<PAGE>
FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-84041
PROSPECTUS
4,000,000 Shares
[LOGO OF VIADOR]
Common Stock
-----------
This is an initial public offering of 4,000,000 shares of our common stock. We
are selling all of the shares of common stock offered under this prospectus.
There is currently no public market for our shares. Our common stock has been
approved for listing on the Nasdaq National Market under the symbol "VIAD."
See "Risk Factors" beginning on page 5 to read about certain risks that you
should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
Share Total
----- -----------
<S> <C> <C>
Public offering price........................................ $9.00 $36,000,000
Underwriting discounts and commissions....................... $0.63 $ 2,520,000
Proceeds, before expenses, to us............................. $8.37 $33,480,000
</TABLE>
-----------
The underwriters may purchase up to an additional 600,000 shares of common
stock from us at the initial public offering price less the underwriting
discount, solely to cover over-allotments.
The underwriters are severally underwriting the shares being offered.
-----------
Bear, Stearns & Co. Inc.
CIBC World Markets
U.S. Bancorp Piper Jaffray
The date of this prospectus is October 25, 1999
<PAGE>
[Inside cover page]
[A graphic depicting the components of the Viador E-Portal Suite and how they
work together.]
<PAGE>
PROSPECTUS SUMMARY
VIADOR INC.
Our Business
We develop and market internet software that enables businesses to create
enterprise information portals. An enterprise information portal gives users a
quick and easy way to organize, search for and access up-to-the-minute
information from a variety of data sources. This is similar to popular consumer
internet portals that provide access to the world wide web. Our software is
specifically designed for the web and works with a customer's existing hardware
and software systems, without the need for additional technology expenditures.
It provides a highly adaptable platform for the categorization, management and
sharing of information on a secure and cost-effective basis that can
accommodate significant increases in the number of users and amount of
information. In addition, our software enables users to securely deliver
information over the internet to facilitate e-business. E-business is the use
of the internet and emerging technologies to replace or supplement traditional
business channels and practices.
Our Market Opportunity
In today's highly competitive environment, business decision makers need
quick access to relevant information. However, the large and growing quantity
of information makes it difficult to identify and utilize relevant information.
In addition, there is a rapidly growing variety of technologies used for
creating, storing and organizing information. These include many different
types of computer hardware and software, many of which were developed
independently and do not easily work together. As a result, it is increasingly
difficult and time consuming for users to gain access to all relevant
information for decisionmaking.
To address these problems, we have developed the Viador E-Portal Suite,
which offers the following benefits:
. Single Access Point for All Enterprise Information. Our software
provides a single access point to data from multiple sources within and
outside the company, eliminating the need for users to search multiple
systems.
. Adaptable Web-Based Architecture. In contrast to existing solutions, our
software architecture is designed for the internet and can accommodate
significant increases in the number of users and amount of information.
. Customized and Personalized Information. We address the information
overload problem by helping users locate and retrieve the most pertinent
business information. This capability increases the efficiency of
information use by our customers' employees.
. Combines Ease of Use with Sophisticated Functions. Our interface, which
is accessed through a web browser, offers the ease of use of popular
consumer internet portals, while providing users with the ability to
search for specific information and analyze data.
. Builds upon Customers' Existing Investments in Information
Technology. Because most businesses use different types of computer
hardware and software, our products are designed to interact with and
access a broad range of hardware and software.
. Ease of Implementation. The Viador E-Portal Suite is designed to be
implemented rapidly over internal company networks and the internet
using our customers' existing information technology.
. Secure and Selective Access. Our security features permit customers to
share confidential information rapidly over the internet with a large
number of geographically distributed offices, employees, customers,
suppliers and partners.
1
<PAGE>
Our Strategy
Our strategy is to be the leading provider of enterprise information portal
software solutions. We believe that the most effective way to achieve our goal
is to continue to improve our products and to significantly grow our direct
sales organization to expand coverage and penetration of large enterprise
opportunities. As a complement to our internal sales, marketing and development
efforts, we intend to continue to develop strategic relationships with
companies that are at the forefront of e-business technology.
RECENT DEVELOPMENT
During the three months ended September 30, 1999, we had revenue of
approximately $2.6 million, gross profit of approximately $1.8 million, an
operating loss of approximately $3.7 million, a net loss of approximately $3.6
million and basic and diluted net loss per share of $0.76. Our revenue of
approximately $2.6 million during the three months ended September 30, 1999
represents a 298% increase in revenue from the revenue of $669,000 we had
during the three months ended September 30, 1998. For more information
regarding how these results of operations compare to our results from past
quarters, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations" beginning on page 26.
During the nine months ended September 30, 1999, we had revenue of
approximately $6.0 million, gross profit of approximately $4.2 million, an
operating loss of approximately $9.1 million, a net loss of approximately $8.8
million and basic and diluted net loss per share of $2.04. Our revenue of
approximately $6.0 million during the nine months ended September 30, 1999
represents a 146% increase in revenue from the revenue of approximately $2.4
million we had during the nine months ended September 30, 1998.
----------------
Our principal headquarters are located at 167 Second Avenue, San Mateo,
California 94401, and our telephone number is (650) 685-3000. Information
contained on our web site is not a part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock being offered................. 4,000,000 shares
Common stock outstanding after this
offering.................................. 15,855,957 shares
Use of proceeds............................ We plan to use the net proceeds from this
offering for general corporate purposes,
including working capital, funding
operating losses and approximately $7.0
million to $10.0 million for research and
development in connection with our
operations.
Nasdaq National Market symbol.............. VIAD
</TABLE>
The common stock outstanding after this offering, assuming conversion of all
outstanding shares of our preferred stock into common stock, is based on the
number of shares outstanding as of August 31, 1999, and excludes:
. 3,426,976 shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $1.26 per share;
. 7,000,000 shares reserved for issuance under our 1999 Stock Incentive
Plan; and
. 300,000 shares reserved for issuance under our 1999 Employee Stock
Purchase Plan.
----------------
Unless we indicate otherwise, all information in this prospectus assumes:
. the reincorporation of Viador in Delaware at or prior to the
consummation of this offering;
. the conversion of each outstanding share of our convertible preferred
stock into common stock immediately prior to the consummation of this
offering;
. the exercise of outstanding warrants to purchase 75,001 shares of our
common stock at an exercise price of $0.72 per share, the exercise of
outstanding warrants to purchase 5,834 shares of our common stock at an
exercise price of $0.24 per share and the exercise of outstanding
warrants to purchase 4,007 shares of our Series C Preferred Stock at an
exercise price of $5.8416 per share, upon the consummation of this
offering;
. no exercise of the underwriters' over-allotment option; and
. a 1 for 2.4 reverse stock split of all our outstanding shares of capital
stock to be effected immediately prior to the completion of this
offering.
3
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
------------------------------ ----------------
1995 1996 1997 1998 1998 1999
----- ------ ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................... $ 80 $ 997 $ 1,582 $ 3,825 $ 1,754 $ 3,290
Cost of revenue.............. 10 314 903 1,387 640 874
----- ------ ------- ------- ------- -------
Gross profit................. 70 683 679 2,438 1,114 2,416
Operating expenses........... 34 847 4,089 8,586 3,381 7,793
----- ------ ------- ------- ------- -------
Operating income (loss)...... 36 (164) (3,410) (6,148) (2,267) (5,377)
Interest income (expense),
net......................... -- 10 62 (63) (2) 116
----- ------ ------- ------- ------- -------
Net income (loss)............ $ 36 $ (154) $(3,348) $(6,211) $(2,269) $(5,261)
===== ====== ======= ======= ======= =======
Basic and diluted net income
(loss) per share............ $0.02 $(0.08) $ (1.34) $ (1.82) $ (0.71) $ (1.28)
===== ====== ======= ======= ======= =======
Weighted average shares used
in computing basic and
diluted net income (loss)
per share................... 1,563 1,993 2,495 3,416 3,177 4,126
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------------
Pro Forma
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $14,259 $46,818
Working capital............................................. 12,169 44,728
Total assets................................................ 18,869 51,428
Total stockholders' equity ................................. 13,284 45,843
</TABLE>
The above balance sheet data is set forth:
. on an actual basis; and
. on a pro forma as adjusted basis assuming the conversion of all
outstanding shares of convertible preferred stock into common stock and
the exercise of outstanding warrants to purchase 75,001 shares of common
stock at an exercise price of $0.72 per share, the exercise of
outstanding warrants to purchase 5,834 shares of common stock at an
exercise price of $0.24 per share and the exercise of outstanding
warrants to purchase 4,007 shares of Series C Preferred Stock at an
exercise price of $5.8416 per share upon the consummation of this
offering, as adjusted to reflect the sale of 4,000,000 shares of common
stock by Viador at the initial public offering price of $9.00 per share
and after deducting the underwriting discounts and commissions and
estimated offering expenses.
4
<PAGE>
RISK FACTORS
An investment in our shares is extremely risky. This section describes some
of the risk factors involved in purchasing our common stock. You should
carefully consider the following factors, in addition to the other information
presented in this prospectus, in evaluating us and our business. Any of the
following risks could seriously harm our business and cause the trading price
of our common stock to decline, which could cause you to lose all or part of
your investment.
Risks Related to Viador
We cannot predict whether we will be successful because we have a short
operating and sales history.
We were founded in 1995, and began offering software products in the third
quarter of 1996. Our primary product, the Viador E-Portal Suite, was first
shipped in the first quarter of 1999. The revenue and income potential of our
business and market is unproven, and our limited operating history makes it
difficult to evaluate us and our prospects.
We anticipate making significant investments in our sales and marketing
programs, personnel recruitment, product development and infrastructure.
Therefore, we believe that we will continue to experience significant losses on
a quarterly and annual basis for the foreseeable future. You must consider us
and our prospects in light of the risks and difficulties encountered by
companies in the early stage of development, particularly companies in new and
rapidly evolving markets. Our ability to address these risks depends on a
number of factors, which include our ability to:
. provide software that is reliable, cost-effective and able to
accommodate significant increases in the number of users and amount of
information;
. market the Viador E-Portal Suite, our other products and the Viador
brand name effectively;
. continue to grow our infrastructure to accommodate new developments in
the enterprise information portal software market and increased sales;
. hire, retain and motivate qualified personnel; and
. respond to competition.
We may not be successful in meeting these challenges and addressing these
risks and uncertainties. If we are unable to do so, our business will not be
successful and your investment in our capital stock will decline in value.
Our business currently depends on revenue related to the Viador E-Portal Suite,
and it is uncertain whether the market will increasingly accept this product.
We generate most of our revenue from licenses and services related to the
products comprising the Viador E-Portal Suite. We expect that these products,
and future upgraded versions of these products, will continue to account for a
large portion of our revenue for the foreseeable future. Our future financial
performance will depend on increasing acceptance of our current products and on
the successful development, introduction and customer acceptance of new and
enhanced versions of our products. Our business could be harmed if we fail to
deliver the enhancements to our products that customers want.
Our services consist of maintenance, support, consulting and implementation.
Service revenue represented 47% and 40% of total revenue for 1997 and 1998,
respectively, and 35% of total revenue for the six months ended June 30, 1998
and June 30, 1999. We anticipate that service revenue will continue to
represent a significant percentage of total revenue. Our ability to increase
our service revenue will depend in large part on our ability to increase sales
of the Viador E-Portal Suite and to increase the size of our service
organization, including our ability to recruit and train a sufficient number of
qualified service representatives. If service revenue is less than anticipated,
our fixed costs of providing services will exceed our service revenue and our
operating results could be materially adversely affected.
5
<PAGE>
We have a history of losses and may not be able to achieve profitability in the
future.
Since our inception, we have experienced operating losses, negative cash
flows from operations and net losses in each quarterly and annual period. As of
June 30, 1999, we had an accumulated net deficit of approximately $14.9
million. Revenue from our software and related services may not be sufficient
to make us profitable in the future. If we do achieve profitability, we cannot
be certain that we can sustain or increase profitability on a quarterly or
annual basis, particularly to the extent that we face significant competition.
In addition, we expect to significantly increase our sales and marketing,
product development, engineering and administrative expenses as we grow. As a
result, we will need to generate significant revenue increases to achieve and
maintain profitability.
If we do not expand our customer base, we may never become profitable and our
stock price will likely decline.
The market for enterprise information portal software is newly emerging and
there can be no assurance that customers will adopt our products. Accordingly,
we cannot accurately estimate the potential demand for our products and
services. We believe that market acceptance of our products and services
depends principally on our ability to:
. effectively market the Viador E-Portal Suite, our other products and our
services;
. hire, train and retain a sufficient number of qualified sales and
marketing personnel;
. provide high-quality and reliable customer support for our products;
. distribute and price our products and services in a manner that is more
appealing to customers than that of our competitors;
. develop for Viador a favorable reputation among our customers, potential
customers and participants in the software industry; and
. withstand downturns in general economic conditions or conditions that
would slow corporate spending on software products.
Some of the foregoing factors are beyond our control. If our customer base
does not expand, we may never become profitable and our stock price will likely
decline.
Our operating results in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, causing our stock price to fall.
We expect to experience significant fluctuations in our future results of
operations due to a variety of factors, many of which are outside of our
control, including:
. demand for and market acceptance of our products and services;
. our expansion into international markets;
. introduction of products and services or enhancements by us and our
competitors;
. competitive factors that affect our pricing;
. the mix of products and services we sell;
. the timing and magnitude of our capital expenditures, including costs
relating to the expansion of our operations;
. the size and timing of customer orders, particularly large orders, some
of which represent more than 10% of total revenue during a particular
quarter;
6
<PAGE>
. the hiring and retention of key personnel;
. conditions specific to the enterprise information portal market and
other general economic factors;
. changes in generally accepted accounting policies, especially those
related to the recognition of software revenue; and
. new government legislation or regulation.
We typically receive 50% to 70% of our orders in the last month of each
fiscal quarter because our customers often delay purchases of products until
the end of the quarter and our sales organization and our individual sales
representatives strive to meet quarterly sales targets. Because a substantial
portion of our costs are relatively fixed and based on anticipated revenue, a
failure to book an expected order in a given quarter will likely not be offset
by a corresponding reduction in costs and, therefore, could adversely affect
our operating results for that quarter. Due to these factors, we believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. In future quarters, our operating results
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock may fall significantly.
If our customers defer technology purchases because of year 2000 concerns, our
growth and results of operations for the remainder of 1999 and early 2000 may
suffer.
We may experience reduced revenue from sales of products and services as
customers and potential customers put a priority on correcting year 2000
problems and therefore defer purchases of our products and services until later
in 2000. Our potential customers may have a limited annual budget to spend on
information technology. To the extent that those customers spend their budget
on year 2000 matters, they may not have sufficient budgeted funds to purchase
our software or services. In addition, potential customers may be unwilling to
add complexity to their information technology systems by installing our
software until the year 2000 risk has passed, which would cause them to delay
purchases of our products and services. We believe that during the fourth
quarter of 1999 and the first quarter of 2000, our customers' information
technology personnel will be focused on resolving potential year 2000 issues
and may elect to delay the purchase of our products and services. Accordingly,
demand for our products and services may be particularly volatile, be
unpredictable or may decline for the remainder of 1999 and early 2000. As a
consequence, our results of operations for the quarters ended December 31, 1999
and March 31, 2000 may be adversely impacted by a reduction in demand for our
products and services due to our customers' year 2000 concerns.
Because our customers' orders vary substantially in size, our quarterly
operating results are difficult to forecast and may fluctuate.
Customer orders during a particular quarter typically vary considerably in
size, from as low as several thousand dollars to over $500,000. For example,
during the quarter ended June 30, 1999, we recognized 18.5% of our revenue for
the quarter from a single customer. Similarly, for each of the quarters ended
September 30, 1998 and December 31, 1998, we had a single customer that
accounted for over 20% of our revenue for that quarter. During the quarter
ended September 30, 1999, we again had a single customer that accounted for
over 10% of our total revenue for the quarter. In addition, we expect to
recognize revenue from one or more customers during the quarter ending December
31, 1999 that exceeds 10% of our total revenue for the quarter. Because of the
large size of some individual customer orders relative to total orders during a
quarter, our revenue may fluctuate significantly from one quarter to the next.
