<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONCUR TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<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:
MATTHEW P. QUILTER, ESQ.
HORACE L. NASH, ESQ.
KEVIN S. CHOU, ESQ.
NICHOLAS S. KHADDER, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time 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. [X]
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
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.001 per
share.............................. 1,709,946 $26.50 $45,313,569 $12,598
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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 June 15, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 21, 1999
LOGO
1,709,946 SHARES
COMMON STOCK
------------------------------
Concur Technologies, Inc.'s common stock currently trades on the Nasdaq
National Market. The last reported sale price of our common stock on June 15,
1999 was $25.875 per share. The trading symbol of our common stock is CNQR.
------------------------------
THE OFFERING
Under this prospectus, the selling stockholders named on pages 69 to 72 of
this prospectus are offering and selling shares of our common stock that they
acquired as a result of our acquisition of Seeker Software, Inc.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
------------------------------
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.
------------------------------
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>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Special Notice Regarding Forward-Looking Statements......... 15
Use of Proceeds............................................. 16
Price Range of Common Stock................................. 16
Dividend Policy............................................. 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 35
Management.................................................. 51
Certain Transactions........................................ 63
Principal Stockholders...................................... 67
Selling Stockholders........................................ 69
Plan of Distribution........................................ 73
Description of Capital Stock................................ 78
Legal Matters............................................... 80
Experts..................................................... 80
Where You Can Find More Information......................... 80
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), EmployeeDesktop(TM), The Seeker Workplace(TM) and
QuickXpense(R). This prospectus also contains product names, trade names and
trademarks that belong to other organizations.
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.
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. Our EmployeeDesktop
product 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. Through our acquisition of Seeker Software, Inc. in June
1999, we added The Seeker Workplace, a comprehensive suite of Web-based employee
and managerial human resource self-service applications, to our suite of
products. We plan to incorporate The Seeker Workplace into EmployeeDesktop and
to provide a comprehensive automation and transaction processing suite,
including travel expense management, front-office procurement and human
resources self-service solutions, fully integrated into a single business
portal. Since 1996, we have licensed products to over 225 enterprise customers
for use by over 1,500,000 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 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>
ADP Eastman Kodak Motorola
AT&T Exxon The New York Times
Allied Signal Federal Express Northrop Grumman
American Airlines Gillette Pfizer
Anheuser-Busch Guardian Industries Pharmacia & Upjohn
Bell South Hearst Corporation Revlon
Bristol-Myers Squibb J.C. Penney Seagate Technology
Case Corporation John Hancock Solutia
Clorox Knight-Ridder Sprint
Computer Sciences Corporation Lehman Brothers Texaco
DaimlerChrysler Corporation Levi Strauss Texas Instruments
Dell Computer Lucent Technologies Visio
DuPont Monsanto
</TABLE>
OUR ADDRESS
Our principal executive offices 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.
1
<PAGE> 5
THE OFFERING
All of the shares offered under this prospectus were originally issued by
us to former Seeker Software stockholders in connection with our acquisition of
Seeker Software. These shares are being offered on a continuous basis under Rule
415 of the Securities Act of 1933 during the period commencing on the effective
date of the registration statement of which this prospectus is a part and ending
on the first anniversary of the effective date, or as specified in our shelf
registration agreement dated May 26, 1999 with the Seeker Software stockholders.
COMMON STOCK THAT MAY BE
OFFERED BY SELLING
STOCKHOLDERS............. 1,709,946 shares
COMMON STOCK TO BE
OUTSTANDING AFTER THIS
OFFERING................. 22,619,337 shares. This is based on the actual
number of shares outstanding on June 15, 1999. The
number excludes 5,630,186 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............ We will not receive any proceeds.
NASDAQ NATIONAL MARKET
SYMBOL................... CNQR
2
<PAGE> 6
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, but
does not reflect our acquisition of Seeker Software, Inc. in June 1999. See Note
3 to Notes to our Consolidated Financial Statements and see the separate
financial statements of 7Software included in this prospectus. Supplemental
financial information provided below is derived from the Supplemental
Consolidated Financial Statements which combine our results with those of Seeker
Software. See Note 20 to Notes to our Consolidated Financial Statements and see
the separate financial statements of Seeker Software included in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
----- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues, net........................ $ -- $ 2,128 $ 1,959 $ 8,270 $ 17,159 $ 7,074 $ 13,591
Loss from operations................. (602) (2,895) (4,958) (5,505) (17,760) (3,867) (11,461)
Net loss............................. (602) (2,890) (4,953) (5,524) (18,074) (4,063) (11,263)
Basic and diluted net loss per
share............................. $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
Shares used in calculation of basic
and diluted net loss per share.... 2,282 2,288 2,425 2,309 11,294
SUPPLEMENTAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues, net........................ $ -- $ 2,128 $ 1,959 $ 9,914 $ 21,216 $ 8,388 $ 16,814
Net loss............................. (602) (2,890) (4,953) (8,614) (27,129) (7,337) (16,525)
Basic and diluted net loss per
share............................. $ (2.17) $ (2.84) $ (8.41) $ (2.39) $ (1.36)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
ACTUAL SUPPLEMENTAL
------- ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $46,156 $47,424
Working capital............................................. 33,425 32,156
Total assets................................................ 60,719 64,640
Long-term obligations, net of current portion............... 6,579 8,940
Total stockholders' equity.................................. 32,788 20,156
</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 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."
OUR EXPANSION INTO THE FRONT-OFFICE PROCUREMENT APPLICATION AND HUMAN RESOURCE
SELF-SERVICE APPLICATION MARKETS IS RISKY.
We recently added the CompanyStore front-office procurement application and
The Seeker Workplace human resource self-service application to our product
line. To date, we have licensed our front-office procurement and human resource
self-service applications, collectively, to less than 40 customers. Our future
revenue growth depends on our ability to license CompanyStore and The Seeker
Workplace to new customers and our existing base of XMS customers. Potential and
existing customers may not purchase CompanyStore or The Seeker Workplace 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.
4
<PAGE> 8
Further, we must overcome certain significant obstacles to expand into the
front-office procurement application and human resource self-service application
markets, including:
- competitors that have more experience and better name recognition;
- the limited experience of our sales and consulting personnel in the
front-office procurement application and human resource self-service
application markets; and
- our limited reference accounts in the front-office procurement
application and human resource self-service application markets.
Our business could be harmed if we fail to deliver the enhancements to
CompanyStore and The Seeker Workplace that customers want. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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 products until later in 2000. Accordingly, demand for our
products may be particularly volatile and unpredictable for the remainder of
1999 and early 2000.
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."
WE HAVE LIMITED EXPERIENCE SELLING OUR PRODUCTS AS A SUITE AND OUR
EMPLOYEEDESKTOP MODEL MAY FAIL.
We recently introduced EmployeeDesktop, which integrates XMS and
CompanyStore as a suite of applications. Through our acquisition of Seeker
Software, Inc. in June 1999, we added The Seeker Workplace to our suite of
products. We plan to incorporate The Seeker Workplace into EmployeeDesktop.
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."
5
<PAGE> 9
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, front-office procurement and human resource
self-service applications, and from providers of enterprise resource planning,
or ERP, software applications that have or may be developing travel and
entertainment expense management, front-office procurement and human resource
self-service products. Many of our competitors in the travel and entertainment
expense management, front-office procurement and human resource self-service
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 MAY EXPERIENCE DIFFICULTIES IN INTRODUCING NEW PRODUCTS AND UPGRADES.
Through our acquisition of Seeker Software in June 1999, we added The
Seeker Workplace to our product suite. We expect to add additional
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.
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
6
<PAGE> 10
among our customers may reduce our sales" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
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 and The Seeker
Workplace 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
7
<PAGE> 11
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 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--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
two acquisitions to date, 7Software, Inc. and Seeker Software. We may not be
able to select, manage or absorb any future acquisitions successfully. 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 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 "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
WE MAY NOT MEET OUR EXPECTATIONS FOR THE SEEKER SOFTWARE ACQUISITION.
Our acquisition of Seeker Software in June 1999 was a significant
investment. The purchase price for Seeker Software included shares of our common
stock and options to purchase shares of our common stock, together representing
an aggregate of approximately 18% of our outstanding common stock as of June 15,
1999. In connection with the acquisition, we recorded in the third quarter a
charge to operating expenses of approximately $7.9 million for direct and other
acquisition-related costs pertaining to the transaction. Acquisition costs
consisted primarily of financial advisor fees for both companies, attorneys,
accountants, financial printing and other related charges. We may incur
additional costs in the future in integrating the business of Seeker Software
with our business. We were willing to pay such costs to acquire a company and
products which we believe will allow us to provide a comprehensive automation
and transaction processing suite, including travel expense management,
front-office procurement and human resources self-service solutions, fully
integrated into a single business portal. We plan to integrate the Seeker
Software business with our own, including product development efforts focused on
fully integrating The Seeker Workplace into EmployeeDesktop. We also expect to
be able
8
<PAGE> 12
to sell our newly-acquired The Seeker Workplace applications to some of the
existing customers of our EmployeeDesktop, XMS and CompanyStore products, and to
sell EmployeeDesktop, XMS and CompanyStore to existing customers of The Seeker
Workplace. We may not, however, be able to meet our expectations for the
acquisition. We may encounter substantial difficulties and financial risks such
as:
- difficulty assimilating the operations, technology and personnel of the
combined companies;
- disruption of our ongoing business;
- potential difficulties in completing projects;
- problems retaining key technical and managerial personnel;
- additional operating losses and expenses of the acquired business; and
- impairment of relationships with existing customers, business partners
and employees.
In addition, recent actions and comments from the Securities and Exchange
Commission have indicated that they are scrutinizing the application of the
pooling of interest method of accounting for business combinations. While we
believe we are in compliance with the rules and related guidance as they
currently exist, we can provide no assurance that the Commission will not
challenge our conclusions and ultimately seek to treat this transaction under
the purchase method of accounting for business combinations. This could result
in the restatement of financial statements requiring the recording of goodwill
and related amortization expense and as such could have a material negative
impact on our financial results for the periods subsequent to the acquisition.
We cannot assure you that we will be successful in overcoming these or any
other problems or risks in connection with the acquisition of Seeker Software.
Mergers and acquisitions of high-technology companies are inherently risky, and
no assurance can be given that our previous or future acquisitions will be
successful and will not adversely affect our financial condition or results of
operations.
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 $11.3 million for the six months ended
March 31, 1999. As of March 31, 1999, we had an accumulated deficit of $43.3
million. We expect to continue to incur net losses for the foreseeable future.
Despite substantial net operating loss carryforwards as of March 31, 1999, 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
9
<PAGE> 13
Consolidated Financial Data" 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 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
10
<PAGE> 14
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, excluding the impact of the Seeker Software
acquisition, 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 32.0% of
total revenues for the six months ended March 31, 1999. 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 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
11
<PAGE> 15
- 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, excluding the impact of
the Seeker Software acquisition, 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 $665,000
in the six months ended March 31, 1999. 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.
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
12
<PAGE> 16
sale of our products and services until equivalent technology, if available, is
identified, licensed and integrated, which could harm our business.
OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY IS LIMITED AND OUR PRODUCTS MAY
BE SUBJECT TO INFRINGEMENT CLAIMS BY THIRD PARTIES.
We are dependent upon our proprietary technology. We rely primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect our proprietary information. In
some cases, we are using marks to which we do not have federal trademark
registration and certain of these marks for which we have filed for federal
registration may not be ultimately be registrable and we may have incomplete
rights to use these marks. We have also taken steps to avoid disclosure of our
proprietary technology by generally restricting customer access to our products'
source code and requiring all employees and contractors to enter into
confidentiality and invention assignment agreements. However, certain of our
customers and partners have received access to source code versions of our
products in order to facilitate more extensive testing of our products and
certain of our former technical personnel and contractors did not execute such
confidentiality and invention assignment agreements. Further, we only recently
began requiring contractors and temporary employees to execute our
confidentiality agreement rather than executing the confidentiality agreements
maintained by temporary agencies or not executing any such agreements. We
presently have no patents or patent applications pending. Despite our efforts to
protect our proprietary rights, 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 as 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. There can be no assurance that our means of
protecting these proprietary rights will be adequate, nor that our competitors
will not independently develop similar technology. In addition, we cannot assure
you that third parties will not claim infringement by us with respect to current
or future products or other intellectual property rights. Any such claims could
have a material adverse effect on our business, results of operations and
financial condition. See "Business--Intellectual Property Rights."
OUR ABILITY TO MAINTAIN A SATISFACTORY LEVEL OF INTEROPERABILITY OF OUR PRODUCTS
WITH THOSE OF OTHER SOFTWARE VENDORS MAY BE LIMITED.
Our products are designed to operate on a variety of hardware and software
platforms employed by our customers. 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 willingness of
the various vendors of these platforms to work with us, the timing and nature of
new product announcements, introductions or modifications by vendors of
operating systems (particularly Microsoft), by vendors of back-office
applications (particularly SAP, Oracle and PeopleSoft) and by vendors of
browsers and other Internet-related applications (particularly Netscape and
Microsoft) could harm our business, results of operations and financial
condition. See "Business--Products and Technology."
13
<PAGE> 17
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."
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 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, the market
14
<PAGE> 18
price of our common stock could fall. These sales could also impair our ability
to raise capital through the sale of equity securities in the future at a price
we deem appropriate.
As of June 15, 1999, we had outstanding approximately 22,619,337 shares of
common stock. Of these shares, approximately 7,117,753 were eligible for sale in
the public market on that date. Approximately 3,419,929 are shares we issued to
former stockholders of Seeker Software in exchange for their Seeker Software
stock, which are eligible for sale in the public market beginning on the
effective date of this prospectus, but only in accordance with the restrictions
set forth in the "Plan of Distribution" section. Approximately 11,184,835 shares
of our common stock are subject to lock-up agreements between the holders of
those shares and the representatives of the underwriters of our secondary public
offering, pursuant to which the holders have agreed not to 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 the secondary offering (July 16, 1999). Of the shares subject to
the lock-up with the representatives of the underwriters, approximately
10,966,919 shares are also subject to a lock-up agreement with us in connection
with our acquisition of Seeker Software that will expire when we have publicly
released the combined financial results of Concur and Seeker Software covering a
period of at least 30 days of our post-merger combined operations. We expect
this announcement to occur in July 1999. Following the expiration of these
periods, substantially all the shares subject to the lock-up agreements will
become available for immediate sale in the public market, subject to 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 the expiration of their terms.
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.
15
<PAGE> 19
USE OF PROCEEDS
We will not receive any proceeds from sales of our common stock by the
selling stockholders under this prospectus.
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......................................... $45 1/8 $25
Third quarter (through June 15, 1999).................. $55 $25 1/4
</TABLE>
On June 15, 1999, the last reported sale price for our common stock on the
Nasdaq National Market was $25.875 per share.
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."
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 six months ended March 31,
1998 and 1999 and the consolidated balance sheet data as of March 31, 1999 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 March 31, 1999
and for the six month periods ended March 31, 1998 and 1999. The results of
operations for the six month period ended March 31, 1999 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, but
does not reflect our acquisition of Seeker Software in June 1999. 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.
Our supplemental consolidated financial statement information is derived
from the supplemental consolidated financial statements included in this
prospectus which reflects the retroactive restatement of the Company's accounts
to reflect the accounting for the acquisition with Seeker Software as a pooling
of interests. The results of operations prior to fiscal 1997 of Seeker Software
are not significant; therefore, such amounts have not been restated for the
acquisition of Seeker Software.
17
<PAGE> 21
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- ------- -------- -------- ------- --------
(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 $ 4,854 $ 9,243
Services................. -- 24 242 1,923 5,463 2,220 4,348
------- -------- ------- -------- -------- ------- --------
Total revenues..... -- 2,128 1,959 8,270 17,159 7,074 13,591
------- -------- ------- -------- -------- ------- --------
Cost of revenues:
Licenses................. -- 728 386 394 558 172 573
Services................. -- 673 839 2,269 5,684 2,212 5,139
------- -------- ------- -------- -------- ------- --------
Total cost of
revenues......... -- 1,401 1,225 2,663 6,242 2,384 5,712
------- -------- ------- -------- -------- ------- --------
Gross profit............... -- 727 734 5,607 10,917 4,690 7,879
------- -------- ------- -------- -------- ------- --------
Operating expenses:
Sales and marketing...... 111 2,363 2,936 5,896 12,353 4,606 10,401
Research and
development............ 425 744 1,793 3,401 6,434 2,278 5,505
General and
administrative......... 66 515 963 1,815 4,687 1,673 3,434
Acquired in-process
technology............. -- -- -- -- 5,203 -- --
------- -------- ------- -------- -------- ------- --------
Total operating
expenses......... 602 3,622 5,692 11,112 28,677 8,557 19,340
------- -------- ------- -------- -------- ------- --------
Loss from operations....... (602) (2,895) (4,958) (5,505) (17,760) (3,867) (11,461)
Other income (expense),
net...................... -- 5 5 (19) (314) (196) (198)
------- -------- ------- -------- -------- ------- --------
Net loss................... $ (602) $ (2,890) $(4,953) $ (5,524) $(18,074) $(4,063) $(11,263)
======= ======== ======= ======== ======== ======= ========
Basic and diluted net loss
per share................ $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
======= ======== ======== ======= ========
Shares used in calculation
of basic and diluted net
loss per share........... 2,282 2,288 2,425 2,309 11,294
======= ======== ======== ======= ========
SUPPLEMENTAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues, net.............. $ -- $ 2,128 $ 1,959 $ 9,914 $ 21,216 $ 8,388 $ 16,814
Net loss................... (602) (2,890) (4,953) (8,614) (27,129) (7,337) (16,525)
Basic and diluted net loss
per share................ $ (2.17) $ (2.84) $ (8.41) $ (2.39) $ (1.36)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
----- ------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash, cash equivalents and marketable
securities...................................... $ 277 $ 2,541 $ 5,685 $ 6,695 $ 15,629 $46,156
Working capital (deficit)......................... (175) 1,839 4,073 6,183 8,474 33,425
Total assets...................................... 345 3,058 6,759 12,364 25,031 60,719
Long-term obligations, net of current portion..... 233 125 215 3,687 8,092 6,579
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) 32,788
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
----- ------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA
Cash, cash equivalents and marketable
securities...................................... $ 277 $ 2,541 $ 5,685 $ 7,370 $ 18,698 $47,424
Working capital (deficit)......................... (175) 1,839 4,073 5,865 7,393 32,156
Total assets...................................... 345 3,058 6,759 14,734 31,590 64,640
Long-term obligations, net of current portion..... 233 125 215 3,965 9,967 8,940
Redeemable convertible preferred stock and
warrants........................................ -- 4,903 12,386 17,345 38,144 8,201
Total stockholders' equity (deficit).............. (353) (3,234) (8,186) (13,733) (35,839) 20,156
</TABLE>
18
<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.
The following discussion of financial condition and results of operations
generally excludes the impact of our acquisition of Seeker Software except as
otherwise noted and as discussed under the caption "Supplemental Management's
Discussion and Analysis."
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. Our EmployeeDesktop
product 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 225 enterprise
customers for use by over 1,500,000 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.
Through our acquisition of Seeker Software in June 1999, we added The Seeker
Workplace, a comprehensive suite of Web-based employee and managerial human
resource self-service applications, to our suite of products. We plan to
incorporate The Seeker Workplace into EmployeeDesktop.
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
19
<PAGE> 23
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 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 Note 3 of Notes to Consolidated Financial
Statements.
In January 1999 we introduced EmployeeDesktop, 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.
On June 1, 1999, we acquired all of the outstanding capital stock of Seeker
Software. Seeker Software, based in Oakland, California, provides a
comprehensive suite of Web-based employee and managerial human resource
self-service applications called The Seeker Workplace. In connection with the
acquisition, we issued approximately 3,419,929 shares of common stock in
exchange for all of the outstanding capital stock and warrants of Seeker
Software, and we converted all of Seeker Software's outstanding options into
options to purchase up to 680,234 shares of our common stock. The Seeker
Software acquisition was accounted for as a pooling of interest. The historical
results of the pooled entities reflect each of their actual operating cost
structures and, as a result, do not necessarily reflect the cost structure of
the newly combined entity. The historical results do not purport to be
indicative of results, which may occur in the future. Prior to the acquisition,
Seeker Software had a fiscal year-end of December 31.
In connection with the acquisition, we recorded in the third quarter a
charge to operating expenses of approximately $7.9 million for direct and other
acquisition-related costs pertaining to the transaction. Acquisition costs
consisted primarily of financial advisors fees for both companies, attorneys,
accountants, financial printing and other related charges.
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 $13.6 million in the six months ended March 31,
1999. 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
20
<PAGE> 24
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 $665,000 in the
six months ended March 31, 1999. 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, 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
150 as of March 31, 1998, to 281 as of March 31, 1999, representing an increase
of 87%. As a result of investments in our infrastructure, we have incurred net
losses in each fiscal quarter since inception and, as of March 31, 1999, had an
accumulated deficit of $43.3 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 six month period ended March 31, 1999,
we recorded amortization of deferred stock compensation of $133,000.
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
21
<PAGE> 25
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."
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>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------- --------------
1996 1997 1998 1998 1999
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues, net:
Licenses.......................... 87.6% 76.7% 68.2% 68.6% 68.0%
Services.......................... 12.4 23.3 31.8 31.4 32.0
------ ----- ------ ----- -----
Total revenues............ 100.0 100.0 100.0 100.0 100.0
------ ----- ------ ----- -----
Cost of revenues:
Licenses.......................... 19.7 4.8 3.3 2.4 4.2
Services.......................... 42.8 27.4 33.1 31.3 37.8
------ ----- ------ ----- -----
Total cost of revenues.... 62.5 32.2 36.4 33.7 42.0
------ ----- ------ ----- -----
Gross margin........................ 37.5 67.8 63.6 66.3 58.0
------ ----- ------ ----- -----
Operating expenses:
Sales and marketing............... 149.9 71.3 72.0 65.1 76.5
Research and development.......... 91.5 41.1 37.5 32.2 40.5
General and administrative........ 49.2 21.9 27.3 23.6 25.3
Acquired in-process technology.... -- -- 30.3 -- --
------ ----- ------ ----- -----
Total operating
expenses............... 290.6 134.3 167.1 120.9 142.3
------ ----- ------ ----- -----
Loss from operations................ (253.1) (66.5) (103.5) (54.6) (84.3)
Other income (expense), net......... 0.3 (0.2) (1.9) (2.8) (1.5)
------ ----- ------ ----- -----
Net loss............................ (252.8)% (66.7)% (105.4)% (57.4)% (82.8)%
====== ===== ====== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1999
Revenues
Our revenues are derived from software licenses and related services. Our
revenues were $7.1 million and $13.6 million for the six months ended March 31,
1998 and 1999, respectively, representing an increase of $6.5 million, or 92%.
International revenues were $329,000 and $665,000 for the six months ended March
31, 1998 and 1999, respectively.
Our license revenues were $4.9 million and $9.2 million for the six months
ended March 31, 1998 and 1999, respectively, representing an increase of $4.3
million, or 90%. License revenues represented 68.6% and 68.0% of total revenues
for the six months ended March 31, 1998 and 1999, respectively. This increase
consisted primarily of increased sales
22
<PAGE> 26
of XMS, and the sales of CompanyStore and EmployeeDesktop in fiscal 1999. This
increase was also due to the sales related to referrals attributable to our
strategic marketing alliance agreements with American Express and ADP.
Our service revenues were $2.2 million and $4.3 million for the six months
ended March 31, 1998 and 1999, respectively, representing an increase of $2.1
million, or 96%. Service revenues represented 31.4% and 32.0% of total revenues
for the six months ended March 31, 1998 and 1999, respectively. This increase
reflected increased licenses of XMS in fiscal 1999 as well as revenues
recognized with respect to maintenance agreements entered into in the current
and 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. 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. Our cost of license revenues was $172,000 and
$573,000 for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $401,000, or 233%. 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 release of both EmployeeDesktop 5.0 and CompanyStore 5.0 during the
second quarter of fiscal 1999. Cost of license revenues represented 3.5% and
6.2% of license revenues for the six months ended March 31, 1998 and 1999,
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. Our cost of service revenues was $2.2 million and
$5.1 million for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $2.9 million, or 132%. This increase was primarily
due to an increase in professional service support personnel to manage and
support our growing customer base. Cost of service revenues was 100% and 118% of
service revenues for the six months ended March 31, 1998 and 1999, 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. Our sales and marketing expenses were $4.6 million and
$10.4 million for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $5.8 million, or 126%. This increase primarily
reflects the overall increase in our revenues as well as our continuing
investment in our sales and marketing infrastructure, which included significant
personnel-related costs to recruit and hire sales personnel, trade show
expenses, and sales referral fees under our agreements with our referral
partners, principally American Express and ADP. Sales and marketing expenses
represented 65.1% and 76.5% of total revenues for the six months ended
23
<PAGE> 27
March 31, 1998 and 1999, 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, especially for
CompanyStore and EmployeeDesktop. 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. Our research and development expenses were $2.3
million and $5.5 million for the six months ended March 31, 1998 and 1999,
respectively, representing an increase of $3.2 million, or 142%. This increase
was primarily related to the increase in software developers, program management
and quality assurance personnel and outside contractors to support our expanded
product lines and our ongoing product development of XMS, CompanyStore and
EmployeeDesktop. Research and development costs represented 32.2% and 40.5% of
total revenues for the six months ended March 31, 1998 and 1999, 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. Our general and administrative expenses were
$1.7 million and $3.4 million for the six months ended March 31, 1998 and 1999,
respectively, representing an increase of $1.7 million, or 105%. This increase
was primarily the result of additional general and administrative personnel to
support the growth of our business, an increase of outside contractors expense
associated with increased recruiting efforts, and an increase in the allowance
for doubtful accounts related to our increase in revenues. General and
administrative costs represented 23.6% and 25.3% of our total revenues for the
six months ended March 31, 1998 and 1999, 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 public reporting expenses, directors' and
officers' liability insurance, investor relations programs and professional
services fees.
Interest Income and Interest Expense. Our interest income was $91,000 and
$847,000 for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $756,000, or 831%. This increase reflects interest
income earned on 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 $210,000 and $537,000 for the six months
ended March 31, 1998 and 1999, respectively, representing an increase of
$327,000, or 156%. This increase was due to additional bank borrowings and
higher capital lease obligations during the six months ended March 31, 1999.
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.
24
<PAGE> 28
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
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. Our cost of license revenues was $386,000,
$394,000 and $558,000 in fiscal 1996, 1997 and 1998, respectively, representing
increases of $8,000, or 2%, from fiscal 1996 to fiscal 1997 and $164,000, or
42%, from fiscal 1997 to fiscal 1998. Cost of license revenues remained
relatively constant from fiscal 1996 to fiscal 1997 as a result of a shift in
the mix of revenues from QuickXpense and XMS. The increase from fiscal 1997 to
fiscal 1998 was a result of increased expenses associated with sub-licensing of
third party software due to increased sales of XMS and the costs of production,
manuals and other media associated with the release of the Intranet version of
XMS in March 1998. Cost of license revenues as a percentage of license revenues
was 22.5%, 6.2% and 4.8% for fiscal 1996, 1997 and 1998, respectively. A portion
of the capitalized technology and other intangible assets recorded in connection
with the acquisition of 7Software will be amortized on a straight-line basis
over three years as cost of license revenues.
Cost of Service Revenues. Our 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
25
<PAGE> 29
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. Our 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. Our 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.
General and Administrative. Our 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
26
<PAGE> 30
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.
QUARTERLY RESULTS OF OPERATIONS
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 after their introduction. Our new products or upgrades may not be
released according to
27
<PAGE> 31
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.
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. 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
financial equipment purchases totaling approximately $3.6 million.
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. In April 1999, we completed a follow-on
offering and received approximately $82.5 million in cash, net of underwriting
discounts, commissions and other offering costs. Our sources of liquidity as of
March 31, 1999 consisted principally of cash and cash equivalents and
investments in corporate bonds, commercial paper and money market securities,
all totaling $46.2 million, and approximately $4.0 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 $8.3 million in
the six months ended March 31, 1999. 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 $1.1 million in the six months ended March 31, 1999. 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 $38.9 million in the
six months ended March 31, 1999. 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
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
28
<PAGE> 32
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 six months ended
March 31, 1999, 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 $572,000 and payments on capital lease obligations of $513,000.
Prior to March 15, 1999, we had a line of credit with a bank for $2.0
million. On March 15, 1999, the credit facility was amended to increase the
borrowing amount to $4.0 million and to extend the expiration date to March
2000. This $4.0 million line of credit bears interest at the lending bank's
prime rate plus 1.5%. Borrowings are limited to the lesser of 80% of eligible
accounts receivable or $4.0 million and are secured by substantially all of our
non-leased assets. As of March 31, 1999, we had not borrowed under the line of
credit; however, there were approximately $500,000 in standby letters of credit
outstanding. Approximately $3.5 million remains available under this line as of
March 31, 1999.
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
March 31, 1999, the outstanding indebtedness under the loan agreement was $2.9
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 March 31, 1999, the
outstanding indebtedness under the subordinated loan agreement was $4.2 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.
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
29
<PAGE> 33
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. We may also incur
costs in the future in integrating the business of Seeker Software with our
business. We believe that 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
Our 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.
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS
On June 1, 1999, pursuant to an Agreement and Plan of Reorganization dated
May 26, 1999 among the Company, ConStar Acquisition Corp. and Seeker Software,
we acquired all of the outstanding capital stock of Seeker Software. We issued
3,419,929 shares of common stock in exchange for all outstanding preferred
stock, common stock and warrants to purchase preferred stock of Seeker Software,
and we assumed all outstanding options of Seeker Software which resulted in the
issuance of options to purchase up to 680,234 shares of our common stock. The
supplemental consolidated financial information has been prepared to reflect the
restatement of all periods presented to include the accounts of Seeker Software
and Concur after accounting for the acquisition of Seeker Software as a pooling
of interests.
Seeker Software develops, markets and sells Web-based self-service human
resources workplace solution applications which allow employees within an
organization to access update and share information from their desktop
computers. Seeker Software's product is referred to as The Seeker Workplace.
The supplemental consolidated financial statements have been prepared by
combining our consolidated balance sheets as of September 30, 1997 and 1998 and
the consolidated statements of operations, shareholder equity and cash flows for
each year then ended with the Seeker Software financial statements as of
December 31, 1997 and 1998 and for each of the years then ended. The
supplemental consolidated financial statements as of
30
<PAGE> 34
March 31, 1999 and for the six month periods ended March 31, 1998 and 1999
reflect the combined results of each company for each such period. We have
presented the supplemental consolidated financial statements to comply with the
regulations of the Securities and Exchange Commission while we consider the
periods to be combined for the ultimate presentation of the restated financial
statements to reflect the accounting for this merger as a pooling of interests.
The supplemental results of operations are impacted primarily by our
operations as discussed in the preceding sections. The supplemental results of
operations were impacted by the operations of Seeker Software by the following
results:
Revenues
Seeker Software's revenues were $4.1 million in the year ended December 31,
1998, of which $2.5 million was attributable to license fees and $1.6 million
was attributable to service revenues. Total fiscal 1998 revenues represent an
increase of 156% in total revenues as compared to $1.6 million of total revenues
in fiscal 1997. Seeker Software's revenues in fiscal 1998 represent 19% of
supplemental consolidated revenues. The increase in fiscal 1998 revenues
represents increased market acceptance of The Seeker Workplace, which was
initially released in April 1998.
Cost of Revenues
Seeker Software's cost of revenues increased from $3.2 million in fiscal
1997 to $9.1 million in fiscal 1998, representing an increase of 184% comprised
mainly of cost of service revenues attributable to an increase in the number of
personnel performing consulting and training services. The related gross margin
percentage had declined from 67% in fiscal 1997 to 30% in fiscal 1998 and to 15%
in the three months ended March 31, 1999 primarily due to the increase in
service revenue as a percent of total revenue. The impact of Seeker Software's
gross margins on supplemental consolidated gross margins may fluctuate
significantly in future periods due to the potential for significant variations
in the mix between license fees and service revenues.
Operating Expenses
Operating expenses attributable to Seeker Software's operations represent
30%, 28% and 24% of supplemental consolidated operating costs in fiscal 1997,
fiscal 1998 and the three months ended March 31, 1999, respectively. Seeker
Software's operating costs increased from $4.2 million in fiscal 1997 to $10.3
million in fiscal 1998, representing an increase of 145%. These increases are
primarily due to increases in total personnel which was 47 at December 31, 1997,
81 at December 31, 1998, and 96 at March 31, 1999. Also included in operating
expenses is stock compensation related to stock option grants during fiscal 1998
and fiscal 1999. Stock compensation expense recognized in fiscal 1998 and during
the three months ended March 31, 1999 was $44,800 and $290,000, respectively.
Liquidity
Since inception, Seeker Software has been financed primarily through the
issuance of preferred stock, common stock, long-term debt and notes payable to
shareholders. At March 31, 1999, liabilities exceeded assets by $4.4 million. As
described in Note 19 to the Supplemental Consolidated Financial Statements, in
April 1999, Seeker Software issued
31
<PAGE> 35
972,944 shares of redeemable convertible preferred stock in exchange $9,434,000
and the conversion notes payable to shareholders and related accrued interest
aggregating $2,566,000. In connection with our acquisition of Seeker Software in
June 1998, all capital stock of Seeker Software, including the redeemable
convertible preferred stock, was exchanged for our common stock.
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;
- 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.
Our Year 2000 Compliance Task Force, composed of high-level representatives
of the product, management and information systems and legal departments, is
formulating and implementing the Year 2000 readiness of our operations, products
and relationships. The phases of our Year 2000 program include:
(1) assignment of responsibility for external issues, such as products
developed by us and licensed to customers, and internal issues, such as
systems, facilities, equipment, software and legal audit;
(2) inventory of all aspects of our operations and relationships subject to
the Year 2000 problem;
(3) comprehensive analysis, including impact analysis and cost analysis, of
our Year 2000 readiness; and
32
<PAGE> 36
(4) remediation and subsequent 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. Some product versions no longer
shipping had Year 2000 issues that have already been resolved with patches or
updates provided at no charge to authorized licensees. Some earlier product
versions no longer shipping that have Year 2000 issues will be patched or
updated timely with no charge to authorized licensees. Some remaining older
versions not currently shipping may not be supported beyond December 1999;
however, those customers will be timely notified and will be timely provided a
free upgrade to at least the next current Year 2000 compliant version.
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 and 2
of our program. We anticipate completing Phase 3 by July 1999 and Phase 4 by
August 1999.
Risks Related to Year 2000 Issues
Our products are generally integrated into enterprise systems involving
sophisticated third-party hardware and software products which may not
themselves 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
our software was integrated, are not compatible with certain more recent Year
2000 compliant versions of such other third-party software providers. While we
do not believe we have any obligation under this circumstance (because customers
using our older versions of our software would have to upgrade in order to be
compatible with newer versions of third parties' products) there can be no
assurance that we will not be subject to claims or complaints by our customers.
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
their underlying problems. However, our Year 2000 compliance efforts cannot
assure the success of our customers in dealing with their Year 2000 issues.
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
33
<PAGE> 37
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 are in
process of circulating 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."
34
<PAGE> 38
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. Our EmployeeDesktop
product 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. Through our acquisition of Seeker Software in June 1999, we
added The Seeker Workplace, a comprehensive suite of Web-based employee and
managerial human resource self-service applications, to our suite of products.
We plan to incorporate The Seeker Workplace into EmployeeDesktop and to provide
a comprehensive automation and transaction processing suite, including travel
expense management, front-office procurement and human resources self-service
solutions, fully integrated into a single business portal. Since 1996, we have
licensed our products to over 225 enterprise customers for use by over 1,500,000
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.
PRODUCTS AND TECHNOLOGY
Our current product line consists of:
- EmployeeDesktop, which provides a common user interface to integrate our
current products;
- XMS, our market-leading travel and entertainment expense management
application;
- CompanyStore, our easy-to-use front-office procurement application; and
- The Seeker Workplace, our Web-based employee and manager self-service
applications focused on human resources.
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 225 companies for use by over 1,500,000 end users. We generally
offer licenses for our software based on the number of
35
<PAGE> 39
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.
EmployeeDesktop
EmployeeDesktop 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. We
plan to incorporate our newly acquired The Seeker Workplace into
EmployeeDesktop. EmployeeDesktop 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 EmployeeDesktop, 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. We
plan to offer application programming interfaces to allow third party vendors
and customers to integrate other employee-facing applications into the
EmployeeDesktop framework.
Xpense Management Solution
XMS automates the travel and entertainment expense management process,
including report preparation, approval, processing and data analysis. Version
5.0 of XMS enables integration with EmployeeDesktop.
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 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
36
<PAGE> 40
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.
37
<PAGE> 41
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>
38
<PAGE> 42
CompanyStore
CompanyStore automates the front-office procurement process, including
order preparation, approval, processing and data analysis. CompanyStore has been
licensed to five customers. Version 5.0 of CompanyStore enables integration with
EmployeeDesktop and adds new features and functionality. See "Risk
Factors--Future acquisitions might harm our business" and "--Our expansion into
the front-office procurement application and human resource self-service
application markets 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.
39
<PAGE> 43
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>
40
<PAGE> 44
The Seeker Workplace
The Seeker Workplace automates employee and managerial human resources
processes for enterprise customers. It allows employees and managers to access
and update information easily, and to process everyday human resources
transactions quickly. The Seeker Workplace employee self-service applications
are Seeker Core, Payroll and Paid-Time-Off, and Benefits Open Enrollment and
Modeling. Its managerial self-service applications are Events@Work and
Compensation and Salary Management. The Seeker Workplace allows employees and
managers to conduct many everyday transactions themselves, without the
involvement of human resources personnel. This reduces administrative costs and
allows the human resources staff to maximize employee productivity and
efficiency.
Employee Self-Service Applications. The Seeker Workplace allows employees
to review and modify information in the human resources, payroll and benefits
management systems. Seeker Core, which is a foundation component of The Seeker
Workplace, provides security, navigation, search, display and maintenance
capabilities, and allows employees to access information about company
personnel. The Seeker Workplace's Payroll and Paid-Time-Off application allows
employees to access their payroll and W-4 data, view their pay stubs and perform
updates to deductions, withholdings and direct deposit data. The Seeker
Workplace's Benefits Enrollment and Modeling application allows employees to
access information about the employer's benefit plans, and to complete
enrollment forms, 24 hours a day, seven days a week. The Seeker Workplace's
employee self-service applications are "role based" in that each user's access
rights, views and workflow are tailored to that user's role in the organization.
Managerial Self-Service Applications. The Seeker Workplace also automates
manager-centric processes. The Seeker Workplace's Events@Work provides managers
the convenience of a single access point to manage planning and day-to-day
transactions such as performance reviews, salary planning, position management
(interdepartmental transfers, salary changes, promotions and terminations). The
Seeker Workplace's Compensation and Salary Management application also provides
managers with easy access to decision-critical information such as compensation
data and department compensation plans, modeling and approvals. These
applications reduce the time that managers must spend on routine administrative
functions, allowing them to spend more time on core business matters. Like The
Seeker Workplace employee self-service applications, The Seeker Workplace's
managerial self-service applications are role based.
41
<PAGE> 45
The following table describes significant features and potential benefits
of applications of The Seeker Workplace:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
EMPLOYEE SELF-SERVICE APPLICATIONS
- -------------------------------------------
FEATURES BENEFITS
Security, navigation, search, display and Speeds processing time
maintenance capabilities
Timely access to up-to-date information,
Access to information about company reducing errors from using obsolete
personnel information
Facilitates name and address changes Reduces queries and dependence on human
resources, accounting and other departments
Access to payroll and W-4 data, including
performing updates to deductions, Information available 24 X 7
withholdings and direct deposit data
More efficient use of processing resources
Benefit plan enrollment information and
forms Reduces administrative costs
Benefit plan updates
User-specific access rights
- ----------------------------------------------------------------------------------------
MANAGERIAL SELF-SERVICE APPLICATIONS
- -------------------------------------------
FEATURES BENEFITS
Allows managers to facilitate position Facilitates more efficient use of
management (transfers, salary changes, management resources
promotions, terminations)
Improves access to information
Access to compensation data and department
compensation plans, modeling and approvals Increases productivity
User-specific access rights Reduces administrative costs
Identifies trends and problem areas
- -------------------------------------------
</TABLE>
42
<PAGE> 46
Product Architecture
The following diagram illustrates the key features of our product
architecture:
LOGO
EmployeeDesktop, XMS, CompanyStore and The Seeker Workplace operate on
advanced IT platforms and are scalable and configurable. These products are
built on multi-tiered architectures and have a separate client, application
server and database server built using message based architectures. All products
house common business logic, including workflow, user management, security,
business rules, business intelligence and messaging in a distributed application
model. EmployeeDesktop, XMS and CompanyStore use a distributed application model
referred to as the Concur Common Technology Platform. The Seeker Workplace uses
a similar distributed application model referred to as the Seeker Framework.
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 Seeker Framework contains all of the business logic, is based upon
objects embedded in HTML documents and is built using C++. Seeker Framework
applications can be extended by embedding objects and logic in application
documents using an HTML editor. The Seeker Framework application server operates
on Windows NT and Sun Solaris operating systems using Microsoft Internet
Information Server or 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.
43
<PAGE> 47
The Seeker Framework supports Oracle, Sybase and Microsoft SQL server
databases and integrates with multiple ERP systems, including SAP, PeopleSoft,
Oracle and existing legacy systems.
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. 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 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 EmployeeDesktop, CompanyStore and The Seeker
Workplace. 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.
44
<PAGE> 48
CUSTOMERS
We have licensed our applications to over 225 enterprise customers in a
wide range of industries. The following table lists a selection of our
significant customers since fiscal 1996:
TECHNOLOGY/TELECOMMUNICATIONS/MEDIA
ADP, Inc.
AT&T Corp.
American Management Systems, Inc.
Bell South Corporation
Cambridge Technology Partners
Computer Sciences Corporation
Dell Computer Corporation
The Hearst Corporation
Knight-Ridder, Inc.
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
Bristol-Myers Squibb Company
Columbia/HCA Healthcare Corporation
Merck, Sharpe & Dohme Limited
Pfizer Inc.
Pharmacia & Upjohn Co.
Tenet Healthcare Corporation
CONSUMER
Anheuser-Busch Companies Inc.
Avon Products, Inc.
The Clorox Company
DaimlerChrysler Corporation
Eastman Kodak Company
The Gap, Inc.
The Gillette Company
J.C. Penney Company, Inc.
Levi Strauss & Co.
Maytag Corporation
Revlon, Inc.
FINANCIAL SERVICES
ABN Amro Holding N.V.
Bear Stearns & Co. Inc.
Comdisco, Inc.
Dresdner Kleinwort Benson
John Hancock Financial Services
J & H Marsh & McLennan, Inc.
Lehman Brothers Inc.
Royal Insurance
Wells Fargo Bank, N.A.
ENERGY AND NATURAL RESOURCES
Amerada Hess Corporation
Baltimore Gas & Electric Company
Broken Hill Proprietary Company Limited
Exxon Corporation
Florida Power & Light Company
Occidental Petroleum Corporation
Southern California Edison Company
Texaco Inc.
OTHER
American Airlines, Inc.
Battelle Memorial Institute
Federal Express Corporation
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.
SALES
We sell our software primarily through our domestic direct sales
organization, with sales professionals located in the metropolitan areas of
Atlanta, Baltimore, Boston, Chicago, Columbus, Dallas, Denver, Los Angeles, New
York, Oakland, Philadelphia, Raleigh, Redmond, St. Louis, San Francisco and
Washington, D.C. We also have sales
45
<PAGE> 49
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 EmployeeDesktop, extending our leadership position in travel
and entertainment expense management applications and increasing our market
share for CompanyStore and The Seeker Workplace. Our marketing programs are
targeted at accounting, finance, purchasing, human resources 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
46
<PAGE> 50
relationships, targeting additional strategic relationships, managing and
maintaining our Web site, issuing newsletters and direct mailings, creating and
placing advertisements, conducting public relations campaigns, and establishing
and maintaining close relationships with recognized industry analysts. We are an
active participant in technology-related conferences and demonstrate our
products at trade shows targeted at accounting, finance, purchasing, human
resources 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
EmployeeDesktop, XMS, CompanyStore, The Seeker Workplace and the Concur Common
Technology Platform and the Seeker Framework that standardize 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, EmployeeDesktop and
The Seeker Workplace as ESP offerings 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, front-office procurement and
47
<PAGE> 51
human resource self-service applications, and from providers of enterprise
resource planning, or ERP, software applications that have or may be developing
travel and expense management, front-office procurement and human resource
self-service products. 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.
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 or have announced plans to develop travel and entertainment expense
management and human resource self-service 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. Our major competitors
in the human resource self-service field include ProBusiness Services, Inc.,
Edify Corporation and Employease, Inc. We also expect to face competition from
new entrants including those ERP providers that do not already market travel and
entertainment expense management and human resource self-service products. 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, front-office procurement and human
resource self-service 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 the travel and entertainment expense management,
front-office procurement and human resource self-service 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
48
<PAGE> 52
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.
