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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1998
REGISTRATION NO. 333-62299
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONCUR TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 91-1608052
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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6222 185TH AVENUE NE
REDMOND, WASHINGTON 98052
(425) 702-8808
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
S. STEVEN SINGH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6222 185TH AVENUE NE
REDMOND, WASHINGTON 98052
(425) 702-8808
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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MATTHEW P. QUILTER, ESQ. THOMAS A. BEVILACQUA, ESQ.
HORACE L. NASH, ESQ. CURTIS L. MO, ESQ.
KRISTINA R. WILKEN, ESQ. PATRICIA MONTALVO TIMM, ESQ.
KEVIN S. CHOU, ESQ. BROBECK, PHLEGER & HARRISON LLP
FENWICK & WEST LLP TWO EMBARCADERO PLACE
TWO PALO ALTO SQUARE 2200 GENG ROAD
PALO ALTO, CALIFORNIA 94306 PALO ALTO, CALIFORNIA 94303
(650) 494-0600 (650) 424-0160
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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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. [ ]
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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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 14, 1998
LOGO
3,100,000 SHARES
COMMON STOCK
Of the 3,100,000 shares of Common Stock offered hereby, 2,900,000 shares
are being sold by Concur Technologies, Inc. ("Concur" or the "Company") and
200,000 shares are being sold by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders. Prior to the Offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $9.50 and
$11.50 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "CNQR,"
subject to official notice of issuance.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS COMPANY(1) SELLING STOCKHOLDERS
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Per Share.................... $ $ $ $
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Total(2)..................... $ $ $ $
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(1) Before deducting expenses payable by the Company, estimated at $900,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 465,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that the delivery of such shares will be
made through the offices of BancBoston Robertson Stephens Inc., San Francisco,
California, on or about December , 1998.
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
THE DATE OF THIS PROSPECTUS IS , 1998
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Concur, Concur Technologies, Xpense Management Solution, XMS, CompanyStore,
Employee Desktop, and the Company's logo are trademarks of the Company.
QuickXpense(R) is a registered trademark of the Company. Trade names, service
marks or trademarks of other companies appearing in this Prospectus are the
property of their respective holders.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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No dealer, sales representative or other person has been authorized to give
any information or to make any representations in connection with the Offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company, by any Selling Stockholder or by any Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any securities other than the registered securities to which it relates,
or an offer to, or the solicitation of, any person in any jurisdiction where
such an offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
UNTIL JANUARY , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE 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.
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 21
Dividend Policy............................................. 21
Capitalization.............................................. 22
Dilution.................................................... 23
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 38
Management.................................................. 54
Certain Transactions........................................ 65
Principal and Selling Stockholders.......................... 69
Description of Capital Stock................................ 72
Shares Eligible for Future Sale............................. 75
Underwriting................................................ 77
Legal Matters............................................... 78
Experts..................................................... 78
Additional Information...................................... 79
Index to Financial Statements............................... F-1
</TABLE>
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements examined by its independent
auditors. Quarterly reports containing unaudited consolidated financial
statements for the first three quarters of each fiscal year will be available
upon request.
The Company was incorporated in Washington in August 1993 under the name
Moorea Software Corporation and commenced operations in 1994. The Company
changed its name to Portable Software Corporation in 1994 and to Concur
Technologies, Inc. in 1998, and reincorporated in Delaware in November 1998.
Unless the context otherwise requires, references in this Prospectus to
"Concur," "Concur Technologies" and the "Company" refer to Concur Technologies,
Inc., a Delaware corporation, its predecessors, 7Software, Inc., its
wholly-owned California subsidiary, Concur Technologies (UK) Ltd., its
wholly-owned subsidiary located in the United Kingdom, and Concur Technologies
Pty. Limited, its wholly-owned subsidiary located in Australia, collectively.
The Company's principal executive offices are located at 6222 185th Avenue NE,
Redmond, Washington 98052 and its telephone number is (425) 702-8808.
Information contained on the Company's Web site does not constitute a prospectus
or part of this Prospectus.
3
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed in the
forward-looking statements. Factors that might cause a difference include, but
are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
Concur is a leading provider of Intranet-based employee-facing applications
that extend automation to employees throughout the enterprise and to partners,
vendors and service providers in the extended enterprise. The Company's Xpense
Management Solution ("XMS") and CompanyStore products automate the preparation,
approval, processing and data analysis of travel and entertainment ("T&E")
expense reports and front-office procurement requisitions. Concur believes it is
the leading provider of T&E expense management solutions, based on a combination
of the number of customers it serves and the features its solutions provide.
Since the introduction of XMS in 1996, the Company has licensed its products to
over 150 enterprise customers for use by over 800,000 end users. Through its
June 1998 acquisition of 7Software, Inc., the Company added the CompanyStore
front-office procurement application to its product suite. By automating manual,
paper-based processes, the Company's products reduce processing costs and enable
customers to consolidate purchases with preferred vendors and negotiate vendor
discounts.
In response to increasingly competitive conditions worldwide, businesses
are seeking cost savings and productivity gains by using enterprise applications
to automate business processes. While these applications have traditionally
targeted discrete functional or department level business processes involving
relatively few employees, businesses are now seeking similar applications for
"employee-facing" business processes including T&E expense management,
front-office procurement, human resources self-service, time and billing, and
facilities management. The emergence of the Internet and corporate Intranets has
made it possible to deploy applications that reach all employees in the
enterprise and connect the enterprise to corporate partners, vendors and service
providers. In addition, in contrast to traditional client-server applications,
Intranet-based applications can be deployed rapidly throughout the enterprise
and on a cost-effective basis.
Customers employing the Company's products can realize significant
operating cost savings through reduced processing costs, consolidated purchases
with preferred vendors and negotiated vendor discounts. Based on the results of
the 1997 American Express T&E Management Process Study, businesses using best-
in-class automation that process 1,000 to 5,000 T&E expense reports per month
can achieve savings from $300,000 to $1.5 million per year in processing costs
alone. After conducting case studies and surveys of its customers, American
Express Company ("American Express") concluded that, factoring in costs such as
employee time required to complete expense reports, management approvals and
administrative processing of expense reports, corporations on average spend $36
per T&E expense report processed, but can reduce such costs to as little as $8
through best-in-class automation. The Company believes its customers can achieve
these cost savings rapidly because the products are designed to minimize burdens
on IT professionals and to maximize employees' ease of use. Because the
Company's Intranet-based products are designed to deploy rapidly, scale
enterprise-wide and integrate easily with an organization's existing IT
infrastructure, a customer's IT personnel can deliver and support solutions
quickly and cost-effectively. For example, one Concur customer deployed XMS to
over 25,000 employees within 90 days after the customer began its rollout, and
has since deployed XMS to a total of over 50,000 employees. Employees readily
adopt the Company's solutions because they are easy to use, reduce time spent
preparing expense reports and supply requisitions, and accelerate reimbursement
and fulfillment process cycles. The Company believes that as a result of the
substantial potential savings from processing cost reductions and vendor
management, and the emergence of Intranet technologies, strong demand exists for
employee-facing applications.
Concur's objective is to be the leading provider of Intranet-based
employee-facing applications. In order to meet this goal, the Company's strategy
is to extend and leverage its leadership in T&E expense management and
front-office procurement applications, expand and integrate its product suite,
enhance the
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functionality of its products, increase its international presence, develop new
relationships with strategic third-parties, and offer its solutions as an
outsourced enterprise service provider.
The Company sells its products primarily through its direct sales
organization and has developed a number of strategic referral relationships such
as its relationship with American Express. Under this relationship, American
Express can refer corporate charge card customers that seek a T&E expense
management solution to Concur. In August 1998, a subsidiary of American Express
completed a minority equity investment in the Company, as a result of which
American Express became an affiliate of the Company.
In addition to its Intranet-based product lines in T&E expense management
and front-office procurement, the Company offers a client-server based T&E
expense management solution for those clients who lack an Intranet
infrastructure. Given the broad applicability of its products, Concur has
licensed its applications to numerous customers in a wide range of industries.
The Company's customers include AT&T, American Airlines, Anheuser-Busch, Case
Corporation, Computer Sciences Corporation, DuPont, Eastman Kodak, Exxon,
Gillette, Guardian Industries, Hewlett-Packard, J.C. Penney, Lehman Brothers,
Levi Strauss, Lucent Technologies, Monsanto, The New York Times, Northrop
Grumman, Pfizer, Pharmacia & Upjohn, Seagate Technology, Solutia, Sprint,
Texaco, Texas Instruments and Visio.
RECENT DEVELOPMENTS
The Company recently entered into agreements with ADP, Inc. ("ADP"), a
subsidiary of Automatic Data Processing, Inc., under which ADP and the Company
will jointly market Concur's T&E expense management software products and
services to ADP customers and ADP will refer potential customers for T&E expense
management software products and services exclusively to Concur. The Company has
agreed to pay a referral fee for ADP customers and leads who become the
Company's customers, and has acquired the rights to certain ADP technology.
Separately, Russell P. Fradin, President, Employer Services North America of
ADP, Inc., has agreed to serve as a member of the Company's Board of Directors.
5
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THE OFFERING
Common Stock offered by the Company......... 2,900,000 shares
Common Stock offered by the Selling
Stockholders................................ 200,000 shares
Common Stock to be outstanding after the
Offering(1)................................. 16,470,412 shares
Use of Proceeds............................. For working capital and general
corporate purposes. The Company
intends to use approximately
$11.0 million for increased
sales and marketing expenditures
and $5.0 million each for
increased research and
development and for professional
services expenditures. See "Use
of Proceeds."
Nasdaq National Market Symbol............... CNQR
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED SEPTEMBER 30,
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1994 1995 1996 1997 1998
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues, net............................................. $ -- $ 2,128 $ 1,959 $ 8,270 $ 17,159
Loss from operations(2)................................... (602) (2,895) (4,958) (5,505) (17,760)
Net loss.................................................. (602) (2,890) (4,953) (5,524) (18,074)
Pro forma basic and diluted net loss per share(3)......... $ (1.58)
Shares used in calculation of pro forma basic and diluted
net loss per share(3)................................... 11,419
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SEPTEMBER 30, 1998
------------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 8,474 $ 8,474 $38,090
Total assets.............................................. 25,031 25,031 54,647
Long-term obligations, net of current portion............. 8,092 8,092 8,092
Redeemable convertible preferred stock and warrants....... 30,129 -- --
Total stockholders' equity (deficit)...................... (26,219) 3,910 33,526
</TABLE>
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(1) Based on shares outstanding as of October 31, 1998. Includes the exercise of
the first tranche of a warrant issued to a subsidiary of American Express to
purchase 225,000 shares of Common Stock. Does not include (taking into
account warrants and option plans as amended through the date hereof): (i)
1,432,615 shares of Common Stock issuable upon the exercise of outstanding
options granted under the Company's 1994 Stock Option Plan with a weighted
average per share exercise price of $1.10; (ii) 3,589,951 shares of Common
Stock available for future grant under the 1994 Stock Option Plan and the
1998 Equity Incentive Plan; (iii) 110,306 shares of Common Stock issuable
upon exercise of outstanding options granted under the 1997 Stock Option
Plan of 7Software, Inc. ("7Software") assumed by the Company in connection
with the Company's June 1998 acquisition of 7Software, with a weighted
average per share exercise price of $0.025; (iv) 2,237,453 shares of Common
Stock issuable upon the exercise of outstanding warrants to purchase shares
of preferred stock; and (v) 560,000 shares of Common Stock reserved
immediately after the Offering for future grant or issuance under the
Company's 1998 Directors Stock Option Plan and 1998 Employee Stock Purchase
Plan. See "Management--Employee Benefit Plans" and Notes 3, 9, 11 and 17 of
Notes to Consolidated Financial Statements.
(2) In June 1998, the Company acquired 7Software, resulting in a charge for
acquired in-process technology. See Note 3 of Notes to Consolidated
Financial Statements. The Financial Statements of 7Software are included
elsewhere herein.
(3) See Note 13 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing pro forma net
loss per share.
(4) Pro forma to give effect to (i) the conversion of all outstanding shares of
preferred stock into 10,213,553 shares of Common Stock and (ii) the
conversion of all outstanding warrants to purchase preferred stock into
warrants to purchase 2,329,578 shares of Common Stock.
(5) Pro forma amounts as adjusted to reflect: (i) the sale of the 2,900,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price per share of $10.50 and the receipt of the net
proceeds therefrom, after deducting the estimated underwriting discounts and
commissions and offering expenses; and (ii) the proceeds from the exercise
of warrants to purchase 225,000 shares of Common Stock at an assumed
exercise price of $9.765 per share. See "Capitalization," "Use of Proceeds"
and "Certain Transactions."
------------------------
Unless otherwise indicated or the context otherwise requires, all
information in this Prospectus (i) reflects the conversion of all outstanding
shares of preferred stock of the Company into shares of Common Stock, and the
conversion of all outstanding preferred stock warrants into warrants to purchase
Common Stock, upon the consummation of the Offering, (ii) assumes that the
Underwriters' over-allotment option will not be exercised, and (iii) gives
effect to the Company's reincorporation in Delaware and a 1-for-2.5 reverse
split of its Common Stock, which will occur prior to the completion of the
Offering.
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered by this Prospectus.
LIMITED OPERATING HISTORY; FUTURE OPERATING RESULTS UNCERTAIN; HISTORY OF LOSSES
An investment in the Company should be viewed in light of the risks and
uncertainties inherent in a software company in the early stages of development,
particularly in light of the evolving and highly competitive market in which the
Company operates. Concur was incorporated in 1993 and has incurred net losses in
each quarter since its incorporation. The Company shipped its first product in
fiscal 1995, and since fiscal 1997 has derived substantially all of its revenues
from licenses of XMS -- the Company's T&E expense management product -- and
related services. To compete effectively, the Company believes that it will be
necessary to devote substantial resources to expanding its sales and marketing,
professional services and research and development organizations and that it
will make significant investments in these areas without assurance of any
related income. For example, the Company's professional services organization is
newly established, and has been unprofitable since it was organized, and there
can be no assurance that it will ever become profitable. Further, there can be
no assurance that any of the Company's business strategies will be successful or
that the Company's revenues will increase in future periods, or that the Company
will become or remain profitable on a quarterly or annual basis in the future.
The Company incurred net losses of $5.0 million, $5.5 million and $18.1 million
for fiscal 1996, 1997 and 1998, respectively. As of September 30, 1998, the
Company had an accumulated deficit of $32.0 million. The Company anticipates
that it will incur net losses for the foreseeable future. Although the Company
had substantial net operating loss carryforwards as of September 30, 1998, the
Internal Revenue Code (the "Code"), contains provisions that may limit the use
in any future period of net operating loss carryforwards upon the occurrence of
certain events, including a significant change in ownership interests. See
"--Unpredictable Fluctuations and Seasonal Patterns in Quarterly Results,"
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Competition."
UNPREDICTABLE FLUCTUATIONS AND SEASONAL PATTERNS IN QUARTERLY RESULTS
The Company's quarterly operating results have fluctuated significantly in
the past, and will continue to fluctuate in the future, as a result of a number
of factors, many of which are outside the Company's control. Many of these
factors are listed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results of Operations." In
addition, the Company's software products are typically shipped when orders are
received, and consequently, license backlog at the beginning of any quarter has
in the past represented only a small portion of that quarter's expected license
revenues. As a result, license revenues in any quarter are difficult to forecast
because they are substantially dependent on orders booked and shipped in that
quarter. Moreover, the Company typically recognizes a substantial amount of its
revenues in the last month of the quarter, frequently in the last week or even
days of the quarter. Since the Company's expenses are generally relatively fixed
in the near term, any shortfall from anticipated revenues or any delay in the
recognition of revenues could result in significant variations in operating
results from quarter to quarter. Quarterly license revenues are also difficult
to forecast because the Company's sales cycle, from initial evaluation to
delivery of software, is generally lengthy and varies substantially from
customer to customer. If revenues fall below the Company's expectations in a
particular quarter, the Company's business, results of operations and financial
condition would be materially adversely affected. See "--Lengthy Sales Cycle."
The Company has experienced, and expects to continue to experience, a high
degree of seasonality, as discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
Concur's products involve relatively large expenditures by enterprise customers,
and XMS tends to be more expensive than competing applications. In addition, the
purchase of the Company's products is typically a discretionary matter for such
customers and from time to time customers'
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priorities may shift. For example, the Company may experience reduced sales of
its products as potential customers put a priority on correcting Year 2000
problems associated with their other systems, or defer purchases of software
products until after 2000. Accordingly, demand for the Company's products may be
particularly volatile and unpredictable.
Based on the foregoing and the risks identified herein, the Company
believes that its future revenues, expenses and operating results are likely to
vary significantly from quarter to quarter. In particular, as the Company
expands its sales force, professional services personnel and research and
development staff, operating expenses will continue to rise. As a result,
quarter-to-quarter comparisons of operating results are not necessarily
meaningful or indicative of future performance. Further, the Company believes it
is likely that in some future quarter or quarters the Company's operating
results will not meet or exceed the expectations of public market analysts or
investors. In such event, or in the event that adverse conditions prevail, or
are perceived to prevail, with respect to the Company's business or generally,
the market price of the Company's Common Stock would be materially adversely
affected. See "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business--Competition."
EMERGING MARKET FOR EMPLOYEE-FACING APPLICATIONS; MARKET ACCEPTANCE
The market for employee-facing applications is newly emerging. Enterprises
have historically performed the processes addressed by employee-facing
applications themselves, whether through manual processes or
internally-developed development applications. Accordingly, the Company's future
success will depend upon, among other factors, the extent to which companies
adopt third-party employee-facing applications, particularly T&E expense
management and front-office procurement solutions, and the extent to which
companies purchase products or utilize the services of third-party providers,
such as the Company, for such solutions. In addition, companies that have
already invested substantial resources in other methods of automating enterprise
processes may be reluctant to adopt a new strategy that may limit or compete
with their existing investments. Even if companies implement employee-facing
applications, they may still choose to design, develop or manage all or part of
their process automation internally. There can be no assurance that the use of
employee-facing applications will increase significantly in the future or that
the Company's products or services will achieve commercial success. Any failure
of employee-facing applications, and in particular T&E expense management and
front-office procurement applications, to gain market acceptance would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Industry Background."
PRODUCT CONCENTRATION
Since 1997, the Company has generated substantially all of its revenues
from licenses and services related to XMS, and the Company believes that such
revenues will continue to account for a substantial majority of its revenues for
the foreseeable future. The Company's future financial performance will depend,
in significant part, upon the successful development, introduction and customer
acceptance of new and enhanced versions of XMS, and of CompanyStore and any new
products or services that the Company may develop or acquire. There can be no
assurance that the Company will be successful in upgrading and continuing to
market XMS or CompanyStore, or that any new products or services the Company may
develop or acquire will achieve market acceptance. Any such lack of success or
failure to achieve market acceptance could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH EXPANSION INTO NEW MARKET
The Company recently added the CompanyStore front-office procurement
application to its product line. This initial version of CompanyStore has been
licensed to only two customers. The Company's future revenue growth is
substantially dependent upon current development efforts to integrate this
recently acquired technology with the Company's current technology platform,
market acceptance of CompanyStore, and the Company's ability to license
CompanyStore to new customers and its existing base of XMS customers.
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Potential and existing customers may not purchase CompanyStore for a number of
reasons, including: an absence of required or desired functionality; the costs
of and time required for implementation; the failure of CompanyStore to be
competitive with other front-office procurement applications; possible software
defects; a customer's lack of the necessary hardware, software or Intranet
infrastructure; and any failure by the Company or its products to meet customer
expectations for other reasons. In addition, the Company plans to target its
existing and potential XMS customers as potential customers for the enhanced
version of CompanyStore that is currently under development, but there can be no
assurance that such customers will purchase CompanyStore. Further, the Company
must overcome certain significant obstacles in its expansion into the
front-office procurement automation market, including: competitors that have
more experience and better name recognition than the Company; the limited
experience of the Company's sales and consulting personnel in the front-office
procurement automation market; and the Company's limited existing reference
accounts in the front-office procurement automation market. If, for any reason,
the Company is unable to complete the development efforts necessary to integrate
the recently acquired CompanyStore technology with its technology platform and
to market CompanyStore successfully, such failure would have a material adverse
effect on the Company's business, results of operations and financial condition.
Moreover, if the Company fails to meet the expectations of market analysts or
investors with regard to sales of CompanyStore, the market price of its Common
Stock would be materially adversely affected. See "--Risks Associated with
Unproven Enterprise Service Provider Model," "--Risks Associated with the
Internet," "--No Prior Public Market for Common Stock; Possible Volatility of
Stock Price" and "Business--Competition."
RISKS ASSOCIATED WITH NEW PRODUCTS AND NEW VERSIONS OF EXISTING PRODUCTS
The Company expects to add new employee-facing applications to its product
suite by acquisition or internal development. The Company has in the past
experienced delays in the planned release dates of new software products and
upgrades, and has discovered software defects in new products after their
introduction. There can be no assurance that new products or upgrades will be
released according to schedule, or that when released they will not contain
defects. Either of these situations could result in adverse publicity, loss of
revenues, delay in market acceptance or claims by customers brought against the
Company, all of which could have a material adverse effect on the Company's
business, results of operations and financial condition. If the Company is
unable to develop, license or acquire new software products or enhancements to
existing products on a timely and cost-effective basis, or if such new products
or enhancements do not achieve market acceptance, the Company's business,
results of operations and financial condition will be materially adversely
affected.
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE
The market for the Company's products is characterized by rapid
technological change, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. As a result, the Company's future success
will depend, in significant part, upon its ability to develop and introduce new
products and to enhance existing products to keep pace with technological
developments, satisfy customer requirements and achieve market acceptance. There
can be no assurance that the Company will successfully identify new product
opportunities, develop or bring to market new products, or adopt or incorporate
new technologies in a timely and cost-effective manner. Nor can there be any
assurance that products, capabilities or technologies developed by others will
not render the Company's products or technologies obsolete or noncompetitive or
shorten the life cycles of the Company's products. See "Business--Competition"
and "--Product Development."
RISKS ASSOCIATED WITH UNPROVEN ENTERPRISE SERVICE PROVIDER MODEL
In addition to licensing its software, the Company plans to offer its
solutions as an Internet-based enterprise service provider ("ESP"), pricing its
solutions on a per-transaction basis, to companies seeking to outsource their
employee-facing business applications. This business model is unproven and
represents a
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significant departure from the strategies traditionally employed by enterprise
software vendors and the Company. The Company has no experience selling products
or services as an ESP, and any such ESP business may significantly divert
Company revenues and management time and attention from its existing business.
The Company may at any time discontinue its plans to provide products or
services as an ESP. In connection with its planned ESP business model, the
Company will engage, for an indeterminate period, third-party service providers
to perform many of the services related to such business as independent
contractors, and will be responsible for monitoring their performance. The
Company has not outsourced any of its services or other important business
functions in the past, and there can be no assurance that independent
contractors will perform those services adequately. In the event that any
service provider provides inadequate support or service to the Company's
customers, the Company's reputation could be seriously damaged. In addition, the
Company plans to use resellers to market its ESP products; the Company has no
experience utilizing resellers and there can be no assurance it will be
successful doing so in connection with its ESP products. There can be no
assurance that the Company's ESP strategy will be implemented effectively, or,
even if it is implemented effectively, that it will not have a material adverse
effect on the Company's business, results of operations and financial condition.
If customers determine that the Company's products are not scalable, do not
provide adequate security for the dissemination of information over the
Internet, or are otherwise inadequate for Internet-based use, or if for any
other reason customers fail to accept the Company's products for use on the
Internet or on a per-transaction basis, the Company's business, results of
operations and financial condition will be materially adversely affected. In
particular, as an outsourced ESP provider, the Company will regularly receive
large amounts of confidential information (including credit card, travel booking
and other financial and accounting data) and, particularly in light of the
Company's lack of experience administering this information as an ESP, there can
be no assurance that this information will not be subject to computer break-ins
and other disruptions that jeopardize the security of information for which the
Company is responsible. Even if the Company's strategy of offering its products
to customers over the Internet is successful, certain customers or potential
customers that would otherwise acquire software and services through the
Company's licensing arrangements may elect to utilize the Company's applications
through the Internet-based ESP. Any such shift in potential license revenues to
the ESP model, which is an unproven and potentially less profitable or
unprofitable business model, could have a material adverse effect on the
Company's business, results of operations and financial condition. See "--Risks
of Software Defects or Security Breaches," "--Product Liability Risks" and
"Business--Products and Technology."
RISKS ASSOCIATED WITH THE INTERNET
The success of the Company's products will depend, in large part, on the
continued broad acceptance of the Internet itself as a viable commercial
marketplace. It is difficult to predict with any assurance whether the Internet
will continue to be considered a viable commercial marketplace or whether the
demand for Internet-related products and services will increase or decrease in
the future. The Internet may cease to be considered a viable commercial
marketplace for several reasons, including potentially inadequate development of
necessary infrastructure as use of the Internet grows, such as a reliable
network backbone with the necessary speed, data capability and security, or
failure of enabling technologies to be developed in a timely manner. There can
be no assurance that the Internet infrastructure will be able to support the
demands placed on it by growth in use and bandwidth requirements of users. In
addition, the Internet could lose its viability due to delays in the development
or adoption of new standards and protocols to handle increased levels of
Internet activity or due to increased governmental regulation. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, data corruption, cost, ease of use, accessibility and
quality of service) remain unresolved and may negatively affect commerce and
communication on the Internet. Changes in, or insufficient availability of,
telecommunications services to support the Internet could also result in slower
response times and could adversely affect the use of the Internet generally. If
critical issues concerning the commercial use of the Internet are not favorably
resolved, if the necessary infrastructure and complementary products are not
developed on a timely basis, or if use of the Internet experiences a significant
decline, the Company's business, results of operations and financial condition
will be materially and adversely affected.
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LIMITED EXPERIENCE WITH LARGE-SCALE DEPLOYMENT
Although the Company believes that XMS and CompanyStore can accommodate
thousands of users, to date a limited number of customers have deployed XMS, and
no customer has deployed CompanyStore, on such a large scale. If the Company's
customers cannot successfully implement large-scale deployments, or they
determine for any other reason that the Company's products cannot accommodate
large-scale deployments or that such products are not appropriate for such
widespread use, the Company's business, results of operations and financial
condition would be materially adversely affected.
MANAGEMENT OF GROWTH
The Company's historical growth has placed, and any further growth is
likely to continue to place, a significant strain on the Company's managerial,
operational, financial and other resources. The Company has grown from 65
full-time employees as of September 30, 1996 to 231 full-time employees as of
October 31, 1998. The Company's future success will depend, in part, upon the
ability of its senior management to manage growth effectively. This will require
the Company to implement additional management information systems, to develop
further its operating, administrative, financial and accounting systems and
controls, to hire additional personnel, to develop additional levels of
management within the Company, to locate additional office space in the United
States and internationally, and to maintain close coordination among its
development, accounting, finance, marketing, sales, customer support and
professional services organizations. In particular, the Company expects to need
additional office space as soon as the second half of calendar 1999. The real
estate market in the Seattle area, where the Company's headquarters is located,
is extremely competitive, and the Company may find it difficult to locate
suitable space on terms acceptable to the Company. In addition, each customer
for the Company's products generally purchases consulting and implementation
services in connection with licenses of those products. The Company believes
that it is currently the only provider of such services for its products. It is
difficult and expensive to recruit, train and retain qualified personnel to
perform such services, and the Company may from time to time have inadequate
levels of staffing to perform required services. As a result, the Company's
growth could be limited due to its lack of capacity to provide such services, or
the Company could experience deterioration in service levels or decreased
customer satisfaction, any of which would have a material adverse effect on the
Company's business, results of operations and financial condition. The failure
of the Company to manage its historic and future growth successfully would have
a material adverse effect on the Company's business, results of operations and
financial condition. See "--Risks Associated with Acquisitions Generally,"
"--Need to Attract and Retain Qualified Personnel," "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION
The market for the Company's products is intensely competitive and rapidly
changing. The Company's primary sources of direct competition come from
independent software vendors of T&E expense management and front-office
procurement applications, and enterprise resource planning ("ERP") providers
that have or may be developing T&E expense management and front-office
procurement products. The Company also faces indirect competition from potential
customers' internal development efforts and from potential customers' reluctance
to move away from existing paper-based systems. See "Business--Competition."
NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS
An important business strategy of the Company is to enter into strategic
relationships to offer products and services to a larger customer base than can
be reached through direct sales, telesales and internal marketing efforts. The
Company has established a significant strategic marketing relationship with
American Express and its subsidiary, American Express Travel Related Services
Company, Inc. ("TRS"), under which American Express can refer to the Company (on
a non-exclusive basis) their corporate charge card customers that seek a T&E
expense management solution, and TRS will market a co-branded ESP version of XMS
containing special features. Since entering into this relationship, a
significant number of the Company's new sales have come through referrals from
American Express. In August 1998, TRS purchased 645,161 shares of the Company's
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Series E Preferred Stock and a warrant to purchase additional shares of Series E
Preferred Stock. The Company also has established other strategic referral
relationships, including its recent agreements with ADP, a subsidiary of
Automatic Data Processing, Inc., under which ADP and the Company will jointly
market the Company's T&E expense management software products and services and
ADP will refer potential customers for T&E expense management software products
and services exclusively to the Company. There can be no assurance that the
Company will be able to enter into additional strategic relationships or to
maintain its strategic relationships on commercially reasonable terms, if at
all. If the Company were unable to maintain its existing strategic relationships
or enter into additional strategic relationships, it would be required to devote
substantially more resources to the distribution, sale and marketing of its
products and services than it plans to do and would not receive the customer
introductions and co-marketing benefits that it anticipates receiving from such
strategic relationships. As a result of the Company's emphasis on strategic
relationships, the Company's success will depend both on the ultimate success of
the other parties to such relationships and on the ability of these parties to
market the Company's products and services successfully. Failure of one or more
of the entities with which the Company has a strategic relationship to promote
the Company's products or services could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Summary--Recent Development" and "Certain Transactions."
The Company's existing strategic relationships generally do not, and any
future strategic relationships may not, afford the Company any exclusive
marketing or distribution rights. Many of the Company's strategic partners have
multiple strategic relationships, and there can be no assurance that the
Company's strategic partners regard their relationships with the Company as
significant for their own businesses or that they will regard it as significant
in the future. In addition, there can be no assurance that such parties will not
pursue other partnerships or relationships, or attempt to develop or acquire
products or services that compete with the Company's products or services either
on their own or in collaboration with others, including the Company's
competitors. Further, the Company's existing strategic relationships may
interfere with its ability to enter into other desirable strategic
relationships. Any future inability of the Company to maintain its strategic
relationships or to enter into additional strategic relationships will have a
material adverse effect on the Company's business, results of operations and
financial condition. See "--Competition," "Business--Strategy," "--Sales" and
"--Marketing."
RISKS ASSOCIATED WITH 7SOFTWARE ACQUISITION
In June 1998, the Company acquired 7Software, a privately-held front-office
procurement software development company and the developer of CompanyStore. The
Company is currently in the process of integrating the 7Software business with
the Company's business, including product development efforts focused on
integrating CompanyStore with XMS in a suite of employee-facing applications.
Such integration is subject to risk of loss of key personnel of the acquired
company, difficulties associated with assimilating the personnel and operations
of the acquired company, potential disruption of the Company's ongoing business,
and the ability of the Company's sales force, consultants and development staff
to adapt to the new product line. There can be no assurance that the Company
will be successful in overcoming these risks or any other problems encountered
in connection with its acquisition of 7Software.
RISKS ASSOCIATED WITH ACQUISITIONS GENERALLY
In order to remain competitive, the Company may find it necessary to
acquire additional businesses, products or technologies that could complement or
expand the Company's business. In the event that the Company identifies an
appropriate acquisition candidate, there can be no assurance that the Company
would be able to negotiate the terms of any such acquisition successfully,
finance such acquisition, or integrate such acquired business, products or
technologies into the Company's existing business and operations. The Company
has completed only one acquisition to date, the acquisition of 7Software. There
can be no assurance that the Company will be able to manage or absorb any future
acquisitions successfully, particularly acquisitions of companies larger than
7Software or publicly held companies. Further, the negotiation of potential
acquisitions, as well as the integration of an acquired business, would cause
significant diversions of management time and resources. There can be no
assurance that a given acquisition, whether or not consummated, will not
materially adversely affect the Company's business, results of operations and
financial
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condition. If the Company were to proceed with one or more significant
acquisitions in which the consideration included cash, the Company could be
required to use a substantial portion of the Company's available cash (including
proceeds of the Offering) to consummate any such acquisition. If the Company
consummates one or more significant acquisitions in which the consideration
consists of stock or other securities, stockholders of the Company could suffer
significant dilution of their interests in the Company. See "--Management of
Growth," "-- Broad Discretion Over Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LENGTHY SALES CYCLE
Sales of the Company's software products generally require the Company to
engage in a lengthy sales effort. Because of the costs involved, customers for
enterprise products such as the Company's typically commit significant resources
to an evaluation of available software applications and require the Company to
expend substantial time, effort and money educating them about the value of the
Company's products and services. The Company's sales cycle typically ranges
between six and nine months. Sales of the Company's products require an
extensive sales effort throughout a customer's organization because decisions to
license and deploy such software generally involve the evaluation of the
software by a significant number of employees in various functional areas, each
often having specific and conflicting requirements. A variety of factors,
including many over which the Company has little or no control, such as
customers' investments in Year 2000 systems compliance, may cause potential
customers to favor competing products or to delay or forego a purchase. As a
result of the length of its sales cycle, the Company has a limited ability to
forecast the timing and amount of specific sales. The delay or failure to
complete one or more sales in a particular quarter or fiscal year could have a
material adverse effect on the Company's business, results of operations and
financial condition and could cause the Company's operating results to vary
significantly from quarter to quarter. See "--Unpredictable Fluctuations and
Seasonal Patterns in Quarterly Results" and "--Year 2000 Compliance."
DEPENDENCE ON KEY EMPLOYEES
The Company's success depends on the performance of the Company's senior
management, particularly S. Steven Singh, who is not bound by an employment
agreement. Although the Company maintains key person life insurance on Mr. Singh
in the amount of $1 million, the loss of the services of Mr. Singh would have a
material adverse effect on the Company's business, results of operations and
financial condition. If one or more members of the Company's senior management
or any of the Company's key employees were to resign from the Company,
particularly to join a competitor or to form a competitor of the Company, the
loss of such personnel and any resulting loss of existing or potential customers
to any such competitor would have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, there can
be no assurance that, in such an event, the Company would be able to recruit
personnel to replace such senior management on terms that are acceptable to the
Company. In the event of the loss of any key personnel, there can be no
assurance that the Company would be able to prevent the unauthorized disclosure
or use of its technical knowledge, practices, procedures or customer lists by a
former employee or that such disclosure or use would not have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business--Competition," "--Employees" and "Management."
NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
The Company's success depends to a significant degree on its ability to
attract and retain qualified, experienced employees. There is currently, and the
Company expects there will continue to be, substantial competition for
experienced engineering, sales and consulting personnel, particularly in the
market segments in which the Company competes. Many of the companies with which
the Company competes for experienced personnel have greater financial and other
resources than the Company. In particular, the Company competes for product
development personnel with Microsoft Corporation, which is located in the same
geographic area as the Company's headquarters and which hires significant
numbers of software engineers each year. The Company also competes for personnel
with major ERP and other independent software vendors that hire substantial
numbers of sales and consulting personnel, and with consulting and professional
services
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companies (such as Andersen Consulting and other systems integration and
consulting divisions of major accounting firms), which recruit a significant
portion of the pool of available and qualified consulting personnel. In
addition, customers for the Company's products generally purchase consulting and
implementation services in connection with licenses of those products. While the
Company has recently established relationships with certain third-party
providers of these consulting and implementation services, Concur continues to
be the primary provider of such services for its products. It is difficult and
expensive to recruit, train and retain qualified personnel to perform such
services, and the Company may from time to time have inadequate levels of
staffing to perform such services. As a result, the Company's growth could be
limited due to its lack of capacity to provide such services, or the Company
could experience deterioration in service levels or decreased customer
satisfaction, any of which would have a material adverse effect on the Company's
business, results of operations and financial condition. The Company may in the
future experience difficulty in recruiting and retaining sufficient numbers of
qualified individuals to meet its needs, and the costs associated with such
hirings, such as bonuses and recruiting expenses, may have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business--Employees."
DEPENDENCE ON DIRECT SALES MODEL
The Company has sold, and intends to continue to sell, its products
primarily through its direct sales force. The Company's financial success will
depend in large part on the ability of the Company's direct sales force to
increase sales to levels necessary to attain and sustain profitability. As a
consequence of this strategy, the Company's ability to achieve significant
revenue growth in the future will depend in large part on its success in
recruiting, training and retaining additional direct sales personnel and on the
continued success of the direct sales force. The Company believes that there is
a shortage of, and significant competition for, direct sales personnel with the
advanced sales skills and technical knowledge necessary to sell the Company's
products. The Company's inability to hire competent sales personnel, or its
failure to retain them, would have a material adverse effect on the Company's
business, results of operations and financial condition. See "--Dependence on
Key Employees" and "--Need to Attract and Retain Qualified Personnel."
In addition, by relying primarily on a direct sales model, the Company may
miss sales opportunities that might be available through other sales
distribution channels, such as domestic and international resellers and
value-added resellers. In the future, the Company intends to develop indirect
distribution channels through third-party distribution arrangements, but there
can be no assurance that the Company will be successful in establishing such
arrangements, or that any such expansion of the Company's indirect distribution
channels will result in increased revenues. The failure to develop such indirect
channels may place the Company at a significant competitive disadvantage. See
"Business--Competition" and "--Sales."
The Company plans to use resellers to market its ESP products; the Company
has no experience utilizing resellers and there can be no assurance it will be
successful doing so in connection with its ESP products.
DEPENDENCE ON SERVICE REVENUES
The Company licenses software and provides related consulting, customer
support and training services. The Company's total revenues have increased from
year to year, and service revenues have increased each year as a percentage of
total revenues. Service revenues represented 12.4%, 23.3% and 31.8% of total
revenues for fiscal 1996, 1997 and 1998, respectively. Maintenance constitutes a
significant proportion of service revenues. The Company anticipates that service
revenues will continue to represent a significant percentage of total revenues.
To a large extent, the level of service revenues is dependent upon the ongoing
renewals of customer support contracts by the Company's growing installed
customer base, and there can be no assurance that such customer support
contracts will be renewed. In addition, if third-party organizations such as
systems integrators become proficient in installing or servicing the Company's
products, consulting revenues as a percentage of total revenues could decline.
If service revenues are lower than anticipated, the Company's business, results
of operations and financial condition could be materially adversely affected.
The Company's ability to increase its service revenues will depend in large part
on its ability to increase the scale of its services organization, including its
ability to successfully recruit and train a sufficient number of qualified
services personnel. There can be no assurance that the Company will be able to
successfully expand its professional
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services organization in this way. See "--Management of Growth," "--Dependence
on Key Employees," "--Need to Attract and Retain Qualified Personnel" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INTERNATIONAL OPERATIONS
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries, laws and
business practices favoring local competition, dependence on local vendors,
compliance with multiple, conflicting and changing governmental laws and
regulations, longer sales cycles, greater difficulty or delay in accounts
receivable collection, import and export restrictions and tariffs, difficulties
in staffing and managing foreign operations, multiple and conflicting tax laws
and regulations, and political and economic instability. In recent months the
level of worldwide economic instability has increased significantly. The Company
is unable to predict what effect this instability will have on its efforts to
expand internationally or sell domestically. It is possible that the spreading
economic uncertainty in the world will have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company's international operations also face foreign currency-related
risks. To date, a significant majority of the Company's revenues have been
denominated in U.S. Dollars, but the Company believes that in the future, an
increasing portion of the Company's revenues will be denominated in foreign
currencies. In particular, the Company expects that following the introduction
of the Euro in January 1999, an increasing portion of the Company's
international sales may be Euro-denominated. The Euro is an untested currency
and may be subject to economic risks that are not currently contemplated. There
can be no assurance that fluctuations in the value of the Euro or other foreign
currencies will not have a material adverse effect on the Company's business,
results of operations and financial condition. The Company currently does not
engage in foreign exchange hedging activities, and therefore its international
revenues are currently subject to the risks of foreign currency fluctuations. In
addition, the Company expects that its products will not support Euro-
denominated transactions until at least the second half of 1999, which could
materially adversely affect demand for such products and, as a result, the
Company's business, results of operations and financial condition. See
"--Unpredictable Fluctuations and Seasonal Patterns in Quarterly Results" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Revenues from licenses and services to customers outside the United States,
primarily in the United Kingdom, Canada and Australia, were insignificant prior
to fiscal 1997, and represented approximately $1.3 million and $810,000 in
fiscal 1997 and 1998, respectively. As a key component of its business strategy,
the Company intends to expand its sales and support operations internationally.
The Company employs sales professionals in London, Toronto and Sydney and
intends to establish additional international sales offices, expand its
international management, sales and support organizations, and enter into
relationships with additional international remarketers where appropriate. The
Company is in the early stages of developing its indirect distribution channels
in certain markets outside the United States. There can be no assurance that the
Company will be able to attract remarketers that will be able to market the
Company's products effectively or will be qualified to provide timely and
cost-effective customer support and service.
The Company must also customize its products for local markets. For
example, the Company's ability to expand into the European market will depend on
the Company's ability to develop a T&E expense management solution that
incorporates the tax laws and accounting practices followed in Germany and other
European countries, and to develop employee-facing applications that support the
Euro. Further, the differing employment policies of countries outside the United
States potentially reduce the Company's flexibility in managing staffing levels
and, in turn, managing personnel-related expenses. To the extent that the
Company is unable to address the risks associated with these international sales
in a timely and cost-effective manner, the Company's sales growth
internationally, if any, will be limited, operating margins could be reduced by
increases in personnel-related expenses without corresponding increases in
revenues, and the Company's business, results of operations and financial
condition could be materially adversely affected. Even if the Company is able to
expand its international operations successfully, there can be no assurance that
the Company will be able to maintain or increase international market demand for
its products. See "Business--Sales."
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LIMITED INTEROPERABILITY
The Company's products are designed to operate on a variety of hardware and
software platforms employed by its customers. The Company must continually
modify and enhance its products to keep pace with changes in hardware and
software platforms and database technology. As a result, uncertainties related
to the timing and nature of new product announcements, introductions or
modifications by vendors of operating systems (particularly Microsoft), by
vendors of back-office applications (particularly SAP, Oracle and PeopleSoft)
and by vendors of browsers and other Internet-related applications (particularly
Netscape and Microsoft) could materially adversely affect the Company's
business, results of operations and financial condition. In addition, the
Company's products are not currently based upon the Java programming language
("Java"), an increasingly widely-used language for developing Internet
applications. The Company has made a strategic decision not to develop a fully
Java-based product at this time. There can be no assurance that future versions
of the Company's products will be developed in Java. Accordingly, certain
features available to products written in Java may not be available in the
Company's products. The failure of the Company's products to operate effectively
across the various existing and evolving versions of hardware and software
platforms, programming languages, database environments, and ERP and accounting
systems employed by customers would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Products and Technology."
RELIANCE ON THIRD-PARTY SOFTWARE
The Company relies upon the licensing of certain software from third
parties, including security technologies from online analytical processing
business intelligence tools from Cognos Incorporated, ODBC drivers from
Intersolv, Inc., and Internet translation applications from Chili!Soft, Inc.
There can be no assurance that the Company's third-party technology licenses
will continue to be available to the Company on commercially reasonable terms,
if at all. The loss or inability to maintain any of these technology licenses
could result in delays in the sale of the Company's products and services until
equivalent technology, if available, is identified, licensed and integrated,
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
RISKS OF SOFTWARE DEFECTS OR SECURITY BREACHES
Products as complex as those offered by the Company frequently contain
defects or errors that may be detected at any point in the product's life. There
can be no assurance that defects or errors will not occur in existing or new
products. Further, the Company often renders implementation, consulting and
other technical services in connection with licensing of the Company's products.
The performance of these services typically involves working with sophisticated
software, computing and networking systems, and the Company could fail to meet
project milestones in a timely manner or to meet customer expectations for
services as a result of any such defects. Although the Company's products
contain security features, the Company's software products may be vulnerable to
break-ins and similar disruptive problems. Such computer break-ins and other
disruptions may jeopardize the security of information stored in and transmitted
through the computer systems of the Company's customers. Break-ins often involve
hackers bypassing fire walls and misappropriating confidential information.
Problems caused by product defects, security breaches or failure to meet project
milestones for services could result in loss of or delay in revenues, loss of
market share, failure to achieve market acceptance, diversion of development
resources, harm to the Company's reputation, increased insurance costs or
increased service and warranty costs. Addressing these problems may require
significant expenditures of capital and resources by the Company, which would
have a material adverse effect on the Company's business, results of operations
and financial condition.
PRODUCT LIABILITY RISKS
Because customers rely on the Company's products for certain
business-critical processes, any significant defects or errors in the Company's
products or services, or in the products of third parties that are embedded in
or bundled with the Company's products, might discourage utilization of the
Company's products and services or result in tort or warranty claims against the
Company, which could have a material adverse effect on the Company's business,
results of operations and financial condition. Although the Company's license
16
<PAGE> 18
agreements with its customers typically contain provisions designed to limit the
Company's exposure to potential liability for damages arising out of use of or
defects in the Company's products, it is possible that such limitation of
liability provisions may not be effective as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any such product liability claims to
date, there can be no assurance that the Company will not be subject to such
claims in the future. Further, although the Company maintains errors and
omissions insurance, there can be no assurance that such insurance coverage will
adequately cover the Company for such claims. A successful product liability
claim brought against the Company could have a material adverse effect on the
Company's business, results of operations and financial condition. Moreover,
defending such a suit, regardless of its merits, could entail substantial
expense and require the time and attention of key management personnel, either
of which could have a material adverse effect on the Company's business, results
of operations and financial condition.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company is dependent upon its proprietary technology. The Company
relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary information. The Company has also taken steps to avoid disclosure of
its proprietary technology, including contractually restricting customer access
to the Company's source code and requiring all employees to enter into
confidentiality and invention assignment agreements. However, certain of the
Company's former technical personnel did not execute such agreements. Further,
the Company only recently began requiring contractors and temporary employees to
execute the Company's confidentiality agreement rather than executing the
confidentiality agreements maintained by temporary agencies or not executing any
such agreements. The Company presently has no patents or patent applications
pending. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to as great an extent as do the laws of the United States, and the
Company expects that it will become more difficult to monitor use of the
Company's products as the Company increases its international presence. There
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate, nor that the Company's competitors will not
independently develop similar technology. In addition, there can be no assurance
that third parties will not claim infringement by the Company with respect to
current or future products. Any such claims could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Business--Intellectual Property Rights."
RISKS RELATED TO REVENUE RECOGNITION POLICY
The Company recognizes software license revenues when a non-cancelable
license agreement has been signed with a customer, the software is shipped, no
significant post-delivery vendor obligations remain and collection is deemed
probable. The Company recognizes customer support revenues ratably over the
contract term--typically one year--and recognizes revenues for consulting
services as such services are performed. The Company believes its current
revenue recognition policies and practices are consistent with applicable
accounting standards in all material respects. It is not anticipated that there
will be a material change to the Company's accounting for revenues as a result
of the adoption of SOP 97-2 and related amendments and interpretations. However,
full guidelines for this standard have not yet been issued. Once available, such
guidance could lead to unanticipated changes in the Company's current revenue
accounting practices, and such changes could materially adversely affect the
Company's future revenues and earnings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Overview."
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, in little more than one
year, computer systems and software used by many companies and organizations in
a wide variety of industries will experience operating difficulties unless they
17
<PAGE> 19
are modified or upgraded to process information related to the century change.
Significant uncertainty exists in the software and other industries concerning
the scope and magnitude of problems associated with the century change. Based on
the Company's assessment to date, the Company believes the current versions of
its software products are "Year 2000 compliant"-- that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However,
the Company's products are generally integrated into enterprise systems
involving sophisticated hardware and complex software products, which may not be
Year 2000 compliant. The Company may in the future be subject to claims based on
Year 2000 problems in others' products, or issues arising from the integration
of multiple products within an overall system. In addition, earlier versions of
the Company's current products were not Year 2000 compliant, and the Company
does not intend to render them Year 2000 compliant. Other Year 2000 compliance
issues facing the Company include the need to ensure Year 2000 compliance of its
own internal computer and other systems, to continue testing its software
products, to audit the Year 2000 compliance status of its suppliers and business
partners, and to conduct a legal audit. The Company has not completed its Year
2000 investigation, and there can be no assurance that the total cost of Year
2000 compliance will not be material to the Company's business, results of
operations and financial condition. There can also be no assurance that the
Company and its customers and suppliers will identify and remediate all
significant Year 2000 problems on a timely basis, that remediation efforts will
not involve significant time and expense, or that unremediated problems will not
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
RISKS ASSOCIATED WITH NAME CHANGE
In August 1998, the Company changed its name from Portable Software
Corporation to Concur Technologies, Inc. The Company believes that developing
and strengthening the Concur brand is important to its marketing efforts,
particularly to convey the fact that the Company's business strategy involves
products beyond its original T&E expense management applications. Concur
believes that it had developed significant market identification between its T&E
expense management applications and its former name. There can be no assurance
that the change of name will not have a material adverse effect on the Company's
name recognition within its existing target market. Moreover, while the Company
has expended substantial resources in establishing brand recognition of its new
name, there can be no assurance that such efforts will be successful or that the
Company will be able to enforce rights related to the Concur name, that it will
be free to use that name in all jurisdictions, or that it will not be required
to expend significant resources in defending the use of that name.
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price will be determined by negotiation among the Company and the
representatives of the underwriters based upon a number of factors and may not
be indicative of the market price of the Common Stock following the Offering.
The market price of the Company's Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to quarterly variations in
operating results, announcements of technological innovations or new products by
the Company or its competitors, market conditions in the enterprise software
industry, changes in financial estimates by securities analysts, failure of the
Company to meet or exceed analyst estimates, and other events or factors, many
of which are beyond the Company's control. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many software companies and
that often have been unrelated or disproportionate to the operating performance
of such companies, and a number of publicly-traded software companies have
current market prices below their initial public offering price. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. In the past, following periods of volatility in the marketplace
for a company's securities, securities class action litigation often has been
instituted. Any such litigation against the Company could result in substantial
costs and a diversion of management attention and resources, which would have a
material adverse effect on the Company's business, results of operations and
financial condition.
18
<PAGE> 20
CONTROL BY EXISTING STOCKHOLDERS
Immediately after the closing of the Offering (based on shares outstanding
as of October 31, 1998 and assuming the net exercise of warrants to purchase
31,900 shares of Common Stock), 73.2% of the outstanding Common Stock (71.2% if
the underwriters' over-allotment option is exercised in full) will be
beneficially owned by the directors, director nominees and executive officers of
the Company, together with the entities affiliated with them, assuming no
exercise of outstanding stock options. If all options owned by the directors and
executive officers of the Company as of October 31, 1998 were to be exercised,
the directors and executive officers of the Company, together with the entities
affiliated with them, would own 13,029,524 shares of Common Stock, or 74.7% of
the outstanding Common Stock of the Company following the Offering. As a result,
these stockholders, if acting together, would be able to control substantially
all matters requiring approval by the stockholders of the Company, including the
election of all directors and approval of significant corporate transactions. In
addition, upon completion of the Offering, TRS will hold a warrant to purchase
up to 2,100,000 shares of the Company's Common Stock at prices ranging from
$33.75 to $85.00, and expiring in three tranches through January 2002. TRS also
holds a warrant to purchase 225,000 shares of Common Stock, at an exercise price
per share equal to the per share price to the public in the Offering less 7%,
that expires upon effectiveness of the Offering ("TRS Warrant Initial Tranche").
TRS plans to exercise the TRS Warrant Initial Tranche immediately prior to the
Offering. See "Principal and Selling Stockholders" and "Certain Transactions."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS, DELAWARE LAW AND
CERTAIN AGREEMENTS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and certain provisions of Delaware law could delay or make difficult a merger,
tender offer or proxy contest involving the Company. The authorized but unissued
capital stock of the Company immediately following the Offering will include
5,000,000 shares of preferred stock. The Board of Directors is authorized,
subject to any limitations prescribed by Delaware law, to issue the preferred
stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the rights, preferences and
privileges of the shares of each wholly unissued series and to designate any
qualifications, limitations or restrictions thereon, and to decrease the number
of shares of any such series (but not below the number of shares of such series
then outstanding), without any further vote or action by the stockholders.
Accordingly, the Company may in the future issue a series of preferred stock,
without further stockholder approval, that will have preference over the Common
Stock with respect to the payment of dividends and upon liquidation, dissolution
or winding-up of the Company. Certain other provisions of the Company's
Certification of Incorporation and Bylaws, including provisions that divide the
Board of Directors into three classes to serve staggered three-year terms,
prohibit the stockholders from taking action by written consent and restrict the
ability of stockholders to call special meetings, may also make it more
difficult for a third party to acquire a majority of the Company's voting stock
or effect a change in control of the Company. In addition, Section 203 of the
General Corporation Law of the State of Delaware, which is applicable to the
Company, prohibits certain business combinations with certain stockholders for a
period of three years after they acquire 15% or more of the outstanding voting
stock of a corporation. Certain agreements with American Express also contain
provisions making it more difficult for certain third parties to acquire a
substantial amount of the Company's voting stock or effect a change in control
of the Company. Any of the foregoing could adversely affect holders of the
Common Stock or discourage or make difficult any attempt to obtain control of
the Company. See "Management--Executive Officers and Directors," "Description of
Capital Stock" and "Certain Transactions."
SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF THE COMMON STOCK
Sales of a substantial number of shares of Common Stock after the Offering
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the Offering, the Company will have outstanding 16,470,412 shares
of Common Stock (16,935,412 shares if the underwriters' over-allotment option is
exercised in full), assuming no exercise of options after October 31, 1998). Of
these shares, the 3,100,000 shares offered hereby (3,565,000 shares if the
underwriters' over-allotment option is exercised in full) will be freely
tradable without
19
<PAGE> 21
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless purchased by "affiliates" of the Company as that
term is defined in Rule 144 under the Securities Act ("Rule 144"). The remaining
13,370,412 shares of Common Stock outstanding upon completion of the Offering
are "restricted securities" as that term is defined in Rule 144.
Upon the expiration of lock-up agreements between certain of the Company's
stockholders and the underwriters (the "Lock-Up Agreements") beginning 180 days
after the date of this Prospectus, 199,013 shares will become eligible for sale
pursuant to Rule 701 under the Securities Act ("Rule 701") and 10,588,821 shares
held by certain affiliates of the Company will become eligible for sale pursuant
to the volume, manner of sale and notice requirements of Rule 144. The remaining
2,582,578 shares outstanding will become eligible for sale from time to time
more than 180 days after the date of this Prospectus. In addition to the
foregoing, as of October 31, 1998, there were outstanding options to purchase an
aggregate of 1,542,921 shares of Common Stock which will be eligible for sale in
the public market from time to time, subject to vesting and the expiration of
Lock-Up Agreements. The Company intends to file a registration statement on Form
S-8 under the Securities Act within 180 days after the completion of the
Offering to register 5,692,872 shares of Common Stock subject to outstanding
stock options or reserved for issuance under the Company's stock and stock
option plans upon effectiveness of the Offering, thus permitting the resale of
such shares by nonaffiliates in the public market without restriction under the
Securities Act. The representatives of the underwriters have informed the
Company that the underwriters reserve the right without announcement to release
shares from the Lock-Up Agreements prior to expiration of the 180-day term of
such agreements. Any request for release would be evaluated by the
representatives of the underwriters, and the decision whether or not to permit
early release of shares would be made dependent upon the facts and circumstances
existing at the time of the request. See "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience an immediate
dilution of $8.52 per share in the pro forma net tangible book value of their
Common Stock from the assumed initial public offering price of $10.50 per share.
To the extent outstanding warrants or options are exercised, there may be
further dilution. See "Dilution."
