,014,761) (2,408,621) (2,939,866)
Sales and marketing........................ (1,655,178) (2,991,474) (4,996,533) (2,509,639) (3,335,114)
Other...................................... 48,049 74,112 (260,015) (18,779) (2,611,179)
----------- ----------- ----------- ----------- -----------
$ (973,781) $(5,665,142) $(7,176,581) $(4,292,706) $(3,635,732)
=========== =========== =========== =========== ===========
Identifiable assets --
Consulting................................... $ 1,156,428 $ 1,267,498 $ 3,665,691 $ 2,501,253 $20,553,669
Continuous service and other................. 1,148,227 2,980,445 3,656,359 2,103,548 2,678,931
All other.................................... 1,752,971 1,555,719 1,525,578 819,930 16,640,980
----------- ----------- ----------- ----------- -----------
$ 4,057,626 $ 5,803,662 $ 8,847,628 $ 5,424,731 $39,873,580
=========== =========== =========== =========== ===========
Depreciation and amortization --
Consulting................................... $ 16,518 $ 48,535 $ 84,470 $ 48,766 $ 1,130,078
Continuous service and other................. 9,771 16,610 46,159 16,668 22,926
All other.................................... 34,282 126,561 197,139 80,105 146,443
----------- ----------- ----------- ----------- -----------
$ 60,571 $ 191,706 $ 327,768 $ 145,539 $ 1,299,447
=========== =========== =========== =========== ===========
Capital expenditures --
Consulting................................... $ 94,416 $ 126,958 $ 96,002 $ 50,480 $ 178,931
Continuous service and other................. 32,324 34,202 10,663 19,019 26,568
All other.................................... 221,767 378,280 291,359 47,292 323,859
----------- ----------- ----------- ----------- -----------
$ 348,507 $ 539,440 $ 398,024 $ 116,791 $ 529,358
=========== =========== =========== =========== ===========
</TABLE>
Components of net income (loss) include all costs directly associated with
generating revenue for each of the operating segments. Certain costs including
corporate overhead and sales and marketing have not been included as management
does not allocate these expenses in assessing segment performance. Corporate
overhead primarily includes administrative salaries, facilities and telephone
expense. Sales and marketing includes the cost of maintaining a dedicated sales
force and direct mailings. All other identifiable assets are comprised primarily
of cash and corporate fixed assets, including computer equipment, software,
furniture and fixtures and leasehold improvements; all other depreciation and
amortization and capital expenditures relate to corporate fixed assets. Cash and
corporate fixed assets are not allocable to any specific business segment.
F-19
<PAGE> 106
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Geographical information for the reportable segments for the period from
inception (January 22, 1997) through December 31, 1997, and for the years ended
December 31, 1998 and 1999 and the six months ended June 30, 1999 and 2000, was
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998 1999 1999 2000
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue --
United States...... $8,811,993 $15,851,070 $23,371,961 $10,595,241 $17,737,082
Europe............. -- 100,321 2,708,434 949,177 6,307,496
---------- ----------- ----------- ----------- -----------
$8,811,993 $15,951,391 $26,080,395 $11,544,418 $24,044,578
========== =========== =========== =========== ===========
Identifiable
long-lived assets--
United States...... $ 287,936 $ 491,288 $ 554,320 $ 424,831 $ 869,566
Europe............. -- 138,393 158,857 176,102 267,197
---------- ----------- ----------- ----------- -----------
$ 287,936 $ 629,681 $ 713,177 $ 600,933 $ 1,136,763
========== =========== =========== =========== ===========
</TABLE>
11. SUBSEQUENT EVENTS:
Acquisition
On February 29, 2000, Concours purchased all of the outstanding shares of
stock of Cepro AB (Cepro), a Swedish management consulting firm, from Cepro's
stockholders in exchange for a total of 1,221,000 shares of Concours common
stock valued at $10.00 per share. Each employee of Cepro entered into an
employment agreement as part of the acquisition.
A total of 235,000 of the Concours shares issued to the selling Cepro
stockholders are being held in escrow for three years as security for the
indemnity given by the selling Cepro stockholders under the purchase agreement.
These escrowed shares, and an additional 230,000 of the total shares, are
subject to a repurchase right whereby Concours has the right to repurchase all
of each former Cepro stockholder's portion of these shares at a price of $10.00
per share if the selling stockholder's employment is terminated for any reason,
or no reason, before March 1, 2003. Shares repurchased by Concours pursuant to
its right to repurchase will be recorded as treasury stock.
F-20
<PAGE> 107
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition of Cepro has been accounted for as a purchase, therefore,
the accompanying consolidated statements of operations for the first quarter of
2000 reflect the results of Cepro since its acquisition date of February 29,
2000. The purchase price and estimated fair market value of the assets acquired
and liabilities assumed are as follows:
<TABLE>
<S> <C>
Purchase price:
Concours stock issued..................................... $12,210,000
Acquisition costs......................................... 446,057
-----------
Total purchase price.............................. $12,656,057
===========
Net assets acquired:
Current assets............................................ $ 1,692,585
Property and equipment, net............................... 125,875
Workforce................................................. 4,650,000
Goodwill.................................................. 7,629,699
Other assets.............................................. 1,643
Current liabilities....................................... (1,443,745)
-----------
Net assets acquired............................... $12,656,057
===========
</TABLE>
Workforce is being amortized over a three-year period. Goodwill is being
amortized over a five-year period.