If a customer who places a large order cancels or reduces the order, or if we
are unable to fulfill the order in a timely fashion or are otherwise unable to
recognize revenue for the order in the quarter in which it is anticipated, it
could result in increased volatility in our revenue and stock price.
7
<PAGE>
We plan to increase our operating expenses to bring about and support higher
sales of the Viador E-Portal Suite, which will result in larger net losses if
our revenue does not grow accordingly.
We plan to significantly increase our operating expenses to expand our sales
and marketing operations and consulting and training programs, broaden our
customer support capabilities and fund greater levels of research and
development. Our operating expenses, which include research and development,
sales and marketing, and general and administrative expenses, are based on our
expectations of future revenue and are relatively fixed in the short term. If
revenue falls below our expectations in any quarter and we are not able to
quickly reduce our spending in response, our operating results will be
adversely affected and our stock price may fall.
Since our sales cycle is long, unpredictable and subject to seasonal
fluctuations, it is difficult to accurately forecast our revenue; if we fail to
achieve our forecasted revenue, our operating results will suffer and our stock
price may decline.
The typical sales cycle of our products is long and unpredictable and
requires both a significant capital investment decision by our customers and
our education of potential customers regarding the use and benefits of our
products. Our sales cycle is generally between three and nine months. A
successful sales cycle typically includes presentations to both business and
technical decision makers. The implementation of our products involves a
significant commitment of resources by prospective customers. Accordingly, a
purchase decision for a potential customer typically requires the approval of
several senior decision makers. Our sales cycle is also affected by the
business conditions of each prospective customer. Due to the relative
importance of many of our individual product sales, a lost or delayed sale
could adversely affect our quarterly operating results. Our sales cycle is also
affected by seasonal fluctuations as a result of our customers' fiscal year
budgeting cycles and slow summer purchasing patterns overseas. Also, we expect
revenue to be higher in the fourth quarter than in other quarters of the year
since many customers strive to spend unused budgeted dollars before the end of
the year.
If our software contains errors, we may lose customers or experience reduced
market acceptance of our products.
Our software products are inherently complex and may contain defects and
errors that are detected only when the products are in use. In addition, some
of our customers require or may require enhanced customization of our software
for their specific needs, and these modifications may increase the likelihood
of undetected defects or errors. Further, we often render implementation,
consulting and other technical services, the performance of which typically
involves working with sophisticated software, computing and networking systems,
and we could fail to meet customer expectations as a result of any defects or
errors. As a result, we may lose customers, customers may fail to implement our
products more broadly within their organization and we may experience reduced
market acceptance of our products. Our products are designed to facilitate the
secure transmission of sensitive business information to specified parties
outside the business over the internet. As a result, the reputation of our
software products for providing good security is vital to their acceptance by
customers. Our products may be vulnerable to break-ins, theft or other improper
activity that could jeopardize the security of information for which we are
responsible. Problems caused by product defects, failure to meet project
milestones for services or security breaches could result in loss of or delay
in revenue, loss of market share, failure to achieve market acceptance,
diversion of research and development resources, harm to our reputation,
increased insurance costs or increased service and warranty costs. To address
these problems, we may need to expend significant capital resources that may
not have been budgeted.
Product liability claims could harm our business.
Our license agreements with customers typically contain provisions designed
to limit our exposure to potential product liability claims. All domestic and
international jurisdictions may not enforce these limitations. Although we have
not experienced any product liability claims to date, we may encounter this
type of claim in the future. Product liability claims brought against us,
whether or not successful, could divert the attention of our management and key
personnel and could be expensive to defend.
8
<PAGE>
We may be unable to maintain or grow our international operations, which could
slow or undermine our overall growth.
During 1996, 1997 and 1998, we derived 0%, 14% and 12%, respectively, of our
total revenue from sales outside the United States. During the past eighteen
months, we have derived revenue from sales in Canada, Japan, Venezuela, Brazil,
the United Kingdom, Singapore and other foreign countries, the majority of
which has come from Canada and Japan. We intend to expand our international
operations and anticipate that in the foreseeable future a significant portion
of our revenue may be derived from sources outside the United States. If we are
unable to maintain or grow our international operations, it could slow or
undermine our overall growth.
We have not identified any material risk associated with doing business in
Canada, other than risk associated with foreign currency fluctuations. In
Japan, we have an exclusive distribution relationship with Mitsui, which
expires in June 2000. To the extent we are unable to favorably renew our
distribution agreement or make alternative arrangements, we may have decreased
revenue in Japan. We also face country-specific risks in Japan, such as
fluctuation in currency, general economic conditions in Japan and regulatory
uncertainties associated with being a foreign company doing business in Japan.
We also expect to commit additional resources to customizing our products
for selected international markets, including German, French and Spanish-
speaking markets, among others, and developing international sales and support
organizations. In addition, even if we successfully expand our international
operations and successfully customize our products, there can be no assurance
that we will be able to maintain or increase international market demand for
our products.
Our international operations are subject to a number of risks, including:
. costs of customizing our products for foreign countries;
. protectionist laws and business practices favoring local competition;
. dependence on the performance of local resellers and other strategic
partners;
. adoption of general internet technologies in each international market;
. compliance with multiple, conflicting and changing governmental laws and
regulations;
. longer sales and payment cycles;
. import and export restrictions and tariffs;
. difficulties in staffing and managing international operations;
. greater difficulty or delay in accounts receivable collection;
. foreign currency exchange rate fluctuations;
. multiple and conflicting tax laws and regulations; and
. political and economic instability.
If our plan to sell the Viador E-Portal Suite directly to customers is not
successful, we may not be able to grow our revenue and our stock price may
suffer.
We sell our products primarily through our domestic direct sales
organization and we support our customers with our technical and customer
support staff in several field offices. Our ability to achieve revenue growth
in the future will depend on our ability to recruit and train sufficient
technical, customer and direct sales personnel. We have in the past and may in
the future experience difficulty in recruiting qualified sales, technical and
support personnel. Our inability to rapidly and effectively expand our direct
sales force and our technical and support staff could reduce or eliminate our
growth and cause our stock price to fall.
9
<PAGE>
Our failure to manage our growth could adversely affect our business.
The planned expansion of our operations will place a significant strain on
our management, financial controls, operations systems, personnel and other
resources. Our ability to manage our future growth, should it occur, will
depend in large part upon a number of factors including our ability to rapidly:
. build and train our sales and marketing staff to create an expanding
presence in the evolving enterprise information portal market, and keep
them fully informed over time regarding the technical features, issues
and key selling points of our products;
. develop our customer support capacity as sales of our products grow, so
that we can provide customer support without diverting engineering
resources from product development efforts; and
. expand our internal management and financial controls significantly, so
that we can maintain control over our operations and provide support to
other functional areas within Viador as the number of our personnel and
size of our organization increases.
Our inability to achieve any of these objectives could adversely affect our
business.
We depend on technology licensed from third parties and, if we do not maintain
those license arrangements, this could result in delays in shipping our
products and services, which could harm our business.
We license our search engine technology, which is integrated into the Viador
E-Portal Suite, from Infoseek. This technology provides users of our products
with the ability to search and classify information. We also license software
from On Display that facilitates the retrieval of frequently changing real-time
data. This software may not continue to be available on commercially reasonable
terms, or at all. Our loss of or inability to maintain either of these
technology licenses could result in delays in the sale of our products and
services until equivalent technology, if available, is identified, licensed and
integrated, which could harm our business.
In addition, we license various Java-related software from Sun Microsystems,
which is the core technology upon which our products are based. In the event
that Sun were to discontinue or significantly alter its Java product, it would
impair our ability to provide product upgrades and develop new products.
We will need significant additional funds, which we may be unable to obtain on
terms acceptable to us or at all.
The expansion and development of our business will require significant
capital to fund our operating losses, working capital needs and capital
expenditures. During the next twelve months, we expect to meet our cash
requirements with existing cash and cash equivalents and short-term
investments, the net proceeds from this offering, cash flow from sales of our
services and proceeds from existing and future working capital lines of credit
and other borrowings. Our failure to generate sufficient cash flows from sales
of services or to raise sufficient funds may require us to delay or abandon
some or all of our development and expansion plans or otherwise forego market
opportunities.
Future equity or debt financing may not be available to us on favorable
terms or at all. In addition, our credit agreements contain certain covenants
restricting our ability to incur further indebtedness and we have pledged some
of our assets as security for any borrowings thereunder. Future borrowing
instruments such as credit facilities and lease agreements are also likely to
contain similar or more restrictive covenants and will likely require us to
pledge assets as security for borrowings under those future arrangements. Our
inability to obtain additional capital on satisfactory terms may delay or
prevent the expansion of our business, which could cause our business and
prospects to suffer.
If our plan to sell software services over the internet as a substitute for
licensing our software fails, it could harm our business.
In addition to licensing our software, we plan to sell software services to
customers over the internet. We would price these services on a per-transaction
basis or on a subscription basis to companies seeking to avoid
10
<PAGE>
the upfront cost of licensing software. This business model is unproven and
represents a significant departure from the strategies traditionally employed
by us and other software vendors. Our efforts to develop this business may
require significant management time and attention. In connection with this new
business model, we will contract with third-party service providers to perform
many of the necessary services, and we will be responsible for monitoring their
performance. If any service provider delivers inadequate support or service to
our customers, our reputation could be harmed.
Even if our strategy of selling software services over the internet is
successful in attracting customers, some of those internet customers may
otherwise have bought our software and services through our traditional
licensing arrangements. Any shift in potential license revenue to our new
business model, which is unproven and potentially less profitable, could harm
our business.
If we are unable to hire and integrate new personnel, it will disrupt our
operations and impair our growth.
We have recently hired a number of key employees and officers, including our
Chief Financial Officer, Raja H. Venkatesh, who has been with us since June
1999. We do not currently have a corporate controller. While we have commenced
a search for a controller and additional financial and accounting personnel, we
have not yet filled these positions. Once hired, these people will need time to
familiarize themselves with Viador and our accounting and sales practices. In
addition, we anticipate switching from our current accounting software to a
more sophisticated accounting and financial information software system in the
near future. In addition, we have grown from 17 employees at December 31, 1996
to 61 employees at December 31, 1997 to 83 employees at December 31, 1998 to
108 employees at June 30, 1999, and we expect to continue to hire additional
employees in order to grow our business. The integration of new personnel has
resulted and will continue to result in some disruption to our ongoing
operations. Our failure to complete this integration in an efficient manner
could harm our business and prospects.
We also plan to hire additional personnel to establish and implement
corporate security processes and policies in light of our planned expansion of
our operations. If we are unable to hire and integrate these new personnel in
advance of our planned future growth, our business and prospects could suffer.
We may not be able to recruit and retain the personnel we need, which would
impair our growth.
We are highly dependent on certain members of our management and engineering
staff, including, without limitation, our Chief Executive Officer, our Senior
Vice President of North American Operations and our Chief Financial Officer.
The loss of one or more of these officers might impede the achievement of our
business objectives. Furthermore, recruiting and retaining qualified financial
and technical personnel is critical to our success. If our business grows, we
will also need to recruit a significant number of management, technical and
other personnel for our business. Competition for employees in our industry is
intense. We may not be able to continue to attract and retain skilled and
experienced personnel on acceptable terms.
If we are unable to effectively protect our proprietary rights, our competitors
may be able to copy important aspects of our products or product presentation,
which would undermine the relative appeal of our products to customers and
reduce our sales.
We believe that proprietary rights are important to our business. We
principally rely upon a combination of patent, copyright, trademark and trade
secret laws as well as contractual restrictions to protect our proprietary
technology.
We have filed applications seeking U.S. patents on two inventions. However,
patents for these inventions may not issue and it is possible that these and
any other patents issued to us may be circumvented by our competitors or
otherwise may not provide significant proprietary protection or commercial
advantage to us. Similarly, our trademark, service mark and copyright rights
may not provide significant proprietary protection
11
<PAGE>
or commercial advantage to us, and the measures we take to maintain the
confidentiality of our trade secrets may be ineffective. If we are unable to
effectively protect our proprietary rights, our competitors may be able to copy
important aspects of our products or product message, which would undermine the
relative appeal of our products to customers and thus reduce our sales. For
additional discussion of our proprietary rights, see "Business--Intellectual
Property Rights" beginning on page 41.
If our products infringe upon the proprietary rights of others, we may be
forced to pay high prices to license new technology or stop selling our
products.
Our commercial success will also depend in part on our not infringing the
proprietary rights of others and not breaching technology licenses that cover
technology used in our products. It is uncertain whether any third-party
proprietary rights will require us to develop alternative technology or to
alter our products or processes, obtain licenses or cease certain activities.
If any licenses of that type are required, we may not be able to obtain those
licenses on commercially favorable terms, if at all. Our failure to obtain a
license to any technology that we may require to commercialize our products and
services could cause our business and prospects to suffer. Litigation, which
could result in substantial cost to us, may also be necessary to enforce any
patents issued or licensed to us or to determine the scope and validity of
third-party proprietary rights.
Our failure and the failure of third parties to be year 2000 compliant could
negatively impact our business.
Many currently installed computer systems and software products store dates
using only the last two digits of the calendar year. As a result, those systems
may not be able to distinguish whether "00" means 1900 or 2000, which may cause
those systems to fail or produce erroneous results. Year 2000 problems could
subject us to liability claims or disrupt our business, either of which could
harm our business.
Based upon our assessment to date, we believe that our software products are
capable of adequately distinguishing 21st century dates from 20th century
dates. The worst case year 2000 scenario for us is if customers using our
products experience product failure on or after January 1, 2000. If our
products do have year 2000 problems, we have a limited number of personnel who
are technically experienced with our year 2000 compliance procedures and, in
the event our systems were to fail as a result of year 2000 problems, these
employees would likely be unable to timely comply with several customers'
requests for year 2000 remediation. Any such delay could impair our business or
prospects or relationships with those customers. The total cost of year 2000
compliance and remediation may be material and may harm our business.
Furthermore, we may in the future be required to defend our products or
services in litigation or arbitration proceedings, or to negotiate resolutions
of claims based upon year 2000 issues. Defending and resolving year 2000
disputes, regardless of the merits of those disputes, and any liability we have
for year 2000-related damages, including consequential damages, could be
expensive to us. In addition, if our internal computer or other systems or our
suppliers experience year 2000 problems, it would disrupt our operations. For
more information regarding the year 2000 risks that we face, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance" beginning on page 28.
If our strategic relationships are discontinued, it may be more difficult for
us to maintain certain features of our products or reach particular customers
or markets.
We have strategic relationships with IBM, Mitsui and Infoseek. Our strategic
relationship with IBM provides us with marketing assistance. Our strategic
relationship with Mitsui provides us with distribution, marketing and sales
assistance in Japan. Our strategic relationship with Infoseek provides us
access to technology and joint marketing. Although our strategic relationships
are a key factor in our overall business strategy, our strategic partners may
not view their relationships with us as significant to their own businesses.
There is a risk that these parties may not perform their obligations as agreed.
Our arrangements with strategic partners generally do not establish minimum
performance requirements but instead rely on the voluntary efforts of our
partners. In addition, most of our agreements with strategic partners may be
terminated by either party with little notice. If our strategic relationships
are discontinued, it may be more difficult for us to maintain certain features
of our products or reach particular customers or markets.
12
<PAGE>
Risks Related to Our Industry
The markets in which we compete are highly competitive and we may not be able
to compete effectively.
The existing enterprise information portal software market is intensely
competitive. There are few substantial barriers to entry and we expect that we
will face additional competition from existing competitors in the future.