BROAD DISCRETION OVER USE OF PROCEEDS
The Company intends to use the net proceeds of the Offering for working
capital and general corporate purposes. These will include increased sales and
marketing expenditures, increased expenditures for professional services
capabilities, increased research and development expenditures, and capital
expenditures made in the ordinary course of business. The Company may also use a
portion of the net proceeds for possible acquisitions of additional businesses,
products and technologies or the establishment of joint ventures that are
complementary to the current or future business of the Company, as determined by
management in its sole discretion. The Company may change the allocation of net
proceeds among the various uses described above. Accordingly, investors in the
Offering will rely upon the judgment of the Company's management with respect to
the use of proceeds, with only limited information concerning management's
specific intentions. See "Use of Proceeds."
20
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,900,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$27.4 million ($32.0 million if the Underwriters' over-allotment option is
exercised in full), at an assumed initial public offering price of $10.50 and
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company. The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders. The primary purposes of
the Offering are to increase the Company's equity capital, to create a public
market for the Company's Common Stock and to facilitate future access by the
Company to public equity markets.
The Company intends to use the net proceeds of the Offering for working
capital and general corporate purposes. These will include increased domestic
and international sales and marketing expenditures, increased research and
development expenditures and capital expenditures made in the ordinary course of
business. The Company intends to use approximately $5.0 million from the net
proceeds of the Offering to fund increases in its research and development
activities, approximately $5.0 million for expanded professional services
capabilities (primarily increased staffing for consulting customer support and
training services) and approximately $11.0 million to increase its domestic and
international sales and marketing capabilities. The Company has no other
specific plans as to the use of the net proceeds from the Offering. The Company
may also use a portion of the net proceeds for possible acquisitions of
businesses, products and technologies or the establishment of joint ventures
that are complementary to the current and future business of the Company.
Although the Company has not identified any specific businesses, products or
technologies that it may acquire, and there are no current agreements or
understandings with respect to any such transactions, the Company does from time
to time evaluate such opportunities. Pending such uses, the net proceeds of the
Offering will be invested in investment-grade, interest-bearing instruments.
None of the net proceeds of the Offering will be paid to NASD members,
affiliates, or associated or related persons thereof.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering. Future events, as well as changes in economic,
regulatory or competitive conditions or in the Company's business and the
results of its activities, may make changes in the allocation of funds within
the described categories or to other purposes necessary or desirable. Management
has broad discretion as to the allocation of the net proceeds of the Offering.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not expect to do so in the foreseeable future. The Company
anticipates that any future earnings will be retained by the Company to develop
and expand its business. Any future determination with respect to the payment of
dividends will be at the discretion of the Board of Directors and will depend
upon, among other things, the Company's operating results, financial condition
and capital requirements, the terms of then-existing indebtedness, general
business conditions and such other factors as the Board of Directors deems
relevant. In addition, the terms of certain of the Company's credit facilities
prohibit the payment of cash dividends without the lender's consent. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
21
<PAGE> 23
CAPITALIZATION
The following table sets forth, as of September 30, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the conversion of all outstanding shares of redeemable
convertible preferred stock into Common Stock and the conversion of all
outstanding preferred stock warrants into warrants to purchase Common Stock, and
(iii) the pro forma capitalization as adjusted to give effect to the sale of the
2,900,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $10.50 per share (after deducting estimated
underwriting discounts and commissions and offering expenses) and the receipt of
the estimated net proceeds therefrom, the net exercise of warrants to purchase
31,900 shares of Common Stock at an assumed initial public offering price of
$10.50 per share and the proceeds from the exercise of a warrant to purchase
225,000 shares of Common Stock at an assumed exercise price of $9.765 per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, net of current portion............... $ 8,092 $ 8,092 $ 8,092
Redeemable convertible preferred stock, no par value,
10,457,716 shares authorized, 10,213,553 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma or as adjusted..................... 29,685 -- --
Redeemable convertible preferred stock warrants............. 444 -- --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value, no shares authorized,
issued and outstanding, actual or pro forma; 5,000,000
shares authorized, no shares issued or outstanding, as
adjusted............................................... -- -- --
Common Stock, $.001 par value; 60,000,000 shares
authorized; 3,098,543 shares issued and outstanding,
actual; 13,312,096 shares issued and outstanding, pro
forma; and 16,468,996 shares issued and outstanding, as
adjusted(1)............................................ 6,276 36,405 66,021
Deferred stock compensation............................... (452) (452) (452)
Accumulated deficit....................................... (32,043) (32,043) (32,043)
-------- -------- --------
Total stockholders' equity (deficit)................... (26,219) 3,910 33,526
-------- -------- --------
Total capitalization.............................. $ 12,002 $ 12,002 $ 41,618
======== ======== ========
</TABLE>
- ---------------
(1) Excludes (taking into account the Company's warrants and option plans as
amended through the date hereof): (i) 1,539,521 shares issuable upon the
exercise of stock options outstanding (of which options to purchase 498,378
shares were exercisable) under the Company's stock option plans, at a
weighted average exercise price of $0.95 per share; (ii) 560,000 shares
reserved for issuance under the Company's 1998 Directors Stock Option Plan
and the 1998 Employee Stock Purchase Plan, both of which will become
effective upon consummation of the Offering; (iii) 3,594,768 shares of
Common Stock available for future grant under the 1994 Plan and the 1998
Equity Incentive Plan; (iv) 110,306 shares issuable upon exercise of
outstanding options (74,202 of which are subject to vesting) assumed by the
Company in connection with the acquisition of 7Software, at a weighted
average exercise price of $0.025 per share; (v) 137,453 shares issuable upon
exercise of outstanding warrants with a weighted average exercise price of
$5.73 per share; and (vi) 2,100,000 shares issuable upon the exercise of a
warrant issued to TRS at prices ranging from $33.75 to $85.00, expiring in
three tranches through January 2002. Upon effectiveness of the Offering, no
further options will be granted under the 1994 Stock Option Plan. See
"Management--Director Compensation," "--Employee Benefit Plans," "Certain
Transactions" and Notes 3, 9, 11 and 17 of Notes to Consolidated Financial
Statements.
22
<PAGE> 24
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1998, giving effect to the conversion of all outstanding shares of preferred
stock into Common Stock, the conversion of all outstanding warrants to purchase
preferred stock into warrants to purchase Common Stock, the net exercise of
warrants to purchase 31,900 shares of Common Stock, and the proceeds from the
exercise of a warrant to purchase 225,000 shares of Common Stock at an assumed
exercise price of $9.765 per share upon or prior to the completion of the
Offering was $5,227,000, or approximately $0.39 per share. Pro forma net
tangible book value per share represents the amount of total tangible assets of
the Company less total liabilities, divided by the number of shares of Common
Stock outstanding on an as-if-converted basis as adjusted for the incremental
shares from the net exercise of warrants and the cash exercise of warrants
referred to above. Dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
made hereby and the pro forma net tangible book value per share of Common Stock
immediately after the Offering.
After giving effect to the sale of 2,900,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $10.50 per
share (after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company) and the receipt of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
September 30, 1998 would have been $32,646,000, or $1.98 per share. This
represents an immediate increase in pro forma net tangible book value of $1.59
per share to existing stockholders and an immediate dilution of $8.52 per share
to purchasers of Common Stock in the Offering. The following table illustrates
the per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.50
Pro forma net tangible book value per share as of
September 30, 1998..................................... $ 0.39
Increase per share attributable to new investors.......... 1.59
------
Pro forma net tangible book value per share after the
Offering.................................................. 1.98
------
Dilution per share to new investors......................... $ 8.52
======
</TABLE>
The following table summarizes, as of September 30, 1998 on the pro forma
basis described above, the differences between the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by existing stockholders and by the new investors pursuant
to the Offering, before deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company at an assumed initial
public offering price of $10.50 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....................... 13,568,996 82.4% $ 38,675,000 55.9% $ 2.85
New investors(1)(2)............................ 2,900,000 17.6 30,450,000 44.1 10.50
---------- ----- ------------ ------
Total................................ 16,468,996 100.0% $ 69,125,000 100.0%
========== ===== ============ ======
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in the Offering will reduce the number of
shares held by existing stockholders to 13,368,996, or 81.2% (78.9% if the
Underwriters' over-allotment option is exercised in full), and will increase
the number of shares held by new investors to 3,100,000, or 18.8% (21.1% if
the Underwriters' over-allotment option is exercised in full), of the total
number of shares of Common Stock outstanding after the Offering. See
"Principal and Selling Stockholders."
(2) Excludes (taking into the Company's account warrants and option plans as
amended through the date hereof) (i) 1,539,521 shares subject to outstanding
options as of September 30, 1998 at a weighted average exercise price of
$0.95 per share, (ii) 3,594,768 shares reserved for issuance under the 1994
Plan and the 1998 Equity Incentive Plan, (iii) 560,000 shares reserved for
issuance under the Company's 1998 Directors Stock Option Plan and the 1998
Employee Stock Purchase Plan, both of which will become effective upon
consummation of the Offering, and (iv) 2,100,000 shares issuable upon
exercise of a warrant issued to TRS at prices ranging from $33.75 to $85.00,
expiring in three tranches through January 2002. To the extent outstanding
options or warrants are exercised, there may be further dilution to new
investors. See "Management--Director Compensation," "--Employee Benefit
Plans," "Certain Transactions" and Notes 3, 9, 11 and 17 of Notes to
Consolidated Financial Statements.
23
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by
reference to and should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The consolidated statement of operations data for the years
ended September 30, 1996, 1997 and 1998, and the consolidated balance sheet data
as of September 30, 1997 and 1998, are derived from consolidated financial
statements of the Company that have been audited by Ernst & Young LLP,
independent auditors, which are included elsewhere in this Prospectus. The
consolidated statement of operations data for the year ended September 30, 1995
and the consolidated balance sheet data as of September 30, 1995 and 1996 are
derived from audited consolidated financial statements that are not included in
this Prospectus. The consolidated statement of operations data for the year
ended September 30, 1994, and the consolidated balance sheet data as of
September 30, 1994, are derived from unaudited consolidated financial statements
not included in this Prospectus. Historical results are not necessarily
indicative of future results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues, net:
Licenses.................................................. $ -- $ 2,104 $ 1,717 $ 6,347 $ 11,696
Services.................................................. -- 24 242 1,923 5,463
------- ------- ------- -------- --------
Total revenues...................................... -- 2,128 1,959 8,270 17,159
------- ------- ------- -------- --------
Cost of revenues:
Licenses.................................................. -- 728 386 394 558
Services.................................................. -- 673 839 2,269 5,684
------- ------- ------- -------- --------
Total cost of revenues.............................. -- 1,401 1,225 2,663 6,242
------- ------- ------- -------- --------
Gross profit................................................ -- 727 734 5,607 10,917
------- ------- ------- -------- --------
Operating expenses:
Sales and marketing....................................... 111 2,363 2,936 5,896 12,353
Research and development.................................. 425 744 1,793 3,401 6,434
General and administrative................................ 66 515 963 1,815 4,687
Acquired in-process technology(1)......................... -- -- -- -- 5,203
------- ------- ------- -------- --------
Total operating expenses............................ 602 3,622 5,692 11,112 28,677
------- ------- ------- -------- --------
Loss from operations........................................ (602) (2,895) (4,958) (5,505) (17,760)
Other income (expense), net................................. -- 5 5 (19) (314)
------- ------- ------- -------- --------
Net loss.................................................... $ (602) $(2,890) $(4,953) $ (5,524) $(18,074)
======= ======= ======= ======== ========
Pro forma basic and diluted net loss per share(2)........... $ (1.58)
========
Shares used in calculation of pro forma basic and diluted
net loss per share(2)..................................... 11,419
========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------
PRO FORMA(3)
1994 1995 1996 1997 1998 1998
----- ------- ------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents................................... $ 277 $ 2,541 $ 5,685 $ 6,695 $ 15,629 $15,629
Working capital (deficit)................................... (175) 1,839 4,073 6,183 8,474 8,474
Total assets................................................ 345 3,058 6,759 12,364 25,031 25,031
Long-term obligations, net of current portion............... 233 125 215 3,687 8,092 8,092
Redeemable convertible preferred stock and warrants......... -- 4,903 12,386 17,345 30,129 --
Total stockholders' equity (deficit)........................ (353) (3,234) (8,186) (13,710) (26,219) 3,910
</TABLE>
- ---------------
(1) In June 1998, the Company acquired 7Software, resulting in a charge for
acquired in-process technology. See Note 3 of Notes to Consolidated
Financial Statements. The Financial Statements of 7Software are included
elsewhere herein.
(2) See Note 13 of Notes to Consolidated Financial Statements for information
concerning the calculation of pro forma basic and diluted net loss per
share.
(3) Pro forma to give effect to (i) the conversion of all outstanding shares of
preferred stock into 10,213,553 shares of Common Stock and (ii) the
conversion of all outstanding warrants to purchase preferred stock into
warrants to purchase 2,329,578 shares of Common Stock.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
Concur is a leading provider of Intranet-based employee-facing applications
that extend automation to employees throughout the enterprise and to partners,
vendors and service providers in the extended enterprise. The Company's Xpense
Management Solution ("XMS") and CompanyStore products automate the preparation,
approval, processing and data analysis of travel and entertainment ("T&E")
expense reports and front-office procurement requisitions. Concur believes it is
the leading provider of T&E expense management solutions, based on a combination
of the number of customers it serves and the features its solutions provide.
Since the introduction of XMS in 1996, the Company has licensed its products to
over 150 enterprise customers for use by over 800,000 end users. Through its
June 1998 acquisition of 7Software, Inc., the Company added the CompanyStore
front-office procurement application to its product suite. By automating manual,
paper-based processes, the Company's products reduce processing costs and enable
customers to consolidate purchases with preferred vendors and negotiate vendor
discounts.
Concur was incorporated in 1993 and commenced operations in fiscal 1994,
initially developing QuickXpense, a retail, shrink-wrapped application that
automated T&E expense reporting for individuals. Concur first shipped
QuickXpense in fiscal 1995 and sold QuickXpense through a combination of retail
channels and direct marketing, utilizing a small sales force and no consulting
or implementation staff. In response to inquiries from businesses seeking to
automate the entire T&E expense reporting process, including back-office
processing and integration to financial systems, the Company significantly
expanded its product development efforts and released XMS, a client-server based
enterprise T&E expense management solution in July 1996. In connection with that
transition, the Company also replaced its retail and direct marketing programs
with a direct sales force including sales representatives and sales engineers,
built consulting services and customer training staffs, and redirected its
marketing efforts to focus on enterprise sales. In March 1998, the Company
shipped an Intranet-based version of XMS. While the Company continues to sell
the client-server version of XMS, since its release the Intranet-based version
has accounted for a majority of XMS license revenues and the Company expects to
continue to focus its product development efforts on the Intranet-based versions
of its products.
On June 30, 1998, the Company acquired 7Software, a privately-held software
company and the developer of CompanyStore. 7Software was incorporated in May
1997. 7Software was selling the initial version of its product through a single
sales representative at the time Concur acquired it. Concur's existing sales
force and consulting services group sells and services both XMS and
CompanyStore, and the Company's research and development activities will be
expanded to develop a common technology platform, the Concur Common Platform,
for both XMS and CompanyStore. In connection with the acquisition, the Company
issued 708,918 shares of its Common Stock in exchange for all the outstanding
shares of 7Software, converted all of 7Software's outstanding options into
options to purchase up to 123,921 shares of the Company's Common Stock, paid
$130,000 to 7Software, and agreed to pay $500,000 to certain shareholders of
7Software, resulting in a total purchase price valued at $6.2 million, including
direct costs of the acquisition. The total purchase price was determined by the
Company's management and Board of Directors based on an assessment of the value
of 7Software and as a result of negotiations with 7Software. In determining the
purchase price, the Company estimated the fair value of the Company's Common
Stock and the Company's stock options issued in the transaction. The Company
also entered into employment and bonus agreements with certain officers of
7Software. The acquisition was recorded under the purchase method of accounting
and the results of operations of 7Software and the fair value of the assets
acquired and liabilities assumed were included in Concur's consolidated
financial statements beginning on the acquisition date. In connection with
25
<PAGE> 27
this acquisition, the Company recorded $5.2 million for in-process technology as
an expense in the quarter ended June 30, 1998. In addition, the Company recorded
capitalized technology and other intangible assets of $960,000 that will be
amortized on a straight-line basis over the three years following the
acquisition. See "--Acquisition of 7Software" and Note 3 of Notes to
Consolidated Financial Statements.
The Company expects that for the foreseeable future the significant
majority of its revenues will continue to be derived from its XMS product line
and related services. See "Risk Factors--Product Concentration," "--Risks
Associated with Expansion into New Market" and "--Risks Associated with
Acquisitions Generally."
The Company's revenues, which consist of software license revenues and
service revenues, totaled $2.0 million, $8.3 million and $17.2 million in fiscal
1996, 1997 and 1998, respectively. Through June 1996, the Company's revenues
were derived from licenses of QuickXpense and related services. In July 1996,
the Company released XMS. Substantially all of the Company's revenues since the
fourth quarter of fiscal 1996 have been derived from licenses of XMS and related
services. The Company's product pricing is based on the number of users or
employees of the purchasing enterprise. Service revenues consist of consulting,
customer support and training. See "Risk Factors--Limited Operating History;
Future Operating Results Uncertain; History of Losses" and "--Unpredictable
Fluctuations and Seasonal Patterns in Quarterly Results."
Concur markets its software and services primarily through its direct sales
organization in the United States, Canada, the United Kingdom and Australia.
Revenues from XMS licenses and services to customers outside the United States
were insignificant prior to fiscal 1997, and represented approximately $1.3
million and $810,000 in fiscal 1997 and 1998, respectively. Historically, as a
result of the relatively small amount of international sales, fluctuations in
foreign currency exchange rates have not had a material effect on the Company's
business, results of operations and financial condition. See "Risk
Factors--International Operations" and Note 15 of Notes to Consolidated
Financial Statements.
For fiscal 1998 and prior years the Company recognized revenues in
accordance with the American Institute of Certified Public Accountants ("AICPA")
Statement of Position 91-1 ("SOP 91-1"). Software license revenues are
recognized when a non-cancelable license agreement has been signed with a
customer, the software is shipped, no significant post delivery vendor
obligations remain and collection is deemed probable. Maintenance revenues are
recognized ratably over the contract term, typically one year. Revenues for
consulting services are recognized as such services are performed. Commencing
with fiscal 1999, the Company recognizes revenue in accordance with AICPA
Statement of Position 97-2, "Software Revenue Recognition" and related
amendments and interpretations ("SOP 97-2"). Based upon its interpretation of
SOP 97-2 and its current business policies and practices, the Company believes
there will be no significant impact on revenue recognition as a result of the
adoption of SOP 97-2. However, full guidelines for this standard have not yet
been issued. Once available, such guidelines could lead to unanticipated changes
in the Company's current revenue accounting practices, and such changes could
materially adversely affect the Company's future revenues and earnings.
Since its inception, the Company has incurred substantial research and
development costs and has invested heavily in the expansion of its sales,
marketing and professional services organizations to build an infrastructure to
support its long-term growth strategy. The number of the Company's full-time
employees increased from 65 as of September 30, 1996, to 133 as of September 30,
1997 and to 222 as of September 30, 1998, representing increases of 105% and
67%, respectively. As a result of investments in the Company's infrastructure,
the Company has incurred net losses in each fiscal quarter since inception and,
as of September 30, 1998, had an accumulated deficit of $32.0 million. The
Company anticipates that its operating expenses will increase substantially for
the foreseeable future as it expands its product development, sales and
marketing, and professional services staff. Accordingly, the Company expects to
incur net losses for the foreseeable future.
The Company has recorded aggregate deferred stock compensation of $861,000.
Deferred stock compensation is amortized over the life of the options, generally
four years. During fiscal 1998, the Company recorded amortization of deferred
stock compensation of $409,000.
26
<PAGE> 28
The Company believes that period-to-period comparisons of its operating
results are not meaningful and should not be relied upon as indicative of future
performance. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets. There
can be no assurance the Company will be successful in addressing such risks and
difficulties. In addition, although Concur has experienced significant revenue
growth recently, there can be no assurance that such revenue growth will
continue or that the Company will achieve or maintain profitability in the
future. See "Risk Factors--Limited Operating History; Future Operating Results
Uncertain; History of Losses" and "--Unpredictable Fluctuations and Seasonal
Patterns in Quarterly Results."
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues, net:
Licenses.................................................. 87.6% 76.7% 68.2%
Services.................................................. 12.4 23.3 31.8
------ ------ ------
Total revenues.................................... 100.0 100.0 100.0
------ ------ ------
Cost of revenues:
Licenses.................................................. 19.7 4.8 3.3
Services.................................................. 42.8 27.4 33.1
------ ------ ------
Total cost of revenues............................ 62.5 32.2 36.4
------ ------ ------
Gross margin................................................ 37.5 67.8 63.6
------ ------ ------
Operating expenses:
Sales and marketing....................................... 149.9 71.3 72.0
Research and development.................................. 91.5 41.1 37.5
General and administrative................................ 49.2 21.9 27.3
Acquired in-process technology............................ -- -- 30.3
------ ------ ------
Total operating expenses.......................... 290.6 134.3 167.1
------ ------ ------
Loss from operations........................................ (253.1) (66.5) (103.5)
Other income (expense), net................................. 0.3 (0.2) (1.9)
------ ------ ------
Net loss.................................................... (252.8)% (66.7)% (105.4)%
====== ====== ======
</TABLE>
Revenues
The Company's revenues are derived from software licenses and related
services. The Company's revenues were $2.0 million, $8.3 million and $17.2
million in fiscal 1996, 1997 and 1998, respectively, representing increases of
$6.3 million, or 322%, from fiscal 1996 to fiscal 1997 and $8.9 million, or
107%, from fiscal 1997 to fiscal 1998. The Company had no customer that
accounted for more than 10% of its revenues in fiscal 1996, 1997 or 1998.
The Company's license revenues were $1.7 million, $6.3 million and $11.7
million in fiscal 1996, 1997 and 1998, respectively, representing increases of
$4.6 million, or 271%, from fiscal 1996 to fiscal 1997 and $5.4 million, or 84%,
from fiscal 1997 to fiscal 1998. The increase in the Company's license revenues
from fiscal 1996 to fiscal 1997 was due to increased market acceptance of the
client-server version of XMS and increases in both the size and productivity of
the sales force. The increase in license revenues from fiscal 1997 to fiscal
1998 was a result of the continued impact of those same factors, as well as the
release of the Intranet version of XMS, and the strategic marketing alliance
agreement signed with American Express in December 1997. Virtually none of the
increase in revenues was attributable to increased prices. The Company has never
changed the list price of XMS.
27
<PAGE> 29
The Company's service revenues were $242,000, $1.9 million and $5.5 million
in fiscal 1996, 1997 and 1998, respectively, representing increases of $1.7
million from fiscal 1996 to fiscal 1997 and $3.5 million, or 184%, from fiscal
1997 to fiscal 1998. Prior to fiscal 1997, service revenues consisted primarily
of customizing electronic versions of expense report forms in connection with
sales of QuickXpense. In fiscal 1997 and fiscal 1998, service revenues consisted
primarily of consulting service fees, customer support and, to a lesser extent,
training services, associated with the increasing license revenues during these
periods. Service revenues represented 12.4%, 23.3% and 31.8% of the Company's
total revenues in fiscal 1996, 1997 and 1998, respectively. The increase in
absolute service revenues from fiscal 1997 to fiscal 1998 reflects increasing
licenses of XMS as well as service revenues recognized with respect to licenses
entered into in prior periods. The Company believes that the percentage of total
revenues represented by service revenues in prior fiscal years is not indicative
of levels to be expected in future periods. Due to its limited experience
selling CompanyStore, the Company is uncertain how recognition of service
revenues associated with such sales will affect its results of operations in the
future. In addition, the Company expects that its proportion of service revenues
to total revenues will fluctuate in the future, depending in part on the
Company's use of third-party consulting and implementation service providers as
well as on the market's acceptance of the Company's outsourced ESP solution.
Cost of Revenues
Cost of License Revenues. Cost of license revenues includes license fees
for third-party software, product media, product duplication and manuals. Cost
of license revenues was $386,000, $394,000 and $558,000 in fiscal 1996, 1997 and
1998, respectively, representing increases of $8,000, or 2%, from fiscal 1996 to
fiscal 1997 and $164,000, or 42%, from fiscal 1997 to fiscal 1998. Cost of
license revenues remained relatively constant from fiscal 1996 to fiscal 1997 as
a result of a shift in the mix of revenues from QuickXpense and XMS. The
increase from fiscal 1997 to fiscal 1998 was a result of increased expenses
associated with sub-licensing of third party software due to increased sales of
XMS and the costs of production, manuals and other media associated with the
release of the Intranet version of XMS in March 1998. Cost of license revenues
as a percentage of license revenues was 22.5%, 6.2% and 4.8% for fiscal 1996,
1997 and 1998, respectively. A portion of the capitalized technology and other
intangible assets recorded in connection with the acquisition of 7Software will
be amortized on a straight-line basis over three years as cost of license
revenues. The Company expects that the cost of license revenues as a percentage
of total revenues and license revenues may increase significantly upon the
introduction of the Company's outsourced enterprise service provider ("ESP")
solution and will fluctuate in the future depending in part on the demand for
the Company's current products and its outsourced ESP solution.
Cost of Service Revenues. Cost of service revenues includes personnel and
other costs related to consulting services, technical support, expense report
forms development and training. Cost of service revenues was $839,000, $2.3
million and $5.7 million, in fiscal 1996, 1997 and 1998, respectively,
representing increases of $1.4 million, or 170%, from fiscal 1996 to fiscal 1997
and $3.4 million, or 151%, from fiscal 1997 to fiscal 1998. The increase from
fiscal 1996 to fiscal 1997 was a result of hiring and training a consulting
organization to implement XMS and retraining existing personnel, in connection
with the shift in the Company's product line from QuickXpense to XMS. The
increase from 1997 to 1998 was primarily due to an increase in professional
services personnel to support the Company's growing XMS customer base. Cost of
service revenues as a percentage of service revenues was 346.7%, 118.0% and
104.1% for fiscal 1996, 1997 and 1998, respectively. The decrease in cost of
service revenues as a percentage of service revenues from fiscal 1996 through
fiscal 1998 was primarily due to economies of scale realized as a result of
higher levels of consulting services activity and increased experience of the
professional services personnel. Cost of service revenues as a percentage of
service revenues may vary between periods due to the mix of services provided by
the Company and the resources used to provide such services.
Costs and Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, lead
referral fees, and travel, entertainment and promotional
28
<PAGE> 30
expenses. Sales and marketing expenses were $2.9 million, $5.9 million and $12.4
million in fiscal 1996, 1997 and 1998, respectively, representing increases of
$3.0 million, or 101%, from fiscal 1996 to fiscal 1997 and $6.5 million, or
110%, from fiscal 1997 to fiscal 1998. The increases from fiscal 1996 through
1998 primarily reflect the Company's investment in its sales and marketing
infrastructure, which included significant personnel-related expenses such as
salaries, benefits and commissions, recruiting fees, travel and entertainment
expenses, and related costs of hiring sales management, sales representatives,
sales engineers and marketing personnel. Sales and marketing employees totaled
21, 42 and 66 as of September 30, 1996, 1997 and 1998, respectively,
representing increases of 100% and 57%, respectively. The increase in sales and
marketing expenses from fiscal 1997 to fiscal 1998 also reflected increased
hiring rates to replace and support promoted regional sales managers, public
relations and trade show expenses, and sales referral fees made under the
Company's agreement with its referral partners, principally American Express.
Sales and marketing expenses represented 149.9%, 71.3% and 72.0% of the
Company's total revenues for fiscal 1996, 1997 and 1998, respectively. The
decreases in sales and marketing expenses as a percentage of total revenues from
fiscal 1996 through 1998 primarily reflects the more rapid growth of revenues
compared to the growth of sales and marketing expenses in this period due to the
increase in service revenues as a percentage of total revenues and a maturing
sales force. The Company believes that a significant increase in its sales and
marketing efforts is essential for it to maintain its market position and
further increase acceptance of its products. Accordingly, the Company
anticipates it will continue to invest significantly in sales and marketing for
the foreseeable future, and sales and marketing expenses will increase in future
periods.
Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, product managers and
quality assurance personnel and payments to outside contractors. Research and
development expenses were $1.8 million, $3.4 million and $6.4 million in fiscal
1996, 1997 and 1998, respectively, representing increases of $1.6 million, or
90%, from fiscal 1996 to fiscal 1997 and $3.0 million, or 89% from fiscal 1997
to fiscal 1998. The increases from fiscal 1996 through 1998 were primarily
related to the increase in the number of software developers and quality
assurance personnel and outside contractors to support the Company's product
development and testing activities related to the development and release of
both the client-server and Intranet versions of XMS. The Company's research and
development employees totaled 22, 38 and 64 as of September 30, 1996, 1997 and
1998, respectively, representing increases of 73% and 68%, respectively.
Research and development costs represented 91.5%, 41.1% and 37.5% of the
Company's total revenues in fiscal 1996, 1997 and 1998, respectively. The
Company believes that a significant increase in its research and development
investment is essential for it to maintain its market position, to continue to
expand its product line and to develop a common technology platform for its
suite of products. Accordingly, the Company anticipates that it will continue to
invest significantly in product research and development for the foreseeable
future, and research and development expenses are likely to increase in future
periods. In the development of the Company's new products and enhancements of
existing products, the technological feasibility of the software is not
established until substantially all product development is complete.
Accordingly, software development costs eligible for capitalization were
insignificant, and all costs related to internal research and development have
been expensed as incurred.
General and Administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for the Company's executive,
finance, administrative and information services personnel. General and
administrative expenses were $963,000, $1.8 million and $4.7 million in fiscal
1996, 1997 and 1998, respectively, representing increases of $852,000, or 88%,
from fiscal 1996 to 1997 and $2.9 million, or 158%, from fiscal 1997 to 1998.
The increases from fiscal 1996 through 1998 were primarily the result of
additional finance, executive and administrative personnel to support the growth
of the Company's business during these periods. In addition to increased
compensation and related expenses, the increase in general and administrative
expenses from 1997 to 1998 reflects an increase in the allowance for doubtful
accounts related to the Company's increase in revenues, and stock compensation
expense, during the period. During 1998, the Company recorded deferred stock
compensation for the differences between the exercise prices and the deemed fair
values of the Company's Common Stock with respect to certain options, and
recorded amortization of deferred stock compensation of $409,000. General and
administrative costs represented 49.2%, 21.9% and 27.3% of the Company's total
revenues in fiscal 1996, 1997 and 1998, respectively. The Company believes that
its general and administrative expenses will continue to increase as a result of
the continued
29
<PAGE> 31
expansion of the Company's administrative staff and the expenses associated with
becoming a public company, including but not limited to annual and other public
reporting costs, directors' and officers' liability insurance, investor
relations programs and professional services fees.
Income Taxes. As of September 30, 1998, the Company had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $19.1 million and tax credit carryforwards of $262,000, which
expire at various dates from 2009 to 2013. The Code contains provisions that
limit the use in any future period of net operating loss and credit
carryforwards upon the occurrence of certain events, including a significant
change in ownership interests. The Company had deferred tax assets, including
its net operating loss carryforwards and tax credits, totaling approximately
$8.8 million as of September 30, 1998. A valuation allowance has been recorded
for the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance. See Note 8 of Notes to Consolidated Financial
Statements.
30
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the eight quarters in the 24-month period ended September
30, 1998, as well as such data expressed as a percentage of the Company's total
revenues for the respective periods indicated. This data has been derived from
unaudited Consolidated Financial Statements that have been prepared on the same
basis as the audited Consolidated Financial Statements and, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the information when read in conjunction
with the Consolidated Financial Statements and Notes thereto. The Company's
quarterly results have been in the past and may in the future be subject to
significant fluctuations. As a result, the Company believes that results of
operations for interim periods should not be relied upon as any indication of
the results to be expected in any future period. See "Risk
Factors--Unpredictable Fluctuations and Seasonal Patterns in Quarterly Results."
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues, net:
Licenses................... $ 923 $ 1,335 $ 1,829 $ 2,260
Services................... 218 336 564 805
------- ------- ------- -------
Total revenues........... 1,141 1,671 2,393 3,065
Cost of revenues:
Licenses................... 40 80 99 175
Services................... 317 468 585 899
------- ------- ------- -------
Total cost of revenues... 357 548 684 1,074
------- ------- ------- -------
Gross profit................. 784 1,123 1,709 1,991
------- ------- ------- -------
Operating expenses:
Sales and marketing........ 1,061 1,378 1,434 2,023
Research and development... 603 787 836 1,175
General and
administrative........... 322 450 440 603
Acquired in-process
technology............... -- -- -- --
------- ------- ------- -------
Total operating
expenses............... 1,986 2,615 2,710 3,801
------- ------- ------- -------
Loss from operations......... (1,202) (1,492) (1,001) (1,810)
Other income (expense),
net........................ 17 11 (14) (33)
------- ------- ------- -------
Net loss..................... $(1,185) $(1,481) $(1,015) $(1,843)
======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUES
Revenues, net:
Licenses................... 80.9% 79.9% 76.4% 73.7%
Services................... 19.1 20.1 23.6 26.3
------- ------- ------- -------
Total revenues........... 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses................... 3.5 4.8 4.1 5.7
Services................... 27.8 28.0 24.4 29.3
------- ------- ------- -------
Total cost of revenues... 31.3 32.8 28.5 35.0
------- ------- ------- -------
Gross margin................. 68.7 67.2 71.5 65.0
------- ------- ------- -------
Operating expenses:
Sales and marketing........ 93.0 82.4 59.9 66.0
Research and development... 52.8 47.1 34.9 38.3
General and
administrative........... 28.2 26.9 18.4 19.7
Acquired in-process
technology............... -- -- -- --
------- ------- ------- -------
Total operating
expenses............... 174.0 156.4 113.2 124.0
------- ------- ------- -------
Loss from operations......... (105.3) (89.2) (41.7) (59.0)
Other income (expense),
net........................ 1.4 0.7 (0.6) (1.1)
------- ------- ------- -------
Net loss..................... (103.9)% (88.5)% (42.3)% (60.1)%
======= ======= ======= =======
<CAPTION>
QUARTER ENDED
----------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998 1998
------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues, net:
Licenses................... $ 2,036 $ 2,818 $ 3,185 $ 3,657
Services................... 1,079 1,141 1,456 1,787
------- ------- ------- -------
Total revenues........... 3,115 3,959 4,641 5,444
Cost of revenues:
Licenses................... 82 90 146 240
Services................... 1,097 1,115 1,490 1,982
------- ------- ------- -------
Total cost of revenues... 1,179 1,205 1,636 2,222
------- ------- ------- -------
Gross profit................. 1,936 2,754 3,005 3,222
------- ------- ------- -------
Operating expenses:
Sales and marketing........ 2,206 2,400 3,280 4,467
Research and development... 1,083 1,195 1,884 2,272
General and
administrative........... 837 836 1,552 1,462
Acquired in-process
technology............... -- -- 5,203 --
------- ------- ------- -------
Total operating
expenses............... 4,126 4,431 11,919 8,201
------- ------- ------- -------
Loss from operations......... (2,190) (1,677) (8,914) (4,979)
Other income (expense),
net........................ (93) (103) (118) --
------- ------- ------- -------
Net loss..................... $(2,283) $(1,780) $(9,032) $(4,979)
======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUES
Revenues, net:
Licenses................... 65.4% 71.2% 68.6% 67.2%
Services................... 34.6 28.8 31.4 32.8
------- ------- ------- -------
Total revenues........... 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses................... 2.6 2.3 3.1 4.4
Services................... 35.3 28.2 32.1 36.4
------- ------- ------- -------
Total cost of revenues... 37.9 30.5 35.2 40.8
------- ------- ------- -------
Gross margin................. 62.1 69.5 64.8 59.2
------- ------- ------- -------
Operating expenses:
Sales and marketing........ 70.8 60.6 70.6 82.0
Research and development... 34.8 30.2 40.6 41.7
General and
administrative........... 26.9 21.1 33.4 26.9
Acquired in-process
technology............... -- -- 112.1 --
------- ------- ------- -------
Total operating
expenses............... 132.5 111.9 256.7 150.6
------- ------- ------- -------
Loss from operations......... (70.4) (42.4) (191.9) (91.4)
Other income (expense),
net........................ (2.9) (2.6) (2.5) --
------- ------- ------- -------
Net loss..................... (73.3)% (45.0)% (194.4)% (91.4)%
======= ======= ======= =======
</TABLE>
31
<PAGE> 33
The trends discussed in the annual comparisons of operating results from
fiscal 1996 through 1998 apply generally to the comparison of results of
operations for the eight quarters in the 24-month period ended September 30,
1998, adjusted for the seasonality the Company has experienced as referred to
below. The Company's operating expenses for the three months ended June 30, 1998
exceeded levels that the Company has historically experienced due in part to
acquired in-process technology expense recorded in connection with the
acquisition of 7Software. In addition, operating expenses for the three month
periods ended June 30, and September 30, 1998 increased significantly as a
result of increased (i) T&E expenses associated with higher personnel levels,
(ii) use of independent contractors and other outside services for continued
development and localization of XMS, (iii) recruiting and related hiring
expenses for additional senior management in the professional services, research
and development, administrative, marketing and sales organizations, (iv)
allowances for doubtful accounts due to the Company's revenue growth in fiscal
1998, and (v) amortization of deferred stock compensation.
The Company's quarterly operating results have fluctuated significantly in
the past, and will continue to fluctuate in the future, as a result of a number
of factors, many of which are outside the Company's control. These factors
include: demand for the Company's products and services; size and timing of
specific sales; level of product and price competition; timing and market
acceptance of new product introductions and product enhancements by Concur and
its competitors; changes in pricing policies by Concur or its competitors;
Concur's ability to hire, train and retain sales and consulting personnel to
meet the demand, if any, for XMS and CompanyStore; the length of sales cycles;
Concur's ability to establish and maintain relationships with third-party
implementation services providers and strategic partners; delay of customer
purchases caused by announcement of new hardware or enterprise resource planning
("ERP") platforms or otherwise; the mix of products and services sold, including
an anticipated shift to providing its solutions as an ESP; mix of distribution
channels through which products are sold; mix of international and domestic
revenues; changes in the Company's sales force incentives; software defects and
other product quality problems; personnel changes; changes in the Company's
strategy, including the anticipated development of an ESP strategy; general
domestic and international economic and political conditions; and budgeting
cycles of the Company's customers. The Company has in the past experienced
delays in the planned release dates of new software products or upgrades, and
has discovered software defects in new products after their introduction. There
can be no assurance that new products or upgrades will be released according to
schedule, or that when released they will not contain defects. Either of these
situations could result in adverse publicity, loss of revenues, delay in market
acceptance or claims by customers brought against the Company, any of which
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, the timing of individual sales
has been difficult for the Company to predict, and large individual sales have,
in some cases, occurred in quarters subsequent to those anticipated by the
Company. There can be no assurance that the loss or deferral of one or more
significant sales will not have a material adverse effect on the Company's
quarterly operating results.
The Company has experienced, and expects to continue to experience, a high
degree of seasonality, with a disproportionately greater amount of the Company's
license revenues for any fiscal year being recognized in its fourth fiscal
quarter. For example, in fiscal 1998, 32% of total revenues, 31% of license
revenues and 33% of service revenues were recognized in the fourth fiscal
quarter. The Company believes that such seasonality is primarily the result of
the efforts of the Company's direct sales force to meet or exceed fiscal year
end sales quotas. In addition, the Company's license revenues in its first
fiscal quarter have historically been lower than those of the immediately
preceding fourth quarter. For example, license revenues in the first quarter of
fiscal 1998 decreased 10% from the fourth quarter of fiscal 1997. In future
periods, the Company expects these seasonal trends may cause first quarter
revenues to be lower than the level achieved in the preceding fourth quarter.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
private sales of equity securities and the use of long-term debt and equipment
leases. As of September 30, 1998, the Company had raised approximately $29.7
million, net of offering costs from the issuance of preferred stock, and
approxi-
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mately $8.0 million from the issuance of long-term debt, and had financed
equipment purchases totaling approximately $3.6 million. The Company's sources
of liquidity as of September 30, 1998 consisted principally of cash and cash
equivalents of $15.6 million, and approximately $1.5 million of available
borrowings under a line of credit.
Net cash used in operating activities was $4.1 million, $6.6 million and
$8.5 million in fiscal 1996, 1997 and 1998, respectively. For such periods, net
cash used by operating activities was primarily a result of funding ongoing
operations.
Since 1995, the Company's investing activities have consisted of purchases
of property and equipment. Capital expenditures, including those under capital
leases, totaled $420,000, $1.0 million and $1.6 million in fiscal 1996, 1997 and
1998, respectively. Capital leases are used to finance the acquisition of
property and equipment, primarily computer hardware and software, for the
Company's increasing employee base, as well as for the Company's management
information systems. The Company anticipates that it will experience an increase
in its capital expenditures and lease commitments consistent with its
anticipated growth in operations, infrastructure and personnel. The Company does
not expect to incur significant costs to make its products or internal
information systems Year 2000 compliant because it believes such products and
information systems are designed to function properly through and beyond the
year 2000. See "Risk Factors--Year 2000 Compliance."
The Company's financing activities provided $7.7 million, $8.6 million and
$17.6 million in fiscal 1996, 1997 and 1998, respectively. In fiscal 1996, cash
provided by financing activities was comprised primarily of $7.5 million
received in connection with the sale of Series C Redeemable Convertible
Preferred Stock and $563,000 in proceeds from long-term debt borrowings,
partially offset by principal payments on long-term debt totaling $380,000. In
fiscal 1997, cash provided by financing activities was comprised primarily of
$4.6 million received in connection with the sale of Series D Redeemable
Convertible Preferred Stock, $3.1 million in proceeds from long-term debt, and
$1.9 million in proceeds from sales leaseback transactions and capital lease
financing offset by principal payments on long-term debt of $925,000. In fiscal
1998, cash provided by financing activities consisted primarily of $12.7 million
received in connection with the sale of Series E Redeemable Convertible
Preferred Stock and $5.5 million in proceeds from long-term borrowings, offset
by $335,000 in principal payments on long-term debt and $500,000 in payments on
capital lease obligations.
The Company has a line of credit with a bank for $2.0 million, which bears
interest at the lending bank's prime rate plus 1.5%. Borrowings are limited to
the lesser of 80% of eligible accounts receivable or $2.0 million and are
secured by substantially all of the Company's non-leased assets. As of September
30, 1998, the Company had not borrowed under the line of credit, however, there
were $465,000 in standby letters of credit outstanding. Total borrowings
available under this line were approximately $1.5 million as of September 30,
1998. This credit facility expires in December 1998, and the Company expects to
extend or replace such credit facility under substantially similar terms. This
credit facility contains the same restrictions and covenants as the Security and
Loan Agreement described below.
In September 1997, the Company entered into a $1.0 million senior term loan
facility with the same bank with which the Company has the line of credit,
pursuant to the terms of a Security and Loan Agreement (the "Loan Agreement").
In April 1998, the Loan Agreement was amended to allow for additional borrowings
up to a total of $3.0 million. The facility, which bears interest at the lending
bank's prime rate less 1.0%, matures on February 15, 2001. Payments are interest
only through February 1999, at which time the facility will be repaid in 24
equal monthly principal payments plus interest. The Company's Loan Agreement
contains certain financial restrictions and covenants that include a minimum
liquidity ratio of 1.5 to 1, minimum quarterly net sales covenants that have
increased each quarter from $3.0 million in the quarter ended March 31, 1998 to
$5.0 million in the quarter ended September 30, 1998, and restrictions on
dividend payments. The Company is currently in compliance with such covenants
and restrictions. The Company has granted a perfected senior security interest
in all non-leased assets of the Company as security for its obligations under
the Loan Agreement. As of September 30, 1998, the outstanding indebtedness under
the Loan Agreement was $3.0 million.
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In July 1997, the Company entered into a Subordinated Loan and Security
Agreement with an equipment lessor in the principal amount of $1.5 million which
bears interest at an annual rate of 8.5% (the "Subordinated Loan Agreement"). In
May 1998, the Subordinated Loan Agreement was amended to allow for additional
borrowings of $5.0 million bearing interest at an annual rate of 11% on the
first $3.5 million and 12.5% on the remaining $1.5 million. Availability of such
additional borrowings expires on December 31, 1998. The notes are due in varying
monthly installments through April 2002. The Subordinated Loan Agreement
contains certain restrictions and covenants, including restrictions on dividend
payments, restrictions on extending or settling receivables and on relocating
collateral. As of September 30, 1998, the outstanding indebtedness under the
Subordinated Loan Agreement was $4.7 million.
On August 11, 1998, the Company issued a warrant to purchase an additional
2,400,000 shares of Series E Preferred Stock to TRS (the "TRS Warrant"). Upon
the conversion of all of the shares of Series E Preferred Stock into shares of
Common Stock in connection with a registration of the Company's Common Stock
under the Securities Act, the TRS Warrant will automatically become exercisable
for 2,325,000 shares of the Company's Common Stock. The terms of the TRS Warrant
provide that it is exercisable in four tranches as follows: 300,000 shares may
be acquired at the time of the Offering at a cash purchase price equal to the
price to the public in the Offering less 7%; 700,000 shares may be acquired at
any time on or before October 15, 1999 at a cash purchase price of $33.75 per
share; 700,000 shares may be acquired at any time on or before January 15, 2001
at a cash purchase price of $50.625 per share; and the remaining 700,000 shares
may be acquired at any time on or before January 15, 2002 at a cash purchase
price of $85.00 per share. As was permitted by the TRS Warrant, the Board of
Directors determined, within 60 days of the date of the TRS Warrant, to cancel
25% of the shares that could have been acquired under the warrant at the time of
the Offering or on or before October 15, 1999. In connection with an amendment
to a standstill agreement with TRS, the Board of Directors subsequently
rescinded its 25% reduction in the number of shares that can be acquired on or
before October 15, 1999. Thus, 225,000 shares may be acquired at the time of the
Offering and 700,000 shares may be acquired on or before October 15, 1999, at
the prices stated above.
The Company intends to use the net proceeds of the Offering for working
capital and general corporate purposes, including increased domestic and
international sales and marketing expenditures, increased research and
development expenditures and capital expenditures made in the ordinary course of
business, as well as possible acquisitions of businesses, products and
technologies that are complementary to those of the Company. The Company intends
to use approximately $5.0 million from the net proceeds of the Offering to fund
increases in its research and development activities, approximately $5.0 million
for expanded professional services capabilities (primarily increased staffing
for consulting, customer support and training services, and approximately $11.0
million to increase its domestic and international sales and marketing
capabilities. The Company has no other specific plan as to the use of the net
proceeds of the Offering. Although the Company has not identified any specific
businesses, products or technologies that it may acquire, and there are no
current agreements or understandings with respect to any such transactions, the
Company does from time to time evaluate such opportunities. Pending such uses,
the net proceeds of the Offering will be invested in short-term,
investment-grade, interest-bearing instruments. See "Risk Factors--Broad
Discretion Over Use of Proceeds."
The Company currently anticipates that for the foreseeable future it will
continue to experience significant growth in its operating expenses related to
augmenting its sales and marketing operations, increasing research and
development and extending its professional service capabilities, as well as
developing new distribution channels, improving its operational and financial
systems and entering new markets for the Company's products and services. Such
operating expenses will be a material use of the Company's cash resources,
including a portion of the net proceeds of the Offering. The Company believes
that the net proceeds of the Offering, together with its existing cash and cash
equivalents and available bank borrowings, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. Thereafter, the Company may require additional funds to
support its working capital requirements or for other purposes and may seek to
raise such additional funds through public or private equity financing or from
other sources. There can be no assurance that such sources will be adequate,
will be obtainable on terms favorable to the Company or will not be dilutive.
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YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because such systems were developed using two digits rather than four to
determine the applicable year. For example, computer programs that have
date-sensitive software may recognize a date using '00' as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with such 'Year
2000' requirements.
State of Readiness
The Company's business is dependent on the operation of numerous systems
that could potentially be affected by Year 2000-related problems. Those systems
include, among others: hardware and software systems used by the Company to
deliver products and services to its customers (including the Company's
proprietary software systems as well as software supplied by third parties);
communications networks such as the Internet and private Intranets; the internal
systems of the Company's customers and suppliers; software products sold to
customers; the hardware and software systems used internally by the Company in
the management of its business; and non-information technology systems and
services used by the Company in the management of its business, such as power,
telephone systems and building systems.
The Company has established a Year 2000 Compliance Task Force (the "Task
Force"), composed of high-level representatives of the product, management and
information systems and legal departments. The Task Force has been charged with
the responsibility of formulating and implementing the Company's Year 2000
readiness and is applying a phased approach to analyzing of the Company's
operations and relationships as they relate to the Year 2000 problem. The phases
of the Company's Year 2000 program are as follows: (1) establishment of a Year
2000 Task Force; (2) assignment of responsibility for external issues (products
licensed by Concur), internal issues (systems, facilities, equipment, software)
and legal audit; (3) inventory of all aspects of the Company's operations and
relationships subject to the Year 2000 problem; (4) comprehensive analysis
(including impact analysis and cost analysis) of the Company's Year 2000
readiness; and (5) remediation and testing.
The Company has tested its software products and has determined that the
current versions of all of its software products to be Year 2000 compliant,
consistent with the Year 2000 compliance specifications established by the
British Standards Institute's DISC PD-2001. Concur plans to continue to test its
current and future products, applying its Year 2000 compliance criteria and to
include any modifications that are incorporated into the compliance process
during its implementation. The Company has completed Phases 1 and 2 of its
program and is currently actively engaged in Phase 3 and anticipates completing
Phase 3 and beginning Phase 4 by the end of November 1998. The Company currently
expects to complete Phases 4 and 5 by December 1998 and February 1999,
respectively.
Risks Related to Year 2000 Issues
Based on the Company's assessment to date, the Company believes the current
versions of its software products are "Year 2000 compliant." However, the
Company's products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products which may not be Year 2000
compliant. In addition, in some cases even certain earlier Year 2000 compliant
versions of the Company's software, while compatible with earlier, non-Year 2000
compliant versions of other software products with which Concur's software is
integrated, are not compatible with certain more recent Year 2000 compliant
versions of such other software providers. While the Company does not believe it
has any obligation under this circumstance given that these customers using the
Company's older versions of its software products would in any case be required
to upgrade in order to be compatible with newer versions of other companies
products, there can be no assurance that the Company will not be subject to
claims or complaints
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by its customers. Success of the Company's Year 2000 compliance efforts may
depend on the success of its customers in dealing with their Year 2000 issues.
The Company sells its products to companies in a variety of industries, each of
which is experiencing different Year 2000 compliance issues. Customer
difficulties with Year 2000 issues might require the Company to devote
additional resources to resolve underlying problems.Although the Company has not
been a party to any litigation or arbitration proceeding to date involving its
products or services and related to Year 2000 compliance issues, there can be no
assurance that the Company will not in the future be required to defend its
products or services in such proceedings, or to negotiate resolutions of claims
based on Year 2000 issues. The costs of defending and resolving Year 2000-
related disputes, regardless of the merits of such disputes, and any liability
of the Company for Year 2000-related damages, including consequential damages,
would have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, the Company believes that
purchasing patterns of customers and potential customers may be affected by Year
2000 issues as companies expend significant resources to correct or upgrade
their current software systems for Year 2000 compliance or defer additional
software purchases until after 2000. As a result, some customers and potential
customers may have more limited budgets available to purchase software products
such as those offered by the Company, and others may choose to refrain from
changes in their information technology environment until after 2000. To the
extent Year 2000 issues cause significant delay in, or cancellation of,
decisions to purchase the Company's products or services, the Company's
business, results of operations and financial condition would be materially
adversely affected.
The Company and the Task Force are also reviewing the Company's internal
management information and other systems in order to identify any products,
services or systems that are not Year 2000 compliant, in order to take
corrective action. To date, the Company has not encountered any material Year
2000 problems with its computer systems or any other equipment that might be
subject to such problems. The Company's plan for the Year 2000 calls for
compliance verification of external vendors supplying software and information
systems to the Company and communication with significant suppliers to determine
the readiness of third parties' remediation of their own Year 2000 issues. As
part of its assessment, the Company is evaluating the level of validation it
will require of third parties to ensure their Year 2000 Compliance and expects
to circulate letters to its suppliers and other business partners requesting
their Year 2000 Compliance status. The Company is taking steps with respect to
new supplier agreements to ensure that the suppliers' products and internal
systems are Year 2000 compliant. In the event that any such third parties'
products, services or systems do not meet the Year 2000 requirements on a timely
basis, the Company's business, results of operations and financial condition
could be materially adversely affected. The Company could also experience
material adverse effects on its business, results of operations and financial
condition if it fails to identify all Year 2000 dependencies in its systems and
in the systems of its suppliers, customers and financial institutions.
Therefore, the Company plans to develop contingency plans for continuing
operations in the event such problems arise, but does not presently have a
contingency plan for handling Year 2000 problems that are not detected and
corrected prior to their occurrence. The Company has not completed its Year 2000
investigation, and there can be no assurance that the total cost of Year 2000
compliance will not be material to the Company's business, results of operations
and financial condition. There can be no assurance that the Company will
identify and remediate all significant Year 2000 problems on a timely basis,
that remediation efforts will not involve significant time and expense, or that
unremediated problems will not have a material adverse effect on the Company's
business, results of operations and financial condition.
ACQUISITION OF 7SOFTWARE
On June 30, 1998, the Company acquired 7Software, a privately-held software
company and the developer of CompanyStore. As of the date of acquisition, the
CompanyStore developmental project consisted of ongoing research and development
efforts in the following areas: compatibility with additional databases;
compatibility with additional enterprise resource planning platforms; multiple
catalog support; fundamental redesign of the user interface; and redesign and
rewriting of the administrative functionality.
Based on the Company's estimates, the remaining research and development
efforts relating to the completion of the CompanyStore technology were expected
to continue into the first quarter of fiscal 1999, the anticipated
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product release date. Accordingly, the cost to complete the in-process
technology was estimated based on the number of man-months required to reach
technological feasibility for the CompanyStore technology, the type of
professional and engineering staff involved in the completion process and their
fully burdened monthly salaries. The Company estimated the direct costs to
achieve technological feasibility to be approximately $307,000. Beyond this
period, the Company estimated significantly less expense to support and maintain
active products identified at the acquisition date to be in-process technology.
If the in-process projects contemplated in the Company's forecast are not
successfully developed, future revenue and profitability might be adversely
affected. Additionally, the value of other intangible assets acquired may become
impaired.
In connection with the acquisition, the Company determined the fair value
of all identifiable assets, including technology assets, for purposes of
allocating the purchase price. To determine the value of the acquired in-process
research and development, the expected future cash flows of the in-process
technology were based on forecasts of future results that the Company believes
are likely to occur. The future cash flows were discounted taking into account
the state of development of the in-process project, the cost to complete that
project, the expected income stream, the life cycle of the product ultimately
developed, and the associated risks. Such risks include, but are not limited to,
the inherent difficulties and uncertainties in completing the project and
thereby achieving technological feasibility, and the risks related to the
viability of and potential changes to future markets. This analysis resulted in
amounts assigned to the acquired in-process research and development projects
that have not yet reached technological feasibility (as defined and utilized by
the Company in assessing software capitalization) and do not have alternative
future uses.
Revenues and related expenses for the in-process technology were estimated
from the acquisition date through the end of Concur's fiscal 2002. The Company's
analysis considered the anticipated product release date for the acquired
CompanyStore developmental project. The overall life of the in-process
technology was estimated to be approximately four years for the CompanyStore
technology. The Company's aggregate projections reflect revenue growth in
earlier periods resulting from an expanding market for procurement software
products. Operating expenses, including general and administrative, marketing
and sales, were based on anticipated costs after the 7Software operations were
merged into Concur's operating structure.
The Company discounted the net cash flows of the in-process technology to
their present value using a discount rate of 35%. This was determined to be
higher than Concur's weighted average cost of capital ("WACC") due to the fact
that the technology had not yet reached technological feasibility as of the date
of valuation. In utilizing a discount rate greater than WACC, the Company has
reflected the risk premium associated with achieving the forecasted cash flows
associated with these projects.