The following table reflects on an unaudited consolidated pro forma basis
the results of operations as though Cepro had been acquired as of the beginning
of each period presented. Adjustments have been made to reflect the accounting
basis used in recording the acquisition of Cepro. These pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of the results of operations that would have resulted had Cepro been acquired at
the beginning of each period presented, that have resulted since the date of
acquisition or that may result in the future. Pro forma amounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
------------ ----------------
(UNAUDITED)
<S> <C> <C>
Total revenue........................................... $32,876,000 $25,300,000
Net loss attributable to common stockholders............ (10,220,000) (4,097,000)
Net loss per share -- basic and diluted................. (2.51) (0.76)
</TABLE>
Registration Statement
In March 2000, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
Concours to sell shares of its common stock to the public. Upon the consummation
of this offering, the outstanding Series A and Series B Preferred Stock will
convert into 3,356,784 shares of common stock.
F-21
<PAGE> 108
THE CONCOURS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma
The following components of stockholders' equity (deficit) as of June 30,
2000, are adjusted here to reflect on a pro forma basis the conversion of all
outstanding convertible preferred stock into common stock:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTED FOR
CONVERSION OF
ACTUAL PREFERRED STOCK
------------ ---------------
<S> <C> <C>
Mandatorily redeemable preferred stock.................. $ 17,313,083 $ --
============ ============
Stockholders' equity (deficit) --
Common stock.......................................... $ 61,853 $ 95,421
Deferred compensation................................. (6,493,731) (6,493,731)
Additional paid-in capital and other.................. 34,416,788 51,696,303
Retained earnings (deficit)........................... (17,922,848) (17,922,848)
------------ ------------
Total stockholders' equity (deficit).......... $ 10,062,062 $ 27,375,145
============ ============
Shares of common stock outstanding...................... 5,870,604 9,227,388
============ ============
</TABLE>
F-22
<PAGE> 109
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders of Cepro AB:
We have audited the consolidated financial statements, all expressed in
Swedish kronor, of Cepro AB listed in the index to the financial statements on
page F-1. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Sweden. Those standards are substantially similar to auditing
standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, expressed in
Swedish kronor, present fairly, in all material respects, the consolidated
financial position of Cepro AB as of December 31, 1999 and 1998, and the
consolidated results of operations and changes in financial position for each of
the years then ended in conformity with accounting principles generally accepted
in Sweden. For purposes of the Cepro AB financial statements, there are no
significant differences between accounting principles generally accepted in
Sweden and accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Stockholm, Sweden
April 18, 2000
F-23
<PAGE> 110
CEPRO AB
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------------ -------
SEK USD SEK
<S> <C> <C> <C>
REVENUE..................................................... 56,176 6,796 51,374
OPERATING EXPENSES
Other external expenses..................................... (36,703) (4,440) (30,297)
Personnel expenses (Note 3)................................. (18,413) (2,227) (19,371)
Depreciation of goodwill and equipment (Note 2, 5, 6)....... (826) (100) (759)
------- ------ -------
OPERATING INCOME............................................ 234 29 947
RESULTS FROM FINANCIAL INVESTMENTS
Interest income and other financial items................... 40 5 65
Interest expense and other financial expenses............... (30) (4) (6)
------- ------ -------
INCOME AFTER FINANCIAL ITEMS................................ 244 30 1,006
Taxes (Note 4).............................................. (156) (19) (383)
------- ------ -------
Net Income........................................ 88 11 623
======= ====== =======
</TABLE>
F-24
<PAGE> 111
CEPRO AB
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
--------------- ------
SEK USD SEK
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets
Goodwill (Note 5)......................................... 26 3 91
Tangible assets
Equipment (Note 6)........................................ 1,541 180 1,769
Financial assets
Minority-owned company (Note 8)........................... 14 2 14
Other long-term securities................................ 36 4 36
------ ------ ------
50 6 50
------ ------ ------
Total fixed assets................................. 1,617 189 1,910
------ ------ ------
CURRENT ASSETS
Current receivables
Accounts receivable, net of 97 SEK, 11 USD and 244,
respectively............................................ 9,170 1,073 7,248
Other receivables......................................... 123 14 244
Income tax receivable..................................... 63 7 --
Prepaid expenses and accrued income (Note 9).............. 4,220 495 4,246
------ ------ ------
Total current receivables.......................... 13,576 1,589 11,738
Cash and bank balances...................................... 1,479 173 3,857
------ ------ ------
Total current assets............................... 15,055 1,762 15,595
------ ------ ------
Total assets....................................... 16,672 1,951 17,505
====== ====== ======
EQUITY AND LIABILITIES
EQUITY
Restricted equity
Share capital, 5,750 shares at par value SEK 100.......... 575 67 575
Other restricted reserves................................. 546 64 277
------ ------ ------
Total restricted equity................................. 1,121 131 852
Unrestricted equity
Non-restricted reserves................................... 1,991 233 1,637
Profit for the year....................................... 88 10 623
------ ------ ------