Moreover, if our approach is successful, it is likely that additional
competitors will enter the market. Some of these additional competitors may
have significantly more resources than we have, and may be able to devote the
resources necessary to independently develop technology that provides
equivalent or superior functionality compared to our products. For example, we
also compete against larger companies providing a suite of products targeting
business internet applications, including Microsoft and Oracle, who we expect
may provide products as part of their suite that compete with ours. To date, we
have faced competition and sales resistance from potential customers that have
developed or may develop in-house systems that may substitute for those we
offer.
We also compete against providers of software products to businesses. These
providers may expand their technologies or acquire other companies to support
greater functionality and capability, particularly in the areas of query
response time and ability to support large numbers of users.
We cannot assure you that we will be able to successfully compete against
current and future competitors, or that competitive pressures we face will not
materially adversely affect our business, prospects, operating results and
financial condition. For a more detailed discussion of the competitive
pressures we face, see "Business--Competition" beginning on page 40.
If we fail to manage technological change or effectively respond to changes in
customer needs, demand for our products and services will drop and our business
will suffer.
The market for enterprise information portals is still in an early stage of
development and is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product introductions and changes
in customer demands. Our future success will depend to a substantial degree on
our ability to offer products and services that incorporate leading technology
and respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. You should be aware that:
. our technology or systems may become obsolete upon the introduction of
alternative technologies;
. the technological life cycles of our products are difficult to estimate;
. we may not have sufficient resources to develop or acquire new
technologies or to introduce new services capable of competing with
future technologies or service offerings; and
. the price of the products and services we provide may decline as rapidly
as, or more rapidly than, the cost of any competitive alternatives.
We may not be able to effectively respond to the technological requirements
of the changing market for enterprise information portals. To the extent we
determine that new technologies and equipment are required to remain
competitive, the development, acquisition and implementation of those
technologies and equipment are likely to continue to require significant
capital investment by us. We may not have sufficient capital for this purpose
in the future, and even if it is available, investments in new technologies may
not result in commercially viable technological processes and there may not be
commercial applications for those technologies. If we do not develop and
introduce new products and services and achieve market acceptance in a timely
manner, demand for our products and services will drop and our business will
suffer.
13
<PAGE>
Our business and prospects will suffer if we are unable to adequately respond
to customer demands.
We expect that our customers increasingly will demand additional information
and reports with respect to the services we provide. To meet these demands, we
must develop and implement an automated customer service system to enable
future sales growth. In addition, if we are successful in implementing our
marketing strategy, we also expect the demands on our technical support
resources to grow rapidly, and we may experience difficulties in responding to
customer demand for our services and providing technical support in accordance
with our customers' expectations. We expect that these demands will require not
only the addition of new management personnel, but also the development of
additional expertise by existing management personnel and the establishment of
long-term relationships with third-party service vendors. We may not be able to
keep pace with any growth, successfully implement and maintain our operational
and financial systems or successfully obtain, integrate and utilize the
employees, facilities, third-party vendors and equipment, or management,
operational and financial resources necessary to manage a developing and
expanding business in our evolving and increasingly competitive industry. If we
are unable to address these customer demands, our business and prospects will
suffer.
Our future success will depend upon the ability of our products to work with a
large variety of hardware, software, database and networking systems.
We currently serve, and intend to continue to serve, a customer base with a
wide variety of hardware, software, database and networking systems. To gain
broad market acceptance, we believe that we must support an increased number of
systems in the future. We currently develop our products on Microsoft Windows
NT. Therefore, we experience a delay when we adapt our products to be installed
on other major servers. For example, we are contractually obligated to provide
a version of our software that operates on Unix servers in the third fiscal
quarter of 1999. A delay in this or any other rollout of our product onto a new
system could adversely affect our revenues and operating results. There can be
no assurance that we will adequately expand our data source and system coverage
to service potential customers, or that the expansion will be sufficiently
rapid to meet or exceed the system and data source coverage of our competitors.
The success of our products will depend on various factors, including the
ability of our products to integrate and be compatible with customer systems,
particularly hardware systems, operating systems and data sources, as well as
or better than competitive offerings. The success of our products will also
depend on the ability of our existing products to work well with one another,
with new products we are developing and with new software being developed by
third parties. We cannot assure you that we will successfully develop and
market product enhancements or new products that respond to these technological
changes, shifting customer tastes or evolving industry standards, or that we
will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products. If we are unable to
develop and introduce new products or enhancements of existing products in a
timely manner or if we experience delays in the commencement of commercial
shipments of new products and enhancements, our business will suffer.
Risks Related to Our Offering
If our stock price is volatile or decreases significantly, you may not be able
to sell your stock at a favorable price at any given time or ever.
Stock prices and trading volumes for many internet-related companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market volatility,
as well as general domestic or international economic, market and political
conditions, could materially adversely affect the price of our common stock
without regard to our operating performance. In addition, our operating results
may not meet the expectations of public market analysts and investors. If this
were to occur, the market price of our common stock would likely decrease
significantly. Volatility in our stock price may prevent you from selling our
stock at a favorable price at any given time or knowing the appropriate time to
sell our stock. If our stock price drops, it is possible that you may never be
able to sell our stock at a favorable price.
14
<PAGE>
After the offering, our officers, directors and affiliates may be able to
control all matters submitted for stockholder approval, and you will be subject
to their decisions.
Some of our stockholders own a large enough stake in us to have a
significant influence on the matters presented to stockholders. As a result,
these stockholders may be able to control all matters requiring stockholder
approval, including the election and removal of directors, the approval of
significant corporate transactions, such as any merger, consolidation or sale
of all or substantially all of our assets, and the control of our management
and affairs. Accordingly, that concentration of ownership may delay, defer or
prevent a change in control of Viador, impede a merger, consolidation, takeover
or other business combination involving Viador or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of Viador, any of which could have a material adverse effect on the market
price of our common stock.
After you purchase our stock in the offering, additional shares of our stock
will become eligible for sale in the open market; if these shares are sold, it
could depress our stock price.
Sales of substantial amounts of our common stock in the public market after
this offering, including shares issued upon the exercise of outstanding options
and warrants, could adversely affect the market price of our common stock.
Those sales also might make it more difficult for us to sell equity-related
securities in the future at a time and price that we deem appropriate. In
addition to the 4,000,000 shares of common stock offered hereby, assuming no
exercise of the underwriters' over-allotment option, and assuming the
conversion of all outstanding preferred stock into common stock and the
exercise of warrants to purchase 84,842 shares of capital stock, there were
11,855,957 shares of common stock outstanding as of August 31, 1999, all of
which are restricted shares under the Securities Act of 1933, as amended. These
restricted shares will not be immediately eligible for sale in the public
market. However, following the expiration of the 180-day lock-up agreements
with the representatives of the underwriters, 6,175,078 restricted shares will
be available for sale in the public market and the remaining restricted shares
will be eligible for sale from time to time thereafter upon expiration of
applicable holding periods under Rule 144, 144(k) or 701 promulgated under the
Securities Act of 1933, as amended. In addition, as of August 31, 1999, there
were options and warrants outstanding to purchase 3,507,811 shares of common
stock, all of which warrants are expected to be exercised on or before the
closing of this offering. However, the shares of common stock underlying such
options and warrants will not be immediately eligible for sale in the public
market since they are subject to a 180-day lock-up period. Bear, Stearns & Co.
Inc. may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to lock-up agreements. In addition, the
holders of 6,783,694 restricted shares and warrants to purchase 4,007 shares of
our Series C Preferred Stock are entitled to certain rights with respect to
registration of those shares for sale in the public market. If those holders
sell in the public market, those sales could decrease the market price of our
common stock.
We do not have specific uses planned for much of the offering proceeds; if our
management does not use the funds raised in this offering effectively, our
stock price may fall.
Our net proceeds from this offering, after deducting underwriting discounts
and commissions and expenses payable by us, are estimated to be approximately
$32.5 million. While we currently expect to use a portion of the net proceeds
of the offering for research and development over the next twelve months, we
have not determined specific uses for the remaining proceeds. Accordingly, our
management will retain broad discretion as to the allocation of the proceeds of
this offering. If our management does not use the funds raised in this offering
effectively, our stock price may fall.
We have certain anti-takeover defenses that could prevent an acquisition of our
business that you might favor.
Provisions of our certificate of incorporation and bylaws and the provisions
of Delaware law could have the effect of delaying, deferring or preventing an
acquisition of our business. For example, our board of directors is divided
into three classes to serve staggered three-year terms, we may authorize the
issuance of up
15
<PAGE>
to 10,000,000 shares of "blank check" preferred stock, our stockholders may not
take actions by written consent and our stockholders are limited in their
ability to make proposals at stockholder meetings. See "Description of Capital
Stock" beginning on page 58 for a further discussion of these provisions.
You will pay more for our stock than your pro rata portion of our assets is
worth; as a result, you will likely receive much less than you paid for our
stock if we liquidate our assets and distribute the proceeds.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of our common stock. Therefore, you will
incur immediate dilution in net tangible book value of $6.10 per share, at the
initial public offering price of $9.00 per share because you will pay more than
the assets underlying your shares are worth. You may incur additional dilution
if holders of stock options, whether currently outstanding or subsequently
granted, exercise their options or if warrantholders exercise their warrants to
purchase common stock at a price less than book value per share. As a result,
you will likely receive much less than you paid for our stock if we liquidate
our assets and distribute the proceeds. For additional information about the
dilution you will suffer, see "Dilution" on page 19.
Relying on forward-looking statements in this prospectus could cause you to
incorrectly assess the risks and uncertainties of investing in our stock
because our actual results may differ materially from what was anticipated in
those statements.
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things,
. implementing our business strategy;
. obtaining and expanding market acceptance of the products and services
we offer;
. forecasts of the internet and our market size and growth;
. meeting our requirements under key contracts; and
. competition in our market.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "potential," "continue," "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions. These statements are based on our current beliefs, expectations
and assumptions and are subject to a number of risks and uncertainties. Actual
results and events may vary significantly from those discussed in the forward-
looking statements. A description of certain risks that could cause our results
to vary appears under the caption "Risk Factors" and elsewhere in this
prospectus. These forward-looking statements are made as of the date of this
prospectus, and we assume no obligation to explain the reasons why actual
results may differ. In light of these assumptions, risks and uncertainties, the
forward-looking events discussed in this prospectus might not occur.
----------------
Viador E-Portal Suite(TM) and the Viador name and logo and the names of
products and services offered by Viador--including those referred to in
"Business"--are trademarks, registered trademarks, service marks or registered
service marks of Viador. This prospectus also includes product names, trade
names and trademarks of other companies.
----------------
We were incorporated in the State of California as Infospace, Inc. on
December 4, 1995 and changed our name to Viador Inc. in 1999.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale and issuance of the 4,000,000 shares of
common stock offered hereby at the initial public offering price of $9.00 per
share are estimated to be $32.5 million, or approximately $37.5 million if the
underwriters' over-allotment option is exercised in full, after deducting the
underwriting discount and estimated offering expenses. We are conducting this
offering primarily to increase our equity capital, create a public market for
our common stock and facilitate future access by us to public equity markets.
We currently expect to use approximately $7.0 million to $10.0 million of the
net proceeds of this offering for research and development over the next twelve
months, although the amount of such expenditures is subject to market
conditions and other factors beyond our control. We intend to use the remaining
net proceeds of this offering for general corporate purposes, including working
capital and funding operating losses. In addition, we may use a portion of the
net proceeds to acquire or invest in complementary businesses or products or
obtain the right to use complementary technologies. We have no commitments with
respect to any acquisition or investment, and we are not involved in any
negotiations with respect to any similar transaction. We have not performed any
studies or made any decisions with our financial advisors or otherwise
regarding the use of proceeds from this offering. Pending these uses, the net
proceeds of this offering will be invested in short-term, interest-bearing,
investment grade securities. See "Risk Factors--We do not have specific uses
planned for much of the offering proceeds; if our management does not use the
funds raised in this offering effectively, our stock price may fall" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" beginning on pages 15 and 27,
respectively.
DIVIDEND POLICY
We have not declared or paid any dividends since our inception and do not
intend to pay cash dividends on our capital stock in the foreseeable future. We
anticipate that we will retain all future earnings, if any, for use in our
operations and the expansion of our business. Our credit agreements prohibit us
from declaring or paying any dividends. For additional discussion of these
matters, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" beginning on page 27.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1999:
. Our actual capitalization;
. Our pro forma capitalization, assuming the exercise of a warrant to
purchase 4,007 shares of Series C preferred stock, the conversion of
outstanding shares of our convertible preferred stock into common stock
and the exercise of warrants to purchase 80,835 shares of our common
stock; and
. Our pro forma capitalization, as adjusted to give effect to the sale of
4,000,000 shares of common stock offered by us in this offering at the
initial public offering price of $9.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us, and the application of the estimated net proceeds from
this offering.
This information should be read in conjunction with our financial statements
and the notes related thereto appearing elsewhere in this prospectus. See "Use
of Proceeds" on page 17.
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------
(unaudited)
Actual Pro Forma As Adjusted
-------- ----------- -----------
(in thousands except share data)
<S> <C> <C> <C>
Long-term obligations, less current portion.. $ -- $ -- $ --
Stockholders' equity:
Preferred stock, $0.001 par value,
10,416,666 shares authorized, 6,802,860
shares issued and outstanding, actual;
10,000,000 shares authorized, no shares
issued or outstanding, pro forma and as
adjusted.................................. 7 -- --
Common stock $0.001 par value, 20,833,333
shares authorized, 4,915,433 shares issued
and outstanding, actual; 100,000,000
shares authorized, 11,803,134 shares
issued and outstanding, pro forma,
15,803,134 issued and outstanding, as
adjusted.................................. 5 12 16
Additional paid-in capital................. 30,273 30,352 62,828
Deferred stock-based compensation.......... (2,029) (2,029) (2,029)
Treasury stock............................. (34) (34) (34)
Accumulated deficit........................ (14,938) (14,938) (14,938)
-------- -------- --------
Total stockholders' equity............... 13,284 13,363 45,843
-------- -------- --------
Total capitalization................... $ 13,284 $ 13,363 $ 45,843
======== ======== ========
</TABLE>
The table excludes the following shares: 3,287,063 shares of common stock
issuable upon exercise of options outstanding at a weighted average exercise
price of $0.73 per share and 7,000,000 shares reserved for future issuance
under our 1999 Stock Incentive Plan. For additional information about our
option plans, see "Management--Executive Compensation and Other Information--
Employee Benefit Plans" beginning on page 47 and Note 4 of the Notes to
Consolidated Financial Statements beginning on page F-11.
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$13.3 million, or $1.13 per share of common stock. Pro forma net tangible book
value per share is calculated by subtracting our total liabilities from our
total tangible assets, which equals total assets less intangible assets, and
dividing this amount by the number of shares of common stock outstanding as of
June 30, 1999. After giving effect to the sale by us of 4,000,000 shares of
common stock offered in this offering at the initial public offering price of
$9.00 per share and the application of the estimated net proceeds from this
offering, our net tangible book value as of June 30, 1999 would be $45.8
million, or $2.90 per share of common stock. This represents an immediate
increase in the net tangible book value of $1.77 per share to our existing
stockholders and an immediate dilution in the net tangible book value of $6.10
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $9.00
Pro forma net tangible book value per share as of June 30, 1999... $1.13
Pro forma increase attributable to new investors.................. $1.77
-----
Pro forma net tangible book value per share after the offering...... $2.90
-----
Pro forma dilution per share to new investors....................... $6.10
=====
</TABLE>
The following table summarizes the total number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid by existing stockholders and by new investors, in each case based
upon the number of shares of common stock outstanding as of June 30, 1999.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ --------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 11,803,134 74.7% $ 26,896 42.8% $2.28
New investors........... 4,000,000 25.3% $ 36,000 57.2% $9.00
---------- ----- ---------- --------
Total................. 15,803,134 100.0% $ 62,896 100.0%
========== ===== ========== ========
</TABLE>
If the underwriters' over-allotment option is exercised in full, the shares
of common stock held by existing stockholders will be reduced to 72.0% of the
total number of shares of common stock to be outstanding after this offering,
and the number of shares of common stock held by the new investors will
increase to 4,600,000, or 28.0% of the total number of shares of common stock
to be outstanding immediately after this offering. For more information about
the holdings of our stock, see "Principal Stockholders" on page 55.
