<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONCUR TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7372 91-1608052
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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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<S> <C>
MATTHEW P. QUILTER, ESQ. CURTIS L. MO, ESQ.
HORACE L. NASH, ESQ. PATRICIA MONTALVO TIMM, ESQ.
ROBERT A. FREEDMAN, ESQ. ANGENETTE LYNCH, ESQ.
NICHOLAS S. KHADDER, 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
</TABLE>
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. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.001 per
share.............................. 3,335,000 $36.5625 $121,935,938 $33,899
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</TABLE>
(1) Includes 435,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee. The proposed maximum offering price per
share is based on the average of the high and low prices for a share
reported on the Nasdaq National Market on March 12, 1999.
------------------------
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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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 19, 1999
LOGO
2,900,000 SHARES
COMMON STOCK
Concur Technologies, Inc. is offering 1,818,620 shares of its common stock
and the selling stockholders are selling an additional 1,081,380 shares.
Concur's common stock is traded on the Nasdaq National Market under the symbol
"CNQR." The last reported sale price of the common stock on the Nasdaq National
Market on March 17, 1999 was $36.9375 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ---------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Concur Technologies............................. $ $
Proceeds to the selling stockholders........................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Concur has granted the underwriters a 30-day option to purchase up to an
additional 435,000 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on April , 1999.
------------------------------
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER
INCORPORATED
FAC/EQUITIES
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE THESE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
"CONCUR," "WE," "OUR" AND "US" REFER TO CONCUR TECHNOLOGIES, INC., TOGETHER WITH
ITS SUBSIDIARIES.
------------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Special Notice Regarding Forward-Looking Statements......... 14
Use of Proceeds............................................. 15
Price Range of Common Stock................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 36
Management.................................................. 55
Certain Transactions........................................ 66
Principal and Selling Stockholders.......................... 69
Description of Capital Stock................................ 72
Shares Eligible for Future Sale............................. 74
Underwriting................................................ 75
Legal Matters............................................... 77
Experts..................................................... 77
Where You Can Find More Information......................... 77
Index to Consolidated Financial Statements.................. F-1
</TABLE>
-------------------------
We own or have rights to the product names, trade names and trademarks that
we use in conjunction with the sale of our products, including Concur(TM),
Concur Technologies(TM), Xpense Management Solution(TM), XMS(TM),
CompanyStore(TM), Employee Desktop(TM), and QuickXpense(R). This prospectus also
contains product names, trade names and trademarks that belong to other
organizations.
-------------------------
The 1997 American Express Travel and Entertainment Process Study cited in
this prospectus was not prepared with a view to, or in connection with, us or
our products or this offering. That study was prepared based on various
assumptions, facts and circumstances that may not apply to us or our products.
Accordingly, American Express and Concur cannot assure you that the conclusions
in that report are applicable to us or our products. American Express and Concur
expressly disclaim any duty to update that study, which you should note was
issued in 1997.
i
<PAGE> 4
SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock. Unless we indicate otherwise,
all information in this prospectus assumes the underwriters will not exercise
their over-allotment option.
CONCUR TECHNOLOGIES, INC.
We are a leading provider of Intranet-based employee-facing software
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. Our
Xpense Management Solution, or XMS, and CompanyStore products automate the
preparation, approval, processing and data analysis of travel and entertainment
expense reports and front-office procurement requisitions. We recently
introduced our Employee Desktop product, which integrates XMS and CompanyStore
through a common user interface and provides a business portal through which
corporate customers and third parties can deliver other information and services
to employees. We believe we are the leading provider of travel and entertainment
expense management solutions, based on a combination of the number of customers
we serve and the features our solutions provide. Since 1996, we have licensed
products to over 175 enterprise customers for use by over 900,000 end users. By
automating manual, paper-based processes, our 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. These applications have traditionally targeted
discrete functional or department level business processes involving relatively
few employees. However, businesses are now seeking similar applications for
employee-facing business processes including travel and entertainment expense
management, front-office procurement, human resources self-service, time and
attendance, 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 on a cost-effective basis.
Customers using our 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 Travel and Entertainment Management Process Study, businesses using
best-in-class automation that process 1,000 to 5,000 travel and entertainment
expense reports per month can achieve savings from $300,000 to $1.5 million per
year in processing costs alone. American Express concluded that corporations on
average spend $36 per travel and entertainment expense report processed, but can
reduce such costs to as little as $8 through best-in-class automation.
We believe our customers can achieve these cost savings rapidly because our
products are designed to minimize burdens on IT professionals and to maximize
employees' ease of use. Because our 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
1
<PAGE> 5
customer deployed XMS to over 25,000 employees in less than 90 days, and has
since deployed XMS to over 50,000 employees. Employees readily adopt our
solutions because they are easy to use, reduce time spent preparing expense
reports and supply requisitions, and shorten reimbursement and fulfillment
process cycles.
Our objective is to be the leading provider of Internet-based
employee-facing applications. Our strategy is:
- to extend our leadership in travel and entertainment expense management;
- to leverage that leadership in marketing our Employee Desktop and
front-office procurement applications;
- to expand the functionality of our products;
- to add new employee-facing applications to our product suite;
- to leverage Employee Desktop to sell multiple products;
- to increase our international presence;
- to develop new relationships with strategic third-parties; and
- to offer our solutions as an outsourced enterprise service provider.
We sell our products primarily through our direct sales organization. We
also have a number of strategic referral relationships. For example, American
Express has referred corporate charge card customers seeking a travel and
entertainment expense management solution to us. American Express owns a
minority equity stake in us and is an affiliate. Automatic Data Processing, or
ADP, jointly markets our XMS product and refers potential customers to us as
well.
Given the broad applicability of our products, we have licensed
applications to numerous customers in a wide range of industries. Our customers
include:
<TABLE>
<S> <C> <C>
AT&T Gillette Northrop Grumman
Allied Signal Guardian Industries Pfizer
American Airlines Hearst Corporation Pharmacia & Upjohn
Anheuser-Busch J.C. Penney Seagate Technology
Case Corporation Lehman Brothers Solutia
Computer Sciences Corporation Levi Strauss Sprint
Dell Computer Lucent Technologies Texaco
DuPont Monsanto Texas Instruments
Eastman Kodak Motorola Visio
Exxon The New York Times
</TABLE>
OUR ADDRESS
Our principal executive officers are located at 6222 185th Avenue NE,
Redmond, Washington 98052 and our telephone number is (425) 702-8808.
Information in our Web site is not part of this prospectus.
2
<PAGE> 6
THE OFFERING
COMMON STOCK OFFERED BY
CONCUR................... 1,818,620 shares
COMMON STOCK OFFERED BY
SELLING STOCKHOLDERS..... 1,081,380 shares
COMMON STOCK TO BE
OUTSTANDING AFTER THIS
OFFERING................. 18,920,261 shares. This is based on the actual
number of shares outstanding on February 28, 1999.
The number excludes 5,710,233 shares subject to
outstanding options or reserved for issuance under
our stock and option plans and 2,224,267 shares
subject to outstanding warrants.
USE OF PROCEEDS............ For working capital and other general corporate
purposes, including capital expenditures. See "Use
of Proceeds."
NASDAQ NATIONAL MARKET
SYMBOL................... CNQR
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Our consolidated financial data reflects our acquisition of 7Software, Inc.
in June 1998 which resulted in a charge for acquired in-process technology. See
Note 3 to Notes to our Consolidated Financial Statements and see the separate
financial statements of 7Software included in this prospectus. See Note 13 to
Notes to our Consolidated Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share. The balance sheet data
at December 31, 1998, as adjusted, gives effect to our sale of 1,818,620 shares
at an assumed public offering price of $36.9375 per share, and application of
the net proceeds to us. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
----- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues, net......................... $ -- $ 2,128 $ 1,959 $ 8,270 $ 17,159 $ 3,115 $ 6,005
Loss from operations.................. (602) (2,895) (4,958) (5,505) (17,760) (2,190) (5,608)
Net loss.............................. (602) (2,890) (4,953) (5,524) (18,074) (2,283) (5,642)
Pro forma basic and diluted net loss
per share.......................... $ (1.58) $ (0.21) $ (0.40)
Shares used in calculation of pro
forma basic and diluted net loss
per share.......................... 11,419 10,863 13,968
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------
ACTUAL AS ADJUSTED
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $53,277 $116,058
Working capital............................................. 39,915 102,696
Total assets................................................ 62,877 125,658
Long-term obligations, net of current portion............... 7,351 7,351
Total stockholders' equity.................................. 38,329 101,110
</TABLE>
3
<PAGE> 7
RISK FACTORS
You should carefully consider the risks described below before making any
investment decision. The risks described below are not the only ones we face.
Additional risks that we are unaware of or that we currently believe are
immaterial may become important factors that affect our business. If any of the
following risks actually occur, our business, results of operations and
financial condition would be materially adversely affected. In such case, the
trading price of our common stock could decline, and you may lose all or a part
of your investment.
OUR SHORT OPERATING HISTORY AND SIGNIFICANT LOSSES MAKE OUR BUSINESS DIFFICULT
TO EVALUATE.
We are still in the early stages of our development, so evaluating our
business operations and our prospects is difficult. We incorporated in 1993 and
have incurred net losses in each quarter since then. We shipped our first
product in fiscal 1995, and since fiscal 1997 have derived substantially all of
our revenues from licenses of our XMS product and related services. To compete
effectively, we expect to devote substantial cash, financial and other resources
to expanding our sales and marketing, research and development, and professional
services organizations. These investments may never produce a profit. We
incurred net losses of $5.0 million for fiscal 1996, $5.5 million for fiscal
1997, $18.1 million for fiscal 1998 and $5.6 million for the three months ended
December 31, 1998. As of December 31, 1998, we had an accumulated deficit of
$37.7 million. We expect to continue to incur net losses for the foreseeable
future. Despite substantial net operating loss carryforwards as of December 31,
1998, tax laws may limit their use in the future upon the occurrence of certain
events, including a significant change in ownership interests. See "--Our
operating results fluctuate widely and are difficult to predict," "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR OPERATING RESULTS FLUCTUATE WIDELY AND ARE DIFFICULT TO PREDICT.
In the past our quarterly operating results have fluctuated significantly,
and we expect them to continue to fluctuate in the future. Many of the factors
causing the fluctuations are listed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
Our products are typically shipped when orders are received, so license backlog
at the beginning of any quarter in the past represented only a small portion of
that quarter's expected license revenues. This makes license revenues in any
quarter difficult to forecast because they are dependent on orders booked and
shipped in that quarter. Moreover, we typically recognize a substantial
percentage of revenues in the last month of the quarter, frequently in the last
week or even the last days of the quarter. Since our expenses are 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. We find it difficult to forecast quarterly
license revenues because our sales cycle, from initial evaluation to delivery of
software, is lengthy and varies substantially from customer to customer. If
revenues fall below our expectations in a particular quarter, our business could
be harmed. See "--Our lengthy sales cycle could adversely affect our revenue
growth."
YEAR 2000 CONSIDERATIONS AMONG OUR CUSTOMERS AND POTENTIAL CUSTOMERS MAY REDUCE
OUR SALES.
We may experience reduced sales of products as customers and potential
customers put a priority on correcting Year 2000 problems and therefore defer
purchases of our
4
<PAGE> 8
products until later in 2000. Accordingly, demand for our products may be
particularly volatile and unpredictable for the remainder of 1999 and early
2000.
THE MARKET FOR OUR PRODUCTS IS NEWLY EMERGING AND CUSTOMERS MAY NOT ACCEPT OUR
PRODUCTS.
The market for employee-facing applications is newly emerging. Enterprises
have historically performed the processes addressed by employee-facing
applications themselves. Accordingly, our future success will depend on
companies adopting third-party employee-facing applications, particularly travel
and entertainment expense management and front-office procurement solutions. In
addition, companies that have already invested substantial resources in other
methods of implementing enterprise processes may be reluctant to adopt a new
strategy. Even if companies implement employee-facing applications, they may
still choose to design, develop or manage all or part of their process
automation internally. Thus, the use of employee-facing applications may not
increase significantly in the future, and our products or services may not
achieve commercial success. See "Business--Industry Background."
WE RELY HEAVILY ON SALES OF ONE PRODUCT.
Since 1997, we have generated substantially all of our revenues from
licenses and services related to our XMS product. We believe that XMS revenues
will continue to account for a large portion of our revenues for the foreseeable
future. Our future financial performance will depend upon the successful
development, introduction and customer acceptance of new and enhanced versions
of XMS and our business could be harmed if we fail to deliver the enhancements
to XMS that customers want. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR EXPANSION INTO THE FRONT-OFFICE PROCUREMENT APPLICATION MARKET IS RISKY.
We also recently added the CompanyStore front-office procurement
application to our product line. To date, we have licensed CompanyStore to only
five customers. Our future revenue growth depends on our ability to license
CompanyStore to new customers and our existing base of XMS customers. Potential
and existing customers may not purchase CompanyStore for a number of reasons,
including:
- an absence of desired functionality;
- the costs of and time required for implementation;
- possible software defects; and
- a customer's lack of the necessary hardware, software or Intranet
infrastructure.
Further, we must overcome certain significant obstacles to expand into the
front-office procurement automation market, including:
- competitors that have more experience and better name recognition;
- the experience of our sales and consulting personnel in the front-office
procurement automation market is limited; and
- our reference accounts in the front-office procurement automation market
are limited.
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<PAGE> 9
Our business could be harmed if we fail to deliver the enhancements to
CompanyStore that customers want. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE FACE SIGNIFICANT COMPETITION.
The market for our products is intensely competitive and rapidly changing.
Direct competition comes from independent software vendors of travel and
entertainment expense management and front-office procurement applications, and
from providers of enterprise resource planning, or ERP, software applications
that have or may be developing travel and entertainment expense management and
front-office procurement products. Many of our competitors in both the travel
and entertainment 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 we do. Moreover, a number of our
competitors, particularly major ERP vendors, have well-established relationships
with our current and potential customers as well as with systems integrators and
other vendors and service providers. These competitors may also 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 we can. We also face indirect competition from
potential customers' internal development efforts and have to overcome their
reluctance to move away from existing paper-based systems. See "Business--
Competition."
WE HAVE LIMITED EXPERIENCE SELLING OUR PRODUCTS AS A SUITE AND OUR EMPLOYEE
DESKTOP MODEL MAY FAIL.
We recently introduced Employee Desktop, which integrates XMS and
CompanyStore as a suite of applications. Until recently we have not sold our
products as a suite, and we do not know whether customers will prefer to buy our
products this way. In an effort to increase overall revenues, we expect to offer
our integrated suite of applications at prices that will be lower than would be
the case for the applications sold separately. This may have the effect of
reducing per-user revenues. We also expect that selling our products as a suite
will lengthen our sales cycle because the sale is more complex and is more
likely to involve information technology specialists at the prospective
customer. Because we are inexperienced selling our products this way, we cannot
predict whether it will hurt our business. See "--Our lengthy sales cycle could
adversely affect our revenue growth."
WE MAY EXPERIENCE DIFFICULTIES IN INTRODUCING NEW PRODUCTS AND UPGRADES.
We expect to add new employee-facing applications to our product suite by
acquisition or internal development, and to develop enhancements to our existing
applications. We have experienced delays in the planned release dates of our
software products and upgrades, and we have discovered software defects in new
products after their introduction. New products or upgrades may not be released
according to schedule, or may contain defects when released. Either situation
could result in adverse publicity, loss of sales, delay in market acceptance of
our products or customer claims against us, any of which could harm our
business. If we do not develop, license or acquire new software products, or
deliver enhancements to existing products on a timely and cost-effective basis,
our business will be harmed.
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<PAGE> 10
OUR PLAN TO SELL PRODUCTS AS AN INTERNET-BASED ENTERPRISE SERVICE PROVIDER MAY
FAIL.
In addition to licensing our software applications, we plan to offer them
as an Internet-based enterprise service provider, or ESP. We would price
solutions on a per-transaction basis or on a subscription basis to companies
seeking to outsource their employee-facing business applications. This business
model is unproven and represents a significant departure from the strategies
traditionally employed by us and other enterprise software vendors. We have no
experience selling products or services as an ESP, and our efforts to develop
this ESP business may significantly divert our revenues and management time and
attention. In connection with our planned ESP business model, we will engage
third-party service providers to perform many of the necessary services as
independent contractors, and we will be responsible for monitoring their
performance. We have limited experience outsourcing services or other important
business functions in the past, and independent contractors may not perform
those services adequately. If any service provider delivers inadequate support
or service to our customers, our reputation could be harmed. In addition, we
plan to use resellers to market ESP products. We have no experience utilizing
resellers and we may not be successful in this effort.
If customers determine that our 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 our products for use on the Internet or on a
per-transaction or subscription basis, our business will be harmed. As an
outsourced ESP provider, we may regularly receive large amounts of confidential
information, including credit card, travel booking and other financial and
accounting data through the Internet or extranets, and there can be no assurance
that this information will not be subject to computer break-ins, theft and other
improper activity that could jeopardize the security of information for which we
are responsible. Even if our strategy of offering products to customers over the
Internet is successful, some of those Internet customers may be ones that
otherwise might have bought our software and services through our traditional
licensing arrangements. Any such shift in potential license revenues to the ESP
model, which is unproven and potentially less profitable, could harm our
business.
WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE DEPLOYMENT, WHICH IS IMPORTANT TO
OUR FUTURE SUCCESS.
To date only a limited number of customers have deployed XMS on a large
scale, and no customer has deployed CompanyStore on a large scale. We think that
the ability of large customers to roll out our products across large numbers of
users is critical to our success. If our customers cannot successfully implement
large-scale deployments, or they determine that our products cannot accommodate
large-scale deployments, our business would be harmed.
IT IS IMPORTANT FOR US TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS.
To offer products and services to a larger customer base than we can reach
through direct sales, telesales and internal marketing efforts, we depend on
strategic referral relationships. If we were unable to maintain our existing
strategic referral relationships or enter into additional strategic referral
relationships, we would have to devote substantially more resources to the
distribution, sale and marketing of our products and services. We would also
lose anticipated customer introductions and co-marketing benefits. Our success
depends in part on the ultimate success of our strategic referral partners and
their ability to market our
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<PAGE> 11
products and services successfully. A significant number of our new XMS sales
have come through referrals from American Express, but American Express is not
obligated to refer any potential customers to us, and it may enter into
strategic relationships with other providers of expense reporting and front
office procurement applications.
Many of our strategic partners have multiple strategic relationships, and
they may not regard us as significant for their businesses. In addition, our
strategic partners may terminate their respective relationships with us, pursue
other partnerships or relationships, or attempt to develop or acquire products
or services that compete with our products or services. Further, our existing
strategic relationships may interfere with our ability to enter into other
desirable strategic relationships. See "Business--Strategy," "--Sales,"
"--Marketing" and "--Competition."
FUTURE ACQUISITIONS MIGHT HARM OUR BUSINESS.
As part of our business strategy, we might seek to acquire or invest in
businesses, products or technologies that we feel could complement or expand our
business. If we identify an appropriate acquisition opportunity, we might not be
able to negotiate the terms of that acquisition successfully, finance it, or
integrate it into our existing business and operations. We have completed only
one acquisition to date, 7Software, Inc. We may not be able to select, manage or
absorb any future acquisitions successfully, particularly acquisitions of
companies larger than 7Software. Further, the negotiation of potential
acquisitions, as well as the integration of an acquired business, would divert
management time and other resources. We may have to use a substantial portion of
our available cash, including proceeds of this offering, to consummate an
acquisition. On the other hand, if we consummate acquisitions through an
exchange of our securities, our stockholders could suffer significant dilution.
In addition, we cannot assure you that any particular acquisition, even if
successfully completed, will ultimately benefit our business. See "--We have
broad discretion over use of proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
OUR LENGTHY SALES CYCLE COULD ADVERSELY AFFECT OUR REVENUE GROWTH.
Because of the high costs involved, customers for enterprise software
products typically commit significant resources to an evaluation of available
software applications and require us to expend substantial time, effort and
money educating them about the value of our products and services. The time
between initial contact with a potential customer and the ultimate sale, our
sales cycle, typically ranges between six and nine months. As a result of our
lengthy sales cycle, we have only a limited ability to forecast the timing and
size of specific sales. Any delay in completing, or failure to complete, sales
in a particular quarter or fiscal year could harm our business and could cause
our operating results to vary significantly. See "--Our operating results
fluctuate widely and are difficult to predict," and "--Year 2000 considerations
among our customers and potential customers may reduce our sales."
WE DEPEND ON OUR KEY EMPLOYEES.
Our success depends on the performance of our senior management,
particularly S. Steven Singh, our President and Chief Executive Officer, who is
not bound by an employment agreement. Although we maintain key person life
insurance on Mr. Singh in the amount of $1 million, the loss of his services
would harm our business. If one or more members of our senior management or any
of our key employees were to resign, particularly to join or form a competitor,
the loss of that personnel and any resulting loss
8
<PAGE> 12
of existing or potential customers to that competitor would harm our business.
See "Business--Competition," "--Employees" and "Management."
WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL, PARTICULARLY SERVICE PERSONNEL.
Our success depends on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, sales and consulting personnel in the market segments in which we
compete. Many of our competitors for experienced personnel have greater
financial and other resources. In particular, we compete for personnel with
Microsoft Corporation, which is located in the same geographic area as our
headquarters. We also compete for personnel with other software vendors,
including ERP vendors, and with consulting and professional services companies.
In addition, our customers generally purchase consulting and implementation
services. While we have recently established relationships with some third-party
providers, we continue to be the primary provider of these consulting and
implementation services. It is difficult and expensive to recruit, train and
retain qualified personnel to perform these services, and we may from time to
time have inadequate levels of staffing to perform these services. As a result,
our growth could be limited due to our lack of capacity to provide such
services, or we could experience deterioration in service levels or decreased
customer satisfaction, any of which would harm our business. See "--We depend on
service revenues to increase our overall revenues" and "Business--Employees."
WE DEPEND ON OUR DIRECT SALES MODEL.
We sell our products primarily through our direct sales force. We believe
that there is significant competition for direct sales personnel with the
advanced sales skills and technical knowledge we need. Our inability to hire
competent sales personnel, or our failure to retain them, would harm our
business. See "--We depend on our key employees" and "--We must attract and
retain qualified personnel, particularly service personnel."
In addition, by relying primarily on a direct sales model, we may miss
sales opportunities that might be available through other sales channels, such
as domestic and international resellers. In the future, we intend to develop
indirect distribution channels through third-party distribution arrangements,
but we may not be successful in establishing those arrangements, or they may not
increase revenues. Furthermore, we plan to use resellers to market our ESP
products in particular. We have no experience utilizing resellers to date. The
failure to develop indirect channels may place us at a significant competitive
disadvantage. See "Business--Competition" and "--Sales."
WE DEPEND ON SERVICE REVENUES TO INCREASE OUR OVERALL REVENUES.
Our service revenues have increased each year as a percentage of total
revenues. Service revenues represented 12.4% of total revenues for fiscal 1996,
23.3% of total revenues for fiscal 1997, 31.8% of total revenues for fiscal 1998
and 32.6% of total revenues for the three months ended December 31, 1998. We
anticipate that service revenues will continue to represent a significant
percentage of total revenues. To a large extent, the level of service revenues
depends upon the ongoing renewals of customer support contracts by our growing
installed customer base. Customer support contracts might not be renewed. And,
if third-party organizations such as systems integrators become proficient in
installing or servicing our products, consulting revenues could decline. Our
ability to increase service revenues will depend in large part on our ability to
increase the scale of our services organization, including our ability to
successfully recruit and train a sufficient number of qualified services
personnel. See "--We depend on our key employees," "--We must
9
<PAGE> 13
attract and retain qualified personnel, particularly service personnel" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THERE ARE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
Our international operations are 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 in collecting accounts receivable;
- import and export restrictions and tariffs;
- difficulties staffing and managing foreign operations;
- multiple conflicting tax laws and regulations; and
- political and economic instability.
Our international operations also face foreign currency-related risks. To
date, most of our revenues have been denominated in U.S. Dollars, but we believe
that an increasing portion of our revenues will be denominated in foreign
currencies. In particular, we expect that an increasing portion of our
international sales may be Euro-denominated. The Euro is an untested currency
and may be subject to economic risks that are not currently contemplated. We
currently do not engage in foreign exchange hedging activities, and therefore
our international revenues and expenses are currently subject to the risks of
foreign currency fluctuations. See "--Our operating results fluctuate widely and
are difficult to predict" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Revenues from 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 in fiscal 1997, $810,000 in fiscal 1998
and $548,000 in the three months ended December 31, 1998. A key component to our
business strategy is to expand our sales and support operations internationally.
We employ sales professionals in London and Sydney and intend to establish
additional international sales offices, expand our international management,
sales and support organizations, and enter into relationships with additional
international remarketers. We are in the early stages of developing our indirect
distribution channels in markets outside the United States. We may not be able
to attract remarketers that will be able to market our products effectively.
We must also customize our products for local markets. For example, our
ability to expand into the European market will depend on our ability to develop
a travel and entertainment 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, if
we establish significant operations overseas, we may incur costs that would be
difficult to reduce quickly because of employee practices in those countries.
10
<PAGE> 14
OUR PRODUCTS MIGHT NOT BE COMPATIBLE WITH ALL MAJOR PLATFORMS, WHICH COULD
INHIBIT SALES.
We must continually modify and enhance our 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, back-office
applications, and browsers and other Internet-related applications could hurt
our business. In addition, our products are not currently based upon the Java
programming language, an increasingly widely-used language for developing
Internet applications. We have made a strategic decision not to develop a fully
Java-based product at this time. Accordingly, certain features available to
products written in Java may not be available in our products, and this could
result in reduced customer demand. See "Business--Products and Technology."
WE RELY ON THIRD-PARTY SOFTWARE THAT IS DIFFICULT TO REPLACE.
Some of the software we license from third parties would be difficult to
replace. This software may not continue to be available 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 our products and
services until equivalent technology, if available, is identified, licensed and
integrated, which could harm our business.
SOFTWARE DEFECTS OR SECURITY BREACHES COULD DIMINISH DEMAND FOR OUR PRODUCTS.
Complex products like ours frequently contain defects or errors that may be
detected only when the product is in use. Further, we often render
implementation, consulting and other technical services, the performance of
which typically involves working with sophisticated software, computing and
networking systems, and we could fail to meet project milestones in a timely
manner or to meet customer expectations for services as a result of any such
defects or services. Our software products may be vulnerable to break-ins, theft
or other improper activity that could jeopardize the security of information for
which we are responsible. 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 our reputation, increased insurance
costs or increased service and warranty costs. To address these problems, we may
need to expend significant capital and resources that may not have been
budgeted.
PRODUCT LIABILITY RISKS.
Because customers rely on our products for business-critical processes, any
significant defects or errors in our products or services might depress future
sales or result in tort or warranty claims. It is possible that the limitation
of liability provisions in our contracts may not be effective as a result of
existing or future federal, state or local laws or ordinances or unfavorable
judicial decisions. We have not experienced any such product liability claims to
date, but we could in the future. Further, although we maintain errors and
omissions insurance, such insurance coverage may not be adequate to cover us. A
successful product liability claim could harm our business. Just defending a
suit like this, regardless of its merits, could entail substantial expense and
require the time and attention of key management personnel.
11
<PAGE> 15
WE HAVE ONLY LIMITED PROTECTION FOR OUR PROPRIETARY TECHNOLOGY AND WE MAY BE
SUBJECT TO INFRINGEMENT CLAIMS.
Someone might gain access to our proprietary technology and make
unauthorized use of it. We depend upon our proprietary technology, and rely on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect it. We have also restricted
customer access to our source code and required all employees to enter into
confidentiality and invention assignment agreements. However, a few of our
former technical personnel did not execute such agreements, and we only recently
began requiring contractors and temporary employees to execute these agreements.
Despite our efforts to protect our proprietary technology, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an extent as do the
laws of the United States, and we expect that it will become more difficult to
monitor use of our products as we increase our international presence. In
addition, third parties may claim that our products infringe theirs. See
"Business--Intellectual Property Rights."
OUR REVENUE RECOGNITION POLICY MAY CHANGE WHEN DEFINITIVE GUIDANCE IS AVAILABLE.
We recognize revenues from sales of software licenses when we sign a
non-cancelable license agreement with a customer, the software is shipped, no
significant post-delivery vendor obligations remain and collection is deemed
probable. We recognize customer support revenues ratably over the contract term
(which is typically one year) and recognize revenues for consulting services as
such services are performed. We believe our current revenue recognition policies
and practices are consistent with applicable accounting standards. However, full
guidelines for recently introduced software revenue recognition standards have
not yet been issued. Once available, such guidance could lead to unanticipated
changes in our current revenue accounting practices, and such changes could
significantly reduce our future revenues and earnings. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Results of Operations."
YEAR 2000 COMPLIANCE COSTS ARE DIFFICULT TO ASSESS.
Based on our assessment to date, we believe the current versions of our
software products are capable of adequately distinguishing 21st century dates
from 20th century dates. However, our products are generally integrated into
enterprise systems involving sophisticated hardware and complex software
products, which may not be Year 2000 compliant. We may in the future be subject
to claims based on Year 2000 problems in others' products, Year 2000 problems
alleged to be found in our products, Year 2000-related issues arising from the
integration of multiple products within an overall system, or other Year
2000-related claims. In addition, earlier versions of our products were not Year
2000 compliant, and we do not intend to make them Year 2000 compliant. We also
need to ensure Year 2000 compliance of our own internal computer and other
systems, to continue testing our software products, to audit the Year 2000
compliance status of our suppliers and business partners, and to conduct a legal
audit. We have not completed our Year 2000 investigation and overall compliance
initiative, and the total cost of Year 2000 compliance may be material and may
harm our business. See "--Year 2000 considerations among our customers may
reduce our sales" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
12
<PAGE> 16
WE HAVE BROAD DISCRETION OVER USE OF PROCEEDS.
Our management can spend most of the proceeds from this offering in ways
with which the stockholders may not agree. We cannot predict that the proceeds
will be invested to yield a favorable return. See "Use of Proceeds."
WE HAVE BEEN PUBLIC FOR ONLY A SHORT TIME AND OUR STOCK PRICE HAS BEEN VOLATILE.
We completed our initial public offering in December 1998. Prior to this
there was no trading market for our stock. The market price of our common stock
has been highly volatile and is subject to wide fluctuations. We expect our
stock price to continue to fluctuate:
- in response to quarterly variations in operating results;
- in reaction to announcements of technological innovations or new products
by us or our competitors;
- because of market conditions in the enterprise software industry; and
- in reaction to changes in financial estimates by securities analysts, and
our failure to meet or exceed the expectations of analysts or investors.
OUR EXISTING STOCKHOLDERS CONTROL A MAJORITY OF OUR STOCK.
Immediately after the closing of this offering, 55.3% of the outstanding
common stock will be owned by our directors and executive officers. As a result,
these stockholders, if acting together, would be able to control substantially
all matters requiring approval by the stockholders, including the election of
all directors and approval of significant corporate transactions. In addition,
TRS holds a warrant to purchase up to 2,100,000 shares of common stock at prices
ranging from $33.75 to $85.00 that expires in three tranches through January
2002. See "Principal and Selling Stockholders" and "Certain Transactions."
OUR CORPORATE GOVERNANCE STRUCTURE MAY DELAY OR PREVENT OUR ACQUISITION BY
ANOTHER COMPANY.