Total unrestricted equity............................... 2,079 243 2,260
Total equity....................................... 3,200 374 3,112
Minority interests.......................................... 16 2 15
Deferred tax liabilities.................................... 341 40 677
CURRENT LIABILITIES
Accounts payable -- trade................................. 3,928 460 2,536
Income tax payable........................................ -- -- 567
Other liabilities......................................... 4,245 497 2,722
Accrued expenses and prepaid income (Note 10)............. 4,942 578 7,876
------ ------ ------
Total current liabilities.......................... 13,115 1,535 13,701
------ ------ ------
Total equity and liabilities....................... 16,672 1,951 17,505
====== ====== ======
Memorandum items
Pledged assets (Note 11).................................... 2,502 293 2,502
Contingent liabilities...................................... None None None
</TABLE>
F-25
<PAGE> 112
CEPRO AB
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF SEK)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1999 1998
------ -----
<S> <C> <C>
OPERATIONS
Income after financial items................................ 244 1,006
Depreciation................................................ 826 759
Capital gain/loss included in operating income.............. -- 76
Taxes paid.................................................. (498) (560)
------ -----
Cash flow from operations excluding change in operating
assets and liabilities.................................... 572 1,281
Change in operating assets and liabilities
Change in accounts receivable............................. (1,922) 22
Change in other current assets............................ 84 (542)
Change in current liabilities............................. (586) 3,881
------ -----
Cash flow from operations................................... (1,852) 4,642
INVESTMENTS
Equipment................................................... (527) (719)
------ -----
Cash flow from investments.................................. (527) (719)
Total cash flow from operations and investments............. (2,379) 3,923
FINANCING
Change in long-term loans................................... -- (389)
Change in minority interests................................ 1 --
------ -----
Cash flow from financing.................................... 1 (389)
Total cash flow............................................. (2,378) 3,534
Liquid funds at beginning of year........................... 3,857 323
------ -----
Liquid funds at year-end.................................... 1,479 3,857
====== =====
</TABLE>
F-26
<PAGE> 113
CEPRO AB
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF SEK)
<TABLE>
<CAPTION>
RESTRICTED RETAINED
SHARE CAPITAL RESERVES EARNINGS TOTAL
------------- ---------- -------- -----
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997.......................... 575 52 1,862 2,489
Redistribution between restricted and non-restricted
reserves............................................ -- 216 (216) --
Profit allocation..................................... -- 9 (9) --
Net income............................................ -- -- 623 623
--- --- ----- -----
BALANCE AT DECEMBER 31, 1998.......................... 575 277 2,260 3,112
Redistribution between restricted and non-restricted
reserves............................................ -- 215 (215) --
Profit allocation..................................... -- 54 (54) --
Net income............................................ -- -- 88 88
--- --- ----- -----
BALANCE AT DECEMBER 31, 1999.......................... 575 546 2,079 3,200
=== === ===== =====
</TABLE>
F-27
<PAGE> 114
CEPRO AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BUSINESS AND ORGANIZATION
Cepro AB (the parent company) and its majority owned subsidiaries (see Note
7) (together with the parent company, the "Group") provide management consulting
services in Sweden and employ directly and indirectly approximately 40
consultants who help businesses in areas such as strategic planning, financial
analysis, marketing, information management and executive and organizational
development. Cepro AB is governed by a board of directors (the Board) and the
managing director is the primary operating officer for the Group.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The accounting principles applied are in accordance with the Annual
Accounts Act and recommendations and statements from the Swedish Accounting
Standards Board, the Swedish Financial Accounting Standards Council and the
Swedish Institute of Authorized Public Accountants (FAR).
The following valuation and translation principles were applied in
preparing these financial statements:
Consolidated financial statements
The income statement and balance sheets for the Group include all companies
in which the parent company at year-end directly or indirectly owned more than
50% of the voting rights. All significant intercompany transactions have been
eliminated.
Currency
All amounts contained in these financial statements are stated in Swedish
kronor. For convenience, the balance sheet as of December 31, 1999, and the
income statement for the year then ended, have been translated into United
States dollars (USD) using the conversion rates at December 31, 1999, and for
the year then ended of 1.00 SEK to 0.1170 U.S. dollars and 1.00 SEK to 0.1210
U.S. dollars, respectively. The conversion rates from SEK to USD at December 31,
1998, and for the year then ended were 1.00 SEK to 0.1229 USD and 1.00 SEK to
0.12578, respectively.
Revenue
Revenue is comprised primarily of revenue from professional fees and
reimbursable out-of-pocket expenses from consulting services. Consulting
engagements are priced on a time and materials basis. Revenue from such fees is
recognized as the services are provided.
Personnel expenses and other external expenses
Personnel expenses include salaries, payroll taxes, pension expense,
education costs and costs for personnel welfare. Other external expenses include
fees billed for services provided by consultants, office expenses such as rent
and supplies, advertising, printing and other operating costs.