The tables and calculations above assume no exercise of outstanding options.
At June 30, 1999, there were 3,287,063 shares of common stock issuable upon
exercise of options outstanding with a weighted average exercise price of $0.73
per share and 7,000,000 shares reserved for future issuance under our 1999
Stock Incentive Plan. To the extent that these options are exercised, there
will be further dilution to new investors. For additional information about our
option plans, see "Management--Executive Compensation and Other Information--
Employee Benefit Plans" beginning on page 47.
19
<PAGE>
SELECTED FINANCIAL DATA
The tables that follow present portions of our financial statements and are
not complete. You should read the following selected financial data in
conjunction with our financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 21-31. The statements of operations data for the years
ended December 31, 1996, 1997 and 1998, and the balance sheet data as of
December 31, 1997 and 1998, are derived from our financial statements that have
been audited by KPMG LLP, independent auditors, which are included elsewhere in
this prospectus. The statements of operations data for the year ended December
31, 1995 and the balance sheet data as of December 31, 1995 and 1996 are
derived from audited financial statements that are not included in this
prospectus. The statements of operations data for the six months ended June 30,
1998 and 1999 and the balance sheet data as of June 30, 1999 are derived from
our unaudited financial statements included elsewhere in this prospectus and
include, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for the fair
presentation of our financial position and results of operations for those
periods. The historical results presented below are not necessarily indicative
of the results to be expected for any future fiscal year. For further
information about our historical results, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page
21.
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
------------------------------ ----------------
1995 1996 1997 1998 1998 1999
----- ------ ------- ------- ------- -------
(unaudited)
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................... $ 80 $ 997 $ 1,582 $ 3,825 $ 1,754 $ 3,290
Cost of revenue.............. 10 314 903 1,387 640 874
----- ------ ------- ------- ------- -------
Gross profit................. 70 683 679 2,438 1,114 2,416
----- ------ ------- ------- ------- -------
Operating expenses:
Research and development... 15 364 1,351 2,481 1,107 1,871
Sales and marketing........ 11 125 1,802 4,295 1,806 4,397
General and
administrative............ 8 358 936 1,365 374 996
Amortization of stock-based
compensation.............. -- -- -- 445 94 529
----- ------ ------- ------- ------- -------
Total operating expenses..... 34 847 4,089 8,586 3,381 7,793
----- ------ ------- ------- ------- -------
Operating income (loss)...... 36 (164) (3,410) (6,148) (2,267) (5,377)
Interest income (expense),
net......................... -- 10 62 (63) (2) 116
----- ------ ------- ------- ------- -------
Net income (loss)............ $ 36 $ (154) $(3,348) $(6,211) $(2,269) $(5,261)
===== ====== ======= ======= ======= =======
Basic and diluted net income
(loss) per share (1)........ $0.02 $(0.08) $ (1.34) $ (1.82) $ (0.71) $ (1.28)
===== ====== ======= ======= ======= =======
Weighted average shares used
in computing basic and
diluted net income (loss)
per share (1)............... 1,563 1,993 2,495 3,416 3,177 4,126
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------- June 30,
1995 1996 1997 1998 1999
---- ---- ------ ------ -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $ 42 $290 $1,029 $4,181 $14,259
Working capital......................... 78 (5) (317) 2,771 12,169
Total assets............................ 123 530 2,918 7,185 18,869
Long-term obligations, including current
portion................................ -- 100 -- -- --
Total stockholders' equity (deficit).... 86 (67) 90 3,371 13,284
</TABLE>
- ----------
(1) See Note 2 of Notes to Financial Statements for the determination of shares
used in computing pro forma basic and diluted net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We develop and market internet software that enables businesses to create
enterprise information portals. Our products enable organizations to build
enterprise information portals which permit quick, easy access to all
enterprise information, facilitate the provision of customized and personalized
information and permit the secure sharing of enterprise information both within
the enterprise and with outside partners. We had a net loss of approximately
$6.2 million for the year ended December 31, 1998 and an accumulated deficit of
approximately $9.7 million for the year ended December 31, 1998.
Historically, we have focused our selling efforts in North America and
derived a significant majority of our revenue from North America. However, we
believe that our international sales will increase. We currently have
distribution agreements with partners in Japan and Europe, and we have
delivered our products to customers in Latin America.
We were incorporated in 1995 as Infospace, Inc. and changed our name to
Viador Inc. in 1999. Since our inception, we have developed web-based products
designed to permit our customers to search, analyze and deliver relevant
information to users within and outside the enterprise. We delivered our first
product, Web-Charts, in September 1996. Over the next two years, we introduced
more sophisticated web products and a proprietary web security server product.
In the first quarter of 1999, we first shipped a fully integrated web-based
product suite called the Viador E-Portal Suite, which integrated our prior
product offerings and is now our primary licensed product. Since 1997, revenue
from licenses of our software products has accounted for approximately 60% of
our revenue and we expect this trend to continue in the future.
We derive our revenue from the sale of software product licenses and from
professional consulting, training, maintenance and support services. In
December 1997, we adopted Statement of Position 97-2, Software Revenue
Recognition. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on its relative fair value. We recognize product license revenue when
persuasive evidence of an agreement exists, the product has been delivered, the
license fee is fixed or determinable and collection of the fee is probable. The
entire fee related to arrangements that require the Company to deliver
specified additional features or upgrades is deferred until delivery of the
feature and/or upgrade has occurred, because the Company does not have
sufficient vendor-specific objective evidence of fair value to allocate revenue
to the various elements in such arrangements. All of the contract software
revenue related to arrangements involving consulting services that are
essential to the functionality of the software at the customer site is deferred
until the consulting services have been completed and customer acceptance has
been obtained using the completed contract method. Contract software revenue
related to arrangements to maintain the compatibility of the Company's software
products with the software products or platforms of the customer or other
vendor is recognized ratably over the term of the arrangement. License revenue
from OEM and VAR arrangements in which the Company earns a royalty based on a
specified percentage of OEM and VAR sales to end users incorporating the
Company's software is recognized upon delivery to the end user. Nonrefundable
prepaid royalty fees received by the Company from OEM and VAR customers are
deferred and recognized as the end user sales are reported to the Company by
the OEM or VAR, unless the Company has an arrangement to maintain the
compatability of its software products with the software products or platforms
of the OEM or VAR. In that case, due to the Company's software compatibility
obligation, the prepaid royalty fees are recognized as the end user sales are
reported to the Company by the OEM or VAR but limited to no more than the fee
that would be recognizable on a cumulative basis if the entire fee was being
recognized ratably over the term of the arrangement.
Service revenue consists of fees from professional services and from
maintenance and support. Professional services include integration of software,
software development, training and software installation. We bill professional
services fees either on a time and materials basis or on a fixed-price
schedule. We
21
<PAGE>
recognize professional services fees generally as the services are performed
except, as descibed above, such services are essential to the functionality of
software sold as part of the arrangement. Our clients typically purchase
maintenance agreements annually, and we price maintenance agreements based on a
percentage of the product license fee. We recognize revenue from maintenance
and support agreements ratably over the term of the agreement, typically one
year. We price telephone support based on differing contracted levels of
support. Customers purchasing maintenance agreements receive future product
upgrades and electronic, web-based technical support and basic ten hours a day,
five days a week telephone support. Customers can also purchase extended
telephone support, available 24 hours a day, seven days a week, for an
additional fee. We record cash receipts from customers and billed amounts due
from customers in excess of revenue recognized as deferred revenue. The timing
and amount of revenue recognized from individual contracts, some of which
represent over 10% of revenue recognized during a particular quarter, can vary
significantly. Furthermore, as discussed above, revenue related to significant
transactions may be recognized over the term of the agreement, which may extend
recognition over a period of 36 to 60 months. This can result in fluctuations
in revenue from one quarter to the next. Furthermore, the timing and amount of
cash receipts from customers can vary significantly depending on specific
contract terms and can therefore have an impact on the amount of accounts
receivable and deferred revenue in any given period.
Our cost of revenue includes salaries and related expenses for our customer
support, implementation and training services organizations and costs of
contracting with third parties to provide consulting services to customers. Our
cost of revenue also includes royalties due to third parties for integrated
technology, the cost of manuals and product documentation, production media
used to deliver our products and shipping costs, including the costs associated
with the electronic transmission of software to new customers and an allocation
of our facilities, communications and depreciation expenses. Cost of license
revenue has been under 1% of our license revenue to date.
Our operating expenses are classified into four general categories: sales
and marketing, research and development, general and administrative and
amortization of deferred stock-based compensation. We classify all charges to
these operating expense categories based on the nature of the expenditures.
Although each category includes expenses that are category specific, each
category includes expenses that are common to the other three, such as
salaries, employee benefits, incentive compensation, bonuses, travel and
entertainment costs, telephone expenses, communication expenses, rent and
facilities costs and third-party professional service fees. The sales and
marketing category of operating expenses includes expenditures specific to the
marketing group, such as sales commissions, public relations and advertising,
trade shows, marketing collateral materials and web seminars. We allocate the
total costs for overhead and facilities to each of the functional areas that
use the overhead and facilities services based on their estimated usage as
measured primarily by employee headcount. These allocated charges include
facility rent for the corporate office, communication charges and depreciation
expense for office furniture and equipment.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and professional services departments and to establish an
administrative organization. As a result, we have incurred net losses in each
fiscal quarter since inception and, as of June 30, 1999, had an accumulated
deficit of $14.9 million. We anticipate that our operating expenses will
increase in future quarters commensurate to or greater than any revenue
increases as we increase sales and marketing operations, develop new
distribution channels, fund greater levels of research and development, broaden
professional services and support, and improve operational and financial
systems. Accordingly, we expect to incur additional losses for the foreseeable
future. In addition, our limited operating history makes it difficult for us to
predict future operating results and, accordingly, we cannot assure you that we
will achieve or sustain revenue growth or profitability.
We had 108 full-time employees at June 30, 1999, up from 83, 61 and 17 at
December 31, 1998, 1997 and 1996, respectively. This rapid growth places a
significant demand on our management and operational resources. In order to
manage growth effectively, we must implement and improve our operational
systems,
22
<PAGE>
procedures and controls on a timely basis. In addition, we expect that future
expansion will continue to challenge our ability to hire, train, motivate and
manage our employees.
In May 1997, we raised $3.5 million in private equity investment from a
group of investors led by Mitsui Ltd. who, at the same time, entered into an
exclusive distribution agreement for our products in Japan under which we
received a prepaid royalty of $200,000. The prepaid royalty received has been
deferred and is being recognized as the end-user sales are reported to us by
Mitsui. In August 1998, we raised an additional $8.5 million in private equity
investment from a group of investors led by Information Technology Ventures. In
May 1999, we raised an additional $14.5 million in private equity investment
from a group of investors led by CDB Venture Management (USA) and Crosslink
Technology Partners.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Six
Months Ended
Years Ended December 31, June 30,
------------------------------ ---------------
1995 1996 1997 1998 1998 1999
----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License................... --% 5.6% 53.0% 59.7% 65.1% 64.8%
Service................... 100.0 94.4 47.0 40.3 34.9 35.2
----- ----- ------ ------ ------ ------
Total revenue........... 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ------ ------ ------ ------
Cost of revenue............. 12.5 31.5 57.1 36.3 36.5 26.6
Gross profit................ 87.5 68.5 42.9 63.7 63.5 73.4
----- ----- ------ ------ ------ ------
Operating expenses:
Research and development.. 18.8 36.5 85.4 64.9 63.1 56.9
Sales and marketing....... 13.8 12.6 113.9 112.3 103.0 133.6
General and
administrative........... 10.0 35.9 59.2 35.7 21.3 30.2
Amortization of stock-
based compensation....... -- -- -- 11.6 5.4 16.1
----- ----- ------ ------ ------ ------
Total operating
expenses............... 42.6 85.0 258.5 224.5 192.8 236.8
----- ----- ------ ------ ------ ------
Operating income (loss)..... 44.9 (16.5) (215.6) (160.8) (129.3) (163.4)
Interest income
(expense), net......... -- 1.0 4.0 (1.6) (0.1) 3.5
----- ----- ------ ------ ------ ------
Net income (loss)........... 44.9% (15.5)% (211.6)% (162.4)% (129.4)% (159.9)%
</TABLE>
Six Months Ended June 30, 1999 and 1998
Revenue. Revenue increased to approximately $3.3 million for the six months
ended June 30, 1999 from approximately $1.8 million for the six months ended
June 30, 1998, representing an increase of approximately $1.5 million, or 88%.
The increase in revenue was due to an increase in the number of new customers,
which accounted for 68% of revenue, and increased usage by existing customers.
This increase in revenue was also attributable to a significant increase of
over 65% in the number of employees in sales operations and the introduction of
the Viador E-Portal Suite.
License Revenue. License revenue increased to approximately $2.1 million for
the six months ended June 30, 1999, from approximately $1.1 million for the six
months ended June 30, 1998, representing an increase of approximately 87%. The
increase in license revenue was due to the addition of 26 new customers
resulting from growing market acceptance of the Viador E-Portal Suite, which
first shipped in the first quarter of 1999. These new large customers were
complemented by continuing sales to existing accounts and a diminishing number,
only six in 1999 to date, of smaller new customers with initial sales under
$50,000.
23
<PAGE>
Service Revenue. Service revenue increased to approximately $1.2 million for
the six months ended June 30, 1999, from $612,000 for the six months ended June
30, 1998, representing an increase of approximately $588,000, or 89%. This
increase was a result of an increase in services provided in connection with
increasing license sales. This increase included $305,000 in additional
consulting revenue, $165,000 in additional customer technical support fees and
$118,000 in additional customer training revenue. The increase in training
revenue reflects the opening of our San Mateo training center in the second
quarter of 1998.
Cost of Revenue. Cost of revenue increased to $874,000 for the six months
ended June 30, 1999 from $640,000 for the six months ended June 30, 1998,
representing an increase of $234,000, or 37%. Ninety-one percent of these
expenses were related to on-site consulting and training services,
approximately two-thirds of which costs were payroll-related and were incurred
in the six-month period ended June 30, 1999. Cost of revenue decreased to 27%
of total revenue for the six months ended June 30, 1999 from 37% for the six
months ended June 30, 1998. This change resulted from the increased proportion
of revenue derived from license revenue for which the related cost of license
revenue was insignificant. We anticipate that our cost of revenue will grow in
future periods in order to accommodate planned increases in the number of
customers and greater utilization of products by existing customers.
Research and Development. Research and development expenses consist
primarily of costs associated with new product introductions and product
improvements. Research and development expenses increased to approximately $1.9
million for the six-month period ended June 30, 1999 from approximately $1.1
million for the six-month period ended June 30, 1998, representing an increase
of approximately $800,000, or 69%. Approximately $400,000 of this increase was
due to payroll cost and benefit increases related to a staffing increase of
24%, hired earlier in 1999. $150,000 of the remaining cost increase was
attributable to facility expenses, $47,000 to recruiting fees and the remainder
to new computer and equipment expenses.
Sales and Marketing. Sales and marketing expenses increased to approximately
$4.4 million for the six months ended June 30, 1999 from approximately $1.8
million during the six months ended June 30, 1998, representing an increase of
$2.6 million, or 143%. Approximately $2.0 million of this increase was
attributable to increased selling expenses, $1.1 million of which were salary,
commissions and bonuses paid to salespeople. Commissions and bonus payments
accounted for approximately 25% of these expenses in both periods. Marketing
expenses increased 89% during the six months ended June 30, 1999 over the same
period last year, reflecting advertising campaigns launched for the Viador E-
Portal Suite in the first half of 1999.