Our staggered Board of Directors makes a takeover less likely. Our
certificate of incorporation and bylaws 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. These provisions may make it more difficult for a third
party to acquire a majority of our voting stock or effect a change in control of
us. Agreements with American Express also contain provisions making it more
difficult for third parties to acquire a substantial amount of our voting stock
or effect a change in control of us. In addition, our board of directors is
authorized to issue 5,000,000 shares of preferred stock, without further
stockholder approval, that could have preference over the common stock with
respect to the payment of dividends and upon our liquidation, dissolution or
winding-up. See "Management--Executive Officers and Directors," "Description of
Capital Stock" and "Certain Transactions."
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public after this offering, the market price of our common stock could fall.
These sales could also impair
13
<PAGE> 17
our ability to raise capital through the sale of equity securities in the future
at a price we deem appropriate.
Upon completion of this offering, we will have outstanding approximately
18,920,261 shares of common stock, based on shares outstanding on February 28,
1999, and assuming no exercise of the underwriters' over-allotment option. Of
these shares, approximately 6,761,102 are currently eligible for sale in the
public market. Approximately 11,184,835 shares of common stock are subject to
lock-up agreements between the holders of those shares and the representatives
of the underwriters, pursuant to which the holders have agreed not to offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
common stock until 90 days after the effective date of the registration
statement filed in connection with this offering. Following the expiration of
this 90-day period, substantially all of the shares subject to the lock-up
agreements will become available for immediate resale in the public market,
subject to the volume and other limitations of Rule 144. The underwriters have
informed us that they reserve the right without announcement to release shares
from the lock-up agreements prior to expiration of their terms. See "Shares
Eligible for Future Sale."
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results of our future financial condition, or state other "forward-
looking" information. We believe it is important to communicate our expectations
to our investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed in this prospectus, as well as any other cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of any of the events described in these risks factors
and elsewhere in this prospectus could have a material and adverse effect on our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline and you could lose all or part of your investment.
14
<PAGE> 18
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 1,818,620 shares we
are selling in this offering will be approximately $62.8 million, at an assumed
public offering price of $36.9375 per share, after deducting the underwriting
discounts and commissions and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be $78.0 million. We will not receive any proceeds from the sale of shares
by the selling stockholders.
The primary purpose of this offering is to obtain additional working
capital. We intend to use the net proceeds of this offering for working capital
and other general corporate purposes, including capital expenditures. These
include increased domestic and international sales and marketing expenditures,
increased research and development expenditures and capital expenditures made in
the ordinary course of business. We may use a portion of the net proceeds for
the acquisition of or investments in businesses, products and technologies or
the establishment of joint ventures that are complementary to our current and
future business. We have no present plans, commitments or agreements with
respect to any such transactions. However, we do from time to time evaluate such
opportunities. Pending such uses, we will invest the net proceeds of this
offering in investment-grade, interest-bearing securities. See "Risk Factors--We
have broad discretion over use of proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"CNQR." The following table sets forth the range of the high and low closing
sale prices by quarter as reported on the Nasdaq National Market since December
16, 1998, the date our common stock commenced public trading.
<TABLE>
<CAPTION>
HIGH LOW
FISCAL YEAR ENDING SEPTEMBER 30, 1999: ---- -----
<S> <C> <C>
First quarter (since December 16, 1998)................ $30 1/2 $19 1/2
Second quarter (through March 17, 1999)................ $41 $25
</TABLE>
On March 17, 1999, the last reported sale price for our common stock on the
Nasdaq National Market was $36.9375 per share. As of February 28, 1999, there
were approximately 77 record holders of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not expect to do so in the foreseeable future. We anticipate that any future
earnings will be retained by us to develop and expand our business. Any future
determination with respect to the payment of dividends will be at the discretion
of our board of directors and will depend upon, among other things, operating
results, financial condition and capital requirements, the terms of
then-existing indebtedness, general business conditions and such other factors
as our board of directors deems relevant. In addition, we have credit facilities
in place that 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."
15
<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
on an actual basis and as adjusted to reflect the receipt of the estimated net
proceeds from selling 1,818,620 shares in this offering at an assumed public
offering price of $36.9375 per share, after deducting the underwriting discounts
and commissions and estimated offering expenses payable by us. We will not
receive any of the proceeds from the sale of common stock by the selling
stockholders in this offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, net of current portion... $ 7,351 $ 7,351
-------- ---------
Stockholders' equity:
Preferred stock, par value $0.001 per share,
5,000,000 shares authorized, no shares
issued
or outstanding............................. -- --
Common stock, par value $0.001 per share,
60,000,000 shares authorized, 17,029,732
shares issued and outstanding, actual;
18,848,352 shares issued and outstanding,
as adjusted................................ 76,398 139,179
Deferred stock compensation..................... (384) (384)
Accumulated deficit............................. (37,685) (37,685)
-------- ---------
Total stockholders' equity................. 38,329 101,110
-------- ---------
Total capitalization..................... $ 45,680 $ 108,461
======== =========
</TABLE>
The outstanding share information set forth above excludes:
- 2,161,268 shares issuable upon the exercise of stock options outstanding
under our stock option plans, at a weighted average exercise price of
$5.20 per share;
- 3,371,897 shares reserved for issuance under our 1994 Stock Option Plan,
1998 Equity Incentive Plan, 1998 Directors Stock Option Plan and 1998
Employee Stock Purchase Plan;
- 67,025 shares issuable upon exercise of outstanding options assumed by us
in connection with the acquisition of 7Software, at a weighted average
exercise price of $0.03 per share;
- 137,454 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $5.51 per share; and
- 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.
See "Management--Director Compensation," "--Employee Benefit Plans,"
"Certain Transactions" and Notes 3, 9, 11 and 17 of Notes to Consolidated
Financial Statements.
16
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our 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 our consolidated financial statements 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 our 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 our unaudited
consolidated financial statements not included in this prospectus. The
consolidated statement of operations data for the three months ended December
31, 1997 and 1998 and the consolidated balance sheet data as of December 31,
1998 are derived from unaudited consolidated financial statements included
elsewhere in this prospectus. The unaudited consolidated financial statements
reflect all normal recurring adjustments that, in the opinion of our management,
are necessary for a fair presentation of our financial position at December 31,
1998 and for the three month periods ended December 31, 1997 and 1998. The
results of operations for the three month period ended December 31, 1998 are not
necessarily indicative of future results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results of
Operations."
Our consolidated financial data reflects our acquisition of 7Software in
June 1998 which resulted in a charge for acquired in-process technology. See
Note 3 of Notes to Consolidated Financial Statements and see the separate
financial statements of 7Software included in this prospectus. See Note 13 of
Notes to Consolidated Financial Statement for an explanation of the number of
shares used in computing pro forma net loss per share.
17
<PAGE> 21
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
----- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues, net:
Licenses..................... $ -- $ 2,104 $ 1,717 $ 6,347 $ 11,696 $ 2,036 $ 4,045
Services..................... -- 24 242 1,923 5,463 1,079 1,960
----- ------- ------- ------- -------- ------- -------
Total revenues......... -- 2,128 1,959 8,270 17,159 3,115 6,005
----- ------- ------- ------- -------- ------- -------
Cost of revenues:
Licenses..................... -- 728 386 394 558 82 224
Services..................... -- 673 839 2,269 5,684 1,097 2,453
----- ------- ------- ------- -------- ------- -------
Total cost of
revenues............. -- 1,401 1,225 2,663 6,242 1,179 2,677
----- ------- ------- ------- -------- ------- -------
Gross profit................... -- 727 734 5,607 10,917 1,936 3,328
----- ------- ------- ------- -------- ------- -------
Operating expenses:
Sales and marketing.......... 111 2,363 2,936 5,896 12,353 2,206 4,687
Research and development..... 425 744 1,793 3,401 6,434 1,083 2,612
General and administrative... 66 515 963 1,815 4,687 837 1,637
Acquired in-process
technology................. -- -- -- -- 5,203 -- --
----- ------- ------- ------- -------- ------- -------
Total operating
expenses............. 602 3,622 5,692 11,112 28,677 4,126 8,936
----- ------- ------- ------- -------- ------- -------
Loss from operations........... (602) (2,895) (4,958) (5,505) (17,760) (2,190) (5,608)
Other income (expense), net.... -- 5 5 (19) (314) (93) (34)
----- ------- ------- ------- -------- ------- -------
Net loss....................... $(602) $(2,890) $(4,953) $(5,524) $(18,074) $(2,283) $(5,642)
===== ======= ======= ======= ======== ======= =======
Pro forma basic and diluted net
loss per share (unaudited)... $ (1.58) $ (0.21) $ (0.40)
======== ======= =======
Shares used in calculation of
pro forma basic and diluted
net loss per share
(unaudited).................. 11,419 10,863 13,968
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, 1998
----------------------------------------------- --------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
----- ------- ------- -------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents......... $ 277 $ 2,541 $ 5,685 $ 6,695 $ 15,629 $53,277 $116,058
Working capital (deficit)......... (175) 1,839 4,073 6,183 8,474 39,915 102,696
Total assets...................... 345 3,058 6,759 12,364 25,031 62,877 125,658
Long-term obligations, net of
current portion................. 233 125 215 3,687 8,092 7,351 7,351
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) 38,329 101,110
</TABLE>
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<PAGE> 22
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. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading provider of Intranet-based employee-facing software
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. Our
Xpense Management Solution, or XMS, and CompanyStore products automate the
preparation, approval, processing and data analysis of travel and entertainment
expense reports and front-office procurement requisitions. We recently
introduced our Employee Desktop product, which integrates XMS and CompanyStore
through a common user interface and provides a business portal through which
corporate customers and third parties can deliver other information and services
to employees. We believe we are the leading provider of travel and entertainment
expense management solutions, based on a combination of the number of customers
we serve and the features our solutions provide. Since 1996, we have licensed
products to over 175 enterprise customers for use by over 900,000 end users. By
automating manual, paper-based processes, our products reduce processing costs
and enable customers to consolidate purchases with preferred vendors and
negotiate vendor discounts.
We were incorporated in 1993 and commenced operations in fiscal 1994,
initially developing QuickXpense, a retail, shrink-wrapped application that
automated travel and entertainment expense reporting for individuals. We 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 travel and entertainment expense reporting
process, including back-office processing and integration to financial systems,
we significantly expanded our product development efforts and released XMS, a
client-server based enterprise travel and entertainment expense management
solution in July 1996. In March 1998, we shipped an Intranet-based version of
XMS. While we continue to sell the client-server version of XMS, since its
release the Intranet-based version has accounted for a majority of XMS license
revenues. We expect to continue to focus product development efforts on the
Intranet-based versions of our products.
On June 30, 1998, we 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 we acquired it. In connection with the acquisition,
we issued 708,918 shares of our common stock in exchange for all the outstanding
shares of 7Software. We also converted all of 7Software's outstanding options
into options to purchase up to 123,921 shares of our common stock, paid $130,000
to 7Software, and agreed to pay $500,000 to certain shareholders of 7Software.
Our total purchase price was valued at $6.2 million, including direct costs of
the acquisition. The total purchase price was determined by our 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, we
estimated the fair value of our common stock and our stock options issued in the
transaction. We
19
<PAGE> 23
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 our consolidated financial
statements beginning on the acquisition date. In connection with this
acquisition, we recorded $5.2 million for in-process technology as an expense in
the quarter ended June 30, 1998. In addition, we 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.
In January 1999 we introduced Employee Desktop, which provides a common
user interface and a common technology platform to integrate our current
products and future applications. We plan to offer our products as an
Internet-based enterprise service provider on a per-transaction or subscription
basis to companies seeking to outsource their employee-facing business
applications.
We expect that for the foreseeable future the significant majority of our
revenues will continue to be derived from our XMS product line and related
services. Our 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, and $6.0 million in the three months ended December
31, 1998. Through June 1996, our revenues were derived from licenses of
QuickXpense and related services. In July 1996, we released XMS. Substantially
all of our revenues since the fourth quarter of fiscal 1996 have been derived
from licenses of XMS and related services. Our 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--Our
short operating history and significant losses make our business difficult to
evaluate," "--Our operating results fluctuate widely and are difficult to
predict" and "--We rely heavily on sales of one product."
We market our software and services primarily through our 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, and $548,000 in the
three months ended December 31, 1998. 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 our business. See "Risk
Factors--There are risks associated with international operations" and Note 15
of Notes to Consolidated Financial Statements.
For fiscal 1998 and prior years, we recognized revenues in accordance with
the American Institute of Certified Public Accountants Statement of Position
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, we recognize revenues in
accordance with the American Institute of Certified Public Accountants Statement
of Position 97-2, "Software Revenue Recognition," or SOP 97-2. SOP 97-2 has been
subject to certain modifications and interpretations since its release in
October 1997. Most recently in December 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-9, "Modification of
SOP 97-2, Software Revenue Recognition,
20
<PAGE> 24
With Respect to Certain Transactions" which has been adopted by us without any
significant effect on revenue recognition. Further implementation guidelines
relating to SOP 97-2 and related modifications may result in unanticipated
changes in our revenue recognition practices and such changes could affect our
future revenues and earnings.
Since inception, we have incurred substantial research and development
costs and have invested heavily in the expansion of our sales, marketing and
professional services organizations to build an infrastructure to support our
long-term growth strategy. The number of our full-time employees increased from
135 as of December 31, 1997, to 251 as of December 31, 1998, representing an
increase of 86%. As a result of investments in our infrastructure, we have
incurred net losses in each fiscal quarter since inception and, as of December
31, 1998, had an accumulated deficit of $37.7 million. We anticipate that our
operating expenses will increase substantially for the foreseeable future as we
expand our product development, sales and marketing and professional services
staff. In addition, we expect to incur substantial expenses associated with
sales personnel, referral fees and marketing programs in future periods as a
result of our joint marketing agreements with TRS and ADP. Accordingly, we
expect to incur net losses for the foreseeable future.
We have 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, we recorded amortization of deferred stock
compensation of $409,000 and during the first quarter of fiscal 1999, we
recorded amortization of deferred stock compensation of $68,000.
We believe that period-to-period comparisons of our operating results are
not meaningful and should not be relied upon as indicative of future
performance. Our 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 we will be successful in addressing such risks and
difficulties. In addition, although we have experienced significant revenue
growth recently, this trend may not continue. In addition, we may not achieve or
maintain profitability in the future. See "Risk Factors--Our short operating
history and significant losses make our business difficult to evaluate" and
"--Our operating results fluctuate widely and are difficult to predict."
21
<PAGE> 25
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>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------- --------------
1996 1997 1998 1997 1998
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues, net:
Licenses.......................... 87.6% 76.7% 68.2% 65.4% 67.4%
Services.......................... 12.4 23.3 31.8 34.6 32.6
------ ----- ------ ----- -----
Total revenues............ 100.0 100.0 100.0 100.0 100.0
------ ----- ------ ----- -----
Cost of revenues:
Licenses.......................... 19.7 4.8 3.3 2.6 3.7
Services.......................... 42.8 27.4 33.1 35.3 40.9
------ ----- ------ ----- -----
Total cost of revenues.... 62.5 32.2 36.4 37.9 44.6
------ ----- ------ ----- -----
Gross margin........................ 37.5 67.8 63.6 62.1 55.4
------ ----- ------ ----- -----
Operating expenses:
Sales and marketing............... 149.9 71.3 72.0 70.8 78.0
Research and development.......... 91.5 41.1 37.5 34.8 43.5
General and administrative........ 49.2 21.9 27.3 26.9 27.3
Acquired in-process technology.... -- -- 30.3 -- --
------ ----- ------ ----- -----
Total operating
expenses............... 290.6 134.3 167.1 132.5 148.8
Loss from operations................ (253.1) (66.5) (103.5) (70.4) (93.4)
Other income (expense), net......... 0.3 (0.2) (1.9) (2.9) (0.6)
------ ----- ------ ----- -----
Net loss............................ (252.8)% (66.7)% (105.4)% (73.3)% (94.0)%
====== ===== ====== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
Revenues
Our revenues are derived from software licenses and related services. Our
revenues were $3.1 million and $6.0 million for the three months ended December
31, 1997 and 1998, respectively, representing an increase of $2.9 million, or
93%. International revenues were $126,000 and $548,000 for the three months
ended December 31, 1997 and 1998, respectively.
Our license revenues were $2.0 million and $4.0 million for the three
months ended December 31, 1997 and 1998, respectively, representing an increase
of $2.0 million, or 99%. License revenues represented 65.4% and 67.4% of total
revenues for the three months ended December 31, 1997 and 1998, respectively.
This increase consisted of increased sales of XMS, reflecting the increased
market acceptance of XMS, an increase in the size and productivity of the sales
force, and the sales related to referrals attributable to our December 1997
strategic marketing alliance agreement with American Express.
Our service revenues were $1.1 million and $2.0 million for the three
months ended December 31, 1997 and 1998, respectively, representing an increase
of $881,000, or 82%. Service revenues consist primarily of consulting and
implementation service fees, maintenance and, to a lesser extent, training
services, associated with the increase in licenses of XMS during these periods.
Service revenues represented 34.6% and 32.6% of total revenues for the three
months ended December 31, 1997 and 1998, respectively. The
22
<PAGE> 26
increase in service revenues for the three months ended December 31, 1998 over
the three months ended December 31, 1997 reflected increased licenses of XMS in
fiscal 1999 as well as revenues recognized with respect to licenses entered into
in prior periods. We believe that the percentage of total revenues represented
by service revenues in prior fiscal periods is not indicative of levels to be
expected in future periods. Due to our limited experience selling CompanyStore,
we are uncertain how recognition of service revenues associated with such sales
will affect our results of operations in the future. In addition, we expect that
the proportion of our service revenues to total revenues will fluctuate in the
future, depending in part on our use of third-party consulting and
implementation service providers as well as market acceptance of our outsourced
enterprise service provider, or ESP, solution.
Cost of Revenues
Cost of License Revenues. Cost of license revenues includes license fees
for sub-licensing third-party software, product media, product duplication,
manuals and amortization of capitalized technology and other intangible assets.
Our cost of license revenues was $82,000 and $224,000 for the three months ended
December 31, 1997 and 1998, respectively, representing an increase of $142,000,
or 173%. This increase was principally a result of the amortization of
capitalized technology and other intangible assets recorded in connection with
the June 1998 acquisition of 7Software, 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 November 1998
release of XMS 4.0. Cost of license revenues represented 4.0% and 5.5% of
license revenues for the three months ended December 31, 1997 and 1998,
respectively. We expect that the cost of license revenues may increase
significantly as a percentage of total revenues and as a percentage of license
revenues upon the introduction of our outsourced ESP solution and will fluctuate
in the future depending in part on the demand for our current products and our
outsourced ESP solution.
Cost of Service Revenues. Cost of service revenues includes personnel and
other costs related to consulting services, technical support, training and
warranty reserves. Our cost of service revenues was $1.1 million and $2.5
million for the three months ended December 31, 1997 and 1998, respectively,
representing an increase of $1.4 million, or 124%. This increase was primarily
due to an increase in professional service support personnel to manage and
support our growing customer base. Consulting services personnel increased from
21 as of December 31, 1997 to 47 as of December 31, 1998, representing an
increase of 26, or 124%. Cost of service revenues was 102% and 125% of service
revenues for the three months ended December 31, 1997 and 1998, respectively.
Cost of service revenues as a percentage of service revenues may vary between
periods due to the mix of services provided by us 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, travel and entertainment and promotional expenses. Our sales and
marketing expenses were $2.2 million and $4.7 million for the three months ended
December 31, 1997 and 1998, respectively, representing an increase of $2.5
million, or 113%. This increase primarily reflects our investment in our sales
and marketing infrastructure, which included significant personnel-related costs
to recruit and hire sales management, sales representatives and sales engineers,
trade show expenses, and sales referral fees under our agreements
23
<PAGE> 27
with our referral partners, principally American Express. Sales and marketing
employees increased from 43 as of December 31, 1997 to 79 as of December 31,
1998, representing an increase of 36, or 84%. Sales and marketing expenses
represented 70.8% and 78.1% of total revenues for the three months ended
December 31, 1997 and 1998, respectively. We believe that a significant increase
in our sales and marketing efforts is essential for us to maintain our market
position and further increase acceptance of our products. Accordingly, we
anticipate we 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. Our research
and development expenses were $1.1 million and $2.6 million for the three months
ended December 31, 1997 and 1998, respectively, representing an increase of $1.5
million, or 141%. This increase was primarily related to the increase in
software developers, program management and documentation personnel and outside
contractors to support our product development of XMS, CompanyStore, and
Employee Desktop. Our research and development employees increased from 40 as of
December 31, 1997 to 69 as of December 31, 1998, representing an increase of 29,
or 73%. Research and development costs represented 34.8% and 43.5% of total
revenues for the three months ended December 31, 1997 and 1998, respectively. We
believe that a significant increase in our research and development investment
is essential for us to maintain our market position, to continue to expand our
product line and to enhance the common technology platform for our suite of
products. Accordingly, we anticipate that we 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 our new products and enhancements of existing products,
the technological feasibility of the software is not established until
substantially all product development is complete. Historically, software
development costs eligible for capitalization have been 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 our executive, finance,
administrative, business development and information services personnel. Our
general and administrative expenses were $837,000 and $1.6 million for the three
months ended December 31, 1997 and 1998, respectively, representing an increase
of $800,000, or 96%. This increase was primarily the result of additional
finance, executive, information services and human resources personnel to
support the growth of our business, an increase of outside contractors expense
associated with increased recruiting efforts and expanded human resources
programs, and an increase in the allowance for doubtful accounts related to our
increase in revenues. General and administrative costs represented 26.9% and
27.3% of our total revenues for the three months ended December 31, 1997 and
1998, respectively. We believe that our general and administrative expenses will
continue to increase as a result of the continued expansion of our
administrative staff and expenses associated with being a public company,
including annual and other public reporting costs, directors' and officers'
liability insurance, investor relations programs and professional services fees.
Interest Income and Interest Expense. Interest income was $54,000 and
$225,000 for the three months ended December 31, 1997 and 1998, respectively,
representing an increase of $171,000, or 317%. This increase reflects the higher
cash and short-term investment base as a result of proceeds we received in
December 1998 from our initial public offering of our common stock. Interest
expense was $135,000 and $222,000 for the
24
<PAGE> 28
three months ended December 31, 1997 and 1998, respectively, representing an
increase of $87,000, or 64%. This increase was due to additional bank borrowings
and higher capital lease obligations during the three months ended December 31,
1998.
Provision for Income Taxes. No provision for federal and state income taxes
has been recorded because we have experienced net losses since inception which
has resulted in deferred tax assets. A valuation allowance has been recorded for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance.
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
Revenues
Our 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. We had no customer that accounted for more than 10% of our
revenues in fiscal 1996, 1997 or 1998.
Our 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 our 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.
Our 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 our 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.
Cost of Revenues
Cost of License Revenues. 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
25
<PAGE> 29
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.
Cost of Service Revenues. 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 our product line from QuickXpense to XMS. The increase from
1997 to 1998 was primarily due to an increase in professional services personnel
to support our 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.
Costs and Expenses
Sales and Marketing. 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 fiscal 1998 primarily reflect our investment in our 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 our
agreement with our referral partners, principally American Express. Sales and
marketing expenses represented 149.9%, 71.3% and 72.0% of our 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.
Research and Development. 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 fiscal 1998 were primarily related to the
increase in the number of software developers and quality assurance personnel
and outside contractors to support our product development and testing
activities related to the development and release of both the client-server and
Intranet versions of XMS. Our 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 our total revenues in fiscal 1996, 1997
and 1998, respectively.
26
<PAGE> 30
General and Administrative. 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 our business
during these periods. In addition to increased compensation and related
expenses, the increase in general and administrative expenses from fiscal 1997
to fiscal 1998 reflects an increase in the allowance for doubtful accounts
related to our increase in revenues, and stock compensation expense, during the
period. During fiscal 1998, we recorded deferred stock compensation for the
differences between the exercise prices and the deemed fair values of our 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 our total revenues in fiscal 1996, 1997 and 1998,
respectively.
Income Taxes. As of September 30, 1998, we 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 U.S. tax laws contain 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. We had deferred tax assets, including our 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.
27
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated statement of
operations data for the nine quarters in the 27-month period ended December 31,
1998, as well as such data expressed as a percentage of our total revenues for
the periods indicated. This data has been derived from our unaudited
Consolidated Financial Statements that have been prepared on the same basis as
the audited Consolidated Financial Statements and, in the opinion of our
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. Our quarterly
results have been in the past and may in the future be subject to significant
fluctuations. As a result, we believe 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--Our operating results
fluctuate widely and are difficult to predict."
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues, net:
Licenses........................ $ 923 $ 1,335 $ 1,829 $ 2,260 $ 2,036 $ 2,818
Services........................ 218 336 564 805 1,079 1,141
------- ------- ------- ------- ------- -------
Total revenues................ 1,141 1,671 2,393 3,065 3,115 3,959
Cost of revenues:
Licenses........................ 40 80 99 175 82 90
Services........................ 317 468 585 899 1,097 1,115
------- ------- ------- ------- ------- -------
Total cost of revenues........ 357 548 684 1,074 1,179 1,205
------- ------- ------- ------- ------- -------
Gross profit..................... 784 1,123 1,709 1,991 1,936 2,754
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............. 1,061 1,378 1,434 2,023 2,206 2,400
Research and development........ 603 787 836 1,175 1,083 1,195
General and administrative...... 322 450 440 603 837 836
Acquired in-process
technology.................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total operating expenses...... 1,986 2,615 2,710 3,801 4,126 4,431
------- ------- ------- ------- ------- -------
Loss from operations............. (1,202) (1,492) (1,001) (1,810) (2,190) (1,677)
Other income (expense), net...... 17 11 (14) (33) (93) (103)
------- ------- ------- ------- ------- -------
Net loss......................... $(1,185) $(1,481) $(1,015) $(1,843) $(2,283) $(1,780)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES
Revenues, net:
Licenses........................ 80.9% 79.9% 76.4% 73.7% 65.4% 71.2%
Services........................ 19.1 20.1 23.6 26.3 34.6 28.8
------- ------- ------- ------- ------- -------
Total revenues................ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses........................ 3.5 4.8 4.1 5.7 2.6 2.3
Services........................ 27.8 28.0 24.4 29.3 35.3 28.2
------- ------- ------- ------- ------- -------
Total cost of revenues........ 31.3 32.8 28.5 35.0 37.9 30.5
------- ------- ------- ------- ------- -------
Gross margin..................... 68.7 67.2 71.5 65.0 62.1 69.5
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............. 93.0 82.4 59.9 66.0 70.8 60.6
Research and development........ 52.8 47.1 34.9 38.3 34.8 30.2
General and administrative...... 28.2 26.9 18.4 19.7 26.9 21.1
Acquired in-process
technology.................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total operating expenses...... 174.0 156.4 113.2 124.0 132.5 111.9
------- ------- ------- ------- ------- -------
Loss from operations............. (105.3) (89.2) (41.7) (59.0) (70.4) (42.4)
Other income (expense), net...... 1.4 0.7 (0.6) (1.1) (2.9) (2.6)
------- ------- ------- ------- ------- -------
Net loss......................... (103.9)% (88.5)% (42.3)% (60.1)% (73.3)% (45.0)%
======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
---------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues, net:
Licenses........................ $ 3,185 $ 3,657 $ 4,045
Services........................ 1,456 1,787 1,960
------- ------- -------
Total revenues................ 4,641 5,444 6,005
Cost of revenues:
Licenses........................ 146 240 224
Services........................ 1,490 1,982 2,453
------- ------- -------
Total cost of revenues........ 1,636 2,222 2,677
------- ------- -------
Gross profit..................... 3,005 3,222 3,328
------- ------- -------
Operating expenses:
Sales and marketing............. 3,280 4,467 4,687
Research and development........ 1,884 2,272 2,612
General and administrative...... 1,552 1,462 1,637
Acquired in-process
technology.................... 5,203 -- --
------- ------- -------
Total operating expenses...... 11,919 8,201 8,936
------- ------- -------
Loss from operations............. (8,914) (4,979) (5,608)
Other income (expense), net...... (118) -- (34)
------- ------- -------
Net loss......................... $(9,032) $(4,979) $(5,642)
======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES
Revenues, net:
Licenses........................ 68.6% 67.2% 67.4%
Services........................ 31.4 32.8 32.6
------- ------- -------
Total revenues................ 100.0 100.0 100.0
Cost of revenues:
Licenses........................ 3.1 4.4 3.7
Services........................ 32.1 36.4 40.9
------- ------- -------
Total cost of revenues........ 35.2 40.8 44.6
------- ------- -------
Gross margin..................... 64.8 59.2 55.4
------- ------- -------
Operating expenses:
Sales and marketing............. 70.6 82.0 78.0
Research and development........ 40.6 41.7 43.5
General and administrative...... 33.4 26.9 27.3
Acquired in-process
technology.................... 112.1 -- --
------- ------- -------
Total operating expenses...... 256.7 150.6 148.8
------- ------- -------
Loss from operations............. (191.9) (91.4) (93.4)
Other income (expense), net...... (2.5) -- (0.6)
------- ------- -------
Net loss......................... (194.4)% (91.4)% (94.0)%
======= ======= =======
</TABLE>
28
<PAGE> 32
The trends discussed in the annual comparisons of operating results from
fiscal 1996 through the first quarter of fiscal 1999 apply generally to the
comparison of results of operations for the nine quarters ended December 31,
1998. Our operating expenses for the three month period ended June 30, 1998
exceeded levels that we experienced historically, 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, September 30 and December 31, 1998 increased significantly as a result
of:
- higher personnel costs;
- higher travel and entertainment expenses;
- increased use of independent contractors and other outside services for
continued product development activities;
- higher recruiting and related hiring expenses for additional senior
management; and
- amortization of deferred stock compensation.
Our 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 our control. These factors include:
- demand for our products and services;
- size and timing of specific sales;
- delays in customer orders due to customers' Year 2000 priorities;
- level of product and price competition;
- timing and market acceptance of new product introductions and product
enhancements by us and our competitors;
- delays in our new product introductions and enhancements;
- changes in pricing policies by us or our competitors;
- our ability to hire, train and retain sales and consulting personnel;
- the length of our sales cycle;
- our ability to establish and maintain relationships with third-party
implementation services providers and strategic partners;
- the mix of products and services sold, including an anticipated shift to
providing our solutions as an ESP;
- mix of distribution channels through which products are sold;
- changes in our sales force incentives;
- software defects and other product quality problems;
- personnel changes;
- changes in our strategy, including the anticipated development of an ESP
strategy; and
- budgeting cycles of our customers.
We have in the past experienced delays in the planned release dates of our
new software products or upgrades, and have discovered software defects in our
new products
29
<PAGE> 33
after their introduction. Our new products or upgrades may not be released
according to schedule, or when released may contain defects. Either of these
situations could result in adverse publicity, loss of revenues, delay in market
acceptance or claims by customers brought against us, any of which could harm
our business. In addition, the timing of individual sales has been difficult for
us to predict, and large individual sales have, in some cases, occurred in
quarters subsequent to those anticipated by us. The loss or deferral of one or
more significant sales may harm our quarterly operating results.