Purchase method
The consolidated financial statements are prepared according to the
recommendation 1:96 from the Swedish Financial Accounting Standards Council. All
acquisitions of companies were accounted for according to the purchase method,
whereby the assets and liabilities in a subsidiary on the date of acquisition
are evaluated to determine the acquisition value to the Group. Any differences
between the acquisition price and the acquisition value are reported as
goodwill.
F-28
<PAGE> 115
CEPRO AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 Merger
A merger was carried out in 1996 (the 1996 merger). Deferred taxes were
recorded related to untaxed profits of the merged company.
Minority-owned company
The minority-owned company is accounted for at cost. The equity method is
not used because the results are not significant (see Note 8).
Tangible fixed assets
Tangible fixed assets are accounted for at acquisition cost less
accumulated depreciation based on the assets acquisition value and estimated
economic life.
Depreciation is recorded based on the following useful lives as follows:
<TABLE>
<S> <C>
Goodwill.................................................... 4 years
Equipment................................................... 5 years
</TABLE>
Receivables
Receivables are recorded net of reserves for bad debts.
Social Fees
Social fees are amounts paid to the Swedish government for health
insurance, contributions to the national pension fund, supplementary pension
fees, labor market fees and payroll taxes.
U.S. GAAP
Information with respect to U.S. GAAP (Generally Accepted Accounting
Principles in the United States) is given in Note 12.
NOTE 3 AVERAGE NUMBER OF EMPLOYEES, SALARIES, REMUNERATIONS AND SOCIAL FEES
Average number of employees
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
EMPLOYEES OF MEN EMPLOYEES OF MEN
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Parent company................................. 20 59% 15 53%
Subsidiaries................................... 6 100% 7 100%
-- --- -- ---
Total................................ 26 68% 22 68%
== === == ===
</TABLE>
F-29
<PAGE> 116
CEPRO AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Salaries, remunerations and social fees
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
SALARIES AND SOCIAL FEES SALARIES AND SOCIAL FEES
OTHER (PENSION OTHER (PENSION
REMUNERATION COST) REMUNERATION COST)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Parent company.......................... 6,181 3,679 8,033 3,365
(1,051) (550)
Subsidiaries............................ 4,552 2,547 3,906 2,529
(829) (988)
------ ------ ------ ------
Total for the Group........... 10,733 6,226 11,939 5,894
(1,880) (1,538)
</TABLE>
Salaries and other remunerations distributed to Board members, the managing
director and other employees
<TABLE>
<CAPTION>
1999 1998
---------------------------- --------------------------------
THE MANAGING OTHER MANAGING OTHER
BOARD DIRECTOR EMPLOYEES THE BOARD DIRECTOR EMPLOYEES
----- -------- --------- --------- -------- ---------
(BONUS PAYMENT) (BONUS PAYMENT)
<S> <C> <C> <C> <C> <C> <C>
Parent company........................... 141 0 6,040 107 0 7,926
(0) (0) (0) (0)
--- -- ------ --- -- ------
Total parent company..................... 141 0 6,040 107 0 7,926
Subsidiaries............................. 359 0 4,193 356 0 3,550
(0) (0) (0) (0)
--- -- ------ --- -- ------
Total subsidiaries....................... 359 0 4,193 356 0 3,550
(0) (0) (0) (0)
--- -- ------ --- -- ------
Total for the Group...................... 500 0 10,233 463 0 11,476
(0) (0) (0) (0)
</TABLE>
Cepro has no pension costs or pension commitments regarding the Board and
the managing director.
According to an agreement regarding severance pay, Cepro's managing
director has the right to a remuneration amounting to 12 months' salary.
NOTE 4 TAXES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Provision to current income tax............................. (459) (556)
Provision to deferred income tax............................ 303 173
---- ----
Total............................................. (156) (383)
==== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Deferred tax liability relating to untaxed reserves......... 341 291
Deferred tax on accrued income.............................. -- 386
---- ----
Total............................................. 341 677
==== ====
</TABLE>
Swedish companies are allowed to exclude from current taxation up to 20
percent of annual taxable income. Deferred taxes have been recorded related to
such untaxed reserves. Untaxed reserves are to be reversed and included in
taxable income within a six year period.