General and Administrative. General and administrative expenses increased to
$996,000 for the six months ended June 30, 1999 from $374,000 during the six
months ended June 30, 1998, representing an increase of $622,000, or 166%.
$280,000 of the increase in total expenses was attributable to increases in
professional services fees, primarily legal and accounting fees related to
increased business activities. The remaining expense increases were due
primarily to increases in office space.
Interest Income, Net. Interest income, net, includes interest income from
our cash and cash equivalents, and investments. Interest expense relates to our
financing obligations, including bank borrowings. Interest expense, net,
increased to $116,000 of interest income for the six months ended June 30,
1999, up from $2,000 of interest expense for the six months ended June 30,
1998, representing an increase of $118,000. This increase was primarily due to
a higher average cash balance as a result of the proceeds from the issuance of
shares of our preferred stock in August 1998 and May 1999.
Years Ended December 31, 1998, 1997 and 1996
Revenue. Revenue was approximately $1.0 million, $1.6 million and $3.8
million in 1996, 1997 and 1998, respectively, representing increases of
$585,000, or 59%, from 1996 to 1997 and approximately $2.2 million, or 142%,
from 1997 to 1998. The increase in revenue from 1996 to 1997 was due to an
increase in product license sales in 1997, as over 94% of 1996 revenue
consisted of service revenue. The increase in revenue from 1997 to 1998 was due
to increased license revenue as the availability of new software products
attracted new large customers.
24
<PAGE>
License revenue. License revenue was $56,000, $839,000 and approximately
$2.3 million in 1996, 1997 and 1998, respectively. Revenue for product sales in
1996 was low as we shipped our first product only in September of that year.
License revenue increased from 1996 to 1997 in large part because we introduced
two new web-based products which accounted for the majority of the $839,000 new
license revenue. License revenue increased 172% from 1997 to 1998 as our
products gained market acceptance.
Service revenue. Service revenue was $941,000, $743,000 and approximately
$1.5 million in 1996, 1997, and 1998, respectively. Our first full year of
operation was 1996, and much of that year was focused on providing customer
database consulting services to confirm the accuracy of the product plan and
direction. In 1997, service revenue dropped by 21% from 1996 because we shifted
our focus to developing and supporting our new software product lines. Service
revenue climbed by 108% in 1998 compared to 1997 due to our expansion of the
services to include customer maintenance and support services as well as
consulting in support of our licensed product sales.
Cost of Revenue. Cost of revenue was $314,000, $903,000 and approximately
$1.4 million in 1996, 1997 and 1998, respectively, representing increases of
$589,000, or 187%, from 1996 to 1997 and $484,000, or 54%, from 1997 to 1998.
These increases were due to staffing increases for support and consulting,
approximately two-thirds of which expenses were payroll-related, and a new
training facility that opened in 1998. Cost of revenue as a percentage of total
revenue decreased to 36% for the year ended December 31, 1998, from 57% for the
year ended December 31, 1997, due to the increased proportion of revenue
derived from license revenue for which the related cost of license revenue has
been insignificant.
Research and Development. Research and development expenses were $364,000,
approximately $1.4 million and $2.5 million in 1996, 1997 and 1998,
respectively, representing increases of approximately $1.0 million, or 271%,
from 1996 to 1997 and approximately $1.1 million, or 84%, from 1997 to 1998.
These increases were due to increased personnel costs of $800,000, as an
increased number of engineers were in place for all twelve months of 1998,
$225,000 of expenses associated with the launch of a new quality assurance
program in 1997, and an increase in facility-related expenses of $50,000
associated with our move to our new headquarters.
Sales and Marketing. Sales and marketing expenses increased from $125,000 in
1996 to approximately $1.8 million in 1997 and approximately $4.3 million in
1998, representing increases of over 1300% and 138%, respectively. In 1996,
selling expenses only started in the fourth quarter, and marketing was largely
related to trade shows. This trend continued in 1997, as the first commissions
were paid late in the year, and trade show and related expenses were $241,000
and comprised 38% of sales and marketing expenses. The growth in 1998 over 1997
was attributable to selling commissions of $2.1 million and an additional
$287,000 of travel expenses for sales personnel.
General and Administrative. General and administrative expenses increased
from $358,000 in 1996 to $936,000 in 1997 and approximately $1.4 million in
1998, representing year-to-year increases of 161% and 46%, respectively. In
1997, we used the proceeds of the first round of external financing to hire a
small administrative staff and to expand to a second office. Facility expenses
increased in 1998 as our San Mateo offices were consolidated and new field
offices were opened. Professional expenses for legal and accounting support
increased from $75,000 in 1997 to over $350,000 in 1998, reflecting increased
business activity and support requirements. Depreciation expenses for new
office equipment and amortization of improvements to our San Mateo offices over
two-year leases largely account for the remainder of the increase.
Interest Income, Net. Interest income, net, was $10,000, $62,000 and an
expense of $63,000 in 1996, 1997 and 1998, respectively, representing an
increase of $52,000 from 1996 to 1997 and a decrease of $125,000 from 1997 to
1998. The increase from 1996 to 1997 was due to a higher average cash balance
as a result of the proceeds from the issuance of shares of our preferred stock
and the decrease from 1997 to 1998 was due to the use of cash for operations
and the payment of interest on a $2.0 million bridge loan obligation starting
in the second quarter.
25
<PAGE>
Quarterly Results of Operations
The following tables set forth certain unaudited statements of operations
data for the six quarters ended June 30, 1999, as well as the percentages of
our revenues represented by each item. This data has been derived from the
unaudited interim financial statements prepared on the same basis as the
audited financial statements contained herein and, in the opinion of
management, include all adjustments consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of such
information when read in conjunction with the financial statements and notes
thereto appearing elsewhere in this prospectus. The operating results for any
quarter should not be considered indicative of results of any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
Mar. June Sept. Dec. Mar. June
31, 30, 30, 31, 31, 30,
1998 1998 1998 1998 1999 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations (unaudited, dollars in thousands except per
Data: share data)
Revenue................. $ 725 $ 1,029 $ 669 $ 1,402 $ 1,228 $ 2,062
Cost of revenue......... 312 328 391 356 353 521
------- ------- ------- ------- ------- -------
Gross profit............ 413 701 278 1,046 875 1,541
------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 521 586 654 720 820 1,051
Sales and marketing... 836 970 1,214 1,275 1,968 2,429
General and
administrative....... 166 208 529 462 305 691
Amortization of stock-
based compensation... -- 94 158 193 253 276
------- ------- ------- ------- ------- -------
Total operating
expenses............... 1,523 1,858 2,555 2,650 3,346 4,447
------- ------- ------- ------- ------- -------
Operating loss.......... (1,110) (1,157) (2,277) (1,604) (2,471) (2,906)
Interest income
(expense), net......... (11) 9 199 (260) 35 81
======= ======= ======= ======= ======= =======
Net loss................ $(1,121) $(1,148) $(2,078) $(1,864) $(2,436) $(2,825)
======= ======= ======= ======= ======= =======
Basic and diluted net
loss per share......... $ (0.37) $ (0.35) $ (0.59) $ (0.50) $ (0.61) $ (0.66)
======= ======= ======= ======= ======= =======
Weighted average shares
used in basic and
diluted net loss per
share.................. 3,057 3,296 3,539 3,763 3,979 4,272
======= ======= ======= ======= ======= =======
As a Percent of Total
Revenue:
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 43.0 31.9 58.4 25.4 28.7 25.3
------- ------- ------- ------- ------- -------
Gross profit............ 57.0 68.1 41.6 74.6 71.3 74.7
Operating expenses:
Research and
development.......... 71.9 56.9 97.8 51.4 66.8 50.9
Sales and marketing... 115.3 94.3 181.5 90.9 160.3 117.8
General and
administrative....... 22.9 20.2 79.1 32.9 24.8 33.5
Amortization of stock-
based compensation... -- 9.1 23.6 13.8 20.6 13.4
------- ------- ------- ------- ------- -------
Total operating
expenses............... 210.1 180.5 382.0 189.0 272.5 215.6
------- ------- ------- ------- ------- -------
Operating loss.......... (153.1) (112.4) (340.4) (114.4) (201.2) (140.9)
Interest income
(expense), net......... (1.5) 1.0 29.6 (18.5) 2.9 3.9
------- ------- ------- ------- ------- -------
Net loss................ (154.6)% (111.4)% (310.8)% (132.9)% (198.3)% (137.0)%
</TABLE>
We expect to experience significant fluctuations in our future results of
operations due to a variety of factors, many of which are outside of our
control, including:
. demand for and market acceptance of our products and services;
. our expansion into international markets;
26
<PAGE>
. introduction of products and services or enhancements by us and our
competitors;
. competitive factors that affect our pricing;
. the timing of customer installations;
. the mix of products and services we sell;
. the timing and magnitude of our capital expenditures, including costs
relating to the expansion of our operations;
. the size and timing of customer orders, particularly large orders, some
of which represent more than 10% of total revenue during a particular
quarter;
. the hiring and retention of key personnel;
. conditions specific to the enterprise information portal market and
other general economic factors;
. changes in generally accepted accounting policies, especially those
related to the recognition of software revenue; and
. new government legislation or regulation.
In addition, over 85% of our expenses are fixed in the short-term,
particularly with respect to depreciation, real estate and personnel costs, and
therefore our results of operations are particularly sensitive to fluctuations
in revenue. Due to these factors, we believe that period-to-period comparisons
of our operating results are not necessarily meaningful and that such
comparisons cannot be relied upon as indicators of our future performance.
Liquidity and Capital Resources
From our inception through June 30, 1999, we financed our operations through
private equity placements totaling approximately $26.6 million and drawdowns
from a revolving facility of up to $500,000. At June 30, 1999, we had an
accumulated deficit of approximately $14.9 million and cash and cash
equivalents of approximately $14.3 million.
Net cash used in our operating activities for the six months ended June 30,
1999 was approximately $3.9 million. The net cash used by operations was
primarily due to working capital requirements and net losses, offset by
increases in accounts payable and accrued expenses. Net cash used in investing
activities was $588,000 for the six-month period ended June 30, 1999, which is
comprised of property and equipment purchases. Net cash provided by financing
activities was approximately $14.6 million.
We have a $2.5 million line of credit with a commercial bank for the purpose
of financing working capital requirements and equipment purchases. As of June
30, 1999, no amount was outstanding thereunder. The loan contains certain
standard covenants, is based on a percentage of qualified outstanding accounts
receivables and is secured by a security interest in all of our intellectual
property. Interest on borrowings thereunder accrues at the rate of 1% over the
bank rate, as announced by the bank from time to time, for the revolver and
1.25% over the bank rate, as announced by the bank from time to time, for an
equipment note.
We believe that the estimated net proceeds from this offering, together with
our existing cash and funds available under our existing credit facilities,
will be sufficient to fund our capital expenditures, cash needs and operating
losses for at least the next 12 months. The execution of our business plan will
require substantial additional capital to fund our operating losses, sales and
marketing expenses, capital expenditures, lease payments and working capital
requirements thereafter. We intend to continue to consider our future financing
alternatives, which may include the incurrence of indebtedness, additional
public or private equity offerings or an equity investment by a strategic
partner. Actual capital requirements may vary based upon the timing and success
of the expansion of our operations. Our capital requirements may change based
upon technological and competitive developments. In addition, several factors
may affect our capital requirements, including:
. demand for our products and services or our anticipated cash flow from
operations being less than expected;
27
<PAGE>
. our development plans or projections proving to be inaccurate; or
. our engaging in acquisitions or other strategic transactions.
Other than our $2.5 million line of credit, we have no present commitments
or arrangements assuring us of any future equity or debt financing, and we
cannot assure you that any such equity or debt financing will be available to
us on favorable terms, or at all.
Deferred Stock-based Compensation
Certain options granted and common stock issued during the 18 months ended
June 30, 1999 have been considered to be compensation. Total deferred stock-
based compensation associated with these equity transactions for the year ended
December 31, 1998 and for the six months ended June 30, 1999 were approximately
$1.6 million and $1.4 million, respectively. These amounts are being amortized
over the vesting periods of the options. Of the total stock compensation
expense, $445,000 was amortized in the 12 months ended December 31, 1998 and
$529,000 was amortized in the six months ended June 30, 1999. We expect
amortization of approximately $1.1 million and $805,000 in the years ended
December 31, 1999 and 2000, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Because we do not currently hold any derivative
instruments and do not engage in hedging activities, we expect that the
adoption of SFAS No. 133 will not have a material impact on our financial
condition, results of operations or cash flows. We will be required to adopt
SFAS No. 133 in fiscal 2000.
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9, Software Revenue Recognition with Respect to Certain
Arrangements, which requires recognition of revenue using the "residual method"
in a multiple element arrangement when fair value does not exist for one or
more of the delivered elements in the arrangement. Under the "residual method,"
the total fair value of the undelivered elements is deferred and subsequently
recognized in accordance with SOP 97-2. We did not have a material change to
our accounting for revenue as a result of the provisions of SOP 98-9.
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 these 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 these year 2000
requirements.
Viador and Year 2000
We are in the process of assessing the year 2000 readiness of our products
and business operations. We do not expect to be materially adversely affected
by year 2000-related issues. We have established a year 2000 task force
composed of management and information systems consultants, whose mission is to
evaluate and certify our readiness by closely directing and documenting
internal analysis, remediation, testing and contingency planning. The target
date for completing the assessment of our mission-critical systems is
28
<PAGE>
September 30, 1999; the target date for completing the assessment of our non-
mission-critical systems is October 31, 1999. We believe we are presently on
schedule to resolve all issues by these target dates.
The scope of Year 2000 issues within Viador
Our business is dependent on the operation of numerous systems that could
potentially be affected by year 2000-related problems. These systems include,
among others:
. hardware and software systems we use to deliver products and services
to our customers, including our proprietary software systems as well
as software supplied by third parties;
. communications networks such as the internet and internal company
networks;
. the internal systems of our customers and suppliers;
. software products sold to our customers;
. the hardware and software systems we use internally to manage our
business; and
. non-information technology systems and services, such as power,
telephone systems and building systems.
What measures are we taking to ensure compliance?
We have reviewed 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 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. We are evaluating vendor
compliance statements, using diagnostics software to scan desktops and servers,
and are formally documenting the results of both processes. We have also
inventoried and assessed internal applications and have determined that most
applications are supplied by third-party vendors. Few of these applications are
mission-critical and those that are mission-critical have been tested and
remediated. We have not yet completed an assessment of embedded technology;
however, these are predominantly non-mission-critical and we do not expect
significant impact from the state of their year 2000 compliance. Embedded
technology is non-computer equipment, such as copiers and phone systems, that
utilize components similar to those found in computers. Our current assessment
is that upgrades or migration to major internal computer, software and
equipment systems will not be necessary. We expect that our review will be
completed and fully documented by October 31, 1999.
We are completing compliance verification of external vendors supplying
products and services to us, as well as communicating with significant
suppliers to determine the readiness of third parties' remediation of their own
year 2000 issues. No vendors have advised us that they will be unable to timely
complete their year 2000 review and remediation. Although we have employed year
2000 consultants to assist us in our evaluation of year 2000 matters, except as
described above, neither we nor, to our knowledge, any of our mission-critical
vendors have employed any independent verification and validation processes to
assure the reliability of our respective year 2000 risk and cost assessments.