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 and human resource self-service application markets 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. In a small number of instances, we have provided our
licensees with access to source code versions of our software in order to
facilitate more extensive testing of such products. 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
49
<PAGE> 53
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 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 June 15, 1999, we had approximately 407 full-time employees, of whom
11 were based in the United Kingdom, one in Canada and two in Australia. These
employees included 124 engaged in research and development, 118 in sales and
marketing, 124 in consulting, training and technical support and 41 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 in the San Francisco Bay Area in which
our Seeker Software operations are 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. Our
wholly owned subsidiary, Seeker Software, will continue to operate out of our
facility located in Oakland, California consisting of approximately 19,500
square feet of office space held under a lease that expires in October 2001. As
of June 15, 1999, we also leased sales offices in Atlanta, Baltimore, Boston,
Chicago, Dallas, Los Angeles, New York, Philadelphia, Raleigh, 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.
50
<PAGE> 54
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..................... 38 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........................ 31 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
Alan A. Brown....................... 36 Executive Vice President of Global
Marketing
Robert K. Reid...................... 48 Executive Vice President and General
Manager, Human Resources Division
Gary L. Durbin...................... 56 Chief Technical Officer, Human
Resources Division
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
51
<PAGE> 55
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.
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 joined us in March 1999 and currently serves 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.
52
<PAGE> 56
Alan A. Brown joined us in May 1999 and currently serves as our Executive
Vice President of Global Marketing. Prior to joining us, Mr. Brown was Vice
President of Global Corporate Products and Travel and Entertainment Marketing at
MasterCard International Incorporated from May 1996 to May 1999. From October
1993 to May 1996, Mr. Brown served as Vice President of Marketing and Product
Development for U.S. Bancorp (formerly First Bank System, Inc.). Mr. Brown holds
a B.A. in Economics and Political Science from Stanford University.
Robert K. Reid joined us in June 1999 and currently serves as our Executive
Vice President and General Manager, Human Resources Division. Prior to joining
us, Mr. Reid served as President and Chief Executive of Seeker Software, our
wholly owned subsidiary, from January 1999 to May 1999. From January 1997 to
December 1998, Mr. Reid was the Vice President of the Applications Group of
Documentum, Inc., a document management software company. Mr. Reid also served
as Documentum's Vice President of Marketing from August 1993 to January 1997.
Mr. Reid holds a B.S. in Communications from the University of Tennessee.
Gary L. Durbin joined us in June 1999 and currently serves as our Chief
Technical Officer, Human Resources Division. Mr. Durbin has served as a director
of Adpac Corporation since 1994. Prior to joining us, Mr. Durbin served as
Chairman and Chief Technical Officer of Seeker Software from February 1999 to
May 1999. Mr. Durbin also served as Seeker Software's Chairman and Chief
Executive Officer from January 1997 to January 1999, and as its Chief Executive
Officer from January 1996 to December 1996. Before joining Seeker Software, Mr.
Durbin was an Executive Vice President for Ceridian Employer Services, a payroll
service company, from August 1993 to October 1995.
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.
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.
53
<PAGE> 57
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 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 the Company. None
of our executive officers serves as a member of the board of directors or
compensation committee
54
<PAGE> 58
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.
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.
55
<PAGE> 59
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.
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 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
AWARDS
ANNUAL COMPENSATION ------------------
-------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
--------------------------- -------- -------- ------------------
<S> <C> <C> <C>
S. Steven Singh........................ $200,000 $140,529 200,000
President and Chief Executive Officer
Sterling R. Wilson..................... 150,000 83,459 52,000
Chief Financial Officer and Executive
Vice President of Operations
Jon T. Matsuo.......................... 150,000 157,989 52,000
Executive Vice President of Worldwide
Sales
Michael W. Hilton...................... 132,000 95,330 52,000
Chairman of the Board and Chief
Technical Officer
Rajeev Singh........................... 115,000 108,027 52,000
Executive Vice President of Products
</TABLE>
OPTION GRANTS IN FISCAL 1998
The following table sets forth information regarding stock option grants
during fiscal 1998 to each of the Named Executive Officers. We have not granted
any stock appreciation rights. All options granted in 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
56
<PAGE> 60
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 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 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
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
S. Steven Singh........... 200,000 26.8% $0.375 10/22/07 $3,803,321 $5,819,869
Sterling R. Wilson........ 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Jon T. Matsuo............. 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Michael W. Hilton......... 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Rajeev Singh.............. 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 1998 AND FISCAL YEAR-END VALUES
The following table sets forth information concerning unexercised options
held at September 30, 1998 with respect to each of the Named Executive Officers.
Mr. Matsuo exercised options to purchase 8,000 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 $12.50 per share less the
exercise price.
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES (MARKET PRICE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED AT EXERCISE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)
ON LESS EXERCISE --------------------------- ---------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Steven Singh....... -- $ -- 116,250 263,750 $1,434,525 $3,211,675
Sterling R. Wilson.... -- -- 4,983 57,417 61,291 697,129
Jon T. Matsuo......... 8,000 48,800 176,983 57,417 2,194,091 697,129
Michael W. Hilton..... -- -- -- 52,000 -- 630,500
Rajeev Singh.......... -- -- 4,792 57,208 58,942 694,558
</TABLE>
57
<PAGE> 61
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 was in March 1999. The option became
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.
We and Mr. Reid are parties to a letter agreement dated May 26, 1999
governing his employment with us. Under the agreement, we agreed to pay Mr. Reid
an annual salary of $225,000, with a target bonus of $75,000 per fiscal year. In
Mr. Reid's first year of employment by us, he will be eligible for a pro rata
bonus for fiscal 1999 based on nine-twelfths of $75,000. Mr. Reid will be
eligible for consideration for the award of options to purchase our common stock
on a basis commensurate with similarly situated executives when our Compensation
Committee reviews compensation packages in October 1999.
We and Mr. Durbin are parties to a letter agreement dated May 26, 1999
governing his employment with us. Under the agreement, we agreed to pay Mr.
Durbin an annual salary of $165,000, with a target bonus of $75,000 per fiscal
year. In Mr. Durbin's first year of employment by us, he will be eligible for a
pro rata bonus for fiscal 1999 based on
58
<PAGE> 62
nine-twelfths of $75,000. Mr. Durbin will be eligible for consideration for the
award of options to purchase our common stock on a basis commensurate with
similarly situated executives when our Compensation Committee reviews
compensation packages in October 1999.
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 Plan provides for grants of both incentive stock options and
non-qualified stock options. The 1994 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 Plan. However, termination
of the 1994 Plan did not affect outstanding options, and as of June 15, 1999,
options to purchase 1,336,285 shares of our common stock were outstanding under
the 1994 Plan.
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 June 15, 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 Plan became
effective in December 1998. Our board of directors reserved 3,240,000 shares of
our common stock for issuance under the 1998 Plan, and the following additional
shares will become available for issuance under the 1998 Plan:
- any shares that are subject to options granted under the 1994 Plan or the
1998 Plan that expire or terminate for any reason without being
exercised;
- any shares that are issued pursuant to an option under the 1994 Plan or
the 1998 Plan that we repurchase upon termination of the optionholder's
employment;
- any shares that are issued under a restricted stock award under the 1998
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 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 Plan when the 1998 Plan became effective, became
available for issuance under the 1998 Plan.
59
<PAGE> 63
The 1998 Plan will terminate in August 2008, unless it is terminated sooner
in accordance with the terms of the 1998 Plan.
The 1998 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
Plan is ten years.
The 1998 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 Plan and any
agreement made thereunder, to grant awards and to make all other determinations
necessary or advisable for the administration of the 1998 Plan. The Compensation
Committee may, 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
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 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 June 15, 1999, options to purchase 1,925,381 shares of our
common stock were outstanding under the 1998 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
60
<PAGE> 64
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 six-month purchase periods. Eligible employees may acquire shares of our
common stock at the end of each six-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.
The first offering period under the Purchase Plan began in December 1998.
The first purchase period of the first offering period was shorter than six
months and ended on April 30, 1999. Offering periods and purchase periods
thereafter 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.
61
<PAGE> 65
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.
62
<PAGE> 66
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
63
<PAGE> 67
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.
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 the six months ended March 31, 1999, we paid or owed to
American Express an aggregate of approximately $367,000 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 six months ended March 31, 1999, American Express did not pay
or owe us fees under the marketing agreement. As of March 31, 1999, 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
64
<PAGE> 68
expired in June 1998 without being exercised. We and American Express also
agreed to develop certain product features enabling a higher level of
integration between XMS and certain American Express services and products. The
marketing agreement includes cross-indemnification, proprietary information and
confidentiality provisions, has a three year term and automatically renews for
successive two-year terms unless terminated by either party. The marketing
agreement may be terminated by either party upon an acquisition of 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 six months ended March
31, 1999.
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.
Transactions with Former Stockholders of Seeker Software. On June 1, 1999,
in connection with our acquisition of Seeker Software, we issued shares of our
common stock
65
<PAGE> 69
in exchange for all of the outstanding capital stock and warrants of Seeker
Software held by Seeker Software's former stockholders immediately prior to the
acquisition. We also issued options to purchase our common stock in exchange for
options to purchase Seeker Software's common stock held immediately prior to the
acquisition. Among the recipients of these shares of our common stock and
options to purchase our common stock were Mr. Reid, Mr. Durbin, Brentwood
Affiliates Fund, L.P. and Brentwood Associates VIII, L.P.
Mr. Durbin, who received 122 shares of our common stock and options to
purchase up to 46,736 shares of our common stock in exchange for his Seeker
Software warrants and options, has served as our Chief Technical Officer, Human
Resources since our acquisition of Seeker Software in June 1999. Mr. Durbin is
also a trustee for the Gary Lee Durbin and Loretta Ann Durbin Trust, which
received 269,589 shares of our common stock in the acquisition. Mr. Durbin's
children, Nathan E. Durbin, Samantha A. Durbin and Tadish C. Durbin received an
aggregate of 53,034 shares of our common stock in the acquisition.
Mr. Reid, our Executive Vice President and General Manager, Human Resources
Division since the acquisition, received options to purchase 293,708 shares of
our common stock in exchange for his Seeker Software options. In addition, one
year of Mr. Reid's unvested options may have become fully vested in connection
with the transaction.
Brentwood Affiliates Fund, L.P. and Brentwood Associates VIII, L.P.
received 5,586 shares and 527,783 shares, respectively, of our common stock in
exchange for their Seeker Software stock. Mr. Brody, one of our directors, is a
Managing Member of Brentwood VIII Ventures, LLC, which is a General Partner of
Brentwood Affiliates Fund, 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 VIII, L.P.
Mr. Brody, Brentwood Affiliates Fund II, L.P. and Brentwood Associates VI,
L.P., each stockholders of Concur prior to the acquisition, owned of record
3,871 shares, 1,715,014 shares and 527,783 shares, respectively, of our common
stock. Prior to the acquisition, Mr. Brody, Brentwood Affiliates Fund II, L.P.
and Brentwood Associates VI, L.P. together held approximately 9.3% of our common
stock. Following the acquisition, as of June 15, 1999 Mr. Brody, Brentwood
Affiliates Fund II, L.P., Brentwood Affiliates Fund, L.P., Brentwood Associates
VIII, L.P. and Brentwood Associates VI, L.P. together hold approximately 10.3%
of our outstanding common stock.
66
<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 15, 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; 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
NAME AND ADDRESS --------------------------
OF BENEFICIAL OWNER NUMBER PERCENT+
------------------- ------------ ----------
<S> <C> <C>
Edward P. Gilligan.......................................... 2,970,161 12.0%
American Express Travel Related Services Company, Inc. (1)
Jeffrey D. Brody............................................ 2,320,501 10.3
Brentwood Associates VI, L.P. and affiliates (2)
Norman A. Fogelsong......................................... 2,202,283 9.7
Institutional Venture Partners VII, L.P. and affiliates
(3)
Michael J. Levinthal........................................ 2,127,180 9.4
Mayfield VIII and affiliates (4)
US Venture Partners IV, L.P. and affiliates (5)............. 1,972,492 8.7
S. Steven Singh (6)......................................... 1,007,305 4.4
Michael W. Hilton (7)....................................... 898,094 4.0
James D. Robinson III....................................... 322,581 1.4
RRE Investors, L.P. and affiliates (8)
Jon T. Matsuo (9)........................................... 240,963 1.1
Sterling R. Wilson (10)..................................... 208,591 *
Rajeev Singh (11)........................................... 179,888 *
Russell P. Fradin........................................... -- *
ADP, Inc. (12)
All current executive officers and directors as a group (15
persons) (13)............................................. 13,006,300 51.0%
</TABLE>
- ------------
* Less than 1%.
+ Percentage ownership is based on 22,619,337 shares outstanding as of June
15, 1999. 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 June 15, 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 June
15, 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) 1,715,014 shares held of record by Brentwood Associates VI,
L.P.; (ii) 527,783 shares held of record by Brentwood Associates VIII,
L.P.; (iii) 68,252 shares held of record by Brentwood Affiliates Fund II,
L.P.; (iv) 5,586 shares held of record by Brentwood Affiliates Fund, L.P.;
and (v) 3,871 shares held of record by Jeffrey D. Brody. Mr. Brody, a
67
<PAGE> 71
director of Concur, is a Managing Member of Brentwood VIII Ventures, LLC, a
General Partner of Brentwood Affiliates Fund II, L.P., and Brentwood
Affiliates Fund, 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 VIII, L.P. and
Brentwood Associates VI, L.P. Mr. Brody disclaims beneficial ownership of
all such shares except those he holds of record. Please see "Selling
Stockholders" for the percent beneficially owned by Mr. Brody and his
affiliates before and after this offering. The address for Mr. Brody,
Brentwood Associates VI, L.P. Brentwood Associates VIII, L.P., Brentwood
Affiliates Fund II, L.P. and Brentwood Affiliates Fund 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 758,138 shares held of record by S. Steven Singh and 249,167
shares subject to options exercisable within 60 days of June 15, 1999 held
by Mr. Singh. Mr. Singh is the President, Chief Executive Officer and a
director of Concur.
(7) Represents 874,261 shares held of record by Michael W. Hilton and 23,833
shares subject to options exercisable within 60 days of June 15, 1999 held
by Mr. Hilton. Mr. Hilton is the Chairman of the Board and Chief Technical
Officer of Concur.
(8) Represents 322,581 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 37,980 shares held of record by Jon T. Matsuo and 202,983 shares
subject to options exercisable within 60 days of June 15, 1999 held by Mr.
Matsuo. Mr. Matsuo is the Executive Vice President of Worldwide Sales of
Concur.
(10) Represents 177,608 shares held of record by Sterling R. Wilson and 30,983
shares subject to options exercisable within 60 days of June 15, 1999 held
by Mr. Wilson. Mr. Wilson is the Chief Financial Officer and Executive Vice
President of Operations of Concur.
(11) Represents 149,180 shares held of record by Rajeev Singh and 30,708 shares
subject to options exercisable within 60 days of June 15, 1999 held by Mr.
Singh. Mr. Singh is the Executive Vice President of Products of Concur.
(12) Russell P. Fradin is President, Employer Services North America, of ADP,
Inc.
(13) Represents 10,110,084 shares held of record by current executive officers
and directors as a group and 2,896,216 shares subject to options or
warrants exercisable within 60 days of June 15, 1999 held by current
executive officers and directors as a group.
68
<PAGE> 72
SELLING STOCKHOLDERS
The following table presents information with respect to the selling
stockholders and the shares of our common stock that each may offer under this
prospectus. Each of the selling stockholders named below was formerly a
stockholder or warrant holder of Seeker Software who acquired their shares as a
result of our acquisition of Seeker Software. To our knowledge, none of the
selling stockholders has, or within the past three years has had, any position,
office or other material relationship with us or any of our predecessors or
affiliates, except as noted in the footnotes to the table below.
Under an escrow agreement, a portion of each selling stockholder's shares
is being held in escrow. Although we list these shares as shares that may be
offered in the table below, these shares may only be offered and sold under this
prospectus if and when these shares are released from escrow and returned to the
selling stockholders.
Furthermore, under a shelf registration agreement, the selling shareholders
are subject to volume and manner of sale restrictions. See "Plan of
Distribution." The maximum aggregate number of shares that may be sold under
this prospectus is 1,709,946, a number that equals approximately 50% of the
aggregate number of shares currently owned by the selling stockholders. As
described in the "Plan of Distribution" section of this prospectus, each selling
stockholder is permitted under a shelf registration agreement to sell under this
prospectus only a limited portion of such stockholder's total shares during
specified periods, and the aggregate number of shares that the stockholder may
sell under this prospectus during the period of this offering is limited to 50%
of the stockholder's total shares, except for certain adjustments that are
permitted during the first 90 days following the date of this prospectus (see
footnote 2 to the table below). The table assumes that each selling stockholder
sells the maximum number of shares eligible to be sold by that stockholder under
the shelf registration agreement described in the "Plan of Distribution" section
of this prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY MAXIMUM NUMBER SHARES BENEFICIALLY
OWNED PRIOR OF SHARES TO BE OWNED AFTER
TO THE OFFERING OFFERED BY EACH THE OFFERING (2)(3)
----------------------- SELLING -----------------------
NAME NUMBER PERCENT (1) STOCKHOLDER (2) NUMBER PERCENT (1)
---- --------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Jeffrey D. Brody, Brentwood Associates VI,
L.P. and affiliates (4)................. 2,320,501 10.3% 266,684 2,053,817 9.1%
Advanced Technology Ventures IV, L.P...... 585,777 2.6 292,888 292,889 1.3
Information Technology Ventures, L.P. and
affiliates (5).......................... 585,776 2.6 292,888 292,888 1.3
Norwest Venture Partners VII L.P.......... 468,229 2.1 234,114 234,115 1.0
Gary L. Durbin, Gary L. Durbin and Loretta
A. Durbin as Trustees of the Gary Lee
Durbin and Loretta Ann Durbin Trust
(6)..................................... 316,447 1.4 134,855 181,592 *
Jon T. Blankmeyer, Jon T. Blankmeyer,
Trustee of the Blankmeyer Family Trust
(7)..................................... 218,408 * 102,322 116,086 *
David A. Duffield, Trustee of the David A.
Duffield Trust.......................... 124,406 * 62,203 62,203 *
Platinum Venture Partners II, L.P......... 81,215 * 40,607 40,608 *
Jerome E. Stanton......................... 63,165 * 31,582 31,583 *
Jan Wesemann (8).......................... 60,418 * 22,657 37,761 *
Inga S. Blankmeyer........................ 50,349 * 25,174 25,175 *
Olivia R. Blankmeyer...................... 50,349 * 25,174 25,175 *
Michael G. Deverell, Trustee of the
Deverell Family Revocable Trust......... 48,552 * 24,276 24,276 *
</TABLE>
69
<PAGE> 73
<TABLE>
<CAPTION>
SHARES BENEFICIALLY MAXIMUM NUMBER SHARES BENEFICIALLY
OWNED PRIOR OF SHARES TO BE OWNED AFTER
TO THE OFFERING OFFERED BY EACH THE OFFERING (2)(3)
----------------------- SELLING -----------------------
NAME NUMBER PERCENT (1) STOCKHOLDER (2) NUMBER PERCENT (1)
---- --------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
David J. Hanson (9)....................... 39,229 * 18,377 20,852 *
Philippe J. Chouraki...................... 36,144 * 18,072 18,072 *
Michael G. Deverell, Trustee of the Adele
H. Deverell Irrevocable Trust........... 35,981 * 17,990 17,991 *
Baan Investment B.V....................... 27,972 * 13,986 13,986 *
Tadish C. Durbin (10)(11)................. 19,468 * 9,734 9,734 *
Comdisco, Inc............................. 18,441 * 9,220 9,221 *
Kevin G. Hall, Trustee of Kevin G. Hall
Revocable Trust......................... 18,242 * 9,121 9,121 *
Nathan E. Durbin.......................... 16,783 8,391 8,392
Samantha A. Durbin........................ 16,783 * 8,391 8,392 *
ITV Affiliates Fund, L.P. ................ 15,217 * 7,608 7,609 *
Deepak Natarajan.......................... 14,615 * 7,307 7,308 *
Umang Gupta............................... 11,188 * 5,594 5,594 *
Jeffrey Saenger (12)...................... 10,314 * 4,501 5,813 *
Diane Helton.............................. 8,391 * 4,195 4,196 *
Eric Kiebler (13)......................... 7,779 * 2,797 3,845 *
Carol Friedman............................ 5,874 * 2,937 2,937 *
Robert Wargowski (10)(11)(14)............. 5,547 * 2,365 3,182 *
Patrick Flanigan (10)(11)(15)............. 5,547 * 2,202 3,345 *
John Cuellar.............................. 3,356 * 1,678 1,678 *
Mark A. Potenzone (10)(11)(16)............ 2,097 * 874 1,223 *
James W. Hunter (10)(11)(17).............. 2,097 * 786 1,311 *
Michael C. Phillips....................... 1,949 * 974 975 *
Linda Villers (10)(11)(18)................ 1,788 * 582 909 *
Baharak Bavand (10)(11)(19)............... 1,724 * 606 839 *
Don Hackett............................... 1,468 * 734 734 *
Teresa O'Keefe (10)(11)(20)............... 1,468 * 419 1,049 *
William Champion (10)(11)(21)............. 1,458 * 209 454 *
Janet Alvies.............................. 1,305 * 652 653 *
Nancy McCune (10)(11)(22)................. 1,170 * 314 559 *
Eugene R. Lopez (10)(11)(23).............. 1,118 * 419 699 *
Carrie Pedraza (10)(11)(24)............... 1,102 * 115 296 *
James Colby Kraybill...................... 587 * 293 294 *
Susan Macleod (10)(11)(25)................ 558 * 209 349 *
Patrick Welsh (10)(11)(26)................ 523 * 209 328 *
Nan Ayers (10)(11)(27).................... 422 * 41 136 *
Lavinia Hong.............................. 419 * 209 314 *
Murray Warner (10)(11)(28)................ 411 * 20 399 *
</TABLE>
- -------------------------
* Less than 1%
(1) Percentage ownership is calculated based on 22,619,337 shares outstanding
as of June 15, 1999. Unless otherwise noted 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 within 60 days of June 15,
1999 are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purposes 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. All warrants held by the selling stockholders were converted into
shares of our common stock pursuant to the Agreement and Plan of
Reorganization as described in the "Plan of Distribution" section of this
prospectus.
(2) Under the shelf registration agreement, each selling stockholder is
permitted to sell under this prospectus during specified periods up to
certain portions of the total shares of Concur owned by such stockholder
(excluding any Concur shares acquired upon the exercise of stock options)
("Total Shares"). For example,
70
<PAGE> 74
during the first 90 days following the effective date of this prospectus,
a selling stockholder is permitted to sell up to 15% of such
stockholder's Total Shares (the "Initial Allotment"). With one exception,
the maximum amount a selling stockholder may sell in all periods under
this prospectus is 50% of such stockholder's Total Shares. The exception
is that, during the first 90-day period following the date of this
prospectus, each selling stockholder may assign all or a portion of such
stockholder's Initial Allotment to other selling stockholders. Thus, if a
selling stockholder receives assignments of Initial Allotments from other
selling stockholders, the recipient could sell under this prospectus more
than the number of shares shown for that stockholder in the table, but no
more than such stockholder's Total Shares.
(3) Because the selling stockholders are not obligated to sell shares and
because the selling stockholders may also acquire publicly traded shares
of our common stock, we can only estimate how many shares each selling
stockholder will beneficially own after this offering by assuming that
each such stockholder will sell its maximum allotment under the shelf
registration agreement.
(4) Represents (i) 1,715,014 shares held of record by Brentwood Associates
VI, L.P.; (ii) 527,783 shares held of record by Brentwood Associates
VIII, L.P.; (iii) 68,252 shares held of record by Brentwood Affiliates
Fund II, L.P.; (iv) 5,586 shares held of record by Brentwood Affiliates
Fund, L.P.; and (v) 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, a General Partner of Brentwood Affiliates Fund II, L.P.,
and Brentwood Affiliates Fund, 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
VIII, L.P. and Brentwood Associates VI, L.P. Mr. Brody disclaims
beneficial ownership of all such shares except those he holds of record.
(5) Represents 570,559 shares held of record by Information Technology
Ventures, L.P. and 15,217 shares held of record by ITV Affiliates Fund,
L.P.
(6) Represents 269,589 shares held of record by Gary L. Durbin and Loretta A.
Durbin as Trustees of the Gary Lee Durbin and Loretta Ann Durbin Trust,
122 shares held of record by Gary Durbin and 46,736 shares subject to
options exercisable within 60 days of June 15, 1999 held by Mr. Durbin.
Mr. Durbin's children, Nathan E. Durbin, Samantha A. Durbin and Tadish C.
Durbin beneficially own an aggregate of 53,034 additional shares. Mr.
Durbin is the Chief Technical Officer, Human Resources Division of
Concur, and served as the Chief Technical Officer and Chairman of Seeker
Software.
(7) Represents 77,933 shares held of record by Jon T. Blankmeyer, 126,713
shares held of record by Jon T. Blankmeyer, Trustee of the Blankmeyer
Family Trust U/D/T dated February 18, 1993 and 13,762 shares subject to
options exercisable within 60 days of June 15, 1999 held by Mr.
Blankmeyer. Mr. Blankmeyer's children, Inga S. Blankmeyer and Olivia R.
Blankmeyer beneficially own an aggregate of 100,698 additional shares.
(8) Represents 45,314 shares held of record by Jan Wesemann and 15,104 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Wesemann. Ms. Wesemann was the Vice President of Sales of Seeker
Software.
(9) Represents 36,755 shares held of record by David J. Hanson and 2,475
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Hanson. Mr. Hanson was the Vice President of Finance and the
Chief Financial Officer of Seeker Software.
(10) The selling stockholder formerly had an employment relationship with
Seeker Software.
(11) The selling stockholder is an employee of Concur, with an address at
Concur Technologies, Inc., 6222 185th Avenue NE, Redmond, Washington
98052.
(12) Represents 9,003 shares held of record by Jeffrey Saenger and 1,311
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Saenger. Mr. Saenger is the Vice President of Consulting
Services of Concur and served as the Vice President of Customer Service
of Seeker Software.
(13) Represents 5,594 shares held of record by Eric Kiebler and 2,185 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Kiebler. Mr. Kiebler is the Vice President of Engineering, Human
Resources Division of Concur and served as the Vice President of
Engineering of Seeker Software.
(14) Represents 4,731 shares held of record by Deanna Wargowski and 816 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Wargowski.
(15) Represents 4,405 shares held of record by Patrick Flanigan and 1,142
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Flanigan.
(16) Represents 1,748 shares held of record by Mark A. Potenzone and 349
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Potenzone.
(17) Represents 1,573 shares held of record by James W. Hunter and 524 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Hunter.
71
<PAGE> 75
(18) Represents 1,165 shares held of record by Linda Villers and 623 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Villers.
(19) Represents 1,213 shares held of record by Baharak Bavand and 511 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Bavand.
(20) Represents 839 shares held of record by Teresa O'Keefe and 629 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. O'Keefe.
(21) Represents 419 shares held of record by William Champion and 244 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Champion.
(22) Represents 629 shares held of record by Nancy McCune and 541 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. McCune.
(23) Represents 839 shares held of record by Eugene R. Lopez and 279 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Lopez.
(24) Represents 230 shares held of record by Carrie Pedraza and 872 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Pedraza.
(25) Represents 419 shares held of record by Susan Macleod and 139 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Macleod.
(26) Represents 419 shares held of record by Patrick Welsh and 104 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Welsh.
(27) Represents 83 shares held of record by Nan Ayers and 339 shares subject
to options exercisable within 60 days of June 15, 1999 held by Ms. Ayers.
(28) Represents 41 shares held of record by Murray Warner and 370 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Warner.
72
<PAGE> 76
PLAN OF DISTRIBUTION
GENERAL
The shares covered by this prospectus will be offered and sold only by the
selling stockholders and not by us. We will not receive any of the proceeds of
the sale of these shares.
Shares Covered
In connection with our acquisition of Seeker Software, we entered into a
shelf registration agreement with the selling stockholders. Shares may be
offered and sold under this prospectus only in accordance with the terms of that
agreement. Pursuant to that agreement, only shares of our common stock issued at
the time of the acquisition (upon conversion of Seeker Software stock or
warrants) may be sold pursuant to this prospectus.
Selling Stockholders Are Not Required to Sell
The selling stockholders may decide not to sell any of the shares covered
by this prospectus, and the selling stockholders might transfer the shares other
than pursuant to this prospectus by gift or other transfer, to the extent
permitted by law.
RESALE RESTRICTIONS
The shelf registration agreement imposes a number of restrictions on the
resale of shares pursuant to this prospectus. These are summarized below.
Volume Limits
No selling stockholder may sell shares under this prospectus in excess of
the following:
(a) Initial Period. During the 90-day period beginning with the date
of this prospectus (the "Initial Period"), each selling stockholder will
sell under this prospectus no more than 15% of the total number of shares
of our common stock that such stockholder received in connection with our
acquisition of Seeker Software upon conversion of such stockholder's Seeker
Software stock and warrants (the "Total Shares"). During the Initial Period
only, any selling stockholder may assign to any other selling stockholder
all or any portion of the right (the "allotment") that the assigning
stockholder would otherwise have had to sell shares during the Initial
Period. By receiving such assignment of allotments from other selling
stockholders, a selling stockholder would have the right to sell under this
prospectus more than 15% of such stockholder's Total Shares during the
Initial Period. In no event could a selling stockholder sell under this
prospectus more than such stockholder's Total Shares.
(b) Second Period. During the next 90-day period, each selling
stockholder may sell under this prospectus additional shares up to 15% of
such stockholder's Total Shares plus any unsold and unassigned allotment
from the Initial Period.
(c) Third Period. During the next 90-day period (or until June 1, 2000
if that date is within this period), each selling stockholder may sell
under this prospectus
73
<PAGE> 77
additional shares up to 10% of such stockholder's Total Shares plus any
unsold and unassigned allotments from earlier periods.
(d) Fourth Period. During any remaining period prior to June 1, 2000,
each selling stockholder may sell under this prospectus additional shares
up to 10% of such stockholder's Total Shares plus any unsold allotments
from earlier periods.
Adjustment of Trading Limits
If during the period from the date of this prospectus to June 1, 2000, any
selling stockholder sells shares in an underwritten public offering pursuant to
the Third Amended and Restated Registration Rights Agreement (under which
certain stockholders have additional demand and piggyback registration rights),
the number of shares that the selling stockholder will be permitted to sell
under this prospectus will be reduced by the number of shares that such
stockholder sells in the underwritten offering. That reduction will be allocated
ratably over the trading periods referred to above (in proportion to the number
of shares that the stockholder could otherwise have sold during those periods).
For example, if the stockholder sold 70,000 shares in the underwritten public
offering during the second period referred to above and if the stockholder would
otherwise have been permitted to sell 150,000, 100,000 and 100,000 shares during
the second, third and fourth periods, respectively, then the number of shares
the stockholder could sell under this prospectus during those periods would be
reduced by 30,000, 20,000 and 20,000, respectively.
Permitted Windows
In addition to the volume limitations summarized above, each selling
stockholder is permitted to make sales under this prospectus only during certain
permitted windows.
To initiate a permitted window, the stockholder must give notice to us of
the stockholder's intention to sell under this prospectus, indicating the number
of shares the stockholder proposes to sell and the method of sale to be used. We
have agreed to notify the stockholder promptly within two business days (1) that
this prospectus is current and may be used for the sale or (2) that the
prospectus must be supplemented or amended. If the prospectus must be
supplemented, we have committed to file the supplement and notify the
stockholder within five business days (seven business days from the
stockholder's notice) that the prospectus may be used as supplemented. If we
consider it necessary to amend the prospectus, we have agreed to file the
amendment within 15 days and to use our best efforts to cause the amendment to
become effective as soon as practicable and to notify the stockholder when it is
effective. After receiving notice from us that the prospectus may be used, as
described above (either in two business days, seven business days or upon
effectiveness of an amendment), the stockholder will then have a window of 20
consecutive calendar days in which to sell shares under this prospectus.
A stockholder may initiate as many permitted windows as the stockholder
wishes, provided the stockholder has a bona fide intention to sell during the
permitted window the shares indicated in the stockholder's notice.
Suspension of Sales
We may suspend the use of the prospectus if we learn of any event that is
required to be disclosed in this prospectus before it is used for any further
sale. We have agreed that, if such a suspension occurs, we will supplement the
prospectus within five business days or
74
<PAGE> 78
file an amendment within 15 days. In addition, if in the good faith judgment of
our board of directors there is a material development or potential material
development which should be disclosed in our prospectus before it is used for
further sales but which disclosure would be premature and would have a material
adverse effect on us and our stockholders, then we can furnish the selling
stockholders a certificate to this effect and interrupt any permitted selling
windows that may have been initiated. In no event will any such interruption
continue for longer than 45 days, and all such interruptions together may not
exceed 60 days. The effective period of this prospectus will be extended after
June 1, 2000 by a number of days equal to the aggregate number of days during
which use of this prospectus was suspended or interrupted as described above.
The extension will apply to the particular trading period during which the
suspension or interruption occurs (i.e., the Initial Period, Second Period,
Third Period or Fourth Period described above under "--Volume Limits").
Broker Limitations
If any selling stockholder sells more than 1,000 shares in any week under
this prospectus, the shelf registration agreement requires the stockholder to
make such sales only through BancBoston Robertson Stephens Inc., Hambrecht &
Quist LLC or U.S. Bancorp Piper Jaffray Inc. or any other broker that is one of
the three largest market makers in our common stock (in volume of market making
transactions) during the 90 days immediately preceding that week.
Trading Windows Under Our Insider Trading Policy
In addition to the resale restrictions under the shelf registration
agreement, resales by selling stockholders who are our employees are further
restricted by our insider trading policy. Under this policy:
- Employees may sell shares only during normal quarterly trading windows
specified in the policy. Typically, these windows begin on the third
trading day after we publicly report our operating results for the
previous calendar quarter and end on the 15th day before the end of the
then-current quarter (in the case of certain employees, the window
typically ends on the last day of the second month of the then-current
quarter).
- In addition, our compliance officer may specify other blackout periods
during which employees may not trade.
- Certain employees must obtain trading approval from the compliance
officer.
- No trading is permitted by an employee while the employee in the
possession of material nonpublic information.
- No employee may trade in our stock at any time by means of any put, call
or short sale (including a short sale "against the box") or by means of
any other interest or position relating to the future prices of our
stock.
75
<PAGE> 79
MANNER OF SALE
Variety of Methods of Sale
Subject to the above restrictions, the selling stockholders will act
independently from us in making decisions regarding the timing, manner and size
of their sales of shares under this prospectus. In general, we expect sales to
be made in ordinary brokerage transactions over the Nasdaq National Market at
then prevailing market prices. However, sales might be made from time to time in
other types of transactions as well, including sales in the over-the-counter
market, in negotiated transactions (with or without a broker), in block trades
or in any combination of these methods. The shares may be sold at prevailing
market prices, at prices relating to prevailing market prices or at negotiated
prices.
Transactions with Broker-Dealers
The selling stockholders may sell their shares directly to purchasers or
through broker-dealers. The broker-dealers may act as agents or principals. If
they purchase the shares as principals, they may resell the shares for their own
accounts under this prospectus. Sales may occur in ordinary broker transactions
or in transactions in which the brokers solicit purchasers. In effecting sales,
broker-dealers that are engaged by selling stockholders may arrange for other
broker-dealers to participate. The broker-dealers may engage in block
transactions in which they may attempt to sell the shares as agents but may
position and resell a portion of the block as principals.
The selling stockholders may enter into hedging transactions with
broker-dealers. In connection with these transactions, broker-dealers may engage
in short sales of the registered shares in the course of hedging the positions
they assume with selling stockholders. The selling stockholders may also sell
shares short and redeliver the shares to close out their short positions. The
selling stockholders may enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the registered
shares. The broker-dealer may then resell or transfer these shares under this
prospectus. A selling stockholder may also loan or pledge the registered shares
to a broker-dealer and the broker-dealer may sell the shares so loaned or, upon
a default, the broker-dealer may effect sales of the pledged shares under this
prospectus.
The broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of the shares for whom the broker-dealers may act as agents or to whom they sell
as principals, or both.
To our knowledge, the selling stockholders have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares, and no underwriter or
coordinating broker is acting in connection with the selling stockholders'
proposed sale of their shares.
Statutory Liabilities
The selling stockholders and any brokers, dealers or agents who participate
in the distribution of the shares may be deemed to be underwriters. Any profit
on the sale of the shares by them and any discounts, commissions or concessions
received by any broker, dealer or agent might be deemed to be underwriting
discounts and commissions under the Securities Act. To the extent the selling
stockholders may be deemed to be underwriters, the selling stockholders may be
subject to statutory liabilities, including, but not limited to, Sections 11, 12
and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.
76
<PAGE> 80
Prospectus Delivery
The selling stockholders will be subject to the prospectus delivery
requirements of the Securities Act.
Exchange Act Regulations
SOME PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF OUR COMMON STOCK, INCLUDING
THE ENTRY OF STABILIZING BIDS OR SYNDICATE COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. The selling stockholders and any other person
participating in a distribution will be subject to applicable provisions of the
Exchange Act and its rules and regulations, including Regulation M. This
regulation may limit the timing of purchases and sales of any of the shares by
the selling stockholders and any other person. The anti-manipulation rules under
the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. Furthermore,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the shares to engage in market-making activities with
respect to the particular shares being distributed for a period of up to five
business days before the distribution. All of the foregoing may affect the
marketability of the shares and the ability of any person or entity to engage in
market-making activities with respect to the shares.
EXPENSES ASSOCIATED WITH REGISTRATION
We have agreed to pay the expenses of registering the shares under the
Securities Act, including registration and filing fees, printing expenses,
administrative expenses and legal and accounting fees. Each of the selling
stockholders will bear its pro rata share of all discounts, commissions or other
amounts payable to dealers or agents as well as fees and disbursements for any
legal counsel retained by any selling stockholder.
INDEMNIFICATION
In the shelf registration agreement, we and the selling stockholders have
agreed to indemnify each other and specified other persons against some
liabilities in connection with the offering of the shares, including liabilities
arising under the Securities Act. The selling stockholders may also agree to
indemnify any broker-dealer or agent that participates in transactions involving
sales of the shares against some liabilities, including liabilities arising
under the Securities Act.
TERMINATION OF THIS OFFERING
The shelf registration agreement requires that we use our best efforts to
keep the registration statement effective until June 1, 2000, or later in
limited circumstances. Therefore, this offering will terminate on the earlier of
(1) the expiration of this period, (2) the date on which all shares offered
under this prospectus have been sold by the selling stockholders or (3) in
certain circumstances, if we are acquired by another party.
77
<PAGE> 81
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 June 15, 1999 there were 22,617,542 shares of common stock
outstanding, held of record by 126 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 June 15, 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
78
<PAGE> 82
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 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 13,707,626 shares of our common
stock not including shares of our common stock the offer and sale of which are
being registered by this prospectus, but including 2,224,267 shares issuable
upon exercise of warrants, 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.
79
<PAGE> 83
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by Fenwick & West 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; the financial statements of Seeker
Software, Inc. as of December 31, 1997 and 1998 and for each year then ended and
the financial statements of 7Software as of December 31, 1997 and for the period
then ended; and the supplemental consolidated financial statements and related
supplemental financial statement schedule of Concur as of September 30, 1997 and
1998 and for each year 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.
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.
80
<PAGE> 84
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONCUR TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-3
Consolidated Balance Sheets as of September 30, 1997 and
1998 and March 31, 1999................................... F-4
Consolidated Statements of Operations for the years ended
September 30, 1996, 1997, and 1998 and for the six months
ended March 31, 1998 and 1999............................. F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended September 30, 1996, 1997, and 1998 and
for the six months ended March 31, 1999................... F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1997 and 1998 and for the six months
ended March 31, 1998 and 1999............................. F-7
Notes to Consolidated Financial Statements.................. F-8
SEEKER SOFTWARE, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-29
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999.................................................. F-30
Statements of Operations for the years ended December 31,
1997 and 1998 and for the three months ended March 31,
1998 and 1999............................................. F-31
Statements of Redeemable Convertible Preferred Stock and
Shareholders' Deficit for the years ended December 31,
1997 and 1998 and for the three months ended March 31,
1999...................................................... F-32
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and for the three months ended March 31,
1998 and 1999............................................. F-33
Notes to Financial Statements............................... F-34
7SOFTWARE, INC. (A DEVELOPMENT STAGE COMPANY)
Report of Ernst & Young LLP, Independent Auditors........... F-45
Balance Sheets as of December 31, 1997 and June 30, 1998.... F-46
Statements of Operations for the Period May 30, 1997 (Date
of Incorporation) to December 31, 1997 and the six months
ended June 30, 1998....................................... F-47
Statements of Shareholders' Equity (Deficit) for the period
May 30, 1997 (Date of Incorporation) to December 31, 1997
and the six months ended June 30, 1998.................... F-48
Statements of Cash Flows for the period May 30, 1997 (Date
of Incorporation) to December 31, 1997 and the six months
ended June 30, 1998....................................... F-49
Notes to Financial Statements............................... F-50
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS OF CONCUR
TECHNOLOGIES, INC. (RESTATED TO GIVE RETROACTIVE EFFECT TO
A MERGER ACCOUNTED FOR IN A POOLING OF INTERESTS)
Report of Ernst & Young LLP, Independent Auditors........... F-54
Supplemental Consolidated Balance Sheets as of September 30,
1997 and 1998 and March 31, 1999.......................... F-55
Supplemental Consolidated Statements of Operations for the
years ended September 30, 1997 and 1998 and for the six
months ended March 31, 1998 and 1999...................... F-56
Supplemental Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended September 30, 1997, and 1998
and for the six months ended March 31, 1999............... F-57
</TABLE>
F-1
<PAGE> 85
<TABLE>
<S> <C>
Supplemental Consolidated Statements of Cash Flows for the years ended September 30, 1997 and
1998 and for the six months ended March 31, 1998 and 1999.................................... F-58
Notes to Supplemental Consolidated Financial Statements........................................ F-59
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Financial Statements.................................................... F-82
Pro Forma Consolidated Balance Sheet as of March 31, 1999...................................... F-83
Pro Forma Consolidated Statements of Operations for the year ended September 30, 1998.......... F-84
Notes to Pro Forma Consolidated Financial Statements........................................... F-85
</TABLE>
F-2
<PAGE> 86
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-3
<PAGE> 87
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 6,695 $ 15,629 $ 8,612
Marketable securities.............................. -- -- 37,544
Accounts receivable, net of allowance for doubtful
accounts of $170 and $547 at September 30, 1997,
and 1998, respectively; $720 at March 31, 1999... 4,365 4,988 7,111
Prepaid expenses and other current assets.......... 165 536 1,160
Note receivable from stockholders.................. -- 167 167
-------- -------- --------
Total current assets........................ 11,225 21,320 54,594
Equipment and furniture, net......................... 1,088 2,162 2,640
Deposits and other assets............................ 51 336 2,432
Note receivable from stockholders, net of current
portion............................................ -- 333 333
Capitalized technology and other intangible assets... -- 880 720
-------- -------- --------
Total assets................................ $ 12,364 $ 25,031 $ 60,719
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 1,082 $ 1,838 $ 4,900
Accrued liabilities................................ 1,294 3,850 6,827
Accrued commissions................................ 509 902 1,067
Current portion of accrued payment to
stockholders..................................... -- 167 167
Current portion of long-term debt.................. 329 2,033 2,757
Current portion of capital lease obligations....... 351 1,004 1,681
Deferred revenues.................................. 1,477 3,052 3,770
-------- -------- --------
Total current liabilities................... 5,042 12,846 21,169
Accrued payment to stockholders, net of current
portion............................................ -- 333 333
Long-term debt, net of current portion............... 2,171 5,632 4,336
Capital lease obligations, net of current portion.... 1,516 2,127 1,910
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) and no shares at March
31, 1999...................................... 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; 17,103,430 at March 31, 1999.... 259 6,276 76,413
Deferred stock compensation........................ -- (452) (319)
Accumulated deficit................................ (13,969) (32,043) (43,306)
-------- -------- --------
Total stockholders' equity (deficit)........ (13,710) (26,219) 32,788
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................ $ 12,364 $ 25,031 $ 60,719
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 88
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Licenses........................ $ 1,717 $ 6,347 $ 11,696 $ 4,854 $ 9,243
Services........................ 242 1,923 5,463 2,220 4,348
------- ------- -------- ------- --------
Total revenues............... 1,959 8,270 17,159 7,074 13,591
Cost of revenues:
Licenses........................ 386 394 558 172 573
Services........................ 839 2,269 5,684 2,212 5,139
------- ------- -------- ------- --------
Total cost of revenues....... 1,225 2,663 6,242 2,384 5,712
------- ------- -------- ------- --------
Gross profit...................... 734 5,607 10,917 4,690 7,879
Operating expenses:
Sales and marketing............. 2,936 5,896 12,353 4,606 10,401
Research and development........ 1,793 3,401 6,434 2,278 5,505
General and administrative...... 963 1,815 4,687 1,673 3,434
Acquired in-process technology
(Note 3)..................... -- -- 5,203 -- --
------- ------- -------- ------- --------
Total operating
expenses............. 5,692 11,112 28,677 8,557 19,340
------- ------- -------- ------- --------
Loss from operations.............. (4,958) (5,505) (17,760) (3,867) (11,461)
Interest income................... 92 130 331 91 847
Interest expense.................. (43) (88) (467) (210) (537)
Other expense, net................ (44) (61) (178) (77) (112)
------- ------- -------- ------- --------
Net loss.......................... $(4,953) $(5,524) $(18,074) $(4,063) $(11,263)
======= ======= ======== ======= ========
Pro forma basic and diluted net
loss per share (unaudited)...... $ (1.58) $ (0.37) $ (0.73)
======== ======= ========
Shares used in calculation of pro
forma basic and diluted net loss
per share (unaudited)........... 11,419 10,874 15,503
======== ======= ========
Historical basic and diluted net
loss per share.................. $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
======= ======= ======== ======= ========
Shares used in calculation of
historical basic and diluted net
loss per share.................. 2,282 2,288 2,425 2,309 11,294
======= ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 89
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).............. 44,052 -- -- -- --
Issuance of common stock
from exercise of stock
options (unaudited)...... 157,282 23 -- -- 23
Amortization of deferred
stock compensation
(unaudited).............. -- -- 133 -- 133
Net loss (unaudited)........ -- -- -- (11,263) (11,263)
---------- ------- ----- -------- --------
Balance at March 31, 1999
(unaudited)................. 17,103,430 $76,413 $(319) $(43,306) $ 32,788
========== ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 90
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $(4,953) $(5,524) $(18,074) $(4,063) $(11,263)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquired in-process technology.................... -- -- 5,203 -- --
Amortization of acquired in-process technology.... 80 -- 160
Amortization of deferred stock compensation....... -- -- 409 189 133
Warrant expense................................... 5 53 23 -- --
Depreciation and amortization..................... 144 393 549 231 580
Provisions for bad debts.......................... 91 45 453 86 172
Other............................................. 17 -- 183
Changes in operating assets and liabilities:
Accounts receivable............................ (451) (3,901) (1,040) (484) 2,295
Notes receivable from stockholders............. -- -- (500) (60) (624)
Prepaid expenses and other assets.............. 63 (84) (616) (32) (2,096)
Accounts payable............................... (24) 454 756 (478) 3,062
Accrued liabilities............................ 597 927 2,535 1,038 3,142
Deferred revenues.............................. 412 1,026 1,575 (13) 718
------- ------- -------- ------- --------
Net cash used in operating activities................. (4,099) (6,611) (8,464) (3,586) (8,311)
------- ------- -------- ------- --------
INVESTING ACTIVITIES
Purchases of equipment and furniture.................. (420) (1,020) (40) (29) (85)
Purchase of marketable securities..................... -- -- -- -- (37,544)
Payment in connection with acquisition of 7Software... -- -- (130) --
------- ------- -------- ------- --------
Net cash used in investing activities................. (420) (1,020) (170) (29) (37,629)
------- ------- -------- ------- --------
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) (164) (572)
Payment on capital leases............................. -- -- (500) (170) (513)
Issuance of common stock.............................. 1 -- 13 4 23
Issuance of redeemable convertible preferred stock and
warrants............................................ 7,479 4,612 12,698 -- --
------- ------- -------- ------- --------
Net cash provided by (used in) financing activities... 7,663 8,641 17,568 (138) 38,923
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 3,144 1,010 8,934 (3,753) (7,017)
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 $ 2,942 $ 8,612
======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................ $ 27 $ 76 $ 398 $ 157 $ 443
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.............................................. -- -- 1,572 818 973
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-7
<PAGE> 91
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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 March 31, 1999 and for the periods ended
March 31, 1998 and 1999 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
March 31, 1999 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-8
<PAGE> 92
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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.