F-30
<PAGE> 117
CEPRO AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 GOODWILL
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Acquisition value........................................... 259 259
---- ----
Beginning depreciation...................................... (168) (112)
Depreciation expense for the year........................... (65) (56)
---- ----
Accumulated depreciation.................................... (233) (168)
---- ----
Net book value.................................... 26 91
==== ====
</TABLE>
NOTE 6 EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Acquisition value........................................... 5,074 4,731
Purchases................................................... 527 719
Sales/disposals............................................. (200) (376)
------ ------
Accumulated acquisition value............................... 5,401 5,074
------ ------
Beginning depreciation...................................... (3,305) (2,909)
Sales/disposals............................................. 200 307
Depreciation expense for the year........................... (755) (703)
------ ------
Accumulated depreciation.................................... (3,860) (3,305)
------ ------
Net book value.................................... 1,541 1,769
====== ======
</TABLE>
NOTE 7 PARTICIPATION IN CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF THE COMPANY REGISTRATION NUMBER REGISTERED OFFICE
------------------- ------------------- -----------------
<S> <C> <C>
Cepro Executive Systems AB........................... 556438-7784 Stockholm
Cepro Partner AB..................................... 556327-6467 Stockholm
Hjarntrusten i Stockholm AB.......................... 556369-6458 Stockholm
Cepro KB............................................. 969615-6109 Stockholm
</TABLE>
<TABLE>
<CAPTION>
POSSESSION, EXTENT POSSESSION, VALUE
-------------------- -----------------
NUMBER OF SHARE OF BOOKED BOOKED
NAME OF COMPANY SHARES EQUITY % VALUE VALUE
--------------- --------- -------- ------- -------
<S> <C> <C> <C> <C>
Cepro Executive Systems AB....................... 600 100% 473 473
Cepro Partner AB................................. 1000 100% 100 100
Hjarntrusten i Stockholm AB...................... 1000 100% 100 100
Cepro KB......................................... 20 56% 0 0
--- ---
673 673
=== ===
</TABLE>
NOTE 8 MINORITY-OWNED COMPANY
<TABLE>
<CAPTION>
NAME OF THE COMPANY REGISTRATION NUMBER REGISTERED OFFICE
------------------- ------------------- -----------------
<S> <C> <C>
Hjarntrusten Foretagsutveckling AB................... 556223-4012 Karlstad
</TABLE>
F-31
<PAGE> 118
CEPRO AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POSSESSION, EXTENT
<TABLE>
<CAPTION>
NUMBER OF SHARE OF
NAME OF COMPANY SHARES EQUITY % COST
--------------- --------- -------- ----
<S> <C> <C> <C>
Hjarntrusten Foretagsutveckling AB......................... 130 13% 14
</TABLE>
NOTE 9 PREPAID EXPENSES AND ACCRUED INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Uninvoiced fees and other items............................. 4,045 3,655
Prepaid rent................................................ -- 591
Accrued income.............................................. 175 --
----- -----
Total............................................. 4,220 4,246
===== =====
</TABLE>
NOTE 10 ACCRUED EXPENSES AND PREPAID INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Accrued salaries............................................ 1,770 3,976
Accrued social costs........................................ 1,322 1,392
Prepaid income.............................................. 1,134 1,524
Other items................................................. 716 984
----- -----
Total............................................. 4,942 7,876
===== =====
</TABLE>
NOTE 11 PLEDGED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Chattel mortgages........................................... 2,500 2,500
Deposits.................................................... 2 2
----- -----
Total............................................. 2,502 2,502
===== =====
</TABLE>
Chattel mortgages represent a general company pledge of assets in Cepro AB
to a financial institution to secure a bank overdraft line of credit.
NOTE 12 CONSOLIDATED FINANCIAL STATEMENTS ACCORDING TO U.S. GAAP
With respect to the consolidated financial statements for Cepro, there are
no material variations in the accounting principles, practices and methods used
in preparing Cepro's financials from those principles, practices and methods
generally accepted in the United States.
F-32
<PAGE> 119
[INSIDE BACK COVER]
[FIRST PAGE OF TRI-FOLD]
CONCOURS GROUP EXECUTIVE BRIEFING MATERIALS
For three years, Concours Group has periodically direct mailed materials on
emerging business issues to senior executives in North America and Europe. The
materials represent the collective wisdom of the firm and are based on concepts
stemming from our research projects, input from well-known academics and
experienced industry practitioners, and experiences of our professionals. These
emerging business issues are currently focussed on eBusiness strategies. We
believe eBusiness is a business that combines technology and human resources
strategies to adapt to the new economy based on Internet and other information
technologies. These materials generate leads for our services, and also gain the
attention of senior executives in our targeted markets. The following are
representative samples:
[Images of three front covers of actual briefing materials.]
<TABLE>
<S> <C> <C>
July 1997: Boards of Directors November 1997: CIOs need a October 1998: Corporations
need to take accountability business framework upon will soon view technology and
for information technology, or which they base their actions human resource management
IT, and the questions they as a common issue
should ask
</TABLE>
[Images of three front covers of actual briefing materials.]
<TABLE>
<S> <C> <C>
January 1999: CEOs need a February 2000: Application February 2000: Key questions
broad view of what eBusiness Service Providers potentially CEOs should be asking about
offers offer solutions to get to the eBusiness
market faster
</TABLE>
<PAGE> 120
[THIRD PAGE OF INSIDE BACK COVER TRI-FOLD]
CONCOURS GROUP RE.SULTS(R) RESEARCH PROJECTS
Our research projects often deal with emerging business concepts that
involve new methodologies, techniques or terminology such as "Application
Service Providers" or "Digiprise." Application Service Providers or ASPs are
entities through which companies can contract with an outside party to meet
their software application needs by sharing access to various software with
other entities. Digiprise is our own term that we use to refer to eBusiness as
we view it. Titles of our research projects are:
Current 2000 Projects
[Titles of actual research projects in boxes.]
1999 Projects
[Titles of actual research projects in boxes.]
[Image of one front cover of actual published research project.]
1998 Projects
[Titles of actual research projects in boxes.]
1997 Projects
[Titles of actual research projects in boxes.]