We have established a steering committee comprised of senior executives and
a year 2000 compliance task force composed of representatives from various
functional areas, including our product, management and information systems
departments. This task force includes outside consultants with expertise in
addressing year 2000 issues. The task force has formulated and is implementing
a year 2000 readiness program and is applying a phased approach to analyzing
our operations and relationships as they relate to the year 2000 problem. The
phases of our year 2000 program are as follows:
. establishment of a year 2000 steering committee and task force;
. inventory of all aspects of our operations and third-party
relationships subject to the year 2000 problem;
29
<PAGE>
. assignment of responsibility for external issues, such as products
licensed by us, internal issues, such as hardware, facilities,
equipment and software; and
. remediation, testing and contingency planning.
Identification of mission-critical and non-mission-critical systems
Our project year 2000 task force has identified and classified all
information technology systems, non-IT systems and embedded technology as
"mission-critical" or "non-mission-critical." Mission-critical systems are
crucial to the continuation of our business operations while non-mission-
critical systems are elements that, should they fail to be year 2000 compliant,
would not have a significant impact on our business operations.
How far along are we?
We have completed the first four phases of the program, and expect that the
final phase will be completed for all of our systems by October 31, 1999. Our
efforts have had little impact on current IT projects and will not adversely
affect our internal development schedule, operations or financial condition.
Our current project status is as follows:
<TABLE>
<CAPTION>
% Complete Expected
Task as of Completion
Description 9/30/99 Date
----------- ---------- ----------
<S> <C> <C>
Establish year 2000 steering committee and task force... 100 Done
Establish year 2000 project plan and assignment of
responsibilities....................................... 100 Done
Inventory/assessment of systems and vendor
relationships.......................................... 100 Done
Testing/remediation of mission-critical systems......... 100 Done
Gather compliance statements for mission-critical vendor
systems and services................................... 100 Done
Contingency planning for all mission-critical systems... 50 10/15/99
Testing/remediation/contingency planning for non-
mission-critical systems and services.................. 25 10/31/99
</TABLE>
Year 2000 risks related to our business
Based on our assessment to date, we believe the current versions of our
software products are year 2000 compliant. We have performed various testing
processes to confirm that our products do not have identifiable year 2000
problems. However, we continue to formally retest and document the processes we
have completed and the results thereof. We expect this product retesting and
documentation to be completed by September 30, 1999. We are also in the process
of testing the year 2000 compliance of third-party components of our products.
The third-party vendors have certified the year 2000 compliance of these
components through public or private recorded disclosure.
We may still be subject to external forces that might generally affect
industry and commerce, such as extended power outages or widespread failures
across the internet, which would create disruptions that would take time to
repair. The time required to make these repairs would depend on the severity of
the power outages or widespread failures. The costs associated with these
external forces could be material.
Our worst-case year 2000 scenario would occur if customers using our
products experience product failure following the shift in millennium. This
scenario should only unfold if the supporting environment required for
operating our products fails to be year 2000 compliant. If our products do have
year 2000 problems, we have a limited number of personnel who are technically
experienced with our year 2000 compliance procedures and, in the event our
systems were to fail as a result of year 2000 problems, these employees would
likely be unable to timely comply with several customers' requests for year
2000 remediation. Any such delay could impair our business or prospects or
relationships with those customers. The total cost of year 2000 compliance and
remediation may be material and may harm our business. Although we do not
expect this scenario to happen and are testing thoroughly to prevent its
incidence, we have contingency plans in place to minimize damage to our
reputation or brand if it happens. We are requiring that all employees be
available to assist us between the dates of December 1, 1999 and January 31,
2000. In this regard, none of our employees is permitted to leave
30
<PAGE>
the area of their service to the company without executive permission, and our
engineering, sales and technical support staff will be available to fix any
problems that might arise. We are also requiring key technical and customer
relations staff to come to the office on January 1, 2000 to assist our
customers with any year 2000 issues that may arise.
Our products are generally used with sophisticated hardware and complex
software products that may not be year 2000 compliant. The accuracy of the
information generated by our products is inherently dependent on the quality of
the source data from these other hardware and software. We expect that our
products will not produce errors processing, providing and receiving date data
within and between the twentieth and twenty-first centuries, provided that all
products used with our software accurately exchange date data to and from our
products in accordance with our documentation. Therefore, to the extent that
the underlying source data is inaccurate or corrupted, or to the extent that
the hardware or software products that generate or store that data are not year
2000 compliant or are otherwise flawed, the information generated by our
products may be similarly inaccurate or corrupted. The success of our year 2000
compliance efforts may depend on the success of our customers in dealing with
their 2000 issues. We sell our products to companies in a variety of
industries, each of which is experiencing different year 2000 compliance
issues. Customer difficulties with year 2000 issues might require us to devote
additional resources to resolve underlying problems.
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. We will identify mission
critical business operations and develop contingency plans for those
operations. We presently do not have a contingency plan for handling year 2000
problems that are not detected and corrected prior to their occurrence. 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.
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, we cannot assure you 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, may have a material adverse effect on our business,
results of operations and financial condition.
In addition, we believe that purchasing patterns of customers and potential
customers may be affected by year 2000 issues as companies expend significant
resources to correct or upgrade their current software systems for year 2000
compliance or defer additional software purchases until after 2000. As a
result, some customers and potential customers may have more limited budgets
available to purchase software products such as those offered by us, and others
may choose to refrain from changes in their information technology environment
until after 2000. To the extent year 2000 issues cause significant delay in, or
cancellation of, decisions to purchase our products or services, our business
would be materially adversely affected.
For additional discussion of our year 2000-related risks, see "Risk
Factors--Our failure and the failure of third parties to be year 2000 compliant
could negatively impact our business" and "--If our customers defer technology
purchases because of year 2000 concerns, our growth and results of operations
for the remainder of 1999 and early 2000 may suffer" on pages 12 and 7,
respectively.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products in North
America, Europe and the Asia-Pacific region. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. As all of our sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
products less competitive in foreign markets. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the short-
term nature of our investments, we believe that there is no material risk
exposure. Therefore, no quantitative tabular disclosures are required.
31
<PAGE>
BUSINESS
Overview
We develop and market internet software that enables businesses to create
enterprise information portals. An enterprise information portal gives users a
single browser-based interface with which to quickly and easily access
information from a variety of enterprise data sources. We believe the Viador E-
Portal Suite offers a comprehensive and integrated enterprise information
portal that is specifically designed for the web and works with a customer's
existing hardware and software systems, without the need for additional
technology expenditures. It provides our customers with the ability to manage
and share information on a secure and cost-effective basis that can accommodate
significant increases in the number of users and amount of information. As more
users contribute increasing amounts of information to the portal, we believe
our customers are able to increase business productivity and efficiency.
Industry Background
In today's highly competitive environment, businesses are focused on
improving their efficiency, effectiveness and ability to meet customer demands.
Providing diverse internal decision makers with relevant, accurate and timely
information is a key strategic priority for business and an important element
of achieving competitive advantage. Similarly, sharing information with
customers and suppliers is essential to succeed as an e-business.
Abundance of Information
Business decision makers need quick access to relevant information from a
variety of sources, including the internet, internal corporate networks, e-
mail, databases and business software programs. However, the large and growing
quantity of information, coupled with the lack of effective solutions for
efficiently accessing, combining and organizing it, makes it difficult to
identify and utilize relevant information. Due to this information overload,
businesses need to be able to quickly identify and obtain relevant information
in order to make timely and informed decisions.
The Proliferation of Disparate Information Technology Formats
There is a rapidly growing variety of technologies used for creating,
storing and organizing information. These include many different computer
hardware, such as mainframe computers and computer networks, and numerous
software programs, such as those for finance, accounting, sales, manufacturing
and human resources. However, many of these hardware and software systems were
developed independently to be operated on a stand-alone basis and were not
designed to be compatible with other hardware and software. In order to access
all of an enterprise's information, users may need to use separate software
programs, complete separate security protocols and use different computer
terminals. As the number of formats and amount of information grows, it becomes
increasingly difficult and time consuming to navigate around these
technological obstacles to obtain relevant information.
Emergence of the Internet as the Global Medium for Communications
The internet continues to experience rapid growth and expansion as an
important global medium for communications and business due to its cost
effectiveness, extensive reach and ability to handle tremendous growth. The
internet provides a powerful medium for enterprises and their customers,
suppliers and strategic partners to share business information efficiently. We
expect that the ability to securely share information efficiently over the
internet will become increasingly important and lead growing numbers of
enterprises to adopt web-based information and communication solutions.
32
<PAGE>
Growth of E-Business
The internet continues to transform the way that business is conducted. It
can help businesses improve customer satisfaction, reduce cost structures,
globalize operations, foster innovation and accelerate speed to market. E-
business is the use of the internet and emerging technologies to replace or
supplement traditional business channels and practices. As the number of
internet users has grown, enterprises have increasingly viewed the internet as
an opportunity to interact rapidly with a larger number of geographically
distributed offices, employees, customers, suppliers and partners. In many
cases, the adoption of a web-based marketing, communication or financial model
provides enterprises with strategic competitive advantages and can prevent the
loss of market share to aggressive e-business innovators.
Need for a Comprehensive Solution
The above factors suggest the need for a solution that facilitates the
organization, secure access to and use of enterprise information by those who
require it, regardless of whether they are users inside the business or outside
partners. However, current solutions generally do not enable companies to
organize and provide secure access to enterprise information through a single
interface regardless of its format. The ideal solution would work with all of
the enterprise's information technology and provide integrated access to all
enterprise information regardless of its source or format. Furthermore, given
the large amounts of electronic data being generated, the ideal solution would
help users get fast access to personalized and relevant information.
A comprehensive solution would work with existing customer information
systems and would not require customers to replace or upgrade their existing
technology investments. It also would utilize the internet, so that it would
work through a web browser without any need to install additional software on
users' computers. An internet-based solution could be implemented quickly,
accommodate significant increases in the number of users and amount of
information, and adapt to changes in the customer's business model. In
contrast, we believe that any solution that does not utilize the internet would
have significant difficulty accommodating substantial increases in the number
of users and amount of information.
The Viador E-Portal Suite
We provide a suite of enterprise software products that enables
organizations to build enterprise information portals that permit quick, easy
access to all enterprise information, facilitate the provision of customized
and personalized information and permit the secure sharing of enterprise
information both within the enterprise and with outside partners.
Single Interface for All Enterprise Information. Our software permits users
to access data from multiple sources within and outside the company through a
single interface. We provide a comprehensive and integrated enterprise
information portal solution that provides access to user-personalized, up-to-
the-minute information quickly and easily.
Adaptable Web-Based Architecture. In contrast to existing solutions, our
software architecture can accommodate significant increases in the number of
users and amount of information. Our software architecture is designed for the
internet, which means that it:
. works through a user's existing web browser,
. does not require the installation of any additional software on the
user's desktop, and
. can be quickly rolled out to thousands of additional users.
Our solution provides the means to build and enhance over time the methods by
which our customers organize, retrieve and distribute information. The open and
highly adaptable architecture of our software gives our customers the
flexibility to customize and extend their enterprise portal framework as their
needs evolve.
33
<PAGE>
Our enterprise information portal provides greater benefits to the enterprise
the more users it reaches and the more broadly our software is deployed.
Customized and Personalized Information. We address the information overload
problem by helping users locate and retrieve the most pertinent business
information. This capability increases the efficiency of information use by our
customers' employees. Our software allows the organization to automatically
categorize information by subject, by user, by department, by role within the
organization and according to other criteria. Its capabilities permit users to
locate and access desired information from various data sources. In addition,
our software permits each user to customize his or her portal interface to
access and display information in accordance with that user's needs and
preferences.
Combines Ease of Use with Sophisticated Functions. The Viador E-Portal Suite
provides browser-based searchable access to the entire range of an
organization's enterprise information assets, facilitating location of and
access to information regardless of the underlying data source. Our browser-
based interface combines the ease of use of popular consumer internet portals,
while providing users with the ability to search enterprise-wide for specific
information and analyze data. The database access capabilities within our
software are all web-based and, unlike unintegrated database access tools,
offer a uniform look and feel for reporting, querying and analytical
processing.
Builds Upon Customers' Existing Investments in Information
Technology. Customers who utilize our software are able to build upon their new
and existing hardware and software investments. As a result, our customers
typically do not need to purchase new computer equipment or software in order
to install and integrate our software.
Ease of Implementation. The Viador E-Portal Suite is designed to be
implemented rapidly over the web using our customers' existing information
technology. Once installed on an organization's servers, our software can reach
employees enterprise-wide via their existing web browsers. New users can be
added in minutes on the customer's servers since no new software has to be
installed on the user's computer.
Secure and Selective Access. Security features are essential to permit
customers to share confidential information rapidly over the internet with a
large number of geographically distributed offices, employees, customers,
suppliers and partners. Our software allows the organization to customize
information access by individual user and category of user. Our product's
security features operate in conjunction with our customers' existing security
services to identify and authenticate users.
Viador Strategy
Our goal is to be the leading provider of enterprise information portal
software solutions. Key elements of our strategy include:
Extend Technology Leadership. We believe we are among the first companies to
provide a solution that has all of the following features:
. based on pure internet architecture;
. provides search capabilities using internet search technology;
. facilitates personalization of the information provided to each user;
. designed to accommodate significant increases in the number of users and
amount of information;
. can retrieve and deliver information from different, otherwise
incompatible sources; and
. provides multi-level security.
We intend to enhance our technology by continuing to devote significant
resources to research and development efforts and by forming strategic
relationships that will enable us to further enhance the performance and
adaptability of our software.
34
<PAGE>
Expand Sales, Distribution and Marketing. We intend to significantly grow
our direct sales organization to expand coverage and penetration of large
enterprise opportunities to take advantage of our innovative technologies. We
are making significant new investments in our corporate and field marketing
capacity as well as efforts to improve awareness of Viador and the Viador E-
Portal Suite solution. In addition, we will continue to exploit and build our
network of resellers of products who also provide related services,
manufacturers who use our software in their products, system integrators who
bring together various hardware and software to solve a specific customer
problem and distributors to expand our indirect distribution worldwide.
Increase Use by Existing Customers. The value of our software to our
customers grows as it is deployed more widely throughout the organization for
the following reasons:
. more data can be accessed by customers' users as the number of
departments within an organization that uses our software increases;
. users become more accustomed to using the portal to access data; and
. users contribute increasing amounts of information to the portal, which
makes this information accessible to all authorized users.
For these reasons, we believe that our customers are able to realize greater
productivity and efficiency in their businesses. We believe that our success at
winning and delivering initial deployments of our software by customers can be
grown to enterprise-wide adoption of our technology, which would generate
significant added revenue.
Build Strategic Relationships. We have formed strategic relationships
covering marketing, engineering and sales with numerous multinational companies
that are at the forefront of providing technology for e-business. We have an
established marketing arrangement with IBM which has significantly improved our
distribution capabilities and resulted in additional sales. In addition, our
technology is used in IBM's Net.Commerce initiative for e-commerce storefronts
and we are delivering our technology onto the IBM OS/390 mainframe. E-commerce
involves buying and selling merchandise and services over the internet. Our
products are currently distributed in Japan by Mitsui, which assisted us in
adapting our products for Japan and other international markets. In addition,
we have partnered with Infoseek for joint marketing purposes and to incorporate
into our software Infoseek's technologies for searching and indexing
information available on the internet and on our customers' internal networks.
We have also recently entered into an alliance agreement with Deloitte
Consulting LLC and a product development and marketing agreement with Hewlett-
Packard Company. We also intend to develop new strategic relationships with
other large hardware, software and e-business companies.
Create Standardized Business Portal Solutions. We are creating a series of
standardized portal formats for specific business uses. These portal formats
provide a turn-key solution by meeting the specific information requirements of
customers with similar business needs. For example, we have developed an e-
commerce portal format to assist e-commerce companies to understand information
regarding shopping behavior of those using their web sites. This contrasts with
the format requirements of a supply chain portal. Our standardized business
portals are designed to significantly reduce the time required to implement the
Viador E-Portal Suite in a tailored format that satisfies a significant portion
of the customer's information needs. Furthermore, these standardized formats
can be customized over time to better suit the information needs of a specific
customer. These standardized portal formats complement our broader sales
strategy by facilitating initial deployments at new customers, so that our
relationship with these customers can develop over time resulting in broader
deployments of our software.