The CompanyStore developmental project, as of the acquisition date, was
estimated to be developed during the fourth quarter of 7Software's fiscal 1998
and fiscal 1999 and released during Concur's fiscal 1999. The Company continues
to expect to achieve the forecasted revenue attributable to the in-process
project, as set forth in the valuation, when it is released. Because the Company
believes that it will achieve revenue levels and incur product development costs
similar to those originally estimated, it expects only slight variations between
assumptions and actual results. Therefore, the Company does not anticipate any
material impact on operations or financial position unless the in-process
project is not completed.
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BUSINESS
The following description contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that may
cause such results to differ include but are not limited to those discussed in
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OVERVIEW
Concur is a leading provider of Intranet-based employee-facing applications
that extend automation to employees throughout the enterprise and to partners,
vendors and service providers in the extended enterprise. The Company's Xpense
Management Solution ("XMS") and CompanyStore products automate the preparation,
approval, processing and data analysis of travel and entertainment ("T&E")
expense reports and front-office procurement requisitions. Concur believes it is
the leading provider of T&E expense management solutions, based on a combination
of the number of customers it serves and the features its solutions provide.
Since the introduction of XMS in 1996, the Company has licensed its products to
over 150 enterprise customers for use by over 800,000 end users. Through its
June 1998 acquisition of 7Software, Inc., the Company added the CompanyStore
front-office procurement application to its product suite. By automating manual,
paper-based processes, the Company's products reduce processing costs and enable
customers to consolidate purchases with preferred vendors and negotiate vendor
discounts.
INDUSTRY BACKGROUND
In response to increasingly competitive conditions worldwide, businesses
are seeking cost savings and productivity gains through business process
automation. Rather than internally developing applications to automate business
processes, companies are increasingly turning to independent software vendors
for solutions in areas such as finance and accounting, manufacturing, human
resources, supply chain management, customer support and sales force automation.
These solutions have traditionally targeted discrete functional or department
level business processes involving relatively few employees.
Businesses are now seeking similar applications to replace manual,
paper-based processes involving the vast majority of employees throughout the
enterprise. Such "employee-facing" business processes include T&E expense
management, front-office procurement, human resources self-service, time and
billing, and facilities management. Typically, these processes are characterized
by extensive corporate policies, detailed forms, manual data entry, multiple
approvals, manual review and audit, manual financial system posting and
cumbersome interactions with third-party suppliers and service providers.
The emergence of the Internet and corporate Intranets has made it possible
to deploy applications that reach all employees in the enterprise and to connect
the enterprise to corporate partners, vendors and service providers. In
addition, in contrast to traditional client-server applications, Intranet-based
applications can be deployed rapidly and cost-effectively throughout the
enterprise. The Internet also allows a software vendor to act as an outsourced
enterprise service provider ("ESP"), delivering employee-facing applications
through the Internet to reduce customers' up-front costs and IT infrastructure
commitments.
Companies automating employee-facing business processes can realize
significant operating cost savings through reduced processing costs,
consolidated purchases with preferred vendors and negotiated vendor discounts.
For example, according to the 1997 American Express T&E Management Process Study
(the "American Express Study") published in 1997 by American Express, a
subsidiary of which became a stockholder of the Company in August 1998,
corporations on average spend $36 per T&E expense report processed, factoring in
costs such as employee time required to complete expense reports, management
approvals and administrative processing of expense reports, but can reduce such
costs to as little as $8 through best-in-class automation. Savings of this
magnitude on a per transaction basis are significant for enterprises with large
numbers of similar transactions. Based on the savings suggested by the American
Express Study, businesses that process from 1,000 to 5,000 T&E expense reports
per month might achieve savings ranging from $300,000 to $1.5 million per year.
Similar savings can be achieved by automating front-office procurement. The
Company believes that companies typically spend in excess of $75 to process each
requisition, which can be reduced to approximately $25 using best-in-class
automation. Automation not only
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can lower the cost of processing expense reports and procurement requisitions,
but also can provide information that can be used to negotiate discounts from
vendors and service providers. Based on the amounts spent on T&E and
front-office procurement, even a small percentage reduction in vendor charges
can result in significant savings. For example, the American Express Study
reported that U.S. businesses spent $156 billion in 1996 on direct T&E expenses
such as airfare, hotel stays and car rentals.
The Company believes that the substantial potential savings from processing
cost reductions and vendor discounts, coupled with the emergence of Intranet
technologies, has created a significant demand for employee-facing applications.
The Company further believes that the most successful employee-facing
applications will improve the efficiency of T&E expense management, front-office
procurement and other similar business processes and will be (i) based on
Internet technologies, (ii) rapidly deployable and highly scalable, (iii)
offered as part of an integrated suite of related applications, (iv) integrated
with enterprises' existing IT infrastructures and (v) capable of linking
businesses with their corporate partners, vendors and service providers through
the Internet. Successful providers of such employee-facing applications will be
able to deliver cost savings and other tangible benefits to corporate
management, meet the needs of enterprise IT professionals and reduce burdens on
employees.
THE CONCUR SOLUTION
Concur is a leading provider of Intranet-based employee-facing applications
that extend automation to employees throughout an enterprise and to partners,
vendors and service providers in the extended enterprise. The Company's XMS and
CompanyStore products automate the preparation, approval, processing and data
analysis of T&E expense reports and front-office procurement requisitions.
Concur believes that it is the leading provider of T&E expense management
solutions based on a combination of the number of customers it serves and the
features its solutions provide. Since the introduction of XMS in 1996, the
Company has licensed its products to over 150 enterprise customers for use by
over 800,000 end users. By acquiring 7Software in June 1998, the Company added
the CompanyStore front-office procurement application to its product suite. The
Company's products benefit a number of constituencies within the enterprise,
including corporate management, IT professionals and employees, in the following
ways.
Benefits for Corporate Management
Reduced Processing Costs. XMS and CompanyStore can significantly reduce the
amount of labor associated with manual, paper-based T&E expense management and
front-office procurement systems, by automating the process of preparation,
approval, processing and data analysis. Concur believes that companies using its
solutions as part of best-in-class processes can achieve significant cost
savings. According to the American Express Study, corporations on average spend
$36 per T&E expense report processed, but can reduce such costs to as little as
$8 through best-in-class automation. Similarly, industry estimates indicate that
companies typically spend in excess of $75 to process each requisition for
front-office goods and services. The Company believes that this estimate is
typical and that enterprises using best-in-class automation for such processes
can reduce that cost to approximately $25.
Improved Supplier Management. Concur's products enable customers to collect
and analyze data on T&E expenses and front-office procurement. Customers can use
this data to help consolidate purchases with preferred vendors, negotiate vendor
discounts and monitor compliance with pre-negotiated rates. The Company believes
that the savings from improved supplier management can be substantial. For
example, one XMS customer informed the Company that, after implementing XMS, it
was able to reduce its annual spending on air travel by 5% to 10%.
Improved Cash Management. Concur's products enable customers to improve
their cash management positions and cash forecasting abilities by controlling
the timing of payments to T&E and front-office suppliers and vendors.
Improved Policy-Making and Monitoring. Concur's products facilitate
budgeting, policy-making and trend analysis, and monitoring of compliance with
corporate policy.
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Benefits for IT Professionals
Rapid Deployment. Concur's Intranet-based products are designed to be
deployed rapidly within today's existing corporate IT infrastructures without
requiring modifications to customer systems. Concur offers applications
configured to customer requirements rather than solutions customized on a
customer-by-customer basis. Once installed on a customer's Intranet servers,
Concur's products can reach employees enterprise-wide. For example, one Concur
customer recently deployed XMS to over 25,000 employees within 90 days after the
customer began its rollout, and another customer deployed CompanyStore within
five weeks.
Enterprise-Wide Scalability. Concur's Intranet-based products are designed
to reach employees throughout the enterprise, regardless of the organization's
size. The Company has licensed its products to customers seeking to deploy to as
few as 100 employees and as many as 80,000 employees, with the largest
installation to date being a site with over 50,000 employees.
Leverage of Existing IT Infrastructure. Because most businesses operate in
a heterogeneous computing environment, XMS is designed to interact and
interoperate with a broad range of software platforms and products, including
multiple operating systems, browsers, databases, accounting packages and major
ERP programs such as SAP, PeopleSoft and Oracle. CompanyStore currently supports
SAP R/3 and Microsoft SQL server, and the Company intends to enhance
CompanyStore to support other major platforms.
Connectivity to Third Parties. The Company's Intranet-based products are
designed to enable enterprises to link their systems with those of their
corporate partners, vendors and service providers, including corporate charge
card providers such as American Express, travel booking applications and
suppliers such as BT Office Products International, Inc.
Benefits for Employees
Faster Reimbursement and Order Fulfillment. Concur's solutions enable
businesses to reduce the time required to reimburse employees for their T&E
expenses and to fulfill front-office requisitions. Features that expedite the
process include automated electronic approval routing, links to automatic
deposit systems, links with approved vendors, on-line status updates and
automatic posting to ERP and financial programs. The American Express Study
reported that the time from submission of an expense report to reimbursement
could be reduced from an average of 22 days to as few as three days using
best-in-class automation processes.
Ease of Use. Concur's products contain easy-to-use features and functions
that reduce the time users spend preparing T&E expense reports and front-office
requisitions. XMS uses corporate credit card information to "prepopulate" a
user's expense report automatically. Both XMS and CompanyStore also prepopulate
expense reports and requisition forms based on past experience and preferences.
In addition, corporate policies and preferred vendors can be integrated into the
applications, and detailed explanations of corporate policies are available
on-line. These features reduce errors, save user time and effort, and improve
expense reconciliation.
STRATEGY
Concur's objective is to be the leading provider of Intranet-based
employee-facing applications that extend automation to employees throughout the
enterprise and to partners, vendors and service providers in the extended
enterprise. Key elements of the Company's strategy include:
Extend Leadership Position. Concur intends to extend its leadership
position in T&E expense management solutions and to leverage that position to
sell CompanyStore, its recently acquired front-office procurement product. In
order to accommodate anticipated future demand for its products, the Company
intends to increase the size of its direct sales and telesales organizations
significantly. Concur believes that expanding its sales and marketing
organization will enhance its ability to sell its products to new customers
globally. The Company also believes that an expanded sales force will allow it
to sell CompanyStore and future applications to its current customers.
Expand Product Functionality. Concur plans to continue its innovation and
development of advanced features and functionality for its T&E expense
management and front-office procurement solutions. The Company plans to add
functionality to XMS, including features such as localized versions for
additional
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foreign countries and enhanced integration with on-line travel booking
applications such as American Express Interactive. Concur also plans to enhance
CompanyStore by expanding its features and functionality, adding support for
additional databases and ERP platforms, enhancing catalog support and
integrating CompanyStore into its product suite through the Concur Common
Platform, the common technology platform being built by the Company to
standardize all of the software architecture in its application suite.
Extend and Integrate Product Suite. The Company plans to extend its
employee-facing application suite by acquisition and internal development.
Concur expects to target additional employee-facing applications that can offer
compelling benefits to the enterprise such as human resources self-service, time
and billing, and facilities management applications. To create an integrated
suite of applications, the Company is pursuing development of a common user
interface and a common technology platform. The common user interface, known as
Employee Desktop, is a personalized Web page on the corporate Intranet that
provides a centralized location for all employee-facing applications. The
technology platform, known as the Concur Common Platform, will standardize the
software architecture underlying all applications in the suite. The Company
believes that the benefits of an integrated suite include ease of use and
reduced IT burden as a result of common technology.
Expand International Presence. Concur believes that considerable untapped
demand exists for its products outside of the United States. For fiscal 1998 the
Company's international revenues accounted for less than five percent of its
total revenues. The Company intends to accelerate its investment in
international sales and marketing in an effort to increase sales of its
employee-facing applications worldwide. It also plans to add new features and
functionality to XMS and CompanyStore to accommodate accounting, customs,
currency and tax requirements of foreign jurisdictions.
Extend Relationships With Strategic Third Parties. Concur intends to expand
its relationships with existing strategic referral partners and to develop
additional relationships with providers of complementary third-party
applications and products. The Company has developed strong lead generation
relationships with leading corporate charge card providers such as American
Express, Diners Club and Citibank, N.A., and intends to establish similar
relationships with purchasing card providers and systems integration and
consulting firms. The Company intends to integrate XMS with automated travel
booking applications to provide its customers with an end-to-end travel booking
solution that encompasses booking, reporting and analysis, and to integrate
CompanyStore with leading front-office supply vendors to provide its customers
with greater access to those vendors.
Offer Enterprise Service Provider Solutions. In addition to licensing its
software, Concur plans to offer its solutions as an Internet-based ESP on a
per-transaction pricing basis to companies seeking to outsource their
employee-facing business applications. The Company expects that this opportunity
will be particularly attractive to middle-market customers (100-750 licensed end
users), which typically have limited IT staffing and budget. The Company plans
to offer its outsourced ESP products starting with XMS in the middle of calendar
1999 and continuing with CompanyStore in fiscal 2000.
The Company's strategy involves substantial risk. There can be no assurance
that the Company will be successful in implementing its strategy or that it will
lead to achievement of the Company's objectives. If the Company is unable to
implement its strategy effectively, the Company's business, results of
operations and financial condition would be materially adversely affected.
PRODUCTS AND TECHNOLOGY
The Company's current product line consists of XMS, its market-leading T&E
expense management application, and CompanyStore, its newly-acquired
front-office procurement application. Substantially all revenues to date have
been derived from XMS and related services. The Company shipped an
enterprise-wide, client-server based version of XMS in July 1996, and shipped
the Intranet-based version of XMS in March 1998. For customers without corporate
Intranets or for users not connected to the Internet, the Company provides a
disconnected Windows-based version of XMS, which is interoperable with the
Intranet version of XMS. Concur has licensed XMS to over 150 companies for use
by over 800,000 end users. By acquiring 7Software in June 1998, the Company
added CompanyStore to its product suite. The Company generally offers licenses
for its software based on the number of users or employees at a given
enterprise. The typical
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order size for the Company's products and services ranges from $50,000 to
$500,000, with certain transactions that have been greater than $1 million.
Xpense Management Solution
XMS automates the T&E expense management process, including report
preparation, approval, processing and data analysis.
Report Preparation. XMS includes a number of features that facilitate
report preparation for the end-user. The application uses corporate credit card
information to prepopulate a user's expense report with transaction data
covering a variety of the information required for the expense report, including
transaction date, type of expense, vendor, location, method of payment, currency
amount and foreign currency conversion. Using a graphical user interface, the
employee supplies additional expense-related information by using pull-down
menus. To eliminate the task of sorting receipts, XMS allows the user to enter
data in any order. The HotelXpert feature of the program automates the
complicated process of itemizing hotel receipts. With each use of XMS, the
application retains commonly incurred expense information and uses this
information to help complete the next expense report. Other ease-of-use features
include simple "checkbook" style input screens, the ability to create
"attendees" lists, mileage reimbursement tracking and automatic flagging of non-
compliant and incomplete entries.
Report Approval. XMS allows each enterprise to determine how expense
reports should be processed, whether by submission to a manager for approval
before processing or by submission to the accounting department for immediate
review and payment. Once the report is submitted, the approver receives an
e-mail message containing an Intranet link to XMS, where all reports awaiting
approval are listed. XMS can be configured to route the report for approval
based on cost center, dollar limit or other criteria. Items that do not comply
with corporate policy can be automatically flagged for review, allowing
approvers to focus on problematic items. Approvers can reject individual line
items, while allowing the rest of the report to continue in the approval
process. Once approved, the report is automatically forwarded to the next phase
in the process or to the enterprise's accounting department, and the user is
notified of the action.
Report Processing. XMS streamlines back-office processing of expense
reports in a number of ways. Because all expense reports are prepared
electronically, the processing department no longer needs to check the
arithmetic of each report manually. Moreover, businesses can greatly reduce the
time spent auditing reports by choosing to audit only those reports flagged by
XMS as not compliant with corporate T&E expense policies. In addition, XMS
reduces the number of status inquiries between employees and processing
departments by automatically updating the status of reports in the database, and
alerting employees via e-mail to the status of their reports. XMS allows
significant time savings by automatically posting expense report information to
the enterprise's ERP or accounting package, eliminating the manual re-entry of
these data. XMS further simplifies processing by producing bar-coded receipt
submission cover pages to validate delivery of receipts associated with expense
reports. XMS also helps companies claim reimbursement of tax credits by tracking
VAT, GST and other international taxes.
Data Analysis. XMS utilizes business intelligence software to analyze
expense data. This information can be presented graphically in various display
formats and allows travel managers to determine total spending according to
vendor, location or other user-defined criteria. Informed by this data, managers
can analyze trends and determine methods for controlling costs or negotiating
more favorable terms with vendors. Managers can also analyze the data to monitor
compliance with corporate travel policies and determine if policy modifications
are appropriate.
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The following table describes significant features and potential benefits
of XMS:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
REPORT PREPARATION
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Prepopulates report with corporate credit Speeds report preparation time
card transactions
Reduces input mistakes
Retains commonly incurred expense
information Reduces queries and dependence on accounting
department
Simplifies receipt entry
Ensures submission of all applicable expenses
Itemizes hotel receipts automatically
Increases employee use of corporate credit
Prevents submission of incomplete reports card
Built-in attendee lists, mileage
reimbursement tracking, foreign currency
translation
- --------------------------------------------------------------------------------------------
REPORT APPROVAL
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Automatic routing of reports Speeds approval time
Flags non-compliant expenses Increases compliance with corporate policies
Line-item approval of reimbursement data Facilitates more efficient use of management
resources
Approver notification
- --------------------------------------------------------------------------------------------
REPORT PROCESSING
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Integrates travel expense data with Facilitates more efficient use of processing
back-office systems resources
Flags non-compliant expenses Speeds report processing and employee
reimbursement
Provides automatic status updates
Reduces human error
Bar-codes receipt submissions
Reduces queries and dependence on accounting
Tracks VAT, GST and other foreign taxes department
Verifies arithmetic Identifies tax credits
- --------------------------------------------------------------------------------------------
DATA ANALYSIS
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Presents travel expense data graphically Supplies data needed for vendor rate
negotiation
Allows customer to sort data by employee,
vendor and type of expense Facilitates vendor consolidation
Drill-down capability Identifies trends and problem areas
Allows monitoring of compliance with vendor
commitments and corporate travel policies
- --------------------------------------------------------------------------------------------
</TABLE>
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CompanyStore
CompanyStore automates the front-office procurement process, including
order preparation, approval, processing and data analysis. CompanyStore, which
was acquired by the Company in its June 1998 acquisition of 7Software, has been
licensed to two customers. The Company is currently developing version 2.0 of
CompanyStore. See "Risk Factors--Risk Associated with Acquisitions Generally"
and "--Risks Associated with Expansion into New Market."
Order Preparation. CompanyStore utilizes a customer-specific electronic
catalog of preferred vendors and commonly requested goods and services such as
office supplies, computers and other equipment. Using a graphical user
interface, requisitioners browse the catalog to select and order items and place
them in an electronic "shopping basket." Catalog materials can be updated by
either the enterprise or the vendor. CompanyStore contains links to vendor Web
sites, allowing the requisitioner to obtain detailed product information. To
make the ordering process easier, CompanyStore retains information about the
user, including name, employee identification, shipping address, accounting
information and frequently ordered products. To reduce delays and unnecessary
processing iterations, CompanyStore prevents submission of incomplete orders.
Order Approval. CompanyStore allows an enterprise to determine how
requisitions should be processed, whether by submission to a manager for
approval before processing or by submission to the purchasing department for
immediate processing. Once the order is submitted, an e-mail notification of the
order is automatically sent to the specified approver. The e-mail contains a
link to a personalized "approval" Web page, which lists all purchase
requisitions that are awaiting approval by the particular approver. Using the
Web page, the approver specifies which requisitions to approve in each order.
CompanyStore enables the customer to configure approval rules based on cost
center, dollar limit, material type or other criteria. CompanyStore enables
authorization of orders based on digital signatures and prohibits the release of
orders without required approval.
Order Processing. CompanyStore streamlines processing of front-office
requisitions in a number of ways. The customer's purchasing department selects
the items and vendors to be included in the CompanyStore electronic catalog.
After approval, orders are sent to the purchasing department to be processed and
progress reports are delivered to the requisitioner automatically, reducing the
number of status inquiries between the requisitioner and the purchasing
department. CompanyStore can be integrated into the customer's accounting
package so that the order can be entered into the purchasing system
automatically, allowing significant time savings. CompanyStore allows approved
requisitions to be sent directly to vendors via fax, e-mail or electronic data
interchange.
Data Analysis. CompanyStore consolidates purchasing data, allowing managers
to determine spending according to cost center, time period, employee and
supplier. This data allows managers to determine how best to control costs,
negotiate more favorable supplier arrangements and consolidate vendors. Managers
can analyze the data to monitor compliance with corporate purchasing policies
and vendor commitments.
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The following table describes significant features and potential benefits
of CompanyStore:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
ORDER PREPARATION
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Simple point-and-click ordering Speeds order time
Customer-specific electronic catalog stores Directs orders to preferred vendors
preferred vendors and commonly requested
goods and services Reduces errors
Retains user information, including shipping Detailed product descriptions available
information, frequently ordered products and
purchasing card information Reduces queries and dependence on purchasing
department
Prevents submission of incomplete orders
Internet links to vendor Web sites
- --------------------------------------------------------------------------------------------
ORDER APPROVAL
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Automatically e-mails order to designated Speeds approval time
approver
Reduces errors
Digital signatures for order authorization
Decreases purchasing in violation of company
Automated approval controls based on user procedures
signing authority
Facilitates more efficient use of management
resources
Increases compliance with corporate policies
- --------------------------------------------------------------------------------------------
ORDER PROCESSING
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Integrates purchasing data with back-office Speeds fulfillment time
systems
Reduces lost orders
Sends approved requisitions directly to
vendor or to enterprise's purchasing system Facilitates more efficient use of processing
resources
Updates requisitioner on order progress
Improves consistency of items ordered
Purchasing department determines items
available in catalog Allows vendor consolidation
Prohibits release of orders without required
approval
- --------------------------------------------------------------------------------------------
DATA ANALYSIS
- --------------------------------------------------------------------------------------------
FEATURES BENEFITS
Allows customers to track spending by Identifies trends and problem areas
multiple factors, including cost center,
time period, employee and supplier Supplies data needed for vendor rate
negotiation
Allows monitoring of compliance with vendor
commitments
Facilitates vendor consolidation
- --------------------------------------------------------------------------------------------
</TABLE>
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Product Architecture
The following diagram illustrates the key features of the Company's product
architecture:
PRODARCH CHART
- ---------------
* The Concur Technology Platform shown is currently in place in XMS. The Company
is integrating CompanyStore and intends to integrate future applications into
an enhanced version of this platform, which will be known as the Concur Common
Platform.
The Company's two applications, XMS and CompanyStore, operate on advanced
IT platforms and are scalable and configurable. XMS and CompanyStore are built
on a multi-tiered architecture. XMS has a separate client, application server
and database server built using a COM-based architecture. CompanyStore currently
has separate client and server layers and is migrating to the COM model. In
addition, a common application server model, the Concur Common Platform, is
being built for both applications which will contain all common business logic,
including workflow, user management, security, business rules, business
intelligence and messaging. See "Risk Factors--Limited Experience with Large
Scale Deployment."
The XMS application server contains all of the business logic, is COM-based
and is built using Microsoft Visual C++. The CompanyStore application is being
adapted to the Concur Common Platform, which is currently under development. The
application server layer can be extended using off-the-shelf tools such as
Microsoft Visual Basic. The application server operates on Windows NT 4.0 and,
for browser-based clients, supports both the Microsoft Internet Information
Server and the Netscape Enterprise Server.
The XMS application server supports Oracle, Sybase and Microsoft SQL server
databases and integrates with multiple ERP systems, including SAP, PeopleSoft,
Oracle and existing legacy systems. The CompanyStore application server supports
the Microsoft SQL server database and integrates with SAP R/3, and the Company
intends to integrate the CompanyStore application server with other database and
ERP systems in the future.
Browser-based clients run on versions of Microsoft Internet Explorer 3.02
and above and Netscape Navigator 3.0 and above, utilizing primarily HTML and
JavaScript via Microsoft's Active Server Pages technology. Operating systems
supported include Microsoft Windows 3.11, Windows 95, Windows 98 and Windows NT
4.0. The Windows-based XMS client is written utilizing Microsoft Visual C++, and
is fully functional in a disconnected environment.
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SERVICES
The Company's professional services organization was formed in 1996 to
offer consulting, customer support and training in connection with licenses of
XMS. The Company believes that services are an important part of its success and
consequently the Company has expanded its professional services organization to
offer similar services in connection with licenses of CompanyStore. See "Risk
Factors --Dependence on Service Revenues."
Consulting. The Company offers a variety of consulting services in
connection with licenses of XMS and CompanyStore. Concur's consulting staff
meets with customers prior to product implementation to review the customer's
existing business processes and IT infrastructure, and to provide advice on ways
to improve these processes using industry best practices. Thereafter, Concur's
consultants install, configure and test the application and integrate it with
the customer's existing ERP and employee reimbursement systems. Concur's
consultants also help customers implement bar-coding processes and develop a
strategy for the customers' enterprise-wide deployment of the application.
Customer Support. The Company provides product upgrades and customer
support through its "CustomerOne" customer support program. Customers generally
purchase the first year of the CustomerOne program at the time they license an
application; thereafter, support may be renewed on an annual basis. Customer
support personnel are available 24 hours a day, seven days a week. The Company
also offers Internet-based support that features an on-line knowledge base.
Training. The Company offers a variety of training programs for XMS and
CompanyStore. These classes are tailored to particular user groups, such as end
users, help desk personnel and trainers. Training classes are offered at
customer sites and also at the Company's headquarters in Redmond, Washington.
The Company plans to begin providing training classes for third-party service
providers, such as systems integrators, as it expands its relationships with
such parties.
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CUSTOMERS
The Company has licensed its applications to over 150 enterprise customers
in a wide range of industries. The following table lists certain of the
Company's significant customers in fiscal 1996, 1997 and 1998:
<TABLE>
<S> <C>
TECHNOLOGY/TELECOMMUNICATIONS/MEDIA CONSUMER
AT&T Corp. Anheuser-Busch Companies Inc.
American Management Systems, Inc. Avon Products, Inc.
Computer Sciences Corporation Eastman Kodak Company
Hewlett-Packard Company The Gap, Inc.
Lucent Technologies, Inc. The Gillette Company
The New York Times Company J.C. Penney Company, Inc.
Quantum Corporation Levi Strauss & Co.
Reuters Limited Maytag Corporation
Seagate Technology, Inc. FINANCIAL SERVICES
Sprint Corporation ABN Amro Holding N.V.
Texas Instruments Incorporated Bear Stearns & Co. Inc.
The Times Mirror Company Comdisco, Inc.
Tivoli Systems, Inc. Dresdner Kleinwort Benson
Visio Corporation J & H Marsh & McLennan, Inc.
INDUSTRIAL/MANUFACTURING Lehman Brothers Inc.
Case Corporation Royal Insurance
E.I. du Pont de Nemours and Company OTHER
Guardian Industries Corporation American Airlines, Inc.
Northrop Grumman Corporation Battelle Memorial Institute
Monsanto Company Broken Hill Proprietary Company Limited
Solutia, Inc. Exxon Corporation
PHARMACEUTICAL/HEALTH CARE Harvard College
Columbia/HCA Healthcare Corporation Ontario Ministry of Labour
Merck, Sharpe & Dohme Limited J. Walter Thompson
Pfizer Inc. Texaco Inc.
Pharmacia & Upjohn Co.
Tenet Healthcare Corporation
</TABLE>
In fiscal 1996, 1997 and 1998, no customer accounted for 10% or more of the
Company's total revenues.
The following case studies, which are based solely on information supplied
by the respective subject companies and which the Company believes to be
accurate in all material respects, illustrate how selected companies have used
Concur products and services to address their T&E expense management and front-
office procurement needs:
Guardian Industries Corporation ("Guardian"). A leading manufacturer and
fabricator of architectural and automotive glass and plastics, Guardian operates
over 40 production facilities around the world and has approximately 1,000
employees travelling at any one time. Historically, Guardian's business
travelers filed expense reports manually after each business trip. This
paper-based process led to processing delays, significant employee time invested
in filling out expense reports, and a lack of visibility into enterprise-wide
T&E spending. Guardian implemented Concur's XMS application to address these
issues, and realized significant advantages and cost savings as a result. For
example, XMS saves employee time by decreasing time spent completing reports and
allows management to analyze enterprise-wide T&E spending to formulate more
effective travel policies, evaluate the performance of travel vendors and
negotiate reduced costs with vendors. In fact, Guardian reduced its annual
spending on air travel by 5% to 10% after implementing XMS.
Case Corporation ("Case"). A leading designer, manufacturer and distributor
of agricultural and construction equipment and provider of a broad array of
financial services, Case has over 13,000 employees worldwide with 4,000 business
travelers. Before implementing XMS, Case received as many as 5,000 T&E expense
reports per month in a variety of formats, from handwritten reports to
spreadsheets. This practice resulted in costly delivery methods (such as
overnight delivery or facsimile), high processing costs, delays in
reimbursement, and reports not in compliance with corporate policies. To address
these problems, Case
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<PAGE> 50
automated its T&E expense reporting process with XMS. Within nine months after
deploying XMS on an enterprise-wide basis, the vast majority of Case's travelers
were using XMS and receiving reimbursements through their regular paychecks. As
a result, Case has significantly reduced travel expense reimbursement related
costs. In addition, Case now reimburses employees and analyzes spending more
effectively.
Solutia, Inc. ("Solutia"). Solutia is a global company that applies its
expertise in chemistry to the consumer, household, automotive and industrial
products industries through 24 manufacturing sites worldwide. Solutia's nearly
9,000 employees include approximately 3,000 who are business travelers. At the
time Solutia decided to reengineer its T&E expense management processes, it had
15 processing centers handling approximately 25,000 expense reports per year.
Using XMS as the cornerstone of its reengineering effort, Solutia streamlined
the preparation, approval and processing of expense reports, consolidated its 15
processing centers into one shared services center, and cut processing costs by
over 50%.
Visio Corporation ("Visio"). Through a worldwide network of offices, Visio
develops, markets and sells drawing and diagramming software for PCs. After
implementing SAP R/3, Visio sought an Intranet front-office procurement system
to eliminate inefficiencies in its paper-based ordering and manual routing of
front-office procurement requisitions. Visio required a system that was easy to
use and would seamlessly integrate with SAP. After selecting CompanyStore, Visio
implemented the application in only five weeks and immediately realized
efficiencies in purchase order processing and product delivery. CompanyStore
allows purchasing and procurement personnel to spend less time processing
transactions and more time evaluating vendors and pricing strategies. Visio
estimates that it will achieve approximately $1 million in savings in the first
year of implementation, from such improvements as decreased requisition
processing costs, decreased non-compliant spending, decreased time needed to
process payables, and decreased time spent by budget managers gathering
financial data.
SALES
The Company sells its software primarily through its domestic direct sales
organization, with sales professionals located in the metropolitan areas of
Atlanta, Boston, Chicago, Columbus, Dallas, Detroit, Los Angeles, New York,
Redmond, St. Louis, San Francisco and Washington, D.C. The Company also has
sales professionals in Toronto, London and Sydney. The field sales force is
complemented by direct telesales and telemarketing representatives based at the
Company's headquarters in Redmond, Washington. Technical sales support is
provided by sales engineers located in several of the field offices. The Company
currently intends to add a significant number of sales representatives and sales
engineers in other domestic and international locations. The Company uses a
remarketer in New Zealand and plans to expand its remarketing channel to other
international markets. The remarketer receives a referral fee from the Company
for marketing the Company's products, and provides post-sale implementation and
support of the Company's products. See "Risk Factors--Dependence on Direct Sales
Model."
The Company's direct sales force sells both XMS and CompanyStore. Since
Concur's products affect employees throughout the enterprise, the sales effort
involves multiple decision makers and frequently includes the chief financial
officer, vice president of finance, controller and vice president of purchasing.
While the average sales cycle varies substantially from customer to customer,
for initial sales it has generally ranged from six to nine months. See "Risk
Factors--Lengthy Sales Cycle."
Strategic Marketing and Referral Relationships
The Company has developed a number of strategic referral relationships.
Under arrangements with American Express, the largest corporate charge card
issuer in the United States, and its subsidiary TRS, American Express may, at
its sole discretion, refer corporate charge card customers that seek a T&E
expense management software solution to Concur. TRS also recently agreed to be a
strategic marketer for the ESP version of XMS. ADP, Inc., a subsidiary of
Automatic Data Processing, Inc., recently agreed to refer potential customers
for T&E expense management software products and services exclusively to Concur.
ADP and the Company also agreed to jointly market Concur's T&E expense report
processing products and services to ADP
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customers. Other key referral relationships include Citibank, N.A., Citicorp
Diners Club Inc. and Geac Computer Corporation Ltd.
The Company's existing strategic relationships generally do not, and any
future strategic relationships may not, afford the Company any exclusive
marketing or distribution rights. Many of the Company's strategic partners have
multiple strategic relationships, and there can be no assurance that the
Company's strategic partners regard their relationships with the Company as
significant for their own businesses or that they will regard it as significant
in the future. In addition, there can be no assurance that such parties will not
pursue other partnerships or relationships, or attempt to develop or acquire
products or services that compete with the Company's products or services either
on their own or in collaboration with others, including the Company's
competitors. Further, the Company's existing strategic relationships may
interfere with its ability to enter into other desirable strategic
relationships. Any future inability of the Company to maintain its strategic
relationships or to enter into additional strategic relationships will have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors--Need to Establish and Maintain Strategic
Relationships" and "Certain Transactions."
MARKETING
The Company's marketing efforts are directed at extending the Company's
leadership position in T&E expense management applications and increasing its
market share for CompanyStore. The Company's marketing programs are targeted at
accounting, finance, purchasing and travel executives, and are focused on
creating awareness of, and generating interest in, the Company's products.
Concur engages in a variety of marketing activities, including developing
and executing co-advertising and co-marketing strategies designed to leverage
its existing strategic relationships, targeting additional strategic
relationships, managing and maintaining the Company's Web site, issuing
newsletters and direct mailings, creating and placing advertisements, conducting
public relations campaigns, and establishing and maintaining close relationships
with recognized industry analysts. The Company is an active participant in
technology-related conferences and demonstrates its products at trade shows
targeted at accounting, finance, purchasing and travel executives.
The Company believes that demand is increasing, and will continue to
increase, for employee-facing applications such as those sold by the Company.
There can be no assurance that the Company will be able to expand its sales and
marketing staff, either domestically or internationally, to take advantage of
any increase in demand for employee-facing applications. The failure of the
Company to expand its sales and marketing organization or other distribution
channels could materially and adversely affect the Company's business, results
of operations and financial condition. See "Risk Factors--Management of Growth,"
"--Dependence on Key Employees" and "--Need to Attract and Retain Qualified
Personnel."
PRODUCT DEVELOPMENT
The Company has been an innovator and leader in the development of
employee-facing enterprise applications. The Company believes that it was one of
the first to introduce a commercially successful T&E expense reporting
application and that it pioneered a number of features that are now common
throughout the T&E expense reporting field, such as prepopulation with corporate
credit card transactions and automatic itemization of hotel bills. Concur's
software development staff is responsible for enhancing the Company's existing
products and expanding its product line. The Company believes that a technically
skilled, quality oriented and highly productive software development
organization will be a key component of the continued success of new product
offerings. The Company expects that it will increase its product development
expenditures substantially in the future.
Concur's current product development activities focus on product
enhancements to XMS and CompanyStore, development of the Concur Common Platform
technology that will standardize the software architecture underlying all
applications in the suite, and development of Employee Desktop, a personalized
Web page on the corporate Intranet that will provide a centralized location for
all employee-facing applications. Concur expects XMS enhancements to include
features such as localized versions of XMS for
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foreign countries, and enhanced integration of XMS with on-line travel booking
applications. Concur plans to enhance CompanyStore by expanding its features and
functionality, adding support for additional databases and ERP platforms,
enhancing catalog support and integrating CompanyStore into its product suite
through the Concur Common Platform, which is currently under development. The
Company plans to offer its applications through the Internet as an outsourced
ESP starting with XMS in the middle of calendar 1999 and to provide CompanyStore
as an ESP offering in fiscal 2000.
There can be no assurance that these development efforts will be completed
within the Company's anticipated schedules or that, if completed, they will have
the features necessary to make them successful in the marketplace. Future delays
or problems in the development or marketing of product enhancements or new
products could result in a material adverse effect on the Company's business,
results of operations and financial condition. See "Risk Factors--Risks
Associated with New Products and New Versions of Existing Products," "--Risks
Associated with Unproven Enterprise Service Provider Model" and "--Risks
Associated with the Internet."
COMPETITION
The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. The Company's primary source of
direct competition comes from independent software vendors of T&E expense
management and front-office procurement applications. The Company also faces
indirect competition from potential customers' internal development efforts and
has to overcome potential customers' reluctance to move away from existing
paper-based systems.
The Company's major competitors in the T&E expense management field include
Captura Software, Inc., Extensity, Inc., International Business Machines
Corporation and Necho Systems Corporation. In addition, several major ERP
vendors such as SAP AG, Oracle Corporation and PeopleSoft, Inc. have already
developed T&E expense management products, and Oracle Corporation has developed
a front-office procurement product. These companies have begun to sell these
products along with their application suites. The Company's major competitors in
the front-office procurement field include Ariba Technologies, Inc., Clarus
Corporation, Commerce One, Inc., Harbinger Corporation, Netscape Communications
Corporation, Trilogy Development Corporation and TRADE'ex Electronic Commerce
Systems, Inc. In addition to its current competitors, the Company expects to
face competition from new entrants including those ERP providers that do not
already market a T&E expense management product. Most of the major ERP providers
have a significant installed customer base and have the opportunity to offer
additional products to those customers as additional components of their
respective application suites.
The Company believes that the principal competitive factors considered in
selecting T&E expense management and front-office procurement applications are
functionality, interoperability with existing IT infrastructure, price and an
installed referenceable base of customers. The Company has learned from its
customers that XMS tends to be 20% to 200% more expensive than other competing
solutions, depending on the size and the nature of the transaction. Despite the
disparity in price, the Company believes that it has a competitive advantage
relative to competing solutions. With respect to functionality, the Company
believes that it offers a product with more features than other competing
products, and that it has often been the first to offer new and innovative
features, such as prepopulation of transaction reports based on credit card
information. Significantly, the Company believes it was the first provider of an
Intranet-based T&E expense management solution. In addition, XMS was designed
and built to interoperate with existing IT systems and can often be deployed on
an enterprise customer's existing IT infrastructure. Many of the Company's
competitors have chosen to develop their Intranet-based applications using Java,
which the Company believes is difficult to deploy on a large scale within
today's corporate IT infrastructure. With respect to price, the Company
positions XMS as the premium product compared to the competition. The Company
believes that this positioning does cause the Company to lose some potential
transactions to competitors based on price. Finally, the Company believes that
it has a larger customer base, spread across a wider variety of industries, than
the Company's primary competitors. The Company believes that this large
installed customer base helps the Company to secure additional customers.
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<PAGE> 53
Many of the Company's competitors in both the T&E expense management and
front-office procurement markets have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than the
Company. Moreover, a number of the Company's competitors, particularly major ERP
vendors, have well-established relationships with current and potential
customers of the Company as well as with systems integrators and other vendors
and service providers. In addition, these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products, than can the Company.
It is also possible that new competitors or alliances among competitors or
other third parties may emerge and rapidly acquire significant market share. The
Company expects that competition in its markets will increase as a result of
consolidation and the formation of alliances in the industry. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not materially and adversely affect its business, results of operations and
financial condition. See "Risk Factors--Risks Associated with Expansion into New
Market," "--Competition" and "--Need to Establish and Maintain Strategic
Relationships."
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends upon its proprietary technology. The Company
relies primarily on a combination of copyright, trade secret and trademark laws,
confidentiality procedures, contractual provisions and other similar measures to
protect its proprietary information. For example, the Company licenses rather
than sells its software to customers and requires licensees to enter into
license agreements that impose certain restrictions on licensees' ability to
utilize the software. The Company currently holds no patents and does not have
any patent applications pending. There can be no assurance that any copyrights
or trademarks held by the Company will not be challenged and invalidated.
As part of its confidentiality procedures, the Company enters into
non-disclosure agreements with certain of its employees, consultants, corporate
partners, customers and prospective customers. The Company also enters into
license agreements with respect to its technology, documentation and other
proprietary information. Such licenses are generally non-transferable and have a
perpetual term. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use the
Company's products or technology that the Company considers proprietary and
third parties may attempt to develop similar technology independently. In
particular, the Company provides its licensees with access to object code
versions of its software, and to other proprietary information underlying the
Company's licensed software. Policing unauthorized use of the Company's products
is difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted and, while the Company is unable to determine the extent to
which piracy of its software products exists, software piracy can be expected to
be a persistent problem. In addition, effective protection of intellectual
property rights may be unavailable or limited in certain countries. The laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. There can be no assurance that
the Company's protection of its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology.
The Company is not aware that its products, trademarks, copyrights or other
proprietary rights infringe the proprietary rights of third parties. There can
be no assurance that third parties will not assert infringement claims against
the Company in the future with respect to current or future products Further,
the Company expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in different
industry segments overlaps. From time to time, the Company hires or retains
employees or consultants (including through acquisition) who have worked for
independent software vendors or other companies developing products similar to
those offered by the Company. There can be no assurance that such prior
employers will not claim that the Company's products are based on their products
and that the Company
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<PAGE> 54
has misappropriated their intellectual property. Any such claims, with or
without merit, could cause a significant diversion of management attention,
result in costly and protracted litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which would have a material adverse effect upon the
Company's business, results of operations and financial condition. See "Risk
Factors--Limited Protection from Proprietary Technology; Risks of Infringement."
EMPLOYEES
As of October 31, 1998, the Company had approximately 231 full-time
employees, five of whom were based in the United Kingdom, one in Canada and one
in Australia. These included 68 engaged in research and development, 69 in sales
and marketing, 64 in consulting, training and technical support and 30 in
administration and finance. No employees are known by the Company to be
represented by a collective bargaining agreement and the Company has never
experienced a strike or similar work stoppage. The Company considers its
relations with its employees to be good. The Company's ability to achieve its
financial and operational objectives depends in large part upon its continuing
ability to attract, integrate, retain and motivate highly qualified sales,
technical and managerial personnel. Competition for such qualified personnel in
the Company's industry is intense, particularly in the Seattle area in which the
Company's headquarters is located and particularly with respect to software
development and management personnel. In addition, competitors may attempt to
recruit the Company's key employees. There can be no assurance that the Company
will be able to attract or retain employees in the future. The Company is a
party to employment agreements with certain of its employees. See "Risk
Factors--Dependence on Key Employees," "--Need to Attract and Retain Qualified
Personnel" and "Management--Employment Agreements."
FACILITIES
The Company's principal administrative, sales, marketing and research and
development facility is located in Redmond, Washington and consists of
approximately 43,000 square feet of office space held under a lease that expires
in January 2003. As of October 31, 1998, the Company also leased sales offices
in Atlanta, Chicago, Dallas, Detroit, Los Angeles, New York, San Francisco,
Sydney and London. For a discussion of certain risks associated with the
Company's anticipated need for additional office space, see "Risk
Factors--Management of Growth."
LEGAL PROCEEDINGS
There are no material legal proceedings currently pending to which the
Company is a party.
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<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. Steven Singh............... 37 President, Chief Executive Officer and
Director
Michael W. Hilton............. 34 Chairman of the Board and Chief Technical
Officer
Jon T. Matsuo................. 39 Executive Vice President of Worldwide Sales
Sterling R. Wilson............ 40 Chief Financial Officer and Vice President
of
Operations
Rajeev Singh.................. 30 Vice President of Products
Frederick L. Ingham........... 31 Vice President of Business Development
John P. Russo, Jr............. 38 Vice President of Corporate Communications
Michael Watson................ 51 Vice President of Professional Services
John A. Prumatico............. 50 Vice President of Human Resources
Jeffrey D. Brody(1)........... 38 Director
Norman A. Fogelsong(1)........ 47 Director
Michael J. Levinthal(2)....... 43 Director
James D. Robinson III(2)...... 62 Director
Russell P. Fradin............. 43 Director Nominee
Edward P. Gilligan............ 39 Director Nominee
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
S. Steven Singh has served as the Company's President and Chief Executive
Officer since February 1996. Mr. Singh served as the Chairman of the Board of
Directors from the Company's inception until February 1996. Prior to joining the
Company as an officer, Mr. Singh was General Manager of the Contact Management
Division at Symantec Corporation ("Symantec") from June 1993 to February 1996.
From February 1992 to June 1993, when it was acquired by Symantec, Mr. Singh was
Vice President of Development for Contact Software International ("CSI"), a
personal computer software publisher. Prior to joining CSI, Mr. Singh co-founded
Eshani Corporation ("Eshani"), where he was President and Chief Executive
Officer. Mr. Singh holds a B.S. in Electrical Engineering from the University of
Michigan. Mr. Singh is the brother of Rajeev Singh, the Company's Vice President
of Products.
Michael W. Hilton co-founded the Company in August 1993 and has served as
the Company's Chief Technical Officer since 1996. Mr. Hilton has served as a
member of the Company's Board of Directors since its founding, and as Chairman
of the Board since February 1996. Before co-founding the Company, Mr. Hilton
served as Senior Development Manager at Symantec during 1993. Prior to his
employment at Symantec, Mr. Hilton served as Director of Product Development for
CSI's California office. Mr. Hilton also was a co-founder of Eshani, where he
was Vice President of Product Development. Mr. Hilton holds a B.A. in Computer
and Information Sciences and a B.S. in Mathematics from the University of
California at Santa Cruz.
Jon T. Matsuo joined the Company in July 1994 and currently serves as the
Company's Executive Vice President of Worldwide Sales. Prior to joining the
Company, Mr. Matsuo served as General Manager, Consumer Software Division of
Delrina Corporation from June 1993 to July 1994. Mr. Matsuo's experience also
includes senior marketing positions with CSI and Bluebird Systems, as well as
eight years of experience
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<PAGE> 56
with Deloitte Haskins & Sells in auditing, consulting and product management.
Mr. Matsuo holds a B.B.A. in Accounting from the University of San Diego and is
a Certified Public Accountant.
Sterling R. Wilson joined the Company in May 1994 and currently serves as
the Company's Chief Financial Officer and Vice President of Operations. Prior to
joining the Company, Mr. Wilson served as Vice President of Operations and Chief
Financial Officer at IntelliQuest, Inc., a leading provider of market research
information, from July 1993 to May 1994. Mr. Wilson also served as Chief
Financial Officer at CSI from 1992 to 1993. Mr. Wilson holds a B.B.A. in
Accounting from California State University at Bakersfield (formerly California
State College at Bakersfield) and is a Certified Public Accountant.
Rajeev Singh co-founded the Company in August 1993 and currently serves as
the Company's Vice President of Products. Previously, Mr. Singh acted as
Director of Product Management of the Company. Prior to co-founding the Company,
Mr. Singh served as a Software and Manufacturing Engineer at General Motors
Corporation from July 1986 to January 1990 and he served as a Software Project
Manager for the development of complex computer simulations at Ford Motor
Company from January 1991 to March 1993. Mr. Singh holds a B.S. in Mechanical
Engineering from Kettering University (formerly GMI Engineering and Management
Institute). Mr. Singh is the brother of S. Steven Singh, the Company's President
and Chief Executive Officer.
Frederick L. Ingham joined the Company in January 1997 and currently serves
as the Company's Vice President of Business Development. Prior to joining the
Company, Mr. Ingham was Director of Business Development at Symantec from
January 1995 to December 1996. From September 1992 to December 1994, Mr. Ingham
worked as a Product Manager and Product Planner at Xerox Corporation. Mr. Ingham
holds a B.A. in Economics from Yale University and an M.B.A. from the Wharton
School of the University of Pennsylvania.
John P. Russo, Jr. joined the Company in April 1996 and currently serves as
the Company's Vice President of Corporate Communications. From September 1988 to
April 1996, Mr. Russo was employed by Symantec, including as Director of Product
Management from September 1994 to April 1996, and assisted with the integration
of company acquisitions for Symantec's Productivity Applications Group. Mr.
Russo holds a B.S. in Marketing from San Jose State University.
Michael Watson joined the Company in August 1998 and currently serves as
the Company's Vice President of Professional Services. Prior to joining the
Company, Mr. Watson was Vice President of Consulting Services from June 1995 to
August 1998 at Hyperion Software, where he also held various roles in the sales
organization from October 1990 to June 1995. Mr. Watson also served as the
National Director of Price Waterhouse's Applied Technology Center from 1986 to
1990. Mr. Watson holds a B.A. in Business Studies from Lanchester University
(U.K.) and an M.B.A. from the Babcock Graduate School of Management at Wake
Forest University.
John A. Prumatico joined the Company in July 1998 and currently serves as
the Company's Vice President of Human Resources. Prior to joining the Company,
Mr. Prumatico was managing principal for John Prumatico & Associates, a
consulting firm specializing in human resources leadership and organization
development, which he founded in 1992. From April 1987 to October 1992, Mr.
Prumatico was employed by Microsoft Corporation as the Director of Human
Resources Development and Administration. Mr. Prumatico holds a B.S. in
Management and Organization Development from the University of West Florida.
Jeffrey D. Brody has served as a member of the Company's Board of Directors
since October 1994. Since April 1994, Mr. Brody has been employed by Brentwood
Venture Capital ("Brentwood"), a venture capital
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<PAGE> 57
firm, where he has been a General Partner of Brentwood since October 1995. From
1988 to April 1994, Mr. Brody was Senior Vice President of Comdisco Ventures, a
venture leasing company. Mr. Brody holds a B.S. in Engineering from the
University of California at Berkeley and an M.B.A. from the Graduate School of
Business at Stanford University. Mr. Brody is a member of the boards of
directors of several private technology companies.
Norman A. Fogelsong has served as a member of the Company's Board of
Directors since July 1996. Since March 1989, Mr. Fogelsong has been a General
Partner of Institutional Venture Partners, a venture capital firm. Between March
1980 and February 1989, Mr. Fogelsong was a General Partner of Mayfield Fund, a
venture capital firm. Mr. Fogelsong holds a B.S. in Industrial Engineering from
Stanford University, an M.B.A. from Harvard Business School and a J.D. from
Harvard Law School. Mr. Fogelsong is a member of the boards of directors of
Aspect Telecommunications Corporation as well as several private technology
companies.
Michael J. Levinthal has served as a member of the Company's Board of
Directors since April 1998. Since 1984, Mr. Levinthal has been a General Partner
or managing director of various entities associated with Mayfield Fund, a
venture capital firm. Mr. Levinthal holds a B.S. in Engineering, an M.S. in
Industrial Engineering and an M.B.A. from the Graduate School of Business at
Stanford University. Mr. Levinthal is a member of the boards of directors of
Focal, Inc., InControl, Inc. and Symphonix Devices, Inc. as well as several
private technology companies.
James D. Robinson III has served as a member of the Company's Board of
Directors since July 1998. Since 1994, Mr. Robinson has been the Chairman and
Chief Executive Officer of RRE Investors, LLC, a private information technology
venture investment firm. From 1977 to 1993, Mr. Robinson served as Chairman and
Chief Executive Officer of American Express Company. Mr. Robinson holds a B.S.
in Industrial Management from the Georgia Institute of Technology and an M.B.A.
from Harvard Business School. Mr. Robinson is a member of the boards of
directors of The Coca-Cola Company, Bristol-Myers Squibb Company, Cambridge
Technology Partners and First Data Corporation as well as several private
companies.
Russell P. Fradin is expected to begin serving as a member of the Company's
Board of Directors after the completion of the Offering. In 1996, Mr. Fradin
joined ADP, where he served first as Senior Vice President before becoming
President, Employer Services North America. Prior to joining ADP, Mr. Fradin was
a senior partner of McKinsey & Company, and was associated with that firm for 18
years. Mr. Fradin holds a B.S. in Economics from the Wharton School of the
University of Pennsylvania and an M.B.A. from the Harvard Business School.
Edward P. Gilligan is expected to be appointed as a member of the Company's
Board of Directors after the completion of the Offering. Mr. Gilligan has been
President, Corporate Services Division, for TRS, since February 1996. From June
1995 to February 1996, Mr. Gilligan served as Executive Vice President of Travel
Management Services for TRS. From September 1992 to June 1995, Mr. Gilligan was
Senior Vice President and General Manager, Eastern Region, of American Express
Travel Management Services. Mr. Gilligan holds a B.S. in Economics and
Management from New York University.
The Company's Bylaws, which will be in effect upon the completion of the
Offering, provide for the division of the Board of Directors into three classes
as nearly equal in size as possible with staggered three-year terms. The
classification of the Board of Directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors consists of Mr. Brody
and Mr. Fogelsong. The Compensation Committee makes decisions regarding all
forms of salary, bonus and stock compensation provided to executive officers of
the Company, the long-term strategy of employee compensation, the types of stock
and other compensation plans to be used by the Company and the shares and
amounts reserved thereunder, and any other compensation matters as from time to
time directed by the Board.
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The Audit Committee of the Board of Directors consists of Mr. Levinthal and
Mr. Robinson. The Audit Committee meets with the Company's independent auditors
to review the adequacy of the Company's internal control systems and financial
reporting procedures, reviews the general scope of annual audits and the fees
charged by the independent accountants, as well as the performance of non-audit
services by the Company's auditors, and reviews and makes recommendations to the
Board of Directors regarding the fairness of any proposed transaction between
the Company and any officer, director or other affiliate of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board of Directors
was at any time since the formation of the Company an officer or employee of the
Company. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on the Board of Directors of the Company or the Compensation
Committee of the Board of Directors.
Mr. Brody is a Managing Member of Brentwood VIII Ventures, LLC, the General
Partner of Brentwood Affiliates Fund II, L.P. Several of Mr. Brody's Co-Managing
Members of Brentwood VIII Ventures, LLC are also General Partners of Brentwood
VI Ventures, L.P., the General Partner of Brentwood Associates VI, L.P. Between
October 1, 1994 and October 31, 1998, Brentwood Associates VI, L.P. and
Brentwood Affiliates Fund II, L.P. purchased in the aggregate 1,529,365 shares
of the Company's Series A Preferred Stock at a price of $1.3075 per share,
312,500 shares of the Company's Series B Preferred Stock at a price of $1.60 per
share, 237,500 shares of the Company's Series C Preferred Stock at a price of
$2.00 per share, 135,378 shares of the Company's Series D Preferred Stock at a
price of $3.65 per share and 72,123 shares of the Company's Series E Preferred
Stock at a price of $7.75 per share. Mr. Brody also purchased 3,871 shares of
the Company's Series E Prefered Stock at $7.75 per share.
Mr. Fogelsong is a General Partner of Institutional Venture Management VII,
L.P., the General Partner of Institutional Venture Partners VII, L.P. and IVP
Founders Fund I, L.P. Between October 1, 1994 and October 31, 1997,
Institutional Venture Management VII, L.P., Institutional Venture Partners VII,
L.P. and IVP Founders Fund I, L.P. purchased in the aggregate 2,000,000 shares
of the Company's Series C Preferred Stock at a price of $2.00 per share, 130,193
shares of the Company's Series D Preferred Stock at a price of $3.65 per share
and 72,090 shares of the Company's Series E Preferred stock at a price of $7.75
per share.
DIRECTOR COMPENSATION
Directors of the Company do not receive any cash compensation for their
services as directors but are reimbursed for their reasonable travel expenses in
attending meetings of the Board of Directors.