<PAGE> 121
[SECOND PAGE OF INSIDE BACK COVER TRI-FOLD]
CONCOURS GROUP MULTI-CLIENT MEETING AGENDAS
JANUARY -- MARCH 2000
Our multi-client programs are meetings that bring together senior executives,
our consultants, well-known academics and industry leaders to participate in
discussions of pressing business challenges. The following are cover pages from
the agendas of recent meetings.
[Images of seven actual cover pages.]
<PAGE> 122
================================================================================
2,500,000 SHARES
THE CONCOURS GROUP, INC.
COMMON STOCK
[THE CONCOURS GROUP, INC. LOGO]
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
U.S. BANCORP PIPER JAFFRAY
WILLIAM BLAIR & COMPANY
================================================================================
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 15,939
NASD filing fee............................................. $ 6,538
Nasdaq National Market listing fee.......................... $ 90,000
Printing and engraving costs................................ $ 250,000
Legal fees and expenses..................................... $ 600,000
Accounting fees and expenses................................ $ 450,000
Blue Sky fees and expenses.................................. $ 10,000
Registrar and Transfer Agent's fees......................... $ 5,000
Miscellaneous............................................... $ 883,023
----------
Total............................................. $2,310,500
==========
</TABLE>
We will pay all of the expenses incurred with the issuance and distribution
of the securities registered hereby.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY FOR
MONETARY DAMAGES
Section 145(a) of the Delaware General Corporation Law of the State of
Delaware ("DGCL") provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of an action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith, that
indemnification provided for by Section 145 of the DGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the
II-1
<PAGE> 124
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
such Section 145.
Our amended and restated certificate of incorporation provides that we
shall indemnify certain persons, including officers, directors, employees and
agents, to the fullest extent permitted by Section 145 of the DGCL of the State
of Delaware. Reference is made to the Amended and Restated Certificate of
Incorporation filed as Exhibit 3.1 to this Registration Statement. Our directors
and officers are insured against losses arising from any claim against them as
such for wrongful acts or omission, subject to certain limitations.
Pursuant to the underwriting agreement for this offering, the underwriters
are obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of Concours against certain liabilities, including
liabilities under the Securities Act. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, Concours issued the following securities without
registration under the Securities Act. The information presented below does not
reflect the conversion of all of our issued and outstanding Series A and Series
B convertible preferred stock into common stock upon the closing of this
offering.
On January 10, 1997, in connection with the founding of Concours, we issued
100,000 shares of common stock to the chairman of the board for aggregate
consideration of $1,000.
In February 1997, a total of 1,614,287 shares of common stock were issued
to founders of Concours, comprised of five individuals, three of whom were
executive officers, and two entities, for an aggregate consideration of
$16,142.87. One of these entities, which was also our largest stockholder, also
purchased 1,500,000 shares of Series A convertible preferred stock for total
consideration of $1,290,000.
In March 1997, a total of 656,142 shares of common stock were issued to 10
holders, all but one of whom were executives, employees or consultants of
Concours, for total consideration of $6,561.42.
In May 1997, a total of 259,000 shares of common stock were issued to 14
employees and 11 other holders for a total consideration of $2,590.
In August 1997, a total of 111,000 shares of common stock were issued to 6
individuals, all of whom were employees or consultants of Concours, for total
consideration of $1,110.
In October 1997, 3,000 shares of common stock were issued to one employee
for consideration of $30.00.
In December 1997, a total of 30,000 shares of common stock were issued to
three individuals, all of whom were employees or affiliates, for total
consideration of $20,100.
In January 1998, a total of 240,000 shares of common stock were issued to
our largest stockholder for total consideration of $1.2 million. In that same
month, 300,000 shares of common stock were issued to an incoming executive
officer in exchange for a $300,000 promissory note, all of which was
subsequently repaid by that officer's reconveyance of 200,000 shares of common
stock to us, in connection with the cessation of his employment.
In September 1998, one employee purchased 40,000 shares of common stock for
total consideration of $90,000. In that same month, our largest stockholder
purchased 310,000 shares of Series A convertible preferred stock for total
consideration of $2,790,000.
In December 1998, one employee purchased 2,500 shares of common stock for
total consideration of $2,500 upon exercise of a stock option.
II-2
<PAGE> 125
In April 1999, one employee purchased 1,250 shares of common stock for
total consideration of $1,250 upon exercise of a stock option.
In November 1999, 25,000 shares of common stock were issued to the owner of
the Swedish consulting firm Inforesma, a provider of subscription-based
multi-client programs, in connection with its acquisition by Concours.
In December 1999, 3,750 shares of common stock were issued to one employee
for total consideration of $8,437.50 upon exercise of a stock option.
In January 2000, two employees purchased a total of 3,000 shares of common
stock for total consideration of $3,312.50 upon exercise of stock options.
In February 2000, a total of 1,555,425 shares of common stock were issued
to our largest stockholder in connection with the conversion into common stock
of $4.0 million of convertible debt plus accrued and unpaid interest, which was
deemed to be exempt from registration under the Act under the provisions of
Section 3(a)(9) thereof, and in connection with the purchase of 750,000 shares
of common stock for total consideration of $6.0 million. This stockholder also
received warrants to purchase 50,000 shares of common stock at an exercise price
of $5.00 in consideration of cancellation of existing rights under a previous
agreement.