Our license revenues in the first quarter of fiscal 1998 were lower than
those of the fourth quarter of fiscal 1997. Although first quarter 1999 license
revenues were higher than those for the fourth quarter of 1998, in future
periods, we expect that 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, we have funded our operations primarily through sales of
equity securities and to a lesser degree the use of long-term debt and equipment
leases. In December 1998, we completed our initial public offering of common
stock and received approximately $37.4 million in cash, net of underwriting
discounts, commissions and other offering costs. Prior to our initial public
offering, we had raised approximately $29.7 million, net of offering costs from
the issuance of preferred stock, and approximately $8.0 million from the
issuance of long-term debt, and had financed equipment purchases totaling
approximately $3.6 million. Our sources of liquidity as of December 31, 1998
consisted principally of cash and cash equivalents of $53.3 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, and $1.9 million in
the three months ended December 31, 1998. For such periods, net cash used by
operating activities was primarily a result of funding ongoing operations.
Since 1995, our 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, and $378,000 in the three months ended December 31, 1998. We
finance the acquisition of property and equipment, primarily computer hardware
and software for our increasing employee base as well as for our management
information systems, primarily through capital leases. We anticipate that we
will experience an increase in our capital expenditures and lease commitments
consistent with our anticipated growth in operations, infrastructure and
personnel. We do not expect to incur significant costs to make our products or
internal information systems Year 2000 compliant because we believe such
products and information systems are designed to function properly through and
beyond the year 2000. See "Risk Factors--Year 2000 considerations among our
customers and potential customers may reduce our sales" and "--Year 2000
compliance costs are difficult to assess."
Our financing activities provided $7.7 million, $8.6 million and $17.6
million in fiscal 1996, 1997 and 1998, respectively, and $39.6 million in the
three months ended December 31, 1998. In fiscal 1996, cash provided by financing
activities consisted 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 consisted primarily of $4.6 million received in connection with the
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<PAGE> 34
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 in part 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. In the
three months ended December 31, 1998, cash provided by financing activities
consisted primarily of $37.4 million from our initial public offering of common
stock and $2.6 million from the exercise of warrants offset in part by principal
payments on long-term debt of $155,000 and payments on capital lease obligations
of $237,000.
As of December 31, 1998, we had a line of credit with a bank for $2.0
million, which bearing interest at the lending bank's prime rate plus 1.5%.
Borrowings were limited to the lesser of 80% of eligible accounts receivable or
$2.0 million and were secured by substantially all of our non-leased assets. As
of December 31, 1998, we had not borrowed under the line of credit; however,
there were approximately $500,000 in standby letters of credit outstanding. We
could borrow approximately $1.5 million under this line as of December 31, 1998.
This credit facility was amended in March 1999 to increase the borrowing amount
to $4.0 million and to extend the expiration date to March 2000, and is
otherwise on substantially the same terms.
In September 1997, we entered into a $1.0 million senior term loan facility
with the same bank with which we have the line of credit, pursuant to the terms
of a security and 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 were interest only through February 15, 1999, at
which time we started to pay off the facility in 24 equal monthly principal
payments plus interest. The loan agreement contains certain financial
restrictions and covenants, with which we are currently in compliance. As of
December 31, 1998, the outstanding indebtedness under the loan agreement was
$3.0 million.
In July 1997, we 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%. 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, which expired on December 31, 1998. The notes are due in varying
monthly installments through April 2002, and contain certain restrictions and
covenants, with which we are currently in compliance. As of December 31, 1998,
the outstanding indebtedness under the subordinated loan agreement was $4.5
million.
On August 11, 1998, we issued a warrant to TRS to purchase shares of our
Series E preferred stock which, in connection with our initial public offering
in December 1998, converted into a warrant to purchase 2,325,000 shares of our
common stock. In December 1998, TRS partially exercised the warrant to purchase
225,000 shares at $11.625 per share. Additionally, under the warrant, TRS may
acquire 700,000 shares at any time on or before October 15, 1999 at a cash
purchase price of $33.75 per share, 700,000 additional shares at any time on or
before January 15, 2001 at a cash purchase price of $50.625 per share, and
700,000 shares at any time on or before January 15, 2002 at a cash purchase
price of $85.00 per share.
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<PAGE> 35
We currently anticipate that for the foreseeable future we will continue to
experience significant growth in our operating expenses related to augmenting
our sales and marketing operations, increasing research and development and
extending our professional service capabilities. We also anticipate developing
new distribution channels, improving our operational and financial systems,
entering new markets for our products and services and possibly acquiring or
investing in complementary businesses, products or technologies or investing in
joint ventures. Such expenditures will be a material use of our cash resources,
including a portion of the net proceeds of this offering. We believe that the
net proceeds of this offering, together with our existing cash and cash
equivalents and available bank borrowings, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. Thereafter, we may require additional funds to support our
working capital requirements or for other purposes and may seek to raise such
additional funds through private or public sales of securities, strategic
relationships, bank debt, financing under leasing arrangements, or otherwise. If
additional funds are raised through the issuance of equity securities,
stockholders may experience additional dilution, or such equity securities may
have rights, preferences, or privileges senior to those of the holders of our
common stock. There can be no assurance that additional financing will be
available on acceptable terms, if at all. If adequate funds are not available or
are not available on acceptable terms, we may be unable to develop or enhance
our products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, financial condition and operating results.
Qualitative and Quantitative Disclosures about Market Risk
Concur's operating results are sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of its cash equivalents are
invested in short-term debt instruments while certain portions of its
outstanding long-term debt bear interest at variable rates. An increase or
decrease in the U.S. interest rate of 1% would result in a change of
approximately $425,000 in operating results.
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
Our 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 us to deliver products and services
to customers, including our proprietary software systems as well as
software supplied by third parties;
32
<PAGE> 36
- communications networks such as the Internet and private Intranets;
- the internal systems of our customers and suppliers;
- software products sold to customers;
- the hardware and software systems used internally by us in the management
of our business; and
- non-information technology systems and services, such as power, telephone
systems and building systems.
We have established a Year 2000 Compliance 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 our Year 2000 readiness and is applying a phased
approach to analyzing our operations and relationships as they relate to the
Year 2000 problem. The phases of our Year 2000 program are as follows:
(1) establishment of a Year 2000 Task Force;
(2) assignment of responsibility for external issues, such as products
licensed by us, internal issues, such as systems, facilities,
equipment, software and legal audit;
(3) inventory of all aspects of our operations and relationships subject to
the Year 2000 problem;
(4) comprehensive analysis, including impact analysis and cost analysis, of
our Year 2000 readiness; and
(5) remediation and testing.
We have tested our software products and have determined that the currently
shipping versions of all of our software products are Year 2000 compliant,
consistent with the Year 2000 compliance specifications established by the
British Standards Institute's DISC PD-2001. We are evaluating the Year 2000
compliance of our products currently under development. We plan to continue to
test our current and future products by applying our Year 2000 compliance
criteria and to include any necessary modifications the compliance process
reveals. We have completed Phases 1, 2 and 3 of our program. We anticipate
completing Phase 4 by May 1999, and Phase 5 by August 1999.
Risks Related to Year 2000 Issues
Based on our assessment to date, we believe the current versions of our
software products are "Year 2000 compliant." However, our 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 our 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 we do not believe we have any obligation under this
circumstance given that these customers using our older versions of our 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 we
will not be subject to claims or complaints by our customers. Success of our
Year 2000 compliance efforts may depend on the success of our customers in
dealing with their Year 2000 issues. We sell our 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 us
to devote additional resources to resolve underlying problems.
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<PAGE> 37
Although we have not been a party to any litigation or arbitration
proceeding to date involving our products or services and related to Year 2000
compliance issues, there can be no assurance that we will not in the future be
required to defend our 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 for Year 2000-related damages, including consequential
damages, would have a material adverse effect on our business, results of
operations and financial condition. In addition, we believe 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 us, 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 our
products or services, our business would be materially adversely affected.
We are also reviewing our 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 assist us in this initiative,
we have retained the services of a Year 2000 consulting firm. To date, we have
not encountered any material Year 2000 problems with our computer systems or any
other equipment that might be subject to such problems. Our plan for the Year
2000 calls for compliance verification of external vendors supplying software
and information systems to us and communication with significant suppliers to
determine the readiness of third parties' remediation of their own Year 2000
issues. As part of our assessment, we are evaluating the level of validation we
will require of third parties to ensure their Year 2000 compliance and expect to
circulate letters to our suppliers and other business partners requesting their
Year 2000 compliance status. We are 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, our business
could be materially adversely affected. We could also experience material
adverse effects on our business if we fail to identify all Year 2000
dependencies in our systems and in the systems of our suppliers, customers and
financial institutions. Therefore, we plan to develop contingency plans for
continuing operations in the event such problems arise, but do not presently
have a contingency plan for handling Year 2000 problems that are not detected
and corrected prior to their occurrence. We have not completed our Year 2000
investigation, and there can be no assurance that the total cost of Year 2000
compliance will not be material to our business. We may not identify and
remediate all significant Year 2000 problems on a timely basis, remediation
efforts may involve significant time and expense, and unremediated problems may
have a material adverse effect on our business. See "Risk Factors--Year 2000
considerations among our customers and potential customers may reduce our sales"
and "--Year 2000 compliance costs are difficult to assess."
ACQUISITION OF 7SOFTWARE
On June 30, 1998, we 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.
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<PAGE> 38
Based on our initial 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. We estimated the direct costs to achieve technological
feasibility to be approximately $307,000. Beyond this period, we 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 our 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, we 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 we believe 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 us in assessing
software capitalization, and do not have alternative future uses.
We estimated revenues and related expenses for the in-process technology
from the acquisition date through the end of our fiscal 2002. Our 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. Our
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 our operating
structure.
We 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 our weighted average cost of capital, or 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, we have 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 our fiscal 1999. We continue to expect to
achieve the forecasted revenue attributable to the in-process project, as set
forth in the valuation, when it is released. Because we believe that we will
achieve revenue levels and incur product development costs similar to those
originally estimated, we expect only slight variations between assumptions and
actual results. Therefore, we do not anticipate any material impact on
operations or financial position unless the in-process project is not completed.
35
<PAGE> 39
BUSINESS
The following description contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that may cause such
results to differ include those discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OVERVIEW
We are a leading provider of Intranet-based employee-facing software
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. Our
Xpense Management Solution, or XMS, and CompanyStore products automate the
preparation, approval, processing and data analysis of travel and entertainment
expense reports and front-office procurement requisitions. We recently
introduced our Employee Desktop product, which integrates XMS and CompanyStore
through a common user interface and provides a business portal through which
corporate customers and third parties can deliver other information and services
to employees. We believe we are the leading provider of travel and entertainment
expense management solutions, based on a combination of the number of customers
we serve and the features our solutions provide. Since 1996, we have licensed
our products to over 175 enterprise customers for use by over 900,000 end users.
By automating manual, paper-based processes, our 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 travel and
entertainment expense management, front-office procurement, human resources
self-service, time and attendance, 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, or ESP, delivering employee-facing applications
through the Internet to reduce customers' up-front costs and IT infrastructure
commitments.
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<PAGE> 40
Customers using our products 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 Travel and Entertainment Management Process Study published in 1997 by
American Express, a subsidiary of which became one of our stockholders in August
1998, corporations on average spend $36 per travel and entertainment 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. Per transaction savings of this magnitude 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 travel and entertainment 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. We believe 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 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 travel and entertainment 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 travel and
entertainment expenses such as airfare, hotel stays and car rentals.
We believe that the substantial potential savings from processing cost
reductions and vendor discounts, coupled with the emergence of Intranet and
Internet technologies, has created a significant demand for employee-facing
applications. We further believe that the most successful employee-facing
applications will improve the efficiency of travel and entertainment expense
management, front-office procurement and other similar business processes and
will be:
- based on Internet technologies;
- rapidly deployable and highly scalable;
- offered as part of an integrated suite of related applications;
- integrated with enterprises' existing IT infrastructures; and
- 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
We are 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. Our XMS and
CompanyStore products automate the preparation, approval, processing and data
analysis of travel and entertainment expense reports and front-office
procurement requisitions. We recently introduced Employee Desktop, which
integrates XMS and CompanyStore through a common user interface and provides a
business portal through which corporate customers and third parties can deliver
other information and services to employees. We believe that we are the leading
provider
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<PAGE> 41
of travel and entertainment expense management solutions based on a combination
of the number of customers we serve and the features our solutions provide.
Since 1996, we have licensed our products to over 175 enterprise customers for
use by over 900,000 end users. Our 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. Our products can significantly reduce the amount
of labor associated with manual, paper-based travel and entertainment expense
management and front-office procurement systems, by automating the process of
preparation, approval, processing and data analysis. We believe that companies
using our 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 travel and entertainment 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. We believe 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. Our products enable customers to collect and
analyze data on travel and entertainment 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. We believe that the savings from improved supplier management can be
substantial. For example, one XMS customer informed us that, after implementing
XMS, it was able to reduce its annual spending on air travel by 5% to 10%.
Improved Cash Management. Our products enable customers to improve their
cash management positions and cash forecasting abilities by controlling the
timing of payments to travel and entertainment and front-office suppliers and
vendors.
Improved Policy-Making and Monitoring. Our products facilitate budgeting,
policy-making and trend analysis, and monitoring of compliance with corporate
policy.
Benefits for IT Professionals
Rapid Deployment. Our Intranet-based products are designed to be deployed
rapidly within today's existing corporate IT infrastructures without requiring
modifications to customer systems. We offer applications configured to customer
requirements rather than solutions customized on a customer-by-customer basis.
Once installed on a customer's Intranet servers, our products can reach
employees enterprise-wide. For example, one of our customers deployed XMS to
over 25,000 employees within 90 days after the customer began its rollout, and
another customer deployed CompanyStore within five weeks. In addition, customers
with Employee Desktop can leverage the installation of XMS or CompanyStore to
deploy additional applications.
Enterprise-Wide Scalability. Our Intranet-based products are designed to
reach employees throughout the enterprise, regardless of the organization's
size. We have licensed our products to customers seeking to deploy to as few as
100 employees and as many as 135,000 employees, with the largest deployment to
date being to over 50,000 employees.
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Leverage of Existing IT Infrastructure. Because most businesses operate in
a heterogeneous computing environment, our products are 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.
Connectivity to Third Parties. Our 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.
Common Technology Platform. Our Employee Desktop product provides a common
user interface and a common technology platform to integrate XMS, CompanyStore
and future applications. This enables IT personnel to administer employee-facing
applications more easily because the data is captured in a central database, and
to deploy software applications in the suite, and updates to those applications,
from a central location.
Benefits for Employees
Faster Reimbursement and Order Fulfillment. Our solutions enable businesses
to reduce the time required to reimburse employees for their travel and
entertainment 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. Our products contain easy-to-use features and functions that
reduce the time users spend preparing travel and entertainment expense reports
and front-office requisitions. XMS uses corporate credit card information to
"prepopulate" a user's expense report automatically. XMS prepopulates expense
reports based on past experience and preferences. CompanyStore allows
reconciliation of purchasing card transactions. 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. In
addition, we believe Employee Desktop makes it easier for employees to learn and
utilize XMS and CompanyStore by integrating them through a common user
interface.
STRATEGY
Our objective is to be the leading provider of Internet-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 our strategy include:
Extend Leadership Position. We intend to extend our leadership position in
travel and entertainment expense management solutions and to leverage that
position to sell CompanyStore, our front-office procurement product. In order to
accommodate anticipated future demand for our products, we intend to increase
the size of our direct sales and telesales organizations significantly. We
believe that expanding our sales and marketing organization will enhance our
ability to sell our products to new customers globally. We also believe that an
expanded sales force will allow us to sell CompanyStore and future applications
to our current customers.
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Expand Product Functionality. We plan to continue our innovation and
development of advanced features and functionality for Employee Desktop, XMS and
CompanyStore.
Extend Product Suite. We plan to extend our employee-facing application
suite by acquisition and internal development. We expect to target additional
employee-facing applications that can offer compelling benefits to the
enterprise such as human resources self-service, time and attendance, and
facilities management applications.
Leverage Employee Desktop to Sell Multiple Applications. We believe that
Employee Desktop will improve our ability to sell multiple applications provided
by us or by third parties to existing and new customers.
Expand International Presence. We believe that considerable untapped demand
exists for our products outside of the United States. For fiscal 1998, our
international revenues accounted for less than five percent of our total
revenues. We intend to accelerate our investment in international sales and
marketing in an effort to increase sales of our employee-facing applications
worldwide. We also plan to localize our applications for new countries, and add
new features and functionality to Employee Desktop, XMS and CompanyStore to
accommodate accounting, customs, currency and tax requirements of foreign
jurisdictions.
Extend Relationships With Strategic Third Parties. We intend to expand our
relationships with existing strategic partners and to develop additional
relationships with providers of complementary third-party applications and
products. We have developed strong relationships with leading corporate charge
card providers, payroll processors and systems integration and consulting firms,
and intend to establish similar relationships with purchasing card providers,
information technology outsourcing companies and telecommunications providers.
We intend to integrate CompanyStore with leading front-office supply vendors to
provide our customers with greater access to those vendors.
Offer Enterprise Service Provider Solutions. In addition to licensing our
software, we plan to offer our solutions as an Internet-based ESP on a
per-transaction or subscription pricing basis to companies seeking to outsource
their employee-facing business applications. We expect that this opportunity
will be particularly attractive to middle-market customers with 100-750 licensed
end users, which typically have limited IT staffing and budget. We plan to offer
our outsourced ESP products starting with XMS in the second half of calendar
1999 and continuing with CompanyStore and Employee Desktop in fiscal 2000.
Our strategy involves substantial risk. There can be no assurance that we
will be successful in implementing our strategy or that it will lead to
achievement of our objectives. If we are unable to implement our strategy
effectively, our business would be materially adversely affected.
PRODUCTS AND TECHNOLOGY
Our current product line consists of:
- Employee Desktop, which provides a common user interface to integrate our
current products;
- XMS, our market-leading travel and entertainment expense management
application; and
- CompanyStore, our easy-to-use front-office procurement application.
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Substantially all revenues to date have been derived from XMS and related
services. We 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, we provide a disconnected Windows-based version of XMS, which is
interoperable with the Intranet version of XMS. Since 1996, we have licensed our
products to over 175 companies for use by over 900,000 end users. We generally
offer licenses for our software based on the number of users or employees at a
given enterprise. The typical order size for our products and services ranges
from $50,000 to $500,000, with certain transactions that have been greater than
$1 million.
Employee Desktop
Employee Desktop provides a common user interface to integrate XMS and
CompanyStore, and provides a business portal through which corporate customers
and third parties can deliver other information and services to employees.
Employee Desktop improves employee productivity by integrating XMS and
CompanyStore with common features, such as the user interface, applications
icons, approval reminders, status updates and passwords. Features include
frequently asked questions and helpful tips about the applications. It enables
IT personnel to easily administer employee-facing applications that are
integrated into Employee Desktop, because all the data is captured in a central
database, eliminating the need to support, maintain and manage multiple servers
and software programs. In addition, IT personnel can deploy the applications in
our suite, and deliver updates to those applications from a central location.
Concur plans to offer application programming interfaces to allow third party
vendors and customers to integrate other employee-facing applications into the
Employee Desktop framework.
Xpense Management Solution
XMS automates the travel and entertainment expense management process,
including report preparation, approval, processing and data analysis. We are
currently developing version 5.0 of XMS, which will enable integration with
Employee Desktop.
Report Preparation. XMS includes a number of features that facilitate
report preparation for the end-user. The application uses corporate charge or
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
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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 travel and entertainment 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> <C>
- ------------------------------------------------------------------------------------------
REPORT PREPARATION
- ------------------------------------------------------------------------------------------
FEATURES BENEFITS
Prepopulates report with corporate credit Speeds report preparation time
card transactions
Retains commonly incurred expense Reduces input mistakes
information
Simplifies receipt entry Reduces queries and dependence on
Itemizes hotel receipts automatically accounting department
Prevents submission of incomplete reports
Built-in attendee lists, mileage Ensures submission of all applicable
reimbursement tracking, foreign currency expenses
translation
Integrates with American Express online Increases employee use of corporate credit
travel booking application card
- ------------------------------------------------------------------------------------------
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
Approver notification management resources
- ------------------------------------------------------------------------------------------
REPORT PROCESSING
- ------------------------------------------------------------------------------------------
FEATURES BENEFITS
Integrates travel expense data with Facilitates more efficient use of
back-office systems processing 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
Tracks VAT, GST and other foreign taxes accounting 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 has been
licensed to five customers. We are currently developing version 5.0 of
CompanyStore which will enable integration with Employee Desktop and adds new
features and functionality. See "Risk Factors--Future acquisitions might harm
our business" and "--Our expansion into the front-office procurement application
market is risky."
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 an "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 enterprise
resource planning application 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 Directs orders to preferred vendors
stores preferred vendors and commonly
requested goods and services Reduces errors
Retains user information, including Detailed product descriptions available
shipping 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
Automated approval controls based on user company procedures
signing authority
Facilitates more efficient use of
management resources
Increases compliance with corporate
policies
- ----------------------------------------------------------------------------------------
ORDER PROCESSING
- -------------------------------------------
FEATURES BENEFITS
Integrates purchasing data with Speeds fulfillment time
back-office systems
Reduces lost orders
Sends approved requisitions directly to
vendor or to enterprise's purchasing Facilitates more efficient use of
system processing resources
Updates requisitioner on order progress Improves consistency of items ordered
Purchasing department determines items Allows vendor consolidation
available in catalog
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 our product
architecture:
LOGO
Employee Desktop, XMS and CompanyStore, operate on advanced IT platforms
and are scalable and configurable. XMS and CompanyStore are built on a
multi-tiered architecture and have a separate client, application server and
database server built using a COM-based architecture. In addition, a common
application server model, the Concur common technology platform, contains all
common business logic, including workflow, user management, security, business
rules, business intelligence and messaging.
The Concur common technology platform contains all of the business logic,
is COM-based and is built using Microsoft Visual C++. 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 Oracle databases and integrates with SAP
R/3 and Oracle Financials 11.0. We intend 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.
SERVICES
Our professional services organization was formed in 1996 to offer
consulting, customer support and training in connection with licenses of XMS. We
believe that
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services are an important part of our success and consequently we have expanded
our professional services organization to offer similar services in connection
with licenses of Employee Desktop and CompanyStore. See "Risk Factors--We depend
on service revenues to increase our overall revenues."
Consulting. We offer a variety of consulting services in connection with
licenses of our products. Our 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, our consultants install, configure
and test the application and integrate it with the customer's existing ERP and
employee reimbursement systems. Our consultants also help customers implement
bar-coding processes and develop a strategy for the customers' enterprise-wide
deployment of the application.
Customer Support. We provide product upgrades and customer support through
our "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. We also offer
Internet-based support that features an on-line knowledge base.
Training. We offer a variety of training programs for our products. 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 our headquarters in Redmond, Washington. We also provide training classes for
third-party service providers, such as systems integrators.
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CUSTOMERS
We have licensed our applications to over 175 enterprise customers in a
wide range of industries. The following table lists a selection of our
significant customers since fiscal 1996:
Technology/Telecommunications/Media
AT&T Corp.
American Management Systems, Inc.
Cambridge Technology Partners
Computer Sciences Corporation
Dell Computer Corporation
The Hearst Corporation
Lucent Technologies, Inc.
Motorola, Inc.
The New York Times Company
Quantum Corporation
Reuters Limited
Seagate Technology, Inc.
Sprint Corporation
Texas Instruments Incorporated
The Times Mirror Company
Tivoli Systems, Inc.
Visio Corporation
Industrial/Manufacturing
Allied Signal Inc.
Case Corporation
E.I. du Pont de Nemours and Company
Guardian Industries Corporation
Monsanto Company
Northrop Grumman Corporation
PPG Industries, Inc.
Solutia, Inc.
Pharmaceutical/Health Care
Baxter Heathcare Corporation
Columbia/HCA Healthcare Corporation
Merck, Sharpe & Dohme Limited
Pfizer Inc.
Pharmacia & Upjohn Co.
Tenet Healthcare Corporation
Consumer
Anheuser-Busch Companies Inc.
Avon Products, Inc.
Eastman Kodak Company
The Gap, Inc.
The Gillette Company
J.C. Penney Company, Inc.
Levi Strauss & Co.
Maytag Corporation
Financial Services
ABN Amro Holding N.V.
Bear Stearns & Co. Inc.
Comdisco, Inc.
Dresdner Kleinwort Benson
J & H Marsh & McLennan, Inc.
Lehman Brothers Inc.
Royal Insurance
Energy and Natural Resources
Amerada Hess Corporation
Broken Hill Proprietary Company Limited
Exxon Corporation
Occidental Petroleum Corporation
Texaco Inc.
Other
American Airlines, Inc.
Battelle Memorial Institute
Harvard College
J. Walter Thompson
Ontario Ministry of Labour
No customer accounted for 10% or more of our total revenues in fiscal 1996,
1997 and 1998.
The following case studies, which are based solely on information supplied
by the respective subject companies and which we believe to be accurate in all
material respects, illustrate how selected companies have used our products and
services to address their travel and entertainment expense management and
front-office procurement needs:
Guardian Industries Corporation. 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
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invested in filling out expense reports, and a lack of visibility into
enterprise-wide travel and entertainment spending. Guardian implemented our 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
travel and entertainment 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. 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 travel and
entertainment 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 automated its travel and entertainment 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 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 travel and entertainment 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. 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. Visio recently licensed
Employee Desktop and XMS.
SALES
We sell our software primarily through our domestic direct sales
organization, with sales professionals located in the metropolitan areas of
Atlanta, Boston, Chicago, Columbus, Dallas, Denver, Los Angeles, New York,
Redmond, St. Louis, San Francisco
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and Washington, D.C. We also have sales professionals in Toronto, London and
Sydney. The field sales force is complemented by direct telesales and
telemarketing representatives based at our headquarters in Redmond, Washington.
Technical sales support is provided by sales engineers located in several of the
field offices. We currently intend to add a significant number of sales
representatives and sales engineers in other domestic and international
locations. We use a remarketer in New Zealand and plan to expand our remarketing
channel to other international markets. The remarketer receives a referral fee
from us for marketing our products, and provides post-sale implementation and
support of the Company's products. See "Risk Factors--We depend on our direct
sales model."
Since our products affect employees throughout the enterprise, our 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--Our lengthy sales cycle could adversely affect our revenue
growth."
Strategic Marketing and Referral Relationships
We have 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 travel and
entertainment expense management software solution to us. TRS has agreed to be a
strategic marketer for the ESP version of XMS. ADP, Inc., a subsidiary of
Automatic Data Processing, Inc., has agreed to refer potential customers for
travel and entertainment expense management software products and services
exclusively to us. We and ADP also agreed to jointly market our travel and
entertainment expense report processing products and services to ADP customers.
Our existing strategic relationships generally do not, and any future
strategic relationships may not, afford us any exclusive marketing or
distribution rights. Many of our strategic partners have multiple strategic
relationships, and we may not be regarded as significant for their own
businesses. In addition, our strategic partners may terminate their respective
relationships with us, pursue other partnerships or relationships, or attempt to
develop or acquire products or services that compete with our products or
services. Further, our existing strategic relationships may interfere with our
ability to enter into other desirable strategic relationships. Any inability to
maintain our strategic relationships or to enter into additional strategic
relationships may have a material adverse effect on our business. See "Risk
Factors--It is important for us to establish and maintain strategic
relationships" and "Certain Transactions."
MARKETING
Our marketing efforts are directed at promoting our integrated suite of
applications under Employee Desktop, extending our leadership position in travel
and entertainment expense management applications and increasing our market
share for CompanyStore. Our marketing programs are targeted at accounting,
finance, purchasing and travel executives, and are focused on creating awareness
of, and generating interest in, our products.
We engage in a variety of marketing activities, including developing and
executing co-advertising and co-marketing strategies designed to leverage our
existing strategic relationships, targeting additional strategic relationships,
managing and maintaining our Web site, issuing newsletters and direct mailings,
creating and placing advertisements,
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<PAGE> 54
conducting public relations campaigns, and establishing and maintaining close
relationships with recognized industry analysts. We are an active participant in
technology-related conferences and demonstrate our products at trade shows
targeted at accounting, finance, purchasing and travel executives.
We believe that demand is increasing, and will continue to increase, for
employee-facing applications such as those sold by us. We may not be able to
expand our sales and marketing staff, either domestically or internationally, to
take advantage of any increase in demand for employee-facing applications. Our
failure to expand our sales and marketing organization or other distribution
channels could materially adversely affect our business. See "Risk Factors--We
depend on our key employees" and "--We must attract and retain qualified
personnel, particularly service personnel."
PRODUCT DEVELOPMENT
We have been an innovator and leader in the development of employee-facing
enterprise applications. We believe that we were one of the first to introduce
an integrated suite of employee-facing applications, and one of the first to
introduce a commercially successful travel and entertainment expense reporting
application. We also believe that we pioneered a number of features that are now
common throughout the travel and entertainment expense reporting field, such as
prepopulation with corporate credit card transactions and automatic itemization
of hotel bills. Our software development staff is responsible for enhancing our
existing products and expanding our product line. We believe 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. We expect that we will increase our product development expenditures
substantially in the future.
Our current product development activities focus on product enhancements to
Employee Desktop, XMS, CompanyStore and the Concur common technology platform
that standardizes the software architecture underlying all applications in the
suite. We plan to offer our applications through the Internet as an outsourced
ESP starting with XMS in the second half of calendar 1999 and to provide
CompanyStore and Employee Desktop as an ESP offering in fiscal 2000.
These development efforts may not be completed within our anticipated
schedules, and if completed, they may not 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 our business. See "Risk Factors--We may experience
difficulties in introducing new products and upgrades" and "--Our plan to sell
products as an Internet-based enterprise service provider may fail."
COMPETITION
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. Our primary source of direct competition
comes from independent software vendors of travel and entertainment expense
management and front-office procurement applications, and from providers of
enterprise resource planning, or ERP, software applications that have or may be
developing travel and expense management and front-office procurement products.
We also face indirect competition from potential customers'
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<PAGE> 55
internal development efforts and have to overcome their reluctance to move away
from existing paper-based systems.
Our major competitors in the travel and entertainment 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 travel and entertainment expense management products, and Oracle
Corporation has developed a front-office procurement product. These companies
have begun to sell these products along with their ERP application suites. Our
major competitors in the front-office procurement field include Ariba
Technologies, Inc., Clarus Corporation, Commerce One, Inc., Harbinger
Corporation, Intelisys Electronic Commerce, LLC, Netscape Communications
Corporation, Trilogy Development Corporation and TRADE'ex Electronic Commerce
Systems, Inc. We also expect to face competition from new entrants including
those ERP providers that do not already market a travel and entertainment
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 ERP application
suites.
We believe that the principal competitive factors considered in selecting
travel and entertainment expense management and front-office procurement
applications are functionality, interoperability with existing IT
infrastructure, price and an installed referenceable base of customers. We
learned from our 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, we believe that we have a
competitive advantage relative to competing solutions. With respect to
functionality, we believe that we offer a product with more features than other
competing products, and that we have often been the first to offer new and
innovative features, such as prepopulation of transaction reports based on
credit card information. Significantly, we believe we were one of the first
providers of a suite of employee-facing applications, and we were the first
provider of an Intranet-based travel and entertainment 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 our competitors have chosen to develop their
Intranet-based applications using Java, which we believe is difficult to deploy
on a large scale within today's corporate IT infrastructure. With respect to
price, we position XMS as the premium product compared to the competition. We
believe that this positioning does cause us to lose some potential transactions
to competitors based on price. Finally, we believe that we have a larger
customer base, spread across a wider variety of industries, than our primary
competitors. We believe that this large installed customer base helps us to
secure additional customers.
Many of our competitors in both the travel and entertainment 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.