The Company's Board of Directors adopted the 1998 Directors Stock Option
Plan (the "Directors Plan") in August 1998 (to be effective upon the effective
date of the Registration Statement for this Offering (the "Effective Date") and
reserved a total of 240,000 shares of the Company's Common Stock for issuance
thereunder. The Directors Plan was approved by the Company's stockholders in
September 1998. Members of the Board of Directors who are not employees of the
Company or any parent, subsidiary or affiliate of the Company are eligible to
participate in the Directors Plan. The option grants under the Directors Plan
are automatic and the exercise price of the options must be 100% of the fair
market value of the Common Stock on the date of grant. Each eligible director
who is or becomes a member of the Board of Directors on or after the Effective
Date will automatically be granted an option for 20,000 shares of the Company's
Common Stock on the later of the Effective Date and the date such director first
becomes a member of the Board of Directors (an "Initial Grant"). The Initial
Grants made on the Effective Date will have exercise prices equal to the initial
public offering price. On the date of each Annual Meeting of Stockholders
following the Effective Date, each eligible director who has served continuously
as a member of the Board of Directors since the date of such director's Initial
Grant will automatically be granted an option for 8,000 shares of the Company's
Common Stock (a "Succeeding Grant"). Options granted under the Directors Plan
generally will become exercisable as they vest, although the Compensation
Committee may provide that options are exercisable immediately subject to
repurchase. Initial Grants and Succeeding Grants will vest as to 25% of the
shares on
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the first anniversary of the date of grant and as to an additional 2.0833% of
the shares each month thereafter. Options will cease to vest if the individual
ceases to provide services to the Company, or any parent or subsidiary of the
Company, as a director or a consultant. Once the individual ceases providing
such services, he or she will have seven months in which to exercise his or her
vested options, or his or her estate or legal representative will have 12 months
if the cessation of services resulted from the individual's death or disability.
In the event of a merger or consolidation in which the Company is not the
surviving corporation, the sale of all or substantially all of the Company's
assets, or certain other corporate transactions as set forth in the Directors
Plan, the vesting of all options granted under the Directors Plan will
accelerate and the options will become exercisable in full upon such terms as
the Compensation Committee determines, and must be exercisable within seven
months following such event. Any options not exercised within seven months of
the corporate transaction will expire. Options may be granted pursuant to the
Directors Plan from time to time within a period of ten years from the Effective
Date. The Board of Directors may at any time terminate or amend the Directors
Plan or any outstanding option, provided that the Board of Directors may not
terminate or amend the terms of any outstanding option or without the consent of
the optionee amend the Directors Plan so as to adversely affect any then
outstanding options or any unexercised portions thereof. The Directors Plan may
be administered by the full Board of Directors or by the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by or paid for services rendered to the Company in all
capacities during fiscal 1997 and fiscal 1998 by (i) the Company's Chief
Executive Officer and (ii) the Company's four other most highly compensated
executive officers who were serving as executive officers as of September 30,
1998 and whose compensation was in excess of $100,000 in fiscal 1998
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------------
FISCAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
--------------------------- ------ -------- -------- ------------------
<S> <C> <C> <C> <C>
S. Steven Singh.............................. 1997 $200,000 $ 66,950 --
President and Chief Executive Officer 1998 200,000 140,529 200,000
Sterling R. Wilson........................... 1997 140,874 52,354 10,400
Chief Financial Officer and Vice President 1998 150,000 83,459 52,000
of Operations
Jon T. Matsuo................................ 1997 131,566 91,700 10,400
Executive Vice President of Worldwide Sales 1998 150,000 157,989 52,000
Michael W. Hilton............................ 1997 133,000 49,700 --
Chairman of the Board and Chief Technical 1998 132,000 95,330 52,000
Officer
Rajeev Singh................................. 1997 92,282 44,169 10,000
Vice President of Products 1998 115,000 108,027 52,000
</TABLE>
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OPTION GRANTS IN FISCAL 1997 AND FISCAL 1998
The following table sets forth information regarding stock option grants
during fiscal 1997 and fiscal 1998 to each of the Named Executive Officers. The
Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES PERCENTAGE OF STOCK PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS OPTION TERM(4)
FISCAL OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION -----------------------------
NAME YEAR GRANTED(1) EMPLOYEES(2) PER SHARE(3) DATE 5% 10%
---- ------ ---------- -------------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
S. Steven Singh...... 1997 -- --% $ -- -- $ -- $ --
1998 200,000 26.8 0.375 10/22/07 1,320,679 3,346,859
Sterling R. Wilson... 1997 10,400 5.3 0.20 10/23/06 68,675 174,037
1998 52,000 7.0 0.375 10/22/07 343,376 870,183
Jon T. Matsuo........ 1997 10,400 5.3 0.20 10/23/06 68,675 174,037
1998 52,000 7.0 0.375 10/22/07 343,376 870,183
Michael W. Hilton.... 1997 -- -- -- --
1998 52,000 7.0 0.375 10/22/07 343,376 870,183
Rajeev Singh......... 1997 10,000 5.1 0.20 10/23/06 66,034 167,343
1998 52,000 7.0 0.375 10/22/07 343,376 870,183
</TABLE>
- ---------------
(1) Unless otherwise indicated below, all options granted in fiscal 1997 and
fiscal 1998 were granted pursuant to the 1994 Plan and become exercisable
with respect to 25% of the shares subject to the option on the first
anniversary of the date of grant and with respect to an additional 2.0833%
of these shares each month thereafter, subject to acceleration upon certain
changes in control of the Company. See "--Employee Benefit Plans."
(2) Based on a total of 196,580 options granted to all employees during fiscal
1997 and 746,414 options granted to all employees during fiscal 1998.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock at the time of grant.
(4) The potential realizable value is calculated based upon the term of the
option at its time of grant and is calculated by assuming that the aggregate
exercise price (assuming that the options were granted at an exercise price
equal to the midpoint of the price range set forth on the cover page of the
Prospectus) appreciates at the indicated annual rate compounded annually for
the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated price. The 5% and 10% assumed
annual compound rates of stock price appreciation are mandated by the rules
of the Securities and Exchange Commission (the "Commission") and do not
represent the Company's estimates or projection of future Common Stock
prices. There can be no assurance that the Common Stock will appreciate at
any particular rate or at all in future years.
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AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND 1998 AND FISCAL YEAR-END VALUES
The following table sets forth information concerning unexercised options
held at September 30, 1997 and at September 30, 1998 with respect to each of the
Named Executive Officers. No options were exercised by the Named Executive
Officers during fiscal 1997.
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES (MARKET PRICE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED AT EXERCISE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)(2)
FISCAL ON LESS EXERCISE ---------------------------- ----------------------------
NAME YEAR EXERCISE PRICE)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------ -------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
S. Steven Singh...... 1997 -- $ -- 71,250 108,750 $ 736,725 $1,124,475
1998 -- -- 116,250 263,750 1,202,025 2,684,175
Sterling R. Wilson... 1997 -- -- -- 10,400 -- 107,120
1998 -- -- 4,983 57,417 51,325 582,295
Jon T. Matsuo........ 1997 -- -- 180,000 10,400 1,872,000 107,120
1998 8,000 19,520 176,983 57,417 1,840,125 582,295
Michael W. Hilton.... 1997 -- -- -- -- -- --
1998 -- -- -- 52,000 -- 526,500
Rajeev Singh......... 1997 -- -- -- 10,000 -- 103,000
1998 -- -- 4,792 57,208 49,358 580,142
</TABLE>
- ---------------
(1) Mr. Matsuo exercised options to purchase 8,000 shares of the Company's
Common Stock at $0.10 per share in June 1998. The fair market value of the
Company's Common Stock at the time of such exercise was $6.20, as determined
by the Board of Directors.
(2) Based on the fair market value of the Company's Common Stock at September
30, 1998 ($10.50 as determined by the Board of Directors based on the
midpoint of the price range set forth on the cover page of the Prospectus)
less the exercise price.
EMPLOYMENT AGREEMENTS
The Company and Mr. Matsuo are parties to a letter agreement dated June 20,
1994 governing his employment with the Company. Under the agreement, the Company
paid to Mr. Matsuo an initial annual salary of $90,000, which was to be
increased to $105,000 following the Company's initial equity financing, with
possible bonuses of up to $50,000 per year. The compensation for Mr. Matsuo was
subsequently increased. In addition, Mr. Matsuo was given benefits that the
Company makes available to employees in comparable positions, and was granted an
option to purchase 104,000 shares of Common Stock. Mr. Matsuo's employment is
voluntary and may be terminated by the Company or Mr. Matsuo at any time with or
without cause or notice.
The Company and Mr. Wilson are parties to a letter agreement dated April
21, 1994 governing his employment with the Company. Under the agreement, the
Company paid to Mr. Wilson an annual initial salary of $90,000, which was to be
increased to $105,600 following the Company's initial equity financing, with
possible bonuses of up to $36,000 per year. The compensation for Mr. Wilson was
subsequently increased. In addition, Mr. Wilson was given benefits that the
Company makes available to employees in comparable positions, and was granted an
option to purchase 80,000 shares of Common Stock. The Company also agreed to pay
Mr. Wilson's reasonable costs to relocate to Seattle. Mr. Wilson's employment is
voluntary and may be terminated by the Company or Mr. Wilson at any time with or
without cause or notice.
EMPLOYEE BENEFIT PLANS
1994 Stock Option Plan
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the
Board of Directors and approved by the Company's stockholders in April 1994.
Initially, 150,000 shares of Common Stock were reserved for issuance under the
1994 Plan. This reserve has been increased several times, and there are
currently 2,760,000 shares reserved for issuance under the 1994 Plan. The 1994
Plan provides for the grant of both incentive stock options ("ISOs") that may
qualify under Section 422 of the Code and non-qualified
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<PAGE> 62
stock options ("NQSOs") on terms determined by the Board of Directors, subject
to certain statutory and other limitations in the 1994 Plan (including
limitations on the vesting schedule thereof and the exercise price, which for
ISOs to comply with Section 422 of the Code may not be less than 100% of the
fair market value of the Company's Common Stock on the date of grant and for
NQSOs may not be less than 85% of the fair market value of the Company's Common
Stock on the date of grant). The 1994 Plan will terminate upon the Effective
Date, when the 1998 Plan will become effective. As a result, no further options
may be granted under the 1994 Plan following the Effective Date. However,
termination will not affect any options outstanding as of such date, which
options will remain effective until exercised or until they terminate or expire
in accordance with their terms. As of October 31, 1998, options to purchase
1,432,615 shares of Common Stock were outstanding under the 1994 Plan and
349,951 shares were available for future option grants.
1997 Stock Option Plan of 7Software
In connection with the Company's June 1998 acquisition of 7Software, the
Company assumed the 1997 Stock Option Plan of 7Software (the "7Software Plan")
and all options outstanding under the 7Software Plan at the closing of the
Company's acquisition of 7Software, which options will remain effective until
exercised for the Company's Common Stock or until they terminate or expire in
accordance with their terms. The 7Software Plan provided for the grant of both
ISOs that may qualify under Section 422 of the Code and NQSOs on terms
determined by the board of directors, subject to certain statutory and other
limitations in the 7Software Plan (including limitations on the vesting schedule
thereof and the exercise price, which for ISOs to comply with Section 422 of the
Code may not be less than 100% of the fair market value of the Company's Common
Stock on the date of grant and for NQSOs may not be less than 85% of the fair
market value of the company's common stock on the date of grant). No options
will be granted in the future under the 7Software Plan. As of October 31, 1998,
options to purchase 110,306 shares of Common Stock were outstanding under the
7Software Plan.
1998 Equity Incentive Plan
In August 1998, the Board of Directors adopted the 1998 Equity Incentive
Plan (the "1998 Plan") and reserved 3,240,000 shares of the Company's Common
Stock for issuance thereunder. The Company's stockholders approved the 1998 Plan
in September 1998. The Board of Directors subsequently amended the 1998 Plan to
change its effective date to December 9, 1998. The 1998 Plan will serve as the
successor to the 1994 Plan. Shares that (a) are subject to issuance upon
exercise of an option granted under the 1998 Plan that cease to be subject to
such option for any reason other than exercise of such option, (b) have been
issued pursuant to the exercise of an option granted under the 1998 Plan that
are subsequently forfeited or repurchased by the Company at the original
purchase price, (c) are subject to an award granted pursuant to restricted stock
purchase agreement under the 1998 Plan that are subsequently forfeited or
repurchased by the Company at the original issue price or (d) are subject to
stock bonuses granted under the 1998 Plan that otherwise terminate without
shares being issued will again be available for grant and issuance under the
1998 Plan. In addition, any authorized shares not issued or subject to
outstanding grants under the 1994 Plan on December 9, 1998 and any shares issued
under the 1994 Plan that are forfeited or repurchased by the Company or that are
issuable upon exercise of options granted pursuant to the 1994 Plan that expire
or become unexercisable for any reason without having been exercised in full,
will be available for grant and issuance under the 1998 Plan. The 1998 Plan will
terminate in August 2008, unless sooner terminated in accordance with the terms
of the 1998 Plan.
The 1998 Plan authorizes the award of options, restricted stock awards and
stock bonuses (each an "Award"). No person will be eligible to receive more than
960,000 shares in any calendar year pursuant to Awards under the 1998 Plan other
than a new employee of the Company, who will be eligible to receive no more than
1,200,000 shares in the calendar year in which such employee commences
employment. Over the term of the 1998 Plan, no more than 10,000,000 shares may
be issued under the 1998 Plan upon exercise of incentive stock options. The 1998
Plan will be administered by the Compensation Committee, which currently
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<PAGE> 63
consists of Mr. Brody and Mr. Fogelsong, both of whom are "non-employee
directors" under applicable federal securities laws and "outside directors" as
defined under applicable federal tax laws. The Compensation Committee has the
authority to construe and interpret the 1998 Plan and any agreement made
thereunder, grant Awards and make all other determinations necessary or
advisable for the administration of the 1998 Plan.
The 1998 Plan provides for the grant of both ISOs that qualify under
Section 422 of the Code and NQSOs. ISOs may be granted only to employees of the
Company or of a parent or subsidiary of the Company. NQSOs (and all other Awards
other than ISOs) may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any parent or subsidiary
of the Company, provided such consultants, independent contractors and advisors
render to the Company bona fide services not in connection with the offer and
sale of securities in a capital-raising transaction. The exercise price of ISOs
must be at least equal to the fair market value of the Company's Common Stock on
the date of grant. The exercise price of ISOs granted to 10% stockholders must
be at least equal to 110% of that value. The exercise price of NQSOs must be at
least equal to 85% of the fair market value of the Common Stock on the date of
grant. The maximum term of options granted under the 1998 Plan is ten years. In
addition to, or in tandem with, awards of stock options, the Compensation
Committee may grant participants restricted stock awards to purchase the
Company's Common Stock at terms to be determined by the Compensation Committee.
The Compensation Committee may also grant stock bonus awards of the Company's
Common Stock either in addition to, or in tandem with, other awards under the
1998 Plan under such terms, conditions and restrictions as the Compensation
Committee may determine. Under the 1998 Plan, stock bonuses may be awarded for
the satisfaction of performance goals established in advance. The Compensation
Committee may, with the consent of the respective Award recipient, issue new
Awards in exchange for the surrender and cancellation of any or all outstanding
Awards. The Compensation Committee may also buy from an Award recipient an award
previously granted based on such terms and conditions as the Committee and
recipient may agree. At the discretion of the Compensation Committee, payment
for Awards may be made: in cash; by cancellation of indebtedness of the Company
to the participant; by surrender of shares that either have been owned by the
participant for more than six months and have been paid for within the meaning
of Rule 144 or were obtained by the participant in the public market; by tender
of a full recourse promissory note; by waiver of compensation due or accrued to
the participant for services rendered; or, with respect only to purchases upon
exercise of an option, through a "same day sale" or a "margin" commitment.
Awards granted under the 1998 Plan may not be transferred in any manner other
than by will or by the laws of descent and distribution and may be exercised
during the lifetime of the optionee only by the optionee (unless otherwise
determined by the Compensation Committee and set forth in the Award agreement
with respect to Awards that are not ISOs). Options granted under the 1998 Plan
generally expire three months after the termination of the optionee's service to
the Company or a parent or subsidiary of the Company, except in the case of
death or disability, in which case the options generally may be exercised up to
12 months following the date of death or termination of service. Options will
generally terminate ten days after termination for cause. In the event of the
Company's dissolution or liquidation or a "change in control" transaction,
outstanding Awards may be assumed or substituted by the successor corporation.
If the successor corporation does not assume outstanding Awards, they will
expire. In the discretion of the Compensation Committee, the vesting of such
Awards may accelerate upon such transaction.
1998 Employee Stock Purchase Plan
In August 1998, the Board adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved a total of 320,000 shares of the Company's
Common Stock for issuance thereunder. The Company's stockholders approved the
Purchase Plan in September 1998. On each January 1, the aggregate number of
shares reserved for issuance under the Purchase Plan will increase automatically
by a number of shares equal to 1% of the total outstanding shares of the Company
as of the immediately preceding December 31. Such annual increase may not exceed
320,000 shares per year. The Purchase Plan will be administered by the
Compensation Committee. The Compensation Committee will have the authority to
construe and interpret the Purchase Plan and its decision in such capacity will
be final and binding. The Purchase Plan will become effective on the first
business day on which price quotations for the Company's Common Stock are
available
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<PAGE> 64
on the Nasdaq National Market. Employees generally will be eligible to
participate in the Purchase Plan if they are customarily employed by the Company
(or its parent or any subsidiaries that the Company designates) for more than 20
hours per week and more than five months in a calendar year and are not (and
would not become as a result of being granted an option under the Purchase Plan)
5% stockholders of the Company (or its designated parent or subsidiaries).
Under the Purchase Plan, eligible employees will be permitted to acquire
shares of the Company's Common Stock through payroll deductions. Eligible
employees may select a rate of payroll deduction between 2% and 15% of their W-2
cash compensation and are subject to certain maximum purchase limitations
described in the Purchase Plan. A participant may change the rate of payroll
deductions or withdraw from an Offering Period by notifying the Company in
writing. Participation in the Purchase Plan will end automatically upon
termination of employment for any reason.
Except for the First Offering Period, each Offering Period under the
Purchase Plan will be for two years and consist of four six-month Purchase
Periods. The first Offering Period is expected to begin on the first business
day on which price quotations for the Company's Common Stock are available on
the Nasdaq National Market. The First Offering Period shall consist of no more
than five and no fewer than three Purchase Periods, any of which may be greater
or less than six months as determined by the Compensation Committee. Offering
Periods and Purchase Periods thereafter will begin on May 1 and November 1. The
purchase price for the Company's Common Stock purchased under the Purchase Plan
is 85% of the lesser of the fair market value of the Company's Common Stock on
the first day of the applicable Offering Period or the last day of each Purchase
Period. The Compensation Committee will have the power to change the duration of
Offering Periods without stockholder approval, if such change is announced at
least 15 days prior to the beginning of the Offering Period to be affected. The
Purchase Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. Rights granted under the Purchase Plan will not be
transferable by a participant other than by will or the laws of descent and
distribution. The Purchase Plan provides that in the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the proposed action, unless otherwise provided by the
Compensation Committee. The Compensation Committee may, in the exercise of its
sole discretion in such instances, declare that the Purchase Plan will terminate
as of a date fixed by the Compensation Committee and give each participant the
right to purchase shares prior to such termination. In the event of a "change in
control" transaction, the Purchase Plan will continue for the duration of each
Offering Period that commenced prior to the closing of such proposed transaction
and stock will be purchased on the purchase dates based on the fair market value
of the surviving corporation's stock; unless otherwise provided by the
Compensation Committee consistent with pooling of interests accounting
treatment.
The Purchase Plan will terminate in August 2008 unless earlier terminated
pursuant to its terms. The Board of Directors will have the authority to amend,
terminate or extend the term of the Purchase Plan, except that no such action
may adversely affect any outstanding options previously granted under the
Purchase Plan and stockholder approval is required to increase the number of
shares that may be issued or to change the terms of eligibility under the
Purchase Plan. Notwithstanding the foregoing, the Board of Directors may make
such amendments to the Purchase Plan as the Board of Directors determines to be
advisable if the financial accounting treatment for the Purchase Plan is
different than the financial accounting treatment in effect on the date the
Purchase Plan was adopted by the Board of Directors.
401(k) Plan
The Company maintains the Concur Technologies, Inc. 401(k) Profit Sharing
and Trust Plan (the "401(k) Plan"), a defined contribution plan intended to
qualify under Section 401 of the Code. All employees are eligible to participate
in the 401(k) Plan. An eligible employee of the Company may begin to participate
in the 401(k) Plan on the first day of January, April, July or October of the
plan year following the date on which such employee meets the eligibility
requirements. A participating employee may make pre-tax contributions of a
percentage of his or her eligible compensation, subject to limitations under the
federal tax laws. Employee contributions and the investment earnings thereon are
fully vested at all times. The Company does not make matching or profit-sharing
contributions.
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<PAGE> 65
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Bylaws of the Company provide that the Company is required to
indemnify its directors and executive officers to the fullest extent permitted
by the DGCL, the Company may indemnify its other officers, employees and agents
as set forth in the DGCL. The Bylaws also provide that to the fullest extent
permitted by the DGCL, the Company is required to advance expenses, as incurred,
to its directors and executive officers in connection with a legal proceeding
(subject to certain exceptions), the rights conferred in the Bylaws are not
exclusive, and the Company is authorized to enter into indemnification
agreements with its directors, officers, employees and agents.
The Company intends to enter into Indemnity Agreements with each of its
current directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Company's Bylaws and to provide additional procedural protections.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of the Company regarding which indemnification is sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification.
As permitted by the DGCL, the Company's Certificate of Incorporation
includes a provision that eliminates the personal liability of its directors for
monetary damages for breach of fiduciary duty as a director except for liability
for any breach of the director's duty of loyalty to the corporation or its
stockholders, for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, under Section 174 of the
DGCL or for any transaction from which the director derived an improper personal
benefit.
As authorized by the Company's Bylaws, the Company, with approval of the
Board of Directors, has applied for, and expects to obtain, directors and
officers liability insurance with a per claim and annual aggregate coverage
limit of $10 million to $15 million.
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CERTAIN TRANSACTIONS
Since October 1, 1994, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company or any of
its subsidiaries was or is to be a party in which the amount involved exceeded
or will exceed $60,000 and in which any director, executive officer, holder of
more than 5% of the Common Stock of the Company or any member of the immediate
family of any of the foregoing persons had or will have a direct or indirect
material interest other than compensation agreements and other arrangements,
which are described where required in "Management" and the transactions
described below.
Loan Repayment. On September 21, 1994, the Company entered into a Repayment
Agreement with S. Steven Singh, the Company's President, Chief Executive Officer
and a director, and Michael W. Hilton, the Company's Chairman of the Board and
Chief Technical Officer. Pursuant to the Repayment Agreement, the Company agreed
to repay loans previously made to the Company by Mr. Singh and Mr. Hilton in the
amounts of $111,500 and $121,500, respectively. Under the terms of the Repayment
Agreement, the Company agreed to repay the loans on the date two years following
the Commencement Date (as defined in the Repayment Agreement) together with
interest at the rate of 7% per annum. In December 1996, the Company agreed to
issue 64,530 shares of its Series C Preferred Stock to Mr. Singh and 70,390
shares of its Series C Preferred Stock to Mr. Hilton in consideration for the
cancellation of indebtedness under the Repayment Agreement at a purchase price
of $2.00 per share.
Preferred Stock Financings. From October 1, 1994 through August 15, 1998,
the Company sold 1,529,636 shares of its Series A Preferred Stock at a price of
$1.3075 per share, 1,874,999 shares of its Series B Preferred Stock at a price
of $1.60 per share, 3,884,920 shares of its Series C Preferred Stock at a price
of $2.00 per share (which includes the 134,920 shares of Series C Preferred
Stock issued to Mr. Singh and Mr. Hilton in consideration for the cancellation
of indebtedness under the Repayment Agreement), 1,275,338 shares of its Series D
Preferred Stock at a price of $3.65 per share, and 1,648,660 shares of its
Series E Preferred Stock at a price of $7.75 per share, in a series of private
financings. The Company sold these securities pursuant to preferred stock
purchase agreements and an investors' rights agreement on substantially similar
terms (except for terms relating to date and price), under which the Company
made standard representations, warranties and covenants, and which provided the
purchasers thereunder with registration rights, information rights, and rights
of first refusal, among other provisions, standard in venture capital
financings. Each share of preferred stock will convert into one share of Common
Stock upon the completion of the Offering. The purchasers of the preferred stock
included, among others, the following holders of 5% or more of the Company's
Common Stock, directors and entities associated with directors:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK PURCHASED
--------------------------------------------------------
INVESTOR SERIES A SERIES B SERIES C SERIES D SERIES E
-------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
American Express Travel Related Services
Company, Inc............................. -- -- -- -- 645,161
Brentwood Associates VI, L.P. and
affiliates(1)............................ 1,529,636 312,500 250,000 135,378 74,703
Institutional Venture Partners VII, L.P.
and affiliates(2)........................ -- -- 2,000,000 130,193 72,090
Mayfield VIII and affiliates(3)............ -- -- 1,250,000 807,308 69,872
RRE Investors, L.P. and affiliates(4)...... -- -- -- -- 645,161
US Venture Partners IV L.P. and
affiliates(5)............................ -- 1,562,499 250,000 159,993 --
Michael W. Hilton(6)....................... -- -- 70,390 -- 3,871
S. Steven Singh(7)......................... -- -- 64,530 -- 3,871
</TABLE>
- ---------------
(1) Jeffrey D. Brody, a director of the Company, is a Managing Member of
Brentwood VIII Ventures, LLC, the General Partner of Brentwood Affiliates
Fund II, L.P. Several of Mr. Brody's Co-Managing Members of Brentwood VIII
Ventures, LLC are also General Partners of Brentwood VI Ventures, L.P., the
General Partner of Brentwood Associates VI, L.P.
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(2) Norman A. Fogelsong, a director of the Company, is a General Partner of
Institutional Venture Management VII, L.P., the General Partner of
Institutional Venture Partners VII, L.P. and IVP Founders Fund I, L.P.
(3) Michael J. Levinthal, a director of the Company, is the Managing Member of
Mayfield VIII Management, L.L.C., the General Partner of Mayfield VIII and
Mayfield Associates Fund III.
(4) James D. Robinson III, a director of the Company, is a member of RRE
Investors II, LLC, which indirectly exercises exclusive control over RRE
Investors, L.P. and RRE Investors Fund, L.P.
(5) US Venture Partners IV L.P.'s affiliates that are holders of the Company's
Preferred Stock are USVP Entrepreneur Partners II, L.P. and Second Ventures
II, L.P.
(6) Michael W. Hilton is Chairman of the Board and Chief Technical Officer of
the Company.
(7) S. Steven Singh is the President, Chief Executive Officer and a director of
the Company.
Transactions with American Express. In August 1998, the Company sold an
aggregate of 645,161 shares of its Series E Preferred Stock, at a cash purchase
price of $7.75 per share, and issued the TRS Warrant exercisable for an
aggregate of 2,400,000 shares of the Company's Series E Preferred Stock, to TRS,
a subsidiary of American Express. If all of the shares of the Company's Series E
Preferred Stock are converted into shares of Common Stock in connection with a
registration of the Company's Common Stock under the Securities Act, then the
TRS Warrant will automatically become exercisable for 2,325,000 shares of Common
Stock instead of Series E Preferred Stock (such shares underlying the TRS
Warrant are referred to as the "Warrant Shares"). The terms of the TRS Warrant
provide that 300,000 of the Warrant Shares may be acquired at the time of the
Offering at a cash purchase price per share equal to the per share price to the
public in the Offering less 7%; 700,000 of the Warrant Shares may be acquired at
any time on or before October 15, 1999 at a cash purchase price of $33.75 per
share; 700,000 of the Warrant Shares may be acquired at any time on or before
January 15, 2001 at a cash purchase price of $50.625 per share; and the
remaining 700,000 of the Warrant Shares may be acquired at any time on or before
January 15, 2002 at a cash purchase price of $85.00 per share. As was permitted
by the TRS Warrant, the Board of Directors determined, within 60 days of the
date of the TRS Warrant, to cancel 25% of the shares that could have been
acquired under the warrant at the time of the Offering or on or before October
15, 1999. In connection with an amendment to the standstill agreement described
below, the Board of Directors subsequently rescinded its 25% reduction in the
number of Warrant Shares that can be acquired on or before October 15, 1999.
Thus, 225,000 of the Warrant Shares may be acquired at the time of the Offering.
In connection with the purchase of Series E Preferred Stock by TRS, the Company
and the other holders of its Series E Preferred Stock entered into an amended
Voting Agreement, pursuant to which TRS was given the right to designate Edward
Gilligan, or some other person reasonably acceptable to the Company's Board of
Directors, as a member of the Company's Board of Directors. The Company intends
to appoint Mr. Gilligan to the Board of Directors after completion of the
Offering, and Mr. Gilligan has indicated his willingness to serve in such
capacity. The Voting Agreement, as amended, will terminate upon the completion
of the Offering.
Under a standstill agreement with the Company, as amended, TRS has agreed
not to acquire beneficial ownership of additional shares of the Company's
capital stock prior to April 10, 2000 if such purchase would result in TRS
owning more than 16% of the Company's capital stock (including Warrant Shares
issuable upon exercise of the TRS Warrant) or to solicit proxies to vote any
voting stock of the Company if at the time the Company is publicly traded and
subject to the proxy rules.
In December 1997, the Company entered into a Strategic Marketing Alliance
Agreement (the "Marketing Agreement") with American Express, providing for the
marketing of XMS to corporate card clients of American Express. Under the
Marketing Agreement, the Company agreed to pay American Express a fee for
referrals of American Express corporate card clients that become XMS customers
within 12 months after the referral. The referral fee ranges from 10% to 22.5%
of license revenue realized by the Company from these clients. The percentage
referral fee applicable to a particular customer is higher than the 10% base
rate if the referral is converted into a customer relationship in a particularly
short amount of time, or if annual license revenues realized by the Company from
all American Express referrals have exceeded certain levels. In fiscal
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1998, the Company paid or owed to American Express an aggregate of approximately
$204,000 under the Marketing Agreement.
In connection with the Marketing Agreement, American Express terminated
certain customer licenses of its own T&E expense management product, and the
Company agreed to offer to license XMS to those former American Express
customers on the Company's standard terms. The Company also agreed to provide a
special license rate to American Express for a specified number of end users.
That special license rate reflected a quantity discount comparable to discounts
the Company makes available to orders of similar size to non-affiliated
customers. The Company negotiated license arrangements with the former American
Express customers, and where American Express chose to do so it agreed to pay
some or all of the cost of the former customer's XMS license at the special
license rate. American Express may also choose to pay the costs of maintenance
for a specified number of end users on behalf of its former customers. In fiscal
1998, American Express paid or owed to the Company an aggregate of $317,000
under the Marketing Agreement. As of October 1, 1998, the maximum amount of XMS
license fees that American Express may choose to pay at the special license rate
on behalf of such former American Express customers was approximately $3.1
million.
Under the Marketing Agreement, the Company also granted American Express an
option to license XMS for its internal use at the Company's generally prevailing
rates; the option expired in June 1998 without being exercised. The Company and
American Express also agreed to develop certain product features enabling a
higher level of integration between XMS and certain American Express services
and products. The Marketing Agreement includes cross-indemnification,
proprietary information and confidentiality provisions, has a three year term
and automatically renews for successive two-year terms unless terminated by
either party. The Marketing Agreement may be terminated by either party upon an
acquisition of the Company by any competitor of American Express and by American
Express upon the acquisition of 20% or more of the Company's securities by any
competitor of American Express.
In August 1998, the Company entered into a Co-Branded Service Marketing
Agreement (the "Co-Branding Agreement") with TRS, under which TRS will market to
its clients a co-branded ESP version of XMS (the "Co-Branded Service"). The
agreement provides that the Company will develop the Co-Branded Service and that
both TRS and the Company will develop certain special features for integration
into the Co-Branded Service (the "Special Features"). For 12 months following
the release of a Co-Branded Service containing a Special Feature, the Company
has agreed not to include such Special Feature in any product or service offered
by or on behalf of the Company or any of its licensees. TRS determines the
prices at which the Co-Branded Service will be offered, and may market the
Co-Branded Service initially in the United States and Canada, and eventually in
other geographical areas as the Company completes its localization efforts in
those areas. The Company has agreed to offer service contracts for the
Co-Branded Service to TRS clients at terms not materially less favorable than
those offered to the Company's own customers and is responsible for providing
warranty and customer support services to these TRS clients. Revenue (other than
consulting revenue, direct costs and taxes) associated with the Co-Branded
Service will be shared 55% to the Company and 45% to TRS, provided that the
Company is entitled to payment of no less than 55% of certain minimum base
prices, some or all of which may be paid by TRS on behalf of the customer, and
no more than 55% of certain higher suggested prices. The Company is also
entitled to 55% of consulting revenue associated with the Co-Branded Service,
after deduction of the Company's direct and indirect costs, expenses and taxes
associated with providing consulting services. The Company is also obligated to
provide TRS with certain "most favored pricing" rights.
The Company also agreed, for the term of the Co-Branded Agreement and for
one year thereafter, not to solicit any TRS client that is a Co-Branded Service
customer to become a customer of a corporate card product or a travel and
booking product offered by a TRS competitor. TRS agreed not to solicit any of
its clients who are Co-Branded Service customers to become a customer of a
business and expense management service offered by a competitor of the Company.
The Co-Branded Agreement also includes cross-indemnification, intellectual
property rights and confidentiality provisions. TRS has the right to terminate
the agreement if the Co-Branded Service is not available for general commercial
distribution to TRS clients by August 1, 1999. Otherwise, the Co-Branded
Agreement has a term of 18 months from the launch date of the Co-Branded
Service, and automatically renews for successive two-year terms unless
terminated by either party. The Co-
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<PAGE> 69
Branded Agreement may be terminated at any time by TRS if a TRS competitor
acquires a controlling interest in the Company or if any officer, director or
other designee of a TRS competitor is appointed to the Company's Board of
Directors. No payments were made under the Co-Branded Agreement in fiscal 1998.
The Company believes that the terms of the agreements with American Express
and TRS, taken as a whole, are no less favorable to the Company than the Company
could have obtained from unaffiliated third parties.
Employment Agreements. In addition to its employment agreements with
Messrs. Matsuo and Wilson, the Company has also entered into employment
agreements with Messrs. Ingham, Russo, Watson and Prumatico. All such persons'
employment may be terminated by the Company or the employee at any time. See
"Management--Employment Agreements."
The Company and Mr. Ingham are parties to a letter agreement dated December
5, 1996 governing his employment with the Company. Under the agreement, the
Company agreed to pay Mr. Ingham an annual salary of $107,000, with possible
bonuses of up to $21,400 per year. In addition, Mr. Ingham was granted an option
to purchase 26,000 shares of Common Stock. The Company also agreed to provide
for certain relocation expenses.
The Company and Mr. Russo are parties to a letter agreement dated April 1,
1996 governing his employment with the Company. Under the Agreement, the Company
agreed to pay Mr. Russo an annual salary of $97,5000. In addition, Mr. Russo was
granted an option to purchase 32,000 shares of Common Stock. The Company also
agreed to provide for certain relocation expenses.
The Company and Mr. Watson are parties to a letter agreement dated June 24,
1998 governing his employment with the Company. Under the agreement, the Company
agreed to pay Mr. Watson an annual salary of $160,000, with possible bonuses of
up to $80,000 per year. In Mr. Watson's first year of employment by the Company,
$10,000 per quarter of the possible bonuses will be guaranteed provided that Mr.
Watson is an employee of the Company on the bonuses payment dates. In addition,
Mr. Watson was granted an option to purchase 80,000 shares of Common Stock. The
Company also agreed to pay a one-time relocation allowance of $20,000.
The Company and Mr. Prumatico are parties to a letter agreement dated June
24, 1998 governing his employment with the Company. Under the agreement, the
Company agreed to pay Mr. Prumatico an annual salary of $110,000, with possible
bonuses of up to $25,000 per year. In addition, Mr. Prumatico was granted an
option to purchase 30,000 shares of Common Stock. The Company also agreed to pay
a one-time relocation allowance of $15,000.
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<PAGE> 70
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of October
31, 1998, and as adjusted to reflect the sale of the shares offered hereby, by
each stockholder known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock, each director of the Company, each of the Named
Executive Officers, each Selling Stockholder, and all current executive officers
and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
-------------------------- SHARES BEING -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
- --------------------------------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Edward P. Gilligan
American Express Travel Related
Services Company, Inc.(3)........... 2,970,161 19.0% -- 2,970,161 16.0%
Jeffrey D. Brody
Brentwood Associates VI, L.P. and
affiliates(4)....................... 2,287,137 17.2 -- 2,287,137 13.9
Norman A. Fogelsong
Institutional Venture Partners VII,
L.P. and affiliates(5).............. 2,202,283 16.5 -- 2,202,283 13.4
Michael J. Levinthal
Mayfield VIII and affiliates(6)..... 2,127,180 16.0 -- 2,127,180 12.9
US Venture Partners IV, L.P. and
affiliates(7)....................... 1,972,492 14.8 -- 1,972,492 12.0
S. Steven Singh(8).................... 1,054,234 7.8 56,900 997,334 6.0
Michael W. Hilton(9).................. 989,428 7.4 40,000 949,428 5.8
James D. Robinson III
RRE Investors, L.P. and
affiliates(10)...................... 645,161 4.9 -- 645,161 3.9
Jon T. Matsuo(11)..................... 283,380 2.1 26,400 256,980 1.5
Sterling R. Wilson(12)................ 243,408 1.8 22,400 221,008 1.3
Rajeev Singh(13)...................... 203,164 1.5 18,400 184,764 1.1
Imperial Bank(14)..................... 55,312 * 31,900 13,187 *
Timothy Y. Fitzgerald(15)............. 50,542 * 4,000 46,542 *
Russell P. Fradin
ADP, Inc.(16)....................... -- * -- -- *
All current executive officers and
directors as a group(17)............ 15,018,599 93.2% 164,100 14,854,499 78.0%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Unless otherwise indicated, the address for each listed stockholder is c/o
Concur Technologies, Inc., 6222 185th Avenue NE, Redmond, Washington 98052.
(2) Percentage ownership is based on 13,313,512 shares outstanding as of
October 31, 1998 and 16,470,412 shares outstanding after the Offering.
Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options or warrants that are currently
exercisable or exercisable within 60 days of October 31, 1998 are deemed to
be outstanding and to be beneficially owned by the person holding such
options or warrants for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Represents 645,161 shares held of record by TRS and 2,325,000 shares
subject to a warrant held by TRS that is exercisable within 60 days of
October 31, 1998, expiring in four tranches through January 2002, at cash
purchase prices equal to the initial public offering price per share less
7%, $33.75, $50.625 and $85.00, respectively. As was permitted by the
warrant, the Board of Directors determined, within 60 days of the date of
the warrant, to cancel 25% of the shares that can be acquired at the time
of the
69
<PAGE> 71
offering or on or before October 15, 1999. The Board of Directors
subsequently rescinded its 25% reduction in the number of Warrant Shares
that can be acquired on or before October 15, 1999. Thus, 225,000 shares
may be acquired at the time of the Offering at a cash purchase price per
share equal to the per share price to the public in the Offering less 7%;
700,000 shares may be acquired at any time on or before October 15, 1999 at
a cash purchase price of $33.75 per share; 700,000 shares may be acquired
at any time on or before January 15, 2001 at a cash purchase price of
$50.625 per share; and the remaining 700,000 shares may be acquired at any
time on or before January 15, 2002 at a cash purchase price of $85.00 per
share. TRS intends to exercise the initial tranche of the TRS Warrant
immediately prior to the Offering for 225,000 shares. Thus, after the
Offering, TRS will hold 870,161 shares and a warrant to purchase 2,100,000
shares. Edward P. Gilligan, who is expected to become a director of the
Company after completion of the Offering, is President of the Corporate
Services Division for TRS. Mr. Gilligan disclaims beneficial ownership of
the shares held by TRS. See "Certain Transactions." The address for
American Express and TRS is American Express Tower, World Financial Center,
New York, New York 10285. See "Certain Transactions."
(4) Represents (i) 2,215,014 shares held of record by Brentwood Associates VI,
L.P., (ii) 68,252 shares held of record by Brentwood Affiliates Fund II,
L.P. and (iii) 3,871 shares held of record by Jeffrey D. Brody. Mr. Brody,
a director of the Company, is a Managing Member of Brentwood VIII Ventures,
LLC, the General Partner of and Brentwood Affiliates Fund II, L.P. Several
of Mr. Brody's Co-Managing Members of Brentwood VIII Ventures, LLC are also
General Partners of Brentwood VI Ventures, L.P., the General Partner of
Brentwood Associates VI, L.P. Mr. Brody disclaims beneficial ownership of
the shares held by Brentwood Associates VI, L.P. and Brentwood Affiliates
Fund II, L.P. The address for Mr. Brody, Brentwood Associates VI, L.P. and
Brentwood Affiliates Fund II, L.P. is c/o Brentwood Venture Capital, 3000
Sand Hill Road, Building 1, Suite 260, Menlo Park, California 94025.
(5) Represents 2,092,961 shares held of record by Institutional Venture
Partners VII, L.P., 75,276 shares held of record by IVP Founders Fund I,
L.P., and 34,046 shares held of record by Institutional Venture Management
VII, L.P. Norman A. Fogelsong, a director of the Company, is the General
Partner of Institutional Venture Management VII, L.P. (which is the General
Partner of Institutional Venture Partners VII, L.P.) and Institutional
Venture Management VI, L.P. (which is the General Partner of IVP Founders
Fund I, L.P.). Mr. Fogelsong disclaims beneficial ownership of the shares
held by Institutional Venture Partners VII, L.P., IVP Founders Fund I, L.P.
and Institutional Venture Management VII, L.P. The address for Mr.
Fogelsong, Institutional Venture Partners VII, L.P., IVP Founders Fund I,
L.P. and Institutional Venture Management VII, L.P. is c/o Institutional
Venture Management VII, L.P., 3000 Sand Hill Road, Building 2, Suite 290,
Menlo Park, California 94025.
(6) Represents 2,020,822 shares held of record by Mayfield VIII and 106,358
shares held of record by Mayfield Associates Fund III. Michael J.
Levinthal, a director of the Company, is the Managing Member of Mayfield
VIII Management, L.L.C., the General Partner of Mayfield VIII and Mayfield
Associates Fund III. Mr. Levinthal disclaims beneficial ownership of the
shares held by Mayfield VIII and Mayfield Associates Fund III. The address
for Mr. Levinthal, Mayfield VIII and Mayfield Associates Fund III is c/o
Mayfield Fund, 2800 Sand Hill Road, Suite 250, Menlo Park, California
94025.
(7) Represents 1,706,206 shares held of record by U.S. Venture Partners IV,
L.P., 59,175 shares held of record by USVP Entrepreneur Partners II, L.P.,
and 207,111 shares held of record by Second Ventures II, L.P. William K.
Bowes, Jr., Irwin Federman, Steven Krausz, Lucio Lanza and Philip Young are
the General Partners of Presidio Management Group IV, L.P., the General
Partner of each of U.S. Venture Partners IV, L.P. USVP Entrepreneur
Partners II, L.P. and Second Ventures II, L.P. Messrs. Bowes, Federman,
Krausz, Lanza and Young disclaim beneficial ownership of the shares held by
U.S. Venture Partners IV, L.P., USVP Entrepreneur Partners II, L.P. and
Second Ventures II, L.P. The address for U.S. Venture Partners IV, L.P.,
USVP Entrepreneur Partners II, L.P. and Second Ventures II, L.P. is c/o
Presidio Management Group IV, L.P., 2180 Sand Hill Road, Suite 300, Menlo
Park, California 94025.
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<PAGE> 72
(8) Represents 868,401 shares held of record by S. Steven Singh and 185,833
shares subject to options exercisable within 60 days of October 31, 1998
held by Mr. Singh. Mr. Singh is the President, Chief Executive Officer and
a director of the Company.
(9) Represents 974,261 shares held of record by Michael W. Hilton and 15,167
shares subject to options exercisable within 60 days of October 31, 1998
held by Mr. Hilton. Mr. Hilton is the Chairman of the Board and Chief
Technical Officer of the Company.
(10) Represents 416,087 shares held of record by RRE Investors, L.P. and 229,074
shares held of record by RRE Investors Fund, L.P. James D. Robinson III, a
director of the Company, is a member of RRE Investors II, LLC, which
indirectly exercises exclusive control over RRE Investors, L.P. and RRE
Investors Fund, L.P. Mr. Robinson disclaims beneficial ownership of the
shares held by RRE Investors, L.P. and RRE Investors Fund, L.P. The address
for Mr. Robinson, RRE Investors, L.P. and RRE Investors Fund, L.P. is 126
East 56th Street, 22nd Floor, New York, New York 10022.
(11) Represents 90,580 shares held of record by Jon T. Matsuo and 192,800 shares
subject to options exercisable within 60 days of October 31, 1998 held by
Mr. Matsuo. Mr. Matsuo is the Executive Vice President of Worldwide Sales
of the Company.
(12) Represents 222,608 shares held of record by Sterling R. Wilson and 20,800
shares subject to options exercisable within 60 days of October 31, 1998
held by Mr. Wilson. Mr. Wilson is the Chief Financial Officer and Vice
President of Operations of the Company.
(13) Represents 182,580 shares held of record by Rajeev Singh and 20,584 shares
subject to options exercisable within 60 days of October 31, 1998 held by
Mr. Singh. Mr. Singh is the Vice President of Products of the Company.
(14) Represents 55,312 shares subject to three warrants exercisable within 60
days of October 31, 1998 held by Imperial Bank. Imperial Bank has notified
the Company that it will exercise two of such warrants on a net exercise
basis and acquire 31,900 shares at an assumed exercise price of $10.50 per
share, all of which will be offered in the Offering. The address for
Imperial Bank is Emerging Growth Industries Group, 2460 Sand Hill Road,
#102, Menlo Park, California 94025.
(15) Represents 16,000 shares held of record by Timothy Y. Fitzgerald and 34,542
shares subject to options exercisable within 60 days of October 31, 1998
held by Mr. Fitzgerald. Mr. Fitzgerald is the Vice President of U.S. Large
Account Sales of the Company.
(16) Russell P. Fradin, who is expected to become a director of the Company
after completion of the Offering, is President, Employer Services North
America, of ADP, Inc. See "Summary--Recent Developments."
(17) Prior to the Offering, represents 12,220,424 shares held of record by
current executive officers and directors as a group and 2,798,175 shares
subject to options or warrants exercisable within 60 days of October 31,
1998 held by current executive officers and directors as a group. TRS
intends to exercise the initial tranche of the TRS Warrant immediately
prior to the Offering for 225,000 shares. Thus, after the Offering,
represents 12,445,424 shares held of record by current executive officer
and directors as a group and 2,573,175 shares subject to options and
warrants exercisable within 60 days of October 31, 1998 held by current
executive officers and directors as a group.
71
<PAGE> 73
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, $0.001 par value per
share, and 5,000,000 shares of preferred stock, $0.001 par value per share.
COMMON STOCK
As of October 31, 1998, assuming the conversion of all outstanding shares
of preferred stock into Common Stock, there were 13,313,512 shares of Common
Stock outstanding, held of record by 78 stockholders. Subject to preferences
that may be applicable to any preferred stock outstanding at the time, the
holders of outstanding shares of Common Stock are entitled to receive dividends
out of assets legally available therefor at such times and in such amounts as
the Board of Directors may from time to time determine. See "Dividend Policy."
Each stockholder is entitled to one vote for each share of Common Stock held on
all matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not provided for in the Company's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The Common Stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon liquidation, dissolution or winding-up of the Company, the
assets legally available for distribution to stockholders would be distributable
ratably among the holders of the Common Stock and any participating preferred
stock outstanding at that time after payment of liquidation preferences, if any,
on any outstanding preferred stock and payment of other claims of creditors.
Each outstanding share of Common Stock is, and all shares of Common Stock to be
outstanding upon completion of the Offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of the Offering, there will be no shares of preferred
stock outstanding. The Board of Directors is authorized, subject to any
limitations prescribed by Delaware law, to issue the preferred stock in one or
more series, to establish from time to time the number of shares to be included
in each such series, to fix the rights, preferences and privileges of the shares
of each wholly unissued series and to designate any qualifications, limitations
or restrictions thereon, and to decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding), without
any further vote or action by the stockholders. The Board of Directors may
authorize the issuance of preferred stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of Common
Stock. Thus, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
current plan to issue any shares of preferred stock.
WARRANTS
As of October 31, 1998, the Company had outstanding warrants to purchase an
aggregate of 28,125 shares of Series C Preferred Stock, 81,815 shares of Series
D Preferred Stock, and 2,219,638 shares of Series E Preferred Stock. In
addition, subsequent to October 31, 1998, the Company rescinded its 25%
reduction of the second tranche of the TRS Warrant, thus increasing the number
of shares of Series E Preferred Stock by 175,000. Imperial Bank, the holder of
outstanding warrants to purchase 55,312 shares of preferred stock, has indicated
that immediately prior to the Offering it will net exercise two of such warrants
to purchase 31,900 shares at an assumed initial public offering price of $10.50
per share. TRS has informed the Company that immediately prior to the Offering
it will exercise the initial tranche of the TRS Warrant, to purchase 225,000
shares at an assumed exercise price of $9.765 per share. Any warrants to
purchase shares of Series C Preferred Stock, Series D Preferred Stock or Series
E Preferred Stock that are not exercised prior to the closing of the Offering
will automatically be converted into warrants to purchase a like number of
shares of Common Stock. Warrants to purchase 2,237,453 shares of Common Stock
are expected to be outstanding following the closing of the Offering.
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<PAGE> 74
ANTI-TAKEOVER PROVISIONS
Section 203 ("Section 203") of the DGCL is applicable to corporate
takeovers of Delaware corporations. Subject to certain exceptions set forth
therein, Section 203 provides that a corporation may not engage in any business
combination with any "interested stockholder" for a three-year period following
the date that such stockholder becomes an interested stockholder unless: (a)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder's
becoming an interested stockholder; (b) upon consummation of the transaction
that resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (i) persons
who are directors and also officers and (ii) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (c) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, and by the affirmative votes of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder. Except as specified in Section 203, an interested
stockholder is generally defined to include any person that is the owner of 15%
or more of the outstanding voting stock of the corporation, or is an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation any time within three years immediately prior to the relevant
date, and the affiliates and associates of such person. Under certain
circumstances, Section 203 makes it more difficult for an interested stockholder
to effect various business combinations with a corporation for a three-year
period, although the stockholders may, by adopting an amendment to the
corporation's certificate of incorporation or bylaws, elect not to be governed
by this section, effective 12 months after adoption. The Company's Certificate
of Incorporation and Bylaws do not exclude the Company from the restrictions
imposed under Section 203. It is anticipated that the provisions of Section 203
may encourage companies interested in acquiring the Company to negotiate in
advance with the Board of Directors of the Company since the stockholder
approval requirement would be avoided if a majority of the directors then in
office approve either the business combination or the transaction which resulted
in the stockholder's becoming an interested stockholder. These provisions may
have the effect of deterring hostile takeovers or delaying changes in control of
the Company, which could depress the market price of the Common Stock and which
could deprive the stockholders of opportunities to realize a premium on shares
of the Common Stock held by them.
Certain other provisions of the Company's Certification of Incorporation
and Bylaws, including provisions that divide the Board of Directors into three
classes to serve staggered three-year terms, prohibit the stockholders from
taking action by written consent and restrict the ability of stockholders to
call special meetings, may also make it more difficult for a third party to
acquire a majority of the Company's voting stock or effect a change in control
of the Company. The Company's Bylaws, which will be in effect upon the
completion of the Offering, provide for the division of the Board of Directors
into three classes as nearly equal in size as possible with staggered three-year
terms. The classification of the Board of Directors could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, control of the Company. See "Risk
Factors--Anti-Takeover Effects of Certificate of Incorporation, Bylaws and
Delaware Law."
REGISTRATION RIGHTS
Beginning one year after the date of the Offering, the holders of
12,676,006 shares of Common Stock (assuming the net exercise of warrants to
purchase 31,900 shares of Common Stock held by holders of registration rights
and the sales by certain of the Selling Stockholders of 200,000 shares of Common
Stock in the Offering) (the "Registrable Securities") will have certain rights
with respect to the registration of such shares under the Securities Act. If
requested by holders of 40% or more of the Registrable Securities, the Company
must file a registration statement under the Securities Act on a form other than
Form S-3 covering all Registrable Securities requested to be included by all
holders of such Registrable Securities, provided that
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<PAGE> 75
at least 25% of the then outstanding Registrable Securities (or any lesser
percent if the reasonably anticipated aggregate proceeds of such offering
exceeds $10,000,000) will be offered in such offering. In addition, if requested
by a holder or holders of outstanding Registrable Securities, the Company must
file a registration statement under the Securities Act on Form S-3 covering such
Registrable Securities, provided that the reasonably anticipated aggregate
proceeds of such offering, net of underwriting discounts and commissions,
exceeds $2,000,000. The Company may be required to effect two such
registrations. In addition to the foregoing, if the Company proposes to register
any of its Common Stock, the holders of the Registrable Securities may include
all or a portion of their shares in such registration, subject to certain rights
of the underwriter's representatives in an underwritten offering to limit the
number of shares in any such offering. All expenses incurred in connection with
such registrations (including underwriting discounts and commissions) will be
borne by the Company. Such registration rights terminate following the
expiration of five years following the closing of the Offering or in the event
that the Registrable Securities held by the rights holder is less than 1% of the
outstanding Registrable Securities.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Norwest
Bank Minnesota, National Association.
74
<PAGE> 76
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 16,470,412 shares of
Common Stock outstanding (16,935,412 shares if the underwriter's over-allotment
option is exercised in full), assuming no exercise of options after October 31,
1998. Of this amount, the 3,100,000 shares offered hereby will be available for
immediate sale in the public market as of the date of this Prospectus. An
additional 199,013 shares are not subject to an 180-day lockup and will be
available for sale in the public market 90 days following the date of this
Prospectus pursuant to Rule 701. Approximately 10,588,821 additional shares will
be available for sale in the public market following the expiration of 180-day
lockup agreements with the Representatives of the Underwriters or the Company,
subject in some cases to compliance with the volume and other limitations of
Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER THE DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
---------------------- ------------------------ -----------------------------------
<S> <C> <C>
Upon Effectiveness................. 3,100,000 Freely tradable shares sold in
Offering and shares salable under
Rule 144(k) that are not subject
to 180-day lockup
90 days............................ 199,013(1) Shares salable under Rule 144,
144(k) or 701 that are not subject
to 180-day lockup.
180 days........................... 10,588,821 Lockup released; shares salable
under Rule 144, 144(k) or 701
Over 180 days...................... 2,582,578 Restricted securities held for one
year or less
</TABLE>
- ---------------
(1) If the Underwriters waive the 180-day lockup agreements within the first 90
days after the date of the Prospectus, an additional 10,588,821 shares will
be available for sale in the public market 90 days following the date of
this Prospectus, subject in some cases to compliance with the volume and
other limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock (approximately 164,704
shares immediately after the Offering) or (ii) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to the Offering, there has been no public market for the Common Stock, and
there can be no assurance that a significant public market for the Common Stock
will develop or be sustained after the Offering. Any future sale of substantial
amounts of the Common Stock in the open market may adversely affect the market
price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders and optionholders have agreed
pursuant to the Underwriting Agreement and other agreements that they will not
sell any Common Stock without the prior written consent of BancBoston Robertson
Stephens Inc. for a period of 180 days from the date of this Prospectus (the
"180-day Lockup Period") except that the Company may, without such consent,
grant options and sell shares pursuant to the Company's stock plans.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits
75
<PAGE> 77
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with the Rule 144 holding period restrictions, in each case commencing 90
days after the date of this Prospectus. As of October 31, 1998, the holders of
options to purchase approximately 1,542,921 shares of Common Stock will be
eligible to sell their shares upon the expiration of the 180-day Lockup Period,
subject in certain cases to vesting of such options.