In February 2000, two employees purchased 14,000 shares of common stock for
total consideration of $32,200 upon exercise of stock options.
During February 2000, a total of 1,221,000 shares of common stock were
issued to 46 European stockholders of Cepro AB in connection with its
acquisition by Concours in a transaction deemed to be exempt from registration
under the Act under the provisions of Regulation S.
In February 2000, a total of 1,546,784 shares of Series B convertible
preferred stock were issued to two institutional investors for total
consideration of $15 million.
In February 2000, stock options to purchase 90,000 shares of common stock
at an exercise price of $9.76 per share were also issued to an independent
contractor in connection with the performance of services for Concours.
In March 2000, stock options to purchase 5,000 shares of common stock at an
exercise price of $5.00 were granted to a director in consideration for her
prior service on the advisory board.
In March 2000, stock options to purchase 10,000 shares of common stock at
an exercise price of $10.00 were granted to a non-profit organization.
In March 2000, one employee purchased 2,250 shares of common stock for
$2,705 upon exercise of a stock option.
In May 2000, one employee purchased 3,750 shares of common stock for
$15,000 upon exercise of a stock option.
Between inception and June 30, 2000, options to purchase an aggregate of
3,491,850 shares of our common stock have been granted and remain outstanding
under eight of our stock option plans and separate board authorizations at
exercise prices ranging from $1.00 to $14.00 per share with a weighted average
exercise price of $3.15 per share for the 606,750 currently exercisable options
as of June 30, 2000. As detailed above, options to purchase a total of 30,500
shares of common stock have been exercised for aggregate consideration of
$65,405.
In August 2000, one employee purchased 500 shares of common stock for
$2,500 and another employee purchased 20,000 shares of common stock for $20,000,
both upon exercise of stock options.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15 above.
II-3
<PAGE> 126
Unless other specific exemptions are otherwise noted above, all
transactions described above were deemed to be exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) and/or Section 3(b)
thereof as transactions by an issuer not involving any public offering, and/or
under Rule 701 as transactions pursuant to compensatory benefit plans and/or
under Regulation S, or were transactions involving no sale under the Securities
Act. The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof. Appropriate legends
were affixed to all such share certificates noting that such securities are
deemed to be restricted securities under the Act, along with posting the
restrictions of transfer on the Registrant's stock transfer books. All
recipients either received adequate information about the registrant or had
access through employment or other relationships to obtain such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
*1.1 -- Form of Underwriting Agreement
***3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant, dated February 28, 2000.
***3.2 -- First Amendment to the Restated Certificate of
Incorporation of the Registrant, dated March 15, 2000
***3.3 -- Amended and Restated Bylaws, dated March 10, 2000
***4.1 -- Amended and Restated Certificate of Designation of the
Powers, Rights and Preferences of the Series A
Convertible Preferred Stock and the Series B Convertible
Preferred Stock of the Registrant, dated February 28,
2000
***4.2 -- Form of Irrevocable Proxy
*4.3 -- Form of Stock Certificate for Common Stock
***5.1 -- Form of opinion of Jenkens & Gilchrist, A Professional
Corporation, with respect to the legality of the
securities being registered
***8.1 -- Form of opinion of Jenkens & Gilchrist, A Professional
Corporation, as to tax matters
***10.1 -- Stock Purchase and Debt Conversion Agreement, dated
February 1, 2000
***10.2 -- Exchange Agreement by and among the Registrant and the
Shareholders of Cepro AB dated February 29, 2000
***10.3 -- Repurchase Rights Agreement by and among the Registrant
and the Shareholders of Cepro AB, dated February 29, 2000
***10.4 -- 1997 Employee Stock Option Plan of the Registrant
***10.5 -- 1998 Employee Stock Option Plan of the Registrant
***10.6 -- 1999 Employee Stock Option Plan of the Registrant
***10.7 -- 2000 Employee Stock Option Plan of the Registrant
***10.8 -- 1998 European Equity Compensation Plan of the Registrant
***10.9 -- 2000 International Equity Compensation Plan of the
Registrant
***10.10 -- 2000 Senior Executive Performance Plan of the Registrant
***10.11 -- 2000 Director Stock Option Plan of the Registrant
***10.12 -- Form of Letter Agreement with Advisory Board Members
***10.13 -- Form of Noncompetition, Nonsolicitation and Nondisclosure
Agreement
***10.14 -- Amended and Restated Registration Rights Agreement by and
among the Registrant, Tallard B.V., Thayer Equity
Investors IV, L.P. and Thayer CGI Partners LLC, dated
February 28, 2000
***10.15 -- Investment Agreement by and between the Registrant,
Thayer Equity Investors IV, L.P. and Thayer GCI Partners
LLC, dated February 28, 2000
***10.16 -- Amendment to 2000 Director Stock Option Plan of the
Registrant
***10.17 -- Amendment to Stock Option Plans of the Registrant
***10.18 -- 2000 Employee Stock Purchase Plan of the Registrant
</TABLE>
II-4
<PAGE> 127
<TABLE>
<C> <S>
*21.1 -- Subsidiaries of the Registrant
*23.1 -- Consent of Arthur Andersen LLP
***24.1 -- Power of Attorney (contained on Page II-6)
***27.1 -- Financial Data Schedule
</TABLE>
---------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 5 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the city of Houston,
State of Texas, on the 6th day of August, 2000.