Moreover, a number of our competitors, particularly major ERP vendors, have
well-established relationships with our current and potential customers 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 we can.
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<PAGE> 56
It is also possible that new competitors or alliances among competitors or
other third parties may emerge and rapidly acquire significant market share. We
expect that competition in our 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 our business. We
may not be able to compete successfully against current or future competitors
and the competitive pressures we face may materially adversely affect our
business. See "Risk Factors--Our expansion into the front-office procurement
application market is risky," "--We face significant competition" and "--It is
important for us to establish and maintain strategic relationships."
INTELLECTUAL PROPERTY RIGHTS
Our success depends upon our proprietary technology. We rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality
procedures, contractual provisions and other similar measures to protect our
proprietary information. For example, we license rather than sell our software
to customers and require licensees to enter into license agreements that impose
certain restrictions on licensees' ability to utilize the software. We currently
hold no patents and do not have any patent applications pending. There can be no
assurance that any of our copyrights or trademarks will not be challenged and
invalidated.
As part of our confidentiality procedures, we enter into non-disclosure
agreements with certain of our employees, consultants, corporate partners,
customers and prospective customers. We also enter into license agreements with
respect to our technology, documentation and other proprietary information. Such
licenses are generally non-transferable and have a perpetual term. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our products or technology that we consider
proprietary and third parties may attempt to develop similar technology
independently. In particular, we provide our licensees with access to object
code versions of our software, and to other proprietary information underlying
our licensed software. Policing unauthorized use of our 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. While we are unable to determine the extent to which piracy of our
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 our proprietary rights to the same extent as do the
laws of the United States. Overall, the protection of our proprietary rights may
not be adequate and our competitors may independently develop similar
technology.
We are not aware that our products, trademarks, copyrights or other
proprietary rights infringe the proprietary rights of third parties. Third
parties may assert infringement claims against us in the future with respect to
current or future products. Further, we expect that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and the functionality of products
in different industry segments overlaps. From time to time, we hire or retain
employees or consultants, including through acquisition, who have worked for
independent software vendors or other companies developing products similar to
those offered by us. Such prior employers may claim that our products are based
on their products and that we have misappropriated their intellectual property.
Any such claims, with or without merit, could cause a significant diversion of
management attention, result in costly and protracted
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litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to us or at all, which would have a material
adverse effect upon our business. See "Risk Factors--We have only limited
protection for our proprietary technology and we may be subject to claims of
infringement."
EMPLOYEES
As of February 28, 1999, we had approximately 271 full-time employees, of
whom seven were based in the United Kingdom, one in Canada and one in Australia.
These employees included 69 engaged in research and development, 88 in sales and
marketing, 84 in consulting, training and technical support and 30 in
administration and finance. No employees are known by us to be represented by a
collective bargaining agreement and we have never experienced a strike or
similar work stoppage. We consider our relations with our employees to be good.
Our ability to achieve our financial and operational objectives depends in large
part upon our continuing ability to attract, integrate, retain and motivate
highly qualified sales, technical and managerial personnel. Competition for such
qualified personnel in our industry is intense, particularly in the Seattle area
in which our headquarters is located and particularly with respect to software
development, marketing and management personnel. In addition, competitors may
attempt to recruit our key employees. There can be no assurance that we will be
able to attract or retain employees in the future. We are a party to employment
agreements with certain of our employees. See "Risk Factors--We depend on our
key employees," "--We must attract and retain qualified personnel, particularly
service personnel" and "Management--Employment Agreements."
FACILITIES
Our principal administrative, sales, marketing and research and development
facility is located in Redmond, Washington and consists of approximately 80,000
square feet of office space held under a lease that expires in May 2005. As of
February 28, 1999, we also leased sales offices in Atlanta, Boston, Chicago,
Dallas, Los Angeles, New York, St. Louis, San Francisco, Sydney and London. For
a discussion of certain risks associated with our anticipated need for
additional office space.
LEGAL PROCEEDINGS
We are not a party to any currently pending material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. Steven Singh..................... 37 President, Chief Executive Officer
and Director
Michael W. Hilton................... 35 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
Executive Vice President of
Operations
Rajeev Singh........................ 30 Executive Vice President of Products
Michael Watson...................... 51 Executive Vice President of
Professional Services
Bruce A. Chatterley................. 36 Executive Vice President and General
Manager, eService
Jeffrey D. Brody(1)................. 39 Director
Norman A. Fogelsong(1).............. 47 Director
Michael J. Levinthal(2)............. 44 Director
James D. Robinson III(2)............ 63 Director
Russell P. Fradin................... 43 Director
Edward P. Gilligan.................. 39 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
S. Steven Singh has served as our President and Chief Executive Officer
since February 1996. Mr. Singh served as our Chairman of the board of directors
from our inception until February 1996. Prior to joining us as an officer, Mr.
Singh was General Manager of the Contact Management Division at Symantec
Corporation 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, or CSI, a personal computer software
publisher. Prior to joining CSI, Mr. Singh co-founded Eshani Corporation, 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, our Executive Vice President of Products.
Michael W. Hilton co-founded Concur in August 1993 and has served as our
Chief Technical Officer since 1996. Mr. Hilton has served as a member of our
board of directors since our founding, and as Chairman of the board since
February 1996. Before co-founding Concur, 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.
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Jon T. Matsuo joined us in July 1994 and currently serves as our Executive
Vice President of Worldwide Sales. Prior to joining us, 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
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 us in May 1994 and currently serves as our Chief
Financial Officer and Executive Vice President of Operations. Prior to joining
us, 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 Concur in August 1993 and currently serves as our
Executive Vice President of Products. Previously, Mr. Singh acted as our
Director of Product Management. Prior to co-founding Concur, 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, our President and Chief Executive
Officer.
Michael Watson joined us in August 1998 and currently serves as our
Executive Vice President of Professional Services. Prior to joining us, 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.
Bruce A. Chatterley is expected to join us in March 1999 to serve as our
Executive Vice President and General Manager of eService. Prior to joining us,
Mr. Chatterley served in various positions, most recently Vice President of
Product Management, at Ameritech Corporation, a telecommunications company, from
July 1994 to March 1999. Mr. Chatterley also served as Director of New
Opportunity Development, Small Business Group, at US West, a telecommunications
company, from February 1989 to June 1994. Mr. Chatterley holds a B.S.S.A. in
Business Public Affairs from Central Michigan University and an M.B.A. from The
American University, Kogod College of Business Administration.
Jeffrey D. Brody has served as a member of our board of directors since
October 1994. Since April 1994, Mr. Brody has been employed by Brentwood Venture
Capital, a venture capital 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.
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<PAGE> 60
Norman A. Fogelsong has served as a member of our 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 and several private technology companies.
Michael J. Levinthal has served as a member of our 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., Symphonix Devices, Inc., and several private technology
companies.
James D. Robinson III has served as a member of our 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, First Data Corporation, and several private companies.
Russell P. Fradin has served as a member of our board of directors since
March 1999. 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 has served as a member of our board of directors since
February 1999. 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.
Our bylaws 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 our executive
officers, the long-term strategy of employee compensation, the types of stock
and other compensation plans to be
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used by us and the shares and amounts reserved thereunder, and any other
compensation matters as from time to time directed by the board.
The Audit Committee of the board of directors consists of Mr. Levinthal and
Mr. Robinson. The Audit Committee meets with our independent auditors to review
the adequacy of our 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 our
auditors, and reviews and makes recommendations to the board of directors
regarding the fairness of any proposed transaction between us and any officer,
director or other affiliate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the board of directors
was at any time since our formation an officer or employee of Concur. None of
our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board of directors or the Compensation Committee of our 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 our Series A preferred stock at a price of $1.30 per share, 312,500 shares of
our Series B preferred stock at a price of $1.60 per share, 237,500 shares of
our Series C preferred stock at a price of $2.00 per share, 135,378 shares of
our Series D preferred stock at a price of $3.65 per share and 72,123 shares of
our Series E preferred stock at a price of $7.75 per share. Mr. Brody also
purchased 3,871 shares of our Series E preferred 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, 1998 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 our Series
C preferred stock at a price of $2.00 per share, 130,193 shares of our Series D
preferred stock at a price of $3.65 per share and 72,090 shares of our Series E
preferred stock at a price of $7.75 per share.
All of our outstanding preferred stock converted into our common stock upon
our initial public offering in December 1998.
DIRECTOR COMPENSATION
Our directors 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.
Our board of directors adopted the 1998 Directors Stock Option Plan in
August 1998 and reserved a total of 240,000 shares of our common stock for
issuance thereunder. Our stockholders approved this Directors Plan in September
1998. Members of our board of directors who are not our employees are eligible
to participate in the Directors Plan. Option grants under the Directors Plan are
automatic and the exercise price of the options must equal the fair market value
of our common stock on the date of grant.
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Each eligible director is automatically granted an option for 20,000 shares
of our common stock on the date he or she becomes a member of the board of
directors. Eligible directors who were members of our board of directors prior
to our initial public offering each received an option for 20,000 shares on the
effective date of the initial public offering. To date, Messrs. Brody,
Fogelsong, Levinthal, Robinson and Fradin have each received options for 20,000
shares of our common stock. Mr. Gilligan is not permitted to accept such stock
option grants under policies of his employer, TRS.
On the date of each annual meeting of stockholders, each eligible director
who has served continuously as a member of our board of directors since the date
of his or her original option grant is automatically granted an option for 8,000
shares of our common stock.
All options granted under the Directors Plan vest as to 25% of the shares
on 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 us either as a director or a consultant.
In the event of a merger or consolidation in which we are not the surviving
corporation, the sale of all or substantially all of our assets, or certain
other corporate transactions as set forth in the Directors Plan, the vesting of
all options granted under the Directors Plan accelerates and the options become
exercisable in full. If a director does not exercise his or her options within
seven months after the corporate transaction, the options will expire. Options
may be granted pursuant to the Directors Plan until December 2008. The board of
directors may terminate or amend the Directors Plan at any time. The Directors
Plan may be administered by the full board of directors or by the board's
Compensation Committee.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by or paid for services rendered to us in all capacities
during fiscal 1997 and fiscal 1998 by our Chief Executive Officer and our 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 1998 200,000 140,529 200,000
Officer
Sterling R. Wilson............. 1997 140,874 52,354 10,400
Chief Financial Officer and 1998 150,000 83,459 52,000
Executive Vice President of
Operations
Jon T. Matsuo.................. 1997 131,566 91,700 10,400
Executive Vice President of 1998 150,000 157,989 52,000
Worldwide Sales
Michael W. Hilton.............. 1997 133,000 49,700 --
Chairman of the Board and 1998 132,000 95,330 52,000
Chief Technical Officer
Rajeev Singh................... 1997 92,282 44,169 10,000
Executive Vice President of 1998 115,000 108,027 52,000
Products
</TABLE>
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. We
have not granted any stock appreciation rights. 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 Concur. See "--Employee Benefit Plans." All options were granted
at an exercise price equal to the fair market value of our common stock at the
time of grant. We granted a total of 196,580 options to all employees during
fiscal 1997 and 746,414 options to all employees during fiscal 1998.
The potential realizable values were computed by (a) multiplying the number
of shares of common stock subject to a given option by our initial public
offering price of $12.50 per share in December 1998, (b) assuming that the
aggregate stock value derived from that calculation compounds at the annual 5%
or 10% rate shown in the table for the remainder of the ten-year term of the
option and (c) subtracting from that result the
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aggregate option exercise price. The 5% and 10% assumed annual rates of stock
price appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future common
stock prices.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
FISCAL OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME YEAR GRANTED FISCAL YEAR PER SHARE 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 3,803,321 5,819,869
Sterling R. Wilson... 1997 10,400 5.3 0.20 10/23/06 189,989 276,587
1998 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Jon T. Matsuo........ 1997 10,400 5.3 0.20 10/23/06 189,989 276,587
1998 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Michael W. Hilton.... 1997 -- -- -- -- -- --
1998 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Rajeev Singh......... 1997 10,000 5.1 0.20 10/23/06 182,682 265,949
1998 52,000 7.0 0.375 10/22/07 988,863 1,513,166
</TABLE>
On December 14, 1998, we granted options to purchase 100,000 shares of our
common stock at an exercise price of $12.50 per share, to each of Messrs. S.
Singh, Wilson, Matsuo, Hilton and R. Singh.
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. Mr. Matsuo exercised options to purchase 3,200
shares of our common stock at $0.10 per share in June 1998. The fair market
value of our common stock at the time of such exercise was $6.20, as determined
by the board of directors. The value of unexercised in-the-money options are
based on an assumed fair market value of our common stock at September 30, 1998
of $12.50 per share less the exercise price.
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES (MARKET PRICE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED AT EXERCISE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)
FISCAL ON LESS EXERCISE --------------------------- ---------------------------
NAME YEAR EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------ -------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
S. Steven Singh...... 1997 -- $ -- 71,250 108,750 $ 879,225 $1,341,975
1998 -- -- 116,250 263,750 1,434,525 3,211,675
Sterling R. Wilson... 1997 -- -- -- 10,400 -- 127,920
1998 -- -- 4,983 57,417 61,291 697,129
Jon T. Matsuo........ 1997 -- -- 180,000 10,400 2,232,000 127,920
1998 3,200 19,520 176,983 57,417 2,194,091 697,129
Michael W. Hilton.... 1997 -- -- -- -- -- --
1998 -- -- -- 52,000 -- 630,500
Rajeev Singh......... 1997 -- -- -- 10,000 -- 123,000
1998 -- -- 4,792 57,208 58,942 694,558
</TABLE>
61
<PAGE> 65
EMPLOYMENT AGREEMENTS
We and Mr. Matsuo are parties to a letter agreement dated June 20, 1994
governing his employment with us. Under the agreement, we paid to Mr. Matsuo an
initial annual salary of $90,000, which was to be increased to $105,000
following our 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 we make 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 us
or Mr. Matsuo at any time with or without cause or notice.
We and Mr. Wilson are parties to a letter agreement dated April 21, 1994
governing his employment with us. Under the agreement, we paid to Mr. Wilson an
annual initial salary of $90,000, which was to be increased to $105,600
following our 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 we make available to employees in
comparable positions, and was granted an option to purchase 80,000 shares of
common stock. We also paid Mr. Wilson's costs to relocate to Seattle. Mr.
Wilson's employment is voluntary and may be terminated by us or Mr. Wilson at
any time with or without cause or notice.
We and Mr. Watson are parties to a letter agreement dated June 24, 1998
governing his employment with us. Under the agreement, we 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 us, $10,000 per quarter of the
possible bonus will be guaranteed provided that Mr. Watson is an employee of
Concur on the bonus payment dates. In addition, Mr. Watson was granted an option
to purchase 80,000 shares of common stock. We also agreed to pay a one-time
relocation allowance of $20,000.
We and Mr. Chatterley are parties to a letter agreement dated March 2, 1999
governing his employment with us. Under the agreement, we agreed to pay Mr.
Chatterley an annual salary of $200,000, with a target bonus of $100,000 per
year. In addition, we agreed to grant Mr. Chatterley an option to purchase up to
225,000 shares of our common stock at an exercise price equal to market value on
his first day of employment with us which is expected to be in March 1999. The
option will become exercisable as to 80,000 shares on the first day of his
employment with us, and the remainder will become exercisable as to 25% after
one year and as to the balance in equal monthly increments over the next three
years. We also agreed to reimburse Mr. Chatterley for relocation expenses and up
to $20,000 in real estate closing costs associated with acquiring a home in the
Seattle area.
EMPLOYEE BENEFIT PLANS
1994 Stock Option Plan
Our board of directors and stockholders approved the 1994 Stock Option Plan
in April 1994. Just prior to our December 1998 initial public offering, there
were 2,760,000 shares of our common stock reserved for issuance under this plan.
The 1994 Option Plan provides for grants of both incentive stock options and
non-qualified stock options. The 1994 Option Plan terminated in December 1998,
when the 1998 Equity Incentive Plan became effective. As a result, no further
options have been granted or will be granted under the 1994 Option Plan.
However, termination of the 1994 Option Plan did not affect outstanding options,
and as of February 28, 1999, options to purchase 1,373,430 shares of our common
stock were outstanding under the 1994 Option Plan.
62
<PAGE> 66
1997 Stock Option Plan of 7Software
In connection with our acquisition of 7Software, we assumed the 1997 Stock
Option Plan of 7Software and all options outstanding under that plan at the
closing of the acquisition. No options will be granted in the future under the
7Software Plan. As of February 28, 1999, options to purchase 35,216 shares of
our common stock were outstanding under the 7Software plan.
1998 Equity Incentive Plan
Our board of directors adopted the 1998 Equity Incentive Plan in August
1998, and our stockholders approved it in September 1998. The 1998 Equity
Incentive Plan became effective in December 1998. Our board of directors
reserved 3,240,000 shares of our common stock for issuance under the 1998 Equity
Incentive Plan, and the following additional shares will become available for
issuance under the 1998 Equity Incentive Plan:
- any shares that are subject to options granted under the 1994 Option Plan
or the 1998 Equity Incentive Plan that expire or terminate for any reason
without being exercised;
- any shares that are issued pursuant to an option under the 1994 Option
Plan or the 1998 Equity Incentive Plan that we repurchase upon
termination of the optionholder's employment;
- any shares that are issued under a restricted stock award under the 1998
Equity Incentive Plan that we repurchase or that are forfeited upon the
termination of the awardholder's employment;
- any shares that are subject to a stock bonus award under the 1998 Equity
Incentive Plan that terminates without shares being issued.
In addition, all of the shares of our common stock which remained available
for issuance under the 1994 Option Plan when the 1998 Equity Incentive Plan
became effective, became available for issuance under the 1998 Equity Incentive
Plan.
The 1998 Equity Incentive Plan will terminate in August 2008, unless it is
terminated sooner in accordance with the terms of the 1998 Equity Incentive
Plan.
The 1998 Equity Incentive Plan authorizes the award of incentive stock
options, non-qualified stock options, restricted stock awards and stock bonuses.
Incentive stock options may be granted only to our employees, including officers
and directors who are also employees. All other awards may be granted to our
employees, officers, directors, consultants, independent contractors and
advisors, subject to applicable federal securities laws. The exercise price of
incentive stock options must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of non-qualified stock
options must be equal to at least 85% of the fair market value of the common
stock on the date of grant. The maximum term of options granted under the 1998
Equity Incentive Plan is ten years.
The 1998 Equity Incentive Plan is administered by the Compensation
Committee, which currently 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
Equity Incentive Plan and any agreement made thereunder, to grant awards and to
make all other determinations necessary or advisable for the administration of
the 1998 Equity Incentive Plan. The Compensation Committee may,
63
<PAGE> 67
with the consent of optionees, issue new options in exchange for the surrender
and cancellation of any outstanding options.
The Compensation Committee in its discretion may permit payment for stock
options or restricted stock:
- in cash;
- by cancellation of our indebtedness to the participant;
- by surrender of shares that meet specific criteria set forth in the 1998
Equity Incentive Plan;
- by tender of a full recourse promissory note;
- by waiver of compensation due or accrued to the participant for services
rendered;
- or, with respect to purchases upon exercise of an option only, through a
"same day sale" or a "margin" commitment.
The Compensation Committee may also guarantee third-party loans in order to
help recipients of stock option grants or restricted stock awards pay the
exercise price or purchase price of those options or awards.
Awards granted under the 1998 Equity Incentive Plan generally may not be
transferred other than by will or by the laws of descent and distribution. In
the event of our dissolution or liquidation or a "change in control"
transaction, outstanding awards may be assumed 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. As of February 28, 1999, options to purchase
704,915 shares of our common stock were outstanding under the 1998 Equity
Incentive Plan.
1998 Employee Stock Purchase Plan
Our board of directors adopted the 1998 Employee Stock Purchase Plan in
August 1998, and reserved a total of 320,000 shares of our common stock for
issuance under this plan at that time. Our stockholders approved the Purchase
Plan in September 1998. The Purchase Plan became effective in December 1998. On
each January 1, the aggregate number of shares reserved for issuance under the
Purchase Plan increases automatically by a number of shares equal to 1% of our
total outstanding shares as of the immediately preceding December 31. Such
annual increase may not exceed 320,000 shares per year. On January 1, 1999, the
number of shares of our common stock reserved for issuance under the Purchase
Plan was automatically increased by 170,297 shares, to 490,297. The Purchase
Plan is administered by the Compensation Committee, which has the authority to
construe and interpret the Purchase Plan. Our employees generally will be
eligible to participate in the Purchase Plan if they are:
- customarily employed by us for more than 20 hours per week and more than
five months in a calendar year, and
- are not and would not as a result of their participation in the Purchase
Plan become 5% stockholders of us.
The Purchase Plan provides for offering periods of 24 months. After the
first offering period, which will be shorter, each offering period comprises of
four 6-month purchase periods. Eligible employees may acquire shares of our
common stock at the end of each 6-month purchase period through payroll
deductions in an amount between 2% and 15% of their cash compensation, subject
to purchase limitations as described in the Purchase Plan.
64
<PAGE> 68
The first offering period under the Purchase Plan began in December 1998.
The first purchase period of the first offering period will be shorter than six
months and will end on April 30, 1999. Offering periods and purchase periods
thereafter will begin on each May 1 and November 1. The purchase price for our
common stock under the Purchase Plan is 85% of the lesser of:
- the fair market value of our common stock on the first day of the
applicable offering period, or
- the fair market value of our common stock on the last day of each
purchase period.
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.
The Purchase Plan will terminate in August 2008 unless earlier terminated
pursuant to its terms. The board of directors may amend, terminate or extend the
term of the Purchase Plan, except that the board of directors may not adversely
affect any rights previously granted under the Purchase Plan. If the financial
accounting treatment for the Purchase Plan changes in any way, the board of
directors may make any amendments to the Purchase Plan as it determines to be
necessary or advisable, even if the amendments affect rights which were
previously granted.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Bylaws provide that we are required to indemnify our directors and
executive officers to the fullest extent permitted by Delaware law. We may also
indemnify our other officers, employees and agents. Our bylaws also required us
to advance expenses to our directors and executive officers in connection with a
legal proceeding to the fullest extent permitted by Delaware law.
We have also entered into indemnity agreements with each of our current
directors and executive officers to give them additional contractual assurances
regarding the scope of the indemnification set forth in our bylaws and to
provide additional procedural protections.
In addition, our certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Consistent with
Delaware law, we have eliminated the personal liability of our directors for
monetary damages for breach of their fiduciary duties as directors except for
liability for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; or
- any transaction from which the director derived an improper personal
benefit.
We also maintain directors' and officers' liability insurance.
65
<PAGE> 69
CERTAIN TRANSACTIONS
Loan Repayment. On September 21, 1994, we entered into a repayment
agreement with S. Steven Singh, our President, Chief Executive Officer and a
director, and Michael W. Hilton, our Chairman of the Board and Chief Technical
Officer. Pursuant to the repayment agreement, we agreed to repay loans
previously made to us by Mr. Singh for $111,500 and Mr. Hilton for $121,500.
Under the terms of the repayment agreement, we 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,
we agreed to issue 64,530 shares of our Series C preferred stock to Mr. Singh
and 70,390 shares of our 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,
we sold:
- 1,529,636 shares of our Series A preferred stock at a price of $1.30 per
share;
- 1,874,999 shares of our Series B preferred stock at a price of $1.60 per
share;
- 3,884,920 shares of our 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 our Series D preferred stock at a price of $3.65 per
share; and
- 1,648,660 shares of our Series E preferred stock at a price of $7.75 per
share.
Each share of preferred stock converted into one share of common stock upon
the completion of our initial public offering. The purchasers of the preferred
stock included the following holders of 5% or more of our 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............... 1,529,636 312,500 250,000 135,378 74,703
Institutional Venture Partners
VII, L.P. and affiliates..... -- -- 2,000,000 130,193 72,090
Mayfield VIII and affiliates... -- -- 1,250,000 807,308 69,872
RRE Investors, L.P. and
affiliates................... -- -- -- -- 645,161
US Venture Partners IV L.P. and
affiliates................... -- 1,562,499 250,000 159,993 --
Michael W. Hilton.............. -- -- 70,390 -- 3,871
S. Steven Singh................ -- -- 64,530 -- 3,871
</TABLE>
Transactions with American Express. In August 1998, we sold an aggregate of
645,161 shares of our Series E preferred stock, at a cash purchase price of
$7.75 per share, and issued a warrant exercisable for an aggregate of 2,400,000
shares of Series E preferred stock, to TRS, a subsidiary of American Express.
Upon our initial public offering, the warrant issued to TRS automatically became
exercisable for 2,325,000 shares of common stock. In December 1998, TRS
partially exercised the warrant to purchase 225,000 shares at $11.625 per share.
Additionally, under the warrant, TRS may acquire 700,000 shares at
66
<PAGE> 70
any time on or before October 15, 1999 at a cash purchase price of $33.75 per
share, 700,000 additional shares at any time on or before January 15, 2001 at a
cash purchase price of $50.625 per share, and 700,000 shares 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, our board of directors originally determined to cancel
25% of the shares that could have been acquired under the warrant at the time of
our initial public 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. Under a voting agreement entered into
by holders of our Series E preferred stock, TRS designated Edward Gilligan to be
a member of our board of directors. We appointed Mr. Gilligan to the board in
February 1999. The voting agreement terminated upon the completion of our
initial public offering.
Under a standstill agreement, TRS has agreed not to acquire beneficial
ownership of additional shares of our capital stock prior to April 10, 2000 if
such purchase would result in TRS owning more than 16% of our capital stock,
including shares issuable upon exercise of their warrant. TRS has also agreed
not to solicit proxies to vote any of our voting stock if at the time we are
publicly traded and subject to the proxy rules.
In December 1997, we entered into a strategic marketing alliance agreement
with American Express, providing for the marketing of XMS to corporate card
clients of American Express. Under the agreement, we 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 us 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 us
from all American Express referrals have exceeded certain levels. In fiscal
1998, we paid or owed to American Express an aggregate of approximately $204,000
under the agreement. In three months ended December 31, 1998, we paid or owed to
American Express an aggregate of approximately $235,000 under this agreement.
In connection with the strategic marketing alliance agreement, American
Express terminated certain customer licenses of its own travel and entertainment
expense management product, and we agreed to offer to license XMS to those
former American Express customers on our standard terms. We 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 we make available to orders of similar size to non-affiliated
customers. We 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 us an aggregate of $193,000 under the marketing
agreement. In the three months ended December 31, 1998, American Express did not
pay or owe us fees under the marketing agreement. As of December 31, 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 strategic marketing alliance agreement, we also granted American
Express an option to license XMS for its internal use at our generally
prevailing rates. The option expired in June 1998 without being exercised. We
and American Express also agreed to
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<PAGE> 71
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 us by any competitor of
American Express and by American Express upon the acquisition of 20% or more of
our securities by any competitor of American Express.
In August 1998, we entered into a co-branded service marketing agreement
with TRS, under which TRS will market to its clients a co-branded ESP version of
XMS. The agreement provides that we will develop this co-branded service and
that both Concur and TRS will develop certain special features for integration
into the co-branded service. For 12 months following the release of a co-branded
service containing a special feature, we have agreed not to include such special
feature in any product or service offered by or on behalf of us or any of our
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 we complete our
localization efforts in those areas. We have agreed to offer service contracts
for the co-branded service to TRS clients at terms not materially less favorable
than those offered to our own customers, and we have 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 us and 45% to TRS, provided that we are 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. We are also entitled to 55% of consulting
revenue associated with the co-branded service, after deduction of our direct
and indirect costs, expenses and taxes associated with providing consulting
services. We are also obligated to provide TRS with certain "most favored
pricing" rights.
We 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 one of our competitors. 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-branded
agreement may be terminated at any time by TRS if a TRS competitor acquires a
controlling interest in us or if any officer, director or other designee of a
TRS competitor is appointed to our board of directors. No payments were made
under the co-branded agreement in fiscal 1998 or in the three months ended
December 31, 1998.
We believe that the terms of the agreements with American Express and TRS,
taken as a whole, are no less favorable to us than we could have obtained from
unaffiliated third parties.
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<PAGE> 72
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of February 28, 1999 by the following
individuals or groups:
- each person or entity who is known by us to own beneficially more than 5%
of our common stock;
- each of our directors;
- each of the Named Executive Officers;
- each selling stockholder; and
- all current executive officers and directors as a group.
Unless otherwise indicated, the address for each listed stockholder is c/o
Concur Technologies, Inc., 6222 185th Avenue NE, Redmond, Washington 98052.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
NAME AND ADDRESS -------------------------- SHARES BEING --------------------------
OF BENEFICIAL OWNER NUMBER PERCENT+ OFFERED NUMBER PERCENT+
------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Edward P. Gilligan............. 2,970,161 15.5% -- 2,970,161 14.1%
American Express Travel
Related Services Company,
Inc.(1)
Jeffrey D. Brody............... 2,287,137 13.4 500,000 1,787,132 9.4
Brentwood Associates VI, L.P.
and affiliates(2)
Norman A. Fogelsong............ 2,202,283 12.9 -- 2,202,283 11.6
Institutional Venture
Partners VII, L.P. and
affiliates(3)
Michael J. Levinthal........... 2,127,180 12.4 -- 2,127,180 11.2
Mayfield VIII and
affiliates(4)
US Venture Partners IV, L.P.... 1,972,492 11.5 -- 1,972,492 10.4
and affiliates(5)
S. Steven Singh(6)............. 1,030,638 6.0 55,000 975,638 5.1
Michael W. Hilton(7)........... 953,761 5.6 60,000 893,761 4.7
James D. Robinson III.......... 645,161 3.8 322,580 322,581 1.7
RRE Investors, L.P. and
affiliates(8)
Andrew Dent(9)................. 340,452 2.0 22,500 317,952 1.7
Melissa Widner(10)............. 340,452 2.0 22,500 317,952 1.7
Jon T. Matsuo(11).............. 262,180 1.5 26,200 235,980 1.2
Sterling R. Wilson(12)......... 226,208 1.3 22,600 203,608 1.1
Comdisco, Inc.(13)............. 198,991 1.2 35,000 163,991 *
Rajeev Singh(14)............... 189,930 1.1 15,000 174,930 *
Russell P. Fradin.............. -- * -- -- *
ADP, Inc.(15)
All current executive officers
and directors as a group (12
persons)(16)................. 12,894,639 65.5% 1,046,380 11,893,255 55.3%
</TABLE>
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<PAGE> 73
- ------------
* Less than 1%.
+ Percentage ownership is based on 17,101,641 shares outstanding as of
February 28, 1999 and 18,920,261 shares outstanding after this 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 February 28, 1999 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.
(1) Represents 870,161 shares held of record by TRS and 2,100,000 shares
subject to a warrant held by TRS that is exercisable within 60 days of
February 28, 1999, expiring in three tranches through January 2002, at cash
purchase prices of $33.75, $50.625 and $85.00, respectively. 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.
Edward P. Gilligan, who is a director of Concur, is President of the
Corporate Services Division for TRS. Mr. Gilligan disclaims beneficial
ownership of the shares held by TRS. The address for American Express and
TRS is American Express Tower, World Financial Center, New York, New York
10285. See "Certain Transactions."
(2) 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 Concur, 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.
(3) 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 Concur, 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.
(4) 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 Concur, 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.
(5) 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.
(6) Represents 813,138 shares held of record by S. Steven Singh and 217,500
shares subject to options exercisable within 60 days of February 28, 1999
held by Mr. Singh. Mr. Singh is the President, Chief Executive Officer and
a director of Concur.