The Company intends to file a registration statement on Form S-8 under the
Securities Act within 180 days after the completion of the Offering to register
5,692,872 shares of Common Stock subject to outstanding stock options or
reserved for issuance under the 1998 Plan, the Directors Plan and the Purchase
Plan, thus permitting the resale of such shares by nonaffiliates in the public
market without restriction under the Securities Act.
In addition, beginning one year after the date of the Offering, the holders
of 12,676,006 shares of Common Stock (assuming the net exercise of warrants to
purchase 39,100 shares of Common Stock held by holders of registration rights,
and the sales by certain of the Selling Stockholders of 200,000 shares of Common
Stock in the Offering) (the "Registrable Securities") will have certain rights
with respect to the registration of such shares under the Securities Act. If
requested by holders of 40% or more of the Registrable Securities, the Company
must file a registration statement under the Securities Act on a form other than
Form S-3 covering all Registrable Securities requested to be included by all
holders of such Registrable Securities, provided that at least 25% of the then
outstanding Registrable Securities (or any lesser percent if the reasonably
anticipated aggregate proceeds of such offering exceeds $10,000,000) will be
offered in such offering. In addition, if requested by a holder or holders of
outstanding Registrable Securities, the Company must file a registration
statement under the Securities Act on Form S-3 covering such Registrable
Securities, provided that the reasonably anticipated aggregate proceeds of such
offering, net of underwriting discounts and commissions, exceeds $2,000,000. The
Company may be required to effect two such registrations. In addition to the
foregoing, if the Company proposes to register any of its Common Stock, the
holders of the Registrable Securities may include all or a portion of their
shares in such registration, subject to certain rights of the underwriters'
representatives in an underwritten offering to limit the number of shares in any
such offering. All expenses incurred in connection with such registrations
(including underwriting discounts and commissions) will be borne by the Company.
Such registration rights terminate following the expiration of five years
following the closing of the Offering or in the event that the Registrable
Securities held by the rights holders is less than 1% of the outstanding
Registrable Securities. Registration of the Registrable Securities under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act.
76
<PAGE> 78
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Piper Jaffray Inc.
(the "Representatives"), have severally agreed with the Company and the Selling
Stockholders, subject to the terms and conditions of the Underwriting Agreement,
to purchase the number of shares of Common Stock set forth opposite their
respective names below. The underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Hambrecht & Quist LLC.......................................
Piper Jaffray Inc...........................................
---------
Total............................................. 3,100,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession of not in excess of $
per share, of which $ may be reallowed to other dealers. After the
Offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by the Company and the Selling Stockholders as set forth
on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus for the Offering, to
purchase up to 465,000 additional shares of Common Stock at the same price per
share as the Company and the Selling Stockholders will receive for the 3,100,000
shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,100,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 3,100,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representation and warranties contained in the
Underwriting Agreement.
Each officer and director and certain security holders of the Company have
agreed with the Representatives for a period of 180 days after the effective
date of this Prospectus that they will not, subject to certain exceptions,
directly or indirectly offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to, any shares of
Common Stock, or any securities convertible into or exchangeable for shares of
Common Stock, now owned or hereafter acquired directly by such holders or with
respect to which they have the power of disposition, without the prior written
consent of BancBoston Robertson Stephens Inc., which may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. In addition, the Company has agreed that during
the 180 days following the effective date of this Prospectus, the Company will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
subject to certain exceptions, offer, issue, sell, contract to sell, or
otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than (i) the
Company's sales of shares in the Offering, (ii) the issuance of Common Stock
upon the exercise of outstanding options or warrants or (iii) the Company's
issuance of options or shares under the 1998 Plan, the Directors Plan and the
Purchase Plan. See "Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
77
<PAGE> 79
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined through negotiations among the Company
and the Representatives. Among the factors to be considered in such negotiations
were prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company and the industry in which it competes, an assessment of the
Company's management, its past and present operations, the prospects for, and
timing of, future revenues of the Company, the present state of the Company's
development and other factors deemed relevant.
Certain persons and entities affiliated with Hambrecht & Quist LLC
purchased an aggregate of 25,225 shares of the Company's Series E Preferred
Stock from the Company in June 1998. The purchase of such shares has been deemed
by the National Association of Securities Dealers, Inc. to constitute
underwriting compensation in connection with the Offering. As a result, such
affiliates of Hambrecht & Quist LLC agreed that they will not sell, transfer,
assign or hypothecate such shares until one year following the effective date of
this Prospectus, except to officers or partners (not directors) of Hambrecht &
Quist LLC or other Underwriters and/or their officers or partners. Hambrecht &
Quist LLC and its affiliates (other than such holders described above) will be
permitted to engage in stabilization, brokerage and ordinary course of business
transactions. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids that may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The Representatives have advised the Company that such transitions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for certain individuals
designated by the Company who have expressed an interest in purchasing such
shares of Common Stock in the Offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as other shares offered
hereby.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto,
California. Matthew P. Quilter, a member of Fenwick & West LLP, owns an
aggregate of 1,290 shares of Series E Preferred Stock of the Company and is the
Secretary of the Company.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of Concur as of September 30, 1997 and 1998 and for each of the three
years in the period ended September 30, 1998 and the
78
<PAGE> 80
financial statements of 7Software as of December 31, 1997 and for the period
then ended appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports, given upon the authority of such firm as experts in accounting and
auditing. The 1997 American Express T&E Management Process Study referred to in
this Prospectus has been prepared by American Express.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedule
thereto. Statements contained in this Prospectus regarding the contents of any
contract or any other document to which reference is made are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified by such reference. A copy of the Registration
Statement and the exhibits and schedule thereto may be inspected without charge
at the public reference facilities maintained by the Commission located at Room
1024, 450 Fifth Street, Washington, D.C. 20549 and at the Commission's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the Registration
Statement may be obtained from such offices upon the payment of the fees
prescribed by the Commission. The Commission maintains a World Wide Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission.
79
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
CONCUR TECHNOLOGIES, INC. (FORMERLY PORTABLE SOFTWARE CORPORATION)
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of September 30, 1997 and
1998,..................................................... F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1997, and 1998........................ F-4
Consolidated Statements of Stockholders' Deficit for the
Years Ended September 30, 1996, 1997, and 1998............ F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1997 and 1998......................... F-6
Notes to Consolidated Financial Statements.................. F-7
7SOFTWARE, INC. (A DEVELOPMENT STAGE COMPANY)
Report of Ernst & Young LLP, Independent Auditors........... F-23
Balance Sheet as of December 31, 1997 and June 30, 1998..... F-24
Statement of Operations for the Period May 30, 1997 (Date of
Incorporation) to December 31, 1997 and the Six Month
Unaudited Period Ended June 30, 1998...................... F-25
Statement of Shareholders' Equity for the Period May 30,
1997 (Date of Incorporation) to December 31, 1997 and the
Six Month Unaudited Period Ended June 30, 1998............ F-26
Statement of Cash Flows for the Period May 30, 1997 (Date of
Incorporation) to December 31, 1997 and the Six Month
Unaudited Period Ended June 30, 1998...................... F-27
Notes to Financial Statements............................... F-28
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Financial Statements (Unaudited)..... F-31
Pro Forma Consolidated Statements of Operations for the Year
Ended September 30, 1998 (Unaudited)...................... F-32
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)............................................... F-33
</TABLE>
F-1
<PAGE> 82
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Concur Technologies, Inc.
(Formerly Portable Software Corporation)
We have audited the accompanying consolidated balance sheets of Concur
Technologies, Inc. (the Company) as of September 30, 1997 and 1998 and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Concur
Technologies, Inc. at September 30, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Seattle, Washington
October 27, 1998, except as
to Note 19, as to which the
date is December 9, 1998
F-2
<PAGE> 83
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
SEPTEMBER 30, EQUITY
-------------------- SEPTEMBER 30,
1997 1998 1998
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 6,695 $ 15,629
Accounts receivable, net of allowance for doubtful
accounts of $170 and $547 in 1997, and 1998,
respectively............................................ 4,365 4,988
Prepaid expenses and other current assets................. 165 536
Note receivable from stockholders......................... 167
-------- --------
Total current assets............................... 11,225 21,320
Equipment and furniture, net................................ 1,088 2,162
Deposits and other assets................................... 51 336
Note receivable from stockholders, net of current portion... -- 333
Capitalized technology and other intangible assets.......... -- 880
-------- --------
Total assets....................................... $ 12,364 $ 25,031
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,082 $ 1,838
Accrued liabilities....................................... 1,294 3,850
Accrued commissions....................................... 509 902
Current portion of accrued payment to stockholders........ -- 167
Current portion of long-term debt......................... 329 2,033
Current portion of capital lease obligations.............. 351 1,004
Deferred revenues......................................... 1,477 3,052
-------- --------
Total current liabilities.......................... 5,042 12,846
Accrued payment to stockholders, net of current portion..... -- 333
Long-term debt, net of current portion...................... 2,171 5,632
Capital lease obligations, net of current portion........... 1,516 2,127
Deferred rental expense..................................... -- 183
Redeemable convertible preferred stock:
Issued and outstanding shares --
8,564,893, and 10,213,553 in 1997, and 1998,
respectively, liquidation value of $30,202 (Note
11).................................................. 17,264 29,685
Redeemable convertible preferred stock warrants............. 81 444
Commitments
Stockholders' equity (deficit):
Preferred stock, no par value:
Authorized shares -- 53,000,000, of which 10,457,714
have been designated redeemable convertible shares... -- -- --
Common stock, no par value:
Authorized shares -- 60,000,000
Issued and outstanding shares -- 2,289,493 and 3,098,543
in 1997 and 1998, respectively; 13,312,096 shares pro
forma................................................ 259 6,276 $ 36,405
Deferred stock compensation............................... -- (452) (452)
Accumulated deficit....................................... (13,969) (32,043) (32,043)
-------- -------- --------
Total stockholders' equity (deficit)............... (13,710) (26,219) $ 3,910
-------- -------- ========
Total liabilities and stockholders' equity
(deficit)........................................ $ 12,364 $ 25,031
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 84
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Revenues, net:
Licenses.................................................. $ 1,717 $ 6,347 $ 11,696
Services.................................................. 242 1,923 5,463
------- ------- --------
1,959 8,270 17,159
Cost of revenues:
Licenses.................................................. 386 394 558
Services.................................................. 839 2,269 5,684
------- ------- --------
1,225 2,663 6,242
------- ------- --------
Gross profit................................................ 734 5,607 10,917
Operating expenses:
Sales and marketing....................................... 2,936 5,896 12,353
Research and development.................................. 1,793 3,401 6,434
General and administrative................................ 963 1,815 4,687
Acquired in-process technology (Note 3)................... -- -- 5,203
------- ------- --------
Total operating expenses.......................... 5,692 11,112 28,677
------- ------- --------
Loss from operations........................................ (4,958) (5,505) (17,760)
Interest income............................................. 92 130 331
Interest expense............................................ (43) (88) (467)
Other expense, net.......................................... (44) (61) (178)
------- ------- --------
Net loss.................................................... $(4,953) $(5,524) $(18,074)
======= ======= ========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (1.58)
========
Shares used in calculation of pro forma basic and diluted
net loss per share (unaudited)............................ 11,419
========
Historical basic and diluted net loss per share............. $ (2.17) $ (2.41) $ (7.45)
======= ======= ========
Shares used in calculation of historical basic and diluted
net loss per share........................................ 2,282 2,288 2,425
======= ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 85
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK DEFERRED TOTAL
-------------------- STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT DEFICIT
---------- ------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1995......... 2,280,028 $ 258 $ -- $ (3,492) $ (3,234)
Issuance of common stock from
exercise of stock options..... 8,217 1 -- -- 1
Net loss......................... -- -- -- (4,953) (4,953)
---------- ------- ----- -------- --------
Balance at September 30, 1996...... 2,288,245 259 -- (8,445) (8,186)
Issuance of common stock from
exercise of stock options..... 1,248 -- -- -- --
Net loss......................... -- -- -- (5,524) (5,524)
---------- ------- ----- -------- --------
Balance at September 30, 1997...... 2,289,493 259 -- (13,969) (13,710)
Issuance of common stock from
exercise of stock options..... 100,132 13 -- -- 13
Deferred stock compensation...... -- 861 (861) -- --
Amortization of deferred stock
compensation.................. -- -- 409 -- 409
Issuance of common stock in
connection with acquisition
(Note 3)...................... 708,918 4,378 -- -- 4,378
Assumption of stock options in
connection with acquisition
(Note 3)...................... -- 765 -- -- 765
Net loss......................... -- -- -- (18,074) (18,074)
---------- ------- ----- -------- --------
Balance at September 30, 1998...... 3,098,543 $ 6,276 $(452) $(32,043) $(26,219)
========== ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 86
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(4,953) $(5,524) $(18,074)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquired in-process technology.......................... -- -- 5,203
Amortization of deferred stock compensation............. -- -- 409
Warrant expense......................................... 5 53 23
Depreciation and amortization........................... 144 393 629
Provisions for bad debts................................ 91 45 453
Other................................................... 17 -- 183
Changes in operating assets and liabilities:
Accounts receivable................................... (451) (3,901) (1,040)
Notes receivable from stockholders.................... -- -- (500)
Prepaid expenses and other current assets............. 63 (84) (616)
Accounts payable...................................... (24) 454 756
Accrued liabilities................................... 597 927 2,535
Deferred revenues..................................... 412 1,026 1,575
------- ------- --------
Net cash used in operating activities....................... (4,099) (6,611) (8,464)
------- ------- --------
INVESTING ACTIVITIES
Purchases of equipment and furniture........................ (420) (1,020) (40)
Payment in connection with acquisition of 7Software......... -- -- (130)
------- ------- --------
Net cash used in investing activities....................... (420) (1,020) (170)
------- ------- --------
FINANCING ACTIVITIES
Proceeds from sales leaseback transaction................... -- 1,800 192
Proceeds from capital lease financing....................... -- 67 --
Proceeds from borrowings.................................... 563 3,087 5,500
Payments on borrowings...................................... (380) (925) (335)
Payment on capital leases................................... -- -- (500)
Issuance of common stock.................................... 1 -- 13
Issuance of redeemable convertible preferred stock and
warrants.................................................. 7,479 4,612 12,698
------- ------- --------
Net cash provided by financing activities................... 7,663 8,641 17,568
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 3,144 1,010 8,934
Cash and cash equivalents at beginning of year.............. 2,541 5,685 6,695
------- ------- --------
Cash and cash equivalents at end of year.................... $ 5,685 $ 6,695 $ 15,629
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 27 $ 76 $ 398
Issuance of redeemable convertible preferred stock in
exchange for cancellation of notes payable................ -- 267 --
Issuance of warrants in connection with financing
activity.................................................. -- 30 75
Equipment and furniture obtained through capital leases..... -- -- 1,572
Assets and liabilities recorded in connection with
acquisition of 7Software:
Operating assets........................................ -- -- 85
Accounts payable and accrued expenses................... -- -- (15)
Intangible assets....................................... -- -- 960
</TABLE>
See accompanying notes.
F-6
<PAGE> 87
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Concur Technologies, Inc. (the "Company," formerly Portable Software
Corporation) is a leading provider of Intranet-based employee-facing
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. The
Company's Xpense Management Solution ("XMS") and CompanyStore products automate
the preparation, approval, processing and data analysis of travel and
entertainment ("T&E") expense reports and front-office procurement requisitions.
The Company was originally incorporated in the State of Washington on August 19,
1993. Operations commenced during 1994.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Concur Technologies (UK) Ltd., Concur
Technologies Pty. Limited, and 7Software, Inc. ("7Software"). All significant
intercompany accounts and transactions are eliminated in consolidation.
Revenue Recognition Policy
The Company generates revenues from licensing the rights to use its
software products directly to end users. The Company also generates revenues
from sales of customer support contracts and integration services performed for
customers who license the software.
The Company recognizes revenue in accordance with Statement of Position No.
97-2, "Software Revenue Recognition." Software license revenues are recognized
when a non-cancelable license agreement has been signed with a customer, the
software is shipped, no significant post-delivery vendor obligations remain, and
collection is deemed probable. Customer support revenues are recognized ratably
over the term of the customer support contract, typically one year. Revenues for
consulting services and other post-sales revenues are recognized when the
services are performed.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2").
The Company adopted SOP 97-2 beginning in fiscal 1999. SOP 97-2 generally
requires revenues earned on software arrangements involving multiple elements
such as software products, upgrades, enhancements, postcontract customer
support, installation and training to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be based
on evidence that is specific to the vendor. Evidence of the fair value of each
element is based on the price charged when the element is sold separately or, if
the element is not being sold separately, the price for each element established
by management having relevant authority. The revenues allocated to software
products, including specified upgrades or enhancements, generally are recognized
upon delivery of the products. The revenues allocated to unspecified upgrades,
updates and other postcontract customer support generally are recognized ratably
over the term of the contract. If evidence of the fair value for all elements of
the arrangement does not exist, all revenues from the arrangement are deferred
until such evidence exists or until all elements are delivered. Based upon its
interpretation of SOP 97-2 and its current business policies and practices, the
Company believes there will be no significant impact on revenue recognition as a
result of the adoption of 97-2. However, full guidelines for this standard have
not yet been issued. Once available, such guidelines could lead to unanticipated
changes in the Company's current revenue accounting practices, and such changes
could materially adversely affect the Company's future revenues and earnings.
F-7
<PAGE> 88
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cash and Cash Equivalents
All highly liquid financial instruments purchased with an original maturity
of three months or less are reported as cash equivalents.
Fair Values of Financial Instruments
At September 30, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, accrued commissions, long-term debt and capital lease obligations,
bank line of credit ("LOC"), and standby letters of credit. The carrying value
of cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities and accrued commissions approximates fair value based on the
liquidity of these financial instruments or based on their short-term nature.
The carrying value of long-term debt, LOC, standby letters of credit, and
capital lease obligations approximates carrying value based on the market
interest rates available to the Company for debt of similar risk and maturities.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of software development costs. Financial accounting standards require
the capitalization of certain software development costs after technological
feasibility of the software is established. In the development of the Company's
new products and enhancements to existing products, the technological
feasibility of the software is not established until substantially all product
development is complete, including the development of a working model. Internal
software development costs that were eligible for capitalization were
insignificant and were charged to research and development expense in the
accompanying statements of operations.
Advertising and Marketing Costs
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were $711,000, $569,000 and $1,762,000 in 1996, 1997 and 1998
respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
utilizes the liability method of accounting for income taxes. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting. Valuation allowances are established when necessary to reduce
deferred tax assets to amounts expected to be realized.
Stock-Based Compensation
In fiscal 1997, the Company implemented the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company has elected to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the market price of the Company's common stock at the date of grant over
the stock option exercise price.
F-8
<PAGE> 89
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Equipment and Furniture
Equipment and furniture are carried at cost. The Company provides for
depreciation and amortization using the straight-line method for financial
reporting purposes over estimated useful lives ranging from two to five years.
Depreciation expense includes amounts amortized for assets recorded under
capital leases.
Net Loss per Share
Basic and diluted net loss per share is calculated using the average number
of shares of common stock outstanding. Other common stock equivalents, including
stock options and warrants, are excluded from the computation as their effect is
antidilutive. See Note 13.
Upon the completion of the Company's proposed initial public offering, all
redeemable convertible preferred stock will either automatically convert into
common stock or it is assumed that the preferred stockholders will voluntarily
convert into common stock. Accordingly, pro forma net loss per share is computed
using the weighted average number of shares of common stock outstanding and the
weighted average redeemable convertible preferred stock outstanding as if such
shares were converted to common stock at the time of issuance.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from these estimates.
Concentrations of Credit Risk
The Company's customer base is dispersed across many different geographic
areas throughout the world in a variety of industries. No single customer
accounted for more than 10% of the Company's sales in any of the periods
presented. The Company does not require collateral or other security to support
credit sales, but provides an allowance for bad debts based on historical
experience and specific identification.
The Company is subject to concentrations of credit risk from its cash and
cash equivalents. Under terms of certain of its debt agreements, the Company is
required to maintain its cash and cash equivalents primarily at one financial
institution.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Recently Issued Accounting Standards
In 1997, the following accounting standards were issued: SFAS No. 129,
"Disclosure of Information About Capital Structure," requiring supplemental
disclosure of capital structure SFAS No. 130, "Reporting Comprehensive Income"
(this statement establishes standards for reporting and disclosure of
comprehensive income and its components, including revenues, expenses, gains,
and losses, in a full set of general-purpose financial statements) SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information;" and SOP
97-2, "Software Revenue Recognition." Each of these standards will become
effective for the Company on October 1, 1998. The adoption of these standards is
not expected to have a significant impact upon the Company's financial
statements or disclosures. Also, in June 1998, SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities was issued and is required to be
adopted by the Company in
F-9
<PAGE> 90
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
fiscal 2000. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company.
2. EQUIPMENT AND FURNITURE
Equipment and furniture consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer hardware and software............................. $ 319 $ 48
Furniture and equipment.................................... 33 38
Leased equipment........................................... 789 2,607
------ ------
1,141 2,693
Less accumulated depreciation and amortization............. (53) (531)
------ ------
$1,088 $2,162
====== ======
</TABLE>
In July 1997, the Company entered into a Master Lease Agreement with
Comdisco, Inc. ("Comdisco"), a preferred stockholder, under which Comdisco
agreed to provide the Company lease financing, up to an aggregate purchase price
of $2.5 million. In connection with this master lease agreement the Company
entered into several sale leaseback transactions in September and October of
1997 under which the Company sold assets with a total net book value of
$970,000. No gain or loss was recognized in connection with these sale leaseback
transactions because the fair value of the equipment sold approximated net book
value. Leases executed pursuant to this loan agreement aggregated to
approximately $2 million and provide for equal monthly payments over a four-year
term with an imputed interest rate of 8.2%.
In February 1998, the Company entered into a second Master Lease Agreement,
whereby the total financing commitment extended by Comdisco was increased by an
additional $1.0 million, to a total of $3.5 million. In July 1998, the Company
entered into a third Master Lease Agreement with Comdisco, whereby the total
financing commitment was increased by an additional $1.5 million for a total of
$5.0 million. As of September 30, 1998, approximately $1,369,000 was available
under this agreement. The Company accounts for its obligations under these
Master Lease Agreements as capital leases.
3. ACQUISITION
On June 30, 1998, the Company acquired 7Software, a privately-held software
company and the developer of CompanyStore. The Company issued 708,918 shares of
its common stock in exchange for all outstanding shares of 7Software and also
assumed all outstanding 7Software options, which were converted to options to
purchase approximately 123,921 shares of the Company's common stock. The total
7Software purchase price of $6,233,000 includes the estimated fair value of the
common stock ($4,378,000), the estimated fair value of converted options issued
($765,000), $500,000 payable to certain former 7Software shareholders, cash
payments of $130,000 and other direct acquisition costs of $460,000. The amount
due to former 7Software shareholders is payable in the amount of $167,000 per
year for three years. The acquisition was accounted for as a purchase.
Therefore, the results of operations of 7Software and the fair value of the
assets acquired and liabilities assumed were included in the Company's financial
statements beginning on the acquisition date.
F-10
<PAGE> 91
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION (CONTINUED)
In connection with the purchase of 7Software, the Company assumed
7Software's 1997 stock option plan. All outstanding options to purchase the
stock of 7Software on the acquisition date were converted into options to
purchase 123,921 shares of common stock of the Company. The outstanding options
can be exercised at a price of approximately $0.025 per share, vest over four
years, and are exercisable for a period not to exceed ten years.
The allocation of the purchase price resulted in intangible assets
(primarily developed software and the value of an acquired workforce) of
$960,000, which has been capitalized and is being amortized on a straight line
basis over three years. Amortization expense for the year ended September 30,
1998 was $80,000. Acquired in-process technology has been valued using the
income approach, resulting in a charge of $5,203,000.
Values assigned to acquired in-process research and development, developed
technology, and trademarks were determined using a discounted cash flow
analysis. The value assigned to the acquired workforce was based on replacement
cost. To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed to complete each project, expected income, and
associated risks, which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility and risks
related to the viability of and potential changes to future target markets. This
analysis resulted in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility or do not have
alternative future uses. To determine the value of the developed technology, the
expected future cash flows of the existing technology product were discounted
taking into account risks related to the characteristics and applications of
each product, existing and future markets, and assessments of the life cycle
stage of each product. Based on this analysis, the existing technology that had
reached technological feasibility was capitalized.
As of the date of acquisition, the CompanyStore development project
consisted of ongoing research and development efforts in the following areas:
(i) compatibility with additional databases, (ii) compatibility with additional
enterprise resource planning platforms, (iii) multiple catalog support, (iv)
fundamental redesign of the user interface, and (v) redesign and rewriting of
the administrative functionality. Based on management's estimates, the remaining
research and development efforts relating to the completion of the CompanyStore
technology were expected to continue into the first quarter of fiscal 1999, the
anticipated product release date. Accordingly, the cost to complete the
in-process technology was estimated based on the number of man-months required
to reach technological feasibility for the CompanyStore technology, the type of
professional and engineering staff involved in the completion process and their
fully burdened monthly salaries. Management estimated the direct costs to
achieve technological feasibility to be approximately $307,000. Beyond this
period, management estimated significantly less expense in supporting and
maintaining active products identified at the acquisition date to be in-process
technology. If the in-process projects contemplated in management's forecast are
not successfully developed, future revenue and profitability might be adversely
affected. Additionally, the value of other intangible assets acquired may become
impaired.
F-11
<PAGE> 92
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION (CONTINUED)
The unaudited pro forma combined historical results, as if 7Software had
been acquired on October 1, 1997, excluding the non-recurring one-time charge
for acquired in-process technology, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
---------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Total revenues, net.................................... $ 17,159 $ 17,356
Net loss............................................... (18,074) (13,350)
Pro forma net loss per share........................... (1.58) (1.14)
</TABLE>
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
In connection with the purchase of 7Software, the Company also entered into
separate employment agreements with certain former 7Software officers and
shareholders. Under the terms of these arrangements, the Company loaned $500,000
to these officers and shareholders in the form of a note receivable. This
receivable is payable in aggregate annual installments of $167,000 plus interest
at variable rates. The note is secured by second mortgages on real property.
Approximately 124,000 shares of the Company's common stock issued in
connection with the purchase of 7Software will be held in escrow until June 30,
1999 subject to resolution of any unresolved claims by the Company. The value of
these shares was included in the 7Software purchase price, as no such unresolved
claims are known. In addition, as of September 30, 1998, 340,452 shares of
Common Stock issued to the founders in connection with the acquisition included
restrictions entitling the Company to repurchase such shares in the event of
termination. These shares were issued in exchange for 7Software shares that
included the same restrictions. These restrictions lapse at various rates
through June 2000. The estimated fair value of these shares has been included in
the purchase price referred to above.
4. LINE OF CREDIT
The Company has a $2.0 million line of credit for operating needs that
expires in November 1998. Borrowings under the credit line bear interest at the
lending bank's prime interest rate plus 1.5%, which can be reduced to the bank's
prime rate plus 1.0% following the achievement and maintenance of after-tax
operating profitability for two consecutive quarters. The line is limited to
$500,000 for the issuance of standby and commercial letters of credit. The
borrowing base for the line is to be monitored on a monthly basis and is to
consist of the sum of up to 80% of eligible domestic accounts receivable and any
letter of credit backed or insured by foreign accounts receivable; and up to 80%
of approved eligible foreign accounts receivable with a limit of the aggregate
funds advanced against such accounts, not to exceed $300,000. Interest is due
monthly and principal is due upon maturity.
There were no outstanding borrowings under this line at September 30, 1998.
The bank had issued standby letters of credit on behalf of the Company at
September 30, 1998 in the amount of $465,000, and the amount available under the
line of credit on that date was $1,535,000. The line is secured by all
non-leased assets of the Company, including intellectual property. The line of
credit agreement requires the Company to meet certain financial covenants,
including limitations on the Company's ability to pay dividends. See Note 11 for
a discussion of warrants issued in conjunction with the line of credit and other
debt.
F-12
<PAGE> 93
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
Long-term debt at September 30, 1998 consisted of: (i) a $3.0 million
senior term loan facility; (ii) a $1.5 million subordinated promissory note; and
(iii) a $3.5 million subordinated promissory note. The subordinated promissory
notes are held by Comdisco. The proceeds from these obligations may be used for
equipment purchases and general corporate purposes.
The senior term loan facility bears interest at the lending bank's prime
rate less 1.0% (7.5% at September 30, 1998) and matures on February 15, 2001.
Payments are interest only through February 15, 1999. At February 15, 1999, the
outstanding balance under the facility will be paid in 24 equal monthly
principal payments, plus applicable interest. The loan is secured by a perfected
senior security interest in all non-leased assets of the Company with specific
filings for intellectual property (both the line of credit and senior term loan
were issued by the same lender and include the same financial covenants and
restrictions discussed above).
The subordinated promissory notes (which are subordinated to both the line
of credit and senior term loan) are secured by the Company's receivables,
equipment, general intangibles, inventory, and all other goods and personal
property of the Company. The $1.5 million note bears interest at 8.5%, has
principal and interest payments of approximately $38,000 due monthly, and
matures in August 2001. The $3.5 million note bears interest at 11.0%, has
monthly principal and interest payments of approximately $101,000 beginning in
November 1998, and matures in April 2002. The underlying debt agreement allows
the Company to obtain additional long-term borrowings of up to $1.5 million, at
an interest rate of 12.5%. This commitment by the lending institution will
expire on December 31, 1998.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Fiscal year ending September 30:
1999......................................... $2,033
2000......................................... 2,857
2001......................................... 2,094
2002......................................... 681
------
$7,665
======
</TABLE>
6. NOTES PAYABLE TO STOCKHOLDERS
In December 1996, the Company agreed to exchange two notes payable to
stockholders totaling $233,000, plus accrued interest, for 134,920 shares of
Series C Preferred Stock. At the time of the conversion to Series C Preferred
Stock, the outstanding balance of the notes plus accrued interest was $267,000.
7. COMMITMENTS
The Company leases office space and equipment under noncancelable operating
leases and capital leases. In October 1997, the Company signed a five-year lease
for a new corporate headquarters in Redmond, Washington, which commenced
February 1998. The Company has the option to extend the lease for one additional
five-year term. The Company is required to provide a $450,000 letter of credit
as security for the lease. The letter of credit may be reduced by specified
amounts in the lease agreement after 36 months or upon the Company's achieving
certain economic goals. In January and February 1998, the Company signed
two-year subleases for its former corporate headquarters.
F-13
<PAGE> 94
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS (CONTINUED)
Future minimum rental payments under noncancelable leases, net of the
future minimum rentals of $274,000 to be received under the subleases, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fiscal year ending September 30:
1999.................................................. 1,234 883
2000.................................................. 1,244 727
2001.................................................. 1,036 754
2002.................................................. 27 754
2003.................................................. -- 276
------- ------
3,541 $3,394
======
Less amount representing interest....................... (410)
-------
Present value of net minimum capital lease
obligations........................................... 3,131
Less current portion.................................... (1,004)
-------
Capital lease obligations, less current portion......... $ 2,127
=======
</TABLE>
Total rent expense for the years ended September 30, 1996, 1997 and 1998
was $162,000, $254,000 and $1,055,000 respectively.
8. INCOME TAXES
The Company did not provide an income tax benefit for any period presented
because it has experienced operating losses since inception. At September 30,
1998, the Company has net operating loss carryforwards of $19,142,000 and tax
credit carryforwards of $262,000, all of which expire between 2009 and 2013.
As a result of prior equity financings, the Company has incurred and will
incur "ownership changes" pursuant to applicable regulations in effect under the
Internal Revenue Code of 1986, as amended. Accordingly, the Company's use of net
operating loss carryforwards incurred through the date of these ownership
changes will be limited during the carryforward period. To the extent that any
single year loss is not utilized to the full amount of the limitation, such
unused loss is carried over to subsequent years until the earlier of its
utilization or the expiration of the relevant carryforward period.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,410 6,508
Tax credit carryforwards.................................. 152 262
Deferred revenues......................................... 502 1,038
Expenses not currently deductible and other............... 630 947
------- -------
Total deferred tax assets......................... 4,694 8,755
Valuation allowance......................................... (4,694) (8,755)
------- -------
$ -- $ --
======= =======
</TABLE>
F-14
<PAGE> 95
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Since the Company's utilization of these deferred tax assets is dependent
on future profits, which are not assured, a valuation allowance equal to the net
deferred tax assets has been provided. The valuation allowance for deferred tax
assets increased approximately $2,635,000 and $4,061,000 during the years ended
September 30, 1997 and 1998.
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for the
issuance of options to acquire 2,760,000 shares of common stock. The 1994 Plan
provides for the granting of incentive stock options to employees and
nonqualified stock options to employees, directors and other eligible
participants. Options granted under the 1994 Plan vest at variable rates,
typically four years, determined by the Board of Directors, and remain
exercisable for a period not to exceed ten years. At September 30, 1998, 354,768
shares were available for future grant.
Benefit Plans
On August 21, 1998, the Board adopted the 1998 Equity Incentive Plan, the
Director Stock Option Plan and the Employee Stock Purchase Plan. The Equity
Incentive Plan authorizes issuance of 3,240,000 shares of common stock upon the
exercise of stock options or otherwise pursuant to the plan. The Director Stock
Option Plan authorizes the issuance of 240,000 shares of common stock upon the
exercise of stock options that may be granted pursuant to the plan. The Employee
Stock Purchase Plan authorizes the issuance of 320,000 shares of Common Stock.
There were no options granted under these plans as of September 30, 1998.
A summary of the Company's stock option activity under the 1994 Plan and
the options issued in exchange for options of 7Software and related weighted
average exercise prices is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.............. 324,100 $ 0.11 622,879 $ 0.15 794,777 $0.16
Granted................................... 360,400 0.18 196,580 0.22 746,414 1.82
Issued in exchange for options of
7Software............................... -- -- -- -- 123,921 0.03
Exercised................................. (8,218) 0.13 (1,248) 0.18 (100,132) 0.13
Canceled.................................. (53,403) 0.14 (23,434) 0.37 (25,459) 0.37
---------- ---------- ----------
Balance at end of year...................... 622,879 0.15 794,777 0.15 1,539,521 0.95
========== ========== ==========
Exercisable at end of period................ 199,157 0.10 391,815 0.16 498,378 0.13
========== ========== ==========
Weighted average fair value of options
granted during the period
Granted at fair value................... $0.18 $0.22 $10.73
Granted at below fair value............. -- -- 2.58
</TABLE>
F-15
<PAGE> 96
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
Information regarding the weighted average remaining contractual life and
weighted average exercise price of options outstanding and options exercisable
at September 30, 1998 for selected exercise price ranges is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE
EXERCISE PRICES LIFE (IN YEARS) SHARES SHARES PRICE
--------------- --------------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
$ .03 - 0.20 7.22 776,882 493,180 $ 0.13
0.37 9.07 585,619 5,123 0.37
1.88 - 11.63 9.75 177,020 75 3.13
------------- ---- --------- --------- ------
$ 0.3 - 11.63 8.22 1,539,521 498,378 $ 0.13
========= =========
</TABLE>
The Company uses the intrinsic value-based method to account for all its
employee stock-based compensation arrangements. Accordingly, no compensation
cost has been recognized for its stock options in the accompanying consolidated
financial statements because the fair value of the underlying common stock
equals or exceeds the exercise price of the stock options at the date of grant,
except with respect to certain options granted during the year ended September
30, 1998. The Company has recorded deferred stock compensation expense of
$861,000 relating to options granted during the year ended September 30, 1998.
This amount represents the difference between the exercise price and the deemed
fair value for financial reporting purposes of the Company's common stock during
the periods in which such options were granted. Amortization of deferred stock
compensation of $409,000 was recognized during the year ended September 30,
1998.
The following pro forma information regarding stock-based compensation has
been determined as if the Company had accounted for its employee stock options
under the fair market value method of SFAS 123. The fair value of these options
was estimated at the date of grant using a minimum value option pricing model
with the following weighted average assumptions: risk-free interest rates range
from 5.5% to 6.5% in 1996, 1997, and 1998; a dividend yield rate of 0% for all
periods; and the options will be exercised one year after they vest.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss as reported..................................... $(4,953) $(5,524) $(18,074)
Incremental pro forma compensation expense under SFAS
123.................................................... (2) (7) (37)
------- ------- --------
Pro forma net loss....................................... $(4,955) $(5,531) $(18,111)
======= ======= ========
Pro forma loss per share................................. $ (2.17) $ (2.42) $ (7.47)
======= ======= ========
</TABLE>
Under SFAS 123, compensation expense representing the fair value of the
option grant is recognized over the vesting period. The initial impact on pro
forma net loss may not be representative of compensation expense in future
years, when the effect of amortization of multiple awards would be reflected in
pro forma earnings.
10. STOCKHOLDER NOTES RECEIVABLE
In October 1994, certain stockholders exercised options to purchase shares
of common stock. In connection with the issuance, the Company accepted
promissory notes totaling $80,000. These notes are due
F-16
<PAGE> 97
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDER NOTES RECEIVABLE (CONTINUED)
in October 1999 and bear interest at 5%, payable annually. These notes are full
recourse and are secured by the common stock purchased with the proceeds
thereof.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Redeemable Convertible Preferred Stock
In October 1994, the Company designated and issued 1,529,636 shares of
Series A redeemable convertible preferred stock ("Series A Preferred Stock")
through a private offering. Net proceeds from the financing amounted to
$1,963,000.
In July 1995, the Company designated and issued 1,874,999 shares of Series
B redeemable convertible preferred stock ("Series B Preferred Stock") through a
private offering. Net proceeds from the financing amounted to $2,939,000.
In July 1996, the Company designated 3,909,920 shares and issued 3,750,000
shares of Series C redeemable convertible preferred stock ("Series C Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$7,479,000. In December 1996, the Company agreed to issue an additional 134,920
shares of Series C Preferred Stock in exchange for the cancellation of notes
payable totaling $267,000.
In July 1997, the Company designated 1,343,159 shares and issued 1,275,338
shares of Series D redeemable convertible preferred stock ("Series D Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$4,612,000.
In June 1998, the Company designated 1,800,000 shares and issued 1,003,499
shares of Series E redeemable convertible preferred stock ("Series E Preferred
Stock") through a private offering. In August 1998, the Series E Preferred Stock
Purchase Agreement (the "Purchase Agreement") was amended for the sale of an
additional 645,161 shares of the Company's Series E Preferred Stock and Series E
Preferred Stock Warrants to purchase an additional 2,400,000 shares of Series E
Preferred Stock for $4,999,999 to American Express Travel Related Services
Company, Inc. ("TRS"). The total number of shares of Series E Preferred Stock
issued was 1,648,660. Total net proceeds from the Series E Preferred Stock
financing amounted to $12,698,000.
Redeemable convertible preferred stock is convertible into common stock, at
the option of the holder, currently at the rate of one-to-one, subject to
antidilution provisions. An equivalent number of unissued shares of common stock
are reserved for issuance in the event of full conversion of all redeemable
convertible preferred stock. Each share of redeemable convertible preferred
stock has voting rights equivalent to the number of shares of common stock
issuable if converted. Stockholders of certain series of preferred stock have
the right to elect one member to the Board of Directors while common
stockholders may elect two members to the Board of Directors.
Subject to certain conditions, the redeemable convertible preferred stock
has mandatory conversion requirements in the event of a qualified initial public
offering of the Company's common stock, or if 80% of the preferred stockholders,
voting as a single class, elects to convert to common stock. Each series of
redeemable convertible preferred stock has dividend rights payable at various
rates per share when and if declared. In the event of any distribution of assets
upon liquidation of the Company, the order of preference to those assets will be
holders of Series E, Series D, Series C, Series B, and Series A Preferred Stock
at the original offering price per share, plus any declared but unpaid
dividends. Any remaining assets will be distributed ratably to all stockholders
up to various maximum rates for the preferred stockholders.
F-17
<PAGE> 98
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
The redeemable convertible preferred stock will be redeemed in four equal
annual installments beginning in October 2001 unless waived in writing by more
than 60% of the holders of such stock. Redemption amounts are based on the
original offering price of the stock plus any declared but unpaid dividends. The
order of preference in any such redemption effected is as follows: Series E,
Series D, Series C, Series B and Series A Preferred Stock.
Following is a summary of terms and conditions for each series of
redeemable convertible preferred stock as of September 30, 1998:
<TABLE>
<CAPTION>
ANNUAL
AGGREGATE DIVIDEND
SHARES STATED LIQUIDATION RATE --
OUTSTANDING VALUE VALUE NONCUMULATIVE
----------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Issues and outstanding:
Series A.......................... 1,529,636 $1.30 $ 2,000,000 $0.0915
Series B.......................... 1,874,999 1.60 3,000,000 0.1120
Series C.......................... 3,884,920 2.00 7,770,000 0.1400
Series D.......................... 1,275,338 3.65 4,655,000 0.2550
Series E.......................... 1,648,660 7.75 12,777,000 0.5425
---------- -----------
10,213,553 $30,202,000
========== ===========
</TABLE>
Warrants to Purchase Preferred Stock
In May 1996, the Company issued warrants to purchase 28,125 shares of
Series C Preferred Stock in conjunction with a renewal and increase in the bank
line of credit (see Note 4). The warrants are immediately exercisable at a price
of $2.00 per share, expiring May 2001. The estimated fair value of these
warrants of $5,000 has been recorded as debt issuance costs.
In July 1997, the Company issued warrants to Comdisco to purchase 44,827
and 22,988 shares of Series D Preferred Stock in conjunction with the Company's
receipt of financing commitments relating to the promissory note and lease
agreement, respectively (see Note 2). Each has a purchase price of $3.65 per
share. The warrants become immediately exercisable on the effective date of the
agreements and remain exercisable for a period of five years; or two years from
the effective date of the Company's initial public offering, whichever is
longer, provided the offering is less than $15.0 million. Should the offering
exceed $15.0 million, the warrant will expire, if not previously exercised,
immediately upon the closing of the issuance and sale of shares of common stock
of the Company. The estimated fair values of these warrants of $30,000 and
$16,000, respectively, has been recorded as debt issuance costs.
In September 1997, the Company issued warrants to purchase 14,000 shares of
Series D Preferred Stock in conjunction with a new loan facility and an
increase/renewal in the bank line of credit (see Note 4). The warrants have an
initial exercise price of $3.65 per share, a five-year maturity inclusive of
certain provisions to include, but not limited by, a net exercise provision,
antidilution protection and a $30,000 put option. The right to exercise the put
option expires two years from the issue date of the warrants. The estimated fair
value of these warrants of $30,000 has been recorded as debt issuance costs.
In April 1998, the Company issued warrants to purchase 13,187 shares of
Series E Preferred Stock in conjunction with the increase to the senior loan
facility (see Note 4). The warrants have an initial exercise price of $7.75 per
share. The warrants became immediately exercisable on the effective date of the
agreements and are exercisable for a period of five years. Additionally, the
agreement provides for a $75,000 put option,
F-18
<PAGE> 99
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
which expires in April 2000. The estimated fair value of these warrants of
$75,000 has been recorded as debt issuance costs.
In May 1998, the Company issued warrants to Comdisco to purchase 56,451
shares of Series E Preferred Stock in conjunction with the new subordinated
promissory note (see Note 2). The warrants are immediately exercisable at a
price of $7.75 per share and are exercisable for a period of five years; or two
years from effective date of the Company's initial public offering, whichever is
longer, provided the offering is less than $15.0 million. Should the offering
exceed $15.0 million, the right to purchase preferred stock as granted shall
expire, if not previously exercised, immediately upon the closing of the
issuance and sale of shares of common stock of the Company. The estimated fair
value of these warrants of $11,000 has been recorded as debt issuance costs.
Under the terms of this subordinated debt agreement, the Company has an
outstanding commitment to issue additional warrants to purchase as many as
27,096 shares of Series E Preferred Stock at an exercise price of $7.75 per
share if it utilizes the $1.5 million additional financing available under the
agreement.
In connection with the sale of an additional 645,161 shares of Series E
Preferred Stock, the Company issued a warrant to TRS and its assignees to
purchase an additional 2,400,000 shares of Series E Preferred Stock. If all of
the shares of Series E Preferred Stock are converted into shares of common stock
in connection with a registration of the Company's common stock under the
Securities Act, this warrant will automatically become exercisable for 2,325,000
shares of the Company's common stock. The terms of the warrant provide that it
is exercisable in four tranches as follows: 300,000 shares may be acquired at
the time of the Company's initial public offering at a cash purchase price per
share equal to the initial public offering price per share less 7%; 700,000
shares may be acquired at any time on or before October 15, 1999 at a cash
purchase price of $33.75 per share; 700,000 shares may be acquired at any time
on or before January 15, 2001 at a cash purchase price of $50.63 per share; and
the remaining 700,000 shares may be acquired at any time on or before January
15, 2002 at a cash purchase price of $85.00 per share. As was permitted by the
warrant, the Company exercised its option to cancel 25% of the shares that could
have been acquired under the warrant at the time of the Offering or on or before
October 15, 1999. In connection with an amendment to a standstill agreement with
TRS, the Board of Directors subsequently rescinded its 25% reduction in the
number of shares that can be acquired on or before October 15, 1999. Thus,
225,000 shares may be acquired at the time of the Offering. The estimated fair
value of this warrant, determined based on a Black Scholes fair value model, is
approximately $278,000, which has been recorded as redeemable convertible
preferred stock warrants.
All preferred stock warrants automatically convert to common stock warrants
upon the closing of a qualified initial public offering of the Company's common
stock.
F-19
<PAGE> 100
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Outstanding stock options................................... 1,539,521
Stock Options available for grant........................... 354,768
1998 Equity Incentive Plan.................................. 3,240,000
Director Stock Option Plan.................................. 240,000
Employee Stock Purchase Plan................................ 320,000
Conversion of redeemable convertible preferred stock:
Series A............................................... 1,529,636
Series B............................................... 1,875,000
Series C............................................... 3,909,920
Series D............................................... 1,343,158
Series E............................................... 1,800,000
Warrants to purchase Series C Preferred Stock that are
convertible to common stock............................... 28,125
Warrants to purchase Series D Preferred Stock that are
convertible to common stock............................... 81,815
Warrants to purchase Series E Preferred Stock that are
convertible to common stock............................... 2,219,638
----------
Total............................................. 18,481,581
==========
</TABLE>
13. NET LOSS PER SHARE
Basic and diluted net loss per common share is calculated by dividing net
loss by the weighted average number of common shares outstanding. Pro forma net
loss per share is computed using the weighted average number of shares used for
basic and diluted per share amounts and the weighted average convertible
redeemable preferred stock outstanding as if such shares were converted to
common stock at the time of issuance.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1996 1997 1998
---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net loss................................................. $ (4,953) $ (5,524) $ (18,074)
========== =========== ===========
Basic and diluted net loss per common share.............. $ (2.17) $ (2.41) (7.45)
========== =========== ===========
Weighted average number of common shares used for basic
and diluted per share amounts.......................... 2,282,382 2,288,379 2,425,254
========== =========== ===========
Weighted average common shares issuable upon pro forma
conversion of preferred stock.......................... 8,994,088
===========
Weighted average number of shares used for pro forma per
share amounts.......................................... 11,419,342
===========
Pro forma basic and diluted net loss per share
(unaudited)............................................ $ (1.58)
===========
</TABLE>
Options to purchase 1,539,521 shares of common stock with exercise prices
of $0.03 to $11.63 per share and warrants to purchase 2,329,578 shares of
preferred stock at a range of $2.00 to $85.00 per share were
F-20
<PAGE> 101
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. NET LOSS PER SHARE (CONTINUED)
outstanding at September 30, 1998. These options and warrants were excluded from
the computation of diluted earnings per share because their effect was
anti-dilutive.
14. RETIREMENT 401(k) PLAN
The Company sponsors a 401(k) Profit Sharing and Trust Plan that is
available to substantially all employees. Each employee may elect to contribute
up to 20% of his or her pre-tax gross earnings, subject to annual limits. The
Company reserves the right to amend the Plan at any time. Employee contributions
to the Plan are subject to statutory limitations regarding maximum
contributions. There are no Company matching contributions.
15. INTERNATIONAL REVENUES
The Company licenses and markets its products primarily in the United
States, and operates in a single industry segment. Information regarding
revenues in different geographic regions is as follows:
<TABLE>
<CAPTION>
REVENUES
---------------------------
COUNTRY 1996 1997 1998
------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................... $1,959 $6,981 $16,349
Europe.................................................. -- 612 364
Canada.................................................. -- 677 31
Australia............................................... -- -- 398
Asia.................................................... -- -- 17
------ ------ -------
Total......................................... $1,959 $8,270 $17,159
====== ====== =======
</TABLE>
From the inception of the Company to September 30, 1996, there were no
significant export sales or operations in countries outside of the United
States.
16. SIGNIFICANT AGREEMENTS
Strategic Marketing Alliance Agreement with American Express
In December 1997, the Company entered into a strategic alliance agreement
with American Express Company ("American Express"), a related party, under which
American Express refers to the Company its corporate charge card customers that
seek a T&E expense management software solution. Under the terms of the
agreement, American Express receives a fee for referring to the Company clients
of American Express who become XMS customers. The fee varies based upon
licensing revenue realized from referred customers. Except for the referral, the
Company is responsible for the entire sales effort and also for customer support
and warranty service. Under the agreement, the Company and American Express have
also agreed to develop certain product features enabling a higher level of
integration between XMS and certain American Express services and products.
Co-Branded XMS Service Marketing Agreement
In August 1998, the Company entered into a Co-Branded XMS Service Marketing
Agreement with American Express' affiliate TRS. Under the terms of the
agreement, TRS will receive a fee for marketing to TRS's clients a co-branded
enterprise service provider ("ESP") version of XMS containing special features.
The marketing fee is based on the amount of revenue received. The Company is
responsible for providing warranty and customer support services to these
customers. In addition, under the terms of the agreement, the
F-21
<PAGE> 102
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SIGNIFICANT AGREEMENTS (CONTINUED)
Company and TRS have agreed to jointly develop certain product features for
integration into the co-branded ESP version of XMS.
License and Other Agreements
The Company has entered into various agreements that allow the Company to
incorporate licensed technology into its products or that allow the Company the
right to sell separately the licensed technology. The Company incurs royalty
fees under these agreements that are based on a predetermined fee per license
sold. Royalty costs incurred under these agreements are recognized as products
are licensed and are included in cost of product sales. These amounts totaled
$203,000 and $348,000 for the years ended September 30, 1997 and 1998,
respectively. Amounts recognized in 1996 were insignificant.
17. RELATED PARTY TRANSACTION
During 1998 the Company paid fees of $121,000 to a stockholder under a
sales referral agreement. Certain of the proceeds received under the sales
referral agreement in the amount of $192,000 were received directly from the
stockholder. Additionally, the Company recorded $134,000 in revenue for the sale
of a license agreement to another stockholder in 1998. No sales were made to
stockholders or under the sales referral agreement prior to 1998. At September
30, 1998 accounts receivable from stockholders were $152,000 and accounts
payable to stockholders were $83,000.
18. INITIAL PUBLIC OFFERING
On August 21, 1998, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit the
Company to offer its common stock to the public. If the offering is consummated
under terms presently anticipated each outstanding share of redeemable
convertible preferred stock will convert into one share of common stock.
Unaudited pro forma stockholders' equity reflects the assumed conversion of the
redeemable convertible preferred stock outstanding at September 30, 1998 into
common stock and the assumed conversion of redeemable convertible preferred
stock warrants outstanding at September 30, 1998 into common stock warrants as
of September 30, 1998.
19. SUBSEQUENT EVENT -- REVERSE STOCK SPLIT
On August 21, 1998 the Board of Directors authorized a reverse stock split
of the Company's common stock. The reverse split was approved for a range of
split ratios by the Stockholders in October 1998. The split ratio of 1-to-2.5
was determined on November 16, 1998. The reverse stock split was effected on
December 9, 1998. The related common share, preferred share and per share data
in the accompanying financial statements has been retroactively restated to
reflect the reverse stock split, including preferred share data on an as-
converted to common stock basis.
F-22
<PAGE> 103
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
7Software, Inc.
We have audited the accompanying balance sheet of 7Software, Inc. (a
development stage company) as of December 31, 1997 and the related statements of
operations, shareholders' equity, and cash flows for the period May 30, 1997
(date of incorporation) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 7Software, Inc. at December
31, 1997 and the results of its operations and its cash flows for the period May
30, 1997 (date of incorporation) to December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
August 14, 1998
F-23
<PAGE> 104
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $25 $ 39
Accounts receivable....................................... 12 36
--- -----
Total current assets.............................. 37 75
Furniture and equipment, net................................ 21 28
--- -----
Total assets...................................... $58 $ 103
=== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6 $ 4
Accrued payroll liabilities............................... 4 4
--- -----
Total current liabilities......................... 10 8
Convertible note payable.................................... 25 130
Commitments
Shareholders' equity:
Preferred stock, no par value:
Authorized shares: 5,000,000
No shares issued and outstanding....................... -- --
Common stock, no par value:
Authorized shares: 10,000,000
2,000,000 and 2,082,294 shares issued and outstanding
at December 31, 1997 and June 30, 1998,
respectively.......................................... 20 212
Deferred stock compensation............................... -- (8)
Retained earnings (deficit)............................... 3 (239)
--- -----
Total shareholders' equity (deficit).............. 23 (35)
--- -----
Total liabilities and shareholders' equity
(deficit)....................................... $58 $ 103
=== =====
</TABLE>
See accompanying notes.
F-24
<PAGE> 105
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 30, 1997 SIX MONTHS
(DATE OF INCORPORATION) ENDED
TO DECEMBER 31, 1997 JUNE 30, 1998
----------------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $66 $ 131
Cost of revenues............................................ 5 25
--- -----
Gross profit................................................ 61 106
Operating expenses:
Research and development.................................. 30 213
Selling, general, and administration...................... 27 135
--- -----
Total operating expenses.......................... 57 348
--- -----
Income (loss) before taxes.................................. 4 (242)
Provision for taxes......................................... 1 --
--- -----
Net income (loss)................................. $ 3 $(242)
=== =====
</TABLE>
See accompanying notes.
F-25
<PAGE> 106
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO DECEMBER 31, 1997
AND FOR THE 6 MONTH UNAUDITED PERIOD ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK DEFERRED RETAINED STOCKHOLDERS'
------------------- STOCK EARNINGS EQUITY
SHARES AMOUNT COMPENSATION (DEFICIT) (DEFICIT)
--------- ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Sale of common stock at $0.01 per
share for cash on June 6, 1997... 630,000 $ 6 $ -- $ 6
Issuance of common stock at $0.01
per share for furniture and
equipment at cost on June 6,
1997.......................... 630,000 6 -- 6
Issuance of common stock at $0.01
per share for employee
services on June 6, 1997...... 740,000 8 -- 8
Net income....................... -- -- 3 3
--------- ---- ---- ----- -----
Balance at December 31, 1997....... 2,000,000 $ 20 $ 3 $ 23
Issuance of common stock
(unaudited)................... 12,632 1 -- 1
Issuance of common stock on
conversion of notes payable
(unaudited)................... 69,662 100 -- 100
Net loss (unaudited)............. -- (242) (242)
Deferred stock compensation
(unaudited)................... -- 91 (91) --
Amortization of deferred stock
compensation (unaudited)...... -- -- 83 83
--------- ---- ---- ----- -----
Balance at June 30, 1998
(unaudited)...................... 2,082,294 $212 (8) $(239) $ (35)
========= ==== ==== ===== =====
</TABLE>
See accompanying notes.
F-26
<PAGE> 107
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 30, 1997
(DATE OF
INCORPORATION) SIX MONTHS ENDED
TO DECEMBER 31, 1997 JUNE 30, 1998
-------------------- ----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 3 $(242)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.............................................. 1 2
Stock compensation........................................ 8 83
Changes in assets and liabilities:
Accounts receivable.................................... (12) (24)
Accounts payable and accrued payroll liabilities....... 10 (2)
---- -----
Net cash provided by (used in) operating activities......... 10 (183)
---- -----
INVESTING ACTIVITIES
Purchases of furniture and equipment........................ (16) (9)
---- -----
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 6 1
Proceeds from convertible note payable...................... 25 75
Proceeds from convertible note payable to Concur............ 130
---- -----
Net cash provided by financing activities................... 31 206
---- -----
Net increase in cash and cash equivalents................... 25 14
Cash and cash equivalents at beginning of period............ -- 25
---- -----
Cash and cash equivalents at end of period.................. $ 25 $ 39
==== =====
NONCASH TRANSACTIONS AND SUPPLEMENTAL DISCLOSURES
Furniture and equipment contributed for common stock........ $ 6 --
==== =====
Issuance of common stock in consideration for conversion of
note payable.............................................. -- $ 100
==== =====
</TABLE>
See accompanying notes.