Marketable Securities
The Company's marketable securities consist primarily of corporate bonds
and commercial paper. Marketable securities are stated at fair value. By policy,
the Company invests primarily in high-grade marketable securities. Marketable
securities are defined as available-for-sale securities under the provisions of
Statement of Financial Accounting Standards No. ("SFAS") 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. The Company has classified its marketable securities
as available-for-sale, which are carried at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of stockholders'
equity. At March 31, 1999, the fair value of marketable securities approximates
their cost. Therefore, no comprehensive income or loss has been reported.
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. At March 31, 1999,
the Company also had marketable securities. The carrying value of cash and cash
equivalents, marketable securities, accounts receivable, accounts payable,
accrued liabilities and accrued commissions approximates fair
F-9
<PAGE> 93
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
value based on the liquidity of these financial instruments or based on their
short-term nature. The carrying value of long-term debt, LOC, standby letters of
credit, and capital lease obligations approximates carrying value based on the
market interest rates available to the Company for debt of similar risk and
maturities.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of software development costs. Financial accounting standards require
the capitalization of certain software development costs after technological
feasibility of the software is established. In the development of the Company's
new products and enhancements to existing products, the technological
feasibility of the software is not established until substantially all product
development is complete, including the development of a working model. Internal
software development costs that were eligible for capitalization were
insignificant and were charged to research and development expense in the
accompanying statements of operations.
Advertising and Marketing Costs
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were $711,000, $569,000 and $1,762,000 in 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.
F-10
<PAGE> 94
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Equipment and Furniture
Equipment and furniture are carried at cost. The Company provides for
depreciation and amortization using the straight-line method for financial
reporting purposes over estimated useful lives ranging from two to five years.
Depreciation expense includes amounts amortized for assets recorded under
capital leases.
Net Loss per Share
Basic and diluted net loss per share is calculated using the average number
of shares of common stock outstanding. Other common stock equivalents, including
stock options and warrants, are excluded from the computation as their effect is
antidilutive. See Note 13.
Upon the completion of the Company's proposed initial public offering, all
redeemable convertible preferred stock will either automatically convert into
common stock or it is assumed that the preferred stockholders will voluntarily
convert into common stock. Accordingly, pro forma net loss per share is computed
using the weighted average number of shares of common stock outstanding and the
weighted average redeemable convertible preferred stock outstanding as if such
shares were converted to common stock at the time of issuance.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from these estimates.
Concentrations of Credit Risk
The Company's customer base is dispersed across many different geographic
areas throughout the world in a variety of industries. No single customer
accounted for more than 10% of the Company's sales in any of the periods
presented. The Company does not require collateral or other security to support
credit sales, but provides an allowance for bad debts based on historical
experience and specific identification.
The Company is subject to concentrations of credit risk from its cash and
cash equivalents. Under terms of certain of its debt agreements, the Company is
required to maintain its cash and cash equivalents primarily at one financial
institution.
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
F-11
<PAGE> 95
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
during the year. The translation adjustment resulting from this process was
insignificant at September 30, 1997 and 1998, respectively and at March 31,
1999. 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 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 in fiscal 1999. 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 2001. 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.................. (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
F-12
<PAGE> 96
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
2. EQUIPMENT AND FURNITURE (CONTINUED)
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.
3. ACQUISITION OF 7SOFTWARE, INC.
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
F-13
<PAGE> 97
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
assigned to the acquired workforce was based on replacement cost. To determine
the value of the in-process research and development, the Company considered,
among other factors, the state of development of each project, the time and cost
needed to complete each project, expected income, and associated risks, which
included the inherent difficulties and uncertainties in completing the project
and thereby achieving technological feasibility and risks related to the
viability of and potential changes to future target markets. This analysis
resulted in amounts assigned to in-process research and development projects
that had not yet reached technological feasibility or do not have alternative
future uses. To determine the value of the developed technology, the expected
future cash flows of the existing technology product were discounted taking into
account risks related to the characteristics and applications of each product,
existing and future markets, and assessments of the life cycle stage of each
product. Based on this analysis, the existing technology that had reached
technological feasibility was capitalized.
As of the date of acquisition, the CompanyStore development project
consisted of ongoing research and development efforts in the following areas:
(i) compatibility with additional databases, (ii) compatibility with additional
enterprise resource planning platforms, (iii) multiple catalog support, (iv)
fundamental redesign of the user interface, and (v) redesign and rewriting of
the administrative functionality. Based on management's 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>
F-14
<PAGE> 98
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
In connection with the purchase of 7Software, the Company also entered into
separate employment agreements with certain former 7Software officers and
shareholders. Under the terms of these arrangements, the Company loaned $500,000
to these officers and shareholders in the form of a note receivable. This
receivable is payable in aggregate annual installments of $167,000 plus interest
at variable rates. The note is secured by second mortgages on real property.
Approximately 124,000 shares of the Company's common stock issued in
connection with the purchase of 7Software will be held in escrow until June 30,
1999 subject to resolution of any unresolved claims by the Company. The value of
these shares was included in the 7Software purchase price, as no such unresolved
claims are known. In addition, as of September 30, 1998, 340,452 shares of
Common Stock issued to the founders in connection with the acquisition included
restrictions entitling the Company to repurchase such shares in the event of
termination. These shares were issued in exchange for 7Software shares that
included the same restrictions. These restrictions lapse at various rates
through June 2000. The estimated fair value of these shares has been included in
the purchase price referred to above.
4. LINE OF CREDIT
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.
F-15
<PAGE> 99
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
5. LONG-TERM DEBT
Long-term debt at September 30, 1998 consisted of: (i) a $3.0 million
senior term loan facility; (ii) a $1.5 million subordinated promissory note; and
(iii) a $3.5 million subordinated promissory note. The subordinated promissory
notes are held by Comdisco. The proceeds from these obligations may be used for
equipment purchases and general corporate purposes.
The senior term loan facility bears interest at the lending bank's prime
rate less 1.0% (7.5% at September 30, 1998) and matures on February 15, 2001.
Payments are interest only through February 15, 1999. At February 15, 1999, the
outstanding balance under the facility will be paid in 24 equal monthly
principal payments, plus applicable interest. The loan is secured by a perfected
senior security interest in all non-leased assets of the Company with specific
filings for intellectual property (both the line of credit and senior term loan
were issued by the same lender and include the same financial covenants and
restrictions discussed above).
The subordinated promissory notes (which are subordinated to both the line
of credit and senior term loan) are secured by the Company's receivables,
equipment, general intangibles, inventory, and all other goods and personal
property of the Company. The $1.5 million note bears interest at 8.5%, has
principal and interest payments of approximately $38,000 due monthly, and
matures in August 2001. The $3.5 million note bears interest at 11.0%, has
monthly principal and interest payments of approximately $101,000 beginning in
November 1998, and matures in April 2002. The underlying debt agreement allows
the Company to obtain additional long-term borrowings of up to $1.5 million, at
an interest rate of 12.5%. This commitment by the lending institution 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.
F-16
<PAGE> 100
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
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.
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
F-17
<PAGE> 101
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. INCOME TAXES (CONTINUED)
amount of the limitation, such unused loss is carried over to subsequent years
until the earlier of its utilization or the expiration of the relevant
carryforward period.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 3,410 6,508
Tax credit carryforwards......................... 152 262
Deferred revenues................................ 502 1,038
Expenses not currently deductible and other...... 630 947
------- -------
Total deferred tax assets................ 4,694 8,755
Valuation allowance................................ (4,694) (8,755)
------- -------
$ -- $ --
======= =======
</TABLE>
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-18
<PAGE> 102
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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 year.... 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 0.16 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
year
Granted at fair value....... $0.18 $0.22 $1.45
Granted at below fair
value..................... -- -- 1.96
</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>
$0.03 - 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
--------- ---------
$0.03 - 11.63 8.22 1,539,521 498,378 $ 0.13
========= =========
</TABLE>
During the six months ended March 31, 1999, common stock options for
1,212,192 shares were granted with a weighted average exercise price of $18.42;
options for 157,282 shares were exercised with a weighted average exercise price
of $0.10; and options for 25,060 shares were canceled with a weighted average
exercise price of $7.64; thereby resulting in 2,569,371 options outstanding at
March 31, 1999 with a weighted average exercise price of $9.17; of which 756,382
options were exercisable with a weighted average exercise price of $3.25.
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-19
<PAGE> 103
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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-20
<PAGE> 104
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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-21
<PAGE> 105
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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. The warrants were exercised in February 1999.
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-22
<PAGE> 106
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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-23
<PAGE> 107
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
12. STOCKHOLDERS' EQUITY
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ---------
<S> <C> <C>
Outstanding stock options................... 1,539,521 2,569,371
Stock Options available for grant:
1994 Stock Option Plan................. 354,768 334,230
1998 Equity Incentive Plan............. 3,240,000 2,173,406
Director Stock Option Plan............. 240,000 140,000
Employee Stock Purchase Plan................ 320,000 490,297
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........... -- 2,224,267
---------- ---------
Total............................. 18,481,581 7,931,571
========== =========
</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-24
<PAGE> 108
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net loss........................ $(4,953) $(5,524) $(18,074) $ (4,063) $(11,263)
======= ======= ======== ======== ========
Basic and diluted net loss per
common share.................. $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
======= ======= ======== ======== ========
Weighted average number of
common shares used for basic
and diluted per share
amounts....................... 2,282 2,288 2,425 2,309 11,294
======= ======= -------- -------- --------
Weighted average common shares
issuable upon pro forma
conversion of preferred
stock......................... 8,994 8,565 4,209
-------- -------- --------
Weighted average number of
shares used for pro forma per
share amounts................. 11,419 10,874 15,503
======== ======== ========
Pro forma basic and diluted net
loss per share................ $ (1.58) $ (0.37) $ (0.73)
======== ======== ========
</TABLE>
Options to purchase 2,569,371 shares of common stock with exercise prices
of $0.03 to $38.81 per share and warrants to purchase 2,224,267 shares of common
stock at a range of $3.65 to $85.00 per share were outstanding at March 31,
1999. 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-25
<PAGE> 109
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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-26
<PAGE> 110
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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 six months ended March 31, 1999, the Company paid fees of
$254,000 and received proceeds totaling $219,000 under the terms of the sales
referral agreement. At March 31, 1999, accounts receivable from stockholders was
$0 and accounts payable to stockholders were $95,000.
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
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-27
<PAGE> 111
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
19. INITIAL PUBLIC OFFERING ("IPO") AND FOLLOW-ON OFFERING (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. On
April 16, 1999, the Company issued on an additional 2,018,620 shares of its
common stock at an offering price of $43.50. The net proceeds to the Company,
net of offering costs, were approximately $82.5 million.
20. ACQUISITION OF SEEKER SOFTWARE, INC.
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 among
the Company and Seeker Software, Inc. ("Seeker"), the Company acquired all of
the outstanding capital of Seeker. Seeker develops, markets and sells web-based
self-service HR workplace solution applications which allow employees within an
organization to access, update and share information from their desktop
computers.
In connection with the merger the Company issued 3,419,929 shares of common
stock in exchange for all outstanding preferred stock, preferred stock purchase
warrants, and common stock of Seeker and the Company assumed all outstanding
options of Seeker in connection with the merger with Seeker resulting in the
issuance of options to purchase up to 680,234 shares of common stock. This
transaction will be accounted for as a pooling of interests.
F-28
<PAGE> 112
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Seeker Software, Inc.
We have audited the accompanying balance sheets of Seeker Software, Inc.
(the Company) as of December 31, 1997 and 1998, and the related statements of
operations, redeemable convertible preferred stock and shareholders' deficit,
and cash flows for the years then ended. 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 financial position of Seeker Software, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Walnut Creek, California
April 21, 1999
F-29
<PAGE> 113
SEEKER SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1997 1998 1999
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 675 $ 3,069 $ 1,249
Accounts receivable, net of allowance for doubtful
accounts of $150 at December, 1998 and March 31,
1999............................................... 1,028 2,276 1,569
Prepaid expenses and other current assets............ 94 46 88
------- -------- --------
Total current assets................................... 1,797 5,391 2,906
Property and equipment, net............................ 539 940 848
Other assets........................................... 34 228 168
------- -------- --------
Total assets........................................... $ 2,370 $ 6,559 $ 3,922
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS'
DEFICIT
Current liabilities:
Accounts payable and accrued liabilities............. $ 190 $ 1,039 $ 1,242
Accrued compensation and related liabilities......... 287 744 640
Notes payable to shareholders........................ 1,047 2,500 2,500
Current portion of borrowings under lines of
credit............................................. 222 921 222
Current portion of borrowings under subordinated note
payable............................................ -- 553 895
Deferred revenue..................................... 369 715 675
------- -------- --------
Total current liabilities.............................. 2,115 6,472 6,174
Borrowings under lines of credit....................... 278 339 378
Borrowings under subordinated note payable............. -- 1,353 1,800
Commitments
Redeemable convertible preferred stock:
Series B, $0.001 par value; 5,200,000 shares
authorized, 5,000,000 shares issued and outstanding
at December 31, 1998 and March 31, 1999
(liquidation preference -- $8,063)................. -- 8,015 8,201
Shareholders' deficit:
Series A convertible preferred stock, $.001 par
value; 4,439,626 shares authorized; shares issued
and outstanding -- 4,300,000 1997 and 4,266,827 in
1998 and March 31, 1999 (liquidation
preference -- $3,858).............................. 3,182 3,139 3,139
Common stock, $.001 par value; 20,000,000 shares
authorized; shares issued and
outstanding -- 4,630,525, 4,980,757 and 5,086,659
in 1997, 1998 and March 31, 1999, respectively..... 217 500 2,587
Deferred stock compensation.......................... -- (219) (2,009)
Accumulated deficit.................................. (3,422) (13,040) (16,348)
------- -------- --------
Total redeemable convertible preferred stock and
shareholders' deficit................................ (23) (1,605) (4,430)
------- -------- --------
Total liabilities, redeemable convertible preferred
stock and shareholders' deficit...................... $ 2,370 $ 6,559 $ 3,922
======= ======== ========
</TABLE>
See accompanying notes.
F-30
<PAGE> 114
SEEKER SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License fees........................ $ 743 $ 2,490 $ 103 $ 306
Services............................ 901 1,567 186 803
------- ------- ------- -------
Total revenues........................ 1,644 4,057 289 1,109
Operating expenses:
Cost of revenues.................... 546 2,824 505 939
Sales and marketing................. 1,639 4,738 829 1,269
Product development................. 1,683 3,936 733 1,318
General and administrative.......... 908 1,615 234 599
------- ------- ------- -------
Total operating expenses.............. 4,776 13,113 2,301 4,125
------- ------- ------- -------
Operating loss........................ (3,132) (9,056) (2,012) (3,016)
Interest income....................... 61 134 30 19
Interest expense...................... (19) (133) (55) (125)
------- ------- ------- -------
Net loss.............................. $(3,090) $(9,055) $(2,037) $(3,122)
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-31
<PAGE> 115
SEEKER SOFTWARE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
SERIES B ------------------------------------------------------------------------------
REDEEMABLE SERIES A
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ------------------ ------------------ DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT TOTAL
--------- ------ --------- ------ --------- ------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... -- $ -- -- $ -- 4,394,000 $ 211 $ -- $ (332) $ (121)
Issuance of Series A
convertible preferred
stock (net of issuance
costs of $42,982)....... -- -- 4,300,000 3,182 -- -- -- -- 3,182
Issuance of common stock
under employee stock
option plan............. -- -- -- -- 236,525 6 -- -- 6
Net loss and comprehensive
loss.................... -- -- -- -- -- -- -- (3,090) (3,090)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at December 31,
1997...................... -- -- 4,300,000 3,182 4,630,525 217 -- (3,422) (23)
Issuance of Series B
redeemable convertible
preferred stock (net of
issuance costs of
$48,000)................ 5,000,000 7,452 -- -- -- -- -- -- 7,452
Accretion of Series B
preferred stock......... -- 563 -- -- -- -- -- (563) --
Repurchase of Series A
preferred stock......... -- -- (33,173) (43) -- -- -- -- (43)
Issuance of common stock
under employee stock
option plan............. -- -- -- -- 350,232 20 -- -- 20
Deferred compensation..... -- -- -- -- -- 263 (263) -- 0
Amortization of deferred
compensation............ -- -- -- -- -- -- 44 -- 44
Net loss and comprehensive
loss.................... -- -- -- -- -- -- -- (9,055) (9,055)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at December 31,
1998...................... 5,000,000 8,015 4,266,827 3,139 4,980,757 500 (219) (13,040) (1,605)
Accretion of Series B
preferred stock
(unaudited)............. -- 186 -- -- -- -- -- (186) --
Issuance of common stock
under employee stock
option plan
(unaudited)............. -- -- -- -- 105,902 7 -- -- 7
Deferred compensation
(unaudited)............. -- -- -- -- -- 2,080 (2,080) -- --
Amortization of deferred
stock compensation
(unaudited)............. -- -- -- -- -- -- 290 -- 290
Net loss and comprehensive
loss (unaudited)........ -- -- -- -- -- -- -- (3,122) (3,122)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at March 31, 1999
(unaudited)............... 5,000,000 $8,201 4,266,827 $3,139 5,086,659 $2,587 $(2,009) $(16,348) $(4,430)
========= ====== ========= ====== ========= ====== ======= ======== =======
</TABLE>
See accompanying notes.
F-32
<PAGE> 116
SEEKER SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(3,090) $(9,055) $(2,037) $(3,122)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... 80 221 34 92
Amortization of deferred stock compensation.......... -- 44 -- 290
Accrued interest converted to preferred stock........ 15 --
Changes in operating assets and liabilities:
Accounts receivable................................ (899) (1,248) 482 707
Prepaid expenses and other current assets.......... (109) 48 41 (42)
Other assets....................................... (35) (193) 35 60
Accounts payable and accrued liabilities........... 155 893 6 203
Accrued compensation and related liabilities....... 287 457 60 (104)
Deferred revenue................................... 206 346 101 (40)
------- ------- ------- -------
Net cash used in operating activities..................... (3,405) (8,472) (1,278) (1,956)
INVESTING ACTIVITIES
Purchase of furniture and equipment, net.................. (570) (666) (106) --
------- ------- ------- -------
Net cash used in investing activities..................... (570) (666) (106) --
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................. 3,070 6,390 7,500 --
Proceeds from issuance of common stock.................... 6 19 -- 7
Repurchase of preferred stock............................. -- (43) -- --
Proceeds from lines of credit............................. 500 1,039 -- 370
Proceeds from notes payable to shareholders............... 1,047 2,500 -- --
Proceeds from subordinated debt........................... -- 2,000 -- --
Payments on equipment line of credit...................... (25) (279) (74) (96)
Payments of subordinated debt............................. (94) (1,051) (145)
------- ------- ------- -------
Net cash provided by financing activities................. 4,598 11,532 6,375 136
------- ------- ------- -------
Increase in cash and cash equivalents..................... 623 2,394 4,991 (1,820)
Cash and cash equivalents at beginning of period.......... 52 675 675 3,069
------- ------- ------- -------
Cash and cash equivalents at end of period................ $ 675 $ 3,069 $ 5,666 $ 1,249
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................. $ 13 $ 126 $ 16 $ 75
======= ======= ======= =======
Series B redeemable convertible preferred stock issued in
exchange for cancellation of notes payable and related
accrued interest........................................ $ -- $ 1,062 $ -- $ --
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-33
<PAGE> 117
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Seeker Software, Inc. (the "Company"), a Delaware corporation develops,
markets and sells web-based self-service HR workplace solution applications
which allow employees within an organization to access, update and share
information from their desktop computers.
In December 1996, the unit holders of Seeker Software, LLC (predecessor
business) transferred all of the assets and liabilities of the predecessor
business to the Company in exchange for 4,394,000 shares of the Company's common
stock in a recapitalization transaction. The recapitalization transaction was
accounted for on a historical cost basis.
Unaudited Interim Financial Information
The financial information as of March 31, 1999 and for the periods ended
March 31, 1998 and 1999 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
March 31, 1999 are not necessarily indicative of results that may be expected
for the entire year.
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 from those estimates.
Cash and Cash Equivalents
The Company considers investments in highly liquid instruments purchased
with original maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value.
Fair Values of Financial Instruments
At December 31, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities, notes payable and lines of credit ("LOC"). The carrying value of
cash and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximates fair value based on the liquidity of these financial
instruments or based on their short-term nature. The carrying value of notes
payable and LOC approximates carrying value based on the market interest rates
available to the Company for debt of similar risk and maturities.
F-34
<PAGE> 118
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from three to five
years.
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," under which
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model. To date, costs incurred subsequent to the
establishment of technological feasibility have not been significant, and all
software development costs have been charged to product development expense in
the accompanying statements of operations.
Revenue Recognition
The Company licenses software under non-cancelable license agreements and
provides post-contract customer services (including maintenance, support and
periodic upgrades/enhancements) and other services (including installation,
training and consulting). License fee revenues are recognized when a
non-cancelable license agreement has been signed, the product has been
delivered, there are no uncertainties surrounding product acceptance, the fees
are fixed and determinable and collection is considered probable. Revenues from
post-contract customer services are recognized ratably over the related term,
which is generally one year. Other revenues are recognized as performed. Revenue
from one customer accounted for 18% of total revenue for the year ended December
31, 1998 and revenue from two customers accounted for 45% of total revenue at
December 31, 1997.
The Company performs ongoing credit evaluations of its customers, all of
which are located in the U.S., and generally does not require collateral.
Deferred revenue consists primarily of prepaid license and maintenance
fees.
Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the "disclosure only" alternative
described in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). The effect of applying the fair
value method of SFAS 123 to the Company's stock options results in a net loss
for the years ended December 31, 1998 and 1997, respectively, that is not
materially different from the amounts reported.
F-35
<PAGE> 119
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the use of the liability method. Under this method, deferred tax assets
and liabilities are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
2. NOTE RECEIVABLE FROM A FORMER SHAREHOLDER
The Company accepted a secured, non-recourse promissory note from a former
shareholder of the Company in the amount of $168,000 in March of 1998. The note
bears interest at 5% per annum and all principal and accrued interest is due and
payable two years from execution of the agreement. The note is secured by
200,000 shares of common stock of the Company owned by the former shareholder.
In connection with this agreement the Company has the right to repurchase the
common stock for $1.05 per share. In May of 1999 the Company exercised its stock
repurchase right through cancellation of the $168,000 note and related accrued
interest and by the payment of cash of approximately $30,000.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1997
------ ----
<S> <C> <C>
Computer equipment..................................... $ 963 $412
Furniture and office equipment......................... 331 217
------ ----
1,294 629
Less accumulated depreciation and amortization......... (354) (90)
------ ----
$ 940 $539
====== ====
</TABLE>
4. NOTES PAYABLE TO SHAREHOLDERS
In December 1997, the Company issued $1,047,200 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock in 1998. The notes payable to
shareholders accrued interest at the prime rate (8.5% at December 31, 1997) and
were due and payable with accrued interest in December 2000. The Company closed
a private placement in March 1998, in which all of the notes payable to
shareholders, along with accrued interest, were converted into shares of Series
B preferred stock.
In December 1998, the Company issued $2,500,000 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock in 1999. The notes payable to
shareholders accrued interest at the prime rate (7.75% at December 31, 1998) and
were payable with accrued
F-36
<PAGE> 120
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
4. NOTES PAYABLE TO SHAREHOLDERS (CONTINUED)
interest in December 2005. As further described in Note 11, The Company closed a
private placement in April 1999, in which all of the notes payable to
shareholders, along with accrued interest, were converted into shares of Series
C preferred stock.
5. LEASE OBLIGATIONS
The Company leases its office facilities under non-cancelable operating
leases. Rent expense under operating leases amounted to approximately $266,529
and $102,000 in the years ended December 31, 1998 and 1997, respectively.
Future minimum lease payments under leases are as follows at December 31,
1998:
<TABLE>
<S> <C>
1999......................................... $311,071
2000......................................... 309,829
2001......................................... 247,914
--------
Total........................................ $868,814
========
</TABLE>
6. EQUIPMENT AND WORKING CAPITAL LINE OF CREDIT
Equipment Line of Credit
The Company has an equipment line of credit with a bank which allows for
borrowings up to $1,000,000 expiring in May 1999, of which $944,984 was
outstanding as of December 31, 1998. Payments of principal of approximately
$32,000 plus interest, which accrues at the prime rate plus 1.5% (9.25% at
December 31, 1998), are due monthly until October 2001.
In September 1998, the Company entered into an equipment line of credit
with another lender which provided for borrowings of up to $1,000,000 and
expires in September 1999. Borrowings under the line of credit bear interest,
payable monthly at 8.25% per year. No amounts were outstanding at December 31,
1998. The Company issued warrants to the lender to purchase 20,000 shares of
Series B redeemable convertible preferred stock for $1.50 per share through
September 2005.
Working Capital Line of Credit
The Company has a working capital line of credit with the same bank which
allows for borrowings up to $1,000,000 and expires in May 1999, at which time
all outstanding principal and remaining interest under the line of credit
agreement become due and payable. Borrowings under this working capital line of
credit accrue interest at the prime rate plus 0.50% (8.25% at December 31,
1998). Borrowings under the working capital line of credit were $524,693 at
December 31, 1998.
7. SUBORDINATED NOTE PAYABLE
In September, 1998, the Company entered into a subordinated loan agreement
in the aggregate principal amount of $2,000,000. The subordinated note payable
bears interest of 11% per annum The Company issued warrants to the lender to
purchase 133,333 shares of
F-37
<PAGE> 121
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
7. SUBORDINATED NOTE PAYABLE (CONTINUED)
Series B redeemable, convertible preferred stock for $1.50 per share through
September 2005.
8. SHAREHOLDERS' EQUITY
Series A Convertible Preferred Stock
In February 1997, the Company issued 4,300,000 shares of Series A preferred
stock at $.75 per share, with gross proceeds of $3,225,000, of which advance
payments of $112,500 had been received in December 1996.
Dividends
The holders of Series A preferred stock are entitled to receive, when and
as declared by the Board of Directors, but only out of funds that are legally
available, non-cumulative dividends at the rate of 10% of the original Series A
issue price per annum on each outstanding share of Series A preferred stock
(subject to adjustment for certain anti-dilution provisions). Should dividends
be declared on common stock, the holders of Series A preferred stock would have
been entitled to an additional equivalent dividend per share on an as-converted
basis.
Conversion
Each share of Series A preferred stock, at the option of the holder, is
convertible into one share of common stock (subject to adjustment for certain
anti-dilution provisions). All shares of Series A preferred stock will
automatically convert into shares of common stock at any time upon the
affirmative vote or written consent of the holders of at least 50% of the
then-outstanding shares of Series A preferred stock, or immediately upon the
closing of a underwritten public offering of common stock which generates gross
proceeds of at least $7,500,000, with an offering price per share of at least
$4.00 (as adjusted for certain anti-dilution provisions).
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series A preferred stock are
entitled to receive, prior to and in preference of any distribution of any of
the assets of the Company to the holders of common stock, an amount per share
equal to the sum of the original Series A issue price for each share, plus an
amount equal to 10% of the original Series A issue price per annum, plus all
declared and unpaid dividends with respect to such shares. Assuming full payment
of the Series A liquidation preference, the remaining assets of the Company
legally available for distribution, if any, will be distributed to the holders
of common stock until each common stock holder receives an amount per share of
common stock equal to the Series A liquidation preference. After the payment of
the full Series A liquidation preference and an equivalent amount per share to
all holders of common stock, the remaining assets legally available for
distribution will be paid ratably to the holders of
F-38
<PAGE> 122
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
common stock and the holders of Series A preferred stock on an as-converted
basis (as adjusted for certain anti-dilution provisions).
Voting
The holder of each share of Series A preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which each
share of Series A preferred stock could be converted.
Series B Redeemable Convertible Preferred Stock
In March 1998, the Company issued 5,000,000 shares of Series B preferred
stock at $1.50 per share (the "Original Series B Issue Price") for cash of
approximately $6,442,000 and the conversion of notes payable to shareholders and
accrued interest of approximately $1,062,000.
Dividends
The holders of shares of Series B are entitled to receive, when and as
declared by the Board of Directors, but only out of funds that are legally
available, dividends at the rate of 10% of the Original Issue Price per annum on
each outstanding share of Series B Preferred Stock (as adjusted for certain
anti-dilutive provisions). Should dividends be declared on common stock, the
holders of Series B preferred stock will be entitled to an additional equivalent
dividend per share on an as-converted basis (as adjusted for certain
anti-dilutive provisions).
Conversion
Each share of Series B preferred stock, at the option of the holder, is
convertible into one share of common stock (subject to adjustment for certain
anti-dilutive provisions). All shares of Series B and Series A preferred stock
shall automatically be converted into shares of common stock at a 1:1 conversion
rate (as adjusted for certain anti-dilutive provisions), at any time upon the
affirmative vote or written consent of the holders of at least 66 2/3% of the
then outstanding shares of Series B and Series A preferred stock (voting
together as one class) or immediately upon the closing of a underwritten public
offering of common stock which generates gross proceeds of at least $10,000,000
with an offering price per share of at least $6.00 (as adjusted for certain
anti-dilutive provisions).
Redemption
At any time on or after the seventh anniversary of the Series B original
issue date, the Company will, at the request of holders of at least a majority
of the then outstanding shares of Series B preferred stock, redeem all
outstanding shares of Series B preferred stock at a price per share equal to the
Series B Original Issue Price plus an amount equal to 10% of the Series B
Original Issue Price per year that the Series B preferred stock is outstanding
(including partial years) plus all declared and unpaid dividends on such shares.
F-39
<PAGE> 123
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
If the funds of the Company legally available for redemption of shares of
Series B preferred stock are insufficient to redeem the total number of shares,
those funds which are legally available will be used to redeem the maximum
possible number of shares of Series B preferred stock on a pro-rata basis among
the holders of Series B preferred stock.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series B preferred stock are
entitled to receive, prior to and in preference of any distribution of any of
the assets of the Company to the holders of Series A preferred stock and common
stock, an amount per share equal to the sum of the Original Series B Issue Price
for each share plus an amount equal to 10% of the Original Series B Issue Price
per annum plus all declared and unpaid dividends with respect to such shares
(the "Series B Liquidation Preference"). If funds are insufficient to fully pay
the Series B Liquidation Preference then the available funds will be paid on a
pro-rata basis to the holders of Series B preferred stock.
After the full payment of the Series B Liquidation Preference, the holders
of Series A preferred stock are entitled to receive, prior to and in preference
of any distribution of any of the assets of the Company to the holders of common
stock, the Series A Liquidation Preference. If funds are insufficient to fully
pay the Series A Liquidation Preference then the available funds will be paid on
a pro-rata basis to the holders of Series A preferred stock.
The remaining assets of the Company legally available for distribution, if
any, will be distributed to the holders of common stock until each common stock
holder receives an amount per share of common stock equal to the
per-share-weighted-average of the Series B Liquidation Preference and the Series
A Liquidation Preference (the "Common Liquidation Preference").
After the payment of the full Series B Liquidation Preference and the full
Series A Liquidation Preference, the remaining assets legally available for
distribution will be paid ratably to the holders of common stock and the holders
of Series B and Series A preferred stock on an as-converted basis (as adjusted
for certain anti-dilutive provisions).
Voting
The holder of each share of Series B preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which each
share of Series B preferred stock could be converted.
Stock Options
Under the Company's 1997 Flexible Stock Incentive Plan (the "Plan"),
3,469,444 shares of common stock were reserved for the issuance of incentive
stock options ("ISO") or non-statutory stock options ("NSO") to employees,
officers, directors, and consultants. The ISOs may be granted at a price per
share not less than 100% (110% if granted to
F-40
<PAGE> 124
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
holders of 10% or more of the Company's stock) of the fair market value on the
date of the grant. The NSOs may be granted at a price per share not less than
85% (110% if granted to holders of 10% or more of the Company's stock) of the
fair market value at the date of grant. Options granted under the Plan are
exercisable over a maximum term of ten years from the date of grant and
generally vest over periods of up to four years. A summary of the Company's
stock option activity under the Plan is set forth below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Granted......................................... 2,033,644 $.07
Exercised....................................... (236,525) .03
Canceled........................................ (5,000) .10
--------- ----
Outstanding at December 31, 1997................ 1,792,119 .08
Granted......................................... 850,000 .18
Exercised....................................... (350,232) .06
Canceled........................................ (321,640) .10
--------- ----
Outstanding at December 31, 1998................ 1,970,247 $.12
========= ====
Exercisable at December 31, 1998................ 505,041 $.09
========= ====
Available for grant at December 31, 1998........ 912,440
=========
</TABLE>
At December 31, 1998, the weighted-average remaining contractual life of
options outstanding is 7.55 years. The weighted-average fair value at grant date
of options granted during the years ended December 31, 1998 and 1997 was $.18
and $.02 per share, respectively. Information regarding the weighted average
remaining contractual life and weighted average exercise price of options
outstanding and options exercisable at December 31, 1998 for selected exercise
price ranges is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- AND VESTED
AVERAGE --------------------------
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICE SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- --------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.002 166,699 7.59 $0.002 61,196 0.002
0.10 1,173,548 6.43 0.10 443,845 0.10
0.20 630,000 9.52 0.20 --
--------- ---------
1,970,247 505,041
========= =========
</TABLE>
During fiscal 1998, the Company issued options to purchase 850,000 shares
of common stock. The Company recorded deferred compensation of approximately
$263,000 for financial reporting purposes with respect to such option grants to
reflect the difference
F-41
<PAGE> 125
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
between the exercise price and deemed fair value, for financial statement
presentation purposes, of the Company's common shares. Amortization of deferred
compensation for the fiscal year ended December 31, 1998 totalled approximately
$44,000.
During the three months ended March 31, 1999, common stock options for
2,215,500 shares were granted with a weighted average exercise price of $0.20;
options for 105,902 shares were exercised with a weighted average exercise price
of $0.13; and options for 177,917 shares were canceled with a weighted average
exercise price of $.13; thereby resulting in 3,901,928 options outstanding at
March 31, 1999 with a weighted average exercise price of $0.10; of which 819,862
options were exercisable with a weighted average exercise price of $0.6. The
Company recorded deferred compensation of approximately $2,080,000 during the
quarter ended March 31, 1999 for financial reporting purposes with respect to
such option grants to reflect the difference between the exercise price and
deemed fair value for financial statement presentation purposes, of the
Company's common shares. Amortization of deferred compensation for the quarter
ended March 31, 1999 totalled $290,000.
Warrants
During the year ended December 31, 1997, in connection with the issuance of
notes payable to shareholders, the Company granted to the shareholders warrants
to purchase 139,626 shares of Series A preferred stock at an exercise price of
$.75 per share. These warrants are exercisable through December 2000.
In December 1998, in connection with the issuance of notes payable to
shareholders, the Company granted to the shareholders warrants to purchase
166,667 shares of Series B preferred stock at an exercise price of $1.50 per
share. At December 31, 1998, the Company had no authorized unissued Series B
preferred stock. In April 1999, the Company authorized and reserved additional
Series B preferred stock with respect to the warrants.
During the year ended December 31, 1998, in connection with the
subordinated loan and equipment line of credit, the Company granted to the
lender warrants to purchase 153,333 shares of Series B preferred stock at an
exercise price of $1.50 per share. At December 31, 1998, the Company had no
authorized unissued Series B preferred stock. In April 1999, the Company
authorized and reserved additional Series B preferred stock with respect to the
warrants.
F-42
<PAGE> 126
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
Shares Reserved for Future Issuance
At December 31, 1998, the Company has reserved shares for future issuance
as follows:
<TABLE>
<CAPTION>
PREFERRED
COMMON SERIES A
---------- ---------
<S> <C> <C>
Redeemable convertible preferred stock, including
effect of Series B warrants.................... 5,000,000 --
Convertible preferred stock, including effect of
Series A warrants.............................. 4,406,453 --
Stock option plan................................ 2,882,687 --
Warrants to purchase Series A preferred stock.... -- 139,626
---------- -------
12,289,140 139,626
========== =======
</TABLE>
9. INCOME TAXES
At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $11,046,000, which expire in the year 2012
through 2018.
Due to the "change in ownership" provisions of the Internal Revenue Code, a
portion of the Company's net operating loss carryforwards could be subject to
annual limitation regarding their utilization against taxable income in future
periods.
The Company had deferred tax assets of approximately $4,828,000 and
$1,231,000 at December 31, 1998 and 1997, respectively, which relate primarily
to net operating loss carryforwards. These deferred tax assets have been fully
reserved by a valuation allowance. The valuation allowance increased by
$3,597,000 and $1,231,000 during the year ended December 31, 1998 and 1997,
respectively.
10. RISKS ASSOCIATED WITH THE YEAR 2000 (UNAUDITED)
Like many companies, Year 2000 computer issues create certain risks for the
Company. If the Company's internal and network information systems do not
correctly recognize and process date information beyond the year 1999, there
could be an adverse impact on the Company's operations. The Company has
evaluated its internal and network systems and management believes the Company's
critical systems are Year 2000 compliant. The costs incurred to date have not
been material.
The Company will also initiate communications with its significant
suppliers and financial institutions to determine the extent to which the
Company is vulnerable to the future by third parties remedying their own Year
2000 issues.
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, failure to fully identify all Year 2000
dependencies in the Company's existing systems, in the systems of its suppliers,
and the systems of its financial institutions could have material adverse
consequences. Therefore, the Company is in the
F-43
<PAGE> 127
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
10. RISKS ASSOCIATED WITH THE YEAR 2000 (UNAUDITED) (CONTINUED)
process of developing contingency plans for continuing operations in the event
such problems arise.
11. SUBSEQUENT EVENTS (UNAUDITED)
Series C Preferred Stock
In April 1999, the Company issued 5,797,097 shares of Series C preferred
stock at $2.07 per share for cash of approximately $9,434,348 and the conversion
of the notes payable to shareholders and accrued interest of approximately
$2,565,652.
Series B Preferred Stock
In April 1999, the Company authorized and reserved an additional 320,000
Series B preferred stock for outstanding warrants.
F-44
<PAGE> 128
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-45
<PAGE> 129
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-46
<PAGE> 130
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-47
<PAGE> 131
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-48
<PAGE> 132
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-49
<PAGE> 133
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-50
<PAGE> 134
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-51
<PAGE> 135
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-52
<PAGE> 136
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-53
<PAGE> 137
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors of
Concur Technologies, Inc.
We have audited the accompanying supplemental consolidated balance sheets
of Concur Technologies, Inc. ("Concur") [formed as a result of the consolidation
of Concur Technologies, Inc. and Seeker Software, Inc. ("Seeker")] as of
September 30, 1997 and 1998 and the related supplemental consolidated statements
of operations, Stockholders Equity (Deficit) and cash flows for the years then
ended. The supplemental consolidated financial statements give retroactive
effect to the merger of Concur and Seeker on June 1, 1999, which has been
accounted for using the pooling of interests method as described in the notes to
the supplemental consolidated financial statements. These supplemental
consolidated financial statements are the responsibility of the management of
Concur. Our responsibility is to express an opinion on these supplemental
consolidated 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 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 supplemental consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Concur at September 30, 1996 and 1997, and the consolidated results
of its operations and its cash flows for the years then ended after giving
retroactive effect to the merger of Seeker as described in the notes to the
supplemental consolidated financial statements, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
June 1, 1999
F-54
<PAGE> 138
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 7,370 $ 18,698 $ 9,861
Marketable securities.............................. -- -- 37,544
Accounts receivable, net of allowance for doubtful
accounts of $170 and $697 at September 30, 1997,
and 1998, respectively; $870 at March 31, 1999... 5,393 7,264 8,680
Prepaid expenses and other current assets.......... 259 582 1,248
Note receivable from stockholders.................. -- 167 167
-------- -------- --------
Total current assets........................ 13,022 26,711 57,500
Equipment and furniture, net......................... 1,627 3,102 3,488
Deposits and other assets............................ 85 564 2,600
Note receivable from stockholders, net of current
portion............................................ -- 333 333
Capitalized technology and other intangible assets... -- 880 720
-------- -------- --------
Total assets................................ $ 14,734 $ 31,590 $ 64,641
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 1,245 $ 2,220 $ 5,486
Accrued liabilities................................ 7,321 4,507 7,483
Accrued commissions................................ 796 1,646 1,707
Current portion of accrued payment to
stockholders..................................... 1,047 2,667 2,667
Current portion of long-term debt.................. 551 3,507 3,874
Current portion of capital lease obligations....... 351 1,004 1,681
Deferred revenues.................................. 1,846 3,767 4,445
-------- -------- --------
Total current liabilities................... 13,157 19,318 27,343
Accrued payment to stockholders, net of current
portion............................................ -- 333 333
Long-term debt, net of current portion............... 2,449 7,324 6,514
Capital lease obligations, net of current portion.... 1,516 2,127 1,910
Deferred rental expense.............................. -- 183 183
Redeemable convertible preferred stock:
Issued and outstanding shares --
8,564,893, 11,052,718 and 839,165 in 1997, 1998
and March 31, 1999, respectively.............. 17,264 37,700 8,201
Redeemable convertible preferred stock warrants...... 81 444 --
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, par value $0.001 per
share:
Authorized shares -- 5,000,000, issued and
outstanding 721,682 in 1997 and
716,114 -- 1998 and 1999...................... 3,182 3,139 3,139
Common stock, par value $0.001 per share:
Authorized shares -- 60,000,000
Issued and outstanding shares -- 3,066,648,
3,934,478 and 17,957,139 in 1997, 1998 and
March 31, 1999 respectively................... 476 6,776 79,000
Deferred stock compensation........................ -- (671) (2,328)
Accumulated deficit................................ (17,391) (45,083) (59,654)
-------- -------- --------
Total stockholders' equity (deficit)........ (13,733) (35,839) 20,157
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................ $ 14,734 $ 31,590 $ 64,641
======== ======== ========
</TABLE>
See accompanying notes.