(7) Represents 934,261 shares held of record by Michael W. Hilton and 19,500
shares subject to options exercisable within 60 days of February 28, 1999
held by Mr. Hilton. Mr. Hilton is the Chairman of the Board and Chief
Technical Officer of Concur.
70
<PAGE> 74
(8) 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 Concur, 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. 208,043 of the shares
are being offered by RRE Investors, L.P. and 114,537 of the shares are
being offered by 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.
(9) Represents 340,452 shares held of record by Andrew Dent, of which 170,226
shares are subject to rights of repurchase by Concur which lapse in
increments over time. Does not include 4,000 shares held by the Dent-
Widner Family Trust, FBO Ian MacKenzie Dent, referred to in note 10 below.
(10) Represents 336,452 shares held of record by Melissa Widner and 4,000 shares
held by the Dent-Widner Family Trust, FBO Ian MacKenzie Dent.
(11) Represents 64,180 shares held of record by Jon T. Matsuo and 198,000 shares
subject to options exercisable within 60 days of February 28, 1999 held by
Mr. Matsuo. Mr. Matsuo is the Executive Vice President of Worldwide Sales
of Concur.
(12) Represents 200,208 shares held of record by Sterling R. Wilson and 26,000
shares subject to options exercisable within 60 days of February 28, 1999
held by Mr. Wilson. Mr. Wilson is the Chief Financial Officer and Executive
Vice President of Operations of Concur.
(13) Represents 74,724 shares held of record by Comdisco, Inc. and 124,267
shares subject to warrants exercisable within 60 days of February 28, 1999
held by Comdisco, Inc..
(14) Represents 164,180 shares held of record by Rajeev Singh and 25,750 shares
subject to options exercisable within 60 days of February 28, 1999 held by
Mr. Singh. Mr. Singh is the Executive Vice President of Products of Concur.
(15) Russell P. Fradin is President, Employer Services North America, of ADP,
Inc.
(16) Prior to this offering, represents 12,894,639 shares held of record by
current executive officers and directors as a group and 2,586,750 shares
subject to options or warrants exercisable within 60 days of February 28,
1999 held by current executive officers and directors as a group. After
this offering, represents 11,893,259 shares held of record by current
executive officer and directors as a group and 2,586,750 shares subject to
options and warrants exercisable within 60 days of February 28, 1999 held
by current executive officers and directors as a group.
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<PAGE> 75
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists 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 February 28, 1999 there were 17,101,641 shares of common stock
outstanding, held of record by 77 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 our 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. Our stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Subject to the rights of
creditors and holders of preferred stock which may be outstanding at the time,
upon our liquidation, dissolution or winding-up, the assets legally available
for distribution to stockholders would be distributable ratably among the
holders of the common stock.
PREFERRED STOCK
No shares of preferred stock are outstanding. Our 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, without any further vote or
action by the stockholders. Our 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 Concur. We have no current plan to issue any shares of
preferred stock.
WARRANTS
As of February 28, 1999 we had outstanding warrants to purchase an
aggregate of 2,224,267 shares of our common stock.
ANTI-TAKEOVER PROVISIONS
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, the statute prohibits a publicly-held Delaware
corporation from entering into a "business combination" with any "interested
stockholder" for a three-year period after the date of the transaction in which
the person became an interested stockholder unless the business combination is
approved in a prescribed manner. A "business combination" includes a merger,
asset sale or transaction resulting in a financial benefit to an interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior, did own, 15% or
more of Concur's voting capital stock. Our certificate of incorporation and
bylaws do not exclude us from the restrictions imposed under Section 203. The
provisions of Section 203 may
72
<PAGE> 76
encourage companies interested in acquiring us to negotiate in advance with our
board of directors 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 Concur, which could depress
the market price of our common stock and which could deprive the stockholders of
opportunities to realize a premium on shares of our common stock held by them.
Our certification of incorporation and bylaws also 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. These provisions make it more difficult
for a third party to acquire a majority of our voting stock or effect a change
in control of Concur. See "Risk Factors--Our corporate governance structure may
delay or prevent our acquisition by another company."
REGISTRATION RIGHTS
Beginning in December 1999, the holders of 11,764,024 shares of our common
stock will have rights to require the registration of such shares under the
Securities Act. Subject to certain limitations, if requested by holders of such
shares, we must file a registration statement under the Securities Act covering
all securities requested to be included by all holders with registration rights.
In addition, if we propose to register any of our common stock, the holders of
stock with registration rights 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 will
be borne by us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Common Stock is Norwest Bank
Minnesota, National Association.
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<PAGE> 77
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 18,920,261 shares of common
stock outstanding (19,355,261 shares if the underwriters' over-allotment option
is exercised in full). Of this amount, the 2,900,000 shares offered hereby will
be available for immediate sale in the public market as of the date of this
prospectus. An additional 3,861,102 shares are not subject to restrictions and
will be available for sale in the public market as of the date of this
prospectus.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES
DAYS AFTER THE DATE OF ELIGIBLE FOR
THIS PROSPECTUS FUTURE SALE COMMENT
---------------------- ------------ -------
<S> <C> <C>
Immediately.................... 6,761,102 Freely tradable shares sold in the initial
public
offering and in this offering, and shares
salable under Rule 701 that are not
subject to lock-up agreements
June 14-July 16, 1999.......... 50,674 Shares salable under Rule 144 and Rule 145
not subject to 90-day lock-up agreements
from this offering; expiration of 180-day
lock-up agreements from our initial
public offering
90 days........................ 11,184,835 90-day lock-up agreements from this
offering
released
Over 90 days................... 923,650 Restricted securities held for one year or
less
</TABLE>
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 a number of shares that
does not exceed the greater of (a) 1% of the then outstanding shares of common
stock (approximately 189,203 shares immediately after the offering), or (b) 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. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about Concur.
A person or persons whose shares are aggregated who is not deemed to have been
our affiliate 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.
Concur, our directors, executive officers, and greater than 1% stockholders
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 90 days from the effective date of the
Registration Statement except that we may, without such consent, grant options
and sell shares pursuant to our stock plans.
We filed a registration statement on Form S-8 under the Securities Act to
register 5,445,086 shares of our common stock subject to outstanding stock
options or reserved for issuance under our stock and option plans, thus
permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act.
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<PAGE> 78
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC, U.S. Bancorp Piper
Jaffray Inc., Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
("Dain Rauscher Wessels") and FAC/Equities, a division of First Albany
Corporation, have severally agreed with Concur 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......................................
U.S. Bancorp Piper Jaffray Inc. ...........................
Dain Rauscher Wessels......................................
First Albany Corporation...................................
----------
Total............................................ 2,900,000
==========
</TABLE>
The representatives have advised Concur 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 completion of
this offering, the public offering price, concession and reallowance to dealers
may be reduced by the representatives of the underwriters. No such reduction
shall change the amount of proceeds to be received by Concur and the selling
stockholders as set forth on the cover page of this prospectus.
Over-Allotment Option. Concur has granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 435,000 additional shares of common stock at the same price per
share as Concur and the selling stockholders will receive for the 2,900,000
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
2,900,000 shares offered hereby. If purchased, such additional shares will be
sold by the underwriters on the same terms as those on which the 2,900,000
shares are being sold.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, Concur 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.
Lock-up Agreements. Under the terms of lock-up agreements, each officer and
director and certain security holders have agreed with the representatives of
the underwriters for a period of 90 days after the effective date of the
registration statement filed with the Securities and Exchange Commission in
connection with 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
75
<PAGE> 79
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, Concur has agreed that during the 90 days following the
effective date of this prospectus, Concur 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 (a) Concur's sales of shares in this offering, (b) the
issuance of common stock upon the exercise of outstanding options or warrants or
(c) Concur's issuance of options or shares under its 1998 Equity Incentive 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.
Persons and entities affiliated with Hambrecht & Quist LLC purchased an
aggregate of 25,225 shares of Concur's Series E preferred stock 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 Concur's initial public 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 Concur's initial public
offering, 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."
Stabilization. The representatives have advised Concur that, under
Regulation M under the Securities Exchange Act, certain persons participating in
this 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 this 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 this offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the representatives of the underwriters in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter or
syndicate member. The representatives of the underwriters have advised Concur
that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
Passive Market Making. In connection with this offering, certain
underwriters and selling group members (if any) who are qualified market makers
on the Nasdaq National Market may engage in passive market making transactions
in the common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Securities Exchange Act, during the business day prior to
the pricing of this offering,
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<PAGE> 80
before the commencement of offers or sales of the common stock. Passive market
makers must comply with applicable volume and price limitations and must be
identified as such. In general, a passive market maker must display its bid at a
price not in excess of the highest independent bid for such security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for Concur by Fenwick & West LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto,
California. Attorneys at Fenwick & West LLP own an aggregate of 4,190 shares of
our common stock.
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 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 in this prospectus, 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 Travel and Entertainment Management Process Study referred
to in this prospectus has been prepared by American Express.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and its exhibits and schedule. For further
information with respect to us and our common stock being offered, see the
registration statement and its exhibits and schedule. A copy of the registration
statement and its exhibits and schedule may be inspected without charge at the
public reference facilities maintained by the SEC located at Room 1024, 450
Fifth Street, Washington, D.C. 20549 and at the SEC'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. 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 SEC.
Information on the operation of the public reference room may be obtained by
calling the SEC at 1-800-SEC-0330. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including as, that file electronically
with the SEC.
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act and we file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information are available for inspection and copying at the SEC's public
reference rooms and the Web site of the SEC referred to above.
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<PAGE> 81
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONCUR TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of September 30, 1997 and
1998 and December 31, 1998................................ F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1997, and 1998 and for the three
months ended December 31, 1997 and 1998................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended September 30, 1996, 1997, and 1998 and
for the three months ended December 31, 1998.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1997 and 1998 and for the three months
ended December 31, 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-28
Balance Sheet as of December 31, 1997 and June 30, 1998..... F-29
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-30
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-31
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-32
Notes to Financial Statements............................... F-33
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Financial Statements (Unaudited)..... F-37
Pro Forma Consolidated Statements of Operations for the Year
Ended September 30, 1998 (Unaudited)...................... F-38
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)............................................... F-39
</TABLE>
F-1
<PAGE> 82
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Concur Technologies, Inc.
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' equity (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 18, as to which the
date is December 9, 1998
F-2
<PAGE> 83
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- DECEMBER 31,
1997 1998 1998
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 6,695 $ 15,629 $ 53,277
Accounts receivable, net of allowance for doubtful
accounts of $170 and $547 at September 30, 1997,
and 1998, respectively; $597 at December 31,
1998............................................ 4,365 4,988 3,172
Prepaid expenses and other current assets......... 165 536 313
Note receivable from stockholders................. -- 167 167
-------- -------- --------
Total current assets....................... 11,225 21,320 56,929
Equipment and furniture, net........................ 1,088 2,162 2,263
Deposits and other assets........................... 51 336 2,551
Note receivable from stockholders, net of current
portion........................................... -- 333 333
Capitalized technology and other intangible
assets............................................ -- 880 801
-------- -------- --------
Total assets............................... $ 12,364 $ 25,031 $ 62,877
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 1,082 $ 1,838 $ 2,540
Accrued liabilities............................... 1,294 3,850 6,214
Accrued commissions............................... 509 902 1,007
Current portion of accrued payment to
stockholders.................................... -- 167 167
Current portion of long-term debt................. 329 2,033 2,470
Current portion of capital lease obligations...... 351 1,004 1,288
Deferred revenues................................. 1,477 3,052 3,328
-------- -------- --------
Total current liabilities.................. 5,042 12,846 17,014
Accrued payment to stockholders, net of current
portion........................................... -- 333 333
Long-term debt, net of current portion.............. 2,171 5,632 5,040
Capital lease obligations, net of current portion... 1,516 2,127 1,978
Deferred rental expense............................. -- 183 183
Redeemable convertible preferred stock:
Issued and outstanding shares --
8,564,893 and 10,213,553 in 1997 and 1998,
respectively (Note 11)....................... 17,264 29,685 --
Redeemable convertible preferred stock warrants..... 81 444 --
Commitments
Stockholders' equity (deficit):
Preferred stock, par value $0.001 per share:
Authorized shares -- 5,000,000, no shares issued
and outstanding.............................. -- -- --
Common stock, par value $0.001 per share:
Authorized shares -- 60,000,000
Issued and outstanding shares -- 2,289,493 and
3,098,543 at September 30, 1997 and 1998,
respectively; 17,029,732 at December 31,
1998......................................... 259 6,276 76,398
Deferred stock compensation....................... -- (452) (384)
Accumulated deficit............................... (13,969) (32,043) (37,685)
-------- -------- --------
Total stockholders' equity (deficit)....... (13,710) (26,219) 38,329
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)............................... $ 12,364 $ 25,031 $ 62,877
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 84
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------- -----------------
1996 1997 1998 1997 1998
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Licenses......................... $ 1,717 $ 6,347 $ 11,696 $ 2,036 $ 4,045
Services......................... 242 1,923 5,463 1,079 1,960
------- ------- -------- ------- -------
Total revenues................ 1,959 8,270 17,159 3,115 6,005
Cost of revenues:
Licenses......................... 386 394 558 82 224
Services......................... 839 2,269 5,684 1,097 2,453
------- ------- -------- ------- -------
Total cost of revenues........ 1,225 2,663 6,242 1,179 2,677
------- ------- -------- ------- -------
Gross profit....................... 734 5,607 10,917 1,936 3,328
Operating expenses:
Sales and marketing.............. 2,936 5,896 12,353 2,206 4,687
Research and development......... 1,793 3,401 6,434 1,083 2,612
General and administrative....... 963 1,815 4,687 837 1,637
Acquired in-process technology
(Note 3)...................... -- -- 5,203 -- --
------- ------- -------- ------- -------
Total operating
expenses.............. 5,692 11,112 28,677 4,126 8,936
------- ------- -------- ------- -------
Loss from operations............... (4,958) (5,505) (17,760) (2,190) (5,608)
Interest income.................... 92 130 331 54 225
Interest expense................... (43) (88) (467) (135) (222)
Other expense, net................. (44) (61) (178) (12) (37)
------- ------- -------- ------- -------
Net loss........................... $(4,953) $(5,524) $(18,074) $(2,283) $(5,642)
======= ======= ======== ======= =======
Pro forma basic and diluted net
loss per share (unaudited)....... $ (1.58) $ (0.21) $ (0.40)
======== ======= =======
Shares used in calculation of pro
forma basic and diluted net loss
per share (unaudited)............ 11,419 10,863 13,968
======== ======= =======
Historical basic and diluted net
loss per share................... $ (2.17) $ (2.41) $ (7.45) $ (0.99) $ (1.01)
======= ======= ======== ======= =======
Shares used in calculation of
historical basic and diluted net
loss per share................... 2,282 2,288 2,425 2,298 5,570
======= ======= ======== ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 85
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK DEFERRED TOTAL
-------------------- STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT EQUITY (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)
Proceeds from initial public
offering, net of offering
costs (unaudited)........ 3,365,000 37,369 -- -- 37,369
Conversion of redeemable
convertible preferred
stock into common stock
(unaudited).............. 10,213,553 29,685 -- -- 29,685
Conversion of redeemable
convertible preferred
warrants into common
stock warrants
(unaudited).............. -- 444 -- -- 444
Proceeds from issuance of
common stock from
exercise of common stock
warrants (unaudited)..... 225,000 2,616 -- -- 2,616
Issuance of common stock
from net exercise of
common stock warrants
(unaudited).............. 33,537 -- -- -- --
Issuance of common stock
from exercise of stock
options (unaudited)...... 94,099 8 -- -- 8
Amortization of deferred
stock compensation
(unaudited).............. -- -- 68 -- 68
Net loss (unaudited)........ -- -- -- (5,642) (5,642)
---------- ------- ----- -------- --------
Balance at December 31, 1998
(unaudited)................. 17,029,732 $76,398 $(384) $(37,685) $ 38,329
========== ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 86
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------------
1996 1997 1998 1997 1998
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................................... $(4,953) $(5,524) $(18,074) $(2,283) $ (5,642)
Adjustments to reconcile net loss to net cash
used in operating activities:
Acquired in-process technology............... -- -- 5,203 -- 79
Amortization of deferred stock
compensation.............................. -- -- 409 -- 68
Warrant expense.............................. 5 53 23
Depreciation and amortization................ 144 393 629 124 277
Provisions for bad debts..................... 91 45 453 33 50
Other........................................ 17 -- 183 -- --
Changes in operating assets and liabilities:
Accounts receivable....................... (451) (3,901) (1,040) 146 1,766
Notes receivable from stockholders........ -- -- (500) -- --
Prepaid expenses and other assets......... 63 (84) (616) (43) (1,992)
Accounts payable.......................... (24) 454 756 (657) 702
Accrued liabilities....................... 597 927 2,535 637 2,469
Deferred revenues......................... 412 1,026 1,575 (274) 276
------- ------- -------- ------- --------
Net cash used in operating activities............ (4,099) (6,611) (8,464) (2,317) (1,947)
------- ------- -------- ------- --------
INVESTING ACTIVITIES
Purchases of equipment and furniture............. (420) (1,020) (40) (24) (6)
Payment in connection with acquisition of
7Software...................................... -- -- (130) -- --
------- ------- -------- ------- --------
Net cash used in investing activities............ (420) (1,020) (170) (24) (6)
------- ------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from initial public offering............ -- -- -- -- 37,369
Proceeds from exercise of preferred stock
warrants....................................... -- -- -- -- 2,616
Proceeds from sales leaseback transaction........ -- 1,800 192 192 --
Proceeds from capital lease financing............ -- 67 -- -- --
Proceeds from borrowings......................... 563 3,087 5,500 -- --
Payments on borrowings........................... (380) (925) (335) (82) (155)
Payment on capital leases........................ -- -- (500) (22) (237)
Issuance of common stock......................... 1 -- 13 3 8
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 91 39,601
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 3,144 1,010 8,934 (2,250) 37,648
Cash and cash equivalents at beginning of
period......................................... 2,541 5,685 6,695 6,695 15,629
------- ------- -------- ------- --------
Cash and cash equivalents at end of period....... $ 5,685 $ 6,695 $ 15,629 $ 4,445 $ 53,277
======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest........................... $ 27 $ 76 $ 398 $ 62 $ 180
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......................................... -- -- 1,572 478 372
Conversion of redeemable convertible preferred
stock and warrants into common stock and common
stock warrants................................. -- -- -- -- 29,992
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.)
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 and reincorporated in Delaware on November 25, 1998. Operations commenced
during 1994.
Unaudited Interim Financial Information
The financial information as of December 31, 1998 and for the periods ended
December 31, 1997 and 1998 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such dates and
the operations and cash flows for the periods then ended. Operating results for
the period ended December 31, 1998 are not necessarily indicative of results
that may be expected for the entire year.
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.
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 has been
modified by SOP 98-4 and SOP 98-9 as it relates to certain transactions. These
standards generally require revenues earned on software arrangements involving
multiple elements such as software products, upgrades, enhancements,
postcontract customer support, installation and
F-7
<PAGE> 88
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. Full guidelines
for SOP 97-2 and related modifications have not 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.
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.
F-8
<PAGE> 89
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 fiscal 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.
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
F-9
<PAGE> 90
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses are
translated at the average rates of exchange prevailing during the year. The
translation adjustment resulting from this process was insignificant at
September 30, 1997 and 1998, respectively and at December 31, 1998. Gains and
losses on foreign currency transactions are included in the consolidated
statement of operations as incurred. To date, gains and losses on foreign
currency transactions have not been significant.
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
F-10
<PAGE> 91
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
statements), SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information;" and SOP 97-2, "Software Revenue Recognition." Each of
these standards became 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 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 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.
F-11
<PAGE> 92
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
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.
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,
F-12
<PAGE> 93
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION (CONTINUED)
and (v) redesign and rewriting of the administrative functionality. Based on
management's initial 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.
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
--------------------
PRO
ACTUAL 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
F-13
<PAGE> 94
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION (CONTINUED)
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
In fiscal 1998, the Company had a $2.0 million line of credit for operating
needs. 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. In March 1999, the line of credit was increased to $4.0 million under
substantially similar terms and was amended to expire in March 2000.
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
F-14
<PAGE> 95
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
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 expired 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-15
<PAGE> 96
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (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.
F-16
<PAGE> 97
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
8. INCOME TAXES (CONTINUED)
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>
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.
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.
F-17
<PAGE> 98
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
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>
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>
During the three months ended December 31, 1998, common stock options for
797,265 shares were granted with a weighted average exercise price of $12.39;
options for 94,099 shares were exercised with a weighted average exercise price
of $0.09; and options for 14,394 shares were canceled with a weighted average
exercise price of $6.20; thereby resulting in 2,228,293 options outstanding at
December 31, 1998 with a weighted average exercise price of $5.05; of which
670,583 options were exercisable with a weighted average exercise price of
$0.19.
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
F-18
<PAGE> 99
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
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 in October 1999 and bear
interest at the higher of 5% or the minimum interest rate required to avoid
implied interest under the Internal Revenue Code, payable annually. These notes
are full recourse and are secured by the common stock purchased with the
proceeds thereof.
F-19
<PAGE> 100
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
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.
In connection with the initial public offering referred to in Note 19, all
redeemable convertible preferred stock automatically converted into common
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>
F-20
<PAGE> 101
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
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 were 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. At the time of the
initial public offering, the warrants were exercised.
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. 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. At
the time of the initial public offering, the warrants were exercised.
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, 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. 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 had 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 utilized the $1.5 million additional financing available
under the agreement. This commitment expired December 31, 1998 under the terms
of the agreement.
F-21
<PAGE> 102
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
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. As all of
the shares of Series E Preferred Stock are converted into shares of common stock
in connection with the initial public offering of the Company's common stock,
this warrant will automatically be converted into common stock warrants
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
initial public 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. At the time of the initial public
offering, the initial traunch of this warrant was exercised for 225,000 shares
of common stock. 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 converted into common stock
warrants upon the closing of the initial public offering of the Company's common
stock.
F-22
<PAGE> 103
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
12. STOCKHOLDERS' EQUITY
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1998
------------- ------------
<S> <C> <C>
Outstanding stock options................. 1,539,521 2,228,293
Stock Options available for grant:
1994 Stock Option Plan............... 354,768 327,612
1998 Equity Incentive Plan........... 3,240,000 2,564,285
Director Stock Option Plan........... 240,000 160,000
Employee Stock Purchase Plan.............. 320,000 320,000
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 --
Warrants to purchase common stock......... -- 2,237,454
---------- ---------
Total........................... 18,481,581 7,837,644
========== =========
</TABLE>
All of the shares of our common stock which remained available for issuance
under the 1994 Stock Option Plan when the 1998 Equity Incentive Plan became
effective, became available for issuance under the 1998 Equity Incentive Plan.
F-23
<PAGE> 104
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
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>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
---------------------------- -------------------
1996 1997 1998 1997 1998
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net loss........................ $(4,953) $(5,524) $(18,074) $ (2,283) $ (5,642)
======= ======= ======== ======== ========
Basic and diluted net loss per
common share.................. $ (2.17) $ (2.41) $ (7.45) $ (.99) $ (1.01)
======= ======= ======== ======== ========
Weighted average number of
common shares used for basic
and diluted per share
amounts....................... 2,282 2,288 2,425 2,298 5,570
======= ======= -------- -------- --------
Weighted average common shares
issuable upon pro forma
conversion of preferred
stock......................... 8,994 8,565 8,398
-------- -------- --------
Weighted average number of
shares used for pro forma per
share amounts................. 11,419 10,863 13,968
======== ======== ========
Pro forma basic and diluted net
loss per share................ $ (1.58) $ (0.21) $ (0.40)
======== ======== ========
</TABLE>
Options to purchase 2,228,253 shares of common stock with exercise prices
of $0.03 to $12.50 per share and warrants to purchase 2,237,454 shares of common
stock at a range of $3.65 to $85.00 per share were outstanding at December 31,
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.
F-24
<PAGE> 105
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
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.
Strategic Marketing Alliance Agreement with ADP, Inc.
In November 1998, the Company entered into a strategic alliance agreement
with ADP, Inc., a subsidiary of Automatic Data Processing, Inc., under which ADP
has agreed to refer potential customers for travel and entertainment expense
management software products and services exclusively to the Company. The
Company and ADP also agreed to jointly market the Company's travel and
entertainment expense report processing products and services to ADP customers.
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
F-25
<PAGE> 106
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
16. SIGNIFICANT AGREEMENTS (CONTINUED)
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 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 and received
proceeds of $41,000 under the terms of a sales referral agreement. 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. For the quarter ended December 31, 1998, the Company paid fees of
$55,000 and received proceeds totaling $219,000 under the terms of the sales
referral agreement. At December 31, 1998, accounts receivable from stockholders
was $0 and accounts payable to stockholders were $264,000.
18. 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.
19. INITIAL PUBLIC OFFERING ("IPO") AND FOLLOW-ON OFFERING (UNAUDITED)
On December 16, 1998, the Company issued 3,365,000 shares of its Common
Stock (including 465,000 shares issued upon the exercise of the underwriters'
over allotment option) at an initial public offering price of $12.50 per share.
The net proceeds to the
F-26
<PAGE> 107
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR EACH OF THE THREE MONTH PERIODS
ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED.) (CONTINUED)
19. INITIAL PUBLIC OFFERING ("IPO") AND FOLLOW-ON OFFERING (UNAUDITED)
(CONTINUED)
Company from the offering, net of offering costs were approximately $37.4
million. In connection with the IPO, warrants were exercised to purchase 225,000
shares of common stock at a price of $11.625 per share, resulting in additional
proceeds to the Company totaling $2.6 million. Concurrent with the IPO, each
outstanding share of the Company's redeemable convertible preferred stock was
automatically converted into one share of Common Stock and remaining preferred
stock warrants for 2,237,454 shares were automatically converted into warrants
for the purchase of 2,237,454 shares of common stock.
On March 15, 1999, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit the
Company to execute a follow-on offering of its common stock to the public.
F-27
<PAGE> 108
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-28
<PAGE> 109
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-29
<PAGE> 110
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-30
<PAGE> 111
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-31
<PAGE> 112
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-32
<PAGE> 113
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.
F-33
<PAGE> 114
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)
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.
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
------------ -----------
<S> <C> <C>
Computer equipment........... $20 $20
Furniture, fixtures, and
equipment.................. 2 12
--- ---
22 32
Accumulated depreciation..... (1) (4)
--- ---
$21 $28
=== ===
</TABLE>
F-34
<PAGE> 115
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)
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.
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.
F-35
<PAGE> 116
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)
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
------------ -----------
<S> <C> <C>
Deferred tax asset relating to net $ -- $ 52
operating loss 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-36
<PAGE> 117
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-37
<PAGE> 118
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-38
<PAGE> 119
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.
F-39
<PAGE> 120
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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-40
<PAGE> 121
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 to service
providers. Concur Technologies provides travel and entertainment expense
management and 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.
The Company also 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 dominant Web-based integrated solution
provider of employee-facing business applications throughout the extended
enterprise.
GATEFOLD
Graphic:
Box divided into 4 vertical sections and one horizontal section on the top. Next
to the first vertical section is a screen shot of Employee Desktop. The next
four are headed by "Preparation," "Approval," "Processing" and "Data Analysis
and Reporting," respectively. There are pictures of nine screen shots showing
various stages of the software. The top four screen shots describe CompanyStore
and the bottom four describe XMS. The top horizontal section includes the Concur
logo on the left and text on the right.
Text:
Right of Concur logo:
Concur products automate the preparation, approval, processing and data analysis
of travel and entertainment expense reports and procurement requisitions, using
a single user interface. By automating manual paper-based processes, customers
can reduce costs and collect and analyze data to consolidate purchases with
preferred vendors and to negotiate vendor discounts.
Under first vertical:
Employee Desktop gives employees instant access to expense reporting and
procurement applications, as well as status updates, frequently asked questions
and helpful tips about the applications.
Under "Preparation":
[CompanyStore logo]
Using CompanyStore's simple user interface, orders are placed on-line through a
customized electronic catalog.
[XMS logo]
Expense Reports are easily prepared using a checkbook-style user interface and
are prepopulated with corporate charge card data.
Under "Approval":
CompanyStore allows the enterprise to determine how the requisitions should be
processed.
XMS allows the enterprise to determine the approval process and automatically
flags those reports that are not in compliance.
Under "Processing":
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.
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.
Under "Data Analysis and Reporting":
Better data allows managers to determine how best to control costs, negotiate
more favorable supplier arrangements and consolidate vendors.
Provides access to expense trends and data, allowing consolidation of vendors
and negotiation of vendor discounts.
<PAGE> 122
PAGE 45
This graphic depicts the interconnection of various systems. A box with four
divisions, captioned "Concur Applications," appears at the top. The top division
contains the Employee Desktop logo and the bottom three divisions contain the
XMS logo, the CompanyStore logo and "Future Applications" in text. A box with
eight divisions, captioned "Concur Common Technology Platform," appears below
the "Concur Applications" box. The eight divisions contain the text captions
"Prepopulation," "Workflow/Routing," "Business Intelligence," "Security,"
"Messaging," "Business Rules," "User Management," and "Database." A box with
five divisions, captioned "ERP Platforms," appears below the "Concur Technology
Platform" box. The five divisions contain the text captions "SAP," "Oracle,"
"PeopleSoft," "Others" and "Legacy Systems." A box with four divisions,
captioned "E-Commerce," appears to the right of the other three boxes. The four
divisions contain the text captions "Travel Services," "Corporate Charge Card
Suppliers," "Vendors & Suppliers" and "Financial Institutions." "Concur Common
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: Three screen shots, one of an Employee Desktop page, one of a
CompanyStore page, and one of an XMS page. The Employee Desktop, CompanyStore
and XMS logos appear next to the corresponding screen shots. A large Concur logo
without the words "Concur-TM TECHNOLOGIES" in the center of the circle.
Text:
Top of page titled: Concur's Employee Desktop Suite.
Employee Desktop-TM integrates our employee-facing applications and provides a
business portal through which corporate customers can deliver information and
services to their employees.
CompanyStore-TM is an Intranet application for the procurement of goods and
services that reduces processing costs and enables customers to consolidate
purchases with preferred vendors.
The Xpense Management Solution-TM is the market leading travel expense
automation product.
BACK COVER
Graphic:
Concur logo with shadow. Dark background.
<PAGE> 123
LOGO
<PAGE> 124
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......... $ 33,899
NASD filing fee............................................. 12,694
Nasdaq National Market filing fee........................... 17,500
Accounting fees and expenses................................ 150,000
Legal fees and expenses..................................... 200,000
Printing and engraving expenses............................. 200,000
Road show expenses.......................................... 30,000
Transfer agent and registrar fees and expenses.............. 3,000
Custodian fees.............................................. 3,600
Miscellaneous............................................... 49,307
--------
Total............................................. $700,000
========
</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.
II-1
<PAGE> 125
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 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 has obtained, directors
and officers liability insurance.
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.................. 3.03
Company's Bylaws........................................ 3.04
Form of Indemnity Agreement............................. 10.06
</TABLE>
II-2
<PAGE> 126
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 March 15, 1999.