Build World Class Service and Support Operations. Superior customer service,
training and support is necessary to build long-term customer relationships
that enable enterprise-wide deployments of our software. Our goal is to deliver
technology and services that enable our customers to rapidly implement advanced
technology business solutions throughout their organizations at the lowest
possible cost. To succeed and maintain a competitive edge, we will continue to
build on the success of our Advanced Solutions Division, which uses our core
technology to solve customers' individual problems. We intend to grow our
direct service and support organization to expand our training capabilities and
to provide reliable customer support.
35
<PAGE>
Technology
We believe the Viador E-Portal Suite offers a comprehensive and integrated
enterprise information portal that gives users a single browser-based interface
with which to quickly and easily access up-to-the-minute information from a
variety of enterprise data sources. Combining this easy-to-use browser-based
interface with our products' information delivery capability, our software
provides secure access and delivery of data.
Adaptable Internet Architecture
The architecture of the Viador E-Portal Suite is designed for the web, which
gives it the ability to accommodate significant increases in the number of
users and the amount of information. Our software's highly adaptable
architecture and software development kit give customers the added flexibility
to customize and extend their enterprise information portal as their needs
evolve. It is Java-based, it operates on Microsoft Windows NT servers, and we
anticipate that it will operate on Unix servers beginning in the third fiscal
quarter of 1999. Our software works with major web servers and browsers. We
facilitate enterprise-wide scalability through add-on options that enable
multiple servers, distributed throughout a customer's organization, to work
together in servicing user information requests.
Comprehensive Access
Our software provides comprehensive information access for the following
categories of data:
. structured data, including data from databases, data marts, data
warehouses and business software;
. unstructured data, including data contained in internal company
networks, on the internet, in groupware, such as Lotus Notes, and in
documents stored in file systems; and
. event data, such as news or stock quotes, that is constantly changing
and which is delivered in real time.
Information Personalization
We address the information overload problem by helping users locate and
retrieve the most pertinent business information. This capability increases the
efficiency of information use by our customers' employees. Our software allows
the organization to focus information by subject, by user, by department, by
role within the organization and according to other criteria. Its capabilities
permit the location of and access to desired information from structured,
unstructured and event data sources. In addition, our software permits each
user to customize his or her portal interface to access and display information
in accordance with that user's needs and preferences.
Secure Information Sharing
Security features are essential to permit customers to share confidential
information rapidly over the internet with a large number of geographically
distributed offices, employees, customers, suppliers and partners. Our
products' security features operate in conjunction with our customers' existing
security services to identify and authenticate users. These features permit the
enterprise to establish multiple levels of access rights based upon each user's
job function and organizational role.
Easy Administration
Our software facilitates the management of enterprise information in large
organizations with thousands of users, giving the system administrator an added
measure of flexibility to centrally monitor and administer the system from
virtually anywhere. User administration by the user's job function and
organizational role enables the administrator to precisely delineate access
privileges to reports, databases and documents for individual users and groups.
The server management component of our software audits server usage and
monitors user access in real time.
36
<PAGE>
Products and Services
Products
The Viador E-Portal Suite is comprised of the following products, which are
sold both individually and as a suite:
Viador Sage is a browser-like interface that gives users the ability to
search, access, analyze and share business information through a simple
interface similar to popular consumer internet portals. Both organizations and
individual users can customize the Viador Sage interface to meet their
information needs. Viador Sage provides comprehensive access to structured,
unstructured and event data. Personalization capabilities enable the filtering
of information by time, subject and job function to improve user productivity.
Viador Information Center is a high-performance Java server that provides
data access, content delivery, session management and user security. Viador
Information Center further ensures that our software can grow with the
enterprise through add-on options that provide support for additional computers
and balancing the needs of multiple users. These options enable multiple
servers, distributed enterprise-wide, to work together in servicing user
information requests.
Viador Gateway allows customers to choose from a wide range of data sources
they would like to include in the Viador Information Center. These sources
include: Oracle, Sybase, Informix, DB2, Microsoft SQL Server, Hyperion,
Essbase, Oracle Express, WhiteLight, ODBC, Lotus Notes, Microsoft Office,
internal company networks and others.
Viador Sentinel is an integrated security server for extending secure web-
based access to partners, customers and suppliers over the internet. Viador
Sentinel operates in conjunction with existing security services to identify
and authenticate users, encrypt data, process requests and securely deliver
sensitive information. Viador Sentinel allows companies to exchange information
with e-business customers, suppliers and partners, thereby facilitating more
efficient operations and improving customer satisfaction.
Viador Administrator facilitates the management of large customer
information technology environments with thousands of users by giving the
system administrator flexibility to centrally monitor and administer the system
from virtually anywhere. Administration of users by job responsibilities and
role within the organization enables the administrator to precisely define
access privileges for individual users and groups. A server management feature
monitors and creates a record of user access in real time.
Services
Our Advanced Solutions Group offers architectural and technical consulting
services, customer support and training in connection with licenses of our
software. We believe that services are an important part of our success and we
expect to continue to expand our professional services organization.
Consulting. Our pre-sale and post-sale technology implementation services
are organized into a single organization so that our assigned consulting
engagement team can work with a customer from the initial business problem
discussions through implementation of their solution. We believe that this
allows us to develop greater knowledge of the customer's environment and add
the highest level of value. Our consultants are qualified and trained to
perform a wide variety of services including prototype development,
installation, configuration and testing of our software and integration with
the customer's existing databases, security and other systems. Our consultants
also help customers develop a strategy for the customers' enterprise-wide
deployment of our software. Once deployed into a customer site on an
engagement, our consultants become advisors and help us discover new business
opportunities within the company.
Customer Support. We provide product upgrades and customer support through
our customer support program. Customer support personnel are available 24 hours
a day, seven days a week. We also offer e-mail-based support. Customers
generally purchase the first year of product support at the time they license
37
<PAGE>
our software; after that, support may be renewed on an annual basis. Our
support engineers will immediately render assistance to system critical
problems and work with the customer to diagnose the issue and resolve it until
the customer is satisfied. Once a customer has purchased a technical support
contract, they are entitled to free upgrades for the software they have
licensed. Our support organization works with our sales force in identifying
new opportunities, product uses and for maintenance renewals.
Training. We offer a variety of training programs tailored to particular
user groups, including end users and information technology personnel. Training
classes are offered at customer sites, in various high demand cities and also
at our headquarters in San Mateo, California. We also provide training classes
for third-party service providers, such as independent systems consultants and
distributors. We provide training early in the sales cycle to ensure successful
implementations and sponsor free one-day training seminars as an inducement to
potential customers.
Customers
Our customer base spans multiple industry segments including financial
services, government, healthcare, manufacturing and telecommunications. The
following is a representative list of companies that have purchased over
$50,000 of our products and services since January 1, 1998. We do not intend
the identification of these customers to imply that these customers are
actively endorsing or promoting our products.
<TABLE>
<CAPTION>
Financial Energy & Utilities High Tech/Telecom
<S> <C> <C>
. American Century . INTESA . 3Com
. Charles Schwab . Pacific Gas & Electric . Cisco Systems
. CIBC . Retail Energy Transaction Exchange . IBM
. Citigroup Government/Education . Lucent Technologies
. Putnam Investments . Federal Aviation Administration . Nortel
Manufacturing . Internal Revenue Service . Sprint PCS
. Allied Signal . University of Buffalo . Sterling Software
. Raytheon . Multnomah County, Oregon . Sun Microsystems
Internet . US Department of Defense . Sybase
. Baker Healthcare . Xerox
Street Technologies
. Netcentives . Ministry Health Care
. FaceTime Communication Services
. Micromuse . Gelco Information Systems
. Mitsui
</TABLE>
The following examples illustrate how certain of our customers use the
Viador E-Portal Suite to perform business-critical tasks:
Charles Schwab & Co., Inc. Charles Schwab & Co., Inc. provides online
brokerage services, with over one million web-activated accounts and over $70
billion in customer assets in those accounts. Charles Schwab's Mutual Fund
OneSource(R) service brings together over 250 well-known mutual fund families
to enable its customers to trade over 1,680 mutual funds in one convenient
location. When Schwab began its Mutual Fund OneSource(R) service, it had to
build new business systems and processes to provide trading and account
information to these mutual fund families. Initially, Schwab generated paper
reports and sent them to mutual fund companies on a monthly basis. This proved
to be inefficient, costly and did not offer the fund families the ability to
access up to date information or quickly analyze the data. Recognizing that the
web browser was a common tool available to mutual funds, Schwab decided to use
the internet as a communications tool. Schwab needed a secure method for
allowing authorized users from each of the mutual fund companies it services to
access on a daily basis and analyze data about the trading volume of their
funds made available to Schwab customers for purchase. By installing the Viador
E-Portal Suite, we were able to provide Schwab with a secure extranet designed
to provide quick access to data to hundreds of mutual fund families in Schwab's
Mutual Fund OneSource(R).
38
<PAGE>
Sprint PCS. Sprint PCS provides digital personal communication services over
a nationwide wireless network, covering more than 280 metropolitan areas and
over 1,100 cities. Sprint was rapidly hiring employees, resulting in an
increase from a few hundred users of its information systems to thousands of
users. Sprint sought an enterprise solution that would enable it to deliver to
thousands of users and critical customers financial information from multiple
data sources that normally could only be accessed with a disparate collection
of client/server tools. Sprint knew that it would be cost prohibitive to use
client/server database access tools because of the high cost of installing and
maintaining the necessary PC software on thousands of desktops. Sprint
determined that the way to scale its information technology infrastructure was
to use its existing desktop browsers and its intranet. After 90 days following
project initiation, we were able to provide Sprint with a solution that offered
hundreds of users web-based access to a wide variety of financial data sources
through the users' web browsers and the ability to significantly and easily
expand the number of users in the future. In addition to addressing the
scalability issue with the web, Viador offered Sprint a secure way to access
the data on the internet and personalize user access based on the user's job
function.
Xerox. Xerox offers a wide variety of document-related solutions, products
and services that enhance business productivity. Xerox needed an efficient
method for searching, analyzing and distributing business information from its
many different corporate data sources so that its thousands of employees
worldwide could directly access timely, customized information. Xerox required
a solution that would support thousands of users around the world, which
existing client/server solutions are not capable of efficiently doing. Thus,
Xerox conducted a comprehensive evaluation of web data access solutions, after
which Xerox selected the Viador E-Portal Suite. Xerox chose our software in
order to provide a single solution that can be used across multiple platforms
to access any corporate data source including databases, data warehouses,
desktop applications and enterprise resource planning software applications. We
offered Xerox a comprehensive user functionality along with a 100% web software
architecture to permit Xerox to deploy the solution worldwide. The Viador E-
Portal Suite is now being used in several areas by Xerox including e-business
channel supply tracking, data warehouse access, and reporting for customer
service administration, human resources/payroll and global service.
Sales
We sell our software primarily through our domestic direct sales
organization, with sales professionals located in eight regions in the United
States including the North Atlantic, Rocky Mountain, Southeast, Eastern,
Pacific Northwest, South Central, Western and Great Lakes regions. The field
sales force is complemented by direct telesales and telemarketing
representatives based at our headquarters in San Mateo, California. As of June
30, 1999, we employed 16 commission-based sales people. 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 locations. We use distributors in the Netherlands,
Germany, United Kingdom, Canada, Hong Kong and Japan and plan to expand our
distributor channel to other international markets. For additional information
regarding the risks of our move toward a direct sales model, see "Risk
Factors--If our plan to sell our Viador E-Portal Suite directly to customers is
not successful, we may not be able to grow our revenue and our stock price may
suffer" on page 9.
Since our products affect users throughout the customer's organization, 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 three
to nine months. Our sales cycle is affected by seasonal fluctuations as a
result of our customers' fiscal year budgeting cycles and slow summer
purchasing patterns overseas. We typically receive a substantial portion of our
orders in the last two weeks of each fiscal quarter because our customers often
delay purchases of products to the end of the quarter. Also, we expect our
revenue to be higher in the fourth quarter than in other quarters of the year.
Implementation of additional components of our software and broader rollout to
additional users within the organization generally occur over multiyear
periods. For further discussion regarding these risks, see " Risk Factors--
Since our sales cycle is long,
39
<PAGE>
unpredictable and subject to seasonal fluctuations, it is difficult to
accurately forecast our revenue; if we fail to achieve our forecasted revenue,
our operating results will suffer and our stock price may decline" on page 8.
Marketing
Our marketing efforts are directed at promoting our enterprise information
portal product family, building a leadership position by defining the
enterprise information portal market space and increasing our market share in
that market. Our marketing programs are targeted at both mid- to executive-
level information technology professionals as well as line-of-business
executives and are focused on creating awareness of, and generating interest
in, our software.
We engage in a variety of marketing activities, including developing and
executing joint marketing strategies designed to leverage our existing
strategic relationships, managing and maintaining our web site, issuing
newsletters and direct mailings, web-marketing campaigns, creating and placing
advertisements in various media, conducting aggressive 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 information
technology audiences. Our marketing campaigns are tightly synchronized with our
sales force to ensure appropriate follow up with sales leads.
We expect to grow our sales and marketing staff significantly. We believe
that demand is increasing, and will continue to increase, for web enterprise
information access software and services, 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 web enterprise
information portals. Our failure to expand our sales and marketing organization
or other distribution channels could materially adversely affect our business.
For additional discussion of risks we face with respect to our inability to
grow our sales and marketing staff, see "Risk Factors--If we do not expand our
customer base, we may never become profitable and our stock price will likely
decline" on page 6.
Product Development
Our 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 our 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
the Viador E-Portal Suite and the integration of external services and partner
technology. 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. Delays or problems in the
development or marketing of product enhancements or new products could result
in a material adverse effect on our business. For a discussion of risks related
to our product development, see "Risk Factors--If we fail to manage
technological change or effectively respond to changes in customer needs,
demand for our products and services will drop and our business will suffer"
and "--If our plan to sell software services over the internet as a substitute
for licensing our software fails, it could harm our business" on pages 13 and
10, respectively.
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 corporate portal software. We also
compete with business intelligence software vendors. Business intelligence
software is installed on a personal computer and permits the analysis of
information in databases. We also face indirect competition from potential
customers' internal development efforts.
40
<PAGE>
Our major competitors in the corporate portal field tend to be early stage
private companies. In addition, several major business intelligence software
vendors have introduced portal products as a web interface to their business
intelligence software. At least one business software company, Peoplesoft, has
introduced a portal that works with its software and we expect more will do so.
We also expect to face competition from new entrants. Most business software
companies have a significantly installed customer base and have the opportunity
to offer portal products to those customers as additional components of their
software.
We believe that the principal competitive factors considered in selecting
enterprise information portal solutions are comprehensive access to existing IT
infrastructure, security, scalability, personalization and filtering
capabilities and an installed base of customers. We believe that the ability of
our software to access a wide variety of data sources is a major
differentiating factor relative to competing portal products. Our competitors
which are early-stage private companies focus on providing access to
unstructured data in the form of websites and documents. Portals offered by
business intelligence software vendors concentrate on integrating and accessing
structured data. Portals offered by business software companies generally only
provide an interface for their software programs.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers. Moreover, a
number of our competitors, particularly major business software companies, have
well-established relationships with our current and potential customers as well
as with independent systems consultants 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, 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 be unable to compete successfully against current or future competitors and
the competitive pressures we face may materially adversely affect our business.
For a discussion of the competitive risks we face, see "Risk Factors--The
markets in which we compete are highly competitive and we may not be able to
compete effectively" and "--If our strategic relationships are discontinued, it
may be more difficult for us to maintain certain features of our products or
reach particular customers or markets" on pages 13 and 12, respectively.