F-55
<PAGE> 139
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------------- -------------------
1997 1998 1998 1999
------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues, net:
Licenses.......................... $ 7,090 $ 14,186 $ 5,603 $ 11,167
Services.......................... 2,824 7,030 2,785 5,647
------- -------- ------- --------
Total revenues................. 9,914 21,216 8,388 16,814
Cost of revenues:
Licenses.......................... 394 558 172 573
Services.......................... 2,815 8,508 3,181 7,067
------- -------- ------- --------
Total cost of revenues......... 3,209 9,066 3,353 7,640
------- -------- ------- --------
Gross profit........................ 6,705 12,150 5,035 9,174
Operating expenses:
Sales and marketing............... 7,535 17,091 5,986 13,333
Research and development.......... 5,084 10,370 3,941 8,056
General and administrative........ 2,723 6,302 2,211 4,328
Acquired in-process technology
(Note 3)....................... -- 5,203 -- --
------- -------- ------- --------
Total operating
expenses............... 15,342 38,966 12,138 25,717
------- -------- ------- --------
Loss from operations................ (8,637) (26,816) (7,103) (16,543)
Interest income..................... 191 465 126 881
Interest expense.................... (107) (600) (242) (735)
Other expense, net.................. (61) (178) (118) (128)
------- -------- ------- --------
Net loss............................ $(8,614) $(27,129) $(7,337) $(16,525)
======= ======== ======= ========
Basic and diluted net loss per
share............................. $ (2.84) $ (8.41) $ (2.39) $ (1.36)
======= ======== ======= ========
Shares used in calculation of basic
and diluted net loss per share.... 3,030 3,224 3,075 12,153
======= ======== ======= ========
</TABLE>
See accompanying notes.
F-56
<PAGE> 140
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK DEFERRED TOTAL
---------------- -------------------- STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
------- ------ ---------- ------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996... -- $ -- 3,025,703 $ 470 $ -- $ (8,777) $ (8,307)
Issuance of convertible
preferred stock (net of
issuance costs of $43)... 721,682 3,182 -- -- -- -- 3,182
Issuance of common stock
from exercise of stock
options.................. -- -- 40,945 6 -- -- 6
Net loss................... -- -- -- (8,614) (8,614)
------- ------ ---------- ------- ------- -------- --------
Balance at September 30,
1997....................... 721,682 3,182 3,066,648 476 -- (17,391) (13,733)
Accretion of preferred
stock.................... (563) (563)
Repurchase of preferred
stock.................... (5,568) (43) -- -- -- -- (43)
Issuance of common stock
from exercise of stock
options.................. -- -- 158,912 33 -- -- 33
Deferred stock
compensation............. -- 1,124 (1,124) -- --
Amortization of deferred
stock compensation....... -- -- -- -- 453 -- 453
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................... -- -- -- -- -- (27,129) (27,129)
------- ------ ---------- ------- ------- -------- --------
Balance at September 30,
1998....................... 716,114 3,139 3,934,478 6,776 (671) (45,083) (35,839)
Accretion of preferred
stock.................... (186) (186)
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).............. -- -- 44,052 -- -- -- --
Issuance of common stock
from exercise of stock
options (unaudited)...... -- -- 175,056 30 -- -- 30
Deferred stock
compensation............. -- -- -- 2,080 (2,080) -- --
Amortization of deferred
stock compensation
(unaudited).............. -- -- -- -- 423 -- 423
Net loss (unaudited)....... -- -- -- -- -- (14,385) (14,385)
------- ------ ---------- ------- ------- -------- --------
Balance at March 31, 1999
(unaudited)................ 716,114 $3,139 17,957,139 $79,000 $(2,328) $(59,654) $ 20,157
======= ====== ========== ======= ======= ======== ========
</TABLE>
See accompanying notes.
F-57
<PAGE> 141
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- -------------------
1997 1998 1998 1999
-------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (8,614) $(27,129) $(7,337) $(16,525)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquired in-process technology.......................... -- 5,203 -- --
Amortization of acquired in-process technology.......... -- -- -- 160
Amortization of deferred stock compensation............. -- 453 189 455
Accrued interest converted to preferred stock........... -- 15 -- --
Warrant expense......................................... 53 23 -- --
Depreciation and amortization........................... 473 850 324 751
Provisions for bad debts................................ 45 453 93 172
Other................................................... -- 183 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (4,801) (2,288) (794) (2,882)
Notes receivable from stockholders.................... -- (500) -- --
Prepaid expenses and other assets..................... (228) (761) 64 (2,743)
Accounts payable...................................... 609 976 (390) 3,137
Accrued liabilities................................... 1,214 3,666 1,294 3,780
Deferred revenues..................................... 1,232 1,921 93 826
-------- -------- ------- --------
Net cash used in operating activities....................... (10,017) (16,935) (6,464) (12,869)
-------- -------- ------- --------
INVESTING ACTIVITIES
Purchases of equipment and furniture........................ (1,590) (706) (398) (240)
Payment in connection with acquisition of 7Software......... -- (130) -- --
Purchase of marketable securities........................... -- -- -- (37,544)
-------- -------- ------- --------
Net cash used in investing activities....................... (1,590) (836) (398) (37,784)
-------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from initial public offering....................... -- -- -- 37,369
Proceeds from exercise of preferred stock warrants.......... -- -- -- 2,616
Proceeds from sales leaseback transaction................... 1,801 191 192 --
Proceeds from capital lease financing....................... 67 -- -- --
Proceeds from borrowings.................................... 4,634 11,039 500 4,817
Payments on borrowings...................................... (950) (708) (1,289) (873)
Payment on capital leases................................... -- (500) (170) (513)
Issuance of preferred stock................................. 3,070 6,390 8,504 --
Repurchase of preferred stock............................... -- (43) -- --
Issuance of common stock.................................... 6 32 10 39
Issuance of redeemable convertible preferred stock and
warrants.................................................. 4,612 12,698 -- --
-------- -------- ------- --------
Net cash provided by financing activities................... 13,240 29,099 7,747 43,455
-------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 1,633 11,328 885 (7,198)
Pooling adjustment.......................................... -- -- (675) (1,639)
-------- -------- ------- --------
Cash and cash equivalents at beginning of period............ 5,737 7,370 7,370 18,698
-------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 7,370 $ 18,698 $ 7,580 $ 9,861
======== ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 89 $ 524 $ 173 $ 459
Issuance of redeemable convertible preferred stock in
exchange for cancellation of notes payable................ 267 -- -- --
Issuance of warrants in connection with financing
activity.................................................. 30 75 -- --
Issuance of Series B redeemable convertible preferred stock
in exchange for cancellation of notes payable and related
accrued interest.......................................... -- 1,062 -- --
Equipment and furniture obtained through capital leases..... -- 1,572 818 973
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-58
<PAGE> 142
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Concur Technologies, Inc. ("Concur" or 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.
Basis of Supplemental Financial Statement Presentation
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 among
the Company and Seeker Software, Inc. ("Seeker") the Company acquired all of the
outstanding capital of Seeker. Seeker develops, markets and sells web-based
self-service HR workplace solution applications which allow employees within an
organization to access update and share information from their desktop
computers.
The Company issued 3,419,929 shares of common stock in exchange for all
outstanding preferred stock, preferred stock purchase warrants, and common stock
of Seeker and assumed all outstanding options in connection with the acquisition
of Seeker resulting in the issuance of options to purchase up to 680,234 shares
of common stock. This transaction has been accounted for as a pooling of
interests. These supplemental consolidated financial statements have been
prepared to reflect the restatement of all periods presented to include the
accounts of Seeker. The historical results of the pooled entities reflect each
of their actual operating cost structures and, as a result, do not necessarily
reflect the cost structure of the newly combined entity.
The supplemental consolidated statements of operations for all periods
presented give effect to the merger as if it had occurred on October 1, 1996.
For purposes of the pro forma statements of operations, Seeker's statements of
operations for each of the two years ended December 31, 1998 and 1997 and for
the six months ended March 31, 1999 and 1998 have been combined with Concur's
statements of operations for each of the two fiscal years ended September 30,
1998 and 1997 and for the six months ended March 31, 1999 and 1998.
The supplemental consolidated balance sheet as of March 31, 1999 combines
the balance sheets of Concur and Seeker as of March 31, 1999 while the
supplemental consolidated balance sheets as of September 30, 1998 and 1997
combine Concur consolidated balance sheets with the December 31, 1998 and 1997
balance sheets of Seeker.
F-59
<PAGE> 143
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Net revenue and net loss for the separate and combined Companies are as
follows:
<TABLE>
<CAPTION>
CONCUR THE
TECHNOLOGIES SEEKER COMBINED
INC. SOFTWARE, INC. COMPANY
------------ -------------- --------
<S> <C> <C> <C>
Year ended September 30, 1997
Net revenue............................. $ 8,270 $ 1,644 $ 9,914
Net loss................................ $ (5,524) $ (3,090) $ (8,614)
Year ended September 30, 1998
Net revenue............................. $ 17,159 $ 4,057 $ 21,216
Net loss................................ $(18,074) $ (9,055) $(27,129)
Six months ended March 31, 1999
Net revenue............................. $ 13,591 $ 3,223 $ 16,814
Net loss................................ $(11,263) $ (5,262) $ 16,525
</TABLE>
Unaudited Interim Financial Information
The supplemental consolidated financial information as of March 31, 1999
and for the periods ended March 31, 1998 and 1999 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 March 31, 1999 are not necessarily indicative of
results that may be expected for the entire year.
Principles of Consolidation
The supplemental consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Seeker Software, Inc., 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
F-60
<PAGE> 144
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 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.
Marketable Securities
The Company's marketable securities consist primarily of corporate bonds
and commercial paper. Marketable securities are stated at fair value at the
balance sheet date. By policy, the Company invests primarily in high-grade
marketable securities. Marketable securities are defined as available-for-sale
securities under the provisions of Statement of Financial Accounting Standards
No. ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity
Securities."
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. The Company has classified its marketable securities
as available-for-sale, which are carried at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of stockholders'
equity. At March 31, 1999, the fair value of marketable securities approximates
their cost. Therefore, no comprehensive income or loss has been recorded.
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
F-61
<PAGE> 145
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
commissions, long-term debt and capital lease obligations, bank line of credit
("LOC"), and standby letters of credit. At March 31, 1999, the Company also had
marketable securities. The carrying value of cash and cash equivalents,
marketable securities, accounts receivable, accounts payable, accrued
liabilities and accrued commissions approximates fair value based on the
liquidity of these financial instruments or based on their short-term nature.
The carrying value of long-term debt, LOC, standby letters of credit, and
capital lease obligations approximates carrying value based on the market
interest rates available to the Company for debt of similar risk and maturities.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of software development costs. Financial accounting standards require
the capitalization of certain software development costs after technological
feasibility of the software is established. In the development of the Company's
new products and enhancements to existing products, the technological
feasibility of the software is not established until substantially all product
development is complete, including the development of a working model. Internal
software development costs that were eligible for capitalization were
insignificant and were charged to research and development expense in the
accompanying statements of operations.
Advertising and Marketing Costs
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were $893,000 and $2,696,000 in fiscal 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
F-62
<PAGE> 146
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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
preferred stock, stock options and warrants, are excluded from the computation
as their effect is antidilutive. See Note 13.
Upon the completion of the Company's initial public offering, all
redeemable convertible preferred stock automatically converted into common
stock.
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 March 31, 1999. Gains and
losses on
F-63
<PAGE> 147
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 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 in fiscal 1999. 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 2001. 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................. $ 732 $1,010
Furniture and equipment........................ 250 370
Leased equipment............................... 789 2,607
------ ------
1,771 3,987
Less accumulated depreciation.................. (144) (885)
------ ------
$1,627 $3,102
====== ======
</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
F-64
<PAGE> 148
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
2. EQUIPMENT AND FURNITURE (CONTINUED)
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.
3. ACQUISITION OF 7SOFTWARE, INC.
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,
F-65
<PAGE> 149
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
the state of development of each project, the time and cost needed to complete
each project, expected income, and associated risks, which included the inherent
difficulties and uncertainties in completing the project and thereby achieving
technological feasibility and risks related to the viability of and potential
changes to future target markets. This analysis resulted in amounts assigned to
in-process research and development projects that had not yet reached
technological feasibility or do not have alternative future uses. To determine
the value of the developed technology, the expected future cash flows of the
existing technology product were discounted taking into account risks related to
the characteristics and applications of each product, existing and future
markets, and assessments of the life cycle stage of each product. Based on this
analysis, the existing technology that had reached technological feasibility was
capitalized.
As of the date of acquisition, the CompanyStore development project
consisted of ongoing research and development efforts in the following areas:
(i) compatibility with additional databases, (ii) compatibility with additional
enterprise resource planning platforms, (iii) multiple catalog support, (iv)
fundamental redesign of the user interface, and (v) redesign and rewriting of
the administrative functionality. Based on management's 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...................... $ 21,216 $ 21,413
Net loss................................. $(27,129) $(22,405)
Pro forma net loss per share............. $ (8.41) $ (6.44)
</TABLE>
F-66
<PAGE> 150
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
In connection with the purchase of 7Software, the Company also entered into
separate employment agreements with certain former 7Software officers and
shareholders. Under the terms of these arrangements, the Company loaned $500,000
to these officers and shareholders in the form of a note receivable. This
receivable is payable in aggregate annual installments of $167,000 plus interest
at variable rates. The note is secured by second mortgages on real property.
Approximately 124,000 shares of the Company's common stock issued in
connection with the purchase of 7Software will be held in escrow until June 30,
1999 subject to resolution of any unresolved claims by the Company. The value of
these shares was included in the 7Software purchase price, as no such unresolved
claims are known. In addition, as of September 30, 1998, 340,452 shares of
Common Stock issued to the founders in connection with the acquisition included
restrictions entitling the Company to repurchase such shares in the event of
termination. These shares were issued in exchange for 7Software shares that
included the same restrictions. These restrictions lapse at various rates
through June 2000. The estimated fair value of these shares has been included in
the purchase price referred to above.
4. LINE OF CREDIT
In fiscal 1998, the Company had a $2.0 million line of credit and an
additional $1.0 million line of credit available for operating needs. Borrowings
under the credit line bear interest at rates ranging from prime interest rate
plus 0.5% to 1.5%. The $2 million 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 the $2.0 million 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.
In September 1998, the Company entered into an equipment line of credit
with another lender which provided for borrowings of up to $1.0 million and
expires in September 1999. Borrowings under the line of credit bear interest
payable monthly at
F-67
<PAGE> 151
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
4. LINE OF CREDIT (CONTINUED)
8.25% per year. No amounts were outstanding at September 30, 1998 under this
line of credit.
5. LONG-TERM DEBT
The Company has a long term equipment line of credit with a bank which
allows for borrowings up to $1.0 million expiring in May 1999. Payments of
principal of approximately $32,000 plus interest, which accrues at the prime
rate plus 1.5%, are due monthly until October 2001.
Long-term debt at September 30, 1998 consisted of: (i) a $3.0 million
senior term loan facility; (ii) a $1.5 million subordinated promissory note; and
(iii) a $3.5 million subordinated promissory note. The subordinated promissory
notes are held by Comdisco. The proceeds from these obligations may be used for
equipment purchases and general corporate purposes.
The senior term loan facility bears interest at the lending bank's prime
rate less 1.0% (7.5% at September 30, 1998) and matures on February 15, 2001.
Payments are interest only through February 15, 1999. At February 15, 1999, the
outstanding balance under the facility will be paid in 24 equal monthly
principal payments, plus applicable interest. The loan is secured by a perfected
senior security interest in all non-leased assets of the Company with specific
filings for intellectual property (both the line of credit and senior term loan
were issued by the same lender and include the same financial covenants and
restrictions discussed above).
The subordinated promissory notes (which are subordinated to both the line
of credit and senior term loan) are secured by the Company's receivables,
equipment, general intangibles, inventory, and all other goods and personal
property of the Company. The $1.5 million note bears interest at 8.5%, has
principal and interest payments of approximately $38,000 due monthly, and
matures in August 2001. The $3.5 million note bears interest at 11.0%, has
monthly principal and interest payments of approximately $101,000 beginning in
November 1998, and matures in April 2002. The underlying debt agreement allows
the Company to obtain additional long-term borrowings of up to $1.5 million, at
an interest rate of 12.5%. This commitment by the lending institution expired on
December 31, 1998.
In September 1998 the Company entered into a subordinated loan agreement in
the aggregate principle amount of $2,000,000. The note bears interest at 11%.
F-68
<PAGE> 152
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Fiscal year ending September 30:
1999........................... $ 3,507
2000........................... 3,861
2001........................... 2,781
2002........................... 682
-------
$10,831
=======
</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.
In December 1997, Seeker issued $1,047,200 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock. The notes payable to
shareholders accrued interest at the prime rate (8.5% at December 31, 1997) and
were due and payable with accrued interest in December 2000. Seeker closed a
private placement in March 1998, in which all of the notes payable to
shareholders, along with accrued interest, were converted into shares of Seeker
Series B preferred stock.
In December 1998, Seeker issued $2,500,000 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock. The notes payable to
shareholders accrue interest at the prime rate (7.75% at December 31, 1998) and
are payable with accrued interest in December 2005. As further described in Note
19, Seeker closed a private placement in April 1999, in which all of the notes
payable to shareholders, along with accrued interest, were converted into shares
of Seeker Series C preferred stock.
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 also leases facilities in Oakland California under a
lease expiring in 2001. The Company has the option to extend the Redmond 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-69
<PAGE> 153
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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 $1,194
2000..................................... 1,244 1,037
2001..................................... 1,036 1,002
2002..................................... 27 754
2003..................................... -- 276
------- ------
$4,263
======
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, 1997 and 1998 was
$356,000 and $1,321,000 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 $30,188,000 and tax
credit carryforwards of $262,000, all of which expire between 2009 and 2018.
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-70
<PAGE> 154
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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................ $ 4,641 $ 10,264
Tax credit carryforwards........................ 152 262
Deferred revenues............................... 502 1,038
Expenses not currently deductible and other..... 630 947
Other........................................... -- 1,022
------- --------
Total deferred tax assets............... 5,925 13,533
Valuation allowance............................... (5,925) (13,533)
------- --------
$ -- $ --
======= ========
</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 $7,608,000 during the years ended September 30,
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-71
<PAGE> 155
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 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 year.... 324,100 $ 0.11 622,879 $ 0.15 1,095,554 $0.24
Granted....................... 360,400 0.18 537,893 0.35 889,071 1.70
Issued in exchange for options
of 7Software................ -- -- -- -- 123,921 0.03
Exercised..................... (8,218) 0.13 (40,945) 0.18 (158,912) 0.21
Canceled...................... (53,403) 0.14 (24,273) 0.38 (79,441) 0.52
---------- ---------- ----------
Balance at end of year.......... 622,879 0.15 1,095,554 0.24 1,870,193 0.91
========== ========== ==========
Exercisable at end of period.... 199,157 0.10 426,661 0.19 583,141 0.19
========== ========== ==========
Weighted average fair value of
options granted during the
period
Granted at fair value....... $0.18 $.09 $0.72
Granted at below fair
value..................... -- -- 1.96
</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>
$0.01 - 0.20 7.23 804,860 503,450 $ 0.13
0.37 9.07 585,619 5,123 0.37
0.60 - 1.19 7.51 302,694 74,493 0.60
1.88 - 11.63 9.75 177,020 75 3.13
--------- ---------
$0.01 - 11.63 8.09 1,870,193 583,141 $ 0.19
========= =========
</TABLE>
During the six months ended March 31, 1999, common stock options for
1,601,800 shares were granted with a weighted average exercise price of $14.37;
options for 175,056 shares were exercised with a weighted average exercise price
of $0.17; and options for 54,920 shares were canceled with a weighted average
exercise price of $3.91; thereby resulting in 3,242,017 options outstanding at
March 31, 1999 with a weighted average exercise price of $7.51; of which 901,095
options were exercisable with a weighted average exercise price of $2.79.
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
F-72
<PAGE> 156
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
during the year ended September 30, 1998. The Company has recorded deferred
stock compensation expense of $1,124,000 and $2,254,000 relating to options
granted during the year ended September 30, 1998 and the six months ended March
31, 1999 respectively. These amounts represent 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 $453,000 and $455,000 was
recognized during the year ended September 30, 1998 and the six months ended
March 31, 1999 respectively.
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,
---------------------
1997 1998
-------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net loss as reported.................................... $(8,614) $(27,129)
Incremental pro forma compensation expense under SFAS
123................................................... (7) (37)
------- --------
Pro forma net loss...................................... $(8,621) $(27,166)
======= ========
Pro forma loss per share................................ $ (2.85) $ (8.43)
======= ========
</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-73
<PAGE> 157
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
10. STOCKHOLDER NOTES RECEIVABLE (CONTINUED)
The Company accepted a secured, non-recourse promissory note from a former
shareholder of the Company in the amount of $168,000 in March of 1998. Interest
is accrued at 5% per annum and all principal and accrued interest is due and
payable two years from execution of the agreement. The note is secured by 33,567
shares of common stock of the Company owned by the former shareholder. In
connection with this agreement the Company has the right to repurchase the
common stock for $6.26 per share. In May of 1999 the Company exercised its stock
repurchase right through cancellation of the $168,000 note and related accrued
interest and by payment of cash of approximately $30,000.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Concur 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
Concur redeemable convertible preferred stock automatically converted into
common stock.
F-74
<PAGE> 158
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
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>
Seeker Preferred Stock
In February 1997, Seeker issued 721,681 shares of convertible preferred
stock at $4.47 per share, with gross proceeds of $3,225,000, of which advance
payments of $112,500 had been received in December 1996.
In March 1998, Seeker issued 839,165 shares of redeemable convertible
preferred stock at $8.94 per share for cash of approximately $6,442,000 and the
conversion of notes payable to shareholders and accrued interest of
approximately $1,062,000. All shares of Seeker preferred stock will be exchanged
for Concur common stock in the June 1, 1999 merger.
Concur Warrants to Purchase Preferred Stock
In May 1996, the Company issued warrants to purchase 28,125 shares of
redeemable convertible 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
F-75
<PAGE> 159
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
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. These warrants were exercised in February 1999.
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.
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
F-76
<PAGE> 160
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
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 Concur preferred stock warrants automatically converted into common
stock warrants upon the closing of the initial public offering of the Company's
common stock.
Seeker Warrants
During the year ended December 31, 1997, in connection with the issuance of
notes payable to shareholders, Seeker granted to the shareholders warrants to
purchase 23,434 shares of convertible preferred stock at an exercise price of
$4.46 per share. These warrants were exercisable through December 2000.
In December 1998, in connection with the issuance of notes payable to
shareholders, Seeker granted to the shareholders warrants to purchase 27,972
shares of redeemable convertible preferred stock at an exercise price of $8.94
per share.
During the year ended December 31, 1998, in connection with the
subordinated loan and equipment line of credit, the Company granted to the
lender warrants to purchase 25,734 shares of redeemable convertible preferred
stock at an exercise price of $8.94 per share. All shares of Seeker preferred
stock will be exchanged on a net exercise basis for Concur common stock in the
June 1, 1999 merger.
F-77
<PAGE> 161
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
12. STOCKHOLDERS' EQUITY
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ---------
<S> <C> <C>
Outstanding stock options................... 1,870,193 3,242,017
Stock Options available for grant:
1994 Stock Option Plan................. 354,768 334,230
1998 Equity Incentive Plan............. 2,909,328 1,500,760
Director Stock Option Plan............. 240,000 140,000
Employee Stock Purchase Plan................ 320,000 490,297
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........... -- 2,224,267
Warrants to purchase Seeker preferred
stock..................................... 23,437 77,140
---------- ---------
Total............................. 18,505,015 8,008,711
========== =========
</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.
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.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
------------------ ------------------
1997 1998 1998 1999
------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net loss................................. $(8,614) $(27,129) $(7,337) $(16,525)
======= ======== ======= ========
Basic and diluted net loss per common
share.................................. $ (2.84) $ (8.41) $ (2.39) $ (1.36)
======= ======== ======= ========
Weighted average number of common shares
used for basic and diluted per share
amounts................................ 3,030 3,224 3,075 12,153
======= ======== ======= ========
</TABLE>
F-78
<PAGE> 162
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
13. NET LOSS PER SHARE (CONTINUED)
Options to purchase 3,242,017 shares of common stock with exercise prices
of $0.03 to $38.81 per share, warrants to purchase 2,301,407 shares of Concur
common stock and warrants to purchase 77,140 shares of Seeker preferred stock at
a range of $3.65 to $85.00 per share were outstanding at March 31, 1999. These
options and warrants and 1,555,279 shares of convertible preferred stock at
March 31, 1999 were excluded from the computation of diluted earnings per share
because their effect was anti-dilutive.
14. RETIREMENT 401(k) PLAN
The Company sponsors a 401(k) Profit Sharing and Trust Plan that is
available to substantially all employees. Each employee may elect to contribute
up to 20% of his or her pre-tax gross earnings, subject to annual limits. The
Company reserves the right to amend the Plan at any time. Employee contributions
to the Plan are subject to statutory limitations regarding maximum
contributions. There are no Company matching contributions.
15. INTERNATIONAL REVENUES
The Company licenses and markets its products primarily in the United
States, and operates in a single industry segment. Information regarding
revenues in different geographic regions is as follows:
<TABLE>
<CAPTION>
REVENUES
-----------------
COUNTRY 1997 1998
------- ------ -------
(IN THOUSANDS)
<S> <C> <C>
United States....................................... $8,625 $20,406
Europe.............................................. 612 364
Canada.............................................. 677 31
Australia........................................... -- 398
Asia................................................ -- 17
------ -------
Total..................................... $9,914 $21,216
====== =======
</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
F-79
<PAGE> 163
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
16. SIGNIFICANT AGREEMENTS (CONTINUED)
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 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 six months ended March 31, 1999, the Company paid fees of
$254,000 and received proceeds totaling $219,000 under the terms of the sales
referral agreement. At March 31, 1999, accounts receivable from stockholders was
$0 and accounts payable to stockholders was $95,000.
F-80
<PAGE> 164
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
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"), FOLLOW-ON OFFERING, AND PRIVATE PLACEMENT
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 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. On
April 16, 1999 the Company issued an additional 2,018,620 shares of its common
stock at an offering price $43.50. The net proceeds to the Company, net of
offering costs, were approximately $82.5 million.
In April of 1999 Seeker issued 972,944 shares of Series C preferred stock
in a private placement for cash of $9,434,000 and conversion of notes payable to
stockholders and accrued interest aggregating to $2,566,000.
F-81
<PAGE> 165
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following financial statements present the Concur Technologies, Inc.
("Concur" or the Company) Pro Forma Consolidated Balance Sheet at March 31, 1999
and the Concur Pro Forma Consolidated Statements of Operations for the year
ended September 30, 1998.
The Company's acquisition of 7Software, Inc. ("7Software"), effective June
30, 1998, 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 Company's merger with Seeker Software, Inc. ("Seeker")
effective June 1, 1999, will be accounted for as a pooling of interests. The
following Pro Forma Consolidated Balance Sheet as of March 31, 1999 and pro
forma consolidated statement of operations for the year ended September 30, 1998
give effect to the merger with Seeker Software as presented in the Supplemental
Consolidated Financial Statements. The pro forma consolidated statements of
operations for the year ended September 30, 1998 also gives effect to the
acquisition of 7Software as if it occurred on October 1, 1997, and includes
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"). The pro forma information is derived from
historical financial statements of 7Software and the Supplemental Consolidated
Financial Statements of Concur. 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 period presented.
F-82
<PAGE> 166
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CONCUR ADJUSTMENTS CONSOLIDATED
-------- ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash & cash equivalents.................................. $ 9,861 -- $ 9,861
Marketable securities.................................... 37,544 -- 37,544
Accounts receivable...................................... 8,680 -- 8,680
Prepaid expenses & other current assets.................. 1,415 -- 1,415
-------- ------- --------
Total current assets................................ 57,500 -- 57,500
Equipment & furniture, net................................. 3,488 -- 3,488
Deposits and other assets.................................. 3,653 -- 3,653
-------- ------- --------
Total assets........................................ $ 64,641 -- $ 64,641
======== ======= ========
Liabilities & Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable & accrued liabilities................... $ 14,676 -- $ 14,676
Notes payable to stockholders............................ 2,667 -- 2,667
Current portion of long term obligations................. 5,555 -- 5,555
Deferred revenue......................................... 4,445 -- 4,445
Accrued merger expenses.................................. -- 7,900 7,900
-------- ------- --------
Total current liabilities........................ 27,343 7,900 35,243
Long term obligations, net of current portion.............. 8,940 8,940
Redeemable convertible preferred stock..................... 8,201 (8,201) --
Stockholders' equity (deficit):
Convertible preferred stock.............................. 3,139 (3,139) --
Common stock............................................. 79,000 11,340 90,340
Deferred stock compensation.............................. (2,328) -- (2,328)
Accumulated deficit...................................... (59,654) (7,900) (67,554)
-------- ------- --------
Total stockholders' equity (deficit)................ 20,157 301 20,458
-------- ------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $ 64,641 $ -- $ 64,641
======== ======= ========
</TABLE>
See accompanying notes.
F-83
<PAGE> 167
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................................ $ 21,216 $ 197 $ -- $ 21,413
Cost of revenues................................... 9,066 30 174 9,270
-------- ----- ------- --------
Gross profit....................................... 12,150 167 (174) 12,143
Sales and marketing................................ 17,091 162 33 17,286
Research and development........................... 10,370 243 33 10,646
General and administrative......................... 6,302 -- -- 6,302
Acquired in process R&D............................ 5,203 -- (5,203) --
-------- ----- ------- --------
Total operating expenses...................... 38,966 405 (5,137) 34,234
-------- ----- ------- --------
Loss from operations............................... (26,816) (238) 4,963 (22,091)
Other expense...................................... (313) (1) -- (314)
-------- ----- ------- --------
Net loss...................................... $(27,129) $(239) $ 4,963 $(22,405)
======== ===== ======= ========
Basic and diluted net loss per share............... $ (8.41) $ (6.44)
======== ========
Shares used in calculation of basic and diluted net
loss per share................................... 3,224 3,480
======== ========
</TABLE>
See accompanying notes.
F-84
<PAGE> 168
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On June 30, 1998, Concur Technologies, Inc. ("Concur" or the Company)
acquired 7Software, Inc. ("7Software") in an acquisition accounted for as a
purchase. 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.
On May 31, 1999 Concur entered into the merger agreement that resulted in a
merger with Seeker Software, Inc. ("Seeker") in a merger transaction accounted
for on a pooling of interests. Seeker develops markets and sells web-based
self-service HR workplace solution applications which allow employees within an
organization to access, update and share information from their desktop
computers.
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 and merger
taken place on October 1, 1997. The unaudited pro forma consolidated statements
of operations for the year ended September 30, 1998 has been determined based on
the supplemental consolidated statement of operations combining the results of
the Company and Seeker and the effects of the 7Software acquisition, assuming
the related events occurred as of October 1, 1997 for the purposes of the
unaudited pro forma consolidated statements of operations. The unaudited pro
forma balance sheet at March 31, 1999 reflects the merger with Seeker as if the
merger occurred on March 31, 1999.
2. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
The unaudited pro forma consolidated 1998 financial statements of
operations 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.
The pro forma financial statements have been prepared using the pooling of
interest method of accounting to give effect to the Seeker merger as reflected
in the supplemental consolidated financial statements. As a result of the use of
the pooling of interest method of accounting for the business combination, the
consolidated financial statements of Concur are being restated, and therefore
the pro forma combined financial statements have been restated to reflect the
merger as if it had occurred prior to the dates of the statements. The
computations of weighted average shares outstanding include the conversions of
shares of Seeker common stock and preferred stock into shares of Concur common
stock and the conversion of options to purchase Seeker common stock into options
to purchase Concur common stock.
F-85
<PAGE> 169
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The net loss per share and shares used in computing the net loss per share
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. The unaudited pro forma
consolidated net loss per share also includes the effect of the shares of common
stock issued in the Seeker Merger.
4. PURCHASE ADJUSTMENTS
Pro forma adjustments to the 1998 Statement of Operations have been
prepared to reflect the elimination of the non-recurring one-time charge for
acquired in-process technology in connection with the 7Software acquisition and
to reflect the amortization of capitalized technology and other intangible
assets.
Pro forma adjustments to the March 31, 1999 Pro Forma Consolidated Balance
Sheet have been prepared to reflect the conversion of the Seeker preferred stock
to Concur common stock and to reflect the accrual of $7.9 million of merger
related costs consisting primarily of financial advisory fees for both
companies, attorneys, accountants, financial printing, and other related
charges..
F-86
<PAGE> 170
LOGO
<PAGE> 171
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.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 12,598
Accounting fees and expenses................................ 150,000
Legal fees and expenses..................................... 125,000
Printing and engraving expenses............................. 225,000
Transfer agent and registrar fees and expenses.............. 2,000
Custodian fees.............................................. 3,000
Miscellaneous............................................... 2,402
--------
Total............................................. $520,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law
("DGCL"), the Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. In addition, as permitted by Section 145
of the DGCL, the Bylaws of the Company provide that: (i) the Company is required
to indemnify its directors and executive officers to the fullest extent
permitted by the DGCL (except if such person is seeking indemnity in connection
with a proceeding (or part thereof) initiated by such person and not authorized
by the Board of Directors); (ii) the Company may, in its discretion, indemnify
other officers, employees and agents as set forth in the DGCL; (iii) upon
receipt of an undertaking to repay such advances if indemnification is
determined to be unavailable, the Company is required to advance expenses, as
incurred, to its directors and executive officers to the fullest extent
permitted by the DGCL in connection with a proceeding (except if the expenses
incurred by such person are incurred because the Company is directly bringing a
claim, in a proceeding, against such person, alleging that such person has
breached his or her duty of loyalty to the Company, committed an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of law, or derived an improper personal benefit from a transaction); (iv) the
rights conferred in the Bylaws are not exclusive and the Company is authorized
to enter into indemnity agreements with its directors, officers, employees and
agents; and (v) the Company may not retroactively amend the Bylaw provisions
relating to indemnity.
The Company's policy is to enter into Indemnity Agreements with each of its
directors and executive officers. The Indemnity Agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Company, on account of their
services as directors, officers, employees or agents of the Company or as
directors, officers, employees or agents of any other company or enterprise when
they are serving in such capacities at the request of the Company. The Company
will not be obligated pursuant to the agreements to indemnify or advance
expenses to an indemnified party with respect to proceedings or claims (i)
initiated by the indemnified
II-1
<PAGE> 172
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>
Company's Certificate of Incorporation...................... 3.03
Company's Bylaws............................................ 3.04
Form of Indemnity Agreement................................. 10.06
</TABLE>
II-2
<PAGE> 173
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 June 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
PURCHASERS DATE OF SALE TITLE OF SECURITIES OF SECURITIES PURCHASE PRICE
---------- ------------------ ------------------------------------ ------------- --------------
<S> <C> <C> <C> <C>
1 investor May 15, 1996 Warrants to purchase 28,125 shares -- --
of Series C Preferred Stock
10 investors July 10, 1996 Series C Preferred Stock 3,750,000 $ 7,500,000
2 investors December 31, 1996 Series C Preferred Stock 134,920 269,697
1 investor July 22, 1997 Warrants to purchase 67,815 shares -- --
of Series D Preferred Stock
10 investors July 23, 1997 Series D Preferred Stock 1,275,338 4,655,001
1 investor September 3, 1997 Warrants to purchase 14,000 shares -- --
of Series D Preferred Stock
1 investor April 28, 1998 Warrants to purchase 13,187 shares -- --
of Series E Preferred Stock
1 investor May 8, 1998 Warrants to purchase 56,451 shares -- --
of Series E Preferred Stock
8 shareholders June 30, 1998 Common Stock 708,918 --
25 investors June 30, 1998 and Series E Preferred Stock 1,648,660 12,777,196
August 11, 1998
1 investor August 11, 1998 Warrant to purchase 2,400,000 shares -- --
of Series E Preferred Stock
1 investor December 16, 1998 Exercise of warrant to purchase 33,537 --
Common Stock
1 investor December 21, 1998 Exercise of warrant to purchase 225,000 2,616,000
Common Stock
1 investor February 8, 1999 Exercise of warrant to purchase 10,515 --
Common Stock
53 investors June 1, 1999 Common Stock 3,419,929 --
Officers, directors, September 30, 1995 Exercise of options to purchase 290,898 38,024
employees and other to June 15, 1999 Common Stock
eligible participants
<CAPTION>
CLASS OF FORM OF
PURCHASERS CONSIDERATION
---------- ------------------
<S> <C>
1 investor --(1)
10 investors Cash
2 investors --(2)
1 investor --(3)
10 investors Cash
1 investor --(4)
1 investor --(5)
1 investor --(6)
8 shareholders Exchange for
Common Stock
of 7Software,
Inc.(7)
25 investors Cash
1 investor --(8)
1 investor Net exercise
1 investor Cash
1 investor Net exercise
53 investors Exchange for
Common Stock
of Seeker
Software,
Inc.(9)
Officers, directors, Cash(10)
employees and other
eligible participants
</TABLE>
- -------------------------
* As part of the reincorporation of the Company into Delaware, the Company
exchanged 3,099,959 shares of its Common Stock, 10,213,553 shares of its
redeemable convertible preferred stock and warrants to purchase 2,329,578
shares of its redeemable convertible preferred stock for 3,099,959 shares of
Common Stock, 10,213,553 shares of redeemable convertible preferred stock
and warrants to purchase 2,329,578 shares of redeemable convertible
preferred stock, respectively.
(1) Issued to Imperial Bank as additional consideration for a bank line of
credit.
(2) In connection with the cancellation of previous indebtedness, 70,390 shares
of Series C Preferred Stock were issued to Michael W. Hilton and 64,530
shares of Series C Preferred Stock were issued to S. Steven Singh.
(3) Issued to Comdisco, Inc. as additional consideration for a promissory note
and an equipment lease.
(4) Issued to Imperial Bank as additional consideration for a bank line of
credit and other financing.
(5) Issued to Imperial Bank as additional consideration for additional
financing.
(6) Issued to Comdisco, Inc. as additional consideration for a promissory note.
II-3
<PAGE> 174
(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) In connection with the Company's acquisition of Seeker Software, the
Company exchanged 3,419,929 shares of Common Stock for Seeker Software's
Common Stock.
(10) 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>
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.*
2.03 Agreement and Plan of Reorganization between Company,
ConStar Acquisition Corp. and Seeker Software, Inc. dated
May 26, 1999 (incorporated herein by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated June
1, 1999).
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.*
3.05 Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 4.03 to the
Registration Statement on Form S-8 (File No. 333-70455)
effective January 12, 1999).
4.01 Specimen Certificate for Company's Common Stock.*
4.02 Shelf Registration Statement among Company and signatories
who were stockholders of Seeker Software, Inc. dated May 26,
1999 (incorporated herein by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated June 1, 1999).
4.03 Third Amended and Restated Information and Registration
Rights Agreement dated May 26, 1999 (incorporated herein by
reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K dated June 1, 1999).
</TABLE>
II-4
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
4.04 Escrow Agreement among Company, Chase Manhattan Bank and
Trust Company, and representatives of former stockholders
and optionholders of Seeker Software, Inc. dated May 26,
1999 (incorporated herein by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K dated June 1, 1999).
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being issued.***
10.01 Company's Amended and Restated 1994 Stock Option Plan and
related documents.*
10.02 Company's Amended 1998 Equity Incentive Plan and related
documents.*
10.03 Company's 1998 Employee Stock Purchase Plan and related
documents.*
10.04 Company's 1998 Directors Stock Option Plan and related
documents.**
10.05 Company's 401(k) Profit Sharing and Trust Plan.*
10.06 Form of Indemnity Agreement entered into by Company with
each of its directors and executive officers.*
10.07 Series D Preferred Stock Purchase Agreement dated July 22,
1997.*
10.08 Series E Preferred Stock Purchase Agreement dated May 29,
1998.*
10.09 Strategic Marketing Alliance Agreement between Company and
American Express Company dated December 17, 1997.*/+
10.10 Co-Branded XMS Service Marketing Agreement between Company
and American Express Travel Related Services Company, Inc.
("TRS") dated August 11, 1998.*/+
10.11 Warrant to purchase shares of Company's Series E Preferred
Stock issued by Company to TRS dated August 11, 1998.*
10.12 Voting Agreement among Company and stockholders of Company
identified therein dated May 29, 1998.*
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.**
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.**
</TABLE>
II-5
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
10.31 Letter Agreement between Company and Robert K. Reid dated
May 26, 1999.
10.32 Letter Agreement between Company and Gary L. Durbin dated
May 26, 1999.
10.33 Office Lease between Seeker Software, Inc. and Webster
Street Partners, Ltd., dated August 7, 1997.
10.34 First Amendment to Office Lease between Seeker Software,
Inc. and Webster Street Partners, Ltd. dated November 10,
1998.
21.01 List of Company's subsidiaries.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).***
23.02 Consent of Ernst & Young LLP, Independent Auditors.***
24.01 Power of Attorney (See page II-8 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.
** Incorporated herein by reference to the exhibit with the same number filed
with the Registrant's Registration Statement on Form S-1 (File No.
333-74685) declared effective by the Securities and Exchange Commission on
April 16, 1999.
*** To be filed by amendment.
+ 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.
(b) The following financial statement schedule is filed herewith:
Report of Ernst & Young LLP, Independent Auditors, on Financial Statement
Schedule and Supplemental Financial Statement Schedule.
Schedule II -- Valuation and Qualifying Accounts
Supplemental Schedule II -- Valuation and Qualifying Accounts
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
II-6
<PAGE> 177
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-7
<PAGE> 178
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 21st day of June, 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 and 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 Executive Officer June 21, 1999
- --------------------------------------------------- and Director (principal executive
S. Steven Singh officer)
/s/ STERLING R. WILSON Chief Financial Officer and Executive June 21, 1999
- --------------------------------------------------- Vice President of Operations
Sterling R. Wilson (principal financial officer and
principal accounting officer)
/s/ MICHAEL W. HILTON Chairman of the Board of Directors June 21, 1999
- --------------------------------------------------- and Chief Technical Officer
Michael W. Hilton
/s/ JEFFREY D. BRODY Director June 21, 1999
- ---------------------------------------------------
Jeffrey D. Brody
/s/ NORMAN A. FOGELSONG Director June 15, 1999
- ---------------------------------------------------
Norman A. Fogelsong
/s/ RUSSELL P. FRADIN Director June 17, 1999
- ---------------------------------------------------
Russell P. Fradin
</TABLE>
<PAGE> 179
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ EDWARD P. GILLIGAN Director June 18, 1999
- ---------------------------------------------------
Edward P. Gilligan
/s/ MICHAEL J. LEVINTHAL Director June 21, 1999
- ---------------------------------------------------
Michael J. Levinthal
/s/ JAMES D. ROBINSON III Director June 21, 1999
- ---------------------------------------------------
James D. Robinson III
</TABLE>
<PAGE> 180
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
- ------- ------------- ------------
<S> <C> <C>
10.31 Letter Agreement between Company and Robert K. Reid dated
May 26, 1999................................................
10.32 Letter Agreement between Company and Gary L. Durbin dated
May 26, 1999................................................
10.33 Office Lease between Seeker Software, Inc. and Webster
Street Partners, Ltd. dated August 7, 1997..................
10.34 First Amendment to Office Lease between Seeker Software,
Inc. and Webster Street Partners, Ltd. dated November 10,
1998........................................................
21.01 List of Company's subsidiaries..............................
24.01 Power of Attorney (See page II-8 of the Registration
Statement)
</TABLE>
<PAGE> 181
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated balance sheets of Concur Technologies,
Inc. as of September 30, 1998 and 1997, 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, and have issued our report
thereon dated October 27, 1998 (included elsewhere in this Registration
Statement) Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule and the supplemental
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
October 27, 1998
S-1
<PAGE> 182
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
CONCUR TECHNOLOGIES, INC.
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
------------------------
CHARGED TO
BALANCE OF CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTION -- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1998:
Deducted from asset accounts:
Allowance for doubtful
accounts.................... $170,000 $493,304 $ -- $116,703 $546,601
Year ended September 30, 1997:
Deducted from asset accounts:
Allowance for doubtful
accounts.................... 125,000 87,000 -- 42,000 170,000
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful
accounts.................... $ 18,000 $108,197 $ -- $ 1,197 $125,000
======== ======== ==== ======== ========
</TABLE>
- -------------------------
(1) Uncollectible accounts written off, net of recoveries.