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>
CLASS OF NUMBER AGGREGATE FORM 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 28,125 -- -- --(1)
shares of Series C Preferred
Stock
10 investors July 10, 1996 Series C Preferred Stock 3,750,000 $ 7,500,000 Cash
2 investors December 31, Series C Preferred Stock 134,920 269,697 --(2)
1996
1 investor July 22, 1997 Warrants to purchase 67,815 -- -- --(3)
shares of Series D Preferred
Stock
10 investors July 23, 1997 Series D Preferred Stock 1,275,338 4,655,001 Cash
1 investor September 3, Warrants to purchase 14,000 -- -- --(4)
1997 shares of Series D Preferred
Stock
1 investor April 28, 1998 Warrants to purchase 13,187 -- -- --(5)
shares of Series E Preferred
Stock
1 investor May 8, 1998 Warrants to purchase 56,451 -- -- --(6)
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 Series E Preferred Stock 1,648,660 12,777,196 Cash
and August 11,
1998
1 investor August 11, 1998 Warrant to purchase 2,400,000 -- -- --(8)
shares of Series E Preferred
Stock
1 investor December 16, Exercise of warrant to 33,537 -- Net exercise
1998 purchase Common Stock
1 investor December 21, Exercise of warrant to 225,000 2,616,000 Cash
1998 purchase Common Stock
1 investor February 8, Exercise of warrant to 10,515 -- Net exercise
1999 purchase Common Stock
Officers, directors, September 30, Exercise of options to 203,566 22,178 Cash(9)
employees and other 1995 to January purchase Common Stock
eligible participants 12, 1999
</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.
II-3
<PAGE> 127
(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.
(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>
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 filed with the Delaware Secretary of State
immediately following the Company's Initial Public
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.
</TABLE>
II-4
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
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 (Incorporated herein by reference to Exhibit 10.01
to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998).
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.*
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.*
10.27 Third Amendment to Lease between Company and Carr America
Realty Corporation dated February 11, 1999.
</TABLE>
II-5
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
10.28 Sublease between Company and Emerging Technology Solutions
International (ETSI), Inc. dated February 1, 1999.
10.29 Third Amendment to Security and Loan Agreement and Addendum
to Security and Loan Agreement between Company and Imperial
Bank dated March 15, 1999.
10.30 Letter Agreement between Company and Bruce Chatterley dated
March 2, 1999.
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.
24.01 Power of Attorney (See page II-7 of the Registration
Statement)
</TABLE>
- -------------------------
* Incorporated herein by reference to the exhibit with the same number filed
with the Registrant's Registration Statement on Form S-1 (File No. 333-62299)
declared effective by the Securities and Exchange Commission on December 16,
1998.
+ Confidential treatment has been granted with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have been
filed separately with the Securities and Exchange Commission.
ITEM 17. UNDERTAKINGS
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 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> 130
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Redmond, State of
Washington, on the 17th day of March, 1999.
CONCUR TECHNOLOGIES, INC.
By: /s/ S. STEVEN SINGH
-----------------------------------
S. Steven Singh
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints S. Steven Singh and Sterling R. Wilson,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by the Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ S. STEVEN SINGH President, Chief March 17, 1999
- --------------------------------------------------- Executive Officer and
S. Steven Singh Director (principal
executive officer)
/s/ STERLING R. WILSON Chief Financial March 17, 1999
- --------------------------------------------------- Officer and Executive
Sterling R. Wilson Vice President of
Operations (principal
financial officer and
principal accounting
officer)
</TABLE>
II-7
<PAGE> 131
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ MICHAEL W. HILTON Chairman of the Board March 17, 1999
- --------------------------------------------------- of Directors and Chief
Michael W. Hilton Technical Officer
/s/ JEFFREY D. BRODY Director March 17, 1999
- ---------------------------------------------------
Jeffrey D. Brody
/s/ NORMAN A. FOGELSONG Director March 17, 1999
- ---------------------------------------------------
Norman A. Fogelsong
/s/ RUSSELL P. FRADIN Director March 17, 1999
- ---------------------------------------------------
Russell P. Fradin
/s/ EDWARD P. GILLIGAN Director March 17, 1999
- ---------------------------------------------------
Edward P. Gilligan
/s/ MICHAEL J. LEVINTHAL Director March 17, 1999
- ---------------------------------------------------
Michael J. Levinthal
/s/ JAMES D. ROBINSON III Director March 17, 1999
- ---------------------------------------------------
James D. Robinson III
</TABLE>
II-8
<PAGE> 132
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
- ------- ------------- ------------
<S> <C> <C>
1.01 Form of Underwriting Agreement .............................
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being issued ....................................
10.27 Third Amendment to Lease between Company and Carr America
Realty Corporation dated February 11, 1999 .................
10.28 Sublease between Company and Emerging Technology Solutions
International (ETSI), Inc. dated February 1, 1999 ..........
10.29 Third Amendment to Security and Loan Agreement and Addendum
to Security and Loan Agreement between Company and Imperial
Bank dated March 15, 1999 ..................................
10.30 Letter Agreement between Company and Bruce Chatterley dated
March 2, 1999 ..............................................
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 ........................
24.01 Power of Attorney (See page II-7 of the Registration
Statement)..................................................
</TABLE>
- -------------------------
<PAGE> 1
EXHIBIT 1.01
2,900,000 SHARES(1)
CONCUR TECHNOLOGIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
April __, 1999
BANCBOSTON ROBERTSON STEPHENS INC.
HAMBRECHT & QUIST LLC
U.S. BANCORP PIPER JAFFRAY INC.
DAIN RAUSCHER WESSELS
FIRST ALBANY CORPORATION
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Concur Technologies, Inc., a Delaware corporation (the
"Company"), and certain stockholders of the Company named in Schedule B hereto
(hereinafter called the "Selling Stockholders") address you as the
Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (hereinafter collectively called the "Underwriters") and
hereby confirm their respective agreements with the several Underwriters as
follows:
1. Description of Shares. The Company proposes to issue and sell
1,818,620 shares of its authorized and unissued Common Stock, $0.001 par value
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 1,081,380 shares of
the Company's authorized and outstanding Common Stock to the several
Underwriters. The 1,818,620 shares of Common Stock of the Company to be sold by
the Company are hereinafter called the "Company Shares" and the 1,081,380 shares
of Common Stock to be sold by the Selling Stockholders are hereinafter called
the "Selling Stockholder Shares." The Company Shares and the Selling Stockholder
Shares are hereinafter collectively referred to as the "Firm Shares." The
Company also proposes to grant to the Underwriters an option to purchase up to
435,000 additional shares of the Company's Common Stock (the "Option Shares"),
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common Stock
of the Company to be outstanding after giving effect to the sales contemplated
hereby, including the Shares, are hereinafter referred to as "Common Stock."
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders.
1. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-1 (File No.
333-_____) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses
(1) Plus an option to purchase up to 435,000 additional shares from the
Company to cover over-allotments.
<PAGE> 2
subject to completion and such abbreviated registration statements pursuant to
Rule 462(b) of the Rules and Regulations as may have been required prior to the
date hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement,
such amended prospectuses subject to completion and such abbreviated
registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses"), including all documents
incorporated by reference therein, and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has
been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancBoston Robertson
Stephens, on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the information required to be
included in any term sheet filed pursuant to Rule 434(b) or (c), as applicable,
of the Rules and Regulations pursuant to subparagraph (1), (4) or (7) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
the registration statement (including a final form of prospectus). If the
registration statement relating to the Shares has not been declared effective
under the Act by the Commission, the Company will prepare and promptly file an
amendment to the registration statement, including a final form of prospectus,
or, if BancBoston Robertson Stephens, on behalf of the several Underwriters,
shall agree to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules and Regulations. The term
"Registration Statement" as used in this Agreement shall mean such registration
statement, including financial statements, schedules and exhibits, in the form
in which it became or becomes, as the case may be, effective (including, if the
Company omitted information from the registration statement pursuant to Rule
430A(a) or files a term sheet pursuant to Rule 434 of the Rules and Regulations,
the information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such amendment
or the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); provided, however, that if in reliance on Rule 434 of the Rules
and Regulations and with the consent of BancBoston Robertson Stephens, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the term "Prospectus" shall mean the "prospectus subject to completion" (as
defined in Rule 434(g) of the Rules and Regulations) last provided to the
Underwriters by the Company and circulated by the Underwriters to all
prospective purchasers of the Shares (including the information deemed to be a
part of the Registration Statement at the time it became effective pursuant to
Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if any
revised prospectus shall be provided to the Underwriters by the Company for use
in connection with the offering of the Shares that differs from the prospectus
referred to in the immediately preceding sentence (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use. If in reliance on Rule 434 of the Rules and Regulations and with the
consent of BancBoston Robertson Stephens, on behalf of the several Underwriters,
the Company shall have provided to the Underwriters a term sheet pursuant to
Rule 434(b) or (c), as applicable, prior to the time that a confirmation is sent
or given for purposes of Section 2(10)(a) of the Act, the Prospectus and the
term sheet, together, will not be materially different from the prospectus in
the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, at
the time
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<PAGE> 3
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter or Selling Stockholder furnished
to the Company by such Underwriter or Selling Stockholder specifically for use
in the preparation thereof.
Any documents filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to or as of the Closing Date, when such
documents were filed (or, if any amendment with respect to any such document was
filed, when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act and the rules and regulations of the
Commission thereunder, any further such documents so filed, will, when they are
filed, conform in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder; no such document
when it is filed (or, if an amendment with respect to any such document was
filed, when such amendment was filed), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and no such further
amendment will contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), results of
operations, earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and its subsidiaries is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities which are material
to the conduct of its business, all of which are valid and in full force and
effect; neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other material agreement or instrument to which the Company or
any of its subsidiaries is a party or by which it or any of its subsidiaries or
their respective properties may be bound; and neither the Company nor any of its
subsidiaries is in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than Concur Technologies (UK) Ltd., Concur
Technologies Pty. Limited and 7Software, Inc.
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<PAGE> 4
(d) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification and contribution
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, (i) any material bond, debenture, note or other evidence of indebtedness,
or under any material lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other material agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective properties may be bound, (ii) the charter or
bylaws of the Company or any of its subsidiaries, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties. No
consent, approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or over their
respective properties is required for the execution and delivery of this
Agreement and the consummation by the Company or any of its subsidiaries of the
transactions herein contemplated, except such as may be required under the Act,
the Exchange Act, state or other securities or blue sky laws or the bylaws,
rules and regulations of the National Association of Securities Dealers, Inc.
(the "NASD"), all of which requirements have been satisfied in all material
respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, any of its subsidiaries or any of their respective officers or any of
their respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), results of operations, earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise or might materially and adversely affect their
properties, assets or rights, (ii) might prevent consummation of the
transactions provided herein, or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company or any of its
subsidiaries of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and (as of the date set forth therein) the
outstanding capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the instruments
defining the capitalization of the Company in all material respects); the Firm
Shares and the Option Shares to be purchased from the Company hereunder have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Firm
Shares or Option Shares to be purchased from the Company hereunder or the
issuance and sale thereof other than those that have been expressly waived prior
to the date hereof and those that will automatically expire upon or will not
apply to the consummation of the transactions contemplated on the Closing Date
(as defined in Section 3 hereof). No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale or transfer of the Shares except as may
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<PAGE> 5
be required under the Act, the Exchange Act or under state or other securities
or blue sky laws or the bylaws, rules and regulations of the NASD. All issued
and outstanding shares of capital stock of each subsidiary of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
and were not issued in violation of or subject to any preemptive right, or other
rights to subscribe for or purchase shares and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest. Except as disclosed in the Prospectus and the financial statements of
the Company, and the related notes thereto, included in the Prospectus, neither
the Company nor any of its subsidiaries has outstanding any options to purchase,
or any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) Ernst & Young LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of September 30, 1997 and 1998 and for each of the years in the three
(3) years ended September 30, 1998 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
auditors within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information (other than the selected and summary financial and
statistical data included in the Registration Statement), filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included or incorporated by
reference in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included or incorporated by reference in the Registration
Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
results of operations, earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise, (ii) any
transaction that is material to the Company and its subsidiaries considered as
one enterprise, except transactions entered into in the ordinary course of
business, (iii) any obligation, direct or contingent, that is material to the
Company and its subsidiaries considered as one enterprise, incurred by the
Company or its subsidiaries, except obligations incurred in the ordinary course
of business, (iv) any change in the capital stock or (other than through the
exercise of options or warrants disclosed in the Prospectus) outstanding
indebtedness of the Company or any of its subsidiaries that is material to the
Company and its subsidiaries considered as one enterprise, (v) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (vi) any loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material adverse effect
on the condition (financial or otherwise), results of operations, earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the condition (financial or otherwise),
results of operations, earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise, (ii) the
agreements to which the Company or any of its
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<PAGE> 6
subsidiaries is a party described in the Registration Statement and Prospectus
are valid agreements, enforceable by the Company and its subsidiaries (as
applicable), except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) each of the Company and its subsidiaries has
valid and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against the
Company or any of its subsidiaries that might have a material adverse effect on
the condition (financial or otherwise), results of operations, earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; and all tax liabilities are adequately provided
for on the books of the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and consistent
with insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), results of operations,
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(l) To the best of the Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, value added
resellers, subcontractors, authorized dealers or international distributors that
might be expected to result in a material adverse change in the condition
(financial or otherwise), results of operations, earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise. No collective bargaining agreement exists with any of the Company's
employees and, to the best of the Company's knowledge, no such agreement is
imminent.
(m) Each of the Company and its subsidiaries owns or
possesses adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), results of
operations, earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; except to the extent
described in the Registration Statement and the Prospectus, the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and except to the extent described in the Registration
Statement and the Prospectus, the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which, singly or
in the aggregate, if the subject of an
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<PAGE> 7
unfavorable decision, ruling or finding, might have a material adverse effect on
the condition (financial or otherwise), results of operations, earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(n) The Common Stock is registered pursuant to 12(g) of
the Exchange Act and is listed on the Nasdaq National Market, and the Company
has taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or delisting the
Common Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the NASD is contemplating terminating such
registration or listing.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(q) Neither the Company nor any of its subsidiaries has at
any time during the last five (5) years (i) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each Selling
Stockholder and each beneficial owner of 1% or more of the outstanding shares
of Common Stock have agreed in writing that each such person will not, for a
period of 90 days from the date that the Registration Statement is declared
effective by the Commission (the "Lock-up Period"), offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to (collectively, a "Disposition") any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to partners or stockholders of such person, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, or (iii)
with the prior written consent of BancBoston Robertson Stephens. The foregoing
restriction has been expressly agreed to preclude the holder of the Securities
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities during
the Lock-up Period, even if such Securities would be disposed of by someone
other than such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person has also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held by
such person except in compliance with this restriction. The Company has provided
to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the
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<PAGE> 8
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and stockholders have agreed to such
or similar restrictions, including the Investor Rights Agreement of the Company
(the "Lock-up Agreements") presently in effect or effected hereby. The Company
hereby represents and warrants that it will not release any of its officers,
directors or other stockholders from any Lock-up Agreements currently existing
or hereafter effected without the prior written consent of BancBoston Robertson
Stephens.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws, and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(u) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(w) The minute books of the Company provided to the
Underwriters' counsel contain a complete summary of all meetings, consents and
actions of the Board of Directors and shareholders of the Company since the time
of its incorporation, accurately reflecting all transactions referred to in such
minutes in all material respects.
(x) There are no issues related to the Company's, or any
of its subsidiaries', preparedness for the Year 2000 (including, without
limitation, as to Constituent Components, as defined below) that (i) are of a
character required to be described or referred to in the Registration Statement
or Prospectus or any document incorporated by reference therein by the
Securities Act or by the Exchange Act or the Rules and Regulations which have
not been accurately described in the Registration Statement or Prospectus or any
document incorporated by reference therein or (ii) might reasonably be expected
to result in a material adverse effect on the condition (financial or
otherwise), results of operations, earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
8
<PAGE> 9
"Constituent Component" means all software (including operating systems,
programs, packages and utilities), firmware, hardware, networking components,
and peripherals provided as part of the configuration. Except to the extent
disclosed in the Registration Statement, the Company has inquired of material
vendors as to their preparedness for the Year 2000 and has disclosed in the
Registration Statement or Prospectus any issues that might reasonably be
expected to result in any a material adverse effect on the condition (financial
or otherwise), results of operations, earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
II. Each Selling Stockholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that:
(a) Such Selling Stockholder now has and on the Closing
Date will have valid marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Stockholder or such
Selling Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing S. Steven Singh and Sterling Wilson as attorneys-in-fact
(collectively, the "Attorneys" and individually, an "Attorney") and a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") with Norwest Bank
Minnesota, N.A. Limited Partnership, as custodian (the "Custodian"); each of the
Power of Attorney and the Custody Agreement constitutes a valid and binding
agreement on the part of such Selling Stockholder, enforceable in accordance
with its terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and each of such Selling Stockholder's Attorneys, acting alone, is
authorized to execute and deliver this Agreement and the certificate referred to
in Section 6(h) hereof on behalf of such Selling Stockholder, to determine the
purchase price to be paid by the several Underwriters to such Selling
Stockholder as provided in Section 3 hereof, to authorize the delivery of the
Selling Stockholder Shares under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a stock
power or powers with respect thereto, to accept payment therefor, and otherwise
to act on behalf of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders
required for the execution and delivery by such Selling Stockholder of the Power
of Attorney and the Custody Agreement, the execution and delivery by or on
behalf of such Selling Stockholder of this Agreement and the sale and delivery
of the Selling Stockholder Shares under this Agreement (other than, at the time
of the execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws and the bylaws, rules and regulations of the NASD) have been
obtained and are in full force and effect; such Selling Stockholder, if other
than a natural person, has been duly organized and is validly existing in good
standing under the laws of the jurisdiction of its organization as the type of
entity that it purports to be; and such Selling Stockholder has full legal
right, power and authority to enter into and perform its obligations under this
Agreement and such Power of Attorney and Custody Agreement, and to sell, assign,
transfer and deliver the Shares to be sold by such Selling Stockholder under
this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as
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a bona fide gift or gifts, provided the donee or donees thereof agree in writing
to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such Selling Stockholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of BancBoston Robertson Stephens. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Stockholder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Such Selling
Stockholder also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the securities held by
such Selling Stockholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares and
securities which are convertible into Shares to be sold by such Selling
Stockholder under this Agreement, together with a stock power or powers duly
endorsed in blank by such Selling Stockholder, have been placed in custody with
the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each
Selling Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any material bond, debenture, note
or other evidence of indebtedness, or under any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder, or any Selling Stockholder Shares hereunder, may be
bound or, to the best of such Selling Stockholders' knowledge, result in any
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over such Selling Stockholder or over the
properties of such Selling Stockholder, or, if such Selling Stockholder is other
than a natural person, result in any violation of any provisions of the charter,
bylaws or other organizational documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will
not distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such
Selling Stockholder relating to such Selling Stockholder and the Selling
Stockholder Shares that is contained in the representations and warranties of
such Selling Stockholder in such Selling Stockholder's Power of Attorney or set
forth in the Registration Statement or the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date, was or will be,
true, correct and complete, and does not, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) will not,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make such information not
misleading.
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(j) Such Selling Stockholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the Closing
Date and will advise one of its Attorneys and BancBoston Robertson Stephens
prior to the Closing Date if any statement to be made on behalf of such Selling
Stockholder in the certificate contemplated by Section 6(h) would be inaccurate
if made as of the Closing Date.
(k) Such Selling Stockholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company or any of the other Selling Stockholders to the Underwriters
pursuant to this Agreement; such Selling Stockholder does not have, or has
waived prior to the date hereof, any registration right or other similar right
to participate in the offering made by the Prospectus, other than such rights of
participation as have been satisfied by the participation of such Selling
Stockholder in the transactions to which this Agreement relates in accordance
with the terms of this Agreement; and such Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus.
(l) Such Selling Stockholder is not aware (without having
conducted any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 2.I. above is untrue or
inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $________ per
share, the respective number of Firm Shares as hereinafter set forth and Selling
Stockholder Shares set forth opposite the names of the Company and the Selling
Stockholders in Schedule B hereto. The obligation of each Underwriter to the
Company and to each Selling Stockholder shall be to purchase from the Company or
such Selling Stockholder that number of Firm Shares or Selling Stockholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Stockholder Shares, as the case may be, set forth opposite the name of the
Company or such Selling Stockholder in Schedule B hereto as the number of Firm
Shares which is set forth opposite the name of such Underwriter in Schedule A
hereto (subject to adjustment as provided in Section 10) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder
Shares (or certificates representing securities convertible into such Shares)
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters drawn in
same-day funds, payable to the order of the Company with regard to the Shares
being purchased from the Company, and to the order of the Custodian for the
respective accounts of the Selling
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Stockholders with regard to the Shares being purchased from such Selling
Stockholders at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo
Alto, California (or at such other place as may be agreed upon among the
Representatives and the Company), at 7:00 A.M., San Francisco time (a) on the
third (3rd) full business day following the first day that Shares are traded,
(b) if this Agreement is executed and delivered after 1:30 P.M., San Francisco
time, the fourth (4th) full business day following the day that this Agreement
is executed and delivered or (c) at such other time and date not later than
seven (7) full business days following the first day that Shares are traded as
the Representatives and the Company and the Attorneys may determine (or at such
time and date to which payment and delivery shall have been postponed pursuant
to Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date;" provided, however, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $______ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over-allotment by the
Underwriters, and under all the paragraphs under the caption "Underwriting" in
any Preliminary Prospectus and in the Prospectus constitutes the only
information furnished by the Underwriters to the Company for inclusion in any
Preliminary Prospectus, the Prospectus or the Registration Statement, and you,
on behalf of the respective Underwriters, represent and warrant to the Company
and the Selling Stockholders that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereto, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such
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Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; as promptly as practicable upon your
request, it will prepare and file with the Commission any amendments or
supplements to the Registration Statement or Prospectus which, in the reasonable
opinion of counsel for the several Underwriters ("Underwriters' Counsel"), may
be necessary or advisable in connection with the distribution of the Shares by
the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare as promptly as practicable upon request, but
at the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act; and
it will file no amendment or supplement to the Registration Statement or
Prospectus which shall not previously have been submitted to you a reasonable
time prior to the proposed filing thereof or to which you shall reasonably
object in writing, subject, however, to compliance with the Act and the Rules
and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term sheet
under Rule 434, in no event later than the first (1st) full business day
following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if BancBoston Robertson
Stephens, on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the Company shall provide to you
copies of a Preliminary Prospectus updated in all respects through the date
specified by you in such quantities as you may from time to time reasonably
request.
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(e) Unless the requirement has otherwise been satisfied in
full, the Company will make generally available to its securityholders as soon
as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of three (3) years after the date
hereof, the Company will furnish (or, in the case of unaudited quarterly
reports, make available) to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal year,
and will furnish to you and the other several Underwriters hereunder, upon
request (i) concurrently with furnishing such reports to its stockholders,
statements of operations of the Company for each of the first three (3) quarters
in the form furnished to the Company's stockholders, (ii) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the NASD, (v) every material press
release and every material news item or article in respect of the Company or its
affairs which was prepared by the Company or any of its subsidiaries and
generally released to stockholders; and (vi) any additional information of a
public nature concerning the Company or its subsidiaries, or its business which
you may reasonably request. During such three (3) year period, if the Company
shall have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement pursuant
to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(b), the Company will reimburse the several Underwriters
for all out-of-pocket expenses (including fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith consult with you concerning the timing and substance of a press
release or other public statement, if any, responding to or commenting on such
rumor, publication or event.
(k) During the Lock-up Period, the Company will not,
without the prior written consent of BancBoston Robertson Stephens, effect the
Disposition of, directly or indirectly, any Securities other than (i) the sale
of the Firm Shares and the Option Shares to be sold by the Company hereunder,
(ii) the issuance of shares pursuant to the exercise of outstanding options or
warrants, (iii) the issuance of options or shares under
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<PAGE> 15
the Company's presently authorized 1998 Equity Incentive Plan, 1998 Employee
Stock Purchase Plan and 1998 Directors Stock Option Plan (collectively, the
"Stock Plans") or (iv) the issuance of shares of Common Stock as consideration
for the acquisition of one or more corporations or entities provided that (1)
such shares in the aggregate represent less than 5% (or, following 90 days after
the date of the Prospectus, 7.5%) of the total number of shares of the Company's
Common Stock outstanding immediately after giving effect to the sales of Common
Stock contemplated hereby and (2) subject to applicable pooling of interests
rules, the Company has taken reasonable steps to ensure that such shares may not
be resold during the 90 days after the date of the Prospectus (provided, that
during the Lock-Up Period, the Company will in any event consult with BancBoston
Robertson Stephens concerning any such acquisition a reasonable time in advance
thereof).
(l) During a period of ninety (90) days from the effective
date of the Registration Statement, the Company will not file a registration
statement registering shares under any employee benefit plan other than the
Stock Plans.
(m) The Company will file all documents required to be
filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act
in the manner and within the time periods required by the Exchange Act.
5. Expenses.
(a) The Company and the Selling Stockholders agree with
each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the printing of this Agreement, the
Blue Sky Survey and, as applicable, the Agreement Among Underwriters,
the Selected Dealer Agreement, any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments
related to any of the foregoing; the issuance and delivery of the Shares
hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for
the Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus, and any amendments
or supplements to any of the foregoing; NASD filing fees and the cost of
qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of
Underwriters' Counsel in connection with such NASD filings and blue sky
qualifications); and all other expenses directly incurred by the Company
and the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of
the sale of the Shares by the Selling Stockholders will be borne
collectively by the Company and the Selling Stockholders. The provisions
of this Section 5(a)(i) are intended to relieve the Underwriters from
the payment of the expenses and costs which the Selling Stockholders and
the Company hereby agree to pay, but shall not affect any agreement
which the Selling Stockholders and the Company may make, or may have
made, for the sharing of any of such expenses and costs. Such agreements
shall not impair the obligations of the Company and the Selling
Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
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reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with
interest, compounded daily, determined on the basis of the prime rate
(or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which
represents the base rate on corporate loans posted by a substantial
majority of the nation's thirty (30) largest banks (the "Prime Rate").
Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(iii) In addition to their other obligations under
Section 8(b) hereof, each Selling Stockholder agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8(b) hereof relating to such
Selling Stockholder, it will reimburse the Underwriters on a monthly
basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of such Selling
Stockholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Selling
Stockholders, together with interest, compounded daily, determined on
the basis of the Prime Rate. Any such interim reimbursement payments
which are not made to the Underwriters within thirty (30) days of a
request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(b) In addition to their other obligations under Section
8(c) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant
to the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii), 5(a)(iii), and 5(b) hereof and will not resolve the ultimate propriety
or enforceability of the obligation to indemnify for expenses which is created
by the provisions of Sections 8(a), 8(b), and 8(c) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(e)
hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the
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<PAGE> 17
Company and the Selling Stockholders of their respective obligations hereunder
and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 12:00 P.M., San Francisco time, on the date following the date of
this Agreement, or such later date as shall be consented to in writing by you;
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company, any Selling Stockholder or any Underwriter, threatened
by the Commission, and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), results of operations,
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
(d) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Stockholders, dated
the Closing Date or such later date on which Option Shares are to be purchased,
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company has the corporate power and
corporate authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
results of operations, earnings, operations or business of the Company
and its subsidiaries considered as one enterprise. To such counsel's
knowledge, the Company does not own or control, directly or indirectly,
any corporation, association or other entity other than Concur
Technologies (UK) Ltd., Concur Technologies Pty. Limited and 7Software,
Inc.;
(iv) The authorized and, to such counsel's
knowledge, issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein; the issued and outstanding shares of capital stock
of the Company (including the Selling Stockholder Shares) have been duly
and validly issued, are fully paid and nonassessable and, to such
counsel's knowledge, have not been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first
refusal, or other similar right;
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<PAGE> 18
(v) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be
duly and validly issued and fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right;
(vi) The Company has the corporate power and
corporate authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by it
hereunder;
(vii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(viii) Based solely upon oral advice of the
Commission Staff, the Registration Statement has become effective under
the Act and, to such counsel's knowledge, (a) no stop order suspending
the effectiveness of the Registration Statement has been issued and (b)
no proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(ix) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (in each case other than the
financial statements (including notes and supporting schedules) and
financial and statistical data included therein, as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and
Regulations;
(x) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by
such counsel and accurately summarizes such matters and conclusions in
all material respects; and the form of certificate evidencing the Common
Stock and filed as an exhibit to the Registration Statement complies
with Delaware law;
(xi) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to therein or
filed as required;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification and contribution
obligations hereunder, concerning which no opinion need be expressed)
does not as of the Closing Date (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any agreement, instrument or document filed
as an exhibit to the Registration Statement or any applicable statute,
rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any United States, Delaware,
California, or Washington court, government or
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<PAGE> 19
governmental agency or governmental body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations;
(xiv) No consent, approval, authorization or order
of or qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries, or
over any of their properties or operations is necessary in connection
with the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or such as
may be required under state or other securities or blue sky laws or the
bylaws, rules or regulations of the NASD in connection with the purchase
and the distribution of the Shares by the Underwriters;
(xv) To such counsel's knowledge, there are no
legal or governmental proceedings pending or overtly threatened against
the Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement or the Prospectus by the Act or
the Rules and Regulations, other than those described therein;
(xvi) To such counsel's knowledge, neither the
Company nor any of its subsidiaries is presently (a) in material
violation of its respective charter or bylaws, or (b) in material breach
of any applicable statute, rule or regulation known to such counsel or,
to such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries, or over any of their properties or operations;
(xvii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of Common
Stock or other securities of the Company have registration rights with
respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the
Company having rights known to such counsel to registration of such
shares of Common Stock or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent
to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights;
(xviii) Each Selling Stockholder which is not a
natural person has full right, power and authority to enter into and to
perform its obligations under the Power of Attorney and Custody
Agreement to be executed and delivered by it in connection with the
transactions contemplated herein; the Power of Attorney and Custody
Agreement of each Selling Stockholder that is not a natural person has
been duly authorized by such Selling Stockholder; the Power of Attorney
and Custody Agreement of each Selling Stockholder has been duly executed
and delivered by or on behalf of such Selling Stockholder; and the Power
of Attorney and Custody Agreement of each Selling Stockholder
constitutes the valid and binding agreements of such Selling
Stockholder, enforceable in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
(xix) Each of the Selling Stockholders has full
right, power and authority to enter into and to perform its obligations
under this Agreement and to sell, transfer, assign and deliver the
Shares to be sold by such Selling Stockholder hereunder;
(xx) This Agreement has been duly authorized by
each Selling Stockholder that is not a natural person and has been duly
executed and delivered by or on behalf of each Selling Stockholder; and
(xxi) Upon the delivery of and payment for the
Shares to be sold by the Selling Stockholders as provided in this
Agreement, and upon registration of such Shares in the stock records of
the Company in the names of the Underwriters or their nominees and the
issuance by the
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<PAGE> 20
Company of stock certificates therefor, each of the Underwriters will
receive valid title to the Shares purchased by it from such Selling
Stockholder, free and clear of any adverse claim (other than any right,
title or interest in or to the Shares granted by the Underwriters to any
person or entity in connection with the sale of such Shares to the
public), provided that (a) the Underwriters are purchasing such Shares
in good faith, and (b) the Underwriters, together with their nominees
(if any), hold such Shares without notice of any adverse claim.