THE CONCOURS GROUP, INC.
By: /s/ JEFFREY J. WEINER
-----------------------------------
Jeffrey J. Weiner
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to Registration Statement No. 333-32730 has been signed by the following
persons in the capacities and on the dates indicated, in multiple counterparts
with the effect of one original.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD P. CHRISTMAN Chairman of the Board and August 5, 2000
----------------------------------------------------- Chief Executive Officer
Ronald P. Christman
/s/ NICHOLAS P. VITALARI Director August 4, 2000
-----------------------------------------------------
Nicholas P. Vitalari
/s/ JEFFREY J. WEINER Chief Financial Officer August 6, 2000
-----------------------------------------------------
Jeffrey J. Weiner
/s/ BRIAN E. DAVIS* Controller August 6, 2000
-----------------------------------------------------
Brian E. Davis
Director
-----------------------------------------------------
Robert J. Dole
/s/ HANS LINDROTH Director August 4, 2000
-----------------------------------------------------
Hans Lindroth
By: /s/ JEFFREY J. WEINER August 6, 2000
--------------------------------------------------
Jeffrey J. Weiner
*By Attorney-in-Fact pursuant to the Power of
Attorney contained in the original filing, Amendment
No. 1 or Amendment No. 3 of the Registration
Statement
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the capacity
and on the date indicated. By their signature, such persons constitute and
appoint Ronald P. Christman and Jeffrey J. Weiner, or either one of them, their
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for them and in their name, place and stead, in any and all
capacities, to sign any and all amendments to this registration statement, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or their substitute may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DEBRA ENGEL Director August 4, 2000
-----------------------------------------------------
Debra Engel
/s/ DONALD K. GRIERSON Director August 4, 2000
-----------------------------------------------------
Donald K. Grierson
/s/ BARRY ROMERIL Director August 4, 2000
-----------------------------------------------------
Barry Romeril
/s/ DAVID H. SHAFFER Director August 4, 2000
-----------------------------------------------------
David H. Shaffer
</TABLE>
II-6
<PAGE> 129
INDEX TO EXHIBITS
<TABLE>
<C> <S>
*1.1 -- Form of Underwriting Agreement
***3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant, dated February 28, 2000.
***3.2 -- First Amendment to the Restated Certificate of
Incorporation of the Registrant, dated March 15, 2000
***3.3 -- Amended and Restated Bylaws, dated March 10, 2000
***4.1 -- Amended and Restated Certificate of Designation of the
Powers, Rights and Preferences of the Series A
Convertible Preferred Stock and the Series B Convertible
Preferred Stock of the Registrant, dated February 28,
2000
***4.2 -- Form of Irrevocable Proxy
*4.3 -- Form of Stock Certificate for Common Stock
***5.1 -- Form of Opinion of Jenkens & Gilchrist, A Professional
Corporation, with respect to the legality of the
securities being registered
***8.1 -- Form of opinion of Jenkens & Gilchrist, A Professional
Corporation, as to tax matters
***10.1 -- Stock Purchase and Debt Conversion Agreement, dated
February 1, 2000
***10.2 -- Exchange Agreement by and among the Registrant and the
Shareholders of Cepro AB dated February 29, 2000
***10.3 -- Repurchase Rights Agreement by and among the Registrant
and the Shareholders of Cepro AB, dated February 29, 2000
***10.4 -- 1997 Employee Stock Option Plan of the Registrant
***10.5 -- 1998 Employee Stock Option Plan of the Registrant
***10.6 -- 1999 Employee Stock Option Plan of the Registrant
***10.7 -- 2000 Employee Stock Option Plan of the Registrant
***10.8 -- 1998 European Equity Compensation Plan of the Registrant
***10.9 -- 2000 International Equity Compensation Plan of the
Registrant
***10.10 -- 2000 Senior Executive Performance Plan of the Registrant
***10.11 -- 2000 Director Stock Option Plan of the Registrant
***10.12 -- Form of Letter Agreement with Advisory Board Members
***10.13 -- Form of Noncompetition, Nonsolicitation and Nondisclosure
Agreement
***10.14 -- Amended and Restated Registration Rights Agreement by and
among the Registrant, Tallard B.V., Thayer Equity
Investors IV, L.P. and Thayer CGI Partners LLC, dated
February 28, 2000
***10.15 -- Investment Agreement by and between the Registrant,
Thayer Equity Investors IV, L.P. and Thayer GCI Partners
LLC, dated February 28, 2000
***10.16 -- Amendment to 2000 Director Stock Option Plan of the
Registrant
***10.17 -- Amendment to Stock Option Plans of the Registrant
***10.18 -- 2000 Employee Stock Purchase Plan of the Registrant
*21.1 -- Subsidiaries of the Registrant
*23.1 -- Consent of Arthur Andersen LLP
***24.1 -- Power of Attorney (contained on Page II-6)
***27.1 -- Financial Data Schedule
</TABLE>
---------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