SUPPLEMENTAL SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
CONCUR TECHNOLOGIES, INC.
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
------------------------
CHARGED TO
BALANCE OF CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTION -- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1998:
Deducted from asset accounts:
Allowance for doubtful
accounts.................... $170,000 $643,304 $ -- $116,703 $696,601
Year ended September 30, 1997:
Deducted from asset accounts:
Allowance for doubtful
accounts.................... 125,000 87,000 -- 42,000 170,000
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful
accounts.................... $ 18,000 $108,197 $ -- $ 1,197 $125,000
======== ======== ==== ======== ========
</TABLE>
- -------------------------
(1) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE> 183
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS ON
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
We have audited the supplemental consolidated balance sheets of Concur
Technologies, Inc. as of September 30, 1998 and 1997 and the related
supplemental statements of operations, stockholders' equity (deficit), and cash
flows for each of the years then ended and have issued our report thereon dated
June 1, 1999 (included elsewhere in this registration statement). Our audits
also included the supplemental financial statement schedule listed in Item 16(b)
of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
June 1, 1999
S-3
<PAGE> 1
EXHIBIT 10.31
May 26, 1999
Rob Reid
Seeker Software, Inc.
2101 Webster St., Ste. 1600
Oakland, CA 94612
Dear Rob:
In the context of the proposed purchase of Seeker Software, Inc. ("Seeker") by
Concur Technologies, Inc. ("Concur" or the "Company"), we are pleased to offer
you the position of Executive Vice President, General Manager of Human
Resources Division, reporting to Steve Singh, President and CEO of Concur.
Compensation for this position is a minimum of $225,000 per year. The term of
your employment shall be for two years (the "Term"). This letter sets forth the
terms of our offer of employment to you as well as other related matters for
your approval and signature. This offer letter will become effective on the
effective date of the merger between Concur and Seeker.
You will be eligible to earn a minimum bonus target of $75,000 on a fiscal year
basis. The fiscal year is October 1 through September 30. You will be eligible
for a pro rate bonus for fiscal year 1999 based on nine-twelfths (9/12) of
$75,000. 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.
The Compensation Committee will review executive compensation packages,
including stock options, in October 1999. To the extent the Company awards
options to purchase Common Stock of Concur to other similarly situated
executives, at that time you will likewise be eligible for a grant of
additional options on a basis commensurate with such other executives.
While you are a full-time employee, you will receive the same health and other
benefits as are generally available to the rest of Concur's full-time U.S.
based employees (provided, of course, you meet the standard eligibility
requirements for such benefits). Attached is a summary of benefits Concur makes
available to employees in positions similar to the one offered to you. For
purposes of these benefits, your hire date with Concur will be your original
hire date with Seeker. Your total vacation balance will be carried over to
Concur payroll. Effective upon your transition to Concur payroll, your
vacation will be implemented according to the Concur vacation policy.
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
<PAGE> 2
Rob Reid
May 26, 1999
Page 2
experience, no matter when or how gained, in any new field or position.
Additionally, in connection with the acquisition and as a condition of this
offer of employment, you agree that you shall not, without the prior written
consent of the Board (i) carry on anywhere in the United States any business or
activity (whether directly or indirectly, as a partner, shareholder, principal,
agent, director, affiliate or consultant) which is directly competitive with
the business conducted by Concur or Seeker at the time of termination of your
employment(1), (ii) solicit or influence or attempt to influence any client,
customer or other person either directly or indirectly, to direct, his or its
purchase of Concur's or Seeker's products and/or services to any person, firm,
corporation, institution or other entity in competition with the business of
Concur or Seeker, or (iii) solicit or influence or attempt to influence any
person employed by Concur or Seeker to terminate or otherwise cease his
employment with Concur or Seeker or become an employee of any competitor of
Concur or Seeker. The provisions set forth in this paragraph shall be effective
commencing as of the effective date of this letter and shall continue for so
long as you are receiving cash payments or continued vesting of stock options
from the Company.
Should Concur determine to terminate your employment for any reason other than
for "cause", you will receive advance notice of such termination for a period
equal to the lesser of nine months or the remaining period in the Term, during
which time your position with the Company may be changed, but your base salary
and option vesting shall continue, provided that you remain an employee during
such period. For this purpose, you shall be considered to have been terminated
with "cause" if your employment is terminated for (a) any gross misconduct or
fraud in the performance of your employment, (b) your conviction or guilty plea
with respect to any felony (except for motor vehicle violations), (c) your
material breach of the Confidentiality Agreement, after written notice
delivered to you of such breach and a reasonable opportunity to cure such
breach or (d) your habitual failure to perform your duties after receipt of
reasonable written warning relating to the same.
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 or Seeker regarding your employment, and any other communications
between you and the Company or Seeker 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
- ----------------------
(1) it is agreed that ownership of no more than one percent of the outstanding
voting stock of a publicly traded corporation, ownership of no more than five
percent of the outstanding voting stock of a privately held corporation or
ownership of no more than ten percent of the limited partnership interests of a
partnership shall not constitute a violation of this provision.
<PAGE> 3
Rob Reid
May 26, 1999
Page 3
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.
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
signing this original letter, the Noncompetition Agreement and the
Confidentiality Agreement (in their entirety) and faxing them to this office at
(425) 702-0674. The signed originals must be received by Concur prior to your
start date.
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.
<PAGE> 4
Rob Reid
May 26, 1999
Page 4
Rob, 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/ ROB REID 5/26/99
- ------------------------------------- --------------------
Rob Reid Date
Start date:
--------------------------
<PAGE> 1
EXHIBIT 10.32
May 26, 1999
Gary Durbin
Seeker Software, Inc.
2101 Webster St., Ste. 1600
Oakland, CA 94612
Dear Gary:
In the context of the proposed purchase of Seeker Software, Inc. ("Seeker") by
Concur Technologies, Inc. ("Concur" or the "Company"), we are pleased to offer
you the position of Chief Technical Officer, Human Resources Division,
reporting to Steve Singh, President and CEO of Concur. Compensation for this
position is a minimum of $165,000 per year. The term of your employment shall be
for two years (the "Term"). This letter sets forth the terms of our offer of
employment to you as well as other related matters for your approval and
signature. This offer letter will become effective on the effective date of the
merger between Concur and Seeker.
You will be eligible to earn a minimum bonus target of $75,000 on a fiscal year
basis. The fiscal year is October 1 through September 30. You will be eligible
for a pro rata bonus for fiscal year 1999 based on nine-twelfths (9/12) of
$75,000. 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.
The Compensation Committee will review executive compensation packages,
including stock options, in October 1999. To the extent the Company awards
options to purchase Common Stock of Concur to other similarly situated
executives, at that time you will likewise be eligible for a grant of
additional options on a basis commensurate with such other executives.
While you are a full-time employee, you will receive the same health and other
benefits as are generally available to the rest of Concur's full-time U.S.
based employees (provided, of course, you meet the standard eligibility
requirements for such benefits). Attached is a summary of benefits Concur makes
available to employees in positions similar to the one offered to you. For
purposes of these benefits, your hire date with Concur will be your original
hire date with Seeker. Your total vacation balance will be carried over to
Concur payroll. Effective upon your transition to Concur payroll, your vacation
will be implemented according to the Concur vacation policy.
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
<PAGE> 2
Gary Durbin
May 26, 1999
Page 2
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. Additionally, in connection with the acquisition and as a condition
of this offer of employment, you agree to execute the Noncompetition Agreement
attached hereto.
Should Concur determine to terminate your employment for any reason other than
for "cause", you will receive advance notice of such termination for a period
equal to the lesser of nine months or the remaining period in the Term, during
which time your position with the Company may be changed, but your base salary
and option vesting shall continue, provided that you remain an employee during
such period. For this purpose, you shall be considered to have been terminated
with "cause" if your employment is terminated for (a) any gross misconduct or
fraud in the performance of your employment, (b) your conviction or guilty plea
with respect to any felony (except for motor vehicle violations), (c) your
material breach of the Confidentiality Agreement, after written notice
delivered to you of such breach and a reasonable opportunity to cure such
breach or (d) your habitual failure to perform your duties after receipt of
reasonable written warning relating to the same.
This letter, the Noncompetition Agreement 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 or Seeker regarding your employment, and
any other communications between you and the Company or Seeker 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.
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
signing this original letter, the Noncompetition Agreement and the
Confidentiality Agreement (in their entirety) and faxing them to this office at
(425) 702-0674. The signed originals must be received by Concur prior to your
start date.
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.
<PAGE> 3
Gary Durbin
May 26, 1999
Page 3
Gary, 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/ GARY DURBIN
__________________________________ Date: May 26, 1999
Gary Durbin
Start date: June 1, 1999
<PAGE> 1
EXHIBIT 10.33
[LOGO]
OFFICE LEASE
WEBSTER STREET PARTNERS, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
"LANDLORD"
SEEKER SOFTWARE, INC.
A DELAWARE CORPORATION
"TENANT"
Dated for reference purposes as of:
August 7, 1997
-------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
BASIC LEASE TERMS
1. PREMISES AND COMMON AREAS LEASED.........................................4
2. TERM.....................................................................7
3. POSSESSION...............................................................8
4. MONTHLY BASIC RENT.......................................................8
5. RENTAL ADJUSTMENT........................................................8
6. SECURITY DEPOSIT.........................................................8
7. USE.....................................................................11
8. PAYMENTS AND NOTICES....................................................12
9. BROKERS.................................................................12
10. HOLDING OVER............................................................12
11. TAXES ON TENANT'S PROPERTY..............................................13
12. CONDITION OF PREMISES...................................................13
13. ALTERATIONS.............................................................13
14. REPAIRS.................................................................15
15. LIENS...................................................................16
16. ENTRY BY LANDLORD.......................................................16
17. UTILITIES AND SERVICES..................................................17
18. INDEMNIFICATION.........................................................18
19. DAMAGE TO TENANT'S PROPERTY.............................................19
20. INSURANCE...............................................................19
21. DAMAGE OR DESTRUCTION...................................................21
22. EMINENT DOMAIN..........................................................22
23. DEFAULTS AND REMEDIES...................................................22
24. ASSIGNMENT AND SUBLETTING...............................................24
25. QUIET ENJOYMENT.........................................................26
26. SUBORDINATION...........................................................26
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
27. ESTOPPEL CERTIFICATE....................................................26
28. BUILDING PLANNING.......................................................26
29. RULES AND REGULATIONS...................................................27
30. CONFLICT OF LAWS........................................................27
31. SUCCESSORS AND ASSIGNS..................................................27
32. SURRENDER OF PREMISES...................................................27
33. PROFESSIONAL FEES.......................................................27
34. PERFORMANCE BY TENANT...................................................27
35. MORTGAGE AND SENIOR LESSOR PROTECTION...................................28
36. DEFINITION OF LANDLORD..................................................28
37. WAIVER..................................................................28
38. IDENTIFICATION OF TENANT................................................28
39. PARKING AND TRANSPORTATION..............................................29
40. OFFICE AND COMMUNICATIONS SERVICES......................................30
41. TERMS AND HEADINGS......................................................30
42. EXAMINATION OF LEASE ...................................................30
43. TIME ...................................................................31
44. PRIOR AGREEMENT; AMENDMENTS.............................................31
45. SEPARABILITY............................................................31
46. RECORDING...............................................................31
47. LIMITATION ON LIABILITY ................................................31
48. RIDERS .................................................................31
49. SIGNS ..................................................................31
50. MODIFICATION FOR LENDER.................................................31
51. ACCORD AND SATISFACTION.................................................31
52. FINANCIAL STATEMENTS....................................................32
53. TENANT AS CORPORATION...................................................32
54. NO PARTNERSHIP OR JOINT VENTURE.........................................32
55. AMERICANS WITH DISABILITIES ACT.........................................32
56. HAZARDOUS MATERIALS.....................................................32
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
57. ARBITRATION OF DISPUTES.................................................35
58. NOTICES.................................................................36
RIDER NO. 1 TO OFFICE LEASE.................................................37
EXHIBITS
A. OUTLINE OF FLOOR PLAN OF PREMISES.......................................40
B. SITE PLAN...............................................................41
C. WORK LETTER AGREEMENT...................................................42
D. SAMPLE FORM OF NOTICE OF LEASE COMMENCEMENT.............................46
E. SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE..............................47
F. RULES AND REGULATIONS ..................................................49
</TABLE>
<PAGE> 5
2101 WEBSTER STREET
BASIC LEASE TERMS
This Office Lease (the "Lease") is made and entered into as of the date
hereinafter set forth between Landlord and Tenant (as such parties are
hereinafter defined). For and in consideration of the payment of all rent to be
paid by Tenant hereunder (including, but not limited to, Tenant's Percentage
Share of Operating Expense and Tenant's Percentage Share of Real Property Taxes
[as hereinafter defined] and of the covenants and agreements hereinafter set
forth to be kept and performed by Tenant, Landlord hereby leases to Tenant the
Premises for the Term beginning on the Commencement Date (as such terms are
hereinafter defined), at the rent and subject to and upon all of the terms and
agreements hereinafter set forth.
The Standard Office Lease Provisions ("Standard Provisions") attached
hereto are incorporated herein by this reference.
1. Landlord: WEBSTER STREET PARTNERS, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP.
2. Landlord's Address: Copy To:
WEBSTER STREET PARTNERS, LTD. WEBSTER STREET PARTNERS, LTD.
Attn: Mark J. Perniconi Attn: Building Manager
2476 North Lake Avenue 2101 Webster Street
Altadena, California 91001 Suite 1475
Oakland, California 94612
3. Tenant:
SEEKER SOFTWARE, INC., A DELAWARE CORPORATION.
4. Tenant's Address: Copy To:
SEEKER SOFTWARE, INC.
2101 WEBSTER STREET, SUITE 1600
OAKLAND, CA 94612
ATTN:
5. Addresses:
(a) Office Building (b) Multi-Story Parking
and Basement Garage: Facility:
2101 Webster Street 2353 Webster Street
Oakland, California Oakland, California
94612 94612
6. Suite Number: 1600
7. Floor(s) upon which the Premises are located: 16TH FLOOR
8. Premises: Those certain premises defined in Subparagraph 1(a) of
the Standard Provisions.
<PAGE> 6
9. Site: The parcel or parcels of real property defined in Subparagraph
1(a) of the Standard Provisions.
10. Rentable Square Feet within Premises: FOR THE PURPOSES OF THE
CALCULATION OF MONTHLY BASIC RENT:
MONTHS 1 THROUGH 6 APPROXIMATELY 8,809 RENTABLE SF
THEREAFTER APPROXIMATELY 11,982 RENTABLE SF
11. Landlord's Work: [Intentionally Deleted]
12. Tenant Improvement Allowance: $19.34 PER RENTABLE SQUARE FOOT OF
PREMISES AS MORE PARTICULARLY DEFINED IN EXHIBIT "C".
13. Estimated Commencement Date: OCTOBER 1, 1997
14. Commencement Date: The earlier of the following: (i) the date upon
which the Certificate of Occupancy (or approval for occupancy is given by the
Building Inspector) is issued for the Premises; or (ii) the date upon which the
Landlord's Work has been substantially completed as determined by Landlord's
architect or space planner.
15. Expiration Date: FOUR (4) YEARS FOLLOWING THE COMMENCEMENT DATE.
16. Monthly Basic Rent: YEAR 1 $1.80/RENTABLE SF
YEAR 2 $1.85/RENTABLE SF
YEAR 3 $1.90/RENTABLE SF
YEAR 4 $1.95/RENTABLE SF
17. Operating Expense Stop: THE ACTUAL OPERATING EXPENSES INCURRED IN
CALENDAR YEAR 1998. THE OPERATING EXPENSES WILL BE ADJUSTED FOR THE LARGER OF
ACTUAL LEASING LEVELS OR NINETY-FIVE PERCENT (95%) LEASING LEVELS.
18. Real Property Taxes Stop: THE ACTUAL REAL PROPERTY TAXES INCURRED IN
CALENDAR YEAR 1998. THE BUILDING IS CURRENTLY 100% ASSESSED.
19. Tenant's Percentage Share: APPROXIMATELY 2.63%
20. Security Deposit: TWO (2) MONTH'S BASIC RENT PAYABLE AT LEASE
EXECUTION AS SECURITY DEPOSIT, PLUS THE PREPAYMENT OF THE MONTHLY BASIC RENT FOR
THE INITIAL SIX (6) MONTHS OF THE LEASE TERM ALL PAYABLE AT LEASE EXECUTION.
21. Permitted Use:General Office Use including without limitation,
software development and all legally related uses appropriate for a Class A
office building.
22. Brokers: KEN MYERSIECK OF COLLIERS PARRISH INTERNATIONAL IS
RECOGNIZED AS TENANT'S BROKER IN THIS TRANSACTION AND WILL BE PAID A COMMISSION
BY THE LANDLORD PURSUANT TO A LEASING COMMISSION AGREEMENT. LANDLORD IS
REPRESENTED BY RICK STEFFENS AND PEGGY ROTH OF GRUBB & ELLIS AND WILL BE PAID A
COMMISSION BY THE LANDLORD PURSUANT TO A LISTING SERVICES AGREEMENT.
23. Landlord's Construction Representative: RALPH HEMPHILL
<PAGE> 7
24. Tenant's Construction Representative: DAVE HANSEN
25. Parking: 24 standard automobile parking spaces in the Multi-Story
Parking Facility. ALL PARKING IS OFFERED AT PREVAILING MARKET RATES.
CURRENT MONTHLY RATES: 2353 WEBSTER VALET PARK$100.00
2353 WEBSTER SELF PARK
$83.00**
**(PAY FOR 4 MONTHS, GET ONE
MONTH FREE) RATES INCLUDE CITY
OF OAKLAND PARKING TAXES.
26. Riders: 1 through 1 inclusive, which Riders are attached to this
Lease and are incorporated herein by this reference.
27. Lease Year: A period of 12 consecutive calendar months commencing on
the Commencement Date or any anniversary of the Commencement Date.
28. Basement Garage: That certain basement garage defined in
subparagraph 2(a) of the Standard Provisions.
29. Multi-Story Parking Facility: That certain multi-story parking
facility defined in Subparagraph l(a) of the Standard Provisions.
30. Exhibits: A through F inclusive, which Exhibits are attached to this
Lease and are incorporated herein by this reference.
<PAGE> 8
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
this 7th day of August, 1997.
TENANT: LANDLORD:
SEEKER SOFTWARE, INC. WEBSTER STREET PARTNERS, LTD.
a Delaware corporation a California limited partnership
By:_________________________________ By: CHASKOW FOUR ASSOCIATES, LTD.
a California limited partnership
Its:________________________________ its general partner
Print Name:_________________________ By: CHASKOW FOUR,
a California limited partnership
its general partner
By:_________________________________ By: PANKOW HOLDINGS, INC.
a California corporation
Its:________________________________ its general partner
Print Name:_________________________ By: ________________________________
Mark J. Perniconi
Vice President
<PAGE> 9
2101 WEBSTER
STANDARD OFFICE LEASE PROVISIONS
The following Standard Office Lease Provisions are attached to and are
made a part of that certain Office Lease between Webster Street Partners, Ltd.,
a California limited partnership, as Landlord, and Seeker Software, Inc., a
Delaware corporation, as Tenant, dated as of this 7th day of August, 1997.
1. PREMISES AND COMMON AREAS LEASED.
(a) Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, the premises contained within the suite designated in the Basic
Lease Terms, outlined on the Floor Plan attached hereto and marked Exhibit "A"
(the "Premises"), of that certain twenty story office building ("Office Tower")
and basement garage ("Basement Garage") located at 2101 Webster Street, Oakland,
California, "Multi-Story Parking Facility" (exclusive of the YMCA facility)
located at 2353 Webster Street, Oakland, California. Said Office Tower and the
Basement Garage are collectively referred to as the "Building" and are located
on the parcels of real property (the "Site") described in the legal descriptions
and outlined on the site plans attached hereto and marked Exhibit "B-l". The
Multi-Story Parking Facility is located on the parcels of real property (the
"Parking Site") described in the legal descriptions and outlined on the site
plans attached hereto and marked Exhibit "B-2". The Building, Site, Multi-Story
Parking Facility and Parking Site are collectively referred to as the
"Property". The Premises are to be improved by Landlord with the Landlord's Work
described in Exhibit "C" attached hereto and incorporated herein by this
reference. Said Premises being agreed, for the purposes of this Lease, to have
the number of rentable square feet designated in Paragraph 10 of the Basic Lease
Terms.
The parties hereto agree that said letting and hiring is upon and
subject to the terms, covenants and conditions herein set forth and Tenant
covenants as a material part of the consideration for this Lease to keep and
perform each and all of said terms, covenants and conditions by it to be kept
and performed and that this Lease is made upon the condition of such
performance.
(b) Tenant shall have the nonexclusive right to use in common
with other tenants in the Building and subject to the Rules and Regulations
referred to in Paragraph 30 below, the following areas ("Common Areas")
appurtenant to the Premises.
(i) The common entrances, lobbies, restrooms, elevators,
stairways and accessways, and passageways and serviceways thereto, any the
common pipes, conduits, wires and appurtenant equipment serving the Premises;
(ii) Parking areas (subject to the provisions of Paragraph
40 hereinbelow), roadways, sidewalks, walkways, and driveways appurtenant to the
Building.
(c) Landlord shall make all commercially reasonable efforts to
avoid any action under the provisions of this paragraph which would materially
or unreasonably interfere with Tenant's access to or use of the Premises:
(i) To install, use, maintain, repair and replace pipes,
ducts, conduits, wires and appurtenant meters and equipment for service to other
parts of the Building above the ceiling surfaces, below the floor surfaces,
within the walls and in the central core areas, and to relocate any pipes,
ducts, conduits, wires, and appurtenant meters and equipment included in the
Premises which are located in the Premises or located elsewhere outside the
Premises, and to expand the Building;
<PAGE> 10
(ii) To make changes to the Common Areas, including,
without limitation, changes in the location, size, shape and number of
driveways, entrances, loading and unloading areas, ingress, egress, direction of
traffic, landscaped areas and walkways and, subject to Paragraph 40, parking
spaces and parking areas;
(iii) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(iv) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Building, or any portion
thereof,
(v) To do and perform such other acts and make such other
changes in, to or with respect to the Site, Common Areas and Building as
Landlord may, in the exercise of sound business judgment, deem to be
appropriate.
2. TERM.
The term of this Lease shall be for the period commencing on the
Commencement Date, and ending on the Expiration Date designated in Paragraph 15
of the Basic Lease Terms; unless the term hereby demised shall be sooner
terminated as hereinafter provided. The Commencement Date shall be determined in
accordance with the provisions of Paragraph 14 of the Basic Lease Terms and such
date shall be specified in Landlord's Notice of Lease Commencement ("Notice"),
in the form of Exhibit "D" which is attached hereto and is incorporated herein
by this reference, and shall be served upon Tenant as provided in Paragraph 8,
after Landlord delivers or tenders possession of the Premises to Tenant. The
Notice shall be binding upon Tenant unless Tenant objects to the Notice in
writing, served upon Landlord as provided for in Paragraph 8 hereof, within five
(5) business days of Tenant's receipt of the Notice.
3. POSSESSION.
Landlord shall deliver possession of the Premises to Tenant on the
Commencement Date regardless of whether Landlord has completed Landlord's Work
by the Commencement Date. If Landlord has not completed Landlord's Work by the
Commencement Date, Landlord shall provide Tenant, upon the Commencement Date,
with a list of incomplete and/or corrective items, which list shall be approved
and acknowledged by Tenant and which items Landlord shall complete and/or
correct promptly thereafter. Landlord and Tenant agree that if Landlord has not
completed Landlord's Work by the Commencement Date, this Lease shall not be void
or voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom; provided, however, in the event any portion of the Premises
is rendered unusable (meaning Tenant is unable to conduct its normal course of
business for physical reasons) by Tenant as a result of Landlord's completion of
Landlord's Work after the Commencement Date, rent shall be abated, commencing on
the Commencement Date, in proportion to the portion of the Premises rendered
unusable, until the portion is again usable by Tenant. Notwithstanding the
forgoing, if Landlord is unable to deliver Premises to Tenant by December 31,
1997 due to delays caused solely by Landlord, Tenant shall have the right to
terminate the Lease.
4. MONTHLY BASIC RENT.
Tenant agrees to pay Landlord as Monthly Basic Rent for the Premises the
Monthly Basic Rent designated in Paragraph 16 of the Basic Lease Terms (subject
to adjustment as hereinafter provided) in advance on the first day of each and
every calendar month during said term. In the event the term of this Lease
commences or ends on a day other than the first day of a calendar month, then
the rental for the first and last months of the Term shall be prorated in the
proportion that the number of days this Lease is in effect during the
<PAGE> 11
first and last months of the Term bears to thirty (30), and such rental shall be
paid at the commencement of such periods. In addition to said Monthly Basic
Rent, Tenant agrees to pay the amount of the rental adjustments as and when
hereinafter provided in this Lease. Said Monthly Basic Rent, additional rent,
and rental adjustments shall be paid to Landlord, without any prior demand
therefor and without any deduction or offset whatsoever in lawful money of the
United States of America, which shall be legal tender at the time of payment, at
the address of Landlord designated in Paragraph 2 of the Basic Lease Terms or to
such other person or at such other place as Landlord may from time to time
designate in writing. Further, all charges to be paid by Tenant hereunder,
including, without limitation, payments for real property taxes, insurance,
repairs, and parking shall be considered additional rent for the purposes of
this Lease, and the word "rent" in this Lease shall include such additional rent
unless the context specifically or clearly implies that only the Monthly Basic
Rent is referenced.
5. RENTAL ADJUSTMENT.
(a) For the purposes of this Paragraph 5, the following terms are
defined as follows:
Tenant's Percentage Share: Tenant's Percentage Share shall mean
that portion of the total rentable area of the Building (exclusive of parking
areas and based on 456,187 rentable square feet the Building) occupied by Tenant
as set forth as a percentage in Paragraph 19 of the Basic Lease Terms. In the
event the Premises are either reduced or expanded, Tenant's Percentage Share
shall be adjusted to reflect that portion of the total rentable area of the
Building (exclusive of parking areas) occupied by Tenant as fairly determined by
Landlord.
Operating Expense Stop: The meaning given in Paragraph 17 of the
Basic Lease Terms shall apply.
Real Property Taxes Stop: The meaning given in Paragraph 18 of
the Basic Lease Terms shall apply.
Operating Expenses: Operating Expenses shall consist of all
direct costs of operation and maintenance of the Building, the Common Areas and
the Site, as determined by standard accounting practices, calculated assuming
the Building is at least ninety-five percent (95%) leased including the
following costs by way of illustration, but not limitation: water and sewer
charges; the net cost and expense of insurance for which Landlord is responsible
hereunder or which Landlord or any first mortgagee with a lien affecting the
Premises reasonably deems necessary in connection with the operation of the
Building; utilities; janitorial services; security; labor; utilities surcharges,
or any other costs levied, taxed or assessed or imposed by, or at the direction
of, or resulting from statutes or regulations or interpretations thereof,
promulgated by any federal, state, regional, municipal or local government
authority in connection with the use, occupancy, or the collection of revenue of
the Building or the Premises; the cost (amortized on a straight line basis over
the useful life of the applicable capital item together with interest at the
prime rate as quoted in the Wall Street Journal from time to time plus 2% on the
unamortized balance) of (i) any capital improvements made to the Building by the
Landlord after the first year of the term of the Lease that reduce other
Operating Expenses, or made to the Building by Landlord after the date of the
Lease that are required under any governmental law or regulation that was not
applicable to the Building at the time it was constructed, or (ii) replacement
of any building equipment reasonably necessary to enable Landlord to operate the
Building at the same quality levels as prior to the replacement; costs incurred
in the management of the Building if any (including supplies, wages and salaries
of employees used in the management, operation and maintenance of the Building,
and payroll taxes and similar governmental charges with respect thereto,
Building management office rental if said office is located in the Building, and
Landlord's and the property manager's reasonable management fees);
air-conditioning; waste disposal; heating; ventilating; elevator maintenance;
supplies; materials; equipment; tools; except as expressly excluded below,
repair and maintenance of the structural portions of the Building; the plumbing,
heating, ventilating, air-conditioning and
<PAGE> 12
electrical systems installed or furnished by Landlord; and maintenance, costs of
upkeep and operations of the Basement Garage and common areas; rental of
personal property used in maintenance; costs and expenses of gardening and
landscaping; maintenance of signs (other than Tenant owned signs); audit or
verification fees; and costs and expenses of repairs, resurfacing, repairing,
maintenance, painting, lighting, cleaning, refuse removal, security and similar
items, including appropriate reserves (other than repairs that are capital in
nature, except to the extent expressly permitted hereunder). Operating Expenses
shall not include depreciation, amortization and other non-cash charges (except
as expressly permitted above); real estate brokers' commissions or leasing
agents and other costs related to leasing the Building; interest expense on
Building financing; ground rent; franchise taxes, taxes imposed on (or measured
by) Landlord's income (other than Real Property Taxes and business and parking
taxes imposed by the City and County), and other taxes that do not constitute
Real Property Taxes including, without limitation, estate, succession,
inheritance, profit, capital gains, capitol stock, transfer and income taxes
imposed upon Landlord or the Building; all costs related to renovating or
otherwise altering, improving, decorating or redecorating space for tenants or
other occupants of the Building, or incurred in renovating or otherwise
altering, improving, decorating or redecorating vacant rentable space of the
Building; the cost (including attorneys' fees and disbursements) of any
judgment, settlement, or arbitration award resulting from tort liability; the
cost of defects in the construction, design, or equipping of the Building or the
Building systems (including electrical, plumbing, heating, ventilation, and air
conditioning systems) or with respect to any of the structural components of the
Building; the cost of or expenditures for any repairs in accordance with
Articles 21 and 22 of this Lease (except as provided for in Article 21(e) ; any
Operating Expense related to the Multi-Story Parking Facility or any other
parking facility other than the Basement Garage; attorneys' fees and expenses
which are not related to the operation of the Building; losses covered by
insurance or that are required to be insured against or that are capital in
nature (except as expressly permitted above); expenses reimbursed to Landlord
from Tenant or other tenants of the Building; improvements, alterations,
additions, changes, equipment, replacements, repairs and other items that
constitute capital expenses under generally accepted accounting principles
(except as expressly permitted above); costs of repair, abatement, removal or
clean-up of any Hazardous Materials; and any costs or expenses that are incurred
to make any of Landlord's representations or warranties under this Lease true or
correct.
In the event that the Building is less than ninety-five (95%)
leased, the portion of the Operating Expenses considered variable expenses shall
be adjusted proportionately from their actual amounts to what they would have
been if the Building was 95% leased for the period. Variable costs shall
include: utility costs, janitorial costs, the cost of paper supplies and trash
disposal costs.
Real Property Taxes: Real Property Taxes shall be calculated
assuming the Building is at least ninety-five percent (95%) occupied for any
period during which the Building is less than ninety-five percent (95%) occupied
and shall include any form of assessment, license fee, license tax, business
license fee, commercial rental tax, levy, charge, penalty, tax or similar
imposition, imposed by any authority having the direct power to tax, including
any city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement or special assessment district thereof,
as against any legal or equitable interest of Landlord in the Building and/or
the Site of which the Building and Premises form a part, including, but not
limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to
other income from the Premises or as against Landlord's business of leasing the
Premises;
(ii) Any assessment, tax, fee, levy or charge in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real estate tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June, 1978 Election and that
assessments, taxes, fees, levies and charges may be imposed by governmental
agencies for such services as fire protection, street, sidewalk and road
maintenance, refuse removal and for other
<PAGE> 13
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new or
adjusted assessments, taxes, fees, levies and charges be included within the
definition of "Real Property Taxes" for the purposes of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable
to or measured by the area of the Premises or the rent payable hereunder,
including, without limitation, any gross income tax or excise tax levied by the
State, city or federal government, or any political subdivision thereof, with
respect to the receipt of such rent, or upon or with respect to the possession,
leasing, operating, management, maintenance, alteration, repair, use or
occupancy by Tenants of the Premises, or any portion thereof,
(iv) [Intentionally Deleted]
(v) Any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
instituted within the geographic area of which the Building is a part;
(vi) Reasonable legal, consultants' and other professional
fees, costs and disbursements incurred in connection with proceedings to
contest, determine or reduce real property taxes;
(vii) Any personal property taxes levied on or
attributable to personal property used in connection with the entire Building,
or Common Areas.
Notwithstanding any provision of this Subparagraph 5(a)
expressed or implied to the contrary, "Real Property Taxes" shall not include
Landlords federal or state income, franchise, inheritance or estate taxes.
(b) [Intentionally Deleted)
(c) As soon as reasonably practicable, during each calendar year
during the term of this Lease after the first calendar year of the term of this
Lease, Landlord shall deliver to Tenant statements wherein Landlord shall
estimate the Operating Expenses and Real Property Taxes for the current calendar
year (individually, the "Estimated Operating Expense Statement" and the
"Estimated Real Property Taxes Statement" and sometimes referred to collectively
as the "Estimated Statement"), and the amount by which Tenant's Percentage Share
of the (i) Operating Expenses on account of the operation or maintenance of the
Building is in excess of the Operating Expense Stop and (ii) Real Property Taxes
on account of Tenant's occupation of the Building is in excess of the Real
Property Taxes Stop. Provided, however, if Landlord determines that Tenant's
Percentage Share of the Operating Expenses or Real Property Taxes for such
current calendar year is greater than that set forth in the applicable Estimated
Statement, then Landlord may deliver on the first day of June, September, or
December, as appropriate, a revised Estimated Statement and Tenant shall pay to
Landlord, within ten (10) business days of the delivery of such revised
Estimated Statement, the difference between such revised Estimated Statement for
such item and the original Estimated Statement for such item for the portion of
the current calendar year which has then expired, and Tenant shall pay during
the balance of such current calendar year through February of the succeeding
calendar year a fraction of the balance of such difference as would fully
amortize such excess over the remaining months of the then current calendar year
through and including February of the succeeding calendar year.
(d) If Tenant's Percentage Share of the Operating Expenses or
Real Property Taxes estimated in the applicable Estimated Statement exceeds the
Operating Expense Stop or Real Property Taxes Stop then such excess amount shall
be divided into twelve (12) equal monthly installments and Tenant shall pay to
Landlord, concurrently with the regular monthly rent payment next due following
the receipt of such statement, an amount equal to one (1) monthly installment
multiplied by the number of months from January in
<PAGE> 14
the calendar year in which said statement is submitted to the month of such
payment, both months inclusive. Subsequent installments shall be paid
concurrently with the regular monthly rent payments for the balance of the
calendar year and shall continue until the next calendar year's Estimated
Statement is rendered.
(e) As soon as reasonably practicable during each succeeding
calendar year during the term of this Lease, Landlord shall deliver to Tenant a
statement ("Actual Statement") wherein Landlord shall state the actual Operating
Expenses and Real Property Taxes for the preceding calendar year. If the Actual
Statement reveals a greater increase in Tenant's Percentage Share of Operating
Expenses and/or Tenant's Percentage Share of Real Property Taxes than was
estimated by Landlord in any Estimated Statement delivered as provided herein,
then within twenty (20) business days following receipt of the Actual Statement
from Landlord, Tenant shall pay a lump sum equal to said total increase over the
Operating Expense Stop and/or Real Property Taxes Stop, less the total of the
monthly installments of increases set forth on the Estimated Statement which
were paid in the previous calendar year.
(f) If, in any calendar year, Tenant's Percentage Share of
Operating Expenses and/or Real Property Taxes is less than the preceding
calendar year, then upon receipt of Landlord's Actual Statement, any overpayment
made by Tenant on the monthly installment basis provided above shall be credited
toward the next monthly rent falling due and the monthly installment of Tenant's
Percentage Share of Operating Expenses and/or Real Property Taxes to be paid
pursuant to the then current Estimated Statement shall be adjusted to reflect
such lower expenses or real property taxes for the most recent calendar year, or
if this Lease has been terminated, such excess shall be credited against any
amount which Tenant owes Landlord pursuant to this Lease, and if such amounts
have been paid, Landlord shall promptly pay such excess to Tenant. Any delay or
failure by Landlord in delivering any estimate or statement pursuant to this
Paragraph shall not constitute a waiver of its right to require an increase in
rent nor shall it relieve Tenant of its obligations pursuant to this Paragraph,
except that Tenant shall not be obligated to make any payments based on such
estimate or statement until ten (10) business days after receipt of such
estimate or statement.
(g) In the event Tenant shall dispute the amount set forth in the
Actual Statement described above; Tenant shall have the right not later than
sixty (60) calendar days following receipt of such Actual Statement to review
Landlord's books and records and such review shall be conducted during the hours
and at the location in the Bay Area designated by Landlord. Tenant shall have
the right not later than ten (10) business days following such review to cause
Landlord's books and records with respect to the preceding calendar year to be
audited by a certified public accountant mutually acceptable to Landlord and
Tenant. If such audit discloses an amount payable by Landlord such amount shall
be credited to Tenant as provided in Subparagraph 5(f) above. If such audit
discloses an amount payable by Tenant to Landlord, Tenant shall pay a lump sum
equal to such amount upon receipt of the results of the audit. If such audit
discloses a liability for further refund by Landlord to Tenant in excess of ten
percent (10%) of the payments previously made by Tenant for such calendar year,
the cost of such audit shall be borne by Landlord; otherwise the cost of such
audit shall be borne by Tenant. If Tenant fails to request an audit within ten
(10) business days following such review, such Actual Statement shall be
conclusively binding upon Landlord and Tenant.
(h) Even though the term has expired and Tenant has vacated the
Premises, when the final determination is made of Tenant's Percentage Share of
Operating Expenses and Tenant's Percentage Share of Real Property Taxes for the
year in which this Lease terminates, and subject to Tenant's audit rights
described above, Tenant shall within twenty (20) business days following the
receipt of the final determination, pay any increase due over the estimated
expense paid and conversely any overpayments made in the event said expenses
decrease immediately shall be rebated by Landlord to Tenant.
<PAGE> 15
6. SECURITY DEPOSIT.
Tenant has deposited with Landlord the Security Deposit designated in
Paragraph 20 of the Basic Lease Terms. Said deposit shall be held by Landlord as
security for the faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the term
hereof If Tenant defaults with respect to any provision of this Lease, including
but not limited to the provisions relating to the payment of rent, Landlord may
(but shall not be required to) use, apply or retain all or any part of this
Security Deposit for the payment of any rent or any other sum in default, or for
the payment of any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default or to compensate Landlord for any loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
of said deposit is so used or applied, Tenant shall, within ten (10) days after
demand therefor, deposit cash with Landlord in an amount sufficient to restore
the Security Deposit to its original amount and Tenant's failure to do so shall
be a material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Security Deposit. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or at
Landlord's option, to the last assignee of Tenant's interests hereunder) at the
expiration of the Lease term, provided that Landlord may retain the Security
Deposit until such time as any amount due from Tenant in accordance with
Paragraph 4 and 5 hereof has been determined and paid in full. Should Landlord
sell its interest in the Premises during the term hereof or if Landlord deposits
with purchaser thereof the then unappropriated funds deposited by Tenant as
aforesaid, thereupon Landlord shall be discharged from any further liability
with respect to such Security Deposit.
7. USE.
Tenant shall use the Premises for general office purpose including
without limitation software development, and purposes incident thereto, and
shall not use or permit the Premises to be used for any other purpose without
the prior written consent of the Landlord, not to be unreasonably withheld or
delayed). Tenant shall not use or occupy the premises in violation of any
recorded covenants, conditions and restrictions affecting the Site or of any law
or of the Certificate of Occupancy or temporary Certificate of Occupancy issued
for the Building of which the Premises are a part, and shall, upon five (5) days
written notice from Landlord, discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
any recorded covenants and restrictions affecting the Site or of any law or of
said Certificate of Occupancy or temporary Certificate of Occupancy. Tenant may
not offer shared tenant services, such as but not limited to word processing, to
any unaffiliated tenant in the Building without Landlord's prior written
consent, which consent may be withheld by Landlord at its sole and absolute
discretion. Tenant shall comply with any direction of any governmental authority
having jurisdiction which shall, by reason of the nature of Tenant's use or
occupancy of the Premises, impose any duty upon Tenant or Landlord with respect
to the Premises or with respect to the use or occupation thereof Tenant shall
only be responsible for costs relating to compliance with laws to the extent
caused by Tenant's unique and specific use of the Premises or Tenant's
alterations. Tenant shall not do or knowingly permit anything to be done in or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Building, or injure or annoy them, or use
or knowingly allow the Premises to be used for any improper, immoral, unlawful
or objectionable purpose, nor shall Tenant cause, maintain or knowingly permit
any nuisance in, or about the Premises. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises and shall keep the Premises in first
class repair and appearance. Landlord reserves the right to prescribe the weight
and position of all safes, files and heavy equipment which Tenant desires to
place in the Premises so as to distribute properly the weight thereof. Tenant
shall be responsible for the cost of all structural engineering required to
determine the structural load of all safes, files and heavy equipment which
Tenant desires to place in the Premises.
<PAGE> 16
8. PAYMENTS AND NOTICES.
All rents and other sums payable by Tenant to Landlord hereunder shall
be paid to Landlord at the address designated by Landlord in Paragraph 2 of the
Basic Lease Terms above or at such other places as Landlord may hereafter
designate in writing. Any notice required or permitted to be given hereunder
must be in writing and may be given by personal delivery by a recognized
national overnight courier, or by mail, and if given by mail shall be deemed
sufficiently given if sent by registered or certified mail addressed to Tenant
at the Building of which the Premises are a part or if delivered personally to
Tenant at the Premises or to Landlord at both of the addresses designated in
Paragraph 2 of the Basic Lease Terms and shall be deemed delivered upon the
actual receipt of notice. Either party may by written notice to the other
specify a different address for notice purposes. If more than one person or
entity constitutes the "Tenant" under this Lease, service of any notice upon any
one of said persons or entities shall be deemed as service upon all of said
persons or entities.
9. BROKERS.
The parties recognize that the brokers who negotiated this Lease are the
brokers whose names are stated in Paragraph 22 of the Basic Lease Terms, and
agree that Landlord shall be solely responsible for the payment of brokerage
commissions to said brokers, and that Tenant shall have no responsibility
therefor. As part of the consideration for the granting of this Lease, Tenant
represents and warrants to Landlord that to Tenant's knowledge no other broker,
agent or finder negotiated or was instrumental in negotiating or consummating
this Lease and that Tenant knows of no other real estate broker, agent or finder
who is, or might be, entitled to a commission or compensation in connection with
this Lease. Any broker, agent or finder of Tenant whom Tenant has failed to
disclose herein shall be paid by Tenant. Tenant shall hold Landlord harmless
from all damages and indemnify Landlord for all said damages paid or incurred by
Landlord resulting from any claims that may be asserted against Landlord by any
broker, agent or finder undisclosed by Tenant herein.
10. HOLDING OVER.
(a) With Landlord's Consent: If Tenant, with Landlord's written
consent, remains in possession of all or any portion of the Premises after the
Expiration Date or earlier termination (collectively "Termination") of this
lease and if Landlord and Tenant have not executed a written agreement as to the
terms of such holding over, then Tenant's continued occupancy shall be a tenancy
from month to month. With respect to such month to month tenancy, the monthly
rent payable shall be for the first thirty (30) days equal to one hundred and
twenty-five percent (125%) of the Monthly Basic Rent in effect immediately prior
to Expiration Date or earlier termination together with additional rent in the
form of such other payments required of Tenant under the provisions of this
lease including, without limitation, the provisions of Section 5 of this Lease.
Thereafter, the monthly rent payable shall be equal to one hundred and
seventy-five percent (175%) of the Monthly Basic Rent in effect immediately
prior to Expiration Date or earlier termination together with additional rent in
the form of such other payments required of Tenant under the provisions of this
lease including, without limitation, the provisions of Section 5 of this Lease.
(b) Without Landlord's Consent: If Tenant remains in possession
all or any portion of the Premises after the Termination of this Lease without
Landlord's consent, Tenant shall be deemed a tenant at sufferance only. Landlord
and Tenant agree that as to such tenancy at sufferance, the fair market rental
value of the Premises shall be deemed to be One Hundred and Seventy-Five percent
(175%) of the Monthly Basic Rent in effect immediately prior to Termination
together with additional rent in the form of such other payments required of
Tenant under the provisions of this Lease including, without limitation, the
provisions of Section 5 of this Lease (the "Sufferance Rene). Tenant shall be
obligated to pay the Sufferance Rent to Landlord until the Premises are
delivered back into Landlord's possession and control. The provisions of this
paragraph are in
<PAGE> 17
addition to and do not affect Landlord's right of re-entry or any other rights
of Landlord conferred by this Lease or provided by law.