In addition, such counsel shall state that such counsel
has participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and Prospectus and related matters were discussed,
and although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel which causes them to believe that, at
the time the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and (in the case of an Option Closing) on
any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including notes and supporting schedules and the other financial and
statistical information therein, as to which such counsel need express no
comment) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or at the Closing Date or (in the case of an Option
Closing) any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
California and Delaware upon opinions of local counsel, and as to questions of
fact upon representations or certificates of officers of the Company, the
Selling Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
In rendering their opinions, such counsel may rely solely
and state that they are relying solely upon the representations and warranties
of such Selling Stockholders in this Agreement and the Power of Attorney and
Custody Agreement referred to in paragraph (xviii), insofar as any of the same
relate to factual matters, above, provided such counsel shall state that they
believe that both you and they are justified in relying upon such
representations and warranties.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, in form and substance satisfactory
to you, with respect to the sufficiency of all such corporate proceedings and
other legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have reasonably requested for the
purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Ernst & Young LLP addressed to the Underwriters, dated the Closing
Date or such later date on which Option Shares are to be purchased, as the case
may be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the
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<PAGE> 21
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), results of operations, earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from Ernst
& Young LLP shall be addressed to or for the use of the Underwriters in form and
shall be in substance satisfactory to the Underwriters and shall (i) represent,
to the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
September 30, 1998 and related consolidated statements of operations,
stockholders' equity, and cash flows for the twelve (12) months ended September
30, 1998, (iii) state that Ernst & Young LLP has performed the procedures set
out in Statement of Auditing Standards No. 71 ("SAS 71") for a review of Interim
Financial Information and providing the report of Ernst & Young as described in
SAS 71 on the Financial Statements for each of the first-quarter periods ended
December 31, 1997 and 1998 ("Quarterly Financial Statements"), (iv) state that
in the course of such review, nothing came to their attention that leads them to
believe that any material modifications need to be made to any of the Quarterly
Financial Statements in order for them to be in compliance with generally
accepted accounting principles consistently applied across the periods
presented, and (v) address other matters agreed upon by Ernst & Young LLP and
you. In addition, you shall have received from the Company a letter by Ernst &
Young LLP stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of September 30, 1998, did not disclose any material weaknesses in internal
controls.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct in all material respects,
as if made on and as of the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be, and the Company
has complied in all material respects with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained all material information
required to be included therein by the Act and the Rules and Regulations
and in all material respects conformed to the requirements of the Act
and the Rules and Regulations, the Registration Statement did not, and
any amendment or supplement thereto, does not include any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, the Prospectus did not, and any amendment or supplement
thereto, does not include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, and, since the
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effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there
has not been (a) any material adverse change in the condition (financial
or otherwise), results of operations, earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise, (b) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered
into in the ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company and its subsidiaries
considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock (other than exercises of
options and warrants) or outstanding indebtedness of the Company or any
of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
of its subsidiaries, or (f) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), results of operations,
earnings, operations, business or business prospects of the Company and
its subsidiaries considered as one enterprise.
(h) You shall be satisfied that, and you shall have
received a certificate, dated the Closing Date, from the Attorneys for each
Selling Stockholder to the effect that, as of the Closing Date, they have not
been informed that:
(i) The representations and warranties made by
such Selling Stockholder herein are not true or correct in any material
respect on the Closing Date; or
(ii) Such Selling Stockholder has not complied,
in any material respect, with any obligation or satisfied any condition
which is required to be performed or satisfied on the part of such
Selling Stockholder at or prior to the Closing Date.
(i) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company, each Selling
Stockholder, the beneficial owners of 1% or more shares of Common Stock in
writing prior to the date hereof that each such person will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or stockholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, or (iii) with the prior written consent of
BancBoston Robertson Stephens. The foregoing restriction shall have been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction.
(j) The Company and the Selling Stockholders shall have
furnished to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person)) as to the accuracy of the representations
and warranties of the Company and the Selling Stockholders herein, as to the
performance by the Company and the Selling Stockholders of its their respective
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<PAGE> 23
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(k) The Shares shall have been approved for inclusion on
the Nasdaq National Market, subject only to official notice of issuance.
All such opinions, certificates, letters and documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling Stockholders
will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
_________ Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares
to be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the purchase
price therefor by the several Underwriters drawn in same-day funds, payable to
the order of the Company. In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment shall
take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo
Alto, California 94306 or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered
will be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
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<PAGE> 24
(b) Upon exercise of any option provided for in Section
5(a) hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be reasonably
satisfactory in form and substance to you and to Underwriters' counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in order to evidence the accuracy and completeness of
any of the representations, warranties or statements, the performance of any of
the covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter or Selling Stockholder furnished
to the Company by such Underwriter or Selling Stockholder, directly or through
you, specifically for use in the preparation thereof and, provided further, that
the indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities (or actions in respect thereof), joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E or the Bylaws of the NASD) under
the Act, the Exchange Act or otherwise, arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such Selling
Stockholder herein contained, (ii) any untrue
24
<PAGE> 25
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (ii) and (iii) of
this Section 8(b) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished about such
stockholder to the Company or such Underwriter by such Selling Stockholder,
directly or through such Selling Stockholder's representatives, specifically for
use in the preparation thereof, and agrees to reimburse each Underwriter for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement provided in this Section 8(b)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any losses, claims, damages,
liabilities or actions based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state therein a
material fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time required by
the Act and the Rules and Regulations, unless such failure is the result of
noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder against any
losses, claims, damages or liabilities, joint or several, to which the Company
or such Selling Stockholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Stockholder
for any legal or other expenses reasonably incurred by the Company and each such
Selling Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, each Selling Stockholder and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
25
<PAGE> 26
to any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 8 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that, except as set forth in Section 8(f) hereof, the Underwriters severally and
not jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the public offering price,
and the Company and the Selling Stockholders are responsible for the remaining
portion, provided, however, that (i) no Underwriter shall be required to
contribute any amount in excess of the amount by which the underwriting discount
applicable to the Shares purchased by such Underwriter exceeds the amount of
damages which such Underwriter has otherwise required to pay, and (ii) no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. The contribution agreement in this Section
8(e) shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) Solely to the extent indemnity, contribution or
reimbursement claims arise out of or are based upon any breaches of the
representation and warranty contained in Section 2II(l) hereof ("Specified
Claims"), the aggregate liability of each Selling Stockholder with respect to
such Specified Claims under the representations, warranties and agreements
contained herein and under the indemnity, contribution and reimbursement
agreements contained in the provisions of Section 5 and this Section 8 shall be
limited to an amount equal to (a) the lesser of (i) the public offering price of
the Selling Stockholder Shares sold by such Selling Stockholder to the
Underwriters minus the amount of the underwriting discount paid thereon to the
Underwriters by such Selling Stockholder (the "Selling Stockholder Proceeds"),
and (ii) the result obtained by
26
<PAGE> 27
multiplying the aggregate liability of all indemnifying parties by the
proportion which such Selling Stockholder's Selling Stockholder Proceeds bear to
the total of all Selling Stockholder Proceeds of all Selling Stockholders, in
either case, less (b) any applicable United States federal and state income
taxes incurred by such Selling Stockholder as a result of the sale of such
Selling Stockholder's Selling Stockholder Shares pursuant to this Agreement. In
any event, the aggregate liability of each Selling Stockholder under all of the
representations, warranties and agreements contained herein and under the
indemnity, contribution and reimbursement agreements contained in the provisions
of Section 5 and this Section 8 shall be limited to an amount equal to such
Selling Stockholder's Selling Stockholder Proceeds. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter
27
<PAGE> 28
or underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in Section
12 before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company or any Selling Stockholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
28
<PAGE> 29
If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11, you
shall promptly notify the Company by telephone, telecopy, telegram or electronic
mail transmission, in each case confirmed by letter. If the Company shall elect
to prevent this Agreement from becoming effective, the Company shall promptly
notify you by telephone, telecopy, telegram or electronic mail transmission, in
each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancBoston Robertson Stephens, 555 California
Street, Suite 2600, San Francisco, California 94104, telecopier number (415)
781-0278, Attention: Allison Bennington, Managing Director, Senior Equities
Counsel; if sent to the Company, such notice shall be mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to
Concur Technologies, Inc., 14715 Northeast 95th Street, Redmond, Washington
98052, telecopier number (425) 702-8808, Attention: S. Steven Singh, President
and Chief Executive Officer; if sent to one or more of the Selling Stockholders,
such notice shall be sent mailed, delivered, telegraphed (and confirmed by
letter) or telecopied (and confirmed by letter) to S. Steven Singh and Sterling
Wilson, as Attorneys-in-Fact for the Selling Stockholders, at Concur
Technologies, Inc., 14715 Northeast 95th Street, Redmond, Washington 98052,
telecopier number (425) 702-8808.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Stockholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by BancBoston Robertson Stephens on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
29
<PAGE> 30
If the foregoing correctly sets forth the understanding among the
Company the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
CONCUR TECHNOLOGIES, INC.
By
-----------------------------------------
Sterling Wilson
Chief Financial Officer and Vice
President of Operations
SELLING STOCKHOLDERS
By
-----------------------------------------
Sterling Wilson
Attorney-in-Fact for the Selling
Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
BANCBOSTON ROBERTSON STEPHENS INC.
HAMBRECHT & QUIST LLC
U.S. BANCORP PIPER JAFFRAY INC.
DAIN RAUSCHER WESSELS
First Albany Corporation
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By
----------------------------------------
Authorized Signatory
<PAGE> 31
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
<S> <C>
BancBoston Robertson Stephens Inc.......................................
Hambrecht & Quist LLC...................................................
U.S. Bancorp Piper Jaffray Inc..........................................
Dain Rauscher Wessels...................................................
First Albany Corporation................................................
Total...........................................................
============
</TABLE>
1
<PAGE> 32
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
COMPANY
SHARES
COMPANY TO BE SOLD
- ------- ----------
<S> <C>
Concur Technologies, Inc................................................ 1,818,620
Total........................................................... 1,818,620
============
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SELLING STOCKHOLDER
NAME OF SELLING STOCKHOLDERS SHARES TO BE SOLD
- ---------------------------- -------------------
<S> <C>
Brentwood Associates VI, L.P. .......................................... 500,000
S. Steven Singh ........................................................ 55,000
Michael Hilton ......................................................... 60,000
RRE Investors, L.P. .................................................... 208,043
RRE Investors Fund, L.P. ............................................... 114,537
Andrew Dent ............................................................ 22,500
Melissa Widner ......................................................... 22,500
Jon T. Matsuo .......................................................... 26,200
Sterling R. Wilson ..................................................... 22,600
Rajeev Singh ........................................................... 15,000
Comdisco, Inc. ......................................................... 35,000
---------
Total........................................................... 1,081,380
=========
</TABLE>
1
<PAGE> 1
Exhibit 5.01
March 17, 1999
Concur Technologies, Inc.
6222 185th Avenue NE
Redmond, Washington 98052
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
filed by you with the Securities and Exchange Commission (the "COMMISSION") on
or about March 17, 1999, (the "REGISTRATION STATEMENT") in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of
2,900,000 shares of the Common Stock (the "STOCK") of Concur Technologies, Inc.,
a Delaware corporation (the "COMPANY"), 1,818,620 of which shares will be issued
and sold by the Company and 1,081,380 of which shares are presently issued and
outstanding and will be sold by certain selling stockholders named in the
Registration Statement (the "SELLING STOCKHOLDERS").
In rendering this opinion, we have examined the following:
(1) the Registration Statement, together with the Exhibits filed as a part
thereof;
(2) the Prospectus prepared in connection with the Registration Statement;
(3) the Form 8-A for Registration of Certain Classes of Securities
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934 filed with the Commission on December 7, 1998;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors of the Company that are contained
in your minute books and the minute books of your predecessor, Concur
Technologies, Inc., a Washington corporation ("CONCUR WASHINGTON"),
that are in our possession;
(5) the stock records for both the Company and Concur Washington that have
been provided to us (consisting of a list of stockholders and a list
of option and warrant holders respecting the Company's capital stock
and of any rights to purchase capital stock that were prepared by
you);
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations;
(7) the Letter of Transmittal and Custody Agreement and the Irrevocable
Power of Attorney signed by the Selling Stockholders in connection
with the sale of the Stock described in the Registration Statement;
and
(8) the agreements under which the Selling Stockholders acquired the
shares of Common Stock to be sold by them in connection with the
Registration Statement.
In addition, we have verified with your transfer agent that the number of
shares of Common Stock outstanding does not exceed 18,000,000 shares.
<PAGE> 2
Concur Technologies, Inc.
March 17, 1999
Page 2
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from records included in
the documents referred to above. We have made no independent investigation or
other attempt to verify the accuracy of any of such information or to determine
the existence or non-existence of any other factual matters; however, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America, the
currently effective Delaware General Corporation Law (without reference to case
law or secondary sources) and the existing laws of the State of California.
Based upon the foregoing, it is our opinion that the 1,081,380 shares of
the Stock to be sold by the Selling Stockholders pursuant to the Registration
Statement are validly issued, fully paid and nonassessable and that the
1,818,620 shares of the Stock to be issued and sold by the Company, when issued
and sold in the manner referred to in the relevant Prospectus associated with
the Registration Statement, will be validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Prospectus constituting a part thereof and any amendments
thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
<PAGE> 1
EXHIBIT 10.27
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE ("Amendment"), is made and entered into
this 11 day of February, 1999, between CarrAmerica Realty Corporation, a
Maryland corporation, as Landlord, and Concur Technologies, Inc. (f/k/a
Portable Software Corporation), a Delaware corporation, as Tenant.
WHEREAS, by written Lease dated October 31, 1997, as amended by First
Amendment to Lease dated April 10, 1998, and Second Amendment to Lease dated
September 22, 1998 (the "Lease"), Landlord leased to Tenant those certain
premises consisting of 43,046 rentable square feet and commonly known as
Building B, 6222-185th Avenue NE, Redmond, Washington 98052 (the "Premises").
The Premises are part of a Project known as Redmond Hilltop, located at 6222
and 6244 185th Avenue NE, Redmond, Washington 98052. The Project is legally
described on Appendix F hereto;
WHEREAS, Tenant also desires to lease from Landlord, and Landlord
desires to lease to Tenant, certain additional space in Building C of the
Project, subject to the remaining terms hereof; and
WHEREAS, the parties desire to amend the Lease to provide for the
addition of Building C space to the Premises, and otherwise as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual terms
and conditions herein, the parties agree as follows:
1. Lease of Additional Space. Landlord leases to Tenant, and Tenant
takes from Landlord, effective February 1, 1999, 38,395 rentable square feet
located in Building C of the Project (the "Additional Premises"). The
Additional Premises are outlined on Appendix A hereto. Except as specifically
provided herein as to the Additional Premises, and except as provided in the
Schedule as to the existing Building B Premises, as amended by paragraph 4
hereof, and in Appendixes C and E to the Lease, the term "Premises," as used in
the Lease, shall be deemed to include the Additional Premises.
2. Term. The Commencement Date of the addition of the Additional
Premises shall be February 1, 1999. The Term of the Lease shall be extended
from the original termination date of January 31, 2003, to May 31, 2005.
3. Premises Leased "AS IS". Landlord leases the Additional Premises to
Tenant, and Tenant accepts the Premises from Landlord, "AS IS", without any
obligation on Landlord's part to alter, remodel, improve, repair or decorate
any part of the Additional Premises. Throughout the Term, Tenant shall maintain
the Additional Premises in their condition existing on the Additional Premises
Commencement Date, loss or damage caused by the elements, ordinary wear, and
fire and other casualty excepted.
Third Amendment to Lease - 1
02/11/99
<PAGE> 2
7. Tenant Improvements and Allowance. Tenant contemplates making certain
initial, general improvements and alterations to the Additional Premises (the
"General Work"), as well as certain modifications to the approximately 6,482
square foot shipping and receiving area located on the northeast corner of the
first floor of the Additional Premises, as identified on the attached Appendix
A (the "Shipping Area Work"). The Shipping Area Work includes painting and
installation of carpet and partition walls, so as to improve and upgrade the
Shipping Area to standard office space similar to the rest of the Premises. All
Work shall be performed in compliance with Section 5 of the Lease, including,
without limitation, Landlord's prior written approval of the plans and
specifications for the same, and shall be completed no later than June 1, 2000.
Landlord agrees to provide tenant improvement allowances for the Work as
follows: For the General Work, up to $100,000 (the "General Allowance"), and
for the Shipping Area Work, up to $9.00 per square foot (the "Shipping Area
Allowance"). The respective Allowances shall be payable by Landlord within
thirty (30) days of (a) Tenant's completion of the Work in accordance with the
approved plans and specifications; (b) Tenant's submission to Landlord of
contractors' invoices with respect to the cost of the Work; and (c) Tenant's
delivery of lien releases or waivers reasonably satisfactory to Landlord.
8. Real Estate Broker. As to the Additional Premises, Tenant represents to
Landlord that Tenant has not dealt with any real estate broker with respect to
this Lease except for Puget Sound Properties (whose commissions in the amount
of $20,000 shall be paid by Landlord), and no other broker is in any way
entitled to any broker's fee or other payment arising from Tenant's actions in
connection with this Lease. Tenant shall indemnify and defend Landlord against
any claims by any other broker or third party for any payment of any kind owing
as a result of Tenant's actions in connection with this Lease Amendment.
9. No Other Modifications. Except as expressly set forth herein, the
parties' Lease, as previously amended, shall remain unmodified and shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Lease effective the date first above written.
Landlord: CarrAmerica Realty Corporation, Tenant: Concur Technologies, Inc.
a Maryland corporation a Delaware corporation
By: /s/ PHILIP L. HAWKINS By: /s/ ANNE KROGER
---------------------------- ----------------------------
Printed: Philip L. Hawkins Printed: Anne Kroger
----------------------- -----------------------
Chief Operating Officer
Its: Its: Director of Finance
---------------------------- ---------------------------
Date: 2/22/99 Dated: 2/11/99
-------------------------- -------------------------
Third Amendment to Lease - 3
02/11/99
<PAGE> 3
ADDENDUM 1
RIGHT OF FIRST OFFER
Subject to Subsection B below, and subject to any expansion or renewal
options of any current tenant in the Building (a "Prior Tenant"), or the right
of Landlord to extend the Lease of any current tenant in the Building, Landlord
hereby grants to Tenant for the term of the Lease a right of first offer to
lease any available space in the Building (collectively, the "ROFO Space"), to
be exercised in accordance with Subsection A below.
A. If and when any ROFO Space becomes available for lease to anyone other
than a Prior Tenant, Landlord shall so notify Tenant in writing ("Landlord's
ROFO Notice") identifying the available ROFO Space (the "Subject ROFO Space").
Landlord's ROFO Notice may be given in advance of such availability and shall
contain the terms upon which Landlord intends to offer the Subject ROFO Space
for lease to the market. Tenant shall notify Landlord within ten (10) days of
receipt of Landlord's ROFO Notice whether it desires to lease the Subject ROFO
Space on the terms set forth in Landlord's ROFO Notice. If Tenant does not
notify Landlord within said 10-day period that it will lease the Subject ROFO
Space, Tenant shall be deemed to have refused the Subject ROFO Space. After any
refusal, Tenant shall have no further right of first offer for such Subject ROFO
Space and Landlord shall be free to lease such space to any party for any term
and upon any terms it desires. Provided, however, that Landlord will not lease
the ROFO space to any other tenant on economic terms which are materially more
favorable to such other tenant without again making the space available to
Tenant. As used herein, "materially more favorable" shall mean essential
economic terms which are more favorable to other tenant by at least 5%. If
Tenant exercises its right of first offer with respect to the Subject ROFO
Space, such space shall be added to the Premises for all purposes of this lease
for the remaining Term of the Lease on (a) the terms specified in Landlord's
ROFO Notice, and (b) the terms of this Lease to the extent that they do not
conflict with the terms specified in Landlord's ROFO Notice, except that the
terms of Landlord's ROFO Notice shall not apply during any Renewal Term, and
instead, the terms of the Lease applying to the remainder of the Premises during
the Renewal Term shall also apply to the Subject ROFO Space.
B. Tenant's right of first offer is subject to the conditions that: (i) on
the date that Tenant delivers its notice exercising its right of first offer,
Tenant is not in default under this Lease after the expiration of any
applicable notice and cure periods, and (ii) Tenant shall not have assigned the
Lease, or sublet any portion of the Premises under a sublease which is in
effect at any time during the period commencing with Tenant's delivery of its
notice and ending on the date the ROFO Space is added to the Premises other
than a sublease of that portion of the Premises of approximately 15,000 s.f.
located on the 2nd floor.
C. Promptly after Tenant's exercise of its right of first offer, Landlord
shall deliver to Tenant an amendment to the Lease to reflect changes in the
Premises, Base Rent, Tenant's Proportionate Share and any other appropriate
terms changed by the addition of the ROFO Space. Within 15 days thereafter,
Tenant shall execute and return the amendment and Landlord shall promptly
execute the amendment and return it to Tenant. Tenant's failure to execute and
return the
Third Amendment to Lease - 4
02/11/99
<PAGE> 4
amendment to Landlord shall entitle Landlord to terminate this ROFO upon
written notice to Tenant, at Landlord's election.
Third Amendment to Lease - 5
02/11/99
<PAGE> 5
[FLOOR PLAN]
APPENDIX A
PLAN OF THE ADDITIONAL PREMISES
PAGE 1 OF 2
<PAGE> 6
APPENDIX F
LEGAL DESCRIPTION OF REAL PROPERTY
Lot 2, City of Redmond Short Plat Number SPL 91-0009, recorded under Recording
Number 9111159007; said abort plat being a portion of the southwest quarter of
Section 7, Township 25 North, Range 6 East, W.M., in King County, Washington.
Third Amendment to Lease - 7
02/11/99
<PAGE> 7
DISTRICT OF COLUMBIA )
) ss.
)
I CERTIFY that I know or have satisfactory evidence that Philip L. Hawkins
is the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument,
and acknowledged it as the Chief Operating Officer of Carr Redmond Corporation,
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
DATED: February 22, 1999
/s/ ALICE ANNE ARTH
----------------------------------------
Alice Anne Arth
----------------------------------------
(Print Name)
NOTARY PUBLIC in and for the District
of Columbia, residing at Washington, DC
My appointment expires _________________
My Commission Expires April 30, 2003
Third Amendment to Lease - 8
02/11/99
<PAGE> 8
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I CERTIFY that I know or have satisfactory evidence that Anne Kroger is the
person who appeared before me, and acknowledged that he signed this instrument,
on oath stated that he was authorized to execute the instrument, and
acknowledged it as the Director of Finance of Concur Technologies, Inc. to be
the free and voluntary act of such party for the uses and purposes mentioned in
the instrument.
DATED: February 22, 1999
/s/ LISA FOYSTON
----------------------------------------
Lisa Foyston
----------------------------------------
(Print Name)
NOTARY PUBLIC in and for the State of
Washington, residing at Seattle
My appointment expires 10-14-2000
Third Amendment to Lease - 9
02/11/99
<PAGE> 1
EXHIBIT 10.28
SUBLEASE
1. PARTIES
This Sublease is entered into as of FEBRUARY 1, 1999, by and between
CONCUR TECHNOLOGIES, INC., A DELAWARE CORPORATION, as "Sublessor", and EMERGING
TECHNOLOGY SOLUTIONS INTERNATIONAL (ETSI), INC., a WASHINGTON CORPORATION, as
"Sublessee". This is a Sublease of a portion of the premises that are the
subject of that Master Lease dated October 31, 1997 by and between CARRAMERICA
(Landlord) and CONCUR TECHNOLOGIES, INC., FORMERLY KNOWN AS PORTABLE SOFTWARE
CORPORATION (Tenant). A copy of said Master Lease is attached hereto, marked
Exhibit A (the "Master Lease"), and incorporated herein by reference.
2. PROVISIONS CONSTITUTING SUBLEASE
(a) This Sublease is subject to all of the terms and conditions of the
Master Lease attached as Exhibit A, except as specifically exempted
herein and Sublessee shall assume and perform the obligations of
Sublessor as Lessee in said Master Lease, to the extent such terms and
conditions are applicable to the Sublease premises. Sublessee shall
not commit or permit to be committed on the Sublease Premises any act
of omission which shall violate any term or condition of the Master
Lease.
(b) All the terms and conditions contained in the Master Lease in Exhibit
A are incorporated herein, except for the following: Schedule 1-12 on
pages 2 and 3, Section 2: Rent (1) Base Rent, Section 20: Security
Deposit, Appendix A: Plan of the Premises, Appendix C, C1 and C2:
Tenant Improvement Agreement, Appendix E: Commencement Date
Confirmation; Appendix F: Legal Description of Real Property; Addendum
1: Extension Option; Addendum 2; Revision of Space Pocket Option.
3. PREMISES
Sublessor leases to Sublessee and Sublessee hires from said Sublessor the
following described premises situated in the City of REDMOND, County of KING,
State of WASHINGTON, described as, consisting of second floor office area in
the building located at 6224 185th Avenue Northeast, Redmond, Washington, as
depicted on attachment Exhibit "B" (the Sublease Premises"), which Sublessor
believes (but does not warrant) to have a rentable area of approximately 15,448
square feet.
4. CONDITION OF PREMISES
Sublessor shall deliver the Sublease Premises "as is". There is no tenant
improvement allowance for this Sublease. Sublessee may use the current data
communications wiring at no additional cost or charge to the Sublessee.
Sublessor makes no representation, and specifically disclaims all warranties,
whether expressed and implied by operation of law as to the data communications
wiring including without limitation any warranty, relating to its performance
or fitness for Sublessee's intended use. Sublessee shall return the wiring to
the Sublessor at the end of the term in substantially the same condition as
upon the Commencement Date ordinary wear and tear and casualty damages excepted.
5. TERM
5.1 Term. The term of this Sublease shall be for a period commencing on
February 1, 1999, and ending on April 30, 2000, unless sooner
terminated pursuant to any provision hereof.
5.2 Possession. Sublessee shall be entitled to possession of the Sublease
Premises upon the commencement date of this Sublease. Sublessee may
continue to occupy the first floor of the building located at 6224
185th Avenue, NE Redmond, Washington as depicted on attachment Exhibit
"C" through February 21, 1999.
6. RENT
6.1 BASE RENT. Sublessee shall pay to Sublessor as rent for the Sublease
Premises as follows:
Commencing on February 1, 1999 and continuing to February 28, 1999,
Sublessee shall pay CarrAmerica Realty Corporation $47,994 as
monthly base rent. For the period March 1, 1999 and continuing to
March 31, 1999: Sublessee shall pay Sublessor $47,994 as monthly base
rent. From the period beginning April 1, 1999 and continuing through
April 30, 2000, Sublessee shall pay Sublessor base rent in equal
monthly installments of Nineteen thousand three hundred ten dollars
($19,310).
<PAGE> 2
Base rent shall be paid in advance, on the first day of each month
of the term hereof. Rent shall be payable without notice or demand
and without any deduction, offset, or abatement in lawful money of
the United States of America to Sublessor at the address stated
herein or to such other persons or at such other places as Sublessor
may designate in writing.
6.2 OPERATING EXPENSES. Commencing on February 1, 1999 and continuing to
February 28, 1999, Sublessee shall pay CarrAmerica Realty
Corporation $12,738.38 as monthly operating expenses. For the period
March 1, 1999 and continuing to March 31, 1999, Sublessee shall pay
Sublessor $12,738.38, as monthly operating expenses Commencing on
April 1, 1999, and continuing on the first day of each calendar
month with monthly payments of Base Rent, Sublessee shall pay to
Sublessor, as additional rent hereunder, an amount equal to the
Sublessee's Pro Rata Share of Building Operating Expenses payable
under the Master Lease, based on rentable square feet. Sublessee's
pro rata share shall be calculated by Sublessor based upon Lessor's
estimate of Sublessor's share of Pro Rata Share of Building
Operating Expenses as furnished to Sublessor under the Master Lease.
Sublessor estimates, based on information provided by Lessor, that
Sublessee's Pro Rata Share of the Building Operating Expenses for
1999 will be approximately $3.98 per square foot, or $5,125.21 per
month, exclusive of direct janitorial services which are to be
arranged and paid directly by the Sublessee and Sublessor for their
respective Premises. As and when adjustments between estimated and
actual Building Operating Expenses are made by Lessor under the
Master Lease, the obligations of Sublessor and Sublessee hereunder
shall be adjusted in a like manner. If any such adjustment shall
occur after the expiration or earlier termination of the Term, then
the obligations of Sublessor and Sublessee shall survive such
expiration or termination. Sublessor shall furnish Sublessee with
copies of all statements submitted by Lessor of actual or estimated
Building Operating Expenses during the Term.
7. SECURITY DEPOSIT
Sublessee shall deposit with Sublessor, at lease execution, the sum of
$38,620 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by any reason of Sublessee's
default, or to compensate Sublessor for any loss or damage which Sublessor may
suffer thereby. If Sublessor so uses or applies all of any portion of said
deposit, Sublessee shall, within ten (10) days after written demand therefor,
deposit cash with Sublessor in an amount sufficient to restore said deposit to
the full amount hereinabove stated and Sublessee's failure to do so shall be a
breach of this Sublease, and Sublessor may at it's option, terminate this
Sublease. Sublessor shall not be required to keep said deposit separate from its
general accounts. If Sublessee performs all of the Sublessee's obligations
hereunder, said deposit or so much thereof as had not theretofore been applied
by Sublessor shall be returned, without payment of interest for it's use, to
Sublessee (or, at Sublessee's option, to the last assignee, if any, of
Sublessee's interest hereunder) within ten (10) days after the expiration of the
term hereof, or after Sublessee has vacated the Premises, whichever is later.
8. DEFAULT
In the event of default by Tenant or any other dispute relating to the
interpretation or enforcement of this Sublease, the parties agree to submit to
the personal jurisdiction of the courts of the State of Washington and the
federal courts in the State of Washington, and venue shall be laid in King
County, Washington, or in federal district court for the Western District of
Washington.
9. USE
The Sublease Premises shall be used and occupied only for general office
and uses, and for no other purpose without prior written consent of Sublessor.
Sublessee's business shall be established and conducted throughout the term
hereof in a first class manner. Sublessee shall not use the Sublease Premises
for, or carry on, or permit to be carried on, any offensive, noisy, or dangerous
trade, business, manufacture or occupation or permit any auction sale to be held
or
<PAGE> 3
conducted on or about the Sublease Premises. Sublessee shall not do or suffer
anything to be done upon the Sublease Premises, which will cause structural
injury to the Sublease Premises, or the building of which the Sublease Premises
form a part. The Sublease Premises shall not be overloaded and no machinery,
apparatus or other appliance shall be used or operated in or upon the Sublease
Premises which will in any manner injure, vibrate or shake the Sublease
Premises or the building of which the Sublease Premises form a part. No use
shall be made of the Sublease Premises which will in any way impair the
efficient operation of the sprinkler system (if any) within the building
containing the Sublease Premises. Sublessee shall not leave the Sublease
Premises unoccupied or vacant during the term. No musical instrument of any
sort, or any noise-making devise will be operated or allowed upon the Sublease
Premises. Sublessee shall not use or permit the use of the Sublease Premises or
any part thereof for any purpose which will increase the existing rate of
insurance upon the building of which the Sublease Premises form a part or on
any part thereof. If any act on the part of Sublessee or use of the Sublease
Premises by the Sublessee shall cause, directly or indirectly, any increase of
Sublessor's insurance expense, Sublessee shall pay said additional expense to
Sublessor upon demand. No such payment by Sublessee shall limit Sublessor in
the exercise of any other rights or remedies, or constitute a waiver of
Sublessor's right to require Sublessee to discontinue such act or use.