F-27
<PAGE> 108
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO JUNE 30, 1998
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ACTIVITIES
7Software, Inc. (the "Company") was incorporated in California on May 30,
1997. The Company performs consulting services for product development and
developed a product called CompanyStore that automates the purchasing of
nonproduction goods. CompanyStore runs on corporate intranets, providing access
to company-specific information and making that information available on
employee desktops throughout the enterprise. The Company is in the development
stage.
On June 30, 1998, the Company merged with Concur Technologies, Inc.
("Concur"). The merger resulted in all shares of the Company's outstanding
capital stock and all stock options being converted into Concur common stock and
stock options, respectively.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the six months ended June 30, 1998 is
unaudited but includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of its
financial position at such date and its operating results and cash flows for
that period. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of results that may be expected for an entire year.
REVENUE RECOGNITION
The Company generates revenues from performing computer programming
consulting. Revenue is recognized by the Company based upon hours of consulting
performed and billable, in accordance with the related consulting agreement.
CASH EQUIVALENTS
All short-term investments with maturities of three months or less at date
of purchase are considered to be cash equivalents.
DEVELOPMENT COSTS
All software development costs are expensed until technological feasibility
has been established. No software development costs were capitalized during the
period ended December 31, 1997 or June 30, 1998.
ADVERTISING AND MARKETING COSTS
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were $5,000 for the period ended December 31, 1997 and $17,000
for the six months ended June 30, 1998.
FEDERAL INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
Statement No. 109, deferred tax assets and liabilities are recorded using the
liability method, which recognizes the effect of temporary differences between
the reporting of revenues and expenses for financial statement and income tax
return purposes. Valuation allowances are established when necessary to reduce
deferred tax assets to amounts expected to be realized.
F-28
<PAGE> 109
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO JUNE 30, 1998
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25, no
compensation expense is recorded when the exercise price of employee stock
options equals the market price of the underlying stock on the date of grant.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts recorded in the financial statements and
accompanying notes. Actual results could materially differ from these estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated on the
straight-line method over the estimated useful lives of the assets, ranging from
two to four years.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following: (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Computer equipment.......................... $20 $20
Furniture, fixtures, and equipment.......... 2 12
--- ---
22 32
Accumulated depreciation.................... (1) (4)
--- ---
$21 $28
=== ===
</TABLE>
3. CONVERTIBLE NOTES
On November 30, 1997, the Company entered into an agreement to receive
$75,000 in consideration of a non-interest bearing convertible note. The terms
of this agreement were such that the entire balance of the note was convertible
into securities sold in the Company's first stock financing with outside
investors after the date thereof. Additionally, the agreement provided that the
note holder would receive warrants to purchase common stock if and when the
Company received additional equity financing. The Company received $25,000 of
the $75,000 note in December 1997 and the remaining balance during the first
quarter of 1998. On January 1, 1998, the Company entered into another agreement
and received $25,000 in consideration of a non-interest bearing convertible note
with similar terms to those as described above. On June 9, 1998, the note
holders and the Company agreed to convert the notes in exchange for the issuance
of 69,662 shares of common stock. As a result of this transaction, the note
holders' rights to the warrants were cancelled.
F-29
<PAGE> 110
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO JUNE 30, 1998
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
4. SHAREHOLDERS' EQUITY
On June 6, 1997, the Company issued 2,000,000 shares of common stock to the
founders of the Company. The shares were issued for $20,000 of consideration,
which included cash, furniture and equipment, and services rendered since the
incorporation of the Company.
On June 9, 1998, the Company issued 69,662 shares of common stock to
certain note holders in exchange for the cancellation of the convertible notes
and the obligations of issuing warrants as discussed in Note 3.
Between January 1, 1998 and June 10, 1998, the Company issued 12,632 shares
of common stock. The shares were issued for approximately $1,000 in cash and
services rendered during this period.
5. STOCK OPTION PLAN
The Company's 1997 Stock Option Plan authorizes the grant of options to
employees, directors, and eligible participants for up to 500,000 shares of the
Company's common stock. The term of options granted to certain significant
stockholders cannot exceed five years while the term of all other options cannot
exceed ten years. The options vest over periods defined in each option agreement
as determined at the discretion of the Company's Board of Directors. Stock
options that qualify as incentive stock options are exercisable at not less than
the fair market value of the stock at the date of grant, and nonqualified stock
options are exercisable at prices determined at the discretion of the Board of
Directors, which may not be less than 85% of the fair market value of the stock
at the date of grant. No options had been granted under the plan as of December
31, 1997. For the period May 30, 1997 to June 30, 1998, the Company issued
364,000 options to purchase common stock at $0.01 per share resulting in
deferred stock compensation of approximately $91,000 which is being amortized
over the vesting period of the options of generally four years. Stock
compensation expense was $83,000 for the six months ended June 30, 1998.
6. INCOME TAXES
Temporary differences between the book and tax basis of assets and
liabilities to December 31, 1997 were insignificant; therefore no deferred taxes
were provided. Significant components of the Company's deferred tax assets were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Deferred tax asset relating to net operating loss $ -- $ 52
credit carry-forward................................
Valuation allowance................................... -- (52)
---- ----
$ -- $ --
==== ====
</TABLE>
Since the Company was acquired by Concur on June 30, 1998 it will not
utilize its deferred tax assets; therefore, a valuation allowance for the full
amount of all deferred tax assets has been provided.
7. COMMITMENTS
The Company leased its facility under an operating lease that expired on
June 30, 1998. Total rental expense for the period ended December 31, 1997 and
June 30, 1998 were $4,000 and $24,000, respectively.
8. SALES TO MAJOR CUSTOMERS
All revenues recognized by the Company for the period ended December 31,
1997 were received from SAP Technology for computer programming consulting. For
the six months ended June 30, 1998, all revenues were received for sales and
services provided to two customers.
F-30
<PAGE> 111
CONCUR TECHNOLOGIES, INC.
(FORMERLY PORTABLE SOFTWARE CORPORATION)
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following financial statements present the Concur Technologies, Inc.
("Concur," formerly Portable Software Corporation) Pro Forma Consolidated
Statements of Operations for the year ended September 30, 1998.
The Company's acquisition of 7Software, Inc. ("7Software") has been
accounted for under the "purchase" method of accounting, which requires the
purchase price to be allocated to the acquired assets and liabilities of
7Software on the basis of their estimated fair values as of the date of
acquisition. The following pro forma consolidated statements of operations for
the year ended September 30, 1998 give effect to the acquisition of 7Software as
if it occurred on October 1, 1997, and include adjustments directly attributable
to the acquisition of 7Software and expected to have a continuing impact on the
combined company (collectively, the "Pro Forma Financial Statements"). As the
Pro Forma Financial Statements have been prepared based on estimated fair
values, amounts actually recorded may change upon determination of the total
purchase price (which may change based on future performance) and additional
analysis of individual assets and liabilities assumed.
The pro forma information is based on historical financial statements. The
pro forma results of operations for the year ended September 30, 1998 includes
the results of operations of 7Software from May 30, 1997 (Date of Incorporation)
to June 30, 1998. The assumptions give effect to the business combination with
7Software under the purchase method of accounting. The information has been
prepared in accordance with the rules and regulations of the Commission and is
provided for comparative purposes only. The pro forma information does not
purport to be indicative of the results that actually would have occurred had
the combination been effected at the beginning of the periods presented.
F-31
<PAGE> 112
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PURCHASE PRO FORMA
CONCUR 7SOFTWARE ADJUSTMENTS CONSOLIDATED
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Total revenues, net..................... $ 17,159 $ 197 $ -- $ 17,356
Cost of revenues........................ 6,242 30 174 6,446
----------- ---------- ------- -----------
Gross profit............................ 10,917 167 (174) 10,910
Sales and marketing..................... 12,353 162 33 12,548
Research and development................ 6,434 243 33 6,710
General and administrative.............. 4,687 -- -- 4,687
Acquired in-process technology.......... 5,203 -- (5,203) --
----------- ---------- ------- -----------
Total operating expense....... 28,677 405 (5,137) 23,945
----------- ---------- ------- -----------
Loss from operations.................... (17,760) (238) 4,963 (13,035)
Other expense........................... (314) (1) -- (315)
----------- ---------- ------- -----------
Net loss...................... $ (18,074) $ (239) $ 4,963 $ (13,350)
=========== ========== ======= ===========
Pro forma net loss per share............ (1.58) $ (1.14)
=========== ===========
Weighted average shares used in
computation of basic and diluted net
loss per share........................ 11,419 11,675
=========== ===========
</TABLE>
See accompanying notes.
F-32
<PAGE> 113
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On June 30, 1998, the Company acquired 7Software, Inc. ("7Software").
7Software was incorporated in May 1997 and focused on the development and
licensing of Internet-based procurement solutions that bring purchasing to the
desktops of employees of large corporations. Concurrent with this transaction,
7Software was merged into the Company.
The unaudited pro forma information presented is not necessarily indicative
of future consolidated results of operations of Concur or the consolidated
results of operations that would have resulted had the acquisition taken place
on October 1, 1997. The unaudited pro forma consolidated statements of
operations for the years ended September 30, 1997 and 1998 reflect the effects
of the acquisition, assuming the related events occurred as of October 1, 1997
for the purposes of the unaudited pro forma consolidated statements of
operations.
2. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
The unaudited pro forma consolidated financial statements reflect the
conversion of all the outstanding shares of 7Software common stock into 708,918
shares and stock options to purchase 123,921 shares of Concur common stock
pursuant to the acquisition. This consideration resulted in a total purchase
price of $6.2 million (including acquisition expenses).
The allocation of the purchase price resulted in intangible assets,
primarily capitalized technology and the value of an acquired workforce, of
$960,000 which are being amortized on a straight line basis over three years.
In-process research and development acquired and valued using the income
approach in the amount of $5,203,000 was charged to expense. In-process research
and development charges have not been reflected in the pro forma consolidated
financial statements of operations for the year ended September 30, 1998 as they
are considered a nonrecurring charge.
3. UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The net loss per share and shares used in computing the net loss per share
for the year ended September 30, 1998 is based upon the historical weighted
average common shares outstanding adjusted to reflect the issuance, as of
October 1, 1997 of approximately 708,918 shares and stock options to purchase
123,921 shares of Concur common stock as described in Note 2 to these Notes to
Unaudited Pro Forma Consolidated Financial Statements. Options to purchase
approximately 364,000 shares of 7Software common stock were assumed by Concur
pursuant to the acquisition and converted into options to purchase approximately
123,921 shares of Concur common stock. The Concur common stock issuable upon the
exercise of the stock options have been excluded as the effect would be
antidilutive. In addition to the shares used in computing the net income (loss)
per share above, pro forma basic and diluted net loss per share is calculated
using the weighted average convertible and redeemable preferred stock
outstanding as if such shares were converted to common stock at the time of
issuance.
On August 21, 1998, Concur's Board of Directors authorized a reverse stock
split. The split ratio of 1-to-2.5 was determined on November 16, 1998. Share
and per share data included in these pro forma statements have been
retroactively restated to reflect the reverse stock split.
4. PURCHASE ADJUSTMENTS
Pro forma adjustments have been prepared to reflect the elimination of the
non-recurring one-time charge for acquired in-process technology and to reflect
the amortization of capitalized technology and other intangible assets.
F-33
<PAGE> 114
DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
Graphic:
Concur logo. A large Concur logo without the words "Concur-TM TECHNOLOGIES" and
without the box in the center of the circle, which is replaced by the text
below.
Text:
Concur Technologies is a leading provider of Web-based employee-facing
applications.
Envision a workplace where manual, paper-based processes are not only automated
throughout the enterprise, but also extend to partners, vendors and service
providers. Concur Technologies provides travel and entertainment expense
management and front-office procurement solutions that enable organizations to
work more efficiently and increase employee productivity. The Company leverages
Intranet technology to deploy such applications quickly and on an
enterprise-wide basis, and plans to leverage the public Internet infrastructure
to offer its solutions to a broad range of businesses as an Enterprise Service
Provider.
Concur Technologies' mission is to be the leading Web-based integrated solution
provider of employee-facing business applications throughout the extended
enterprise.
GATEFOLD
Graphic:
Box divided into 5 vertical sections. The top of the first is the Concur logo.
The next four are headed by "Preparation," "Approval," "Processing" and "Data
Analysis and Reporting," respectively. There are pictures of eight screen shots
showing various stages of the software. The top four screen shots deal with XMS
and the bottom four deal with CompanyStore.
Text:
Under Concur logo:
Concur products automate the preparation, approval, processing and data analysis
of travel and entertainment (T & E) expense reports and front-office procurement
requisitions. By automating manual paper-based processes, costs are reduced and
customers are enabled to collect and analyze data to consolidate purchases with
preferred vendors and to negotiate vendor discounts.
Under "Preparation":
[XMS logo]
Expense Reports are easily prepared using a checkbook-style user interface and
are prepopulated with corporate charge card data.
[CompanyStore logo]
Using CompanyStore's simple user interface, orders are placed on-line through a
customized electronic catalog.
Under "Approval":
XMS allows the enterprise to determine the approval process and automatically
flags those reports that are not in compliance.
CompanyStore allows the enterprise to determine how the requisitions should be
processed.
Under "Processing":
XMS integrates with existing IT infrastructure and ERP applications and has
features such as electronic flagging of non-compliant expenses that greatly
reduce the time and cost of processing expense reports.
CompanyStore saves time by integrating with the enterprise's ERP system,
allowing orders to be entered into the purchasing system automatically and then
forwarded electronically to the vendor.
Under "Data Analysis and Reporting":
Provides access to expense trends and data, allowing consolidation of vendors
and negotiation of vendor discounts.
Better data allows managers to determine how best to control costs, negotiate
more favorable supplier arrangements and consolidate vendors.
<PAGE> 115
PAGE 45
This graphic depicts the interconnection of various systems. A box with three
divisions, captioned "Concur Applications," is on the top. The three divisions
are the XMS logo, the CompanyStore logo and "Future Applications" in text. A box
with eight divisions, captioned "Concur Technology Platform," is below the
"Concur Applications" box. The eight divisions are "Prepopulation,"
"Workflow/Routing," "Business Intelligence," "Security," "Messaging," "Business
Rules," "User Management," and "Database," as text. A box with five divisions,
captioned "ERP Platforms," is below the "Concur Technology Platform" box. The
five divisions are "SAP," "Oracle," "PeopleSoft," "Others" and "Legacy Systems"
as text. A box with four divisions, captioned "E-Commerce," is to the right of
the other three boxes. The three divisions are "Travel Services," "Corporate
Charge Card Suppliers," "Vendors & Suppliers" and "Financial Institutions" as
text. "Concur Technology Platform" and "Concur Applications" have three
double-ended arrows pointing to each other. "Concur Technology Platform" and
"E-Commerce" have a double-ended arrow pointing to each other. "Concur
Technology Platform" and "ERP Platforms" have five double-ended arrows pointing
to each other.
INSIDE BACK COVER
Graphic: Two screen shots, one of a CompanyStore page, and the other of an XMS
page with the CompanyStore and XMS logos. A large Concur logo without the words
"Concur-TM TECHNOLOGIES" and without the box in the center of the circle.
Text:
CompanyStore-TM is an Intranet application designed to support procurement of
front-office goods and services.
The Xpense Management Solution-TM is a proven travel expense automation product
that has been licensed to more than 150 companies for use by over 800,000
employees around the world.
BACK COVER
Graphic:
Concur logo with shadow. Dark background.
<PAGE> 116
LOGO
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Company in connection with the sale of shares of Common Stock being registered
hereby. All amounts are estimates except for the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 12,027
NASD filing fee............................................. 4,200
Nasdaq National Market filing fee........................... 90,000
Accounting fees and expenses................................ 200,000
Legal fees and expenses..................................... 400,000
Printing and engraving expenses............................. 150,000
Road show expenses.......................................... 30,000
Transfer agent and registrar fees and expenses.............. 3,000
Custodian fees.............................................. 3,600
Miscellaneous............................................... 7,173
--------
Total............................................. $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law
("DGCL"), the Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. In addition, as permitted by Section 145
of the DGCL, the Bylaws of the Company provide that: (i) the Company is required
to indemnify its directors and executive officers to the fullest extent
permitted by the DGCL (except if such person is seeking indemnity in connection
with a proceeding (or part thereof) initiated by such person and not authorized
by the Board of Directors); (ii) the Company may, in its discretion, indemnify
other officers, employees and agents as set forth in the DGCL; (iii) upon
receipt of an undertaking to repay such advances if indemnification is
determined to be unavailable, the Company is required to advance expenses, as
incurred, to its directors and executive officers to the fullest extent
permitted by the DGCL in connection with a proceeding (except if the expenses
incurred by such person are incurred because the Company is directly bringing a
claim, in a proceeding, against such person, alleging that such person has
breached his or her duty of loyalty to the Company, committed an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of law, or derived an improper personal benefit from a transaction); (iv) the
rights conferred in the Bylaws are not exclusive and the Company is authorized
to enter into indemnity agreements with its directors, officers, employees and
agents and (v) the Company may not retroactively amend the Bylaw provisions
relating to indemnity.
The Company's policy is to enter into Indemnity Agreements with each of its
directors and executive officers. The Indemnity Agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Company, on account of their
services as directors, officers, employees or agents of the Company or as
directors, officers, employees or agents of any other company or enterprise when
they are serving in such capacities at the request of the Company. The Company
will not be obligated pursuant to the agreements to indemnify or advance
expenses to an indemnified party with respect to proceedings or claims (i)
initiated by the indemnified party and not by way
II-1
<PAGE> 118
of defense, except with respect to a proceeding authorized by the Board of
Directors and successful proceedings brought to enforce a right to
indemnification under the indemnity agreements; (ii) for any amounts paid in
settlement of a proceeding unless the Company consents to such settlement; (iii)
on account of any suit in which judgment is rendered against the indemnified
party for an accounting of profits made from the purchase or sale by the
indemnified party of securities of the Company pursuant to the provisions of
sec. 16(b) of the Securities Exchange Act of 1934 and related laws; (iv) on
account of conduct by an indemnified party that is finally adjudged to have been
in bad faith or conduct that the indemnified party did not reasonably believe to
be in, or not opposed to, the best interests of the Company; (v) on account of
any criminal action or proceeding arising out of conduct that the indemnified
party had reasonable cause to believe was unlawful; or (vi) if a final decision
by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The Indemnity Agreement requires a director or executive officer to
reimburse the Company for expenses advanced only to the extent it is ultimately
determined that the director or executive officer is not entitled, under
Delaware law, the Bylaws, his or her indemnity agreement or otherwise to be
indemnified for such expenses. The Indemnity Agreement provides that it is not
exclusive of any rights a director or executive officer may have under the
Certificate of Incorporation, Bylaws, other agreements, any majority-in-interest
vote of the stockholders or vote of disinterested directors, Delaware law or
otherwise.
The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Company and its directors and executive officers, may
be sufficiently broad to permit indemnification of the Company's directors and
executive officers for liabilities arising under the Securities Act.
As authorized by the Company's Bylaws, the Company, with approval by the
Company's Board of Directors, has applied for, and expects to obtain, directors
and officers liability insurance with a per claim and annual aggregate coverage
limit of $5 million.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement...................................... 1.01
Company's Certificate of Incorporation...................... 3.01
Company's Bylaws............................................ 3.04
Form of Indemnity Agreement................................. 10.06
</TABLE>
II-2
<PAGE> 119
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities of the
Company sold by the Company from September 30, 1995 to October 31, 1998. The
Company anticipates that it will effect a 1-for-2.5 reverse split of its Common
Stock prior to the Offering; the numbers included in the following table reflect
such reverse split. References to warrants below assume the full exercise of all
warrants. Preferred stock numbers are presented on an as converted to common
stock basis.
<TABLE>
<CAPTION>
NUMBER AGGREGATE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES OF SECURITIES PURCHASE PRICE CONSIDERATION
- -------------------- ----------------- ----------------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1 investor May 15, 1996 Warrants to purchase -- $ -- --(1)
28,125 shares of Series
C Preferred Stock
10 investors July 10, 1996 Series C Preferred 3,750,000 7,500,000 Cash
Stock
2 investors December 31, 1996 Series C Preferred 134,920 269,697 --(2)
Stock
1 investor July 22, 1997 Warrants to purchase -- -- --(3)
67,815 shares of Series
D Preferred Stock
10 investors July 23, 1997 Series D Preferred 1,275,338 4,655,001 Cash
Stock
1 investor September 3, 1997 Warrants to purchase -- -- --(4)
14,000 shares of Series
D Preferred Stock
1 investor April 28, 1998 Warrants to purchase -- -- --(5)
13,187 shares of Series
E Preferred Stock
1 investor May 8, 1998 Warrants to purchase -- -- --(6)
56,451 shares of Series
E Preferred Stock
8 shareholders June 30, 1998 Common Stock 708,918 -- Exchange for(7)
Common Stock
of 7Software
Corporation
25 investors June 30, 1998 and Series E Preferred 1,648,660 12,777,196 Cash
August 11, 1998 Stock
1 investor August 11, 1998 Warrant to purchase -- -- --(8)
2,400,000 shares of
Series E Preferred
Stock
Officers, directors, September 30, Exercise of Options to 111,023 $ 14,455 Cash(9)
employees and other 1995 to October purchase Common Stock
eligible 31, 1998
participants
</TABLE>
- ---------------
* As part of the reincorporation of the Company into Delaware, the Company
exchanged 3,099,959 shares of its Common Stock, 10,213,553 shares of its
redeemable convertible preferred stock and warrants to purchase 2,329,578
shares of its redeemable convertible preferred stock for 3,099,959 shares of
Common Stock, 10,213,553 shares of redeemable convertible preferred stock
and warrants to purchase 2,329,578 shares of redeemable convertible
preferred stock, respectively.
(1) Issued to Imperial Bank as additional consideration for a bank line of
credit.
(2) In connection with the cancellation of previous indebtedness, 70,390 shares
of Series C Preferred Stock were issued to Michael W. Hilton and 64,530
shares of Series C Preferred Stock were issued to S. Steven Singh.
(3) Issued to Comdisco, Inc. as additional consideration for a promissory note
and an equipment lease.
(4) Issued to Imperial Bank as additional consideration for a bank line of
credit and other financing.
(5) Issued to Imperial Bank as additional consideration for additional
financing.
(6) Issued to Comdisco, Inc. as additional consideration for a promissory note.
(7) In connection with the Company's acquisition of 7Software, the Company
exchanged 708,918 shares of Common Stock for 7Software's Common Stock.
II-3
<PAGE> 120
(8) Issued to TRS in connection with TRS's purchase of Series E Preferred Stock.
See "Certain Transactions."
(9) With respect to the grant of stock options, exemption from registration
under the Securities Act was unnecessary in that none of such transactions
involved a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.
All sales of Common Stock made pursuant to the exercise of stock options
granted under the stock option plans of the Company or its predecessors were
made pursuant to the exemption from the registration requirements of the
Securities Act afforded by Rule 701 promulgated under the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. The securities were
sold to a limited number of people with no general solicitation or advertising.
The purchasers were sophisticated investors with access to all relevant
information necessary to evaluate the investment and who represented to the
issuer that the shares were being acquired for investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C> <C>
1.01 -- Form of Underwriting Agreement.*
2.01 -- Form of Agreement and Plan of Merger between Company and
Concur Technologies, Inc., a Washington corporation.*
2.02 -- Agreement and Plan of Reorganization between Company, PSC
Merger Corp., 7Software, Inc., Andrew Dent and Melissa
Widner dated June 30, 1998.*
3.01 -- Company's Certificate of Incorporation.*
3.02 -- Company's Certificate of Designation.*
3.03 -- Form of Company's Amended and Restated Certificate of
Incorporation to be filed with the Delaware Secretary of
State immediately following the Offering.*
3.04 -- Company's Bylaws.*
4.01 -- Specimen Certificate for Company's Common Stock.*
4.02 -- Second Amended and Restated Information and Registration
Rights Agreement dated May 29, 1998.*
5.01 -- Opinion of Fenwick & West LLP regarding legality of the
securities being issued.*
10.01 -- Company's Amended and Restated 1994 Stock Option Plan and
related documents.*
10.02 -- Company's Amended 1998 Equity Incentive Plan and related
documents.*
10.03 -- Company's 1998 Employee Stock Purchase Plan and related
documents.*
10.04 -- Company's 1998 Directors Stock Option Plan and related
documents.*
10.05 -- Company's 401(k) Profit Sharing and Trust Plan.*
10.06 -- Form of Indemnity Agreement entered into by Company with
each of its directors and executive officers.*
10.07 -- Series D Preferred Stock Purchase Agreement dated July 22,
1997.*
10.08 -- Series E Preferred Stock Purchase Agreement dated May 29,
1998.*
10.09 -- Strategic Marketing Alliance Agreement between Company and
American Express Company dated December 17, 1997.**
10.10 -- Co-Branded XMS Service Marketing Agreement between Company
and American Express Travel Related Services Company, Inc.
("TRS") dated August 11, 1998.**
10.11 -- Warrant to purchase shares of Company's Series E Preferred
Stock issued by Company to TRS dated August 11, 1998.*
10.12 -- Voting Agreement among Company and stockholders of Company
identified therein dated May 29, 1998.*
</TABLE>
II-4
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C> <C>
10.13 -- Amendment Agreement among Company and stockholders of
Company identified therein dated July 30, 1998.*
10.14 -- Facility Lease between Company and CarrAmerica Realty
Corporation dated October 31, 1997, as amended on April 10,
1998.*
10.15 -- Letter Agreement between Company and Sterling R. Wilson
dated April 21, 1994.*
10.16 -- Letter Agreement between Company and Jon T. Matsuo dated
June 20, 1994.*
10.17 -- Letter Agreement between Company and Frederick L. Ingham
dated December 5, 1996.*
10.18 -- Letter Agreement between Company and John P. Russo, Jr.
dated April 1, 1996.*
10.19 -- Standstill Agreement between Company and TRS dated August
10, 1998.*
10.20 -- Security and Loan Agreement between Company and Imperial
Bank dated September 3, 1997.*
10.21 -- Addendum to Security and Loan Agreement between Company and
Imperial Bank dated September 3, 1997.*
10.22 -- Second Amendment to Loan Documents between Company and
Imperial Bank dated April 28, 1998.*
10.23 -- Bonus Agreement between Company and Melissa Widner and
Andrew Dent dated June 30, 1998.*
10.24 -- Amendment to Standstill Agreement between Company and TRS
dated November 30, 1998.*
10.25 -- Letter Agreement between Company and John A. Prumatico dated
June 24, 1998.*
10.26 -- Letter Agreement between Company and Michael Watson dated
June 24, 1998.*
21.01 -- List of Company's subsidiaries.*
23.01 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 -- Consent of Ernst & Young LLP, Independent Auditors.
23.03 -- Consent of American Express Company.*
23.04 -- Consent of Edward P. Gilligan.*
23.05 -- Consent of Russell P. Fradin.*
24.01 -- Power of Attorney*
27.01 -- Financial Data Schedule.*
</TABLE>
- ---------------
* Previously filed.
** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Commission.
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes to provide to the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 14 above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling
II-5
<PAGE> 122
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.
The undersigned Company 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 Company 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, 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-6
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Redmond, State of
Washington, on the 13th day of December, 1998.
CONCUR TECHNOLOGIES, INC.
By: /s/ S. STEVEN SINGH
------------------------------------
S. Steven Singh
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ S. STEVEN SINGH President, Chief Executive December 13, 1998
- ----------------------------------------------------- Officer and Director
S. Steven Singh (principal executive
officer)
/s/ STERLING R. WILSON Chief Financial Officer and December 13, 1998
- ----------------------------------------------------- Vice President of Operations
Sterling R. Wilson (principal financial officer
and principal accounting
officer)
/s/ MICHAEL W. HILTON Chairman of the Board of December 13, 1998
- ----------------------------------------------------- Directors and Chief
Michael W. Hilton Technical Officer
JEFFREY D. BRODY* Director December 13, 1998
- -----------------------------------------------------
Jeffrey D. Brody
NORMAN A. FOGELSONG* Director December 13, 1998
- -----------------------------------------------------
Norman A. Fogelsong
MICHAEL J. LEVINTHAL* Director December 13, 1998
- -----------------------------------------------------
Michael J. Levinthal
JAMES D. ROBINSON III* Director December 13, 1998
- -----------------------------------------------------
James D. Robinson III
</TABLE>
*By /s/ STERLING R. WILSON
--------------------------------
Sterling R. Wilson
Attorney-in-fact
II-7
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C> <C>
10.09 -- Strategic Marketing Alliance Agreement between Company and
American Express Company dated December 17, 1997.
10.10 -- Co-Branded XMS Service Marketing Agreement between Company
and American Express Travel Related Services Company, Inc.
dated August 11, 1998.
23.02 -- Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
<PAGE> 1
**Confidential treatment has been requested with
respect to certain information contained in this
document. Confidential portions have been omitted
from the public filing and have been filed separately
with the Securities and Exchange Commission
EXHIBIT 10.09
STRATEGIC MARKETING ALLIANCE AGREEMENT
This Strategic Marketing Alliance Agreement (the "Agreement") is made
and entered into as of December 17, 1997 (the "Effective Date") between Portable
Software Corporation ("Portable"), a Washington corporation and American Express
Company ("AmEx"), a New York corporation.
R E C I T A L S
A. Portable has developed and is licensing and marketing its Xpense
Management Solution enterprise software products to customers;
B. AmEx provides, inter alia, personal and corporate credit card
products and services, travel agency services, and electronic travel booking
services and products;
C. Portable and AmEx desire to enter into a strategic worldwide
marketing alliance providing for the integration of XMS with complementary
products and services of AmEx and for the marketing of XMS to Customers and
Prospects of AmEx on the terms and conditions set forth in this Agreement.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS.
1.1 "Additional Seats" shall mean the number of Authorized Users for
which an Expense Manager Customer is licensed by Portable in excess of the
number for which AmEx is paying a Special License Fee (as defined in Section
2.1).
1.2 "Affiliate" shall mean with respect to any person (which for
purposes of this definition shall include individuals and all legal entities),
any other person directly or indirectly controlling, controlled by, or under
common control with such person. For purposes of this definition, "control"
shall mean the power to direct or cause the direction of, the management and
policies of such person whether through the ownership of voting interests, by
contract, or otherwise.
1.3 "Authorized User" shall have the meaning given to it in the Volume
License Agreement and shall include Subsidized Users.
1.4 "AXI" shall mean AmEx's corporate travel booking software product.
1.5 "Closing" shall mean conversion of a Lead into a Referred Customer.
1.6 "Corporate Card" shall mean a corporate charge, credit or
procurement card issued by AmEx to the employees and agents of Customers for use
in connection
<PAGE> 2
with travel and entertainment expenses or procurement expenses incurred on
behalf of Customers.
1.7 "Customer" shall mean a business enterprise that is authorized to
use the Corporate Card, AXI, AmEx Travel Agency Services, or XMS for its own
internal business purposes.
1.8 "Expense Manager" shall mean AmEx's "Expense Manager Suite"
software product.
1.9 "Expense Manager Customer" shall mean a Customer that is a current
licensee of Expense Manager as of November 30, 1997 and listed on Exhibit B.
1.10 "Incremental Net Software License Revenue" is the Net Software
License Revenue received by Portable from an Expense Manager Customer during the
twelve-month period beginning on the effective date of the Volume License
Agreement, that is attributable to Additional Seats.
1.11 "Integration Program" shall mean the integration of product and
service offerings of the Parties in order to add value to the customer
experience in using such products and services, including providing
compatibility between certain software products and enabling the communication
of data between such products.
1.12 "Lead Referral Sales Cycle" shall mean the length of time that
elapses between acceptance of a Lead by Portable and the closing of the
applicable license transaction.
1.13 Net Software License Revenues shall have the meaning set forth in
Section 7.4.
1.14 "Party" shall mean Portable or AmEx.
1.15 "Prospect" shall mean a potential Customer.
1.16 "Referred Customer" shall mean a Prospect with respect to which (i)
AmEx has submitted a Lead (as defined in Section 7.1 hereof), (ii) Portable has
accepted the Lead, and (iii) Portable has entered into a Volume License
Agreement on or before the Lead Expiration Date. Referred Customers include
Expense Manager Customers to the extent XMS is licensed for Additional Seats.
1.17 "Subsidized User" shall mean an Authorized User for whose benefit
AmEx has determined that it will pay the Special License Fee to Portable.
1.18 "Technical Information" shall mean all technical information of a
Party that is reasonably necessary in order to carry out the Integration
Program, including data technologies, specifications, designs, plans, drawings,
data prototypes, processes, methods, know-how, software, and copyrighted or
copyrightable materials.
2
<PAGE> 3
1.19 "Volume License Agreement" shall mean Portable's standard
enterprise customer license agreement, a copy of which is attached as Exhibit A.
1.20 "Work Plan" shall mean a plan setting forth the specifications for
a component of the Integration Program, a description of the development tasks
to be accomplished to complete production of such component of the Integration
Program, and a schedule for completion of those tasks.
1.21 "XMS" shall mean Portable's Xpense Management Solution software
product.
2. MARKETING AND LICENSING OF XMS TO EXISTING EXPENSE MANAGER CUSTOMERS.
2.1 General. AmEx has licensed Expense Manager to the Expense Manager
Customers listed on Exhibit B and desires to terminate such licenses and provide
XMS as a replacement product to its Expense Manager Customers on the terms set
forth in this Section 2. In consideration of the fees to be paid by AmEx
pursuant to this Section 2, Portable agrees to offer a license to XMS to Expense
Manager Customers on the terms and conditions set forth in this Section 2. The
Parties have agreed that the license of XMS to Expense Manager Customers
covering a number of Authorized Users not exceeding [*] will be at a rate of [*]
per Authorized User (the "Special License Fee"). Exhibit B sets forth the
estimated number of Corporate Cards in force at each Expense Manager Customer.
Portable represents and warrants to AmEx that it has, or can readily obtain, the
necessary personnel and capacity to adequately provide to all of the Expense
Manager Customers who become XMS Customers the services which Portable is
obligated to provide pursuant to the applicable Volume License Agreement.
Portable agrees that it will provide such services at a level and in a manner
not less than has been provided to Expense Manager Customers by AmEx. AmEx
agrees that from and after the Effective Date it will use its best efforts not
to communicate the Special License Fee to Expense Manager Customers, directly or
indirectly.
2.2 Standard Proposal. Portable agrees to offer each Expense Manager
Customer a license to XMS on the terms and conditions set forth in its Volume
License Agreement subject to (a) payment by AmEx or such Expense Manager
Customer of the applicable license fees for the Subsidized Users covered by the
applicable Volume License Agreement; and (b) such Expense Manager Customer's
agreement to pay the applicable fees and charges described in Section 2.5 for
Additional Seats and for any consulting services to be provided by Portable. If
an Expense Manager Customer does not agree to such terms, then AmEx and Portable
shall discuss what alternative solution, if any, might be suitable in such
circumstances for that Expense Manager Customer.
2.3 License Payment. If an Expense Manager Customer does not agree to a
license fee greater than the Special License Fee, then within thirty (30) days
after the date that Expense Manager Customer signs and delivers the Volume
License Agreement to Portable, AmEx shall pay to Portable, for the benefit of
such Expense Manager Customer, a fee equal to the product of (i) [*], and (ii)
the number of Subsidized Users covered
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
3
<PAGE> 4
by that Volume License Agreement. This fee shall constitute full payment
for the license of XMS to that Expense Manager Customer for such Authorized
Users during the first year of the applicable Volume License Agreement;
provided, however, that the total number of Subsidized Users shall not exceed
[*]. The Parties contemplate that Expense Manager Customers who agree to a
license rate greater than the Special License Fee will make payment directly to
Portable. AmEx has the right to pay for Customer One Services provided to
Expense Manager Customers by Portable during the first year of the applicable
Volume License Agreement, at the rate of [*] per Authorized User (but not to
exceed a total of [*] Authorized Users).
2.4 Marketing. AmEx agrees to provide Portable with such assistance as
Portable may reasonably request in connection with the marketing of XMS to
Expense Manager Customers. In particular, AmEx agrees that as requested by
Portable, an AmEx representative shall use its [*] to arrange, and if arranged
shall attend, a meeting between Portable and a representative, with authority to
execute and deliver a Volume License Agreement for the license of XMS, of each
Expense Manager Customer. Portable and AmEx agree to jointly develop information
about the relationship between Portable and AmEx to be used in communications to
Expense Manager Customers.
2.5 Other Charges. The Parties acknowledge and agree (a) that an Expense
Manager Customer's use of XMS by a number of Authorized Users greater than the
number of Subsidized Users shall obligate that Customer to pay additional fees
to Portable and (b) that Customers shall be obligated for fees related to
Customer One Services (i) [*] upon exercise of the right granted in the last
sentence of Section 2.3, and (ii) to the extent of the number of Additional
Seats covered by the applicable Volume License Agreement. Portable agrees that
its fees for such additional licenses and subsequent Customer One Services shall
be set forth in the Volume License Agreement applicable to each Expense Manager
Customer and shall not exceed the prices at which Portable customarily makes
such products and services available to its other Customers of similar volume.
Portable further agrees that it will provide consulting services to Expense
Manager Customers at Portable's then current customary rate(s) for such
services.
3. MARKETING AND LICENSING OF XMS TO OTHER CUSTOMERS.
3.1 General. Portable and AmEx wish to cooperate in marketing XMS to
Customers and Prospects who are not Expense Manager Customers. Portable agrees
that it will offer XMS to such Customers on pricing terms no less favorable than
those set forth in the then current Master Price List (a copy of which (a) has
been provided to AmEx prior to the execution of this Agreement and (b) shall be
provided to AmEx whenever such list is revised). Portable represents and
warrants to AmEx that it has, or will obtain as promptly as is commercially
practicable, the necessary personnel and capacity to adequately provide the
services set forth in the Volume License Agreement if such Prospect becomes a
Referred Customer.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
4
<PAGE> 5
3.2 Rebate. In consideration of AmEx's efforts in promoting the use of
XMS, Portable agrees to pay a rebate to AmEx in accordance with the provisions
of Section 7 of this Agreement.
3.3 Future Negotiations. Upon notice from AmEx given on or before
September 1, 1998, Portable agrees to enter into negotiations regarding the
remarketing and/or reselling of XMS by AmEx to Prospects. Portable and AmEx each
agree to negotiate in good faith, the terms and conditions of a remarketing or
reseller license. While establishment of a reseller relationship is the long
term intent of the Parties, nothing in this Agreement shall bind either Party to
enter such a relationship or any other relationship other than the relationship
defined in this Agreement and neither Party shall have any liability to the
other should a reseller relationship not be established.
4. INTERNAL LICENSE.
4.1 License Option. AmEx shall have the right, exercisable at any time
on or before [*] after the Effective Date, to acquire a license (the "License")
to use the current version of XMS for its internal data processing operations on
the terms and subject to the conditions set forth in Section 4.2 and in the
Volume License Agreement, subject to such modifications thereto as may be agreed
through good faith negotiations of the Parties. The License will permit use of
XMS by a maximum of [*] North America-based Authorized Users.
4.2 License Pricing. If AmEx exercises its option to acquire a License,
AmEx agrees to pay to Portable, on the terms set forth in the Volume License
Agreement, (i) a license fee of [*] and (ii) annual maintenance fees equal to
[*] of the aggregate software license fees paid under the Volume License
Agreement. Licenses covering additional Authorized Users may thereafter be
purchased at a rate of [*] per Authorized User. Portable agrees, that for the
[*] period commencing on the exercise of the License option, it will provide
AmEx with consulting services related to AmEx's implementation of XMS at a rate
of [*] per hour. AmEx shall reimburse Portable for its actual travel and
out-of-pocket expenses incurred in connection with providing consulting
services.
5. PRODUCT INTEGRATION.
5.1 Integration Program. Both Parties agree (i) that they will mutually
develop Work Plans regarding the Integration Program, (ii) that each will commit
and utilize sufficient resources to meet the milestones set forth in any aspect
of the Integration Program and to complete development of each Integration
Program component in accordance with the Work Plans (including the schedule set
forth therein), (iii) that each will use reasonable best efforts to maintain the
compatibility of their respective products and services (including data feeds
between XMS and the Corporate Card) that are part of the Integration Program
either currently (as listed in the following sentence) or as later added to the
Integration Program by mutual agreement, and (iv) that each will provide to the
other, from time to time, a set of features and possible product extensions for
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
5
<PAGE> 6
inclusion in the Integration Program. The initial portion of the Integration
Program will be the design and development of technical interfaces and related
components to enable the integration of XMS with AXI, the Corporate Card, and
the product now known as Power Portfolio, and any successor or replacement
products. The currently contemplated features of the initial portion of the
Integration Program are set forth in Exhibit C-1. The countries outside of North
America in which the parties contemplate that their cooperative marketing
efforts will currently be undertaken are set forth in Exhibit C-2; as Portable
completes the internationalization and localization efforts for additional
countries, the Parties will cooperatively market their products and services in
those additional areas.
5.2 Technical Information. Each Party agrees to grant to the other Party
a nontransferable limited license, during the term of this Agreement, to use its
Technical Information in connection with the other Party's development of
Integration Program components; provided, however, if any such Technical
Information is owned by a third party and is non-assignable, prior to any use by
any Party, the other Party shall (a) first obtain the consent of the owner to
such transfer and (b) use its reasonable best efforts to obtain such consent.
5.3 No Financial Obligation. Neither Party shall have any financial
obligation with respect to any development work undertaken by the other Party,
except as may be set forth in a separate written agreement, or amendment to this
Agreement, executed in either case by both Parties.
5.4 Support After Termination. Each Party agrees that following any
termination of this Agreement it will take such actions as are reasonably
necessary to maintain for each Customer that is a Customer of both AmEx and
Portable the level of product and service integration that existed at
termination.
6. MARKETING AND SUPPORT.
6.1 Joint Marketing Responsibilities.
(a) AmEx shall participate with Portable in the development and
delivery of a press release announcing the relationship between AmEx and
Portable. The press release shall be subject to the prior written approval of
both AmEx and Portable.
(b) All information to be disseminated externally about the
relationship between Portable and AmEx and the products marketed hereunder shall
be reviewed and approved by both Parties prior to any use or other publication.
(c) Portable and AmEx each agree, upon reasonable request, to
provide training to one another's sales and marketing personnel regarding the
products and services that are being marketed to Customers and Prospects under
this Agreement and the Integration Program.
6
<PAGE> 7
(d) The Parties agree to participate in a committee (the
"Steering Committee") through designated personnel of equal number. The Parties
intend that the Steering Committee shall meet at least once per calendar quarter
to review the status and direction of the Parties' relationship, the Integration
Program, and any issues of concern to either Party regarding the matters that
are the subject of this Agreement. All details regarding time, manner, place and
agenda for such meetings shall be decided by the Steering Committee.
6.2 Marketing and Support Responsibilities of Portable.
(a) Portable shall provide AmEx with Portable marketing
literature in such quantities as are reasonably requested from time to time by
AmEx for distribution to its Customers and other valid purposes.
(b) Portable shall provide AmEx with such reasonable access to
appropriate sales and marketing personnel of Portable as may be mutually agreed
by the Parties in order to present information about AmEx's products or
services, the Integration Program, and to conduct the training referenced in
Section 6.1(c).
(c) Portable may provide a link from its Website to AmEx's
corporate services Website if requested by AmEx, and in that connection agrees
to enter into a Hyperlink Agreement in the form annexed hereto as Exhibit D
subject to such modifications thereto as may be agreed through good faith
negotiations of the Parties. Any material presented on Portable's Website
regarding AmEx shall be prepared by AmEx, approved in writing by Portable and
subject to the continuing approval of Portable and AmEx.
(d) Portable will provide warranty service and support and
Customer One Services to Customers, including Expense Manager Customers, under
the terms of its Volume License Agreement with each Customer.
(e) Portable agrees that copies of XMS licensed to Expense
Manager Customers and Referred Customers shall include an AmEx logo on the
splash screen and other mutually agreed areas in a manner proposed by AmEx, and
subject to reasonable approval of Portable.
6.3 Marketing Responsibilities of AmEx.
(a) AmEx shall provide Portable with marketing literature of AmEx
in such quantities as are reasonably requested from time to time by Portable for
distribution to Customers and other valid purposes.
(b) AmEx may arrange for Portable's participation in events
sponsored or attended by AmEx that provide a forum for the joint marketing of
XMS and the products and/or services of AmEx (e.g. user groups, vendor fairs,
trade shows, seminars). Each Party will be responsible for its own out-of-pocket
expenses incurred in connection
7
<PAGE> 8
with these events.
(c) AmEx shall provide Portable with such reasonable access to
appropriate sales and marketing personnel of AmEx as may be mutually agreed by
the Parties in order to present information about Portable's products and
services, the Integration Program, and to conduct the training referenced in
Section 6.1(c).
(d) AmEx may provide a link from its corporate services Website
to Portable's Website if requested by Portable, and in that connection agrees to
enter into the Hyperlink Agreement in the form annexed hereto as Exhibit D
subject to such modifications thereto as may be agreed through good faith
negotiations of the Parties. Any material presented on AmEx's Website regarding
Portable shall be prepared by Portable, approved in writing by AmEx, and subject
to the continuing approval of AmEx and Portable.
(e) AmEx shall make no representations, warranties, or guarantees
to Prospects, Expense Manager Customers, Customers, or the trade with respect to
the specifications, features, or capabilities of XMS or the Customer One
Services that are substantively inconsistent with the documentation Portable
supplies with XMS, the warranties and disclaimers contained in the Volume
License Agreement, or the XMS literature supplied by Portable.
7. LEAD REFERRALS AND ACCEPTANCE.
7.1 Lead Referrals. AmEx agrees to provide Portable with qualified XMS
customer leads (a "Lead") and shall be responsible for the customer development,
marketing, and support functions set forth in Exhibit D for which it is
designated a Responsible Party. In order to be eligible to receive a rebate in
connection with the referral of a Lead, AmEx must complete and submit within
thirty (30) days of pre-qualifying a referral, a "Lead Referral Worksheet" in
the form of the attached Exhibit E for each sales opportunity AmEx identifies
for XMS. Each Lead Referral Worksheet must be completed in all material
respects. A Lead Referral Worksheet may be submitted in either paper or
electronic form. At least one of the contacts on the Lead Referral Worksheet
must be a member of the Prospect's [*] who is directly responsible for the [*]
functions.
7.2 Lead Acceptance. Portable shall act diligently in responding to
Leads submitted by AmEx; a Lead shall be deemed accepted by Portable unless
rejected within [*] from the date Portable receives the Lead Referral
Worksheet. Portable may reject a Lead Referral Worksheet if a relevant
decision-maker at the sales opportunity is in possession of a [*] or has had one
or more face-to-face meetings or [*] with Portable representatives during the
twelve (12) months preceding the date of receipt of the applicable Lead Referral
Worksheet, or if Portable has already received a Lead Referral Worksheet for
that account from another Portable business partner. Notwithstanding the
foregoing criteria for rejecting a Lead, Portable may at its sole discretion,
choose to accept a Lead
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
8
<PAGE> 9
from AmEx if that Lead significantly enhances Portable's position in the
account. Any conflicts will be submitted to the Steering Committee for
resolution. With respect to Leads that it has accepted, Portable shall be
responsible for the customer development, marketing, and support activities set
forth in Exhibit E for which it is designated a Responsible Party.
7.3 Rebate Payment Eligibility. Rebate payments shall be payable by
Portable to AmEx on each Lead accepted during the term of this Agreement, which
is converted into a Referred Customer on or before the Lead Expiration Date. The
Lead Expiration Date shall be twelve (12) months after the date a Lead is
accepted by Portable. Leads may be resubmitted by AmEx after the Lead Expiration
Date and will be treated pursuant to the terms of Section 7.2 above.
7.4 Rebate Program. For each Referred Customer, Portable shall pay to
AmEx a rebate payment equal to a percentage (the "Rebate Rate") of the Net
Software License Revenue received by Portable from that Referred Customer under
the Volume License Agreement during the [*] beginning on the date of the Closing
(the "Eligible License Revenues"). As used in this Agreement, Net Software
License Revenue excludes, and rebate payments will not be based upon, any: (i)
revenue attributable to the licensing of third party software products, (ii)
discounts, duties, or sales, use, or other taxes or withholdings other than
those based on Portable's before tax income, (iii) revenue from consulting,
support, maintenance, training or other types of services, (iv) revenue received
by a party other than Portable. The Rebate Rate applicable to Eligible License
Revenue received from a Referred Customer will be determined by reference to (i)
the aggregate Eligible License Revenues received by Portable from Referred
Customers during the applicable [*] commencing on the Effective Date or
any anniversary thereof, and (ii) the length of the Lead Referral Sales Cycle.
Portable acknowledges that AmEx will receive a higher Rebate Rate when the Lead
Referral Sales Cycle does not exceed [*] and agrees to act in good faith in
seeking to convert Prospects into Referred Customers in a timely manner.
(a) Standard Rebate Rate. For transactions in which the Lead
Referral Sales Cycle is greater than [*] but does not exceed [*], the
applicable Rebate Rate shall be determined as follows:
<TABLE>
<CAPTION>
Range of Annual Eligible License
Revenue from Referred Customers
Where The Closing Occurs in This Lead Rebate Percentage
Referral Sales Cycle Applicable Within Each Range
------------------------------------- -----------------------------
<S> <C>
Level 1 [*] 10.0%
Level 2 [*] [*]
Level 3 Above [*] [*]
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
9
<PAGE> 10
(b) Preferred Rebate Rate. For transactions in which the Lead
Referral Sales Cycle is [*] or less, the applicable Rebate Rate shall be
determined as follows:
<TABLE>
<CAPTION>
Range of Annual Eligible License
Revenue from Referred Customers
Where The Closing Occurs in This Lead Rebate Percentage
Referral Sales Cycle Applicable Within Each Range
------------------------------------- -----------------------------
<S> <C>
Level 1 [*] [*]
Level 2 [*] [*]
Level 3 Above [*] 22.5%
</TABLE>
(c) Expense Manager Customers. Incremental Net Software License
Revenue from Expense Manager Customers will be treated as Eligible License
Revenue for purposes of the Rebate Program if the Additional Seats to which such
Incremental Net Software License Revenue relates are licensed at a price
greater than [*} per Authorized User; provided, however, that this condition
shall not be applicable with respect to Expense Manager Customers to whom
Portable, without the concurrence of AmEx, has marketed Additional Seats at a
price of [*] or less per Authorized User. For Expense Manager Customers, the
Lead Referral Sales Cycle will be deemed to commence on January 5, 1998.
7.5 Reporting and Payment. (a) Portable will provide a monthly report to
AmEx within thirty (30) days following the end of a calendar month of all
accepted or rejected Leads submitted by AmEx and a quarterly report of Eligible
License Revenues. Additional reports shall be provided by Portable at AmEx's
reasonable request. Portable shall use diligent efforts to transition to
reporting on Eligible License Revenues on a monthly basis by September 1, 1998.
(b) Rebate payments will not be paid to AmEx until the Eligible
License Revenues to which the payment relates are collected by Portable from a
Referred Customer. Portable will make such payments to AmEx not later than
thirty (30) days following the end of a calendar quarter (or calendar month,
after the transition to a monthly reporting system has occurred) based on the
total Eligible License Revenues collected by Portable during the applicable
period.
7.6 Audit. AmEx may from time to time, but not more than once every
twelve (12) months, perform an audit upon reasonable notice to Portable to
determine compliance with the terms of this Agreement. Any audit must be
conducted during the hours of 8 AM and 5 PM Pacific Time by an independent
certified public accountant selected by AmEx and reasonably satisfactory to
Portable and all costs of an audit shall be borne by AmEx; provided, however,
that if the results of an audit disclose a shortfall, Portable shall promptly
pay to AmEx the amount of such underpayment and, if the results
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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disclose a shortfall of more than two percent (2%) shall also promptly pay to
AmEx interest on such underpayment at the rate of twelve percent per annum and
the reasonable costs of the audit.
8. TERM AND TERMINATION.
8.1 This Agreement shall commence on the Effective Date and, unless
sooner terminated as provided in this Agreement, shall remain in full force and
effect for a term of three (3) years (the "Initial Term"). Thereafter, this
Agreement shall automatically renew for successive two-year terms (each, a
"Renewal Term"), provided, however, that a Party may terminate this Agreement on
the expiration of the Initial Term or any Renewal Term by delivering written
notice of termination to the other not less than sixty (60) days before the
expiration of such Initial or Renewal Term.
8.2 Termination. This Agreement may be terminated at any time prior to
the expiration of its term, as follows:
(a) By either Party by written notice to the other Party if a
receiver shall have been appointed over the whole or any substantial part of the
assets of the other Party, a petition or similar document is filed by the other
Party initiating any bankruptcy or reorganization proceeding, or such a petition
is filed against the other Party and such proceeding shall not have been
dismissed or stayed within sixty (60) days after such filing;
(b) By either Party upon written notice if the other Party has
breached the terms of this Agreement in any material respect and fails to cure
such breach within thirty (30) days after receipt of written notice of such
default;
(c) by AmEx if the Financial Statements provided by Portable
pursuant to Section 12.4 do not demonstrate that Portable is solvent and able to
pay its commercial insurance premiums in commercially reasonable amounts;
(d) by either Party upon written notice given upon the
Acquisition (as defined in Section 13.5) of Portable by a purveyor of corporate
charge or credit card that competes with AmEx (an "AmEx Competitor"); and
(e) by AmEx upon the acquisition of twenty percent (20%) or more
of the voting or equity securities of Portable by an AmEx Competitor.
8.3 Effect of Termination. Upon any termination or expiration of this
Agreement:
(a) For a period of one year after the date of termination, all
applicable books and records of Portable shall be made available to AmEx for the
purpose of determining compliance by Portable with its obligations under this
Agreement;
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(b) Each Party shall immediately cease distribution of all items
in its possession which bear the trademarks of the other Party, shall as
promptly as is practicable cease all use of the trademarks of the other Party,
and will not use any mark which is confusingly similar to any trademarks of the
other Party;
(c) Each Party shall return to the other Party marketing
literature and materials of the other Party in its possession or shall destroy
such items and certify their destruction to the other Party; and
(d) Each Party's rights and obligations with respect to payments
due hereunder as well as the provisions of Sections 2.3, 3.2, 4.1 (unless the
Agreement has been terminated by AmEx), 4.2, 5.4, 7.4, 7.5, 7.6, 8.3, 8.4, 9,
10, 11, 12, and 13 shall survive termination of this Agreement. In addition,
upon a termination of this Agreement pursuant to Section 8.2(d) or Section
8.2(e), the Parties agree that the provisions of Sections 3.1, 5.1, 5.2, 5.3,
6.1(b), 6.1(d), 6.2, 6.3, 7.1, 7.2, and 7.3 (or such other provisions as may be
negotiated pursuant to Section 3.3 hereof) shall survive termination for a
period of twelve (12) months.
8.4 No Damages. NEITHER PORTABLE NOR AMEX SHALL BE LIABLE TO THE OTHER
FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSS OF
GOODWILL OR LOSS OF PROSPECTIVE PROFITS, ON ACCOUNT OF THE TERMINATION OR
EXPIRATION OF THIS AGREEMENT STRICTLY IN ACCORDANCE WITH THE TERMS OF 8.1 OR
8.2; PROVIDED, HOWEVER, THAT A PARTY TERMINATING THE AGREEMENT FOR BREACH
PURSUANT TO SECTION 8.2 (b) SHALL BE ENTITLED TO RECOVER FOR DIRECT DAMAGES
CAUSED BY THE BREACH. EACH OF AMEX AND PORTABLE WAIVES ANY RIGHT IT MAY HAVE TO
RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OR EXPIRATION OF THIS
AGREEMENT IN ACCORDANCE WITH ITS TERMS. THE PARTIES ACKNOWLEDGE THAT THIS
SECTION 8.4 HAS BEEN INCLUDED AS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER
INTO THIS AGREEMENT AND THAT THE PARTIES WOULD NOT HAVE ENTERED INTO THIS
AGREEMENT, BUT FOR THE LIMITATIONS OF LIABILITY AS SET FORTH HEREIN.