(c) Compliance with Tenant's Obligations as Defined by this
Lease: In the event Tenant remains in possession all or any portion of the
Premises after the Termination of this Lease, with or without Landlord's
consent, such possession by Tenant shall obligate Tenant to satisfy each, all
and every one of the Tenant's obligations under the provisions of this Lease for
the duration of such occupancy the provisions of this Lease shall remain in
effect for the duration of the month to month tenancy.
(d) Indemnity: If Tenant fails to surrender the Premises upon the
Termination of this Lease or remains in possession of the Premises for any
period without Landlord's written consent, Tenant shall indemnify and hold
Landlord harmless from all expense (including reasonable attorneys fees), loss
and liability including without limitation, any claim made by any succeeding
tenant founded on or resulting from such failure to surrender.
11. TAXES ON TENANT'S PROPERTY.
Tenant shall be liable for and shall pay prior to delinquency: (1) all
taxes levied against any personal property or trade fixtures placed by Tenant in
or about the Premises; and (2) any improvements installed in the Premises by
Landlord in excess of the allowance as specified in paragraph 12 of the Basic
Lease Terms; and (3) any Changes (as defined in Section 13 of this Lease. The
matters referred to as items (1), (2) and (3) in the preceding sentence are
collectively referred to as the "Taxable Items". If any such taxes on the
Taxable Items are levied against Landlord or Landlord's property or if the
assessed value of the Premises is increased by the inclusion of a value placed
upon all or any portion of the Taxable Items, Landlord, after written notice to
Tenant, shall have the right, but not the obligation to pay any taxes levied
upon the Taxable Items without regard to the validity of the levy. If Landlord
pays the taxes based upon such assessments and/or increased assessments, Tenant
shall, upon demand, repay to Landlord the taxes levied against Landlord or the
portion of such taxes resulting from such increase in the assessment together
with interest at the rate of two per cent higher than the Bank of America
Reference Rate from the date of advancement until the date of repayment. Tenant,
at Tenant's sole cost and expense, shall have the right to bring suit in
Landlord's name in any court of competent jurisdiction to recover the amount of
any such taxes paid by Landlord. Landlord shall cooperate with respect to such
suit. Tenant will hold Landlord harmless from all cost, loss and expense in
connection with the suit.
12. CONDITION OF PREMISES.
Tenant acknowledges that, except as set forth in this Lease, neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Premises or the Building or with respect to the suitability of
either for the conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall conclusively establish that the Premises and the
Building were at such time in satisfactory condition.
13. ALTERATIONS.
(a) Tenant may, at any time and from time to time during the term
of this Lease, at its sole cost and expense, make alterations, additions,
installations, substitutions, improvements and decorations (hereinafter
collectively called "Changes") in and to the Premises, excluding structural
changes, on the following conditions, and providing such Changes will not result
in a violation of or require a change in the Certificate of Occupancy or
temporary Certificate of Occupancy applicable to the Premises;
(i) The outside appearance, character or use of the
Building shall not be affected, and no Changes shall weaken or impair the
structural strength or, in the reasonable opinion of Landlord,
<PAGE> 18
materially lessen the value of the Building or create the potential for unusual
expenses to be incurred by Landlord or any future tenant of the Premises upon
the removal of Changes and the restoration of the Premises upon the termination
of this Lease;
(ii) No part of the Building outside of the Premises shall
be physically affected;
(iii) The proper functioning of any of the mechanical,
electrical, sanitary and other service systems or installations of the Building
("Service Facilities") shall not be adversely affected and there shall be no
construction which might materially interfere with Landlord's free access to the
Service Facilities or materially interfere with the moving of Landlord's
equipment to or from the enclosures containing the Service Facilities;
(iv) In performing the work involved in making such
Changes, Tenant shall be bound by and observe all of the conditions and
covenants contained in this Paragraph;
(v) All work shall be done at such times and in such
manner as Landlord from time to time may reasonably designate;
(vi) Tenant shall not be permitted to install and make
part of the Premises or Building any materials, fixtures or articles which are
subject to liens, conditional sales, contracts or chattel mortgages.
(vii) Unless approved in writing by Landlord in accordance
with Section 13(I) below, at the date upon which the term of this Lease shall
end, or the date of any earlier termination of this Lease, Tenant shall on
Landlord's written request restore the Premises to their condition prior to the
making of any Changes permitted by this Paragraph 13, reasonable wear and tear,
casualty and condemnation excepted.
(b) Before proceeding with any Change (exclusive of changes to
items constituting Tenant's personal property) either in excess of $25,000 or
that may effect the structural integrity of or the mechanical systems in the
Building, Tenant shall submit to Landlord plans and specifications for the work
to be done, which shall require Landlord's written approval not to be
unreasonably withheld, conditioned or delayed. Landlord shall have seven (7)
working days to review the proposed Changes and either approve the Changes as
submitted or state its reasons for not approving such Changes.
(c) If the proposed Change requires approval by or notice to the
lessor of a superior lease or the holder of a mortgage, no Change shall be
proceeded with until such approval has been received, or such notice has been
given, as the case may be, and all applicable conditions and provisions of said
superior lease or mortgage with respect to the proposed Change or alteration
have been met or complied with at Tenant's expense; and Landlord, if it approves
the Change, will request such approval or give such notice, as the case may be.
(d) After Landlord's written approval has been sent to Tenant and
the approval by or notice to the lessor of a superior lease or the holder of a
superior mortgage has been received or given, as the case may be, Tenant shall
enter into an agreement for the performance of the work to be done pursuant to
this Paragraph 13 with Landlord's contractor if the work impacts Building
systems or the cost is in excess of $15,000, otherwise by a contractor chosen by
Tenant and reasonably approved by Landlord. All costs and expenses incurred in
connection with Changes shall be paid by Tenant within seven (7) business days
after each billing by Landlord or any such contractor or contractors. Tenant
shall in all cases comply with the provisions of Paragraph 15 hereof in
performing hereunder. If Landlord approves the construction of specific interior
improvements in the Premises by other contractors chosen by Tenant from a list
prepared by Landlord at Tenant's request, then Tenant's contractors shall obtain
on behalf of Tenant and at Tenant's sole cost and expense, (i) all necessary
governmental
<PAGE> 19
permits and certificates for the commencement and prosecution of Tenant' s
Changes and for final approval thereof upon completion, and (ii) a completion
and lien indemnity bond, or other surety, satisfactory to Landlord, for the
Changes. In the event Tenant shall request any changes in the work to be
performed after the submission of the plans referred to in this Paragraph 13,
such additional changes shall be subject to the same approvals and notices as
the changes initially submitted by Tenants.
(e) All Changes and the performance thereof shall at all times
comply with (i) all laws, rules, order, ordinances, directions, regulations and
requirements of all governmental authorities, agencies, offices, departments,
bureaus and boards having jurisdiction thereof, (ii) all rules, order,
directions, regulations and requirements of the Pacific Fire Rating Bureau, or
of any similar insurance body or bodies, and (iii) all rules and regulations of
Landlord, and Tenant shall cause Changes to be performed in compliance therewith
and in good and first class workmanlike manner, using materials and equipment at
least equal in quality and class to the original installations of the building.
Changes shall be performed in such manner as not to materially interfere with
the occupancy of any other tenant in the Building nor delay, or impose any
additional expense upon Landlord in construction, maintenance or operation of
the Building, and shall be performed by contractors or mechanics approved by
Landlord and submitted to Tenant pursuant to this Paragraph, who shall
coordinate their work in cooperation with any other work being performed with
respect to the Building. Throughout the performance of Changes, Tenant, at its
expense, shall carry, or cause to be carried, workmen's compensation insurance
in statutory limits, and general liability insurance for any occurrence in or
about the Building, of which Landlord and its managing agent shall be named as
parties insured, in such limits as Landlord may reasonably prescribe, with
insurers reasonably satisfactory to Landlord all in compliance with Paragraph
20(b) hereof,
(f) Tenant further covenants and agrees that any mechanic's lien
filed against the Premises or against the Building for work claimed to have been
done for, or materials claimed to have been furnished to Tenant, will be
discharged by Tenant, by bond or otherwise, within ten (10) days after the
notice of the filing thereof, at the cost and expense of Tenant. All
alterations, decorations, additions or improvements upon the Premises, made by
either party, including (without limiting the generality of the foregoing) all
wallcovering, built-in cabinet work, paneling and the like, shall, unless
Landlord elects otherwise, become the property of Landlord, and shall remain
upon, and be surrendered with the Premises, as a part thereof, at the end of the
term, hereof, except that Landlord may by written notice to Tenant, given at
least thirty (30) days prior to the end of the term, require Tenant to remove
all Changes installed by Tenant, and Tenant shall repair any damage to the
Premises arising from such removal or, at Landlord's option, shall pay to the
Landlord all of Landlord's actual reasonable costs of such removal and repair,
unless approved in writing by Landlord in accordance with Section 13(i) below.
(g) All articles of personal property and all business and trade
fixtures, machinery and equipment, furniture and movable partitions owned by
Tenant or installed by Tenant at its expense in the Premises shall be and remain
the property of Tenant and may be removed by Tenant at any time during the lease
term provided Tenant is not in default hereunder, and provided further that
Tenant shall repair any damage caused by such removal. If Tenant shall fail to
remove all of its effects from said Premises upon termination of this Lease for
any cause whatsoever, Landlord shall choose, and store said effects without
liability to Tenant for loss thereof, and Tenant agrees to pay Landlord upon
demand any and all expenses incurred in such removal, including court costs and
reasonable attorney's fees and storage charges on such effects for any length of
time that the same shall be in Landlord's possession.
(h) Landlord reserves the right at any time and from time to time
without the same constituting an actual or constructive eviction and without
incurring any liability to Tenant therefor or otherwise affecting Tenant's
obligations under this Lease, to make such changes, alterations, additions,
improvements, repairs or replacements in or to the Site or the Building
(including the Premises if required so to do by any law or regulation) and the
fixtures and equipment thereof, as well as in or to the street entrances, halls,
passages and
<PAGE> 20
stairways thereof, provided Tenant's access to or use of the Premises is not
materially affected thereby, to change the name by which the Building is
commonly known, as Landlord may deem reasonably necessary or desirable. Nothing
contained in this Paragraph 13 shall be deemed to relieve Tenant of any duty,
obligation or liability of Tenant with respect to making any repair, replacement
or improvement or complying with any law, order or requirement of any government
or other authority and nothing contained in this Paragraph 13 shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision or repair of the Building or any part
thereof other than as otherwise provided in this Lease.
(i) At the time Tenant elects to make any Changes to the
Premises, Tenant shall have the right to notify Landlord in writing of the
proposed Changes and to request that Landlord notify Tenant whether Landlord
will require Tenant to remove the Changes upon expiration or earlier termination
of this Lease. Landlord agrees that if it receives the such written notice from
Tenant, Landlord will notify Tenant in writing, within ten (10) business days
after receiving Tenant's notice as to whether Landlord will waive its rights
herein to require Tenant to remove said Changes upon the expiration or earlier
termination of this Lease.
14. REPAIRS.
(a) By entry hereunder, Tenant accepts the Premises as being in
good and sanitary order, condition and repair. Tenant shall, when and if needed
or whenever requested by Landlord to do so, at Tenant's sole cost and expense,
maintain and make all repairs to the interior of the Premises and every part
thereof, to keep, maintain and preserve the Premises in first class condition,
excepting ordinary wear and tear, and repair. Any such maintenance and repairs
shall be performed by Landlord's contractor, or at Landlord's option, by such
contractor or contractors as Tenant may choose from an approved list to be
submitted by Landlord. All costs and expenses incurred in such maintenance and
repair shall be paid by Tenant within seven (7) business days after billing by
Landlord or such contractor or contractors unless such repair is necessitated by
the act, neglect, fault or omission of any duty of Landlord, its agents,
servants or employees. Tenant shall upon the expiration or sooner termination of
the term hereof surrender the Premises to Landlord in the same condition as when
received, reasonable wear and tear, casualty and condemnation excepted and
subject to Section 13(i) above. Except as set forth in Exhibit "C" herein,
Landlord shall have no obligation to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition of the
Premises or the Building except as specifically herein set forth.
(b) Landlord shall repair and maintain the structural portions of
the Building, including the basic plumbing, heating, ventilating, air
conditioning and electrical systems installed or furnished by Landlord, unless
such maintenance and repairs are caused in part or in whole by the act, neglect,
fault of or omission of any duty by Tenant, its agents, servants, employees or
invitees, in which case Tenant shall pay to Landlord as additional rent, the
actual reasonable cost of such maintenance and repairs. Landlord shall not be
liable for any failure to make any such repairs, or to perform any maintenance
unless such failure shall persist for an unreasonable time after written notice
of the need of such repairs or maintenance is given to Landlord by Tenant.
Except as provided in Paragraph 21 hereof there shall be no abatement of rent
and no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein unless such repair is necessitated
by the act, neglect, fault or omission of any duty of Landlord or its agents,
servants or employees, in which case, if Tenant is unable to use the Premises,
or any portion of it, during the period of such repairs, rent shall be abated in
proportion to the portion of the Premises rendered unusable until Tenant is
again able to use the entire Premises . Tenant shall maintain and repair at its
sole cost and expense, and with maintenance contractors approved by Landlord,
all special non-base building facilities installed by or on behalf of Tenant
including but not limited to lavatory, shower, toilet, washbasin and kitchen
facilities and special heating and air conditioning systems, including all
plumbing connected to said facilities or systems,
<PAGE> 21
15. LIENS.
Tenant shall not permit any mechanic's, materialmen's, or other liens to
be filed against the Multi-Story Parking Facility or the Site or any portion
thereof of which the Premises form a part nor against the Tenant's leasehold
interest in the Premises. Landlord shall have the right at all reasonable times
to post and keep posted on the Premises any notices which it deems necessary for
protection from such liens. If any such liens are filed, Landlord may, without
waiving its rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause such liens to be released by
any means it shall deem proper, including payment in satisfaction of the claim
giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by
Landlord, any sum paid or expense incurred by Landlord to remove such liens,
together with interest at the prime rate as quoted in the Wall Street Journal
from time to time plus 4% from the date of such payment by Landlord.
16. ENTRY BY LANDLORD.
Landlord reserves the right to enter the Premises for purposes of
inspection, maintenance, repair and alteration of the Premises and the Building.
Landlord further reserves the right to enter the Premises to show them to
prospective purchasers or, during the last twelve months of the lease, to
prospective tenants. Except in the case of an emergency, Landlord will restrict
its entry to normal business hours and will provide such advanced notice of the
intended entry as is reasonably possible under the circumstances. Landlord shall
make commercially reasonable efforts to perform all such inspections, showings,
maintenance and repairs expeditiously and shall make commercially reasonable
efforts to minimize interference with Tenant's normal business operations.
Tenant agrees that Landlord and Landlord's manager shall retain a key to all
doors (excluding doors to safes and vaults) in the Premises to facilitate such
access as Landlord may require. Tenant shall not change or add any locks to any
doors in the Premises without Landlord's advance permission. Should Tenant
violate the provisions of the preceding sentence, Landlord shall have the right
to use such means as may be required to gain entry to the Premises and Tenant
shall be responsible for all costs, expenses and repairs required as a result.
No entry by Landlord pursuant to the provisions of this Lease shall be deemed or
construed as a violation of Tenant's right of quiet enjoyment, an eviction of
Tenant or a violation of any other right claimed by Tenant.
17. UTILITIES AND SERVICES.
(a) Landlord agrees, during the Lease term, to furnish to the
Premises during those hours set forth in the Rules and Regulations as defined in
Exhibit "F" hereof, as may be amended in writing by Landlord from time to time
during the term of this Lease and delivered to Tenant, (i) electrical current in
amounts described below, which amounts Landlord and Tenant have specifically
considered and hereby acknowledge as representing the normal demands of general
office space and hereby conclusively deem to represent a reasonable quantity of
electric current for normal lighting and fractional horsepower office machines
for the use as described herein: (ii) heating, ventilation and air conditioning
("HVAC") in amounts consistent with amounts provided for general office space
which, by way of illustration, shall be considered to be HVAC necessary to
provide adequate heating, cooling and ventilation for up to one (1) person per
175 rentable square feet during normal business hours (as more fully described
in the Rules and Regulations) assuming the absence of heat generating equipment
or devices and the absence of an excessive concentration of equipment or devices
which individually would generate a normal amount of heat but together generate
an excessive amount of heat; (iii) standard janitorial service (including
washing of windows with reasonable frequency as determined by Landlord),
generally consistent with janitorial service furnished in other first-class
office buildings in the City of Oakland; (iv) water in reasonable quantities,
reasonableness being determined with reference to the typical usage of office
tenants within the Building for the use as described herein, for lavatory and
drinking purposes not in the Premises and (v) passenger elevator service by
non-attended automatic elevators.
<PAGE> 22
(b) In its use of the Premises, Tenant shall strictly adhere to
all of the following electric demand and consumption levels:
(i) Tenant's use of electricity shall be consistent with
other tenants in the Building and shall not exceed that of other typical office
tenants in the Oakland Central Business District.
(ii) Except as approved by the Landlord, the Tenant shall
at no time permit the electrical current used in the Premises to violate any
restrictions imposed by any governmental authority, including the requirements
with respect to lighting devices set forth in the California Administrative
Code, Title 24, Part 6, Division T-20, Chapter 2, Subchapter 4.
(iii) If at any time after the Commencement Date, Tenant
requires additional electrical capacity, such additional capacity may result in
the imposition of additional rent to Tenant pursuant to Subparagraph (e) below,
if such additional electrical capacity is available and Landlord in its
reasonable discretion agrees to provide same.
(c) Landlord makes no guarantees or representations to Tenant
that the level of HVAC provided to the Premises pursuant to Subparagraph (a)
above will be adequate for Tenant's business purposes. If (i) Tenant's business
use, or (ii) Tenant's occupancy of the Premises (if such occupancy exceeds one
person per one hundred seventy-five (175) square feet of rentable area),
requires additional HVAC above the level provided for general office space in
the Building or affects the HVAC level otherwise maintained in the Building,
Landlord shall have the right in its sole discretion to install any machinery
and equipment that Landlord reasonably deems necessary to provide Tenant with
additional HVAC or to restore the 14VAC level otherwise maintained in the
Building, including, without limitation, modifications or alterations to the
Building's HVAC system or the installation of a separate HVAC system to service
the Premises.
(d) Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of Landlord's failure
to furnish any of the foregoing when such failure is caused by accident,
breakage, repairs, strikes, lockouts or other labor disturbances of any
character, or for any other causes beyond Landlords reasonable control.
(e) If Tenant requires or utilizes more water, HVAC or
electricity than is permitted by the standards set forth above, then such
amounts will conclusively be deemed to be excess usage. Landlord may at its
option (i) require Tenant to pay, as additional rent, the reasonable actual
cost, incurred by Landlord to provide such excess usage, including but not
limited to, any and all costs incurred in connection with the purchase,
installation, operation and maintenance of additional systems and transformers
and any other equipment required to handle such extraordinary capacity and any
and all fees required to governmental authorities resulting from such
extraordinary capacity, or (ii) Landlord shall install separate meter(s) for the
Premises, at Tenant's sole expense, and Tenant shall pay all charges of the
utility providing service.
(f) Landlord may charge as additional rent such reasonable fees
or charges established by Landlord for any additional or unusual janitorial
services required because of the carelessness of Tenant, the nature of Tenant's
business (including the operation of Tenant's business other than from 8:00 a.m.
to 6:00 p.m., Monday through Friday) and the removal of any refuse or rubbish
from the Premises except for discarded material placed in wastepaper baskets and
left for emptying as an incident to Landlord's normal cleaning of the Premises.
Landlord shall have no responsibility for providing janitorial service to any
portion of the Premises used for preparing, selling or consuming food or
beverages, for storage, for a mail room, or for a bathroom, shower, or similar
function. Tenant shall also be responsible for the cost of maintaining
non-standard improvements including but not limited to metallic trim, wood floor
covering, glass panels, partitions, kitchens and executive washrooms in the
Premises.
<PAGE> 23
(g) Tenant specifically undertakes to install within the Premises
and maintain at Tenant's cost such non-base building standard fire protection
and life safety equipment as required by any governmental authority or insurer,
and if so required, Tenant shall appoint one of Tenant's personnel to coordinate
with the fire protection facilities and personnel of Landlord. With respect to
fire extinguishers, Landlord shall be responsible for the maintenance of fire
extinguishers in the Common Areas only. Tenant shall maintain all fire
extinguishers installed in the Premises by or on behalf of the Tenant.
(h) Landlord shall furnish and replace all Building Standard
Lamps, as defined herein, only. For the purpose of this Lease, Building Standard
Lamps shall be defined as four foot (4') long fluorescent tubes installed in the
building standard 2'x 4', 2-lamp and 3-lamp fixtures. Landlord shall, as an
Operating Expense of the Building, replace non-Building Standard Lamps furnished
at the sole cost of the Tenant.
(i) Without the prior written consent of Landlord, which Landlord
may refuse in its sole discretion, Tenant shall connect no equipment, apparatus,
machine, or other device to any of the Building's systems that would exceed the
design capacity of such systems. Tenant may connect standard office machines
which consume comparable amounts of electricity to the electrical system in the
Premises but only through electrical outlets in the Premises which have been
installed in accordance with the local building codes.
(j) Without the prior written consent of Landlord, which Landlord
may refuse in Landlord's sole discretion, Tenant shall not place or install in
the Premises any machine, equipment, storage, or shelving the weight of which
exceeds the normal load bearing capacity of the floors of the Building. If
Landlord consents to the placement or installation of any such machine,
equipment, storage, or shelving in the Premises which exceeds such weight
allowance, Tenant at its sole expense shall reinforce the floor of the Premises
in the area of such placement or installation, pursuant to plans and
specifications approved by Landlord and otherwise in compliance with Paragraph
13, to the extent necessary to assure that no damage to the Premises or the
Building or weakening of any structural supports will be caused.
18. INDEMNIFICATION.
(a) Tenant's Indemnity. To the fullest extent permitted by law
Tenant hereby agrees to defend, indemnify and hold Landlord harmless against and
from any and all claims arising from Tenant's use of the Premises or the conduct
of its business or from any activity, work, or thing done, permitted or suffered
by Tenant, its agents, contractors, employees or invitees (collectively "Tenant
and its Agents") in or about the Premises or elsewhere, and hereby agrees to
further indemnify and hold harmless Landlord against and from any and all claims
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or arising from any
act, neglect, fault or omission of Tenant, or of its agents, employees or
invitees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in or about such claim or any action or proceeding brought
thereon; [and in case any action or proceeding brought against Landlord by
reason of any such claim] except for Landlord's willful misconduct or negligence
of Landlord or its agents or employees in connection with the Premises, Building
or Site. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons in, upon or about
the Premises caused by the condition of the Premises except that which is caused
by the failure of Landlord to observe any of the terms and conditions of this
Lease and such failure has persisted for an unreasonable period of time after
written notice of such failure.
(b) Landlord's Indemnity. To the fullest extent permitted by law
Landlord hereby agrees to defend, indemnify and hold Tenant harmless against and
from any and all claims arising from Landlord's conduct of its business or from
any activity, work, or thing done, permitted or suffered by Landlord, its
agents, contractors, employees or invitees (collectively Landlord and its
Agents) in or about the Premises, Building or Site , and hereby agrees to
further indemnify and hold harmless Tenant against and from any and all claims
<PAGE> 24
arising from any breach or default in the performance of any obligation on
Landlord's part to be performed under the terms of this Lease, or arising from
any act, neglect, fault or omission of Landlord, or of its agents, employees or
invitees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in or about such claim or any action or proceeding brought
thereon; [and in case any action or proceeding brought against Tenant by reason
of any such claim] except for Tenant's willful misconduct or negligence of
Tenant or its agents or employees in connection with the Premises, Building or
Site.
19. DAMAGE TO TENANT'S PROPERTY.
Notwithstanding any other provision of this Lease, Landlord and its
Agents shall have no liability for any injury or damage to Tenant's personal
property resulting from any cause including but not limited to; fire, explosion,
falling plaster, steam, gas, electricity, water or rain which may leak from any
part of the Property or from the pipes, appliances or plumbing works located
within any structure constructed upon the Property or from the roof, street or
sub-surface or from any other place or resulting from dampness or any other
patent or latent cause whatsoever. Landlord and its agents shall have no
liability to Tenant for interference with the light or other rights or benefits
associated with the use of the Premises or the Property. Tenant shall give
prompt notice to Landlord in case of fire or accidents on or in the Property or
of defects in the Property, any structure located upon the Property and all
fixtures and equipment located within the Property.
20. INSURANCE.
(a) Tenant's Insurance. During the term of this lease and any
extension of the term, Tenant at his sole cost and expense shall, obtain,
maintain and keep in full force and effect, the insurance described below with
respect to the Property.
(i) Property insurance covering the risks of physical
damage or loss as provided under the Standard Causes of Loss Form, or other
equivalent form, upon property of every description and kind located in or upon
the Property: (1) owned by Tenant; (2) for which Tenant is legally liable; (3)
installed by or on behalf of Tenant including, without limitation, furniture,
fittings, installations, including tenant improvements and betterments, fixtures
and any other personal property; and (4) all improvements installed by Landlord
within the Premises which are in excess of the allowance as specified in
paragraph 12 of the Basic Lease Terms. All insurance acquired by Tenant pursuant
to the provisions of this paragraph shall be in an amount not less than ninety
percent (90%) of the full replacement cost of the items described as (1) through
(4) above, inclusive. Notwithstanding any other provision of this Lease, in
event of a dispute as to the amount which comprises full replacement cost,
Landlord's decision shall be conclusive.
(ii) A policy of Commercial General Liability Insurance
coverage including personal injury, bodily injury, broad form property damage,
premises/operations, owner's protective coverage, blanket contractual liability,
products and completed operations liability, host liquor liability and
owned/non-owned auto liability, in an amount not less than $2,000,000 per
occurrence. The policy shall name Landlord, Landlord's managing agent and all
lenders secured by the Property ("Lenders") as additional insureds, and shall
also be endorsed to contain the following provision:
"Insurance afforded by this policy for Landlord's benefit
and protection shall be primary with respect to all claims, losses or
liabilities arising out Tenant's use of the Premises or from Tenant's operation.
Any insurance carried by Landlord shall be excess and non contributing."
(iii) Loss of income and extra expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of earnings
attributable to all perils commonly insured against by prudent tenants or
attributable to prevention of access to the Premises or to the Building as a
result of such perils.
<PAGE> 25
(iv) Worker's compensation insurance and other insurance
to comply with all applicable regulations.
(v) Any other form or forms of insurance as Landlord may
reasonably require from time to time in form, in amounts and for insurance risks
against which a prudent tenant would protect itself.
(b) Qualified Insurers. All insurance policies required pursuant
to the provisions of this Section shall be maintained with insurers with a
Best's rating of A-VI or better, unless otherwise approved in writing by the
Landlord and in form satisfactory from time to time to Landlord. Tenant will
cause Landlord to receive certificates of insurance on the Landlord's standard
form, or, at Landlord's option, certified copies of each insurance policy and
endorsement (collectively the "Insurance Certifications"). Tenant will deliver
the Insurance Certifications to Landlord as soon as practicable after placing
the required insurance, but in no event later than ten (10) business days after
the Commencement Date. Each insurance policy obtained by Tenant shall include an
endorsement requiring the insurer to notify Landlord and the Lenders in writing
at least thirty (30) days prior to any material change, reduction in coverage,
cancellation, or other termination of the policy.
(c) Insurance Proceeds on Termination. In the event of damage to
or destruction of the Property entitling Landlord to terminate this Lease
pursuant to Paragraph 21 of this Lease, if the Premises have also been damaged,
and if Landlord terminates this Lease, Tenant will immediately pay to Landlord
all of its insurance proceeds, if any, relating to the Landlord's Work and
alterations made by Landlord (but not to Tenant's trade fixtures, equipment,
furniture or other personal property of Tenant) in the Premises. Upon
termination of this Lease, Tenant will deliver to Landlord, in accordance with
the provisions of this Lease, the Landlord's Work, the alterations and the
Premises.
(d) Landlord's Insurance. Throughout the term of this Lease,
Landlord shall insure the Building (excluding any property which Tenant is
obligated to insure pursuant to the provisions of Subparagraph 20(a) above),
which insurance shall be an Operating Expense of the Property and the Site,
against damage by fire and other perils insured under the standard Special
Causes of Loss Form, or other equivalent form, and Commercial General Liability
and Umbrella Liability in such reasonable amounts with such reasonable
deductibles as would be carried by a prudent owner of a similar Class A office
building in Northern California. Landlord may take out and carry any other form
or forms of insurance as it may reasonably determine advisable. In the event
that earthquake insurance is required and not included in Tenant's base year
expenses, the base year expenses shall be adjusted to reflect earthquake
insurance. Notwithstanding any contribution by Tenant to the cost of insurance
premiums, with respect to the Building or any alterations of the Premises, as
provided herein, Tenant acknowledges that it has no right to receive any
proceeds from any such insurance policies carried by Landlord. Landlord shall
use such insurance proceeds in the repair and reconstruction of the Building and
the Premises unless the provisions of Subparagraph 20(c) above shall apply.
Landlord will not carry insurance of any kind on Tenant's furniture or
furnishings, or on any fixtures, equipment, improvements or appurtenances of
Tenant under this Lease; or on any tenant improvements constructed in the
Premises by Landlord in excess of the allowance as specified in paragraph 12 of
the Basic Lease Terms; and Landlord shall not be obligated to repair any damage
thereto or replace the same.
(e) Conditional Waiver. Landlord and Tenant hereby release each
other and their respective Agents from any and all claims or demands of damage,
loss, expense or injury to the Premises, the Property, the furnishings and
fixtures and equipment or inventory or other property of either Landlord or
Tenant in, about or upon the Property, which is caused by or results from perils
or events which are the subject of insurance carried by the parties in force at
the time of such loss; provided, however, that such waiver shall be effective
only to the extent permitted by the insurance covering such loss and to the
extent insurance coverage is not prejudiced thereby. Each party shall cause each
insurance policy it obtains to provide that the insurer waives all right of
recovery by way of subrogation against either party in connection with damage
covered by such policy.
<PAGE> 26
(f) Compliance with Policy Requirements. Tenant agrees that it
will not keep, use, sell or offer for sale in or upon the Premises any article
which may be prohibited by any insurance policy in force from time to time
covering the Property or any portion of the Property or any personal property
located within the Property (collectively the "Insured Property"). Tenant shall
not do or permit to be done anything which will invalidate or increase the cost
of any insurance covering the "Insured Property" and shall comply with all
rules, orders, regulations and requirements of the Pacific Fire Rating bureau or
any other organization performing a similar function. In the event Tenant's
occupancy or conduct of business in or on the Premises, whether or not Landlord
has consented to the same, results in any increase in premiums for the insurance
carried from time to time by Landlord with respect to the Insured Property,
Tenant shall pay any such increase in premiums as additional rent within ten
(10) days after being billed therefor by Landlord. In determining whether
increased premiums are a result of Tenant's use or occupancy of the Premises, a
schedule issued by the organization computing the insurance rate on the Insured
Property or the Landlord's Work showing the various components of such rate,
shall be conclusive evidence of the several items and charges which make up such
rate. Tenant shall promptly comply with all requirements of the insurance
authority or of any insurer now or hereafter in effect relating to the Insured
Property.
(g) Cure of Matters Negatively Impacting Insurance Coverage. If
any insurance policy carried by Landlord, as provided by Subparagraph 20(d)
above, shall be canceled or cancellation shall be threatened or the coverage
thereunder reduced or threatened to be reduced, in any way by reason of the use
or occupation of the Premises or any part thereof by Tenant or by any assignee
or sub-tenant or Tenant or by anyone permitted by Tenant to be upon the Premises
and, if Tenant fails to remedy the condition giving rise to cancellation,
threatened cancellation or reduction of coverage within forty-eight (48) hours
after notice thereof, Tenant shall be in default of its obligations hereunder
and Landlord may, at its option, either terminate this Lease or enter upon the
Premises and attempt to remedy such condition and Tenant shall forthwith pay the
cost thereof to Landlord as additional rent. Landlord shall not be liable for
any damage or injury caused to any property of Tenant or of others located in
the Premises as a result of such entry. In the event that Landlord shall be
unable to remedy such condition, then Landlord shall have all of the remedies
provided for in this Lease in the event of a default by Tenant. In no event
shall Landlord be obligated to attempt to remedy such default.
(h) Ownership. Nothing in this Section shall be construed as
affecting the ownership or right to possession of fixtures, personal property,
the Landlord's Work or other tenant improvements constructed in the Premises by
Landlord in excess of the allowance as specified in paragraph 12 of the Basic
Lease Terms.
21. DAMAGE OR DESTRUCTION.
(a) In the event the Building and/or the Premises or any insured
alterations are damaged by fire or other perils covered by Landlord's extended
coverage insurance to an extent not exceeding twenty-five percent (25%) of the
full insurable value thereof and if the damage thereto is such that the Building
and/or the Premises and any insured alterations may be repaired, reconstructed
or restored within a period of one-hundred eighty (180) days from the date of
the happening of such casualty and Landlord will receive insurance proceeds
sufficient to cover the cost of such repairs, Landlord shall commence and
proceed diligently with the work or repair, reconstruction and restoration and
the Lease shall continue in full force and effect. If such work or repair,
reconstruction and restoration is such as to require a period longer than
one-hundred eighty (180) days or exceeds twenty-five (25%) of the full insurable
value thereof, or if said insurance proceeds will not be sufficient to cover the
cost of such repairs, Landlord either may elect to so repair, reconstruct or
restore the Building and/or Premises and any insured alterations and the Lease
shall continue in full force and effect or Landlord may elect not to repair,
reconstruct or restore the Building and/or Premises and any insured alterations
and the Lease shall in such event terminate, provided, however, if the Premises
are damaged to the extent that costs to repair exceed 50% or more of the
replacement cost of the Building, either Landlord or Tenant may terminate this
Lease. Under any of the conditions of this Subparagraph 21(a), Landlord shall
give written notice to Tenant of its intention
<PAGE> 27
within thirty (30) days from the date of such event of damage or destruction. In
the event Landlord elects not to restore said Building and/or Premises and any
insured alterations, this Lease shall be deemed to have terminated as of the
date of such partial destruction. Notwithstanding the foregoing, if such work or
repair, reconstruction and restoration is such as to require a period longer
than one-hundred eighty (180), Landlord or Tenant may terminate this Lease.
(b) Upon any termination of this Lease under any of the
provisions of this Paragraph 21, the parties shall be released thereby without
further obligation to the other from the date possession of the Premises is
surrendered to Landlord except for items which have theretofore accrued and are
then unpaid.
(c) In the event of repair, reconstruction and restoration by
Landlord as herein provided, the rent provided to be paid under this Lease shall
be abated proportionately with the degree to which Tenant's use of the Premises
is impaired during the period of such repair, reconstruction or restoration.
Tenant shall not be entitled to any compensation or damages for loss in the use
of the whole or any part of the Premises and/or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
(d) Tenant shall not be released from any of its obligations
under this Lease except to the extent and upon the conditions expressly stated
in this Paragraph 21. Notwithstanding anything to the contrary contained in this
Paragraph 21, should Landlord be delayed or prevented from repairing or
restoring the damaged Premises within six (6) months after the occurrence of
such damage or destruction by reason of acts of God, war, governmental
restrictions, inability to procure the necessary labor or materials, or other
cause beyond the control of Landlord, Landlord shall be relieved of its
obligation to make such repairs or restoration and Tenant shall be released from
its obligations under this Lease as of the end of said six (6) months period.
(e) It is hereby understood that if Landlord is obligated to or
elects to repair or restore as herein provided, (i) Landlord shall be obligated
to make repairs or restoration only of those portions of the Building and the
Premises which were originally provided at Landlord's expense or which were
insured by either party and approved by Landlord and the proceeds of such
insurance have been received by Landlord, and the repair and restoration of
items not provided at Landlord's expense shall be the obligation of Tenant and
(ii) the deductible amount required to be paid in connection with the recovery
of proceeds under any insurance policy covering the Building and/or the Premises
shall be included as an Operating Expense of the Site to the extent such damage
or destruction occurs to the exterior and/or structural portion of the Building
and/or the Common Areas, as reasonably determined by Landlord. To the extent
such damage or destruction occurs to the Premises, as reasonably determined by
Landlord, Tenant shall reimburse Landlord for such deductible amount.
(f) In the event that damage in excess of the deductible amount
of insurance is due to any cause other than fire or other peril covered by
extended coverage insurance, Landlord may elect to terminate this Lease.
(g) Notwithstanding anything to the contrary contained in this
Paragraph 21, Landlord shall not have any obligations whatsoever to repair,
reconstruct or restore the Premises when the damage resulting from any casualty
covered under this Paragraph 21 occurs during the last twelve (12) months of the
term of this Lease or any extension hereof.
(h) The provisions of California Civil Code SS 1932, Subsection
2, and SS 1933, Subsection 4, arc hereby waived by Tenant.
(i) In the event it becomes necessary for Landlord to terminate
the Lease in accordance with the terms of this Section 21, Landlord's treatment
of Tenant shall be consistent with the treatment of other tenants in the
Building.
<PAGE> 28
22. EMINENT DOMAIN.
(a) In case the whole of the Premises, the Building or the Site
or such part of the Premises, Building or the Site as shall substantially
interfere with Tenant's use and occupancy thereof, shall be taken for any public
or quasi-public purpose by any lawful power or authority by exercise of the
right of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority. Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking, and Landlord shall be entitled to receive
the entire amount of any award without deduction for any estate or interest of
Tenant. In the event the amount of property or the type of estate taken shall
not substantially interfere with the conduct of Tenant's business, Landlord
shall be entitled to the entire amount of the award without deduction for any
estate or interest of Tenant, and Landlord at his option may terminate this
Lease; provided, however, Landlord's treatment of Tenant shall be consistent
with the treatment of other tenants in the Building. If Landlord does not so
elect, Landlord shall promptly proceed to restore the Premises to Substantially
their same condition prior to such partial taking, and a proportionate allowance
shall be made to Tenant for the rent corresponding to the time during which, and
to the part of the Premises of which, Tenant shall be so deprived on account of
such taking and restoration. Tenant shall have the right to terminate this Lease
if Landlord fails to restore the Premises within ninety (90) days. Nothing
contained in this Paragraph 22 shall be deemed to give Landlord any interest in
any award separately made to Tenant for the taking of personal property and
trade fixtures belonging to Tenant or for moving costs incurred by Tenant in
relocating Tenant's business or for interference with Tenant's business.
(b) In the event of taking of the Premises or any part thereof
for temporary use, (i) this Lease shall be and remain unaffected thereby and
rent shall be abated only for the portion of the Premises affected, and (ii)
Tenant shall be entitled to receive for itself such portion or portions of any
award made for such use with respect to the period of the taking which is within
the term, provided that if such taking shall remain in force at the expiration
or earlier termination of this Lease, Tenant shall then pay to Landlord a sum
equal to the reasonable cost of performing Tenant's obligations under Paragraph
14 with respect to surrender of the Premises and upon such payment shall be
excused from such obligations. For purpose of this Subparagraph 22(b), a
temporary taking shall be defined as a taking for a period of fifty (50) days or
less.
(c) Tenant waives the provisions of California Code of Civil
Procedure Section 1265.130.
23. DEFAULTS AND REMEDIES.
1. Default Conditions. Each of the following events constitutes a
default and breach of this Lease by Tenant:
(a) Tenant's failure to pay any rent or charges required to be
paid by Tenant under this Lease where such failure continues for five (5) days
after written notice from Landlord to Tenant of such failure to perform (the
notice period respecting the existence of a default shall not modify the
obligation to pay a late charge provided for below);
(b) Tenant's failure to promptly and fully perform any other
covenant, condition or agreement contained in this Lease where such failure
continues for 10 Days after written notice from Landlord to Tenant of such
failure to perform with respect to the payment of money or 30 Days after written
notice from Landlord to Tenant of such failure to perform with respect to
failures to perform of a non monetary nature;
(c) the levy of a writ of attachment or execution on this Lease
or on any of Tenant's property located in the Premises which is not stayed
within 90 days after the date upon which it is filed;
<PAGE> 29
(d) a general assignment for the benefit of Tenant's creditors or
an arrangement, composition, extension or adjustment with Tenant's creditors,
the filing by or against Tenant of a petition for relief or other proceeding
under the federal bankruptcy laws or state or other insolvency laws, or the
assumption by any court or administrative agency, or by a receiver, trustee or
custodian appointed by either, of jurisdiction, custody or control of the
Premises or of Tenant or any substantial part of its assets or property which
remains under such control 90 days following the date of the assumption of
control.
If a non monetary default occurs which Tenant cannot reasonably cure
within the above time period but Tenant commences corrective action within that
period and prosecutes the corrective action diligently and continuously to
completion, Tenant's rights under the lease shall remain in good standing and
Tenant shall be subject to no further monetary penalty for such default.
2. Landlord's Remedies. If Tenant defaults under this Lease, in addition
to other rights or remedies Landlord may have under this Lease or the law,
Landlord may elect either of the remedies set forth in paragraphs 2.1 and 2.2 of
this Lease.
For purposes of this Paragraph (inclusive of all subparagraphs), "worth
at the time of award" of the amounts referred to in parts 2.1(i) and 2.2(ii)
shall be computed by allowing interest at the highest rate allowable by law, and
"worth at time of award" of the amount referred to in part 11.2.1(iii) shall be
computed by discounting such amount at the rate specified in California Civil
Code Section 1951.2(b) or any successor statute. In such computations, the rent
due hereunder shall include Monthly Basic Rent plus the aggregate amount of all
other rents, charges, Operating Expenses and other amounts payable by Tenant
hereunder.
2.1. Landlord, at its option, shall have the right to
immediately terminate this Lease and Tenant's right to possession of the
Premises by giving written notice to Tenant and to recover from Tenant an award
of damages equal to the sum of,
(i) the worth at the time of award of the unpaid rental
which had been earned at the time of termination,
(ii) the worth at the time of award of the amount by which
the unpaid rental which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Tenant affirmatively proves
could have been reasonably avoided,
(iii) the worth at the time of award of the amount by
which the unpaid rental for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant affirmatively proves could be
reasonably avoided, and
(iv) any other amount necessary to compensate Landlord for
all the detriment either proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, and
(v) all such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time under applicable law; or;
2.2. Notwithstanding any other provision of this Lease, Landlord
has the remedy described in California Civil Code Section 1951.4 (Landlord may
continue this Lease in effect after Tenant's breach and abandonment and recover
rent as it becomes due, if Tenant has the right to sublet or assign, subject
only to reasonable limitations). Tenant agrees that this Lease confers upon
tenant the right to sublet or assign its interest in this lease subject to
reasonable limitations. Tenant acknowledges that such reasonable limitations and
the right
<PAGE> 30
to sublet or assign as conferred by this Lease comply with the requirements
imposed by California Civil Code Section 1951.4. This right shall continue in
effect for so long as Landlord does not terminate this Lease and Tenant! s right
to possession of the Premises, in which event, Landlord shall retain the right
to enforce all rights and remedies provided by this Lease and by law, including
the right to recover all rent and other charges payable by Tenant under this
Lease as they become due.
3. Landlord's Default. Except as otherwise provided by this Lease,
Landlord's failure to perform any obligation required of Landlord (other than a
delay in delivery of possession) within 30 Days after Tenant's delivery to
Landlord of written notice, specifying the obligation Landlord has failed to
perform shall constitute a default. Notwithstanding the preceding sentence, if
the nature of the obligation is such that more than 30 Days are required for
performance, then Landlord shall not be in default if it commences performance
within such 30 Day period and diligently prosecutes the same to completion. If
Landlord has not timely commenced to cure the default (or subsequently does not
diligently pursue the cure), Tenant may perform Landlord's obligation(s) with
respect to the default and bill Landlord for the reasonable cost of performance.
Should Landlord dispute the claim for any reason, the matter will be resolved
pursuant to the arbitration provisions of this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) Required Approval. Without first obtaining Landlord's written
consent, Tenant shall not directly or indirectly: (1) assign this Lease in whole
or in part; (2) sublet all or any part of the Premises; (3) license the use of
all or any part of the Premises; (4) license all or any part of any business
conducted on the Premises; (5) encumber or hypothecate this Lease (items (1)
through (5) are collectively referred to as a "Transfer"). Landlord shall not
unreasonably withhold or delay Landlord's consent to any requested Transfer. As
used in this Section, "Transferee" refers to the person(s) or entity(ies)
intended to receive any use or occupancy rights to the Premises as the result of
a proposed Transfer.
(b) Request for Consent. Tenant' s request for consent to any
Transfer shall be in writing and shall include the following: (a) the name and
legal composition of the proposed Transferee; (b) the nature of the proposed
Transferee's business to be carried on in the Premises; (c) the Terms and
provisions of the proposed Transfer including, without limitation the proposed
commencement and termination dates (respectively the "Scheduled Commencement"
and the "Scheduled Termination"); and (d) such financial and other information
as Landlord may reasonably request concerning the proposed Transferee, the
proposed Transfer and any transaction contemplated to occur in connection with
the proposed Transfer. Within fifteen (15) days of receipt of such written
notice, and additional information requested by Landlord concerning the proposed
assignee's or Transferee's financial responsibility, Landlord shall elect one of
the following options and notify Tenant in writing of its election:
(i) Consent to the proposed Transfer;
(ii) Conditionally consent to the proposed Transfer,
requiring that Tenant and/or the proposed Transferee agree to specific
reasonable terms and provisions as a condition of approval of the Transfer.