10. SHARED ACCESS, PARKING, SECURITY
Sublessee shall have the right to use three (3) unreserved parking spaces
per 1000 rentable square feet under this Sublease. The lobby area shall be used
"in common" with other tenants. Sublessee shall be responsible for securing the
Sublease Premises from the lobby area. Sublessee shall hold Sublessor harmless
from any loss of or damage to Sublessee's property arising from a breach to the
building security as a result of an act on the part of the Sublessee.
11. NOTICES
All notices or demands of any kind required or desired to be given by
Sublessor or Sublessee hereunder shall be in writing and shall be deemed
delivered forty-eight (48) hours after depositing the notice or demand in the
United States mail, certified or registered, postage prepaid, addressed to the
Landlord or Tenant respectively at the addresses set forth after it's signature
at the end of the Sublease, or to such other address as Sublessor may designate
by prior notice to Sublessee.
SUBLESSOR:
CONCUR TECHNOLOGIES, INC. Address: 6222 185th Ave NE
---------------------------
By: /s/ Anne Kroger Redmond, WA 98052
------------------------------------- ---------------------------
By: Anne Kroger, Director of Finance
------------------------------------- ---------------------------
SUBLESSEE
EMERGING TECHNOLOGY
SOLUTIONS INTERNATIONAL, INC. Address: 6244 185th N.E.
---------------------------
By: /s/ Donald S. Jones Redmond, WA 98052
------------------------------------- ---------------------------
By: Donald S. Jones
------------------------------------- ---------------------------
<PAGE> 4
STATE OF WASHINGTON )ss
)ss.
COUNTY OF KING )ss
On this 26th day of February, 1999, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn as such,
personally appeared Clete Casper, to me known to be the Vice President and
Market Officer of CarrAmerica Realty Corporation, the corporation that executed
the within and foregoing instrument, and acknowledged the said instrument to
be the free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned, and on oath stated that he/she was authorized to
execute said instrument, and that the seal affixed is the corporate seal of
said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
/s/ LISA FOYSTON
-----------------------------
Signature
Lisa Foyston
-----------------------------
Printed Name
[SEAL] NOTARY PUBLIC in and for the State of
Washington residing at King County
My commission expires: 10-14-2000
<PAGE> 5
CONSENT OF LANDLORD
(Sublease)
Subject to the conditions set forth herein, the undersigned (sometimes
referred to herein as the "Landlord") hereby consents to the attached Sublease
Agreement (defined below) dated February 1, 1999 between Concur Technologies,
Inc., a Delaware corporation ("Sublessor") and Emerging Technology Solutions
International (ETSI), Inc., a Washington corporation ("Sublessee"), and all its
terms (the "Sublease Agreement"). This Consent does not release or discharge
Sublessor from any liability as lessee under that certain Lease dated October
31, 1997 between Landlord and Sublessor (the "Lease") including, without
limitation, the obligation to pay Rent. This consent is granted by Landlord
subject to the following terms and conditions:
1. Sublessee shall not assign the Sublease Agreement nor sublet the
premises described in the Sublease Agreement (the "Subleased Premises") in
whole or in part; and shall not permit Sublessee's interest in the Sublease
Agreement to be vested in any third party by operation of law or otherwise.
2. This Consent shall not be deemed to be a consent to any subsequent
assignment or subletting. Sublessor shall not make any subsequent amendment to
the Sublease Agreement without Landlord's prior written consent, which consent
shall not be unreasonably withheld. Landlord shall not be deemed to have waived
any rights under the Lease by virtue of this Consent.
3. The Sublease Agreement is in all respects subordinate to the terms of
the Lease. Insofar as the specific terms of the Sublease Agreement purport to
amend or modify or are in conflict with the specific terms of the Lease, the
terms of the Lease shall control. Landlord assumes no liability whatsoever on
account of anything contained in the Sublease Agreement.
4. Any rights under the Sublease Agreement may be enforced only against
Sublessor, and Sublessee shall have no right to enforce any of Sublessor's
rights under the Lease against Landlord by virtue of the Sublease Agreement,
this Consent, or otherwise.
IN WITNESS WHEREOF, the undersigned has executed this Consent of Landlord
as of this 26th day of February, .
LANDLORD:
CARRAMERICA REALTY
CORPORATION
By: /s/ CLETE CASPER
-------------------------------------
Its: Vice President Market Officer
-----------------------------------
<PAGE> 6
[BLUEPRINT]
CARRAMERICA -- REDMOND EAST BUILDING "C"
FLOOR TWO
APRIL 03, 1998
<PAGE> 7
[DIAGRAM]
CARRAMERICA - REDMOND EAST BUILDING "C"
FLOOR ONE
APRIL 03, 1998
Exhibit C
<PAGE> 8
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I CERTIFY that I know or have satisfactory evidence that Anne Kroger is
the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument,
and acknowledged it as the Director of Finance of Concur Technologies, Inc., to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
DATED: February 12, 1999
/s/ LISA FOYSTON
----------------------------------------
Lisa Foyston
----------------------------------------
(Print Name)
NOTARY PUBLIC in and for the
[SEAL] State of Washington, residing
at Seattle
My appointment expires 10-14-2000
<PAGE> 9
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I CERTIFY that I know or have satisfactory evidence that Donald Jones is
the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument,
and acknowledged it as the President/CEO of Emerging Technology Solutions to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
DATED: February 12, 1999
/s/ LISA FOYSTON
----------------------------------------
Lisa Foyston
----------------------------------------
(Print Name)
NOTARY PUBLIC in and for the
[SEAL] State of Washington, residing
at Seattle
My appointment expires 10-14-2000
<PAGE> 1
EXHIBIT 10.29
Third Amendment to Security and Loan Agreement and Addendum to
Security and Loan Agreement
This Third Amendment ("Amendment") amends that certain Security and Loan
Agreement ("SLA") and the Addendum to Security and Loan Agreement ("Addendum")
dated as of September 3, 1997, between Concur Technologies, Inc., formerly known
as Portable Software Corporation, ("Borrower") and Imperial Bank ("Bank"), as
amended by letter agreement dated January 15, 1998, by Second Amendment to Loan
Documents dated as of April 28, 1998, and by letter agreements dated November 4,
1998, December 22, 1998, and February 12, 1999 (collectively the SLA and the
Addendum, as amended, are referred to herein as the "Agreement") as follows:
1. The dollar amount "$2,000,000" in Paragraph 1 of the SLA is hereby
amended to read as $4,000,000."
2. The following sentence is hereby added to the end of Paragraph 1 of
the SLA to read in its entirety as follows:
"Advances will be made hereunder without regard to the Borrowing Base
calculation (defined above) provided, (i) Borrowings hereunder (excluding
the outstanding balance of Letters of Credit issued hereunder) does not
exceed $1,000,000 and (ii) Borrower is not in default of this Agreement."
3. The amended date "March 15, 1999" in Paragraph 2 of the Addendum is
hereby further amended to read as "March 14, 2000."
4. The dollar amount of "$500,000" in Paragraph 2 of the Addendum is
hereby amended to read as "$1,000,000" and the date, originally shown therein
as "September 2, 1998" is hereby amended to read as "March 14, 2000."
5. Paragraph 6 of the Addendum is hereby amended to read in its
entirety as follows:
"Bank agrees to amend the interest rate on the Loan Account as follows:
Interest on the Loan Account shall be payable monthly and calculated on a
360 day-year basis at the Bank's Prime Rate (floating), as it may vary
from time to time."
6. The following entities are hereby added to Table 1 in Paragraph
7.c. of the Addendum: Merck, Sharpe and Dome (Australia), Broken Hill Property
(Australia), Cadence (UK), BOC Edwards (UK), Andrews Corp. (Scotland), Motorola
Electronics (Singapore), Ontario Ministry (Canada), Monsanto Services
International (Belgium), and Solutia Services International (Belgium).
<PAGE> 2
Third Amendment to Security and Loan Agreement
and Addendum to Security and Loan Agreement
Concur Technologies, Inc.
March 15, 1999
Page 2
7. The dollar amount "$300,000" in Paragraph 7.c. of the Addendum is
hereby amended to read as "$500,000."
8. A new Paragraph 7A is hereby added to the Addendum to read in its
entirety as follows:
"Accounts due to service and maintenance contracts to be considered
Eligible Accounts (subject to the above restrictions) provided that
their renewal rate is 85% or greater on a rolling 12-month basis".
9. A new Paragraph 8.e. is hereby added to the Addendum to read in its
entirety as follows:
"YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable,
have reviewed the areas within their operations and business which
could be adversely affected by, and have developed or are developing a
program to address on a timely basis, the Year 2000 Problem and have
made related appropriate inquiry of material suppliers and vendors,
and based on such review and program, the Year 2000 Problem will not
have a material adverse effect upon its financial condition,
operations or business as now conducted. 'Year 2000 Problem' means the
possibility that any computer applications or equipment used by
Borrower may be unable to recognize and properly perform date
sensitive functions involving certain dates prior to and any dates on
or after December 31, 1999."
<PAGE> 3
Third Amendment to Security and Loan Agreement
and Addendum to Security and Loan Agreement
Concur Technologies, Inc.
March 15, 1999
Page 3
10. The first sentence of Paragraph 9.b. of the Addendum is hereby
amended to read in its entirety as follows:
"Create, incur, assume or permit to exist any indebtedness for
borrowed monies other than loans from Bank except obligations now
existing as shown in financial statement dated June 30, 1997, and
except those to third party equipment lessors (provided that the
aggregate outstanding at any one time does not exceed $7.5 million,
including current and future sale-leaseback agreements and equipment
leasing facilities with Comdisco Ventures, Inc.) and the debt due to
Comdisco Ventures, Inc. as evidenced by the $1.5 million and $3.5
million subordinated promissory notes ("Permitted Indebtedness")."
11. The following two sentences are hereby added to the end of Paragraph
9.e. of the Addendum to read in their entireties as follows:
"Notwithstanding the foregoing, acquisition of assets which result in
the issuance of new equity stock of Borrower not exceeding 20% of the
outstanding number of shares immediately preceding said acquisition
shall be permitted provided that: i) Borrower retains controlling
interest of the surviving entity; ii) no more than $10,000,000 of the
total price of acquisitions during the term of the Line of Credit
shall be paid in cash; and iii) such acquisitions do not cause a
financial covenant violation. In the event Bank approval is required,
Bank agrees to respond in writing, within (3) three business days of
receipt of the written request and any information Bank, in its sole
discretion, deems necessary to make a decision."
12. Paragraph 11 of the Addendum is hereby amended to read in its
entirety as follows:
"Borrower affirmatively covenants that so long as any loans,
obligations or liabilities remain outstanding or unpaid to Bank, it
will:
a. At all times maintain a liquidity ratio (defined as cash
plus availability under the Line divided by all debt due Bank) of at
least 2.00:1.00.
b. At all times maintain a maximum ratio of total debt to
tangible net worth not to exceed 1.25 to 1.00. Total debt to be
defined as all Borrower's liabilities less deferred revenues
(attributable to maintenance and service contracts), warranty
allowance, and indebtedness satisfactorily subordinated to the debt
due Bank. Tangible Net Worth is total shareholder's equity less
intangible assets plus debt satisfactorily subordinated to the debt
due Bank.
<PAGE> 4
Third Amendment to Security and Loan Agreement
and Addendum to Security and Loan Agreement
Concur Technologies, Inc.
March 15, 1999
Page 4
c. Minimum net sales (total sales less returns and warranty
allowances) of $6,000,000 for the fiscal quarter ending March 31, 1999;
$8,100,000 for the fiscal quarter ending June 30, 1999; $10,400,000 for
the fiscal quarter ending September 30, 1999, and $10,400,000 for the
fiscal quarter ending December 31, 1999.
d. As soon as it is available, but not later than 10 days after and
as of the end of each fiscal quarter, deliver to Bank an accounts
receivable aging, accounts payable aging, and borrowing base certificate
in form of Exhibit A (attached), certified by an officer of Borrower.
Reporting to increase to monthly upon advances pursuant to the Security
and Loan Agreement being subject to the Borrowing Base:
e. As soon as it is available, but not later than 45 days after and
as of the end of each fiscal quarter, deliver to Bank a financial
statement (10-Q report) consisting of a balance sheet and profit and loss
statement in form satisfactory to Bank.
f. As soon as it is available, but not later than 45 days after and
as of the end of each fiscal quarter, deliver to Bank a Compliance
Certificate in the form of Exhibit B (attached) certified by an officer of
Borrower.
g. As soon as it is available, but not later than 90 days after the
end of Borrower's fiscal year, deliver to Bank a report of audit of
Borrower's financial statements together with changes in financial
position certified without negative qualification by an independent
certified public accountant selected by Borrower but acceptable to Bank,
including a 10-K report.
h. As soon as it is available, but not later than 45 days after and
as of the end of each fiscal quarter, deliver to Bank a Maintenance and
Service Contract renewal report, satisfactory to Bank.
i. On a quarterly basis, provide Bank with an alphabetized list of
customers including addresses.
j. Maintain and preserve all rights, franchises and other authority
adequate for the conduct of its business; maintain its properties,
equipment and facilities in good order and repair; conduct its business in
an orderly manner without voluntary interruption and, if a corporation or
partnership, maintain and preserve its existence.
<PAGE> 5
Third Amendment to Security and Loan Agreement
and Addendum to Security and Loan Agreement
Concur Technologies, Inc.
March 15, 1999
Page 5
k. Maintain public liability, property damage and workers
compensation insurance and insurance on all its insurable property against
fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses. Borrower shall provide evidence
of property insurance in amounts and types acceptable to Bank, and
certificates naming Bank Lender's Loss Payee.
l. Pay and discharge, before the same become delinquent and before
penalties accrue thereon, all taxes, assessments and governmental charges
upon or against it or any of its properties, and any of its other
liabilities at any time existing, except to the extent and so long as:
(i) The same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any
materially adverse effect upon its financial condition or the loss of
any right of redemption from any sale thereunder; and
(ii) It shall have set aside on its books reserves (segregated
to the extent required by generally accepted accounting practice)
deemed by it adequate with respect thereto.
m. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis
consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times.
n. Borrower shall perform all acts reasonably necessary to ensure
that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material
to Borrower's business, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a comprehensive
review and assessment of all Borrower's systems and adopting a detailed
plan, with itemized budget, for the remediation, monitoring and testing of
such systems. As used in this paragraph, "Year 2000 Compliant" shall mean,
in regard to any entity, that all software, hardware, firmware, equipment,
goods or systems utilized by or material to the business operations or
financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Agent such certifications or other
evidence of Borrower's compliance with the terms of this paragraph as Bank
may from time to time require."
<PAGE> 6
Third Amendment to Security and Loan Agreement
and Addendum to Security and Loan Agreement
Concur Technologies, Inc.
March 15, 1999
Page 6
13. Except as provided above, the Agreement remains unchanged.
14. This Amendment is effective as of March 15, 1999, upon receipt of a
loan fee of ten thousand dollars ($10,000.00) and a documentation fee of two
hundred fifty dollars ($250.00) from Borrower and the parties hereby confirm
that the Agreement as amended is, or shall be, in full force and effect as of
said date.
CONCUR TECHNOLOGIES, INC., fka
PORTABLE SOFTWARE
CORPORATION
"Borrower"
By: /s/ STERLING WILSON
--------------------------------
Its: CFO/Executive VP of Operations
-------------------------------
IMPERIAL BANK
"Bank"
By:
-------------------------------
Its:
------------------------------
<PAGE> 7
<TABLE>
<CAPTION>
CORPORATE RESOLUTION TO BORROW
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$4,000,000.00 03-16-1999 03-14-2000 00700002340 00700002340 153
- --------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------------------------------------
BORROWER: Concur Technologies, Inc. LENDER: Imperial Bank
a Delaware corporation Emerging Growth Industries Group -- Menlo Park
6222 185th Avenue NE 226 Airport Parkway
Redmond, WA 98052 San Jose, CA 95110-1024
- --------------------------------------------------------------------------------------------------------------
</TABLE>
I, the undersigned Secretary or Assistant Secretary of CONCUR TECHNOLOGIES,
INC., a Delaware corporation (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of the
State of Delaware as a corporation for profit, with its principal office at 6222
185th Avenue NE, Redmond, WA 98052, and is duly authorized to transact business
in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on _______________________, at which a quorum was present and
voting, or by other duly authorized corporate action in lieu of a meeting,
the following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
Sudhir Singh President and Chief Executive Officer X /s/ SUDHIR SINGH
---------------------
Anne Kroger Director of Finance X /s/ ANNE KROGER
---------------------
Sterling Wilson Chief Financial Officer and Secretary X /s/ STERLING WILSON
---------------------
</TABLE>
acting for and on behalf of the Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Imperial Bank ("Lender"),
on such terms as may be agreed upon between the Corporation and Lender,
such sum or sums of money as in their judgment should be borrowed;
however, not exceeding at any one time the amount of SEVEN MILLION &
00/100 DOLLARS ($7,000,000.00). In addition to such sum or sums of money
as may be currently borrowed by the Corporation from Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, any portion
of the notes, or any other evidence of credit accommodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or
in which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible
or intangible) of the Corporation. Such property may be mortgaged,
pledged, transferred, endorsed, hypothecated, or encumbered at the time
such loans are obtained or such indebtedness is incurred, or at any other
time or times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be required
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
Lender may deem necessary or proper in connection with or pertaining to
the giving of the liens and encumbrances.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents
and agreements, including agreements waiving the right to a trial by jury,
as they may in their discretion deem reasonably necessary or proper
in order to carry into effect the provisions of these Resolutions. The
following person or persons currently are authorized to request advances
and authorize payments under the line of credit until Lender receives
written notice of revocation, of their authority: Sudhir Singh, President
and Chief Executive Officer; Anne Kroger, Director of Finance; and
Sterling Wilson, Chief Financial Officer and Secretary.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect
at the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
SIGNATURE AUTHORIZATION. An exhibit, titled "SIGNATURE AUTHORIZATION," is
attached to this Resolution and by this reference is made a part of this
Resolution just as if all the provisions, terms and conditions of the Exhibit
had been fully set forth in this Resolution.
I FURTHER CERTIFY that if the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever. The Corporation has no corporate seal, and
therefore, no seal is affixed to this certification.
IN TESTIMONY WHEREOF, I have hereunto set my hand on March 15, 1999 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ STERLING WILSON
--------------------------------
X
--------------------------------
NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
<PAGE> 8
SIGNATURE AUTHORIZATION
-------------------------------------------------------------
Borrower: CONCUR TECHNOLOGIES, INC., Lender: Imperial Bank
a Delaware corporation Emerging Growth Industries Group
6222 185th Avenue NE - Menlo Park
Redmond, WA 98052 226 Airport Parkway
San Jose, CA 95110-1024
-------------------------------------------------------------
THIS SIGNATURE AUTHORIZATION IS ATTACHED TO AND BY THIS REFERENCE IS MADE A
PART OF EACH BORROWING RESOLUTION, DATED MARCH 15, 1999, AND EXECUTED IN
CONNECTION WITH A LOAN OR OTHER FINANCIAL ACCOMMODATIONS BETWEEN IMPERIAL BANK
AND CONCUR TECHNOLOGIES, INC., A DELAWARE CORPORATION.
The individuals named below, any one acting alone, are hereby authorized and
appointed for and on behalf of Borrower from time to time to do any of the
following:
(1) To request advances of credit under the Agreement and to collect repayment
of any credit outstanding under the Agreement;
(2) To execute and deliver assignments, borrowing certificates, instruments,
schedules, reports, invoices, bills, shipping documents and such other
documents or certificates as may be necessary or appropriate under the
Agreement or any other agreement or instrument relating thereto or delivered in
connection therewith;
(3) To transfer and endorse to Bank in payment of Borrower's obligations to
Bank any checks, drafts, notes or other instruments payable to Borrower; and
(4) To do or perform any and all other acts or mailers in any way relating to
any or all of the foregoing.
The undersigned individuals each further certifies that the specimen signatures
below are the genuine signatures of the individuals designated herein and that
their signatures shall be binding on Borrower until Bank receives written
notice of termination of the authority of any such designated individuals.
Signature: _____________________________
Name: __________________________________
Signature: _____________________________
Name: __________________________________
Signature: _____________________________
Name: __________________________________
Signature: _____________________________
Name: __________________________________
THIS SIGNATURE AUTHORIZATION IS EXECUTED ON MARCH 15, 1999.
BORROWER:
CONCUR TECHNOLOGIES, INC., a Delaware corporation
x /s/ STERLING WILSON
--------------------------------------
Authorized Officer
LENDER:
Imperial Bank
By:
------------------------------------
Authorized Officer
<PAGE> 9
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,000,000.00 03-15-1999 03-14-2000 00700002340 00700002340 153
- -------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
BORROWER: Concur Technologies, Inc., LENDER: Imperial Bank
a Delaware corporation emerging growth industries group - Menlo Park
6222 185TH AVENUE NE 226 Airport Parkway
REDMOND, WA 98052 San Jose, CA 95110-1024
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
INSURANCE REQUIREMENTS. CONCUR TECHNOLOGIES, INC., a Delaware corporation
("Grantor") understands that insurance coverage is required in connection with
the extending of a loan or the providing of other financial accommodations to
Grantor by Lender. These requirements are set forth in the security documents.
The following minimum insurance coverages must be provided on the following
described collateral (the "Collateral"):
COLLATERAL: ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER
CREATED OR ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS,
CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND
GENERAL INTANGIBLES INCLUDING RETURNS, REPOSSESSIONS, BOOKS, AND
RECORDS RELATING THERETO, AND EQUIPMENT CONTAINING SAID BOOKS AND
RECORDS. ALL INVESTMENT PROPERTY INCLUDING SECURITIES AND SECURITIES
ENTITLEMENTS. ALL GOODS INCLUDING EQUIPMENT AND INVENTORY. ALL
PROCEEDS INCLUDING, WITHOUT LIMITATION, INSURANCE PROCEEDS. ALL
GUARANTEE AND OTHER SECURITY THEREFOR.
TYPE. All risks, including fire, theft and liability.
AMOUNT. $7,000,000.00.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
thirty (30) days' prior written notice to Lender.
ADDITIONAL ENDORSEMENTS OR OTHER COMMENTS. 438 BFU or its equivalent.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Lender.
INSURANCE MAILING ADDRESS. All documents and other materials relating to
insurance for this loan should be mailed, delivered or directed to the following
address:
IMPERIAL BANK
LOAN DOCUMENTATION SERVICES
9920 S. LA CIENEGA BLVD., STE. 828
INGLEWOOD, CA 90301
(310) 417-5600
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, on or before
closing, evidence of the required insurance as provided above, with an effective
date of March 15, 1999, or earlier. Grantor acknowledges and agrees that if
Grantor fails to provide any required insurance or fails to continue such
insurance in force, Lender may do so at Grantor's expense as provided in the
applicable security document. The cost of any such insurance, at the option of
Lender, shall be payable on demand or shall be added to the indebtedness as
provided in the security document. GRANTOR ACKNOWLEDGES THAT IF LENDER SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE
INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 15,
1999.
GRANTOR:
CONCUR TECHNOLOGIES, INC., a Delaware corporation
X /s/ STERLING WILSON
-------------------------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
-------------------------- ------------------------
AGENT'S NAME:
--------------------------------------
INSURANCE COMPANY:
--------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
EFFECTIVE DATES:
----------------------------------------------------------------
COMMENTS:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 10
[IMPERIAL BANK LOGO]
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. ???? COLLATERAL ACCOUNT OFFICER INITIALS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,000,000.00 03-15-1999 03-14-2000 0700002340 00700002340 153
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C>
BORROWER: CONCUR TECHNOLOGIES, INC., A DELAWARE LENDER: IMPERIAL BANK
CORPORATION EMERGING GROWTH INDUSTRIES GROUP -- MENLO PARK
6222 185TH AVENUE NE 226 AIRPORT PARKWAY
REDMOND, WA 98052 SAN JOSE, CA 95110-1024
</TABLE>
LOAN TYPE. This is a Variable Rate (a Imperial Bank Prime Rate, making an
initial rate of 7.750%), Revolving Line of Credit Loan to a Corporation for
$4,000,000.00 due on March 14, 2000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for (please
initial):
[ ] ________ Personal, Family, or Household Purposes or Personal
Investment.
[X] ________ Business (including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: working capital and
issuance of trade related letters of credit.
<TABLE>
<S> <C>
Amount paid to Borrower directly: $4,000,000.00
$4,000,000.00 Deposited to Account # 17-062-247
-------------
Note Principal: $4,000,000.00
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
Prepaid Financial Charges Paid in Cash: $ 0.00
Other Charges Paid in Cash: $10,250.00
$10,000.00 Loan Fee
$250.00 Documentation Fee
----------
Total Charges Paid in Cash: $10,250.00
</TABLE>
INTERNATIONAL SUB-LIMITS. Subject to conditions and limitations as specified in
the Security and Loan Agreement and Addendum to Security and Loan Agreement,
both dated September 3, 1997, as it may be revised from time to time. Proceeds
are to be made available and applied as required for international transactions.
DISBURSEMENT PROVISION, *or by Cashier's Check or by wire transfer when
advances are requested.
AUTOMATIC PAYMENTS. Borrower hereby authorized Lender automatically to deduct
from Borrower's account numbered 17-062-247 the amount of any loan payment. If
the funds in the account are insufficient to cover any payment, Lender shall
not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER.
THIS AUTHORIZATION IS DATED MARCH 15, 1999.
BORROWER:
CONCUR TECHNOLOGIES, INC., a Delaware corporation
X /s/ STERLING WILSON
--------------------------------
Authorized Officer
===============================================================================
<PAGE> 1
EXHIBIT 10.30
March 2, 1999
Bruce Chatterley
146 Stableford Drive
Glenn Ellyn, IL 60137
Dear Bruce:
Concur Technologies, Inc. ("Concur" or the "Company") is pleased to offer you
the position of Executive Vice President and General Manager, eService,
reporting to Steve Singh, President and CEO. Compensation for this position is
$16,666.67 per month.
You will be eligible to earn a bonus target of $100,000 on a Fiscal Year basis.
The Fiscal Year is October 1, 1998 through September 30, 1999. This bonus will
be based on a "to be determined" performance metric. We will solidify the
details of your individual plan within 30 days of your start date.
If you accept our offer, you will be granted an option to purchase 225,000
shares of registered Common Stock. 80,000 shares will vest on the first day of
employment with Concur. Thereafter, the remaining 145,000 shares will vest with
respect to one fourth (25%) of the shares after one year, with the balance
vesting in equal monthly increments over the succeeding three years. Based on
your acceptance of the terms of this offer, the per share price of your options
will be set as the closing price of the stock, as reported at the end of the
trading day, on your first full day of employment with Concur. To the extent
the Company awards additional options, on an annual basis, to other similarly
situated executives, you will likewise receive additional options on a basis
commensurate with such other executives.
Our offer includes the following relocation assistance. Actual relocation
expenses for you to relocate to the Seattle area; the reasonable cost of
moving your household goods from the Chicago area; storage of your household
goods up to 90 days; and temporary housing expenses up to 90 days or until you
find a permanent residence in the Seattle area, and up to 90-days auto rental.
The Company will pay for up to six return trips between Seattle and Chicago
during this 90 day period. The Company will pay up to $20,000 in real estate
closing costs associated with the acquisition of a residence in the Seattle
area. In addition, you will be reimbursed for expenses associated with a 3 day
house hunting trip to the Seattle area for purposes of locating a permanent
residence. All relocation assistance will be provided as per the guidelines set
forth in the attached Relocation Policy. In the unlikely event that you
voluntarily terminate employment with Concur Technologies within twelve (12)
months of your start date, you agree to reimburse the Company for all
relocation expenses incurred by the Company on your behalf.
<PAGE> 2
Bruce Chatterley
March 2, 1999
Page 2
The Company will also pay for 4 months COBRA health insurance for the entire
family on Ameritech's current plan and twelve months of COBRA payments for
Griffin Chatterley.
The Company will provide for a loan up to $100,000 should you require
assistance with your real estate purchase. Interest will be set at a
to-be-determined, reasonable rate.
Should your employment with Concur terminate for any reason other than for
cause, as defined by Attachment A, within the first twelve months of
employment, you will receive up to nine months salary continuation.
Attached is a summary of benefits Concur makes available to employees in
positions similar to the one offered to you. Medical and Dental coverage is
effective immediately upon your start of work with the Company. Our 401(k) Plan
and Employee Stock Purchase Plan (ESPP) have enrollment dates throughout the
year. The details of our plans and enrollment information will be covered on or
shortly after your start date.
We ask that you complete the enclosed Employee Confidential Information and
Inventions Agreement (the "Confidentiality Agreement") prior to commencing
employment. In part, the Agreement requires that an employee refrain from using
or disclosing the Company's Confidential Information (as defined in the
Agreement) in any manner which might be detrimental to or conflict with the
business interests of Concur or its employees.
This agreement does not prevent a former employee from using his or her general
knowledge and experience, no matter when or how gained, in any new field or
position.
This letter and the Confidentiality Agreement represent a formal statement
concerning the terms of your proposed employment and constitute a formal offer
of employment to you. As such, these documents supersede and merge any earlier
proposal or prior arrangement, whether oral or written, between you and the
Company, and any other communications between you and the Company regarding your
employment. The terms of this offer may only be changed by written agreement,
although the Company may from time to time, in its sole discretion, adjust the
compensation and benefits paid to you and its other employees. In addition, this
offer is conditioned upon your confirmation that there are no non-competition
agreements or other contracts between you and any other party that would
restrict or impair your right or ability to accept employment with or to work
for the Company.
Under Washington State law, employees have the right to terminate their
employment at any time with or without cause or notice, and the Company
reserves for itself an equal right.
It is anticipated that your start date will be on March 25, 1999. Should you
have any questions with regard to any of the items indicated above, please feel
free to call me. Your acceptance of this offer may be made by:
<PAGE> 3
Bruce Chatterley
March 2, 1999
Page 3
- - Signing this original letter and the Confidentiality Agreement (in their
entirety) and faxing them to this office at (425) 702-0674 by 3:00 p.m. on
Friday, March 5, 1999.
- - The signed originals must be received by Concur prior to your start date. A
stamped, self-addressed envelope is enclosed for your convenience.
You will need to provide employment eligibility verification within three days
of your start date. The U.S. Immigration and Naturalization Service law passed
in 1986 requires this. Please bring identification with you on your first day
so that we may complete the I-9 form during orientation.
Bruce, we hope that you and Concur will find mutual satisfaction with your
employment. All of us at Concur are very excited about your joining our team
and look forward to a beneficial and fruitful relationship.
Sincerely,
Steve Singh
President and CEO
ACCEPTED BY:
/s/ BRUCE CHATTERLEY March 3, 1999
- ----------------------------- ---------------
Bruce Chatterley Date
Start date:
------------------
<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 18, 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) and
the related Prospectus of the Company for the registration of 2,900,000 shares
of common stock.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Seattle, Washington
March 18, 1999
<PAGE> 1
EXHIBIT 23.03
CONSENT OF AMERICAN EXPRESS COMPANY
We consent to the reference to our company under the captions "Summary,"
"Business--Industry Background" and "Experts" and to the use of our 1997
American Express T&E Management Process Study in the Registration Statement
(Form S-1 no. 333-______) and the related Prospectus of Concur Technologies,
Inc.
/s/
---------------------------
AMERICAN EXPRESS COMPANY
New York, New York
March 17, 1999