9. TITLE AND COPYRIGHT.
9.1 General Overview. The Parties contemplate that the Integration
Program will include the joint development of technical specifications followed
by the independent development of software modules, based in part on such
technical specifications, that will integrate the products that are part of the
Integration Program. The Parties contemplate that such software modules will be
incorporated in the product offering(s) of the developing Party ("Incorporated
Modules") and will not be independent components or software programs. The
parties wish to provide for joint ownership rights
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in any software modules that are developed as part of the Integration Program
but that are not incorporated in a product of the developing Party
("Unincorporated Modules").
9.2 Portable. AmEx acknowledges and agrees that, as between AmEx and
Portable, XMS and any software module developed by Portable as part of the
Integration Program and used by Portable as an Incorporated Module (a "Portable
Module") are and shall remain the exclusive property of Portable and that
Portable will retain all right, title and interest thereto during the term of
this Agreement and thereafter. Copyright to all of the source code, object code,
documentation, any other embodiment of XMS and any Portable Module belong to and
shall remain with Portable.
9.3 AmEx. Portable acknowledges and agrees that, as between Portable and
AmEx, any software module developed by AmEx as part of the Integration Program
and used by AmEx as an Incorporated Module (an "AmEx Module") shall remain the
exclusive property of AmEx and that AmEx will retain all right, title and
interest therein during the term of this Agreement and thereafter. Copyright to
all of the source code, object code and any other embodiment of any AmEx Module
belong to and shall remain with AmEx.
9.4 Joint Ownership. The parties will jointly own the technical
specifications developed for the Integration Program. In addition, the Parties
will jointly own any Unincorporated Modules developed as part of the
Integration Program.
10. LIMITATIONS OF LIABILITY.
EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION 10, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF REVENUES, LOSS OF PROFITS, OR
COST OF PROCUREMENT OF SUBSTITUTE TECHNOLOGY, EVEN IF THAT PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION SHALL APPLY TO ANY
CLAIM OR CAUSE OF ACTION WHETHER IN CONTRACT OR TORT (INCLUDING NEGLIGENCE)
STRICT LIABILITY, OR BREACH OF WARRANTY, BUT SHALL NOT APPLY IF (A) A PRODUCT IS
DETERMINED TO BE DEFECTIVE AND TO HAVE CAUSED BODILY INJURY OR DEATH, OR (B) IF
SUCH DAMAGES ARE THE RESULT OF THE OTHER PARTY'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
11. PROPRIETARY INFORMATION AND CONFIDENTIALITY.
11.1 Proprietary Information. The Parties intend to disclose and
exchange confidential, proprietary and trade secret, Technical Information,
technical and business plans, proposed products, and marketing and sales reports
regarding their businesses and, in the case of Portable, benchmark tests of XMS,
the Rebate Rates, and the pricing terms set forth in this Agreement (the
"Proprietary Information").
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11.2 Obligation of Confidentiality. Each Party shall protect and keep
confidential any and all Proprietary Information of the other Party embodied in
any information licensed or disclosed hereunder, and shall not use, disclose or,
except as permitted by Section 11.3, allow any third party access to any such
Proprietary Information, except to the extent allowed by the licenses granted in
this Agreement. In furtherance and not in limitation of the foregoing, each
Party agrees to maintain the strict confidentiality of any source code delivered
by the other Party.
11.3 Limited Access. Each Party shall use its best efforts to ensure
that only employees and third parties whose duties give them a need to know such
Proprietary Information of the other Party shall have access thereto. All such
persons and entities shall be instructed to treat the same as proprietary and
confidential and the receiving Party shall take such other measures to protect
the confidentiality of such Proprietary Information as it deems reasonable under
the circumstances. Without limiting the generality of the foregoing, each Party
shall require any third party to whom it discloses any Proprietary Information
to sign a confidentiality agreement, enforceable by the other Party, whereby
such third party agrees to be bound by the confidentiality provisions set forth
in Section 11.2.
11.4 Required Disclosure. If a Party, or any of its employees, shall be
under a legal obligation in any administrative, governmental, or judicial
circumstance involuntarily to disclose any Proprietary Information of the other,
it shall give the Party that owns such Proprietary Information (the "Disclosing
Party") prompt notice thereof so that the Disclosing Party may seek an
appropriate protective order. If the Disclosing Party is finally unsuccessful in
obtaining such protective order, and if the Party receiving such Proprietary
Information (the "Receiving Party") or any such employee would, in the opinion
of its counsel, be held in contempt or suffer other censure or penalty for
failure to disclose, disclosure pursuant to the order or decree of an
administrative, governmental or judicial authority with jurisdiction over such
Party may be made by the Receiving Party or its employees without liability
hereunder.
11.5 Permitted Disclosures. Notwithstanding the foregoing, neither Party
shall be liable to the other with regard to any disclosure of Proprietary
Information of the other Party which:
(a) was known to the Receiving Party, without restriction, at the
time of disclosure, as shown by the files of the Receiving Party in existence at
the time of disclosure;
(b) is disclosed with the prior written approval of the
Disclosing Party;
(c) was independently developed by the Receiving Party, without
any use of the Proprietary Information and by employees or other agents of (or
independent contractors hired by) the Receiving Party who have not been exposed
to such Proprietary Information; or
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(d) becomes known to the Receiving Party, without restriction,
from a source who obtained such information other than through the breach of
this Agreement by the Receiving Party and not otherwise in violation of the
Disclosing Party's rights.
11.6 Remedies. The Parties recognize and acknowledge that Proprietary
Information may have competitive value and be of a confidential nature and that
irreparable damage might result to the Disclosing Party if such Proprietary
Information were improperly disclosed by a Receiving Party to a third party.
11.7 Survival. The obligations of confidentiality and limitations of
use, disclosure, and access set forth herein shall survive the termination of
this Agreement for a period of three years from the date of such termination.
12. INDEMNIFICATION.
12.1 By Portable. Portable agrees to indemnify, defend and hold harmless
AmEx and its Affiliates, and their respective directors, officers, employees,
and agents, from any and all third party claims, suits and liabilities
(including reasonable attorney's fees and expenses) arising out of or resulting
from (a) any claim, suit, or proceeding, and any damages or liability therefrom
or settlement thereof (including reasonable fees of attorneys and related costs)
to the extent based on a claim that XMS or Portable infringes the patent,
copyright, trademark, trade secret, or other proprietary right of a third party,
(b) any actual or alleged act or omission on the part of Portable, its
directors, officers, employees or agents (including Affiliates and licensees) in
the marketing or selling of XMS or its predecessors and successors (other than
to Expense Manager Customers, unless the acts or omissions of Portable are
primarily responsible for the claims of the Expense Manager Customer), whether
or not such acts or omissions occurred prior to the Effective Date.
12.2 By AmEx. AmEx agrees to indemnify, defend and hold harmless
Portable and its Affiliates, and their respective directors, officers, employees
and agents, from any and all claims, suits and liabilities (including reasonable
attorney's fees and expenses) (a) arising out or resulting from any actual or
alleged act or omission on the part of AmEx, its directors, officers, employees
or agents (including Affiliates and licensees) in the marketing or selling of
(i) AXI, Expense Manager, or XMS to Expense Manager Customers, and (ii) any AmEx
products or services to Customers and Prospects, whether or not such acts or
omissions occurred prior to the Effective Date, including without limitation,
providing representations, commitments, or warranties (or failing to effectively
disclaim all warranties and liabilities on behalf of Portable) to Prospects and
Expense Manager Customers; and (b) of third parties arising out of or resulting
from any claim, suit, or proceeding, and any damages or liability therefrom or
settlement thereof (including reasonable fees of attorneys and related costs) to
the extent based on a claim that AXI or Expense Manager or AmEx infringes the
patent, copyright, trademark, trade secret, or other proprietary right of a
third party.
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12.3 Indemnification Procedure. If any action shall be brought against
either Party in respect of which indemnity may be sought from the other Party
pursuant to the provisions of this Section 12 ("Claim"), the indemnified party
shall promptly notify the indemnifying party in writing, specifying the nature
of the Claim, the total monetary amount sought, as well as such relief as is
sought therein. The indemnified party shall cooperate with the indemnifying
party at the indemnifying party's expense in all reasonable respects in
connection with the defense of the Claim if by a third party. If the Claim from
a third party is solely for monetary damages or a claim of infringement, the
indemnifying party shall, upon written notice to the indemnified party,
undertake the defense or settlement of the Claim; in all other instances, the
indemnified party, upon written notice to the indemnifying party, may undertake
the defense or settlement of the Claim. In the event the indemnified party
undertakes the defense or settlement of the Claim, the indemnifying party shall
have the right to employ separate counsel at its own expense and participate in
the defense of the Claim. The indemnifying party shall reimburse the indemnified
party upon demand the judgment of a court of competent jurisdiction or pursuant
to a bona fide compromise or settlement of claims, demands or actions, and shall
reimburse the indemnified party upon demand for any payments of attorney's fees
and related expenses made by the indemnified party. A Party's failure to give
timely notice or to provide copies of documents or to furnish relevant data in
connection with any claim for indemnification shall not constitute a defense (in
part or in whole) to any claim for indemnification for such Party, except and
only to the extent that such failure shall result in any prejudice to the
indemnifying party; provided, that any such compromise or settlement must be
approved by the indemnifying party, and any such compromise or settlement must
be approved by the indemnified party, which approval shall not be unreasonably
withheld.
12.4 Financial Statements. As promptly as practicable following the end
of each of its fiscal years during the term of this Agreement, Portable shall
deliver to AmEx a complete copy of Portable's audited financial statements
certified by Portable's independent certified accountants (the "Financial
Statements"). The Financial Statements shall be Proprietary Information of
Portable.
13. GENERAL.
13.1 Entire Agreement; Amendment. This Agreement, together with any
exhibits attached hereto, contains the complete and exclusive understanding and
agreement of the parties with respect to its subject matter and supersedes,
merges, and replaces all prior writings, discussions and understandings relating
to such subject matter. This Agreement may only be amended by a written
agreement and signed by authorized representatives of both parties.
13.2 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, excluding those laws that
direct the application of the laws of another jurisdiction. The Parties hereby
consent to the exclusive jurisdiction of any State or Federal court located in
New York County. Neither
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Party shall knowingly take or fail to take any action that might cause it or the
other Party to be in violation of any law or regulation of the United States,
including the United States Foreign Corrupt Practices Act.
13.3 Force Majeure. Neither Party shall be liable for any delay or
failure to meet its obligations pursuant to this Agreement due to natural
circumstances beyond its reasonable control, including, but not limited to war,
riots, insurrection, civil commotion, fire, flood, storm or inability to obtain
necessary labor, materials or manufacturing facilities as a direct result of
such natural disasters.
13.4 Severability. If any term or provision of this Agreement is found
to be invalid or unenforceable for any reason, it shall be adjusted rather than
avoided, if possible, so as best to accomplish the objective of the parties to
the extent possible. In any event, the remaining terms and provisions shall be
deemed valid and enforceable. It is expressly understood and agreed that each
provision of this Agreement providing for a limitation of liability disclaimer
or limitation of warranties, or exclusion of damages is intended by the parties
to be severable and independent of any other provisions and to be enforced as
such.
13.5 Assignment. This Agreement shall be binding on the Parties and on
their successors and assigns. Except as expressly provided herein, neither Party
shall transfer, assign or subcontract any right or obligation hereunder without
the prior written consent of the other Party, which consent shall not be
unreasonably withheld; provided, however, that consent shall not be required (i)
in connection with any assignment to an entity that acquires all or
substantially all of a Party's assets, voting stock, or business (an
"Acquisition"); or (ii) to an Affiliate of a Party.
13.6 Waiver. The failure of either Party any time to require performance
by the other Party of any provision hereof shall not affect in any way the full
right to require such performance at any time thereafter; nor shall the waiver
by either Party of a breach of any provision hereof be taken or held to be a
waiver of the provision itself.
13.7 Indemnification; Attorneys' Fees. Subject to the limitations of
Article 10, each Party agrees to indemnify and hold harmless the other and their
respective Affiliates and their respective directors, officers, employees, from
losses, damages and liabilities to the extent arising out of or based upon a
breach by such Party of this Agreement. In the event of any suits and actions
with respect to this Agreement, the prevailing Party shall be entitled to
recover reasonable attorneys' fees and other costs and expenses incurred in
resolving such dispute.
13.8. Cooperation. Each Party to this Agreement agrees to execute and
deliver all documents and to perform all further acts and to take any and all
further steps that may be reasonably necessary to carry out the provisions of
this Agreement and the transactions contemplated hereby.
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13.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but which together shall constitute a
single instrument.
13.10 Notices. All notices relating to this Agreement shall be in
writing, signed by the Party giving or making such notice or communication, and
shall be delivered by: (a) personal delivery; (b) telecopier facsimile
transmission; or (c) by postage-prepaid certified or registered mail (airmail if
available), return receipt requested. Notices shall be sent to the address of
the other Party set forth below, or such other address as either Party may
specify in writing in accordance with this Section 13.10, and shall be deemed
given upon personal delivery, three (3) business days after deposit in the mail,
or upon acknowledgment or receipt of facsimile transmission:
<TABLE>
<S> <C>
For Portable: For AmEx:
S. Steven Singh [*]
President and CEO Senior Vice President and
Portable Software Corporation General Manager
14715 NE 95th Street American Express Company
Redmond, WA 98052 140 Broadway (43rd Floor)
New York, NY 10005
</TABLE>
13.11 Voluntary Preliminary Dispute Resolution.
(a) In the event of any controversy or claim arising out of or
relating to this Agreement, the Steering Committee will first attempt in good
faith to resolve the matter. If the Steering Committee is unable to resolve such
matter, the Parties will attempt in good faith to resolve such matter by
negotiations between senior executives of the Parties who have settlement
authority but do not have direct responsibility for the administration of this
Agreement. If the Parties are unable to resolve a controversy or claim within
sixty (60) days after written submission to the Steering Committee, then the
matter may be submitted to a court of competent jurisdiction. All negotiations
conducted pursuant to this Section 13.11 are confidential and shall be treated
as compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence;
(b) The Parties shall submit any claim, dispute, or controversy
within one year after such claim, dispute, or controversy becomes known to the
Party seeking redress; and
(c) This Section 13.11 sets forth the exclusive method for
adjudicating disputes between the Parties arising out of or relating to this
Agreement; provided that nothing in this Section 13.11 shall prevent a Party
from applying to the federal or state courts to obtain injunctive relief pending
resolution of the dispute through the voluntary dispute resolution procedures
set forth herein and to join in any such action such other claims as may be
required to be brought by applicable joinder rules.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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13.12 No Agency. All decisions regarding effectuation this Agreement and
any action to be taken hereunder shall be solely at the discretion of the Party
making such decision. Neither Party shall hold itself out as an agent of the
other. Neither Party shall have any authority to bind or obligate the other in
any manner.
13.13 Insurance. Portable shall at all times during the term of this
Agreement maintain insurance in commercially reasonable amounts covering
interruption of services and other general liabilities. Such insurance shall
name AmEx as an additional insured. Portable shall promptly notify AmEx in the
event of a cancellation or other termination of any such policy.
13.14 Trademarks. The use by a Party of any logo, trademark or other
mark owned by the other Party or Affiliates of the other Party shall be strictly
limited to each specific right to use articulated in this Agreement.
13.15 Investment. Portable agrees to grant AmEx an option to purchase
shares of Portable's Series E Preferred Stock, for an aggregate purchase price
of One Million Dollars and at a pre-money valuation of not less than One Hundred
Million Dollars on the terms set forth in Exhibit G. This option shall expire at
the earlier of (i) February 14, 1998, and (ii) delivery of written notice of
expiration to AmEx by Portable.
13.16 Interpretation. The headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. As used in this Agreement, the term "person" shall mean and include
an individual, a partnership, a joint venture, a corporation, a trust, a limited
liability company, an unincorporated organization and a government or any
department or agency thereof. In the event of a conflict between the terms of
this Agreement and the terms of an Exhibit, the terms of this Agreement shall
control.
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IN WITNESS WHEREOF, the Parties hereto agree to the provisions set forth
above and have executed this Strategic Marketing Alliance Agreement as of the
Effective Date.
PORTABLE SOFTWARE CORPORATION AMERICAN EXPRESS COMPANY
By: /s/ S. STEVEN SINGH By: /s/ [*]
---------------------------------- ---------------------------------
S. Steven Singh [*]
Title: President and CEO Title: Senior Vice President and
General Manager
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 21
EXHIBIT A
Portable Software Corporation Volume License Agreement
<PAGE> 22
PORTABLE AGREEMENT NUMBER:__________
PORTABLE SOFTWARE CORPORATION
VOLUME LICENSE AGREEMENT
Volume License Agreement (the "Agreement") made this ______ day of ____________,
1997, (the "Agreement Date") by and between Portable Software Corporation
("Portable") and _____________________ ("Customer").
In consideration of the license fee paid by Customer to Portable and of the
mutual covenants and conditions set forth herein, the parties agree as follows:
DEFINITIONS:
"Authorized User" means an employee or agent of Customer (including any
wholly-owned subsidiary of Customer) who prepares or processes a Customer
expense report.
"CustomerOne Services" means the technical support and related services provided
by Portable for the Licensed Programs as set forth in Section 5.1 and Exhibit B.
"Documentation" means technical manuals and other documentation relating to the
operation and use of the Licensed Programs which are delivered with the
respective Licensed Programs.
"Licensed Programs" means the Portable Software and the Third Party Software.
"Portable Software" means object code versions of the software programs
developed by or for Portable and described in Exhibit A including any
accompanying Documentation, and also including all Updates thereto which may be
provided to Customer by Portable pursuant to the terms of Section 5.
"Third Party Software" means the object code versions of the third party
software programs described in Exhibit A, including any accompanying
Documentation, and including all Updates thereto which may be provided to
Customer by Portable pursuant to the terms of Section 5.
"Updates" means one (1) copy of all published revisions and corrections to the
Documentation and one (1) copy of corrections and new releases of the Licensed
Programs that are generally made available at no additional cost to Portable's
customers who have ordered CustomerOne Services for the relevant time period.
Updates shall not include any options or future products which Portable or third
party vendors license separately.
1. LICENSE
1.1 Portable hereby grants to Customer, subject to the terms and conditions
of this Agreement and payment of the license fees set forth in Exhibit
A, a fully-paid, non-exclusive license without right of sublicense (the
"License") to have the Licensed Programs used by Authorized Users
solely for Customer's own internal data processing operations. This
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<PAGE> 23
License permits Customer to have the Licensed Programs used by a number
of Authorized Users not exceeding the number of user licenses Customer
has purchased as listed on Exhibit A. Portable reserves the right to
include within the Licensed Programs means to audit or determine the
number of Authorized Users using the Licensed Programs. Customer may
only duplicate the Licensed Programs and the Documentation in order to
make a copy available to each Authorized User.
1.2 Customer agrees to maintain an annual record of the number of users who
have submitted an expense report. Such record will be obtained by
running a report against Customer's XMS database. These annual records
must be retained for as long as the Licensed Programs remain in use and
for a period of two (2) years thereafter, and must be made available
for inspection by Portable or its authorized representative upon
demand.
1.3 Other than as provided in the preceding paragraph, Customer may not
copy any Licensed Programs, or any portion thereof, except to (a) make
one copy solely for backup or archival purposes; or (b) transfer the
Licensed Programs to a single hard disk provided Customer keeps the
original solely for backup or archival purposes. Customer agrees to
reproduce on each copy the copyright and other proprietary notices
provided on the Master Disk(s) and the Documentation. Customer may not
market, rent, lease, or relicense the Licensed Programs or use the
Licensed Programs for third party training, commercial timesharing, or
service bureau use.
1.4 Customer is authorized to use the Licensed Programs on a back-up
computer, at no additional charge, when its primary computer is
temporarily inoperable until operable status is restored and processing
on the back-up computer is completed. In addition, Customer may install
the Licensed Programs on a nonproduction test computer, at Customer's
disaster recovery site, for a period not to exceed thirty (30) days per
year, solely to recreate Customer's production environment for disaster
recovery testing. Customer expressly agrees that it shall neither apply
nor benefit from the functionality of the Licensed Programs under such
disaster recovery testing, except in the case of disaster.
1.5 Customer agrees not to alter, merge, modify or adapt the Licensed
Programs or the Documentation in any way or remove or obscure
Portable's copyright or trademark notices. In particular, Customer
agrees not to cause or permit the disassembly, decompilation, or
reverse engineering of any Licensed Program. In jurisdictions where a
right to reverse engineer is provided by law unless information is
available about products in order to achieve interoperability,
functional compatibility, or similar objectives, Customer agrees to
submit a detailed written proposal to Portable
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<PAGE> 24
concerning Customer's information needs before engaging in reverse
engineering.
1.6 Other Portable products and/or run time versions of Third Party
Software, may be embedded in or delivered with the Licensed Programs
under this Agreement ("Embedded Programs"). Customer's right to use any
Embedded Programs shall be limited to use necessary to implement the
Licensed Programs it has licensed. Customer shall have no right to use
such Embedded Programs other than as necessary for the licensed
ordinary use of the Licensed Programs.
2. OWNERSHIP
2.1 Portable is the owner of, or has the rights to distribute, all of the
software components of the Licensed Programs, all copies of the
Licensed Programs, the forms generated by the Licensed Programs and the
Documentation for the Licensed Programs. The Licensed Programs and the
Documentation are also protected under applicable copyright laws and
Customer's right to use the Licensed Programs and the Documentation is
limited to the terms and conditions set forth in this Agreement. Any
use of the Licensed Programs by the U.S. government is subject to
"restricted rights" as that term is defined in FAR 52.227-19(c)(2) or
DFAR 252.227.7013(c)(1) (if used in a defense related agency). Customer
does not acquire any rights, express or implied, in the Licensed
Programs, other than those specified in this Agreement.
3. LIMITED WARRANTY AND LIMITATION OF REMEDIES
3.1 Warranties
A. Licensed Programs
Portable warrants that (i) each Licensed Program will perform in all
material respects in accordance with the Documentation for a period of
ninety (90) days from the date of delivery of such Licensed Program to
Customer, and (ii) each Licensed Program will not, as a result of the
date change from December 31, 1999 to January 1, 2000 fail to perform
in all material respects in accordance with the Documentation in the
year 2000 and beyond.
Portable further warrants that the Licensed Programs do not contain any
time bombs, usage authorization codes, or other codes or programming
devices that may be used to access, modify, delete, damage, deactivate
or disable the Licensed Programs. The foregoing will not be deemed to
prohibit or limit Portable in any way from including features in the
Licensed Programs which restrict unlicensed use.
B. Media
Portable warrants that the Master Disk provided by Portable will be
free from defects in materials and workmanship under normal use for a
period of ninety (90) days from the
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date of delivery of the Master Disk to Customer.
C. Services
Portable warrants that its CustomerOne Services and consulting services
will be performed consistent with generally accepted industry
standards. This warranty shall be valid for ninety (90) days from
performance of service.
3.2 Limitations of Warranty
The warranties above are the sole warranties provided by Portable. To
be covered by these limited warranties, Customer must provide Portable
with written notice of the breach of warranty within the applicable
warranty period. Please do not return any defective Master Disks until
you have called Portable's technical service support group and received
a return authorization number ("RMA"). The warranties do not apply if a
Master Disk has been damaged by
misuse, or abuse or if a Licensed Program error is caused, in whole or
in part, by the failure of any hardware or other equipment to function
in accordance with the specifications of the applicable manufacturer.
PORTABLE SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES AND CONDITIONS,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY
OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE LICENSED PROGRAMS, THE MEDIA, THE CUSTOMERONE
SERVICES AND CONSULTING SERVICES. In no event does Portable warrant
that the LICENSED PROGRAMS, related Documentation, or services will
satisfy Customer's requirements, be without errors, or that all
Licensed Program errors will be corrected, or that the operation of the
LICENSED PROGRAMS will be uninterrupted.
3.3 Exclusive Remedies
Customer's exclusive remedy, and Portable's entire liability for any
breach of warranty, shall be:
A. For Licensed Programs
At the option of Portable, either correction of the error that caused
the breach of warranty, or refund of the license fees paid to Portable
for the non-performing Licensed Program.
B. For Media
Portable will replace the defective materials unless the Master Disks
have been damaged by misuse or abuse.
C. For Services
At the option of Portable, either the reperformance of the services, or
refund the fees paid to Portable for the unsatisfactory services.
5
<PAGE> 26
4. LIMITATION OF LIABILITY AND DAMAGES
4.1 NEITHER PARTY (INCLUDING PORTABLE'S THIRD PARTY SOFTWARE PROVIDERS)
WILL BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR
THIRD PARTY DAMAGES (INCLUDING LOST PROFITS OR SAVINGS, BUSINESS
INTERRUPTION, LOSS OF DATA, OR SIMILAR CLAIMS), WHETHER IN AN ACTION IN
CONTRACT OR IN TORT, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. The limitation of
liability set forth in this Section shall not be applicable to claims
by Portable for Customer's breach of the scope of the license rights
under Section 1.
4.2 To the maximum extent permitted by law, Portable's total liability
under this Agreement, for whatever cause other than bodily injury,
whether in an action in contract or in tort, will be limited to the
actual license fees paid by Customer under this Agreement, and if such
liability results from Customer's use of the Licensed Programs or from
services provided by or on behalf of Portable, such liability will be
limited to the actual fees paid by Customer for the relevant Licensed
Program or services giving rise to the liability. The limitation of
liability set forth in this Section shall not be applicable to claims
of infringement under Section 9.
4.3 The parties acknowledge that this Agreement allocates the risks between
Portable and Customer and that the fees reflect the limited warranties,
limitation of liability, and allocation of risk under this Agreement.
Customer further acknowledges that the pricing and terms of this
Agreement would have been different had there been a different
allocation of risk.
4.4 The parties acknowledge and agree that the limitations specified in
this Section will survive and apply even if any remedy provided in this
Agreement is determined to have failed of its essential purpose.
5. CUSTOMERONE, CONSULTING AND INTEGRATION SERVICES
5.1 CustomerOne Services will be provided to customer only under the terms
of Portable's CustomerOne policies (including applicable fees) in
effect on the date customer support is rendered. Portable's current
policies for its CustomerOne Services are set forth in Exhibit B
attached to this Agreement. Reinstatement of lapsed CustomerOne
Services is subject to Portable's CustomerOne reinstatement fees in
effect on the date CustomerOne Services are reordered.
5.2 Portable will provide consulting and training services agreed to by the
parties in writing under the terms of this Agreement. All consulting
services shall be billed on a time and materials basis unless the
parties
6
<PAGE> 27
expressly agree otherwise in writing. Any consulting or training
services acquired from Portable shall be bid separately from the
Licensed Programs and Customer may acquire either Licensed Programs or
consulting services without acquiring the other. For any on-site
services requested in writing by Customer, Customer shall reimburse
Portable for reasonable, actual travel and out-of-pocket expenses
incurred.
6. PAYMENT AND TAXES
6.1 Payment of license fees shall be due thirty (30) days after delivery of
the Licensed Programs. All other fees, including fees for CustomerOne
Services which are payable in advance of the applicable Support Period,
shall be paid within thirty (30) days of Customer receipt of a proper
invoice. If Customer's procedures require that an invoice be submitted
against a purchase order before payments can be made, Customer will be
responsible for issuing the purchase order at the time of order.
Customer agrees to pay applicable media and shipping charges. Customer
shall pay all applicable shipping charges and any federal, state, or
local excise, sales, use or other taxes (except taxes based on
Portable's net income) imposed in respect of the License granted
hereunder or otherwise arising out of this Agreement. In the event that
Portable is required to pay any such tax, Customer shall promptly
reimburse Portable for the same. Customer shall reimburse Portable for
all reasonable travel and out-of-pocket expenses incurred by Portable
in rendering any services. If past due amounts owing from Customer are
not paid within thirty (30) days (i) the unpaid amount shall bear
interest at the rate of 1% per month, and (ii) Portable will have the
right to terminate this Agreement upon thirty (30) days written notice
to Customer. Customer shall reimburse Portable for all reasonable cost
incurred (including reasonable attorneys' fees) in collecting past due
amounts.
7. EXPORT RESTRICTIONS
7.1 Customer agrees to comply fully with all relevant export laws and
regulations of the United States ("Export Laws") to ensure that neither
the Licensed Programs nor any direct product thereof are (i) exported
directly or indirectly, in violation of Export Laws; or (ii) intended
to be used for any purposes prohibited by the Export Laws, including
without limitation, nuclear, chemical, or biological weapons
proliferation. If a Licensed Program has been rightfully obtained by
Customer outside of the United States, Customer agrees not to re-export
such Licensed Program or any related technical information except as
permitted by the laws and regulations of the United States and those of
the jurisdiction in which Customer obtained such Licensed Programs.
8. TERM AND TERMINATION
8.1 This Agreement remains effective until terminated. Customer can
terminate this Agreement at any
7
<PAGE> 28
other time upon returning the Master Disk to Portable and destroying
all the copies of the Licensed Programs in any form in Customer's
possession. This License will also terminate if Customer fails to
comply with any material term or condition of this Agreement and such
breach is not cured within thirty (30) days following written notice
from Portable specifying such breach. This Agreement will terminate
automatically upon any transfer of a copy of the Licensed Programs by
Customer other than as permitted by this Agreement. The parties rights
and obligations under Sections 1.2, 2, 3.2, 4, 6, 7, 8.1, 9, 10, 11,
and 12 shall survive termination of this Agreement.
8.2 In the event of a termination of this Agreement, and in addition to any
other rights or remedies available to Portable, Customer shall promptly
return to Portable the Master Disk and destroy all copies of the
Licensed Programs in any form in Customer's possession. Within two (2)
weeks after any termination, Customer shall certify in writing to
Portable that it has destroyed any and all copies of the Licensed
Programs in Customer's possession. Except as provided in Section 3,
Customer shall not be entitled to a refund of any portion of the
license fee upon termination of this Agreement.
9. INDEMNIFICATION FOR INFRINGEMENT
9.1 Portable warrants to Customer that the Licensed Programs do not
infringe any patent issued in the United States or a European Union
country, or any trade secret, copyright, or other proprietary rights.
As Customer's exclusive remedy for breach of this warranty and
Portable's entire liability for infringement, Portable agrees to
indemnify and hold Customer harmless with respect to any suit, claim,
or proceeding brought against Customer alleging that Customer's
permitted use of the Licensed Programs under this Agreement constitutes
an infringement of any patent issued in the United States or a European
Union country, or any trade secret, copyright, or other proprietary
right. Portable shall defend Customer against any such suit, claim, or
proceeding, and pay all litigation costs and reasonable attorneys' fees
incurred in connection with such suit, claim or proceeding, and all
settlement payments and damages awarded therein, provided that Portable
is notified in writing within thirty (30) days of any such suit, claim
or proceeding, Customer tenders the control of any such claim or
proceeding to Portable, and Customer cooperates with Portable in the
defense or settlement of same.
9.2 Upon notice of alleged infringement or if in Portable's opinion such a
claim is likely, Portable shall have the right, at its option and
expense, either: (a) to procure for Customer the right to continue
using the Licensed Programs; or (b) to replace or modify the Licensed
Programs so that they provide substantially the same, or greater,
functionality and performance than the infringing
8
<PAGE> 29
Licensed Program, but are no longer subject to a claim or infringement.
If, in Portable's opinion, none of the options above are reasonably
available, Customer's sole and exclusive remedy shall be to return the
infringing Licensed Programs to Portable in exchange for a refund of
the price that Customer paid to Portable for such Licensed Programs,
less reasonable amortization pro-rated over a forty-eight (48) month
term from the date the infringing Licensed Programs are shipped to
Customer. Portable shall not have any obligation under this Section:
(a) to the extent the claim arises from a modification of the Licensed
Program other than by or on behalf of Portable or from Customer's use
of the Licensed Program in combination with other non-Portable
software, equipment or devices; or (b) if Portable has provided
Customer with a non-infringing version of the Licensed Programs (that
provide substantially the same, or greater, functionality and
performance than the infringing Licensed Program) and Customer does not
promptly replace all copies of the infringing version of the Licensed
Programs with the non-infringing version.
10. CONFIDENTIALITY
10.1 By virtue of this Agreement, Portable and Customer may have access to
information that is confidential to one another ("Confidential
Information"). Confidential Information shall be limited to the
Licensed Programs, the results of any benchmark testing of the Licensed
Programs (both of the foregoing are trade secrets of Portable), the
terms and pricing under this Agreement and all information clearly
identified as confidential. A party's Confidential Information shall
not include information that: (a) is or becomes a part of the public
domain through no act or omission of the other party; (b) was
rightfully in the possession of the other party or was known by it
prior to its disclosure; (c) is independently developed by the
receiving party without use of any Confidential Information of the
other party; or (d) was or is provided by the disclosing party to third
parties without restriction on disclosure.
10.2 The parties (including their respective employees and agents) agree to
hold each other's Confidential Information in confidence during the
term of this Agreement and for two (2) years thereafter. The parties
further agree, unless required by law or by court order, not to
disclose or make any Confidential Information of the other party
available in any form to any third party or to use it for any purpose
other than the implementation of this Agreement. Customer will not
permit anyone except Authorized Users to have access to the Licensed
Programs.
11. RIGHT TO AUDIT
11.1 Portable may from time to time request Customer to provide a
certification that actual use of the Licensed Programs are in
compliance with the terms of this
9
<PAGE> 30
Agreement. Portable may also, upon advance notice of at least five (5)
days, perform an audit during regular business hours to determine
compliance with the terms of this Agreement, provided that such audit
shall not unreasonably interfere with Customer's operations. If the
number of copies or Authorized Users is found to be greater than that
specified in this Agreement, or any modification to this Agreement,
Portable may charge Customer the applicable current license fees
therefor. If the resulting adjustment to the license fees owing by
Customer are greater than 5% of the license fees previously paid by
Customer to Portable, Portable may also charge Customer the reasonable
expenses associated with such audit.
12. GENERAL TERMS
12.1 This Agreement is governed by the laws of the State of Washington,
excluding those laws that direct the application of the laws of another
jurisdiction. The parties agree that this Agreement shall not be
governed by the 1980 U.N. Convention on Contracts for the International
Sale of Goods and that English is the governing language of this
Agreement. The parties hereby irrevocably consent to the personal
jurisdiction of the federal and state courts sitting in King County in
the State of Washington, and to service of process within or without
Washington by certified mail requiring a signed receipt, and the
parties agree that any court action relating to the enforcement of any
arbitration award or judgment or seeking injunctive or other equitable
relief, shall be brought in such courts.
12.2 All controversies or claims arising out of or relating to this
Agreement shall be resolved in accordance with the terms and conditions
set forth in this Section. First, the parties will attempt in good
faith to resolve each controversy or claim within sixty (60) days by
negotiations between senior executives of the parties who have
settlement authority and who do not have direct responsibility for the
administration of this Agreement. The disputing party shall give the
other party written notice of the controversy or claim in accordance
with the notice provision of this Agreement. The other party shall
submit a response within twenty (20) days after receiving said notice.
The notice and response shall include (a) a summary of the party's
position and a summary of the evidence and arguments supporting its
position, and (b) the name of the executive who will represent the
party. The executives shall meet at a mutually acceptable time and
place within thirty (30) days of the disputing party's notice and
thereafter as often as they deem reasonably necessary to resolve the
controversy or claim. Portable and Customer agree that all negotiations
conducted pursuant to this Section are confidential and shall be
treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and state rules of evidence.
If the controversy or claim has not been resolved within sixty (60)
days
10
<PAGE> 31
of the disputing party's notice, the controversy or claim will be
resolved through binding arbitration conducted in accordance with the
commercial arbitration rules of the American Arbitration Association
("AAA") then in effect. If Customer initiates arbitration, the
arbitration proceeding will be held in King County in the State of
Washington and if Portable initiates arbitration, the arbitration
proceeding will be held in the city of the federal district courthouse
closest to Customer's principal place of business. The parties agree
that service of any notices in the course of such arbitration at their
respective addresses as provided in Section 12.4 shall be valid and
sufficient. All proceedings will be held and a transcribed record
prepared in English. The parties will choose, by mutual agreement, one
arbitrator within thirty (30) days of receipt by a party of the other
party's notice of its intent to arbitrate. If no arbitrator is
appointed within the time provided in this Agreement or any extension
of time which is mutually agreed upon, the AAA will make such
appointment within thirty (30) days of such failure. The award rendered
by the arbitrator shall include costs of arbitration, reasonable
attorneys' fees and reasonable costs for expert and other witnesses,
and judgment on such award may be entered in any court having
jurisdiction thereof. Nothing in this Section shall be deemed to
prohibit or restrict either party from seeking injunctive relief and
such other rights and remedies as it may have at law or equity for any
actual or threatened breach of any provision of this Agreement relating
to a party's confidential information or proprietary rights. Except for
actions for nonpayment or breach of proprietary rights in the Licensed
Programs, no action, regardless of form, arising out of this Agreement
may be brought more than one (1) year after the cause of action has
accrued.
12.3 Except for Customer's obligation to pay Portable, neither party shall
be liable for any delay or failure to perform due to external causes
beyond its reasonable control.
12.4 All notices shall be in writing and shall be delivered personally
(including overnight mail by private courier) or sent by first-class
mail (return receipt requested) or facsimile transmission to the
address listed in the signature page to this Agreement. Notice shall be
deemed to have been given at the time of delivery, twelve (12) hours
after confirmation of receipt if sent by facsimile, and three (3)
business days after mailing if sent by first-class mail. If Customer
has any questions concerning this Agreement, Customer can contact
Portable at the following address:
Portable Software Corporation
14715 NE 95th Street
Redmond, WA 98052
Attention: Contract Administration
12.5 Customer acknowledges that it has read this Agreement, understands it
and agrees to be bound by its terms
11
<PAGE> 32
and conditions. Customer further agrees that this Agreement (including
the Exhibits attached to this Agreement) is the complete and exclusive
statement of the agreement between Customer and Portable regarding its
subject matter and supersedes and merges any earlier proposal or prior
arrangement, whether oral or written, and any other communications
between Customer and Portable relative to the subject matter of this
Agreement. If any provision of this Agreement is found void or
unenforceable, that provision will be enforced to the maximum extent
possible, and the remaining provisions of this Agreement will remain in
full force and effect. To expedite order processing, Customer agrees
that Portable may treat documents faxed by Customer to Portable as
original documents; nevertheless, either party may require the other to
exchange original signed documents. No purchase order, other ordering
document, or any handwritten or typewritten text which purports to
modify or supplement the printed text of this Agreement shall add to or
vary the terms of this Agreement. Customer consents to Portable
identifying Customer as a customer of the Licensed Programs on
Portable's customer list.
12.6 Neither this Agreement nor the License granted herein may be assigned
or transferred without the prior written permission of Portable, which
permission shall not be unreasonably withheld. Any attempted assignment
without such consent will be void.
<TABLE>
<S> <C>
Portable: Portable Software Corporation Customer:_____________________________________
Name: Tim Fitzgerald Name:_________________________________________
Title: Vice President of North American Sales Title:________________________________________
Signature: ______________________________________ Signature:____________________________________
Date: _____________________________________________ Date:_________________________________________
Volume License Administrator:_________________
Phone / Fax:__________________________________
Address:______________________________________
_______________________________________
</TABLE>
12
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT A
VOLUME AGREEMENT
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
DATE MODIFICATION SOFTWARE PRODUCTS # OF USER PER USER EXTENDED
NUMBER LICENSED LICENSES PRICE PRICE
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Xpense Management Solution $ $
QuickEpense Enterprise
XpenseServer
XpenseProcessor
XpensePrepopulation
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseAnalysis [*]
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseAnalysis Administrator [*]
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseInsight [*]
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseInsight Administrator [*]
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
ODBC Drivers (Unless MS SQL) [*] [*] $
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
</TABLE>
o Amounts above do not include applicable taxes and shipping charges.
o For a period of ____ years from the Agreement Date, Customer may purchase
additional user licenses of the software products listed above for the
applicable per user price specified above, provided that Customer submits a
minimum order of ____ user licenses for each such purchase.
<TABLE>
<CAPTION>
CUSTOMERONE SERVICES
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
DATES MODIFICATION SOFTWARE PRODUCTS # OF USER PER USER EXTENDED
COVERED NUMBER LICENSED LICENSES PRICE PRICE
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Xpense Management Solution $ $
QuickEpense Enterprise
XpenseServer
XpenseProcessor
XpensePrepopulation
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseAnalysis [*] $
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseAnalsyis Administrator [*] $
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseInsight [*] $
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
XpenseInsight Administrator [*] $
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
ODBC Drivers [*] [*] [*]
- ------------------- ------------------- ---------------------------------- ------------- ------------- -----------------
o Amounts above do not include applicable taxes and shipping charges.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
</TABLE>
<PAGE> 34
EXHIBIT B
Summary of CustomerOne Services
<PAGE> 35
During the one year period commencing on the Agreement Date, Portable
will provide the CustomerOne Services described below for the fees indicated on
Exhibit A. The period during which CustomerOne Services will be provided to and
purchased by Customer will be automatically extended: (i) for an additional
one-year period unless terminated in writing by Portable or Customer at least
thirty (30) days before the end of the initial one-year period and; (ii)
thereafter, for successive additional one-year periods unless terminated in
writing at least thirty (30) days before the end of the initial one-year period
by Portable or Customer (the initial end of any one-year period and each
subsequent extension period are hereinafter each referred to as a "Support
Period"). Portable reserves the right to change any term of its CustomerOne
Services (including the fee), effective at the beginning of any Support Period,
by giving Customer written notice at least sixty (60) days before the end of the
prior Support Period. This Agreement may also be terminated during a Support
Period as provided in Section 8 of the Agreement.
A. Updates. Portable will promptly provide to Customer at no additional charge
Updates of the Licensed Program(s) if and when each such Update is
generally made available by Portable to its customers. Customer
acknowledges and agrees that each such shall be regarded as a Licensed
Program under this Agreement, and Customer's use of the Updates shall be
subject to all the terms and conditions of this Agreement regarding
Licensed Programs. It is expressly understood and agreed by Customer that
Portable is under no obligation to issue Updates under future products that
Portable or a third party vendor licenses separately.
B. Technical Support. Portable will provide to Customer telephone technical
support for seven (7) days a week and twenty-four (24) hours per day,
excluding holidays. During the hours of 6:00 p.m. to 6:00 a.m. Portable's
technical support department is available via a pager service. Customer
will be given the pager number. No support will be available from 6:00 p.m.
Pacific Time on the day immediately preceding a holiday until 6:00 a.m.
Pacific Time on the day immediately following a holiday. Portable currently
observes the following holidays: New Year's Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, Day after Thanksgiving, and Christmas
Day. These holidays are subject to change without prior notice to Customer.
The following categories of telephone technical support will be provided:
o Second tier support for QuickXpense Enterprise Software. Second tier
technical support is defined as those questions forwarded to Portable
from the internal help desk or designated representative of Customer.
o End user support for all other Licensed Programs.
C. Error Corrections. Provided that the Licensed Programs are running under an
operating environment that is support by Portable (each, a "Supported
Environment"), Portable shall use its reasonable efforts to correct any
reproducible programming error in a Licensed Program which significantly
degrades the use of the Licensed Program ("Error") with a level of effort
commensurate with the severity of the Error, provided that Portable (i)
shall have no obligation to correct all Errors in the Licensed Programs;
and
<PAGE> 36
(ii) shall not be responsible for correctly any Errors not attributable to
the Licensed Programs. Errors attributable to Portable shall be those that
are reproducible by Portable on unmodified Licensed Program. Errors
attributable to Customer's modification or misuse of a Licensed Program, or
to Customer's change in or of its Supported Environment, will be billed at
Portable's standard consulting rates then in effect.
D. XpensePolicy. Provide XpensePolicy development and redesign services for
one (1) modifications or one (1) new XpensePolicy during each Support
Period.
E. Exclusions and Limitations. Portable is not required to provide any
CustomerOne Services relating to problems arising out of (i) Customer's
failure to implement all Updates issued under the Agreement; (ii) any
alternations or additions to the Licensed Programs performed by parties
other than Portable; (iii) interconnection or the Licensed Programs with
other software products not supplied by Portable except as expressly
prescribed in the Documentation; or (iv) use of the Licensed Programs on a
system other than a Supported Environment.
Portable reserves the right to terminate support (including Error
correction services) of any Licensed Program or prior release that has been
superseded by a new release anytime after six (6) months have elapsed since
the shipment of a new release.
2
<PAGE> 37
EXHIBIT B
Expense Manager Customers at November 30, 1997
<TABLE>
<CAPTION>
Estimated
NAME OF Designated Number of
CUSTOMER Representative Authorized Users
<S> <C> <C>
</TABLE>
3
<PAGE> 38
Sheet 1
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 1
<PAGE> 39
Sheet 1
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 2
<PAGE> 40
Sheet 1
[*]
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
Page 3
<PAGE> 41
Sheet 1
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 4
<PAGE> 42
EXHIBIT C-1
Integration Program Features
4
<PAGE> 43
Integration Program Feature Set
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
5
<PAGE> 44
EXHIBIT C-2
Australia
New Zealand
United Kingdom
France
Belgium
Denmark
Finland
Sweden
Norway
Pacific Rim (excluding double-byte countries)
<PAGE> 45
EXHIBIT E
Description of Function (Responsible Party)
Lead Generation (AmEx):
- - Generating Prospects and Leads for XMS; techniques include, but are
not limited to, direct referrals by sales staff; and including
appropriate references to XMS in direct mail, seminars, advertising,
trade shows, public relations, etc.
Lead Pre-Qualification (AmEx):
- - Capturing and analyzing such detailed information as is required on
the Lead Referral Worksheet regarding a Prospect, including
development of a technical profile of the Prospect computer system
and operating environment.
- - Identifying roles of key people in the Prospect's decision-making
process, understanding the scope of responsibility and authority of
these key people, and determining where Prospect is in its
decision-making process.
- - Establish appointments for the external field sales force as
conditions and information dictates.
Initial Prospect Introduction/Meeting (AmEx, Portable):
- - Typically a face-to-face meeting where a complete overview of the
Portable/AmEx marketing partnership, and solution is discussed,
profiles of Portable and AmEx are presented, and a complete XMS demo
and presentation is made.
Sales Cycle Account Management (Portable):
- - Overall responsibility for sales cycle management of the XMS program
including discovering and resolving account management issues,
navigating the Prospect organization's decision-making structure, and
making additional face-to-face presentations to key individuals and
departments.
- - Negotiating all business terms of a license agreement with the
customer.
Technical Pre-sales Account Management (Portable):
- - Discovering and resolving technical issues and understanding the
prospect's technical environment.
6
<PAGE> 46
PILOT TEST MANAGEMENT (PORTABLE):
- - Completing systems configuration guides, installing implementing, and
configuring XMS (including the policy configuration files(s)) and
hardware necessary to ensure a successful pilot test.
- - Training and assisting with the development of training materials and
other user aids for distribution with XMS.
- - On-going technical support to the pilot group (end-users as well as
systems administrators).
- - Pilot evaluations.
- - Hand-off of existing technical systems configuration information to the
implementation and installation team.
SYSTEMS INSTALLATION/IMPLEMENTATION/INTEGRATION (PORTABLE):
- - Detailed meeting with Customer personnel to establish the scope of the
engagement.
- - Manage all aspects of the systems installation.
- - Manage all aspects of implementation of XMS. This includes such tasks
as training of systems administrators, Customer's help desk, end-users,
and "train the trainers" courses.
- - Manage all aspects of XMS integration. This includes such tasks as
integration of the XMS data with existing financial systems for payment
to third parties, payment to employees, and financial accounting system
posting. Integration tasks can also include other aspects depending on
a Customer's structures and the type of systems they are using and
operating environment in which XMS will run.
POST SALES TECHNICAL SUPPORT (PORTABLE):
- - Provide first-tier telephone technical support for systems
administrators, help desk personnel and accounting personnel.
- - Provide such support on a 7 day a week 24 hour a day basis.
ON-GOING PRODUCT ENHANCEMENTS (UPGRADES/UPDATES) AND MAINTENANCE (PORTABLE):
- - Enhance the functionality of XMS through both minor periodic releases
as well as through major releases which include new functionality.
7
<PAGE> 47
EXHIBIT F
LEAD REFERRAL WORKSHEET
2
<PAGE> 48
Portable Software Corporation
XMS Lead Referral Worksheet
<TABLE>
<CAPTION>
Lead Referrer
<S> <C> <C> <C>
Date Submitted: ________________________
Name: ________________________ Company: ___________________________
Address: ______________________________________________________________
City, State, Zip: ______________________________________________________________
Phone: ________________________ Signature:__________________________
Lead Profile (One Contact Must Be Accounting/Finance)
Company: ________________________ Industry: __________________________
Address: ______________________________________________________________
City, State, Zip: ______________________________________________________________
Contacts: ___________________ ___________________ ____________________
Titles: ___________________ ___________________ ____________________
Phones: ___________________ ___________________ ____________________
Decision Roles: ___________________ ___________________ ____________________
Lead Opportunity
# Worldwide Employees:____________________ # Report Filers:_____________________
</TABLE>
<TABLE>
<CAPTION>
Current Corporate System Standards (Select All That Apply):
<S> <C> <C> <C> <C> <C>
Expense Reporting: o In-house Software o Spreadsheet o Paper o Outsource Service o Other:____________
Charge Card: o American Express o Diners Club o GE Mastercard o First Bank Visa o Other:____________
E-mail: o MS Mail/Exchange o Lotus cc:Mail o Lotus Notes Mail o Internet Mail o Other:____________
Database: o MS SQL Server o Oracle o Sybase o Informix o Other:____________
Financial: o SAP o Oracle o PeopleSoft o Baan o Other:____________
Operating: o Windows 3.1 o Windows 95 o Windows NT o Unix o Other:____________
Reengineering Plans:
Timing: o 0-6 Months o 7-12 Months 0 13-18 Months o 19-24 Months o Other:____________
Budget: _____________________
</TABLE>
- --------------------------------------------------------------------------------
Lead Disposition
Lead Accepted By: _____________________ Lead Rejected By:______________________
Signature: _____________________ Signature: ______________________
Date Accepted: _____________________ Date Rejected: ______________________
Reason Rejected: ______________________
*Please fax or e-mail to:
Patrick Jenkins (fax 425-702-8616, [email protected])
<PAGE> 49
EXHIBIT G
SUMMARY OF TERMS
1. Amount of Financing: One Million Dollars
2. Pre-Money Valuation: One Hundred Million Dollars
3. Type of Security: Series E Preferred Stock
4. Liquidation Preference: Pari passu with Series D Preferred
5. Dividend Preference: 7% noncumulative; payable pari passu with
dividend payments to other series of Preferred
Stock
6. Redemption: Beginning October 13, 2001; pari passu with
redemption of other series of Preferred Stock
7. Conversion Rights: Automatic Conversion into Common Stock at IPO
above $4.38 per share
8. Dilution Protection: Weighted average formula dilution protection, on
a "pay to play" basis, in the event of
lower-priced future financings (subject to
customary exclusions)
9. Voting Rights: Vote with Common Stock on an as-converted basis
on most matters; vote with other holders of
Preferred Stock on matters on which Preferred
Stock has a class vote
10. Registration Rights: Demand and piggyback registration rights pari
passu with other holders of Preferred Stock
pursuant to the Company's Information and
Registration Rights Agreement
11. Financial Information: Annual Audited Financial Statements
12. Right of First Refusal: Right to buy a pro rata share of additional
shares of Preferred Stock offered for sale by the
Company
<PAGE> 1
**Confidential treatment has been requested with
respect to certain information contained in this
document. Confidential portions have been omitted
from the public filing and have been filed separately
with the Securities and Exchange Commission
EXHIBIT 10.10
CO-BRANDED XMS SERVICE
MARKETING AGREEMENT
This CO-BRANDED XMS SERVICE MARKETING AGREEMENT (this "Agreement") is made and
entered into as of August 11th, 1998 (the "Effective Date") between Concur
Technologies, Inc. (formerly known as Portable Software Corporation), a
Washington corporation ("Concur") and American Express Travel Related Services
Company, Inc., a New York corporation ("AMEX").
R E C I T A L S
WHEREAS, Concur plans to develop an outsource business travel and entertainment
expense management service for customers;
WHEREAS, AMEX and its licensees provide, inter alia, corporate charge, credit,
procurement, smart and store value card products and services, travel agency
services and electronic travel booking services and products;
WHEREAS, Concur and AMEX desire to enter into a marketing agreement providing
for the development and marketing of a co-branded version of the Concur
outsource business travel and entertainment expense management service for use
by AMEX Clients;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" shall mean with respect to any person (which for purposes
of this definition shall include individuals, business entities and
other legal entities), any other person directly or indirectly
controlling, controlled by or under common control with such person.
For purposes of this definition, "control" shall mean the power to
direct or cause the direction of, the management and policies of such
person whether through the ownership of voting interests, by contract
or otherwise.
1.2 "AMEX Client" shall mean a business enterprise, including without
limitation divisions or departments thereof, that has a Corporate
Card account or an American Express Business Travel Account from time
to time during the term of this Agreement.
1.3 "AMEX Competitor" shall mean a person, firm or enterprise engaged in
the business of (a) issuing payment instruments (including, without
limitation, charge, credit, stored-
<PAGE> 2
value and debit cards), (b) facilitating consumer or small business
lending, (c) issuing travelers cheques or (d) engaged in travel
booking business.
1.4 "AXP/XMS Customer" shall mean an AMEX Client that enters into an
AXP/XMS Service Agreement for its internal use of the Co-Branded XMS
Service.
1.5 "AXP/XMS Service Agreement" shall have the meaning set forth in
Section 2.3.
1.6 "Base Price List" shall have the meaning set forth in Section 5.1.
1.7 "Burdened Cost" includes the direct costs (personnel, supplies,
materials, contracted and outside services), indirect costs
(allocated facility-related expenses) and general and administrative
expenses (proportionate allocation of costs associated with
administration, finance, accounting and human resources) attributable
or allocable to the provision of the consulting and implementation
services, training and other similar services provided to AXP/XMS
Customers, all as determined in accordance with generally accepted
accounting principles.
1.8 "Ceiling" shall have the meaning set forth in Section 5.1(b).
1.9 "Co-Branded XMS Service" shall mean the travel and entertainment
expense management service to be developed by Concur in accordance
with the terms of this Agreement (more particularly described on
Exhibit A-1 hereto) which incorporates the Exclusive Features (as
defined in Section 2.3).
1.10 "Consulting Revenue" shall mean amounts received by Concur from an
AXP/XMS Customer with respect to a Service Period for consulting,
implementation services, training and other similar services related
to the Co-Branded XMS Service (including amounts for the services
referenced in Section 5.4) less (i) Concur's Burdened Cost, and (ii)
except to the extent already included in Burdened Cost, duties or
sales use or other taxes or withholdings other than those based on
Concur's before tax income.
1.11 "Corporate Card" shall mean a corporate charge, credit or procurement
card issued by AMEX or its licensees to the employees and agents of
AMEX Clients for use in connection with travel, entertainment and
procurement expenses incurred on behalf of AMEX Clients.
1.12 "Floor" shall have the meaning set forth in Section 5.1(b).
1.13 "Party" shall mean Concur or AMEX.
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<PAGE> 3
1.14 "Concur Competitor" shall mean a person, firm or enterprise providing
a software product or software-enabled service in the travel and
entertainment expense management field.
1.15 "Prior Agreement" shall mean that Strategic Marketing Alliance
Agreement entered into as of December 17, 1997 between the Parties.