(iii) Refuse to consent to the Transfer on reasonable
grounds.
(iv) Except for Transfers for a term materially less than
the remainder of the Term, elect to terminate this Lease, or in the case of a
request for approval of Transfer of a portion of the Premises, terminate this
Lease as to the portion of the Premises subject to the proposed Transfer. If
Tenant requests Landlord's consent to any Transfer of all or a portion of the
Premises, Landlord shall have the right, to be exercised by giving written
notice to Tenant within thirty (30) days of receipt by Landlord of the financial
<PAGE> 31
responsibilities information required by this Section to terminate this Lease,
in whole or as to the affected portion of the Premises, effective as of the
Scheduled Commencement.
(v) Landlord's failure to give written notice of its
approval or disapproval of the proposed subletting or assignment within such
period shall be deemed Landlord's consent to the proposed assignment or
subletting. If Landlord disapproves of any proposed assignment or subletting,
Landlord shall state the reason for the disapproval in Landlord's response to
Tenant.
(c) Voidable Transfers. Any Transfer without Landlord's prior
written consent shall be voidable at Landlord's election and shall constitute a
default under the provisions of this Lease entitling Landlord to exercise all
rights and remedies provided by this Lease for Tenant's default.
(d) Consent Does Not Constitute Waiver. Landlord's consent to any
Transfer shall not constitute a waiver of the necessity for such consent to any
subsequent Transfer by Tenant and/or by any Transferee of Tenant. The
prohibition against assignment and subletting contained in this paragraph
includes a prohibition against assignment or subletting by operation of law.
(e) Change in Tenant's Composition. Except as set forth to the
contrary in Paragraph 3 of the Rider attached hereto, in the event that Tenant
is a partnership, a withdrawal or change of partners or a change of interests of
partners or if Tenant is a corporation, other than a publicly traded
corporation, any transfer of stock which collectively modifies 50% or more of
the ownership shall constitute a Transfer requiring Landlord's advance approval.
(f) Tenant's Liability. Unless Landlord expressly agrees to the
contrary in writing, notwithstanding any approved Transfer, Tenant shall remain
fully liable on this Lease and shall not be released from the obligations
imposed upon Tenant by this Lease.
(g) Grounds for Withholding Consent to Transfer. Without limiting
other reasons or circumstances, Landlord and Tenant agree that it is reasonable
for Landlord to withhold consent to Transfer, if (i) the financial strength of
the proposed Transferee is not, in Landlord's reasonable judgment, commensurate
with the obligations of the Lease; (ii) the proposed Transferee's use would, in
Landlord's reasonable judgment, be incompatible with the then current tenants,
or the use of the rest of the Property; (iii) the proposed Transferee's use
would generate traffic, parking and/or wear and tear on the Premises or Property
materially in excess of that generated by Tenant's use; (iv) the proposed terms
of the Transfer do not expressly require compliance by the Transferee with each,
all and every one of the provisions of this Lease; or (v) the proposed
Transferee is a current tenant of the Building or a Prospective Tenant. As used
in this Section, "Prospective Tenant" means a person or entity with which
Landlord has negotiated for space in the Building within four months prior to
the date of delivery to Landlord of the request for approval of the Transfer and
any partnership, association or corporation owned 50% or more by any such
persons and/or entities with whom Landlord has negotiated with the same time
period. As used in this Section, "Property" refers to the Building and the
Multi-Story Parking Facility and the Site.
(h) Reasonable Limitations. Tenant expressly agrees that the
provisions of this Lease respecting subletting, assignment and any Transfer are
subject only to reasonable limitations in compliance with the requirements of
California Civil Code Section 1951.4.
(i) Landlords Fees and Expenses. Tenant shall pay Landlord's
reasonable and out-of-pocket processing costs and attorneys' fees incurred in
reviewing and processing all requests for approval of a proposed Transfer
whether or not Landlord consents to the proposed Transfer.
<PAGE> 32
(j) Excess Rents. Tenant shall pay Landlord 50% of all Excess
Rent received by Tenant directly or indirectly in connection with any Transfer
respecting this Lease. As used in this Lease, "Excess Rent" means, subject to
the adjustments provided below and allocated on a pro rata basis in the event of
a Transfer of a portion of the Premises, in the case of an assignment, all
consideration received and, in the case of a sublease or license, all
consideration received in excess of rents and charges reserved under this Lease.
The adjustments allowed pursuant to the provisions of this paragraph are: the
cost of broker's commissions paid by Tenant with regard to the Transfer, legal
fees incurred by Tenant respecting the Transfer, the unamortized portions of
improvements made in the subleased area by Tenant for Tenant's use during the
original tenancy (except those paid for by Landlord or by any Allowance from
Landlord for such improvements) and other expenses reasonably incurred by Tenant
in effectuating the Transfer including improvements constructed by Tenant for
the Transferee as a condition of the Transfer). Notwithstanding the foregoing
language, no broker's commissions, legal fees and other expenses so charged
against receipts from the Transfer may exceed the fair market value for such
services and all such services shall be strictly related to the Transfer.
Tenant shall not receive any adjustment for its moving or
relocation expenses and may not deduct them from compensation received. Tenant
shall submit an accounting of all such expenses to Landlord within 60 days of
the effective date of the Transfer. Such accounting shall be certified as
accurate by a Certified Public Accountant or signed and certified as accurate by
Tenant. All amortization of improvements shall be calculated in a manner which
complies with generally accepted United States accounting practices consistently
applied. Landlord shall have the right to dispute any charges included in the
accounting. In the event of any such dispute, Tenant shall, upon Landlord's
request, provide reasonable documentation to substantiate all disputed items.
(k) Transferee's Direct Patent. Landlord may require that the
Transferee remit directly to Landlord on a monthly basis, all moneys due to
Tenant by said Transferee. Landlord's imposition of such a requirement shall not
relieve Tenant of any responsibilities or obligations under the provisions of
this Lease, nor shall it obligate Landlord to undertake collection actions on
Tenant's behalf. Landlord shall pay to Tenant any moneys remaining from the
Transferee's payments after deducting all moneys due to Landlord under the terms
of this Lease.
(l) Restriction on Exercise of Options. To the extent Tenant
possesses any option or options to expand into additional space within the
Building or to extend the term of this Lease, such options may not be exercised
nor will the time limits in which Tenant must exercise such options be extended,
so long as any portion of the Premises are subject to a Transfer, whether or not
Landlord has consented to the Transfer. Except with respect to the transferees
described in Section 3 of the Rider attached hereto, but specifically excluding
the transferees described in Subsection 3(c) of the Rider attached hereto, no
Transferee shall acquire the right to extend the term of this Lease or to expand
into additional space unless Landlord expressly consents in writing to the
Transferee's acquisition of such right.
(m) Restoration of Premises. Notwithstanding anything to the
contrary in paragraphs 13 or 24, Landlord, at its sole discretion, may require
Tenant, at Tenant's sole expense, to restore the Premises to the condition and
configuration that existed in the Premises prior to any approved Transfer,
normal wear and tear excepted unless approved otherwise in writing by Landlord.
25. QUIET EMPLOYMENT.
Landlord covenants and agrees with Tenant that upon Tenant paying the
rent required under this Lease and paying all other charges and performing all
of the covenants and provisions aforesaid on Tenant's part to be observed and
performed under this Lease, Tenant shall and may peaceably and quietly have,
hold and enjoy the Premises in accordance with this Lease.
<PAGE> 33
26. SUBORDINATION.
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any first mortgagee with a lien on the Building or any ground lessor
with respect to the Building, this Lease shall be subject and subordinate at all
times to: (a) all ground leases or underlying leases which may now exist or
hereafter be executed affecting the Building or the Site, (b) the lien of any
mortgage or deed of trust which may now exist or hereafter be executed in any
amount for which the Building, Site, ground leases or underlying leases, or
Landlords interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant shall, if
requested by the ground lessor, mortgagee or beneficiary, as applicable attorn
and become the Tenant of the successor in interest to Landlord and in such event
Tenant's right to possession of the Premises shall not be disturbed if Tenant is
not in default and so long as Tenant shall pay the rent and all other amounts
required to be paid to Landlord pursuant to the terms hereof and observe and
perform all of the provisions of this Lease, unless the Lease is otherwise
terminated pursuant to its terms. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord and
reasonably acceptable to Tenant, any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground leases
or underlying leases or the lien of any such mortgage or deed of trust. Should
Tenant fail to sign and return any such documents within ten (10) business days
of receipt of a second notice thereof, Tenant shall be in default, and Landlord
may, at Landlord's option, terminate this Lease provided written notice of such
termination is received by Tenant prior to Landlord's receipt of such documents.
27. ESTOPPEL CERTIFICATE.
(a) Within ten (10) days following any written request which
either party may make from time to time, the other party shall execute and
deliver to the requesting party a statement, in a form substantially similar to
the form of Exhibit "E" attached hereto, certifying (i) the Commencement Date of
this Lease; (ii) the fact that this Lease is unmodified and in full force and
effect (or, if there have been modifications hereto, that this Lease is in full
force and effect, as modified, and stating the date and nature of such
modifications); (iii) the date to which the rental and other sums payable under
this Lease have been paid; and (iv) the fact that there are no current defaults
under this Lease by either Landlord or Tenant except as specified in Tenant's
statement;. Landlord and Tenant intend that any statement delivered pursuant to
this Paragraph 28 may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein.
(b) The non-requesting party's failure to deliver such statement
within such time shall be conclusive upon such party (i) that this Lease is in
full force and effect, without modification except as may be represented by the
requesting party; (ii) that there are no uncured defaults in the requesting
party's performance; and (iii) that not more than one (1) month's rent has been
paid in advance. In the event that Landlord is the requesting party, Tenant's
failure to deliver said statement to Landlord within ten (10) working days of
receipt of a second notice thereof shall constitute a default under this Lease,
and Landlord may, at Landlord's option, terminate the Lease, provided written
notice of such termination is received by Tenant prior to Landlord's receipt of
said statement.
28. BUILDING PLANNING.
In the event Landlord requires the Premises for use in conjunction with
another suite or for other reasons connected with the Building planning program,
upon notifying Tenant in writing a minimum of sixty (60) days in advance,
Landlord shall have the right to move Tenant to other space in the Building of
which the Premises forms
<PAGE> 34
a part, provided such space is comparable in size and design to the Premises,
can in Tenant's reasonable determination, accommodate Tenant's permitted use
hereunder, and is located on floors 12 through 20 of the Building, at Landlord's
sole cost and expense, including all of Tenant's moving expenses, telephone
installation, electrical wiring and cabling, and stationary reprinting charges,
and the terms and conditions of the original Lease shall remain in full force
and effect, save and excepting that a revised Exhibit "A" shall become part of
this Lease and shall reflect the location of the New space and the Basic Lease
Terms shall be amended to include and state all correct data as to the new
space.
29. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the "Rules and
Regulations", a copy of which is attached hereto and marked Exhibit "F", and all
reasonable and nondiscriminatory modifications thereof and additions thereto
from time to time put into effect by Landlord. Landlord shall not be responsible
to Tenant for the violation or non-performance by any other tenant or occupant
of the Building of any of said Rules and Regulations.
30. CONFLICT OF LAWS.
This Lease shall be governed by and construed pursuant to the laws of
the State of California.
31. SUCCESSORS AND ASSIGNS.
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
32. SURRENDER OF PREMISES.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all alterations and additions thereto broom
clean, in good order, repair and condition, reasonable wear and tear, casualty
and condemnation excepted, and shall comply with the provisions of Subparagraphs
13(f) and 13(g). The delivery of keys to any employee of Landlord or to
Landlord's agent or any employee thereof shall not be sufficient to constitute a
termination of this Lease or a surrender of the Premises.
33. PROFESSIONAL FEES.
(a) Should either party bring suit against the other with respect
to matters arising from or growing out of this Lease, then all costs and
expenses, including without limitation, its actual reasonable professional fees
and expenses such as appraisers', accountants' and attorneys' fees and expenses,
incurred by the prevailing party therein shall be paid by the other party, which
obligation on the part of the other party shall be deemed to have accrued on the
date of the commencement of such action and shall be enforceable whether or not
the action is prosecuted to judgment.
(b) Should Landlord be named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's occupancy
hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such
suit, including without limitation, its reasonable actual professional fees such
as appraisers', accountants' and attorneys' fees and expenses. As used in this
paragraph, references to "suit" include arbitration proceedings as well as
actions commenced in court.
<PAGE> 35
34. PERFORMANCE BY TENANT.
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenants sole cost and
expense and without any abatement of rent. Tenant acknowledges that the late
payment by Tenant to Landlord of any sums due under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
cost being extremely difficult and impractical to fix. Such costs include,
without limitation, processing and accounting charges, and late charges that may
be imposed on Landlord by the terms of any encumbrance and note secured by an
encumbrance covering the Premises or the Building of which the Premises are a
part. Therefore, if any monthly installment of Monthly Basic Rent is not
received by Landlord within five (5) days following the due date therefor, and
if Tenant fails to pay any other sum of money due hereunder and such failure
continues for five (5) days after notice thereof by Landlord, Tenant shall pay,
as additional rent, as liquidated damages for Landlords costs an amount equal to
four percent (4%) of the overdue amount, plus such overdue amount shall bear
interest at the lesser of fifteen percent (15%) or the maximum rate permissible
by law, calculated from the date the monthly installment of Annual Basic Rent is
due until the date of payment to Landlord. Landlord's acceptance of any late
charge or interest shall not constitute a waiver of Tenant's default with
respect to the overdue amount or prevent Landlord from exercising any of the
other rights and remedies available to Landlord under this Lease or any law now
or hereafter in effect. Further, in the event such late charge is imposed by
Landlord for two (2) consecutive months for whatever reason, Landlord shall have
the option to require that, beginning with the first payment of rent due
following the imposition of the second consecutive late charge, rent shall no
longer be paid in monthly installments but shall be payable three (3) months in
advance.
35. MORTGAGE AND SENIOR LESSOR PROTECTION.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release of
such obligations or a termination of this Lease unless (a)Tenant has given in
accordance with Section 58, which notice is concurrent with notice to Landlord,
to any beneficiary of a deed of trust or mortgage covering the Premises and to
the Lessor under any master or ground Lease covering the Building, the Site or
any interest therein whose identity and address shall have been furnished to
Tenant, and (b)Tenant offers such beneficiary, mortgagee or Lessor a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or of judicial foreclosure, if such should prove
necessary to effect a cure.
36. DEFINITION OF LANDLORD.
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title to,
or a lessee's interest in a ground lease of the Site or master lease of the
Building. In the event of any transfer, assignment or other conveyance or
transfers of any such title or interest, Landlord herein named (and in case of
any subsequent transfers or conveyances, the then grantor) shall be
automatically freed and relieved from and after the date of such transfer,
assignment or conveyance of all liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed and, without further agreement, the transferee of
such title or interest shall be deemed to have assumed and agreed to observe and
perform any and all obligations of Landlord hereunder, during its ownership of
the Premises. Landlord may transfer its interest in the Premises without the
consent of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
<PAGE> 36
37. WAIVER.
The failure of Landlord to seek redress for violation of, or to insist
upon strict performance of, any term, covenant or condition of this Lease or the
Rules and Regulations attached hereto as Exhibit "F", shall not be deemed a
waiver of such violation or prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation, nor shall the failure of Landlord to enforce any of said Rules and
Regulations against any other tenant of the Building be deemed a waiver of any
such Rule or Regulation, nor shall any custom or practice which may become
established between the parties in the administration of the terms hereof be
deemed a waiver of, or in any way affect, the right of Landlord to insist upon
the performance by Tenant in strict accordance with said terms. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
38. IDENTIFICATION OF TENANT.
Unless the provisions of Paragraph 53 hereinbelow are applicable to this
Lease, then if more than one person executes this Lease as Tenant, (a) each of
them is jointly and severally liable for the keeping, observing and performing
of all of the terms, covenants, conditions, provisions and agreements of this
Lease to be kept, observed and performed by Tenant, and (b) the term "Tenant" as
used in this Lease shall mean and include each of them jointly and severally and
the act of or notice from, or notice or refund to, or the signature of, any one
or more of them, with respect to the tenancy or this Lease, including, but not
limited to, any renewal, extension, expiration, termination or modification of
this Lease, shall be binding upon each and all of the persons executing this
Lease as Tenant with the same force and effect as if each and all of them had so
acted or so given or received such notice or refund or so signed.
39. PARKING AND TRANSPORTATION.
(a) Provided no event of default has occurred and is continuing
hereunder, Tenant shall have the right to lease the number of parking spaces
designated in Paragraph 25 of the Basic Lease Terms. Parking rates for the
parking designated in Paragraph 25 of the Basic Lease Terms shall be Landlord's
prevailing market rates then in effect for the applicable parking facility.
Landlord, in the exercise of its sound business judgment, shall have the right
to change the mode of parking in both the Basement Garage and the Multi-Store
Parking Facility at any time. Tenant shall not use more parking spaces than said
number. In the event Landlord has not assigned specific spaces to Tenant, Tenant
shall not use any spaces which have been so specifically assigned by Landlord to
other tenants or for such other uses as visitor parking or which have been
designated by governmental entities with competent jurisdiction as being
restricted to certain uses.
(i) Tenant shall not permit or allow any vehicles that
belong to or are controlled by Tenant or Tenant's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or parking in areas
other than those designated by Landlord for such activities.
(ii) If Tenant permits or allows any of the prohibited
activities described in this Paragraph 40, then Landlord shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Tenant, which
cost shall be immediately payable upon demand by Landlord.
(iii) Landlord reserves the right at any time to relocate
such spaces and to substitute an equivalent number of parking spaces in a
parking structure or subterranean parking facility or in a surface parking area
reasonably equivalent to the affected parking area and within a reasonable
distance of the Premises
<PAGE> 37
or to change or modify the manner or mode of parking, including, but not limited
to, changing any reserved spaces to valet parking and or re-striping such
spaces.
(iv) Tenant shall submit a written notice in a form
reasonably specified by Landlord, containing the names, home and office
addresses and telephone numbers of those persons who are authorized by Tenant to
use the parking spaces on a monthly basis (the "Authorized Users") and shall use
its best efforts to identify each automobile by make, model and license number.
Such notice shall be served upon Landlord prior to the beginning of the term of
this Lease. Such notice, as amended from time to time, is hereafter referred to
as the "Parking Notice". No person whose name and address is not contained in
the Parking Notice shall have any right to park an automobile in the area of the
Building parking facilities designated for monthly parking and no person whether
or not his name is included in the Parking Notice shall have any right to park
an automobile not identified in the Parking Notice without (in either case)
paying the parking charge then applicable for daily parking in the Building
parking facilities and parking in the area designated for daily parking.
(v) Tenant and Authorized Users shall comply with all
rules and regulations as set forth in the Parking Rules and Regulations portion
of Exhibit "F" hereto. Landlord reserves the right to modify, add to, or delete
from time to time such Parking Rules and Regulations as it deems reasonably
necessary for the operation of said parking. Landlord may refuse to permit any
person who violates with unreasonable frequency the Parking Rules and
Regulations to parking in the Building Garage and Multi-Story Parking Facility,
and any violation of the rules shall subject the car to removal. Tenant agrees
to use its reasonable best efforts to acquaint all Authorized Users and visitors
with the Parking Rules and Regulations.
(vi) All responsibility for damage to cars is assumed by
Authorized Users. Tenant shall repair or cause to be repaired at its sole cost
and expense any and all damage to the Basement Garage and Multi-Store Parking
Facility or any part thereof caused by Tenant or its Authorized Users or
resulting from vehicles of Authorized Users.
(b) Tenant agrees that it will use its reasonable best efforts to
cooperate in programs which may be undertaken by Landlord independently, or in
cooperation with local municipalities or governmental agencies or other property
owners in the vicinity of the Building, to reduce peak levels of commuter
traffic. Such programs may include, but shall not be limited to, carpools,
vanpools and other ride sharing programs, public and private transit, and
flexible work hours.
(c) Tenant shall be entitled to the number of standard automobile
parking spaces designated in Paragraph 25 of the Basic Lease Terms. In the event
that any of the spaces Tenant is entitled to are not purchased by the Tenant for
four (4) consecutive months, Tenant shall have no further rights to these spaces
and Landlord may offer these spaces to other parties as it so chooses.
(d) Tenant's parking rights hereunder shall extend to any
permitted assignee or sublessee of this Lease.
40. OFFICE AND COMMUNICATIONS SERVICES.
(a) Landlord has advised Tenant that certain office and
communications services may be offered to tenants of the building by a
concessionaire under contract or license to Landlord ("Provider"). Tenant shall
be permitted to contract with Provider for the provision of any or all of such
services on such terms and conditions as Tenant and Provider may agree. Tenant
shall also be permitted to obtain office and communications services from any
other reputable person or entity in the business of providing the same (herein
called an "Alternate Provider"), provided that Landlord shall not be required
thereby to make any alterations in or to any part of the Building or the use of
any facilities or equipment of the Building, and provided further that no such
<PAGE> 38
services provided by an Alternate Provider, or any equipment or facilities used
or to be used in connection therewith, shall be incompatible in any respect
with, or shall interfere with or otherwise impair or adversely affect, the
operation, reliability or quality of the Building systems or any services,
equipment or facilities used or operated by Provider or any tenant in the
Building.
(b) Tenant acknowledges and agrees that: (i) Landlord has made no
warranty or representation to Tenant with respect to the availability of any
such services, whether provided by Provider or any Alternate Provider, or the
quality, reliability or suitability thereof; (ii) neither Provider nor any
Alternate Provider is acting as the agent or representative of Landlord in the
provision of such services, and Landlord shall have no liability or
responsibility for any failure or inadequacy of such services, or any equipment
or facilities used in the furnishing thereof, or any act or omission of Provider
or any Alternate Provider, or their agents, employees, representatives, officers
or contractors: (iii)Landlord shall have no responsibility or liability for the
installation, alteration, repair, maintenance, furnishing, operation, adjustment
or removal of any such services, equipment or facilities; and (iv)any contract
or other agreement between Tenant and Provider or any Alternate Provider shall
be independent of this Lease, the obligations of Tenant hereunder, and the
rights of Landlord hereunder, and, without limiting the foregoing, no default or
failure of Provider or any Alternate Provider with respect to any such services,
equipment or facilities, or under any contract or agreement relating thereto,
shall have any effect on this Lease or give to Tenant any offset or defense to
the fall and timely performance of its obligations hereunder, or entitle Tenant
to any abatement of rent or additional rent or any other payment required to be
made by Tenant hereunder, or constitute any actual or constructive eviction of
Tenant, or otherwise give rise to any claim of any nature against Landlord.
(c) The Landlord shall maintain, as an Operating Expense of the
Building, the vertical telephone riser cables terminating at the Building
telephone room located in the central core on each floor. All telephone cabling
from the Building telephone room located in the central core on each floor to
the Premises and within the Premises shall be maintained at the Tenant's expense
regardless of who paid for the initial installation. Landlord shall have no
responsibility for the maintenance of any dedicated data cabling or special
wiring installations installed for the exclusive use of a tenant in the
Building.
41. TERMS AND HEADINGS.
The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. Words used in any gender include other genders.
If there be more than one Tenant, i.e., if two or more persons or entities are
jointly referred to in this Lease as "Tenant", the obligations hereunder imposed
upon Tenant shall be joint and several. The Paragraph headings of this Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
42. EXAMINATION OF LEASE.
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for Lease, and it is not
effective as a Lease or otherwise until execution by and delivery to both
Landlord and Tenant.
43. TIME.
Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.
44. PRIOR AGREEMENT; AMENDMENTS.
<PAGE> 39
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior agreement
or understanding, oral or written, express or implied, pertaining to any such
matter shall be effective for any purpose. No provision of this Lease may be
amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest. The parties acknowledge that
all prior agreements, representations and negotiations are deemed superseded by
the execution of this Lease to the extent they are not incorporated herein.
45. SEPARABILITY.
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
and such other provisions shall remain in full force and effect.
46. RECORDING
Neither Landlord nor Tenant shall record this Lease nor a short form
memorandum thereof without the consent of the other and if such recording
occurs, it shall be at the sole cost and expense of the party requesting the
recording.
47. LIMITATION ON LIABILITY.
The obligations of Landlord under this Lease do not constitute personal
obligations of the individual partners, directors, officers or shareholders of
Landlord, and Tenant shall not seek recourse against the individual partners,
directors, officers or shareholders of Landlord or any of their personal assets
for satisfaction of any liability in respect to this Lease. The individual
directors and officers of Tenant shall not be personally liable for the
obligations of Tenant under this Lease and Landlord shall not seek recourse
against the individual officers and directors of Tenant or their personal assets
for satisfaction of any liability of Tenant hereunder.
48. RIDERS.
Clauses, plats and riders, if any, signed by Landlord and Tenant and
affixed to this Lease are a part hereof.
49. SIGNS.
Tenant shall not place any sign upon the Premises or the Building
without Landlord's prior written consent not to be unreasonably withheld,
conditioned or delayed with respect to the Premises. Landlord may at any time
place on or about the Building any ordinary "For Sale" signs and Landlord may at
any time during the last one hundred eighty (180) days of the Term hereof place
on or about the Premises any ordinary "For Lease" signs, all without rebate of
rent or liability to Tenant.
50. MODIFICATION FOR LENDER.
[INTENTIONALLY DELETED]
51. ACCORD AND SATISFACTION.
No payment by Tenant or receipt by Landlord of a lesser amount than the
rent payment herein stipulated shall be deemed to be other than on account of
the rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or pursue any other remedy provided in
this Lease. Tenant agrees that each of the foregoing covenants and agreements
shall
<PAGE> 40
be applicable to any covenant or agreement either expressly contained in this
Lease or imposed by an statute or at common law.
52. FINANCIAL STATEMENTS.
At any time during the term of this Lease, but not more than one (1)
time per annum, Tenant shall, upon ten (10) days prior written notice from
Landlord, provide Landlord with a current financial statement and financial
statements of the two (2) years prior to the current financial statement year as
reasonably available, in a form customarily prepared by Tenant. Such statement
shall be prepared in accordance with generally accepted accounting principles
and, if such is the normal practice of Tenant, shall be audited by an
independent certified public accountant. Landlord shall not retain copies of
financial statements.
53. TENANT AS CORPORATION.
If Tenant executes this Lease as a corporation, then Tenant and the
persons executing this Lease on behalf of Tenant represent and warrant that the
individuals executing this Lease on Tenant's behalf are duly authorized to
execute and deliver this Lease on its behalf in accordance with a duly adopted
resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, and in accordance with the By-Laws of
Tenant and that this Lease is binding upon Tenant in accordance with its terms.
54. NO PARTNERSHIP OR JOINT VENTURE.
Nothing in this Lease shall be deemed to constitute Landlord and Tenant
as partners or joint venturers. It is the express intent of the parties hereto
that their relationship with regard to this Lease be and remain that of Landlord
and Tenant.
55. AMERICANS WITH DISABILITIES ACT.
Landlord shall be responsible for compliance with the American with
Disabilities Act ("ADA") in all Common Areas of the Building. Landlord shall be
responsible for making the Premises comply with ADA during the initial buildout
of the Premises. Commencing on the Commencement Date, it shall be the Tenant's
responsibility for compliance with ADA within the boundaries of the Premises.
56. HAZARDOUS MATERIALS.
(a) Tenant's Obligations.
(i) Restrictions on Hazardous Materials. Tenant, its
agents, servants, employees, officers, directors, invitees, guests, clients,
contractors and their respective representatives (hereafter collectively
referred to as "Agents" shall not cause or knowingly permit "Hazardous Material"
(as defined below) to be brought upon, used, handled, disposed of transported,
kept, manufactured, generated or stored (hereafter collectively "Handled" or
"Handling") in, on, or about the Property without Landlord's prior written
consent. As used in this Section, "Property" refers to the Building and the
Multi-Story Parking Facility and the Site.
As used in this lease, "Hazardous Material" includes,
without limitation, (1) petroleum or petroleum products; (2) hydrocarbon
substances of any kind; (3) asbestos in any form; (4) fomaldehyde; (5)
radioactive substances; (6) industrial solvents; (7) flammables; (8) explosives;
(9) leakage from underground storage tanks; (10) substances defined as
"hazardous substances", "hazardous material", or "toxic substances" in (A) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 or as
otherwise amended, 42 U.S.C. Section 9601, et seq., (B)
<PAGE> 41
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq. and
any amendments thereto, or (C) the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq. and any amendments thereto; (11) those substances
defined as "hazardous wastes", "extremely hazardous wastes" or "restricted
hazardous wastes" in Sections 25115, 25117, and 25122.7 or listed pursuant to
Section 25140 of the California Health & Safety Code and any amendments thereto;
(12) those substances defined as "hazardous substances" in Section 25316 of the
California Health & Safety Code and any amendments thereto; (13) those
substances defined as "hazardous material", "hazardous wastes" or "hazardous
substances" in Section 25501 and Section 25501.1 of the California Health &
Safety Code and any amendments thereto; (14) those substances defined as
"hazardous substances" under Section 25281 of the California Health & Safety
Code and any amendments thereto; (15) those substances causing "pollution" or
"contamination" or constituting "hazardous substances" within the meaning of (A)
the Clean Water Act, 33 U.S.C. Section 1251 et seq. and any amendments thereto,
(B) the Porter-Cologne Water Quality Control Act, Section 13050 of the
California Water Code and any amendments thereto, and (C) the Safe Drinking
Water Act, 42 U.S.C. Section 300f et seq.; (16) such chemicals as are identified
on the list published from time to time as provided in Chapter 6.6 of the
California Health and Safety Code, as amended, as causing cancer or reproductive
toxicity; (17) polychlorinated biphenyls (PCBs) set forth in the Federal Toxic
Substance Control Act, as amended, 15 U.S.C. Section 2601 et seq.; (18) "toxic
air contaminant" as defined in California Health and Safety Code Section 39655;
(19) the wastes, substances, materials, contaminants and pollutants identified
pursuant to or set forth in the Regulations adopted or judicial or
administrative orders, decisions or decrees promulgated pursuant to any of the
foregoing laws; and (20) all receptacles and containers for any and all
materials referred to above. The foregoing list of definitions and statutes is
intended to be illustrative and not exhaustive and such list shall be deemed to
include all definitions, rules, regulations and laws applicable to the subject
matter of this paragraph as such rules, laws, regulations and definitions may be
amended, modified, or changed from time to time. Notwithstanding the foregoing,
"Hazardous Materials" shall not include reasonable and customary amounts of
cleaning and maintenance materials normally used in the operation and
maintenance of an office building provided they are stored and used in
accordance with applicable laws, provided however, that Tenant shall be
responsible for the cleanup and remediation of such materials.
(ii) Applicable Regulations. If any Hazardous Material is
Handled in, on, about or under the Property by Tenant and/or its Agents, Tenant
shall bear all financial and other responsibility for ensuring that the Handling
of such Hazardous Material complies with all Regulations respecting the Handling
of such Hazardous Material and with the highest standards prevailing in the
industry for Handling of such Hazardous Material. Without limiting Tenant's
other obligations as set forth in this Lease, Tenant shall, at its own cost and
expense, procure, maintain in effect and comply with all conditions and
requirements of any and all permits, licenses and other governmental and
regulatory approvals or authorizations required under any and all applicable
Regulations relating to the Handling of such Hazardous Material. Tenant will
provide Landlord copies of all permits, licenses, or other regulatory approvals
or authorizations within five days of receipt thereof. As used in this Section,
"Regulation" includes all laws, statutes, regulations and requirements adopted
by duly constituted public authorities now in force or hereafter adopted
together with all orders, judgments, decrees and rules promulgated by any local,
regional, state or federal governmental agency, court, judicial or
quasi-judicial body or legislative or quasi-legislative body which relates to
matters of the environment, health, industrial hygiene or safety.
(iii) Restoration. If, as a result of actions caused or
permitted by Tenant and/or its Agents, the presence of Hazardous Material in,
on, about or under the Property or any adjoining property results in any
contamination of the Property or the surrounding environment. Tenant shall
promptly take, at its sole cost and expense, all actions required to restore the
Property and/or the other affected properties to their precontamination
condition ("Restoration"). Notwithstanding the foregoing, Tenant shall undertake
no Restoration respecting the Property without first obtaining Landlord's
written approval. Tenant shall carry out any approved Restoration in compliance
with all Regulations. Tenant shall not undertake any Restoration, nor enter into
any settlement agreement, consent decree or other compromise with respect to any
claims, relating to any Hazardous
<PAGE> 42
Material in any way connected with the Property without first notifying
Landlord of Tenant's intention to do so and affording Landlord ample opportunity
to appear, intervene or otherwise appropriately assert and protect Landlord's
interests.
(iv) Removal. Upon the termination of this Lease for any
reason, Tenant shall remove from the Property all Hazardous Material Handled by
Tenant and/or its Agents and shall cause such Hazardous Material to be stored,
treated, transported and/or disposed of in compliance with all applicable
Regulations. Any Hazardous Material which Tenant removes from the Property shall
be removed solely by duly licensed haulers and transported to and disposed of at
duly licensed facilities for the final disposal of such Hazardous Material.
Tenant shall deliver to Landlord copies of all manifests and other documentation
relating to the Handling of any Hazardous Material reflecting its legal and
proper removal, storage, treatment, transportation and/or disposal. Tenant
shall, at its sole cost and expense, repair any and all damage to the Property
resulting from Tenant and/or its Agents' removal of Hazardous Material. Tenant's
obligation to pay rent shall continue until Tenant completes such removal and
effects such repairs.
(v) Tenant's Written Confirmation. Tenant shall, from time
to time throughout the term of this Lease, execute such certificates or other
documents as Landlord may request concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Material in, on, about or under the
Property.
(vi) Tenant's Duty to Notify Landlord. Tenant shall notify
Landlord in writing immediately on becoming aware of: (1) any action threatened,
instituted or completed by any governmental or regulatory agency or private
person with respect to the Property or any adjoining property relating to
Hazardous Material; (2) any claim threatened or made by any person or entity
against Tenant, Landlord, the Property or any adjoining landowner or property
for personal injury, compensation or any other matter relating to Hazardous
Material; and (3) any reports made by or to any governmental or regulatory
agency with respect to the Property or any adjoining property relating to
Hazardous Material, including without limitation, any complaints, notices or
asserted violations. Tenant shall supply to Landlord within five Days after
Tenant first receives or sends the same, copies of all claims, reports,
complaints, notices, warnings, asserted violations or other documents relating
in any way to the Property.
(b) Landlord's Rights. Landlord and its Agents and
representatives shall have the right to communicate, verbally or in writing,
with any governmental or regulatory agency or any environmental consultant on
any matter with respect to the Property relating to Hazardous Material. Landlord
shall be entitled to copies of any and all notices, inspection reports or other
documents issued by or to any such governmental or regulator agency or
consultant with respect to the Property relating to Hazardous Material.
(c) Tenant's Duty to Indemnify. If the Handling by Tenant and/or
its Agents of Hazardous Material on or about the Property results in
contamination of the Property and/or the surrounding environment, or if any
lender or governmental agency requires an investigation to determine whether
there has been any contamination of the Property or any adjoining property as a
result of Tenant and/or its Agents Handling of Hazardous Material, then Tenant
shall indemnify, defend and hold Landlord all partners or other affiliates of
Landlord, and all directors, officers, shareholders, employees, Agents,
contractors, attorneys and/or partners of any of the foregoing harmless from any
and all claims, damages, penalties, fines, costs, liabilities and losses
(including, without limitation, diminution in value of the Property, damages for
the loss or restriction on use of rental or usable space or of any other amenity
of the Property, damages arising from any adverse impact on marketing of space
in the Property, other consequential damages and sums paid in settlement of
claims, attorneys' fees, consultants' fees and experts' fees) which arise during
or after the lease term as a result of such contamination. Tenant's
indemnification of Landlord includes, without limitation, costs incurred in
connection with removal or Restoration required by any governmental or
regulatory agency and/or private persons because of the presence of Hazardous
Material in the soil or ground water in, on, about or under the Property or any
<PAGE> 43
adjoining property as a result of the acts of Tenant and/or its Agents and any
and all reasonable legal fees and expenses incurred by Landlord with respect to
such claims, demands, investigations and responses.
(d) Right of Entry. If contamination of the Property by Hazardous
Material occurs or if any lender or governmental agency requires an
investigation to determine whether there has been any contamination of the
Property or any adjoining property, Landlord and its Agents shall have the
right, at any reasonable time following notice to Tenant and from time to time
to enter upon the Premises to perform monitoring, testing or other analyses, and
to review all applicable documents, notices, correspondence or other materials.
If contamination resulted from the conduct of Tenant and/or its Agents, Tenant
shall pay all costs and expenses reasonably incurred by Landlord in connection
with such investigation, monitoring, and testing. Such sums shall be due and
payable by Tenant when Landlord delivers its invoice to Tenant for such charges.
(e) Allocation of Responsibilities. ALL LIABILITIES ARISING FROM
THE HANDLING OF HAZARDOUS MATERIAL IN, ON, UNDER, AND/OR ABOUT THE PROPERTY OR
ANY ADJOINING PROPERTY BY TENANT AND/OR ITS AGENTS, SHALL REMAIN TENANT'S SOLE
RESPONSIBILITY. NOTWITHSTANDING ANYTHING IN THIS LEASE, NO ACT BY LANDLORD OR
ITS AGENTS SHALL BE CONSTRUED TO TRANSFER TO LANDLORD ANY OBLIGATIONS, DUTIES,
LIABILITIES OR RESPONSIBILITIES PERTAINING TO TENANT'S COMPLIANCE WITH ANY
REGULATION RELATING TO THE HANDLING OF HAZARDOUS MATERIALS. NOTWITHSTANDING THE
EXPIRATION OR TERMINATION OF THIS LEASE AND NOTWITHSTANDING ANY OTHER PROVISION
OF THIS LEASE, TENANT SHALL RETAIN ALL LIABILITY AND RESPONSIBILITY FOR
COMPLIANCE WITH REGULATIONS CONCERNING TENANT AND ITS AGENT'S HANDLING OF
HAZARDOUS MATERIAL. TENANT SHALL INDEMNIFY, DEFEND AND HOLD LANDLORD AND ITS
AGENTS, REPRESENTATIVES, PARTNERS, EMPLOYEES, SUCCESSORS AND ASSIGNS HARMLESS
FROM ALL SUCH COSTS AND EXPENSES AS MAY BE ASSOCIATED WITH SUCH COMPLIANCE.
(f) Inspections. Tenant warrants that Tenant will cooperate as
reasonably necessary and not interfere with completion of any and all
governmental inspections of the Property as required by applicable Regulation.
Tenant shall provide to Landlord a copy of the reports for each such inspection
within 15 Days of Tenant's receipt of such reports.
(g) Survival. Tenant's and Landlord's covenants, agreements and
indemnities set forth in this Section shall survive the expiration or
termination of this Lease and shall not be affected by any investigation, or
information obtained as a result of any investigation, by or on behalf of
Landlord or any prospective Tenant.
(h) Landlord's Obligations.
(i) Restrictions on Hazardous Material. Landlord shall not
cause or permit Hazardous Material to be Handled on, about or under the Property
except in compliance with all Regulations respecting such Hazardous Material.
(ii) Compliance With Regulations. If any Hazardous
Material is Handled on or about the Property by Landlord, Landlord shall bear
all financial and other responsibility for ensuring that the Handling of such
material complies with all Regulations respecting such Hazardous Material and
with the highest standards prevailing in the industry for the Handling of such
Hazardous Material.
(iii) Restoration. If, as a result of Landlord's Handling
Hazardous Material upon the Property or any adjoining property, prior to or
during the Term, any contamination of the Property occurs,
<PAGE> 44
Landlord shall promptly take all actions as are necessary to return the Property
and/or the surrounding environment to their pre-contamination condition.
(iv) Duty to Notify Tenant. Landlord shall notify Tenant
in writing within ten days of becoming aware of: (1) any enforcement, cleanup,
remediation or other action threatened, instituted or completed by any
governmental or regulatory agency or private person with respect to the Property
relating to Hazardous Material; (2) any claim threatened or made against
Landlord with respect to the Property, Tenant or the Property for personal
injury, compensation or any other matter relating to Hazardous Material; and (3)
any reports made by or to any governmental or regulatory agency respecting the
Property, any complaints, notices or asserted violations in connection
therewith. Landlord shall also supply to Tenant copies of all claims, reports,
complaints, notices, warnings, asserted violations or other documents relating
to the foregoing.
(v) Landlord's Indemnity of Tenant. If, as a result of
Landlord's or its Agent's acts, the presence of Hazardous Material on the
Property results in contamination of the Property, or if any contamination of
the Property exists as of the date of the commencement of this lease, then
Landlord shall indemnify, defend and hold Tenant, its Agents and representatives
harmless from and against any and all claims, damages, penalties, fines, costs,
liabilities and losses, damages for the loss of or restriction on the use of
space or of any other amenity of the Property and sums paid in settlement of
claims, attorneys' fees, consultants' fees and experts' fees) paid by Tenant as
a result of such contamination.
(vi) Landlord represents and warrants that as of the date
hereof, (which warranty and representation shall be deemed to be remade as of
the Commencement Date) to the best of Landlord's knowledge, no known Hazardous
Materials exist on, under or about the Property.
57. ARBITRATION OF DISPUTES.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS LEASE, THE PROVISIONS OF
THIS SECTION APPLY TO ALL DISPUTES ARISING OUT OF THE LEASE SAVE AND EXCEPT
UNLAWFUL DETAINER PROCEEDINGS; NOTHING IN THIS AGREEMENT SHALL BE INTERPRETED TO
REQUIRE LANDLORD TO SUBMIT UNLAWFUL DETAINER PROCEEDINGS TO ARBITRATION. IF A
CONTROVERSY, CLAIM OR DISPUTE OTHER THAN UNLAWFUL DETAINER PROCEEDINGS AND
ISSUES RAISED IN CONNECTION THEREWITH (COLLECTIVELY "DISPUTE") BETWEEN THE
PARTIES ARISES OUT OF THIS LEASE, THE DISPUTE SHALL BE SUBMITTED TO BINDING
ARBITRATION TO BE CONDUCTED UNDER THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION; JUDGMENT ON THE ARBITRATOR'S AWARD MAY BE
ENTERED IN ANY COURT OF COMPETENT JURISDICTION. CALIFORNIA CODE OF CIVIL
PROCEDURE SECTION 1283.05 SHALL APPLY TO SUCH ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISIONS DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO
THIS ARBITRATION PROVISION IS VOLUNTARY.
<PAGE> 45
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
MJ GD
------- -------
Initial Initial
58. NOTICES.
All notices or demands of any kind required or desired to be given
hereunder shall be in writing and mailed postage prepaid by certified or
registered mail, return receipt requested, by personal delivery, or by overnight
delivery via a nationally recognized courier, to the appropriate address
indicated in Paragraph 2 of the Basic Lease Terms or at such other place or
places as either Landlord or Tenant may, from time to time, designate in a
written notice given to the other. Notice shall be deemed to be delivered four
(4) days after the date of mailing thereof, or upon earlier receipt, if sent by
certified or registered mail, upon delivery or attempted delivery, if sent by
personal delivery, and one (1) business day after delivery to a nationally
recognized courier, if sent by overnight delivery.
TENANT: LANDLORD:
SEEKER SOFTWARE, INC. WEBSTER STREET PARTNERS, LTD.
a Delaware corporation a California limited partnership
By: /s/ Gar Durbin By: CHASKOW FOUR ASSOCIATES, LTD.
------------------------------- a California limited partnership
its general partner
Its: President and CEO
Print Name: Gary Durbin By: CHASKOW FOUR
a California limited partnership
its general partner
By: By: PANKOW HOLDINGS, INC.
-------------------------------- a California limited partnership
its general partner
Its:
-------------------------------
Print Name: By: /s/Mark Perniconi
------------------------ ---------------------------------
Mark J. Perniconi
Vice President
<PAGE> 46
RIDER NO. 1 TO OFFICE LEASE
This Rider No. 1 To Office Lease ("Rider No. 1") is made and entered
into by and between Webster Street Partners, Ltd., a California limited
partnership ("Landlord") and Seeker Software, Inc. a Delaware corporation
("Tenant"), and is dated as of the date set forth on the cover page of the
Office Lease between Landlord and Tenant ("Lease") of which Rider No. 1 is
attached. The promises, covenants, agreements and declarations made and set
forth herein are intended to have the same force and effect as if set forth at
length in the body of the Lease. To the extent that the provisions of this Rider
are inconsistent with the terms and conditions of the Lease, the terms and
conditions hereof shall control.