1.16 "Revenue" shall mean the aggregate of all amounts paid by any AXP/XMS
Customer with respect to a Service Period and relating to the
Co-Branded XMS Service including, without limitation, transaction
fees and one-time payments, but excluding (i) Consulting Revenue,
(ii) direct costs for licensing of third party software products that
are integrated into the Co-Branded XMS Service and (iii) duty, sales,
use or other taxes or withholdings other than those based on Concur's
income.
1.17 "Service Launch Date" shall mean the date on which the Co-Branded XMS
Service is commercially available for use by an AMEX client in
accordance with the terms of Section 2.2.
1.18 "Service Period" shall mean the period during which an AXP/XMS
Customer is a party to an AXP/XMS Service Agreement, including
renewals and extensions thereof, if there has been no service
termination of nine months or longer.
1.19 "Shortfall" shall have the meaning set forth in Section 5.1(b).
1.20 "Steering Committee" shall have the meaning set forth in Section
6.1(d) of the Prior Agreement.
1.21 "Suggested Price List" shall have the meaning set forth in Section
5.1.
2. DEVELOPMENT OF THE CO-BRANDED XMS SERVICE.
2.1 In accordance with the terms of this Agreement, the Co-Branded XMS
Service will be offered to AMEX Clients and made available only to
such AMEX Clients who have agreed to be bound by the terms and
conditions set forth in the AXP/XMS Service Agreement. The Co-Branded
XMS Service shall be installed at the AXP/XMS Customer site (or at
the site of a data center partner) and accessible via an Internet
browser supplied by Microsoft Internet Explorer 3.02 or higher or
Netscape Navigator Version 3.0 or higher.
2.2 Concur agrees to develop, in accordance with the terms and conditions
set forth in this Agreement, the Co-Branded XMS Service for
commercial distribution to AXP/XMS Customers on or before [*];
provided that if Concur cannot develop the Co-
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
3
<PAGE> 4
Branded XMS Service on or before [*] but can demonstrate to AMEX's
reasonable satisfaction that Concur can, in accordance with the terms
of this Agreement, develop the Co-Branded XMS Service for commercial
distribution by a date not beyond [*], then AMEX may, it its sole
discretion, agree that the Co-Branded XMS Service will be made
commercially available by a date no later than [*]. AMEX, in its sole
reasonable discretion, shall determine whether the Co-Branded XMS
Service is available for commercial distribution.
2.3 Exclusive Features. Concur and AMEX shall develop from time to time
during the term of this Agreement certain service features for
integration into the Co-Branded XMS Service (the "Exclusive
Features"). Listed on Exhibit C hereto are the Exclusive Features
being developed by AMEX and Concur as of the date hereof. The Parties
acknowledge and agree that their ownership rights in the Exclusive
Features and the related technical specifications shall be governed
by the principles stated in Section 10.2 hereof.
3. MARKETING OF CO-BRANDED XMS SERVICE.
3.1 Marketing and License Rights. Subject to the terms and conditions of
this Agreement, Concur hereby grants to AMEX and AMEX hereby accepts
from Concur, a nonexclusive and nontransferable right in the United
States and throughout the world to market the Co-Branded XMS Service,
directly and through AMEX's agents and Affiliates, to AMEX Clients.
Initially, AMEX may only specifically target AMEX Clients which
would use the Co-Branded XMS Service in the United States and
Canada. As Concur completes localization efforts in additional
geographical areas and implements the infrastructure necessary to
assure proper use of the Co-Branded XMS Service in those areas, AMEX
may target AMEX Clients who would use the Co-Branded XMS Service in
such additional areas.
3.2 AXP/XMS Service Agreement.
(a) All AMEX Clients that desire to use the Co-Branded XMS Service
shall execute Concur's customized service agreement in
substantially the form of Exhibit F attached hereto (the
"AXP/XMS Service Agreement"). The AXP/XMS Service Agreement
shall provide the terms and conditions of use by such AMEX
Client of the Co-Branded XMS Service and grant to such AMEX
Client a nonexclusive and nontransferable right to use the
Co-Branded XMS Service in accordance with the terms and
conditions stated therein.
(b) Concur agrees that the AXP/XMS Service Agreement shall offer
to the respective AXP/XMS Customer a service contract up to
three (3) years in length and shall contain other terms and
conditions, including without limitation Concur's Year
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
4
<PAGE> 5
2000 warranty, not materially less favorable to the AXP/XMS
Customer than offered to Concur's own business customers.
(c) The AXP/XMS Service Agreement will provide for payments by the
AXP/XMS Customer directly to Concur. Concur and not AMEX,
shall be deemed the seller of the Co-Branded XMS Service
hereunder and shall be responsible for collection and
remittance to the appropriate jurisdiction any and all
applicable sales/use taxes or other similar transaction taxes.
Concur shall fully indemnify and hold AMEX harmless from any
sales/use or similar transaction taxes that are assessed
(whether against AMEX or Concur) with respect to such sales.
3.3 User's Manual. As and when the Co-Branded XMS Service (including
without limitation any upgrade thereof) is made available to AXP/XMS
Customers, Concur shall deliver to AMEX, in a format reasonably
requested by AMEX, a comprehensive user's manual which any user of
the Co-Branded XMS Service (including without limitation any upgrade
thereof) may utilize in order to properly operate the Co-Branded XMS
Service. AMEX, in accordance with Section 7.1 hereof, shall brand and
publish such manual for delivery to AXP/XMS Customers. Concur will
reasonably assist AMEX in the production of such manual and will
provide AMEX with all materials created by Concur that may be useful
in the production of such manual.
3.4 Service Bureau Option. Upon reasonable advance notice to Concur and
subject to meeting reasonable performance criteria and mutual
agreement by the Parties, AMEX may utilize AMEX payment processing
facilities as the payment processor component of the Co-Branded XMS
Service as provided to AXP/XMS Customers designated by the Parties.
Concur agrees to provide reasonable cooperation to AMEX in enabling
AMEX to perform this function.
3.5 Certain Marketing Exclusivities.
(a) Concur agrees that for the twelve (12) month period
immediately following the general commercial offering of a
Exclusive Feature (as described in Section 2.3 hereof), Concur
will not, and will not permit any of its licensees to, include
such Exclusive Feature in any of product or service
commercially offered by or on behalf of Concur or any of its
licensees.
(b) AMEX agrees that that in the [*] following the Service Launch
Date, AMEX will only market the Co-Branded XMS Service to AMEX
Clients that AMEX identifies as [*] and will not actively
market the Co-Branded XMS Service to AMEX Clients that AMEX
identifies as [*]. As used herein [*] means AMEX Clients
served as of the date hereof by the division managed by [*]
and [*] means
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
5
<PAGE> 6
the AMEX clients served as of the date hereof by the AMEX
division managed by [*]
(c) Prior to the expiration of the exclusivity arrangement
described in Section 3.5(a)(i) hereof with respect to any
Exclusive Feature (the "Exclusivity Expiration Date"), the
Steering Committee shall identify and select additional
features that will be added to the set of Exclusive Features
available to AXP/XMS Customers during the twelve (12) months
period following the Exclusivity Expiration Date. The parties
hereto agree to develop such features and make the same
available as "Exclusive Features" with the exclusive
conditions provided in Section 3.5(a)(i). If, for any reason,
these additional Exclusive Features are not available for
commercial distribution to AXP/XMS Customers by the
Exclusivity Expiration Date, then the exclusivity described in
Section 3.5(a)(i) that relate to such "expiring" Exclusive
Features shall extend until such time as replacement and
Exclusive Features are available.
4. TRAINING AND SUPPORT.
4.1 Training of AMEX Sales Personnel.
(a) Periodically during the term of this Agreement and at mutually
agreeable times and locations, Concur agrees to train AMEX
sales personnel with respect to the Co-Branded XMS Service
(including each new version thereof) for the purpose of
educating AMEX's sales team on the features and benefits of
the Co-Branded XMS Service (or such new version, as the case
may be) and how to demonstrate and market it. Concur shall not
change AMEX for such training.
(b) AMEX shall make available for training by Concur (in
accordance with Section 4.1(a) hereof) those AMEX sales
managers that shall be responsible for the promotion of the
Co-Branded XMS Service. AMEX shall reasonably assist Concur,
at no direct expense to AMEX over and above the travel,
lodging and meal expenses of its attendees, in the training
of such sales managers. AMEX personnel who successfully
complete this training shall certified by Concur (if such
personnel have previously been certified on an earlier version
of the Co-Branded XMS Service and are receiving training on a
new version, shall be recertified by Concur).
4.2 Support. Concur will provide warranty service and support to AXP/XMS
Customers on the terms set forth in the AXP/XMS Service Agreement.
This will include maintenance and upgrade notices and support, as
well as a dedicated AMEX/XMS telephone support line during Concur's
customary support hours. Concur agrees that the level of service and
support provided to AXP/XMS Customers will be no less favorable than
(i) the level of service and support generally provided to Concur's
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
6
<PAGE> 7
commercial customers and (ii) the level of service and support
provided to Concur's commercial clients of any other marketer or
reseller of the Concur's product generally similar to the Co-Branded
XMS Service.
4.3 AXP/XMS Customer Training. Concur agrees to furnish training to
AXP/XMS Customers at Concur's customary rates.
5. MARKETING AND SUPPORT.
5.1 Announcements.
(a) AMEX shall participate with Concur in the development and
delivery of a press release announcing the relationship between
AMEX and Concur regarding the Co-Branded XMS Service. The press
release shall be subject to the prior written approval of both
AMEX and Concur.
(b) All information to be disseminated to third parties about the
relationship between Concur and AMEX regarding AMEX's marketing
of or relationship or involvement with, the Co-Branded XMS
Service shall be reviewed and approved by both Parties prior to
any use or other publication.
(c) Concur and AMEX agree to jointly develop information about the
Co-Branded XMS Service relationship between Concur and AMEX to
be used in communications to AMEX Clients and to AXP/XMS
Customers.
5.2 Marketing Responsibilities of AMEX.
(a) AMEX shall provide Concur, at no cost to Concur reasonable
access to appropriate AMEX sales managers as may be mutually
agreed by the Parties in order to present information about the
Co-Branded XMS Service and to conduct the training referenced in
Section 4 hereof.
(b) AMEX, at no cost to Concur will undertake marketing programs and
efforts regarding the Co-Branded XMS Service as AMEX shall
determine from time to time.
(c) Upon receipt from Concur of the user manual described in Section
3.3 hereof, AMEX will provide customized branding to such manual
in accordance with the terms hereof and provide marketing edits
thereto. All marketing edits made by AMEX shall be subject to
Concur's reasonable approval prior to any distribution thereof
to AXP/XMS Customers. The approved manual (the "Quick Start
Guide") shall be printed by AMEX at no cost to Concur and shall
be made available for
7
<PAGE> 8
distribution to AXP/XMS Customers. AMEX shall not use any of the
materials created by Concur and which AMEX receives from Concur
except as contemplated by this Agreement.
(d) AMEX agrees that AMEX shall neither market the Co-Branded XMS
Service to any third party except as provided in this Agreement.
AMEX agrees not to make any representations, warranties,
commitments or guarantees to AMEX Clients (including without
limitation AXP/XMS Customers) with respect to the Co-Branded XMS
Service (including its features and capabilities) that are
materially inconsistent with materials, representations,
warranties, commitments or guarantees provided by Concur.
6. PRICING, FEES & PAYMENT PROCEDURE.
6.1 Pricing and Allocation of Revenue.
(a) Pricing to the AXP/XMS Customer. Concur's standard licensing fees
for the Co-Branded XMS Service is listed as part of Exhibit A-2
hereto (the "Suggested Price List"). Concur's licensing fees do
not include any national, state or local sales, use, value added
or other taxes, customs duties or similar tariffs and fees which
Concur may be required to pay or collect upon the delivery of the
Co-Branded XMS Service or upon collection of the fees or
otherwise. Concur will provide AMEX with not less than thirty
(30) days notice of any adjustment to the Suggested Price List.
Although it is the intent of Concur that the Co-Branded XMS
Service be marketed at the prices on the Suggested Price List and
discounts therefrom, those prices are suggested prices only and
AMEX is entirely free to determine the actual price for the
Co-Branded XMS Service it markets to AXP/XMS Customers. Also
attached as part of Exhibit A-2 is Concur's base licensing fee
(the "Base Price List"). Concur agrees that the prices set forth
in the Base Price List will not exceed the lowest price at which
Concur makes any service similar to the Co-Branded XMS Service
available commercially on a standalone basis.
(b) Allocation of Revenue and Consulting Revenue.
(i) Collection of Revenue. Concur shall be responsible for
the collection and accounting of all Revenue and
Consulting Revenue.
(ii) Revenue Allocation. Concur shall be entitled to 55% of
all Revenue and AMEX shall be entitled to 45% of all
Revenue; provided, however, that any portion of the
Revenue attributable to licensing fees payable by any
AXP/XMS Customer to Concur shall be not less than
fifty-five percent (55%) of the prices stated on the
Base Price List applicable to such AXP/XMS Customer (the
"Floor") and not greater than fifty-five percent (55%)
of the
8
<PAGE> 9
Suggested Price List prices applicable to such AXP/XMS
Customer (the "Ceiling"). To the extent AMEX offers to
pay all or any portion of the licensing fee on behalf
of an AXP/XMS Customer which results in such AXP/XMS
Customer paying to Concur a licensing fee less than the
applicable price on the Base Price List, then AMEX
agrees to pay Concur the difference between (i) the
Floor and (ii) 55% of the licensing fee actually paid by
such AXP/XMS Customer (such amount, the "Shortfall").
(iii) Consulting Revenue. The Parties acknowledge Concur's
expectation that its Burdened Costs of providing
consulting and similar services to AXP/XMS Customers
will exceed the associated consulting revenue of a
significant period of time. Concur will retain
fifty-five percent (55%) of Consulting Revenue from
AXP/XMS Customers and will pay the balance to AMEX.
(iv) The share of Revenue and Consulting Revenue described
herein shall continue so long as such Revenue or
Consulting Revenue is generated by an AXP/XMS Customer
with respect to the Co-Branded XMS Service,
irrespective of the termination of this agreement.
(c) Timing of Payments.
(i) With respect to Revenue actually received by Concur in
any calendar month, Concur agrees to remit to AMEX
AMEX's share of such Revenue as provided in subsection
(b)(ii) hereof no later than forty-five (45) days
following the end of such calendar month. Such
remittance shall be made by check or by wire transfer to
an account designated by AMEX in writing. Concur shall
pay interest at the rate of eighteen percent (18%) per
annum on all such amounts paid after the due date. Upon
remittance to AMEX of its share of the Revenue, Concur
shall be entitled to retain for its own account its
share of the Revenue as provided in subsection (b)(ii)
hereof.
(ii) With respect to Revenue actually received by Concur in
any calendar month, Concur shall, at the end of every
calendar month, calculate any Shortfall amounts payable
by AMEX. Concur shall invoice such Shortfall amounts and
forward such invoice, along with appropriate back-up
documentation, to AMEX. AMEX agrees to pay such invoiced
amount within forty-five (45) days of its receipt
thereof and to pay interest at the rate of eighteen
percent (18%) per annum on all such amounts paid after
such due date.
(d) Competitive Pricing. Concur agrees that, during the term of this
Agreement, if Concur enters into an agreement of similar scope
and general purpose with an AMEX Competitor regarding the
marketing or reselling of the a product generally similar to the
Co-Branded XMS Service and providing for a lower level of
revenue
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<PAGE> 10
to be paid or retained to Concur than [*] or lower prices in the
related base price list (or its functional equivalent) than as
provided on the Base Price List attached hereto, then this
Section 6.1 shall thereupon be amended to provide such lower
percentage to Concur on the Revenue thereafter payable to Concur
hereunder and/or to reflect such lower prices in the Base Price
List.
(e) International Venues. For purposes of this Agreement, Revenues
derived from international (i.e. non-U.S.A.) licensing of the
Co-Branded XMS Service shall be calculated in the same manner as
the determination with respect to domestic (U.S.A). Revenue
shall be converted into U.S. Dollars in a consistent manner and
in accordance with Concur's commercially reasonable practices.
6.2 Reporting. Concur will provide to AMEX a monthly report within thirty
(30) days following the end of each calendar month detailing the
Revenues received during such calendar month from AXP/XMS Customers
and indicating Shortfalls where applicable. Within thirty (30) days
after the end of each calendar quarter following the Service Launch
Date, Concur will provide a report, with appropriate back-up
documentation, to AMEX detailing all Consulting Revenues generated
during such calendar quarter, including without limitation, the
associated Burdened Costs.
6.3 Audit. Upon request from AMEX, Concur shall give AMEX reasonable
access and audit and verification documentation as AMEX may
reasonably request in order to assure Concur's compliance with the
terms of this Agreement including but not limited to data security.
Such requests shall be limited to the scope of this Agreement and
shall not be made more frequently than once in any four-month period.
Any audit must be conducted during the hours of 8 AM and 5 PM.
Notwithstanding the foregoing, if AMEX has reasonable grounds to
believe a breach of data security has occurred, AMEX reserves the
right to visit and audit the premises of Concur or its
subcontractors, unannounced, during normal business hours.
6.4 Implementation Fees. Implementation of the Co-Branded XMS Service,
including the establishment of links to G/L, will be provided by
Concur and billed to AXP/XMS Customers by Concur at its then standard
rates for such services.
6.5 Referral Payments to Concur. AMEX shall compensate Concur under the
terms and conditions specified in Exhibit D hereto in connection with
the referral to AMEX of leads for Corporate Card accounts.
7. TRADEMARKS AND TRADE NAMES.
7.1 Use of Parties Marks.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 11
(a) During the term of this Agreement, Concur authorizes AMEX to use
the trademarks provided by Concur from time to time during the
term of this Agreement in connection with AMEX's marketing,
advertisement and promotion of the Co-Branded XMS Service.
Concur may revoke or modify its authorization to AMEX from time
to time in its sole reasonable discretion. Nothing contained in
this Agreement shall give AMEX any interest in such trademarks.
AMEX agrees that it will not at any time during or after this
Agreement assert or claim any interest in or do anything which
may adversely affect the validity or enforceability of any
trademark or trade name belonging to or licensed to Concur. AMEX
will not register, seek to register or cause to be registered
any of Concur's trademarks without Concur's prior written
consent. AMEX agrees not to attach any additional trademarks or
trade designations to any Co-Branded XMS Service other than
those mutually agreed to by the Parties.
(b) During the term of this Agreement, AMEX authorizes Concur to use
the trademarks as provided by AMEX from time to time during the
term if this Agreement in connection with Concur's marketing,
advertisement and promotion of the Co-Branded XMS Service. AMEX
may revoke or modify its authorization to Concur from time to
time in its sole reasonable discretion. Nothing contained in
this Agreement shall give Concur any interest in such
trademarks. Concur agrees that it will not at any time during or
after this Agreement assert or claim any interest in or do
anything which may adversely affect the validity or
enforceability of any trademark or trade name belonging to or
licensed to AMEX. Concur will not register, seek to register or
cause to be registered any of AMEX's trademarks without AMEX's
prior written consent. Concur agrees not to attach any
additional trademarks or trade designations to any Co-Branded
XMS Service other than those mutually agreed to by the Parties.
7.2 Branding of the Co-Branded XMS Service. The Co-Branded XMS Service
shall be branded with a trademark identified by AMEX from time to
time during the term of the Agreement. Furthermore, AMEX and Concur
shall include the "XMS" logo and the designation "Powered by XMS" (or
other designation(s) determined by Concur and agreed to by AMEX) on
all printed and electronic marketing materials which references the
Co-Branded XMS Service. AMEX acknowledges and agrees that Concur will
include a Concur designation or logo on the screen of the software
delivered to AXP/XMS Customers as part of the Co-Branded XMS Service.
The size and placement of such reference shall be consistent with
such branding guidelines developed by the mutual agreement of the
Parties. Concur agrees to develop customized screens for the
Co-Branded XMS Service marketed and sold to AXP/XMS Customers that
include designations and/or logos determined by AMEX and consistent
with the branding guidelines developed by the Parties. In the event
the parties cannot agree on branding guidelines as required herein,
then the decision of the Steering Committee shall govern.
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<PAGE> 12
8. TERM AND TERMINATION.
8.1 This Agreement shall commence on the Effective Date and, unless
sooner terminated as provided in this Agreement, shall remain in full
force and effect for a term of eighteen (18) months following the
Service Launch Date (the "Initial Term"). Thereafter, this Agreement
shall automatically renew for successive two-year terms (each, a
"Renewal Term"), provided, however, that a Party may terminate this
Agreement on the expiration date of the Initial Term or any Renewal
Term by delivering written notice of termination to the other not
less than ninety (90) days before the expiration of such Initial Term
or Renewal Term.
8.2 Termination. This Agreement may be terminated at any time prior to
the expiration of its then current term, as follows:
(a) by either Party by written notice to the other Party if a
receiver shall have been appointed over the whole or any
substantial part of the assets of the other Party, a petition or
similar document is filed by the other Party initiating any
bankruptcy or reorganization proceeding or such a petition is
filed against the other Party and such proceeding shall not have
been dismissed or stayed within sixty (60) days after such
filing;
(b) by either Party upon written notice if the other Party has
breached the terms of this Agreement in any material respect and
fails to cure such breach within thirty (30) days after receipt
of written notice of such default;
(c) by AMEX upon written notice upon the acquisition of a
controlling interest in Concur by an AMEX Competitor;
(d) by AMEX upon written notice upon the appointment of an officer,
director or other designee of an AMEX Competitor to serve on the
Board of Directors of Concur; or
(e) by AMEX in the event Concur has not developed the Co-Branded XMS
Service for general commercial distribution to AXP/XMS Customers
by August 1, 1999.
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8.3 Special Renegotiation Rights. With respect to the Revenue share
(described in Section 6.1(b)(ii) hereof) applicable to the Renewal
Terms, Concur reserves the right to renegotiate such Revenue share
upon written notice to AMEX no later than one hundred eighty (180)
days following the Service Launch Date. In the event AMEX and Concur
cannot agree to the term for a new Revenue share for the Renewal
Terms within one hundred eighty (180) day period following the
foregoing notice to AMEX, then, unless otherwise agreed, the
Agreement shall terminate at the expiration of the Initial Term.
8.4 Effect of Termination. Upon any termination or expiration of this
Agreement:
(a) For a period of one year after the date of termination, all
applicable books and records of Concur shall be made available
to AMEX for the purpose of determining compliance by Concur with
its obligations under this Agreement;
(b) Each Party shall immediately cease distribution of all items in
its possession which bear the trademarks of the other Party,
shall as promptly as is practicable cease all use of the
trademarks of the other Party and will not use any mark which is
confusingly similar to any trademarks of the other Party;
(c) Each Party shall return to the other Party marketing literature
and materials of the other Party in its possession or shall
destroy such items and certify their destruction to the other
Party; and
(d) Each Party's rights and obligations with respect to payments due
hereunder (including, without limitation, amounts due to AMEX
and Concur pursuant to Section 6.1) as well as the provisions of
Sections 6.2, 6.3, Sections 7, 8, 9, 10, 11, 12, 13 and 14,
shall survive termination of this Agreement.
8.5 Non-Solicitation.
(a) AXP/XMS Customers. During the term of this Agreement and for a
period of one (1) year thereafter, (i) Concur shall not solicit
any AXP/XMS Customer to become a customer of a corporate card
product offered by an AMEX Competitor, (ii) Concur shall not
solicit any AXP/XMS Customer to become a customer of a travel
and booking product offered by an AMEX Competitor. During the
period of exclusivity as described in Section 3.5, AMEX shall
not solicit any AXP/XMS Customer to become a customer of a
business and expense management service offered by a Concur
Competitor.
(b) Employees. During the term of this Agreement and for one (1)
year thereafter, the Parties agree not to solicit for employment
any employee of the other Party involved in the development,
marketing or sale of the Co-Branded XMS Service.
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9. LIMITATIONS OF LIABILITY. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT
LIMITATION, LOSS OF REVENUES, LOSS OF PROFITS or COST OF PROCUREMENT OF
SUBSTITUTE TECHNOLOGY, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION SHALL APPLY TO ANY CLAIM OR
CAUSE OF ACTION WHETHER IN CONTRACT OR TORT, STRICT LIABILITY OR BREACH OF
WARRANTY, BUT SHALL NOT APPLY IF (A) A PRODUCT IS DETERMINED TO BE
DEFECTIVE AND TO HAVE CAUSED BODILY INJURY OR DEATH or (B) IF SUCH DAMAGES
ARE THE RESULT OF THE OTHER PARTY'S NEGLIGENCE OR WILLFUL MISCONDUCT.
THE PARTIES ACKNOWLEDGE THAT THIS SECTION 9 HAS BEEN INCLUDED AS A
MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO THIS AGREEMENT AND THAT
THE PARTIES WOULD NOT HAVE ENTERED INTO THIS AGREEMENT, BUT FOR THE
LIMITATIONS OF LIABILITY AS SET FORTH HEREIN.
10. REPRESENTATIONS AND WARRANTIES.
10.1 Due Authorization, etc. Each of Concur and AMEX represents and
warrants that (i) it has all right, power and authority to execute,
deliver and perform this Agreement and all agreements and documents
executed in connection herewith (the "Ancillary Documents"); (ii)
each of this Agreement and the Ancillary Documents have been duly
authorized, executed and delivered by it and is or when executed will
be, its legal, valid and binding obligations in accordance with their
terms; (iii) the entering into and performance of this Agreement and
the Ancillary Documents by it does not require the consent or
approval of any third party or governmental authority; and (iv) there
is no litigation, action at law or equity, suit, arbitral or
administrative proceeding, claim or to its knowledge, governmental
investigation presently pending or to its knowledge, threatened
against it or any of its Affiliates that would impair or otherwise
affect its ability to perform its obligations hereunder and
thereunder.
10.2 Intellectual Property Ownership.
(a) Concur hereby represents and warrants to AMEX that (i) Concur is
the owner of the Co-Branded XMS Service and the components
thereof, or otherwise has the right to sell, license and market
the Co-Branded XMS Service, as contemplated by the terms of this
Agreement, without infringing or violating any law, rule,
regulation, United States or foreign copyright, patent, trade
secret or other proprietary rights of any third party and (ii)
the grant of rights hereunder to AMEX does not violate or
constitute a default under any agreement to which
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Concur is a party, nor shall the performance by AMEX hereunder
in accordance with the terms of this Agreement subject AMEX to
liability as a result of any such agreement.
(b) As used herein "Developed Materials" shall mean, hereunder, all
inventions, methods, techniques, works of authorship, computer
software, computer upgrades, computer programs, service
providers, vendors information, training materials,
telemarketing scripts, computer screens, reports, data, any
other proprietary or confidential information made, created,
developed or written hereunder and other intellectual property
created, developed or written in accordance with the activities
contemplated hereunder. In the event any Developed Material (i)
is fully paid for by AMEX and Concur has not provided material
creative or developmental input therein (including without
limitation provision of proprietary or confidential
information), then such Developed Material shall be deemed the
sole property of AMEX and any use thereof by Concur shall
require consent thereto by AMEX; (ii) is substantially paid for
by AMEX and Concur has had material creative or developmental
input therein (including without limitation provision of
proprietary or confidential information), then such Developed
Material shall be deemed the property of AMEX with Concur having
a non-exclusive, non-transferable and royalty-free right of use
thereof; (iii) is substantially paid for by Concur and AMEX has
had material creative or developmental input therein (including
without limitation provision of proprietary or confidential
information), then such Developed Material shall be deemed the
property of Concur with AMEX having a non-exclusive,
non-transferable and royalty-free right of use thereof; and (iv)
is fully paid for by Concur and AMEX has not provided material
creative or developmental input therein (including without
limitation provision of proprietary or confidential
information), then such Developed Material shall be deemed the
sole property of Concur and any use thereof by AMEX shall
require consent thereto by Concur. As used herein, "AMEX
Property" shall mean the Developed Material as described in (i)
and (ii) above; "Concur Property" shall mean the Developed
Material as described in (iii) and (iv) above.
(c) All Developed Materials shall be deemed Proprietary Information
(as defined in Section 11 hereof) and subject to the
confidentiality provisions of this Agreement.
(d) Nothing herein shall be construed to restrict, impair or deprive
Concur or AMEX of any of their respective rights or proprietary
interests in technology or products that existed prior to and
independent of the performance of their respective obligations
hereunder.
10.3 Intellectual Property. Concur represents and warrants to AMEX that,
to the best knowledge of Concur, it is unaware of any patents or
other third party rights which
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cover the Co-Branded XMS Service and/or any component thereof. Concur
has not received any notices from any third party indicating an
infringement or other violation of third party intellectual property
rights.
10.4 Year 2000. Concur represents and warrants to AMEX that the Co-Branded
XMS Service and each component thereof have been and will be tested
and are and will be fully capable of providing accurate results using
data having date ranges spanning the twentieth (20th) and
twenty-first (21st) centuries (e.g., years 1900-2099). Without
limiting the generality of the foregoing, Concur represents and
warrants to AMEX that the Co-Branded XMS Service and each component
thereof shall (a) manage and manipulate data involving all dates from
the 20th and 21st centuries without functional or data abnormality
related to such dates; (b) manage and manipulate data involving all
dates from the 20th and 21st centuries without inaccurate results
related to such dates; (c) have user interfaces and data fields
formatted to distinguish between dates from the 20th and 21st
centuries; and (d) represent all data related to include indications
of the millennium, century and decade as well as the actual year.
The exclusive remedy of AMEX and the entire liability of Concur, for
breach of this Section shall be a right of indemnification under
Section 12 for its direct damages arising out of AXP/XMS Customers
claims, suits or proceedings related to such breach.
10.5 AXP/XMS Customer Warranty. EXCEPT AS SET FORTH IN THE AXP/XMS SERVICE
AGREEMENT OR EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, CONCUR
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO THE CO-BRANDED XMS SERVICE.
11. PROPRIETARY INFORMATION AND CONFIDENTIALITY.
11.1 Proprietary Information. The Parties intend to disclose and exchange
confidential, proprietary and trade secret, technical information,
technical and business plans, proposed products and marketing and
sales reports regarding their businesses and, (i) in the case of
Concur, internal processes related to the operation of the Co-Branded
XMS Service, the Suggested Price List and Base Price List and (ii) in
the case of AMEX, information provided by AMEX with respect to
internal AMEX processes and AXP/XMS Customers, including, without
limitation, their names, addresses (including e-mail), account and
telephone numbers and account information (the "Proprietary
Information"). Information with respect to AXP/XMS Customers
contained in the AXP/XMS Service Agreement shall be deemed
Proprietary Information of AMEX.
11.2 Obligation of Confidentiality. Each Party shall protect and keep
confidential any and all Proprietary Information of the other Party
embodied in any information disclosed
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hereunder and shall not use, disclose or allow any third party access
to any such Proprietary Information, except to support or perform its
obligations under this Agreement. In furtherance and not in
limitation of the foregoing, each Party agrees to maintain the strict
confidentiality of any source code delivered by the other Party.
Furthermore, with respect to Proprietary Information that relates to
any AMEX Client, Concur agrees to comply, and cause its third party
contractor to comply, with the AMEX security principles attached
hereto as Exhibit E.
11.3 Limited Access. Each Party shall use its best efforts to ensure that
only employees and third parties whose duties give them a need to
know such Proprietary Information of the other Party shall have
access thereto. All such persons and entities shall be obligated to
treat the same as proprietary and confidential and the receiving
Party shall take such other measures to protect the confidentiality
of such Proprietary Information. Without limiting the generality of
the foregoing, each Party shall require any third party to whom it
discloses any Proprietary Information to sign a confidentiality
agreement, enforceable by the other Party, whereby such third party
agrees to be bound by the confidentiality provisions set forth in
Section 11.2.
11.4 Required Disclosure. If a Party or any of its employees, shall be
under a legal obligation in any administrative, governmental or
judicial circumstance involuntarily to disclose any Proprietary
Information of the other Party, it shall give the Party that owns
such Proprietary Information (the "Disclosing Party") prompt notice
thereof so that the Disclosing Party may seek an appropriate
protective order. If the Disclosing Party is finally unsuccessful in
obtaining such protective order and if the Party receiving such
Proprietary Information (the "Receiving Party") or any such employee
would, in the opinion of its counsel, be held in contempt or suffer
other censure or penalty for failure to disclose, disclosure pursuant
to the order or decree of an administrative, governmental or judicial
authority with jurisdiction over such Party may be made by the
Receiving Party or its employees without liability hereunder.
11.5 Permitted Disclosures. Notwithstanding the foregoing, neither Party
shall be liable to the other with regard to any disclosure of
Proprietary Information of the other Party which:
(a) was known to the Receiving Party, without restriction, at the
time of disclosure, as shown by the files of the Receiving Party
in existence at the time of disclosure;
(b) is disclosed with the prior written approval of the Disclosing
Party;
(c) was independently developed by the Receiving Party, without any
use of the Proprietary Information and without the assistance of
any employee or other agents of (or independent contractors
hired by) the Receiving Party who have been exposed to such
Proprietary Information;
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(d) becomes known to the Receiving Party, without restriction, from
a source who obtained such information other than through the
breach of this Agreement by the Receiving Party or the breach of
any confidential or fiduciary obligations to the Disclosing
Party; or
(e) is required to be disclosed pursuant to law or in accordance
with judicial or other governmental order.
11.6 Remedies. The Parties agree that money damages would not be a
sufficient remedy for any breach of this Section 11 by Receiving
Party and the Disclosing Party shall be entitled, in addition to
money damages, to specific performance and injunctive relief and any
other appropriate equitable remedies for any such breach. Such
remedies shall not be deemed to be the exclusive remedies for a
breach of this Section 11 by Receiving Party but shall be in addition
to all other remedies available at law or in equity to Disclosing
Party. If a court or other authority determines that a Party has
materially breached its obligations under this Section 11, the other
Party will be entitled to payment of its legal fees and
disbursements, court costs and other expenses of enforcing, defending
or otherwise protecting its interests hereunder.
11.7 Survival. The obligations of confidentiality and limitations of use,
disclosure and access set forth herein shall survive the termination
of this Agreement.
12. INDEMNIFICATION.
12.1 By Concur. Concur agrees to indemnify, defend and hold harmless AMEX
and its Affiliates and their respective directors, officers,
employees and agents (collectively, the "AMEX Group"), from and
against any and all claims, suits, losses, damages and liabilities
(including reasonable attorney's fees and expenses) arising out of or
resulting from
(a) any third party claim, suit or proceeding and any settlement
thereof (including reasonable fees of attorneys and related
costs), to the extent based on a claim that the Co-Branded XMS
Service or Concur infringes the patent, copyright, trademark,
trade secret or other proprietary right of a third party;
(b) the intentional or negligent act or omission of Concur or its
officers, directors, employees, contractors or agents
(collectively, the "AMEX Agents") in the course of the
performance of Concur's duties and obligations under this
Agreement;
(c) the failure of Concur or its Agents, as the case may be, to
comply with the terms of this Agreement; or
(d) the failure of Concur (including without limitation its Agents
who perform on behalf of Company hereunder) to comply with its
obligations under any and all laws, rules or regulations
applicable to Concur, its Agent or the Co-Branded XMS Service,
as the case may be.
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12.2 By AMEX. AMEX agrees to indemnify, defend and hold harmless Concur
and its Affiliates and their respective directors, officers,
employees and agents, from and against any and all claims, suits,
losses, damages and liabilities (including reasonable attorney's fees
and expenses) arising out of or resulting from
(a) any third party claim, suit or proceeding and any settlement
thereof (including reasonable fees of attorneys and related
costs), to the extent based on a claim that AMEX's intellectual
property incorporated into the Co-Branded XMS Service or the
marketing thereof infringes the patent, copyright, trademark,
trade secret or other proprietary right of a third party,
(b) the intentional or negligent act or omission of AMEX or its
officers, directors, employees, contractors or agents
(collectively, the "AMEX Agents") in the course of the
performance of Concur's duties and obligations under this
Agreement;
(c) the failure of AMEX or the AMEX Agents, as the case may be, to
comply with the terms of this Agreement; or
(d) the failure of AMEX to comply with its obligations under any and
all laws, rules or regulations applicable to AMEX.
12.3 Indemnification Procedure. If any action shall be brought against
either Party in respect of which indemnity may be sought from the
other Party pursuant to the provisions of this Section 12 ("Claim"),
the indemnified Party shall promptly notify the indemnifying Party in
writing, specifying the nature of the Claim, the total monetary
amount sought, as well as such relief as is sought therein. The
indemnified Party shall cooperate with the indemnifying Party at the
indemnifying Party's expense in all reasonable respects in connection
with the defense of the Claim if by a third party. If the Claim from
a third party is solely for monetary damages or a claim of
infringement, the indemnifying Party shall, upon written notice to
the indemnified Party, undertake the defense or settlement of the
Claim; in all other instances, the indemnified Party, upon written
notice to the indemnifying Party, may undertake the defense or
settlement of the Claim. In the event the indemnified Party
undertakes the defense or settlement of the Claim, the indemnifying
Party shall have the right to employ separate counsel at its own
expense and participate in the defense of the Claim. The indemnifying
Party shall reimburse the indemnified Party upon demand the judgment
of a court of competent jurisdiction or pursuant to a bona fide
compromise or settlement of claims, demands or actions and shall
reimburse the indemnified Party upon demand for any payments of
attorney's fees and related expenses made by the indemnified Party. A
Party's failure to give timely notice or to provide copies of
documents or to furnish relevant data in connection with any claim
for indemnification shall not constitute a defense (in part or in
whole) to any claim for indemnification for such Party, except and
only to the extent that such failure shall result in any prejudice
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to the indemnifying Party; provided, that any such compromise or
settlement must be approved by the indemnifying Party and any such
compromise or settlement must be approved by the indemnified Party,
which approval shall not be unreasonably withheld.
13. AXP/XMS CUSTOMER LISTS. Subject to Section 11 hereof, AMEX shall have all
rights and interests to the list of AXP/XMS Customers and the information
contained thereon. Concur shall not solicit AXP/XMS Customers for any
reason other than in accordance with the terms of this Agreement, or as
requested by AMEX in writing. Notwithstanding the foregoing, the Concur
may market products and services to its own customers and potential
customers provided that (A) in any such marketing, such customer is not
identified in any manner as an AMEX Client and (B) the source of the
information used by the Concur to target such customer or potential
customer is neither AMEX nor the lists provided by or on behalf of AMEX
under this Agreement. The terms of this Section 13 shall survive the
termination of this Agreement.
14. GENERAL.
14.1 Entire Agreement; Amendment. This Agreement, together with any
exhibits attached hereto, contains the complete and exclusive
understanding and agreement of the Parties with respect to its
subject matter and supersedes, merges and replaces all prior
writings, discussions and understandings relating to such subject
matter. This Agreement may only be amended by a written agreement and
signed by authorized representatives of both Parties.
14.2 Governing Law. This Agreement shall be governed by and construed in
accordance with, the laws of the State of New York, excluding those
laws that direct the application of the laws of another jurisdiction.
The Parties hereby consent to the exclusive jurisdiction of any State
or Federal court located in New York County. Neither Party shall
knowingly take or fail to take any action that might cause it or the
other Party to be in violation of any law or regulation of the United
States, including the United States Foreign Corrupt Practices Act.
14.3 Force Majeure. Neither Party shall be liable for any delay or failure
to meet its obligations pursuant to this Agreement due to natural
circumstances beyond its reasonable control, including, but not
limited to war, riots, insurrection, civil commotion, fire, flood,
storm or inability to obtain necessary labor, materials or
manufacturing facilities as a direct result of such natural
disasters.
14.4 Severability. If any term or provision of this Agreement is found to
be invalid or unenforceable for any reason, it shall be adjusted
rather than avoided, if possible, so as best to accomplish the
objective of the Parties to the extent possible. In any event, the
remaining terms and provisions shall be deemed valid and enforceable.
It is
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expressly understood and agreed that each provision of this Agreement
providing for a limitation of liability disclaimer or limitation of
warranties or exclusion of damages is intended by the Parties to be
severable and independent of any other provisions and to be enforced
as such.
14.5 Assignment. This Agreement shall be binding on the Parties and on
their successors and assigns. Except as expressly provided herein,
neither Party shall transfer, assign or subcontract any right or
obligation hereunder without the prior written consent of the other
Party, which consent shall not be unreasonably withheld.
14.6 Waiver. The failure of either Party any time to require performance
by the other Party of any provision hereof shall not affect in any
way the full right to require such performance at any time
thereafter; nor shall the waiver by either Party of a breach of any
provision hereof be taken or held to be a waiver of the provision
itself.
14.7 Attorneys' Fees. In the event of any suits and actions with respect
to this Agreement, including actions for indemnification under
Section 12, the prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs and expenses incurred in
resolving such dispute.
14.8 Cooperation. Each Party to this Agreement agrees to execute and
deliver all documents and to perform all further acts and to take
any and all further steps that may be reasonably necessary to carry
out the provisions of this Agreement and the transactions
contemplated hereby.
14.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but which together shall
constitute a single instrument.
14.10 Notices. All notices relating to this Agreement shall be in writing,
signed by the Party giving or making such notice or communication
and shall be delivered by: (a) personal delivery; (b) telecopier
facsimile transmission; or (c) by postage-prepaid certified or
registered mail (airmail if available), return receipt requested.
Notices shall be sent to the address of the other Party set forth
below or such other address as either Party may specify in writing
in accordance with this Section and shall be deemed given upon
personal delivery, five (5) business days after deposit in the mail
or upon acknowledgment or actual receipt of facsimile transmission:
To Concur:
S. Steven Singh
President and CEO
Concur Technologies, Inc.
(formerly Portable Software Corporation)
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6222 - 185th NE
Redmond, WA 98052
with a copy to:
Fenwick & West LLP
2 Palo Alto Square
Suite 800
Palo Alto, California 94306
Attention: Matthew P. Quilter
To AMEX:
[*]
Vice President
American Express Travel Related Services
Company, Inc.
140 Broadway (43rd Floor)
New York, NY 10005
with a copy to:
General Counsel's Office
American Express Travel Related Services
Company, Inc.
3 World Financial Center
New York, New York 10285-4909
Attention: [*]
Counsel, Corporate Services
14.11 Voluntary Preliminary Dispute Resolution.
(a) In the event of any controversy or claim arising out of or
relating to this Agreement, the Steering Committee will first
attempt in good faith to resolve the matter. If the Steering
Committee is unable to resolve such matter, the Parties will
attempt in good faith to resolve such matter by negotiations
between senior executives of the Parties who have settlement
authority but do not have direct responsibility for the
administration of this Agreement. If the Parties are unable to
resolve a controversy or claim within sixty (60) days after
written submission to the Steering Committee, then the matter
may be submitted to a court of competent jurisdiction. All
negotiations conducted pursuant to this Section 14.11 are
confidential and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence and
state rules of evidence;
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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(b) This Section 14.11 sets forth the exclusive method for
adjudicating disputes between the Parties arising out of or
relating to this Agreement; provided that nothing in this
Section 14.11 shall prevent a Party from applying to the
federal or state courts to obtain injunctive relief pending
resolution of the dispute through the voluntary dispute
resolution procedures set forth herein and to join in any such
action such other claims as may be required to be brought by
applicable joinder rules.
14.12 No Creation of Partnership. This Agreement does not create or
constitute a partnership for tax or other purposes. All decisions
regarding effectuation this Agreement and any action to be taken
hereunder shall be solely at the discretion of the Party making such
decision. Neither Party shall hold itself out as an agent of the
other. Neither Party shall have any authority to bind or obligate
the other in any manner.
14.13 Access to AMEX Client Lists. The access provided by AMEX to Concur
of certain lists of AMEX Clients hereunder shall be deemed provided
to Concur at no additional charge.
14.14 Insurance.
(a) During the term of this Agreement and for any period that the
Service is made available to Customers (including without
limitation Enrollees), Concur agrees to maintain, at its own
expense, insurance in at least the following amounts (or such
reasonable higher amounts upon which the parties may hereafter
agree) to insure against both Concur's and AMEX's risk of loss
in connection with the services described in this Agreement:
(i) commercial general liability insurance, including coverage
for contractual liability, fire and casualty, business
interruption and complete operations, in the amount of $10
million per occurrence with at least $5 million personal injury
coverage; and (ii) errors and omissions liability insurance
covering the acts, errors, omissions and infringement of Concur
in the amount of at least $2 million per occurrence with an
annual aggregate of $10 million.
(b) Concur shall provide AMEX with certificates of insurance or
adequate proof of the foregoing insurance to AMEX on the date
hereof and within five (5) days of the issuance of a renewal
certificate for each such insurance policy. The commercial
general liability insurance policy shall name AMEX and its
affiliate companies as additional insureds with respect to the
Service. All insurance policies required hereunder shall
contain a provision stating the name and address of AMEX and
that AMEX is to be notified in writing by the insurer at least
thirty (30) days prior to cancellation of or a material change
in, any policy issued by such insurer.
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(c) All policies required hereunder shall be maintained with
insurers acceptable to AMEX. AMEX reserves the right to
disallow coverage from any insurer that does not maintain a
rating of B+++ or higher from A.M. Best.
14.15 Trademarks. The use by a Party of any logo, trademark or other mark
owned by the other Party or Affiliates of the other Party shall be
strictly limited to each specific right to use articulated from time
to time.
14.16 Headings. The headings contained in this Agreement are solely for
the purpose of reference, are not part of the agreement of the
Parties and shall not in any way affect the meaning or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the Parties hereto agree to the provisions set forth above
and have executed this Agreement as of the Effective Date.
CONCUR TECHNOLOGIES, INC.
(formerly known as Portable Software Corporation)
By: /s/ STEVE SINGH
----------------------------------
Name: Steve Singh
--------------------------------
Title: President & CEO
-------------------------------
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: /s/ ED GILLIGAN
----------------------------------
Name: Ed Gilligan
--------------------------------
Title: President Corporate Services
-------------------------------
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LIST OF EXHIBITS
Exhibit A-1 Description of the Co-Branded XMS Service
Exhibit A-2 Suggested Price List and Base Price List
Exhibit B Support
Exhibit C Exclusive Features
Exhibit D Lead Referral Compensation Payable By AMEX to Concur
Exhibit E AMEX Security Principles
Exhibit F Form of AXP/XMS Service Agreement
Exhibit G Data Security Agreement
<PAGE> 27
EXHIBIT A-1
DESCRIPTION OF THE CO-BRANDED XMS SERVICE
The Co-Branded XMS Service is an Internet travel expense management outsourcing
solution that automates the entire travel expense management process - from
expense report preparation and approval to processing and data analysis. The
Co-Branded XMS Service is powered by the Xpense Management Solution - a software
developed and owned by Concur -- and the hardware, application, operations, and
Internet connections are hosted by a third party web hosting partner. Automated
web reporting and payment services are optionally available.
The Co-Branded XMS Service is based on the XMS version 3.01 and includes the
Exclusive Features developed from time to time in accordance with the terms of
the Agreement.
<PAGE> 28
EXHIBIT A-2
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PLEASE NOTE THAT THIS IS NOT A FINAL PRICE SHEET
- -----------------------------------------------------------------------------------------------------------------------------
WE ARE SIX MONTHS AWAY FROM DELIVERY AND PRICE IS SUBJECT TO CHANGE UP OR DOWN SLIGHTLY
- -----------------------------------------------------------------------------------------------------------------------------
# OF EXPENSE MONTHLY PER PER IMPLEMENTATION & CONSULTING &
MARKET REPORTS PER MINIMUM TRANSACTION TRANSACTION PER PAYMENT PER PAYMENT BASIC TRAINING CUSTOM
SEGMENT YEAR FEE LIST FEE LIST(1) FEE BASE(2) FEE COST FEE LIST LIST(3) TRAINING LIST
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Upper Large [*] [*] [*] [*] [*] Hourly rate
- -----------------------------------------------------------------------------------------------------------------------------
Large [*] [*] [*] [*] [*] Hourly rate
- -----------------------------------------------------------------------------------------------------------------------------
Upper Middle [*] [*] [*] [*] [*] Hourly rate
- -----------------------------------------------------------------------------------------------------------------------------
Middle [*] [*] [*] [*] Hourly rate
- -----------------------------------------------------------------------------------------------------------------------------
Lower Middle [*] [*] [*] [*] Hourly rate
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
There is a reasonable chance that we will break the Upper Large market into two categories with 2 different price structures
There is no fee paid to American Express on [*] (THIS IS DONE AT [*])
- -----------------------------------------------------------------------------------------------------------------------------
Monthly Minimum Fee Helps to Support:
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Suggested Price List
(2) Base Price List
(3) This applies to "Best Practices" solutions.
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Implementation & Basic Training Includes:
- -----------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------
[*]
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
29
<PAGE> 30
EXHIBIT B
SUPPORT
{See Support as described in the Prior Agreement}
<PAGE> 31
EXHIBIT C
EXCLUSIVE FEATURES
Proposal for Exclusive Integration Features
================================================================================
OBJECTIVE:
AMEX and Concur wish to provide AXP/XMS Customers with a set of exclusive
features (identified in the body of this Agreement as the "Exclusive Features")
for the Co-Branded XMS Service which will enhance the relationship, provide
competitive advantage for the RTS value proposition, and position the joint
offering as the market leading solution.
APPROACH:
- - This document proposes "rolling exclusivity" for these features, i.e.
available only to AMEX Clients for a specific period of time described
in the Agreement following general release. This document proposes the
first set of features governed by rolling exclusivity. The feature set
was developed jointly by AMEX and Concur.
- - Although the initial focus is on the domestic marketplace, exclusive
features apply globally, where appropriate.
- - The proposal follows the guiding principle to implement exclusive
features; neither party will remove functionality that is currently
available.
- - The proposal addresses product integration between Concur and AMEX
products and services. It does not recommend integrating efforts for
the business relationship (e.g. implementation, pricing, resource
sharing).
- - This draft includes a matrix of proposed features. Potential
availability of features, impact on the current feature integration
plans, and requirements, which are external to Concur, have not yet
been identified.
SUMMARY:
- - The majority of proposed features were taken from the XMS Integration
Feature List, which describes planned integration between Concur and
AMEX products and services.
- - Two features are already on the product plan. One feature (travel
integration) will be delivered Oct 98. [*] are tentatively slated for
1Q99.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
30
<PAGE> 32
JOINTLY RECOMMENDED FEATURES
<TABLE>
<CAPTION>
FEATURE DESCRIPTION OF EXCLUSIVE FEATURE/CLIENT BENEFIT
- ------- -----------------------------------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
UNDER INVESTIGATION
AMEX and Concur agree that the following feature is of value to the
relationship. Agreement on this feature may be contingent on agreement with
multiple divisions within AMEX. If this agreement is reached, this feature will
be added to the JOINTLY RECOMMENDED FEATURES list above.
<TABLE>
<CAPTION>
FEATURE DESCRIPTION OF EXCLUSIVE FEATURE/CLIENT BENEFIT
- ------- -----------------------------------------------
<S> <C>
[*] [*]
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
2
<PAGE> 33
EXHIBIT D
Lead Referral Compensation Payable By AMEX to Concur
The following are the terms and conditions for payment to Concur in connection
with lead referrals to AMEX of entities that have an actual business
relationship with Concur for the provisions of a service or product similar to
the Co-Branded XMS Service and which are interested in the American Express(R)
Corporate Card system and the American Express Business Travel Account program
(such entities, a "Potential Client"). All applications are subject to AMEX
approval.
Concur may, in writing and containing such information as AMEX shall reasonably
require from time to time, refer to AMEX a Potential Client for purposes of
AMEX's solicitation of such Potential Client for applications for a new
Corporate Card account ("Corporate Card Account")or new Business Travel Account
("BTA"). AMEX will approve or reject such referrals in accordance with
procedures it establishes from time to time. AMEX may, in its sole option,
choose or decide not to solicit such Potential Client.
If, during the term of the Agreement, AMEX establishes a new Corporate Card
Account or new BTA with a Potential Client which conforms with the conditions
set forth below (a "Qualified Lead"), AMEX agrees to pay Concur a one-time
incentive fee in accordance with the terms set forth below.
In order for a referred Potential Client to be deemed a Qualified Client, all of
the following conditions must be satisfied:
(i) the Potential Client must not have any existing or prior account
relationship with AMEX;
(ii) the Potential Client must have an existing business relationship with
Concur for the provision of a service or product similar to the
Co-Branded XMS Service;
(iii) [*] prior to the date AMEX receives such referral;
(iv) the Potential Client cannot be an entity in the public sector;
(v) Concur must not have offered or granted to the Potential Client, directly
or indirectly, any discount or rebate from the amount of any fees the
Potential Client may be obligated to pay AMEX in connection with a
Corporate Card Account or BTA; and
(vi) Concur must, at the request of AMEX, assist AMEX in the solicitation of
the Potential Client for a Corporate Card Account or a BTA.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 34
If all of the preceding conditions are satisfied, then the Potential Client will
be considered a "Qualified Client" hereunder and thereby qualify Concur for the
following one-time incentive fee with respect to each Qualified Client that
establishes a new Corporate Card Account with AMEX:
<TABLE>
<S> <C>
1-9 Cards.................................................. [*] per Card
10-99 Cards................................................ [*] per Account
100-499 Cards.............................................. [*] per Account
500-999 Cards.............................................. [*] per Account
1,000 + Cards.............................................. [*] per Account
</TABLE>
Also during such term, Concur will be entitled to a one-time incentive fee of
[*] for each Qualified Client that establishes a new BTA.
Any incentive fee payable by AMEX will be based on the BTA or Corporate Card
Account as it exists three (3) months following the actual setup of the
respective account.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
5
<PAGE> 35
EXHIBIT E
AMEX SECURITY PRINCIPLES
INFORMATION SECURITY REQUIREMENTS
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 36
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
2
<PAGE> 37
DATA SECURITY RECOMMENDED CONTROLS AND PROCEDURES
For Concur and its third party contractors which has access to AMEX's
Proprietary Information, the following are recommended security controls and
procedures for the sites which house such Proprietary Information:
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
3
<PAGE> 38
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
4
<PAGE> 39
EXHIBIT F
FORM OF AXP/XMS SERVICE AGREEMENT
<PAGE> 40
EXHIBIT G
DATA SECURITY AGREEMENT
This Data Security Agreement (the "Agreement") is entered into by and between
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC. ("Amexco") and CONCUR
TECHNOLOGIES, INC. (formerly known as Portable Software Corporation), a
Washington corporation ("Service Organization").
Amexco hereby agrees to supply, and provide Service Organization with access to,
data (hereinafter referred to as "Files") containing proprietary information of
Amexco, and/or its parent company, subsidiaries and affiliates from time to time
to the Service Organization subject to the following terms and conditions.
I. GENERAL CONDITIONS
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 41
[*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
2
<PAGE> 42
III. GOVERNING LAW AND INTERPRETATION
This Agreement and the rights and obligations of the parties hereto
shall be governed by and construed in accordance with the laws of the
State of New York. Headings are for reference only and are not intended
to affect the meaning of any terms. If any provision of this Agreement
is held invalid, illegal or unenforceable, the remaining provisions
will remain unimpaired.
IV. ENTIRE AGREEMENT
No modification, amendment, supplement to or waiver of this Agreement
or any of its provisions shall be binding upon the parties hereto
unless made in writing and duly signed by both parties. This Agreement
shall become effective as of __________, 1998.
ACCEPTED AND AGREED TO:
Signature:___________________________
Printed Name:________________________
Title:_______________________________
TO BE COMPLETED BY AMEXCO DATA SECURITY ONLY
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
SIGNATURE:
---------------------------------------
PRINTED NAME: Robert J. Ferrante
-----------------------------------
TITLE: Senior Director - Worldwide Data Security
------------------------------------------
3
<PAGE> 43
ADDENDUM A
(Please provide the name, address, contact, and telephone number for any
companies listed.)
4
<PAGE> 1
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
October 27, 1998 (except Note 19, as to which the date is December 9, 1998)
relative to the consolidated financial statements of Concur Technologies, Inc.
(the Company) and to the use of our report dated August 14, 1998 relative to the
financial statements of 7Software in the Registration Statement (Form S-1 No.
333-62299) and the related Prospectus of the Company.
ERNST & YOUNG LLP
Seattle, Washington
December 13, 1998