1. Extension Options. Provided Tenant is not in default hereof, Tenant
shall have one (1) option to renew the Lease for the entire Premises for three
(3) years subject to the following terms and conditions:
A. Notice. Tenant shall give written notice to the Landlord no
less than twelve (12) months in advance of the expiration of the Term, or any
extension thereof, of its intention to exercise this Extension Option. Tenant
shall then have three (3) months to negotiate, on an exclusive basis, the terms
of the extension. Landlord and Tenant shall negotiate in good faith the terms of
the Extension Option. If the parties are unable to agree on the terms of the
extension during said three (3) month period, the initial term shall terminate
as provided for in this Lease and the parties shall have no further obligations
to one another.
B . Monthly Basic Rent. The Monthly Basic Rent for the Extension
Option term shall be the then prevailing market rates for comparable space in
the Building (but, if no comparable space exists in the Building, in similar
buildings located in downtown Oakland).
2. Expansion Option. Provided Tenant is not in default hereof, Tenant
shall have the continuing Right of First Offer to lease any available direct
space on the 14th, 15th or 16th floors of the Building, subordinated only to
other tenants with a priority right as of the date of this Lease. Tenant shall
have ten (10) working days after receipt of Landlord's written notice of
availability to exercise its Right of First Offer. This Right of First Offer
shall extend throughout the Lease Term and any extensions thereof. Terms of the
expansion premises shall be the then prevailing market conditions at the time
the space is leased. Landlord shall not be obligated to fund the cost of tenant
improvements for any expansion premises with a term of less than two (2) years.
In addition, Tenant shall have the continuing Right of First Refusal to lease
Suite 1640 as further defined on Exhibit "A" attached herewith when the space
becomes available for direct lease. Tenant shall have five (5) business days to
accept the terms of a bonafide third party offer for Suite 1640 after receiving
written notice from Landlord.
3. Special Sublease and Assignment Rights. Provided Tenant is not in
default hereof, and notwithstanding anything to the contrary contained in
section 24 of the Lease, Tenant shall have the right to assign in its entirety
or sublease all or any portion of the Premises without consent of the Landlord
to (a) any entity resulting from a merger or consolidation with Tenant or to an
entity that acquires all of the assets or stock of Tenant, or (b) any subsidiary
or affiliate of Tenant or to any entity which controls, is controlled by, or is
under common control with Tenant, and (c) any subcontractor performing duties
related to a contract with Tenant subject to the following terms and conditions:
A. In the case of an assignment, the assignee shall demonstrate
to Landlord financial strength of at least equal to that of Tenant at the time
of the assignment.
B . In the case of a sublease, the use of the sublessee shall be
reasonably the same as Tenant and falls under the classification of General
Office Use and will be subject to section 24(m) of the Lease.
46
<PAGE> 47
C . All other assignments and subleasing shall be subject to
section 24 of the Lease.
4. Parking.
A. To the extent Landlord is operating a valet service from the
2101 Webster Basement Garage to the Multi-Story Parking Structure, Tenant may
lease up to two (2) of the spaces allocated to the Multi-Story Parking Structure
in paragraph 25 of the Basic Lease Terms for the valet spaces from the 2101
Webster Basement Garage to the Multi-Story Parking Structure at prevailing
market rates.
B. Notwithstanding anything to the contrary in Section 39(c) of
the Lease, on an annual basis, Landlord will offer to Tenant any available
parking in the Multi-Story Parking Facility at prevailing market rates.
C. Secured bicycle parking is available at no charge to Tenant on
the first deck of the Multi-Story Parking Facility.
5. Courtesy Shuttle. Landlord will operate a Courtesy Shuttle between
the Multi-Story Parking Facility and the Building between the hours of 7:00am.
to 9:00am on normal workdays. In addition, Landlord will operate the Courtesy
Shuttle between the Building, the 19th Street BART Station and the Multi-Story
Parking Facility between 4:00pm and 8:00pm on normal workdays.
6. Landlord Warranties. Landlord warrants that the Building, Site and
Multi-Story Parking Facility comply with governmental laws and regulations that
are applicable to the Building, Site and Multi-Story Parking Facility, and
except for Tenant's obligations described in Section 55 of the Lease, Landlord
shall be responsible for the costs of compliance with such laws and regulations.
7. Exclusions from Operating Expenses. Notwithstanding anything
contained in the Lease, no expenses incurred for the following shall be included
in Operating Expenses: (i) accountants' or attorneys' fees, costs and
disbursements and other expenses incurred in connection with negotiations or
disputes with tenants or other occupants or prospective tenants or other
occupants, or associated with the enforcement of any leases or the defense of
Landlord's title to or interest in the Property or any part thereof; (ii) costs
incurred due to violation by Landlord or any tenant of the terms and conditions
of any lease; (iii) overhead and profit increment paid to subsidiaries or
affiliates of Landlord, or to any party as a result of a non-competitive
selection process, for management or other services on or to the Property or for
supplies or other materials, to the extent that the costs of such services,
supplies or materials exceed the costs that would have been paid had the
services, supplies or materials been provided by unaffiliated parties on a
competitive basis; (iv) Landlord's general corporate overhead and general
administrative expenses; (v) all items and services for which Tenant or any
other tenant separately reimburses Landlord or pays third persons; (vi)
advertising and promotional expenditures; and (vii) any other expense that under
generally accepted accounting principles and practices would not be considered a
maintenance or operating expense.
8. Exclusions from Real Property Taxes. Notwithstanding anything
contained in the Lease, Real Property Taxes shall not include (i) any taxes
payable by other tenants of the Property under similar provisions of their
respective leases, and (ii) any penalties, fines, interest or charges
attributable to the late payment of any taxes by Landlord.
9. Existing Improvements. Reference is made to the improvements existing
in the Premises as of the Commencement Date plus the improvements to be
installed by Landlord pursuant to paragraph 12 of the Basic Lease Terms and
Exhibit "C" to the Lease (collectively hereinafter referred to as the "Existing
47
<PAGE> 48
Improvements"). Notwithstanding anything to the contrary in this Lease, Tenant
shall have no obligation to remove any portion of the Existing Improvements upon
the termination of this Lease.
10. Right of Occupancy. Tenant shall have the right to occupy and use
the entire Suite 1600 Premises for the Term of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Rider No. 1
as of the date first above written.
TENANT: LANDLORD:
SEEKER SOFTWARE, INC. WEBSTER STREET PARTNERS, LTD.
a Delaware corporation a California limited partnership
By: ________________________________ By: CHASKOW FOUR ASSOCIATES, LTD.
a California limited partnership
Its: _______________________________ its general partner
Print Name: ________________________ By: CHASKOW FOUR,
a California limited partnership
its general partner
By: ________________________________ By: PANKOW HOLDINGS, INC.
a California corporation
Its: _______________________________ its general partner
Print Name: ________________________ By: ________________________________
Mark J. Perniconi
Vice President
48
<PAGE> 49
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
(ATTACHED)
<PAGE> 50
EXHIBIT B
SITE PLAN
(To Be Provided - Including 2101 Webster and Multi-Story Parking Facility)
<PAGE> 51
EXHIBIT "B-1"
LEGAL DESCRIPTION AND SITE PLAN
OF OFFICE BUILDING AND BASEMENT GARAGE
CITY OF OAKLAND, COUNTY OF ALAMEDA, STATE OF CALIFORNIA
PARCEL ONE:
Beginning at the point or intersection of the southern line of 21st, formerly
Walnut or 22nd, Street, with the western line of Webster Street; running thence
southerly along said line of Webster Street 145 feet; thence at right angles
westerly 100 feet; thence at right angles northerly 145 feet to said line of
21st Street, and thence easterly along said line of 21st Street is 100 feet to
the point of beginning.
Being a portion of Lots 1 and 4, Block 3, Map of the Pacific Homestead situated
in Oakland, Alameda Co., recorded July 23, 1886, in Book "W" of Deeds, Page 2,
in the office of the County Recorder of Alameda County.
PARCEL TWO:
Beginning at a point on the western line of Webster Street distant thereon 145
feet southerly from the point of intersection thereof, with the southern line of
21st Street, formerly 22nd or Walnut Street, running thence at right angles
westerly, 100 feet; thence at right angles southerly, 137 feet, more or less, to
the northern line of Hobart Street, as now opened; thence easterly along said
northern line of Hobart Street, as now opened, 100 feet, more or less, to the
western line of Webster Street, and thence northerly along said last named line,
125 feet to the point of beginning.
Being portions of Lots 4, 5 and 8, Block 3, Map of the Pacific Homestead,
situated in Oakland, Alameda Co., surveyed by W.F. Boardman, Esq., recorded July
23), 1866, in Book "W" of Deeds, Page 2, in the office of the County Recorder of
Alameda County.
<PAGE> 52
PARCEL THREE:
COMMENCING AT A POINT ON THE WESTERLY LINE OF WEBSTER STREET, DISTANT THEREON,
ONE HUNDRED AND SEVENTY-FOUR (174) FEET NORTHERLY FROM THE POINT OF INTERSECTION
OF SAID LINE OF WEBSTER STREET WITH THE NORTHERLY LINE OF LOCUST STREET, OR 23RD
STREET; RUNNING THENCE NORTHERLY ALONG SAID LINE OF WEBSTER STREET, TWO HUNDRED
AND SIXTY-ONE (261) FEET, MORE OR LESS TO THE SOUTHERLY LINE OF TWENTY-FOURTH
STREET (FORMERLY ELM STREET) THENCE WESTERLY ALONG SAID LINE OF TWENTY-FOURTH
STREET (FORMERLY ELM STREET), ONE HUNDRED AND THREE (103) FEET OR THEREABOUTS TO
THE EASTERLY LINE OF BROADWAY STREET, THENCE SOUTHERLY ALONG SAID EASTERLY LINE
OF SAID BROADWAY STREET, TWO HUNDRED AND SIXTY-NINE AND FORTY-ONE ONE HUNDREDTHS
(269.41) FEET MORE OR LESS TO A POINT ON SAID EASTERLY LINE OF BROADWAY STREET
FROM WHICH A LINE DRAWN EASTERLY AND PARALLEL WITH SAID LOCUST OR 23RD STREET
WILL STRIKE THE POINT OF COMMENCEMENT; THENCE EASTERLY AND PARALLEL WITH SAID
LOCUST STREET OR 23RD STREET, ONE HUNDRED AND SIXTY-NINE (169) FEET AND SIX (6)
INCHES MORE OR LESS, TO THE WESTERLY LINE OF WEBSTER STREET AND THE POINT OF
COMMENCEMENT.
BEING A PORTION OF BLOCK NO. THIRTEEN (13) AS SAID BLOCK IS LAID DOWN AND
DELINEATED UPON A CERTAIN MAP ENTITLED "MAP OF THE PACIFIC HOMESTEAD, SITUATED
IN OAKLAND, ALAMEDA CO." RECORDED JULY 23RD, 866 IN LIBER -W" OF DEEDS AT PAGES
2 AND 3 THEREOF IN 2'6 THE OFFICE OF THE COUNTY RECORDER OF SAID ALA-MEDA
COUNTY.
<PAGE> 53
EXHIBIT "B-2"
LEGAL DESCRIPTION AND SITE PLAN
OF MULTI-STORY PARKING FACILITY
CITY OF OAKLAND, COUNTY OF ALAMEDA, STATE OF CALIFORNIA
PARCEL ONE:
BEGINNING AT A POINT ON THE EASTERN LINE OF BROADWAY, WHERE THE SAME IS
INTERSECTED BY THE DIVIDING LINE BETWEEN LOTS 6 AND 7 IN BLOCK 13, AS SAID LOTS
AND BLOCK ARE SHOWN ON THE MAP HEREINAFTER REFERRED TO; WHICH SAID POINT IS
DISTANT ON SAID LINE OF BROADWAY 179.60 FEET, MORE OR LESS, NORTHERLY FROM THE
NORTHERN LINE OF 23RD, FORMERLY LOCUST, STREET; RUNNING THENCE EASTERLY ALONG
THE NORTHERN BOUNDARY LINE OF LOTS 7 AND 8 IN SAID BLOCK 13, AS SAID LOTS AND
BLOCK ARE SHOWN ON THE MAP HEREINAFTER REFERRED TO PARALLEL WITH SAID LINE OF
23RD STREET 59 FEET; THENCE AT RIGHT ANGLES SOUTHERLY 43 FEET; 6 INCHES; THENCE
AT RIGHT ANGLES WESTERLY 15 FEET; THENCE AT RIGHT ANGLES SOUTHERLY 43 FEET, 6
INCHES; THENCE WESTERLY ALONG THE SOUTHERN BOUNDARY LINE OF LOTS 7 AND 8 IN
BLOCK 13, PARALLEL WITH SAID LINE OF 23RD STREET 66 FEET, MORE OR LESS, TO THE
EASTERN LINE OF BROADWAY; AND THENCE NORTHERLY ALONG SAID LAST NAMED LINE 89.80
FEET TO THE POINT OF BEGINNING.
BEING THAT PORTION OF LOT 7 LYING EASTERLY OF THE EASTERN LINE OF BROADWAY, AND
A PORTION OF LOT 8 IN BLOCK 13, AS SAID LOTS AND BLOCK ARE SHOWN ON THE "MAP OF
THE PACIFIC HOMESTEAD, SITUATED IN OAKLAND, ALAMEDA COUNTY, SURVEYED BY W.F.
BROADMAN, ESQ." RECORDED JULY 23, 1866, IN BOOK W" OF DEEDS AT PAGE 2 AND 3, IN
THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
PARCEL TWO:
BEGINNING AT A POINT ON THE WESTERN LINE OF WEBSTER STREET, DISTANT THEREON 130
FEET, 6 INCHES, NORTHERLY FROM THE POINT OF INTERSECTION THEREOF, WITH THE
NORTHERN LINE OF 23RD STREET, FORMERLY CALLED LOCUST STREET, AS SAID STREETS ARE
SHOWN ON THE MAP HEREINAFTER REFERRED TO; RUNNING THENCE NORTHERLY ALONG SAID
LINE OF WEBSTER STREET 43 FEET, 6 INCHES; THENCE AT RIGHT ANGLES WESTERLY 110
FEET; THENCE AT RIGHT ANGLES SOUTHERLY 43 FEET, 6 INCHES; AND THENCE AT RIGHT
ANGLES EASTERLY 110 FEET TO THE POINT OF BEGINNING. BEING A PORTION OF LOT 8 IN
BLOCK 13, AS SAID LOT AND BLOCK ARE SHOWN ON THE "MAP OF THE PACIFIC HOMESTEAD
SITUATED IN OAKLAND, ALAMEDA CO.," FILED JULY 23, 1866, IN BOOK "W" OF DEEDS AT
PAGES 2 AND 3, IN THE OFFICE OF THE COUNTY RECORDER OF ALAMEDA COUNTY.
<PAGE> 54
EXHIBIT C
WORK LETTER AGREEMENT
This Work Letter Agreement supplements the Office Lease (the "Lease")
dated ) August 7, 1997 executed concurrently herewith by and between Landlord
and Tenant, covering certain premises described in the Lease (the "Premises").
All terms not defined herein shall have the same meaning as set forth in the
Lease.
1. Construction of Building.
1.1 Landlord has constructed through its contractor, the Multi
Story Parking Facility and Building. In addition, the SUITE 1600 Premises has
been improved for occupancy to the specifications of previous tenants. Tenant
agrees to accept the existing conditions of the Suite 1600 Premises and the
Tenant Improvement Allowance as further defined in Paragraph 12 of the Basic
Lease Terms (the "Allowance") shall be made available to the Tenant for the
purpose of demolishing existing improvements and constructing new improvements
at the direction of Tenant. Thereafter, Landlord shall furnish and install
within the Premises those items of general construction (the "Aggregate
Improvement") shown on the plans and specifications finally approved by Landlord
and Tenant, pursuant to Paragraph 2 below ("Final Plans") in compliance with all
applicable codes and regulations. All Building shell work and Tenant Building
Work (as defined below) shall be performed only by Landlord's contractor.
2. Construction Plans for Premises.
All plans and drawings required by this Paragraph shall be
prepared in accordance with the schedule in Paragraph 7 below.
2.1 Tenant shall furnish to Landlord for Landlord's approval
preliminary space plans sufficient to convey the architectural design of the
Premises, including preliminary partition layout and reflective ceiling plans
("Tenant's Design Development Drawings"). If Landlord shall disapprove of any
portion of Tenant's Design Development Drawings, Landlord shall advise Tenant of
such revisions, and reasons therefor, as are reasonably required by Landlord for
the purpose of obtaining approval. Tenant shall then submit to Landlord for
Landlord's approval, a redesign of Tenant's Design Development Drawings,
incorporating the revisions requested by Landlord and such modifications thereof
as are suggested by Tenant, said modifications to be subsequently approved by
Landlord prior to Tenant's submission of Final Plans.
2.2 Requirements of Tenant's Final Plans.
Tenant's Final Plans shall:
(i) Be compatible with the Building shell and with the
design, construction and equipment of the Building;
(ii) Comply with all applicable laws and ordinances, and
the rules and regulations of all governmental authorities having jurisdiction;
(iii) Comply with all applicable insurance regulations for
a fire resistive Class A Building; and
(iv) Include locations and complete dimensions.
<PAGE> 55
2.4 Changes at Tenant's Expense.
If the Final Plans or any amendment thereof or supplement
thereto shall require changes in the Building shell, the increased cost of the
Building shell work caused by such changes shall be charged against Tenant to
the extent such increases exceed the Allowance. The cost thereof shall include
all direct architectural and/or engineering fees and expenses in connection
therewith, as well as including compensation by Tenant for the costs of any
delays which arise from such changes, such costs including but not limited to
lost rent.
3. Allowance for Work.
3.1 Tenant shall receive from Landlord the Allowance set forth in
Paragraph 12 of the Basic Lease Terms, which Allowance shall be used solely for
the design and installation of the Tenant Building Work. All items of Tenant
Building Work, whether or not the cost thereof is covered by the Allowance,
shall become the property of Landlord upon expiration or earlier termination of
the Lease and shall remain on the Premises at all times during the Term of this
Lease. Tenant shall be entitled to no payment or rent reduction for any part of
the Allowance not used by Tenant.
3.2 Prior to the commencement of any Tenant Building Work,
Landlord shall submit to Tenant a written estimate of Work Cost (as hereinafter
defined) of all Tenant Building Work which written estimate shall be based on
the Final Plans. Thereupon Tenant shall either approve the estimate or
disapprove specific items and submit to Landlord revisions of Final Plans to
reflect the deletion of and/or substitution for such disapproved items.
Submission and approval of the Work Cost estimate shall proceed in accordance
with the schedule provided in Paragraph 7 below. Upon Tenant's approval of said
estimate, such approved estimate to be hereinafter known as the "Work Cost
Statement", Landlord shall have the right to purchase special installations
requiring extended material delivery lead items as set forth on the Final Plans
and to commence the construction of the items included in said Work Cost
Statement pursuant to Paragraph 4.1 hereof.
3.3 Until Tenant approves the estimate, Landlord shall be under
no obligation to perform the installation of the items of Tenant Building Work
and Tenant shall have no obligation to lease the Premises until the Tenant
Building Work has been completed.
4. Construction.
4.1 Following Tenant's approval of the estimate described in
Paragraph 3.2 Landlord shall commence and diligently proceed with the
construction of all of the Tenant Building Work, subject to delays beyond the
reasonable control of Landlord or its contractor or contractors. Promptly upon
the commencement of the Tenant Building Work, Landlord shall furnish Tenant with
a schedule setting forth the projected completion dates therefor and showing the
deadlines for any actions required to be taken by Tenant during such
construction, and Landlord may from time to time during the prosecution of the
Tenant Building Work modify or amend such schedule due to delays encountered by
Landlord. Landlord shall make a reasonable effort to meet such schedule (as the
same may be modified or amended).
4.2 As preparation of the Final Plans and construction of the
Tenant Building Work progress, Landlord shall be solely responsible for the
payment of the Work Cost up to the amount of the Allowance.
4.3 After Landlord has paid for the Work Cost up the amount of
the Allowance, Tenant shall bear the cost (in the manner described in
Subparagraph 4.4 below) of the Work Cost in excess of the Allowance, payable
directly to Landlord upon receipt of invoices from Landlord's contractor
certified by Tenant's architect.
2
<PAGE> 56
4.4 Landlord shall not be obligated to make any payment on behalf
of Tenant. Tenant shall pay Landlord for amounts due under this Exhibit "C"
within ten (10) days of billing. Should Tenant reasonably dispute the amount of
any billing, Tenant shall make payment on all portions which are not disputed.
Any unpaid portions, whether undisputed or disputed on which Landlord ultimately
prevails, shall bear interest from the due date at the annual rate of four
percent (4%) above the prime interest rate then being charged by Bank of
America, N.T. & S.A., Los Angeles Main Office, but not to exceed the maximum
legal rate permitted to be charged on the date such interest shall commence to
accrue.
5. Work Cost.
"Work Cost" means (i) all design and engineering fees incurred by
Tenant in connection with preparation of the preliminary space plans and Final
Plans, plus (ii) the actual costs and charges for material and labor,
contractor's profit and general overhead incurred by Landlord in having Tenant
Building work done, plus (iii) all the actual out-of-pocket expenditures
incurred by Landlord in obtaining and processing all required governmental
permits.
6. Decorating by Tenant.
Landlord shall, consistent with its obligation to other tenants
then in occupancy in the Building, make an elevator reasonably available to
Tenant in connection with initial decorating, furnishing and moving into the
premises. Tenant shall pay for any after-hours staffing, if so required, of the
elevator.
7. Schedule.
Preparation and approval of Final Plans and the Work Cost
Statement shall proceed as indicated below and each action shall be completed on
or before the date herein specified.
<TABLE>
<CAPTION>
ACTION RESPONSIBILITY DUE DATE
- ------------------------------------------------------------- -------------- --------
<S> <C> <C>
(i) Delivery of instructions and Building background Landlord ________________
drawings to Tenant's architect.
(ii) Submission of Tenant's Design Development Tenant ________________
Drawings to Landlord. ________________
(iii) Delivery of written notice approving or disapproving Landlord ________________
Tenant's Design Development Drawings.
(iv) Submission if necessary, or redesign or Tenant's Tenant ________________
Design Development Drawings.
(v) Delivery of written notice of final approval of Landlord ________________
Tenant's Design Development Drawings.
</TABLE>
3
<PAGE> 57
<TABLE>
<S> <C> <C>
(vi) Submission of Final Plans to Landlord Tenant ________________
(vii) Delivery of written notice approving or disapproving Landlord ________________
Final Plans.
(viii) Submission, if necessary of redesigning of Final Plans. Tenant ________________
(ix) Delivery of written notice of final approval of Final Landlord ________________
Plans.
(x) Submission of Work Cost estimate to Tenant Landlord ________________
(xi) Delivery of written notice of final approval of Work Tenant ________________
Cost Statement.
</TABLE>
8. Delays.
It is agreed that notwithstanding the Estimated Commencement Date
provided in Paragraph 15 of the Basic Lease Terms, Tenant's obligation for the
payment of rental as defined within the Lease shall not commence until Landlord
has substantially completed all work to be performed by Landlord in this Work
Letter Agreement; provided, however, that if Landlord shall be delayed in
substantially completing said work as a result of.
(i) Tenant's failure to complete any action item on or before the
due date which is the responsibility of Tenant, or
(ii) Tenant's changes to Final Plans after the final approval
date in Subparagraph 7 (ix) above, or
(iii) Tenant's request for materials, finishes, or installations
other than Building Standard Work, or
(iv) Any delay of Tenant in making payment to Landlord for
Tenant's share of Work Costs, then the term of Lease shall nevertheless commence
and the Commencement Date shall be the date it would have been had the delay not
occurred, as Landlord reasonably shall determine.
4
<PAGE> 58
EXHIBIT D
SAMPLE FORM OF NOTICE OF LEASE COMMENCEMENT
To: Date: __________________________________________________________________
Re: Lease dated ______________, 19__, between WEBSTER STREET PARTNERS, LTD., A
CALIFORNIA LIMITED PARTNERSHIP ("Landlord"), and _______________, ("Tenant"),
concerning Suite ___________located at 2101 Webster Street, Oakland, California.
Gentlemen:
In accordance with the subject Lease, we wish to advise and/or confirm
as follows:
1. Subject to Paragraph 3 of the Lease, that the Premises have been
accepted herewith by the Tenant as being substantially complete in accordance
with the subject Lease.
2. That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the subject Lease, the term of said
Lease shall commence as of ______________ for a term of ending on
________________.
3. That in accordance with the subject Lease, rental commenced to accrue
on _____________.
4. If the commencement date of the subject Lease is other than the first
day of the month, the first billing will contain a pro rate adjustment. Each
billing thereafter, with the exception of the final billing, shall be for the
full amount of the monthly installment as provided for in said Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the term of said Lease. Your rent checks should be made payable to
________________________________________________________________________________
_____________________________________________________________________________ at
________________________________________________________________________________
TENANT: LANDLORD:
___________________________________ WEBSTER STREET PARTNERS, LTD.
___________________________________ a California limited partnership
By: _______________________________ By: CHASKOW FOUR ASSOCIATES, LTD.
a California limited partnership
Its: ______________________________ its general partner
Print Name: _______________________ By: CHASKOW FOUR,
a California limited partnership
its general partner
<PAGE> 59
By: _______________________________ By: PANKOW HOLDINGS, INC.
a California corporation
Its: ______________________________ its general partner
Print Name: _______________________
By: ____________________________________
Mark J. Perniconi
Vice President
2
<PAGE> 60
EXHIBIT E
SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned, WEBSTER STREET PARTNERS, LTD., A CALIFORNIA LIMITED PARTNERSHIP
("Landlord"), with a mailing address c/o Pankow Development Corp., 2476 North
Lake Avenue, Altadena, California 91001, and, ("Tenant"), hereby certify to
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________ as follows:
1. Attached hereto is a true, correct and complete copy of that certain
lease dated ______________, 19_, between Landlord and Tenant (the "Lease"),
which demised premises located at 2101 Webster, Oakland, California. The Lease
is now in full force and effect and has not been amended, modified or
supplemented, except as set forth in Paragraph 4 below:
2. The term of the Lease commended on _______________, 19__.
3. The term of the Lease shall expire on _______________, 19__.
4. The Lease has (Initial One)
( ) not been amended, modified, supplemented, extended, renewed
or assigned.
( ) been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies of which are attached
hereto:
_________________________________________________________________
_________________________________________________________________
5. Tenant has accepted and is now in possession of said premises.
6. Tenant and Landlord acknowledge that the Lease will be assigned to
and that no modification, adjustment, revision or cancellation of the Lease or
amendments thereto shall be effective unless written consent of _______________
is obtained, and that until further notice, payments under the Lease may
continue as heretofore.
7. The amount of fixed monthly rent is $ _______________.
8. The amount of security deposits (if any) is $ _____________. No other
security deposits have been made.
9. Tenant is paying the full lease rental, which has been paid in full
as of the date hereof. No rent under the Lease has been paid for more than
thirty (30) days in advance of its due date.
10. All work required to be performed by Landlord under the Lease has
been completed.
11. There are no defaults on the part of the Landlord or Tenant under
the Lease.
<PAGE> 61
12. Tenant has no defense as to its obligations under the Lease and
claims no set-off or counterclaim against Landlord.
13. Tenant has no right to any concession (rental or otherwise) or
similar compensation in connection with renting the space it occupies, except as
provided in the Lease.
All provisions of the Lease and the amendments thereto (if any) referred
to above are hereby ratified.
The foregoing certification is made with the knowledge that
_____________ is about to fund a loan to Landlord, and that ________________ is
relying upon the representations herein made in funding such loan.
DATED: __________, 19___
TENANT: LANDLORD:
__________________________________ WEBSTER STREET PARTNERS, LTD.
__________________________________ a California limited partnership
By: ______________________________ By: CHASKOW FOUR ASSOCIATES, LTD.
a California limited partnership
Its: _____________________________ its general partner
Print Name: ______________________ By: CHASKOW FOUR,
a California limited partnership
its general partner
By: ______________________________ By: PANKOW HOLDINGS, INC.
a California corporation
Its: _____________________________ its general partner
Print Name: ______________________ By: _________________________________
Mark J. Perniconi
Vice President
2
<PAGE> 62
EXHIBIT F
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of Landlord. Landlord shall have the right to
remove, at Tenant's expense and without notice, any sign installed or displayed
in violation of this rule. All approved signs or lettering on doors, windows and
walls shall be printed, painted, affixed or inscribed at the expense of Tenant
by a person approved by Landlord, using materials of Landlord's choice and in a
style and format approved by Landlord.
2. Tenant must use Landlord's window coverings on all exterior windows.
No awning shall be permitted on any part of the Premises except as approved by
Landlord. Tenant shall not place anything against or near glass partitions or
doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators or stairways of the Building. The halls, passages, exits,
entrances, elevators, and stairways are not for the general public, and Landlord
shall in all cases retain the right to control and prevent access thereto of all
persons whose presence in the judgment of Landlord would be prejudicial to the
safety, character, reputation and interests of the Building and its tenants;
provided that nothing herein contained shall be construed to prevent such access
to persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No tenant and
no employee or invitee of any tenant shall go upon the roof of the Building
without Landlord's consent.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only, and Landlord reserves the
right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the
Premises generally consistent with cleaning and janitorial sources furnished in
other first-class office buildings in the City of Oakland shall be provided
exclusively through Landlord, and except with the written consent of Landlord,
no person or persons other than those approved by Landlord shall be employed by
Tenant or permitted to enter the Building for the purpose of cleaning the same.
Tenant shall not cause any unnecessary labor by carelessness or indifference to
the good order and cleanliness of the Premises. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Premises, however
occurring, or for any damage to any Tenant's property by the janitor or any
other employee or any other person.
6. Landlord may make a reasonable charge for any additional keys. If
Tenant alters any lock or installs a new lock or bolt on any door of its
Premises, such lock shall comply with Building standards and Tenant will furnish
Landlord a key to the new lock. Tenant, upon the termination of its tenancy,
shall deliver to Landlord the keys of all doors which have been furnished to
Tenant, and in the event of loss of any keys so furnished, shall pay Landlord
its actual reasonable cost therefor.
7. Tenant shall not install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere. If Tenant requires telegraphic, telephonic, burglar alarm
or similar services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
<PAGE> 63
8. Elevators shall be available for special uses by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in the
elevators except between such hours and in such elevators as may be designated
by Landlord. The removal of any equipment, materials, furniture, packages,
supplies, merchandise or other property from the Building must be accompanied by
a signed Building Pass authorizing the removal of same.
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects, if such objects are considered
necessary by Tenant, as determined by Landlord, shall stand on such platforms as
determined by Landlord to be necessary to properly distribute the weight.
Business machines and mechanical equipment belonging to Tenant, which cause
noise or vibration that may be transmitted to the structure of the Building or
to any space therein to such a degree as to be objectionable to Landlord (in its
sole discretion) or to any tenants in the Building, shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration. The persons employed to move
such equipment in or out of the Building must be acceptable to Landlord.
Landlord will not be responsible for loss of, or damage to, any such equipment
or other property from any cause, and all damage done to the Building or
maintaining or moving such equipment or other property shall be repaired at the
expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment, with
the prior written approval of Landlord. Tenant shall not use or permit to be
used in the Premises any foul or noxious gas or substance, or permit or allow
the Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors or
vibrations, nor shall Tenant bring into or keep in or about the Premises any
birds or animals, except seeing-eye dogs when accompanied by their masters.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied or approved by Landlord.
12. Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Building's heating and air-conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has actual
notice, and shall refrain from attempting to adjust controls other than room
thermostats specifically installed for Tenant's use. Tenant shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
Heat and air-conditioning shall be provided during ordinary business hours of
generally recognized business days, but not less than the hours of 8:00 A.M. to
6:00 P.M. on Monday through Friday (excluding in any event Saturdays, Sundays
and legal holidays, it being understood that legal holidays shall mean and refer
to those holidays of which Landlord provides Tenant with reasonable prior
written notice which shall in any event include those holidays on which the New
York Stock Exchange is closed). Requests for overtime heating and air
conditioning must be submitted to the office of the Building by 12:00 noon the
prior day on normal weekdays and by 9:00 am on Friday for Saturday and Sunday
use and by 12:00 noon two days in advance of a holiday. Tenant agrees to pay for
said overtime services at the currently determined rate as set by Building based
on the actual cost for such services.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and address of the Building.
2
<PAGE> 64
14. Landlord reserves the right to exclude from the Building between the
hours of 6:00 P.M. and 8:00 A.M. the following day, or such other hours as may
be established from time to time by Landlord, and on Saturdays, Sundays and
legal holidays, any person unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant shall
be responsible for all persons for whom it requests passes and shall be liable
to Landlord for all acts of such persons. Landlord shall not be liable for
damages for any error with regard to the admission to or exclusion from the
Building of any person. Landlord reserves the right to prevent access to the
Building in case of invasion, mob, riot, public excitement or other commotion by
closing the doors or by other appropriate action.
15. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and, except with regard to
Tenant's computers and other equipment which requires utilities on a 24-hour
basis, all electrical appliances and equipment before Tenant and its employees
leave the Premises. Tenant shall be responsible for any damage or injuries
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this rule.
16. [Intentionally Deleted]
17. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
18. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Canvassing,
soliciting and distribution of handbills or any other written material, and
peddling in the Building or the Site are prohibited, and each tenant shall
cooperate to prevent same. Tenant shall not use the Premises for any business or
activity other than that specifically provided for in Tenant's Lease.
19. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except to install normal wall hangings. Landlord reserves the right to
direct electricians as to where and how telephone and telegraph wires are to be
introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant
shall not affix any floor covering to the floor of the Premises in any manner
except as approved by Landlord. Tenant shall repair any damage resulting from
noncompliance with this rule.
20. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord.
21. Landlord reserves the right to exclude or expel from the Building
any person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
22. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
23. The Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any kind,
nor shall the Premises be used for any improper, immoral or
3
<PAGE> 65
objectionable purpose. No cooking shall be done or permitted by any tenant on
the Premises, except that used by Tenant of Underwriters' Laboratory-approved
equipment for brewing coffee, tea, hot chocolate and similar beverages shall be
permitted, and the use of a microwave oven shall be permitted, provided that
such equipment and use is in accordance with all applicable federal, state,
county and city laws, codes, ordinances, rules and regulations.
24. Tenant shall not use in any space or in the public halls of the
Building any mailcarts or hand trucks except those equipped with rubber tires
and side guards or such other material handling equipment as Landlord may
approve. Tenant shall not bring any other vehicles of any kind into the
Building.
25. Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
26. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
27. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
28. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employee of
Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
29. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant or any other tenant, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
In the event these Rules and Regulations conflict with any provision of the
Lease, the Lease shall control.
31. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.
32. [Intentionally Deleted]
33.Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
<PAGE> 66
PARKING RULES AND REGULATIONS
1. Tenant and Authorized Users shall not park vehicles in any parking
areas designated by Landlord as areas for parking by visitors to the Building.
Tenant and Authorized Users shall not leave vehicles in the Building parking
areas overnight nor park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Landlord may, in its sole discretion, designate separate
areas for bicycles and motorcycles.
2. Cars must be parked entirely within the stall lines painted on the
floor.
3. All directional signs and arrows must be observed.
4. The speed limit shall be 5 miles per hour.
5. Parking is prohibited:
(a) In areas not striped for parking;
(b) In aisles;
(c) Where "No Parking" or "Handicap" signs are posted;
(d) On ramps;
(e) In crosshatched areas;
(f) In such other areas as may be designated by Landlord, its
agent, lessee, or licensee.
6. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of Landlord. Such parking
identification device must be displayed as requested and may not be mutilated in
any manner. The serial number of the parking identification device may not be
obliterated. Devices are not transferable, and any device in the possession of
an unauthorized holder will be void. There will be a replacement charge to the
Tenant or Authorized User of $10.00 for loss of any magnetic parking card or
other parking identification device. Landlord acknowledges that Tenant shall be
entitled to a greater number of parking stickers or other devices or forms of
identification than parking spaces allotted to Tenant.
7. Garage managers or attendants are not authorized to make or allow any
exceptions to these Rules and Regulations.
8. Every Authorized User is requested to park and lock his own car. All
responsibility for damage to cars to be repaired is assumed by Authorized Users.
Tenant shall repair or cause to be repaired at its sole cost and expense any and
all damage to the Building parking facility or any part thereof caused by Tenant
or its Authorized Users or resulting from vehicles of Authorized Users.
9. Loss or theft of parking identification devices from automobiles must
be reported to the garage manager immediately. Any parking identification
devices found on any unauthorized car will be confiscated and the illegal holder
will be subject to prosecution. Lost or stolen devices previously reported and
then found must be reported found to the office of the garage immediately.
<PAGE> 67
10. Spaces are for the express purpose of one automobile per space.
Washing, waxing, cleaning or servicing of any vehicle by the Authorized User
and/or his agents is prohibited. Storage of vehicles for periods exceeding one
week is prohibited and said vehicles shall be subject to towing.
11. The garage management reserves the right to refuse the issuance of
monthly stickers or other parking identification devices to any Tenant,
Authorized User, or person and/or his agents or representatives who willfully
refuse to comply with the above Rules and Regulations or any City, State or
Federal ordinance, law or agreement.
12. Authorized Users shall not load or unload in areas other than those
designated by Landlord for such activities.
13. Authorized Users and unauthorized users parked in prohibited areas
are subject to towing at their own expense.
2
<PAGE> 68
NOTICE OF LEASE COMMENCEMENT
Date: December 31, 1998
To: Seeker Software, Inc., a Delaware corporation.
Re: First Amendment to Office Lease dated November 10, 1998 between WEBSTER
STREET PARTNERS, LTD., a California Limited Partnership ("Landlord"), and SEEKER
SOFTWARE, INC., a Delaware corporation, ("Tenant"), concerning Suite 1640
located at 2101 Webster Street, Oakland, California.
IN ACCORDANCE WITH the subject First Amendment to Office Lease ("Amendment"),
Landlord and Tenant agree to the following:
1. The Premises have been accepted herewith by Tenant as being
substantially complete in accordance with the subject Amendment, and there are
no known deficiencies in construction.
2. Tenant has taken possession of the subject Premises effective
December 7, 1998.
3. Rent as set forth in the Amendment commenced on December 7, 1998.
4. If the commencement date of the subject Amendment is other than the
first day of the month, the first billing will contain a pro rata adjustment.
Each billing thereafter, with the exception of the final billing, shall be for
the full amount of the monthly installment as provided for in said Amendment.
5. Rent is due and payable in advance on the first day of each and every
month during the term of said Amendment. Checks should be made payable to:
Webster Street Partners, LTD. C/O Bank of America P.O. Box 60000 San Francisco,
CA 94160-3134
Landlord and Tenant hereby agree to the foregoing as of the date first written
above.
"LANDLORD" "TENANT"
WEBSTER STREET PARTNERS, LTD., SEEKER SOFTWARE, INC.,
a California Limited Partnership a Delaware Corporation
By: CHASKOW FOUR ASSOCIATES, LTD., By: ________________________________
a California Limited Partnership,
its General Partner Print Name: ________________________
By: CHASKOW FOUR Its: _______________________________
a California Limited Partnership,
its General Partner By: ________________________________
By: Pankow Holdings, Inc. Print Name:
a California Corporation,
its General Partner Its: _______________________________
3
<PAGE> 1
EXHIBIT 10.34
FIRST AMENDMENT TO OFFICE LEASE
This First Amendment To Office Lease ("First Amendment") is made
and entered into as of this 10th day of November, 1998, by and between WEBSTER
STREET PARTNERS, LTD., a California limited partnership ("Landlord") and SEEKER
SOFTWARE, INC., a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have entered into that certain Office Lease
(the "Lease"), dated for reference purposes only as of August 7, 1997 of that
certain real property situated at 2101 Webster Street, in the City of Oakland,
in the State of California, and being more particularly described in Exhibit "B"
attached to the Lease.
WHEREAS, Landlord and Tenant now desire to amend the Lease to add
additional space to the leased premises.
NOW, THEREFORE, for valuable consideration, including the mutual
covenants and agreements herein contained, the receipt and sufficiency of which
is hereby acknowledged, Landlord and Tenant do hereby agree as follows:
1. Terms and Conditions. Reference is made to the Lease. Except as
stated in this First Amendment, all terms and conditions of the Lease will apply
to this First Amendment. If a conflict exists between the Lease and this First
Amendment, the terms of this First Amendment shall govern.
2. Expansion of Leased Premises. Landlord and Tenant hereby agree to
incorporate the expansion space adjacent to the premises outlined on the
attached Exhibit A-1 into the existing lease. The expansion space is identified
as Suite 1640 and contains approximately 1500 rentable square feet.
3. Term. The term covering the expansion space shall be incorporated
within the term of the original Lease and shall have the same expiration date,
which is October 12, 2001. The effective date of the expansion shall be the date
upon which Landlord delivers the expansion space to Tenant with Landlord's
improvements substantially completed.
4. Monthly Rent. The monthly rent covering the expansion space shall be
$2,925.00 per month during the remainder of the lease term based on $1.95 per
rentable square foot. This amount shall be added to the rent covering the
original premises effective with the date Landlord's work is substantially
completed.
5. Tenant Improvements. Landlord shall provide new carpet and paint in
the expansion space, restore a portion of the ceiling with building standard
acoustical tile and install adequate ceiling lighting consistent with Tenant's
existing premises. The current demising wall between the expansion space and
Tenant's existing space shall be removed and a small storage
1
<PAGE> 2
room with double doors shall be added. The above improvements shall be
constructed in accordance with the construction letter from Pankow Special
Projects, L.P. dated August 24, 1998.
6. Construction. All words used in this First Amendment shall be
construed to include the plural as well as the singular number; words in the
present tense shall include the future and the present; words in the masculine
gender shall include the feminine and neuter genders.
A. Interpretation. Should any provision of this First Amendment
or the Lease require judicial interpretation, it is agreed that the court
interpreting or construing the same shall not apply a presumption that the terms
hereof shall be more strictly construed against one party by reason of the rule
of construction that a document is to be construed more strictly against the
person who himself, or through his agent, prepared the same, it being agreed
that all parties have participated in the preparation of this First Amendment
and the Lease; and it being further agreed that Tenant has been represented by
counsel of its own choosing with respect to the preparation of this First
Amendment and the Lease.
B. Provisions Severable. The provisions of First Amendment and
the Lease are severable; and the invalidity of any portion shall not invalidate
the remainder.
7. Entire Agreement. This First Amendment and the Lease constitute the
sole and only agreement between Landlord and Tenant respecting the matters which
are the subject of this First Amendment and the Lease. Landlord and Tenant each
acknowledge that this First Amendment and the Lease correctly set forth their
respective obligations to each other as of the date of this First Amendment with
respect to the subject matters addressed by this First Amendment and the Lease.
Any agreements or representations respecting any matter covered by this First
Amendment and the Lease which are not expressly set forth in this First
Amendment and the Lease are null and void. Landlord and Tenant each acknowledge
that no representations have been made with respect to the subject matters set
forth in this First Amendment and the Lease except as set forth in this First
Amendment and the Lease.
8. Venue. Any action or arbitration brought to enforce or interpret the
provisions of this First Amendment and the Lease shall be venued in Alameda
County, California.
9. Binding Effect. This Agreement shall be binding on and shall inure to
the benefit of Landlord, Tenant and their respective heirs, executors,
administrators, successors and assigns.
10. Time. Time is of the essence to this First Amendment and the Lease.
This provision is not a mere recital. The time deadlines imposed by this First
Amendment are material to the substance of the transaction and a portion of the
bargained for consideration.
11. Amendment. No amendment or modification to this First Amendment or
the Lease shall be of any force or effect unless it is in writing signed by all
parties.
2
<PAGE> 3
12. Cooperation. Landlord and Tenant shall cooperate with each other to
achieve the successful consummation of this transaction and shall timely execute
such documents as may reasonably be required to give effect to the intent of
this First Amendment.
IN WITNESS WHEREOF, Landlord and Tenant do hereby execute this First
Amendment as of this day and year first above written.
"LANDLORD" WEBSTER STREET PARTNERS, LTD.
a California limited partnership
By: Chaskow Four Associates, Ltd.
a California limited partnership
its general partner
By: Chaskow Four
a California limited partnership
its general partner
By: Pankow Holdings, Inc.
a California corporation
its general partner
By: /s/ Rik Kunnath
Rik Kunnath
Vice President
"TENANT" SEEKER SOFTWARE, INC.,
a Delaware corporation
By: /s/ Gary Durbin
Print Name: Gary Durbin
Its: CEO
By: /s/ Dave Hanson
Print Name: Dave Hanson
Its: VP and CFO
3
<PAGE> 4
[DIAGRAM]
EXHIBIT A-1
<PAGE> 1
EXHIBIT 21.01
LIST OF SUBSIDIARIES OF CONCUR TECHNOLOGIES, INC.
1. Concur Technologies (UK) Ltd., a corporation organized under the law of the
United Kingdom.
2. Concur Technologies Pty. Limited, a corporation organized under the law of
Australia.
3. 7Software, Inc., a California corporation.
4. Seeker Software, Inc., a Delaware corporation.