Intellectual Property Rights
Our success depends upon our proprietary technology. We rely primarily on a
combination of patent, 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 have applied for two U.S. patents, but we have no patents or
patent applications pending in any foreign countries. There can be no assurance
that any of our patents, copyrights or trademarks will not be challenged or
invalidated.
As part of our confidentiality procedures, we enter into non-disclosure
agreements with certain of our employees, directors, contractors, consultants,
corporate partners, customers and prospective customers. We also enter into
license agreements with respect to our technology, documentation and other
proprietary information. Those licenses are generally non-transferable and have
a perpetual term. Despite our best 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 other
proprietary information underlying our licensed software. Policing unauthorized
use of our
41
<PAGE>
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 exists, we expect software piracy to be a persistent
problem. In addition, effective protection of proprietary rights may be
unavailable or limited in certain countries. The laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States. Overall, the protection of our proprietary rights may not be
adequate and our competitors may independently develop similar technology.
We are not aware that our products, trademarks, copyrights or other
proprietary rights infringe the proprietary rights of third parties. Third
parties may assert infringement claims against us in the future with respect to
current or future products. Further, we expect that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and the functionality of products
in different industry segments overlaps. From time to time, we hire or retain
employees or consultants who have worked for independent software vendors or
other companies developing products similar to those offered by us. Those prior
employers may claim that our products are based on their products and that we
have misappropriated their intellectual property. Any claims of that variety,
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. Those
royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which would have a material adverse affect on our
business. For additional discussion regarding our intellectual property risk,
see "Risk Factors--If we are unable to effectively protect our proprietary
rights, our competitors may be able to copy important aspects of our products
or product message, which would undermine the relative appeal of our products
to customers and reduce our sales" on page 11.
Employees
As of June 30, 1999, we had a total of 108 employees, including 49 people in
sales and marketing, 32 people in engineering, 16 people in operations and 11
people in finance and administration. We believe that our future success will
depend in part on our continued ability to attract, hire and retain qualified
personnel. The competition for those personnel is intense, and there can be no
assurance that we will be able to identify, attract and retain those personnel
in the future. None of our employees is represented by a labor union, and
management believes that our employee relations are good.
Facilities
We currently lease the following facilities: our corporate headquarters in
San Mateo, California and sales offices in New York, New York, Arlington,
Virginia, League City, Texas, Huntington Beach, California, Palm Coast, Florida
and Sylvan Lake, Michigan.
Legal Proceedings
We are not a party to any material legal proceedings.
42
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the executive
officers and directors of Viador as of August 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Stan X. Wang............ 37 Chief Executive Officer, President, Chairman of the Board of Directors
Jonathan M. Harding..... 46 Senior Vice President, North American Operations
Raja H. Venkatesh....... 38 Vice President, Chief Financial Officer and Secretary
Ben C. Connors.......... 41 Vice President, Business Development
Steven C. Dille......... 39 Vice President, Marketing
Paul C. Vilandre........ 57 Vice President
Teddy Kiang............. 46 Director
Dawn G. Lepore.......... 45 Director
Chong Sup Park.......... 51 Director
Virginia M. Turezyn..... 41 Director
</TABLE>
Directors Teddy Kiang and Virginia M. Turezyn serve on the Compensation
Committee. Directors Chong Sup Park and Virginia M. Turezyn serve on the Audit
Committee.
Each director will hold office for the term described on page 45 in "--
Classified Board" and until such director's successor is elected and qualified
or until such director's earlier resignation or removal. Each officer serves at
the discretion of the Board of Directors of Viador.
Stan X. Wang is a co-founder of Viador. Mr. Wang has served as President,
Chief Executive Officer and Chairman of the Board of Directors since Viador was
founded in December 1995. Prior to founding Viador, from January 1995 to
December 1995, Mr. Wang oversaw the data warehouse division of the RightSizing
Group, a software and services company focused on Internet, data warehouse and
large database and financial database applications where he designed and
implemented numerous large enterprise software projects. From July 1990 to
January 1995, Mr. Wang was an architect in Oracle Corporation's information
access tools group. Mr. Wang holds a B.S. in Electrical Engineering from Tsing
Hua University in China, an M.S. in Mathematics from Oregon State University
and an M.S. in Mechanical Engineering from the California Institute of
Technology.
Jonathan M. Harding has served as Senior Vice President of North American
Operations since April 1998. Prior to joining Viador, from July 1994 to April
1998, Mr. Harding was Managing Partner at Vision Unlimited, an information
technology consulting company. Mr. Harding also served as Vice President of
Professional Services at Brock Control Systems from July 1993 to July 1994.
Previously, Mr. Harding has held senior executive positions at Computer Task
Group and Knowledge Ware. Mr. Harding holds a B.S. in Economics from SUNY-
Brockport and attended the Graduate School of Industrial Administration at
Carnegie Mellon University.
Raja H. Venkatesh joined Viador as Vice President, Chief Financial Officer
and Secretary in June 1999. Prior to joining Viador, from August 1997 to June
1999, Mr. Venkatesh served as Corporate Treasurer at Maxtor Corporation, a
manufacturer of information storage products for desktop computer systems. From
April 1996 to August 1997, Mr. Venkatesh served as Director of Corporate
Strategy and Development at the Pacific Telesis Group. Previously, Mr.
Venkatesh served in various capacities in the Treasurer's office of General
Motors Corporation from July 1990 to March 1996. Mr. Venkatesh holds a B.S. in
Engineering from the Regional Engineering College in India and an M.B.A. from
the Darden Graduate School of Business Administration at the University of
Virginia.
Ben C. Connors is a co-founder of Viador. Mr. Connors has served as Vice
President of Business Development since November 1998. Mr. Connors served as
Chief Operating Officer from July 1997 to November 1998 and as Vice President
of Sales and Marketing from January 1996 to July 1997. Prior to joining
43
<PAGE>
Viador, from November 1995 to January 1996, Mr. Connors served as Chief
Executive Officer of Quadsoft, Inc., a custom software development and
outsourcing company, which he also co-founded. Mr. Connors also served as Vice
President of Sales and Marketing for The RightSizing Group from May 1994 to
November 1995. Previously, Mr. Connors held sales and marketing management
positions with The ASK Group, Oracle Corporation and Hewlett-Packard Company.
Mr. Connors holds a B.S. in Mechanical Engineering from Stanford University and
a M.B.A. from Harvard Business School.
Steven C. Dille has served as Vice President of Marketing since December
1997. Prior to joining Viador, from February 1992 to November 1997, Mr. Dille
served in the marketing division at Sybase, Inc., a global independent software
company, most recently as director of data warehousing. Previously, Mr. Dille
has held marketing and technology leadership positions at Hewlett-Packard
Company, NCR and as an independent consultant. Mr. Dille holds a B.S. in
Computer Science and Mathematics from the University of Pittsburgh and a M.B.A.
in Marketing and Finance from The University of Chicago.
Paul C. Vilandre has served as Vice President since November 1997 and
previously served as Chief Financial Officer and Secretary. Prior to joining
Viador, from January 1996 to August 1996, Mr. Vilandre served as Vice President
of Finance and Chief Financial Officer of Metra Corporation and from September
1993 to August 1995, he served as Vice President of Finance and Chief Financial
Officer of Axil Computers, Inc. Mr. Vilandre was a professor in finance at San
Jose State University before joining Viador. Previously, Mr. Vilandre held
financial management positions at Intel Corporation, Digital Equipment
Corporation and IBM Corporation. Mr. Vilandre has served as Area Vice President
and National Director for the Financial Executives Institute, an international
organization of senior financial officers. Mr. Vilandre holds a B.A. in
Accounting from Loyola College and an M.B.A. from Harvard Business School.
Teddy Kiang has served as a director since April 1997. Mr. Kiang is a
Managing Director of Crosslink Technology Partners, an early stage venture
capital firm, specializing in funding and developing healthcare, network and
information technology ventures. From July 1990 to September 1995, Mr. Kiang
was the program director and a business development executive for the Point-of-
Care Coagulation product system at Boeringer Mannheim Corporation, a
biotechnology firm. From August 1980 to July 1990, Mr. Kiang served as a
project manager in the Medical Products Group at Hewlett-Packard Laboratories.
Mr. Kiang serves on the Board of Directors of two privately-held companies as
the investment representative of Standard Foods Taiwan, Ltd., a publicly traded
company in Taiwan. He also serves as a special advisor to the Chairman of
AboveNet Communications, Inc. Mr. Kiang holds an M.S. in Chemistry from
Columbia University and a Ph.D. in Chemical Physics from Stanford University.
Dawn G. Lepore has served as a director since July 1999. Ms. Lepore is
Executive Vice President and Chief Information Officer and a member of the
Management Committee of The Charles Schwab Corporation, where she has served
for over fifteen years in various capacities. Prior to her appointment as Chief
Information Officer at Schwab in 1993, Ms. Lepore served as Senior Vice
President of Information Technology at Schwab, responsible for the development
of a wide range of systems to support Schwab's growing product offerings and
client base. She also led a strategic initiative for redesigning Schwab's
entire technology platform. Prior to joining Schwab in 1983, Ms. Lepore was
employed at Informatics, an information consulting firm in San Francisco. Ms.
Lepore serves on the Board of Directors of Times Mirror Company, a publisher of
several daily news and specialty publications. Ms. Lepore holds a B.A. in Music
from Smith College.
Chong Sup Park has served as a director since March 1999. Mr. Park is
President and Chief Executive Officer of Hyundai Electronics America. Prior to
joining Hyundai, from February 1995 to August 1996, Mr. Park served as
President and Chief Executive Officer of Maxtor Corporation, a manufacturer of
information storage products for desktop computer systems. From July 1993 to
January 1995, Mr. Park served as President and Chief Executive Officer of Axil
Computers Inc. Mr. Park serves on the board of directors of several companies,
both publicly and privately held, which include Maxtor Corporation, Artecon,
Inc., ChipPAC, Inc. and MMC, Inc. Mr. Park holds a B.A. in Business
Administration from Yonsei University in Seoul, Korea, a M.B.A. from The
University of Chicago and a Ph.D. in Business Administration from Nova
Southeastern University.
44
<PAGE>
Virginia M. Turezyn has served as a director since September 1998. Ms.
Turezyn co-founded Information Technology Ventures, a venture capital firm in
September 1994 and has served as a General Partner since its founding. From
April 1982 to September 1994, she served in a variety of capacities at Morgan
Stanley & Company, Inc., including most recently as Vice President in the
Venture Capital Group. Ms. Turezyn serves on the Board of Directors of several
privately held companies. Ms. Turezyn holds a B.A. in Accounting from Queens
College and is a Certified Public Accountant.
Director Compensation
Directors of Viador receive $1,000 for each board meeting attended if in
person and $500 if attended telephonically. Directors also receive $500 for
each board committee meeting attended if in person and $250 if attended
telephonically. All directors are also reimbursed for their reasonable out-of-
pocket expenses in serving on the Board of Directors or any Committee thereof.
Directors are eligible to receive equity incentives in the form of stock option
grants or direct stock issuances under our 1999 Stock Incentive Plan.
Classified Board
Our certificate of incorporation provides for a classified Board of
Directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our Board of Directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, one of the nominees to the board will be elected
to one-year terms, two will be elected to two-year terms and two will be
elected to three-year terms. After these initial terms, directors will be
elected for three-year terms. Virginia M. Turezyn has been designated a Class I
director whose term expires at the 2000 annual meeting of stockholders. Dawn G.
Lepore and Chong Sup Park have been designated Class II directors whose terms
expire at the 2001 annual meeting of stockholders. Stan X. Wang and Teddy Kiang
have been designated Class III directors whose terms expire at the 2002 annual
meeting of stockholders. For additional discussion regarding the effects of our
classified board, see "Description of Capital Stock--Certain Anti-takeover,
Limited Liability and Indemnification Provisions" beginning on page 58.
Board Committees
The audit committee of the Board of Directors consists of Chong Sup Park and
Virginia M. Turezyn. The audit committee reviews our financial statements and
accounting practices, makes recommendations to the Board of Directors regarding
the selection of independent auditors and reviews the results and scope of our
annual audit and other services provided by our independent auditors.
The compensation committee of the Board of Directors consists of Teddy Kiang
and Virginia M. Turezyn. The compensation committee makes recommendations to
the Board of Directors concerning salaries and incentive compensation for our
officers and employees and administers our employee benefit plans.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee of the Board of Directors
was at any time since the formation of Viador an officer or employee of Viador.
No executive officer of Viador serves as a member of the Board of Directors or
compensation committee of any entity that has one or more executive officers
serving on our Board of Directors or our compensation committee of the Board of
Directors.
In August 1998, we issued and sold an aggregate of 1,762,821 shares of
Series B preferred stock to Information Technology Ventures II, L.P. and ITV
Affiliates Fund II, L.P. Virginia M. Turezyn, a director of Viador and a member
of the compensation committee, is a principal member of ITV Management II LLC,
the general partner of Information Technology Ventures II, L.P. and ITV
Affiliates Fund II, L.P.
In August 1998, we issued and sold an aggregate 494,165 shares of Series B
preferred stock to Standard Foods Taiwan, Ltd. Teddy Kiang, a director of
Viador and a member of the compensation committee is the investment
representative for Standard Foods Taiwan Ltd.
45
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation earned by our Named
Executive Officers which include our Chief Executive Officer and our four other
executive officers whose salary and bonus for services rendered to Viador for
the fiscal year ended December 31, 1998 exceeded $100,000. The options listed
in the table were originally granted under either our 1996 Stock Option/Stock
Issuance Plan or our Amended and Restated 1997 Stock Option/Stock Issuance
Plan. These options will be incorporated into the new 1999 Stock Incentive
Plan, but will continue to be governed by their existing terms. For additional
information regarding the terms of our options, see "--Executive Compensation
and Other Information--Employee Benefit Plans" beginning on page 47. Since
December 31, 1998, certain of these executive officers have been succeeded by
new persons and we have added additional officers. For a list of our current
executive officers and certain members of senior management, see "Management"
beginning on page 43.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
1998 Annual Compensation
Compensation Awards
---------------- ------------
Number of
Securities
Underlying
Name and Principal Position(s) Salary Bonus Options
- ------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Stan X. Wang.................................... $125,000 $20,000 898,783
President, Chief Executive Officer and
Chairman of the Board of Directors
Jonathan M. Harding............................. $ 73,920 -- 79,167
Senior Vice President of North American
Operations
Ben C. Connors.................................. $100,000 $ 5,000 --
Vice President of Business Development
Steven C. Dille................................. $115,000 $ 7,500 58,334
Vice President of Marketing
Paul C. Vilandre................................ $120,000 $15,000 96,222
Vice President of Administration and Secretary
</TABLE>
Jonathan M. Harding joined Viador as Senior Vice President of North American
Operations in April 1998. Mr. Harding earned $73,920 in 1998, but his annual
base salary for 1998 was $115,000. Mr. Harding is included in the above table
because his salary and bonus would have exceeded $100,000 had he served in his
position for the full year.
46
<PAGE>
Stock Options and Stock Appreciation Rights
The following table sets forth information regarding option grants to each
of the Named Executive Officers during the fiscal year ended December 31, 1998.
No stock appreciation rights were granted to the Named Executive Officers
during the 1998 fiscal year.
Stock Option Grants in Fiscal Year 1998
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Exercise Price Appreciation
Underlying Granted to Price for Option Term(1)
Options Employees in Per Share Expiration ---------------------
Name Granted (#) 1998 ($/Sh) Date 5% 10%
---- ----------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stan X. Wang............ -- -- -- -- -- --
Ben C. Connors.......... -- -- -- -- -- --
Jonathan Harding........ 79,167 11.7% $0.24 4/19/08 $1,141,592 $1,829,049
Steven C. Dille......... -- -- -- -- -- --
Paul C. Vilandre........ -- -- -- -- -- --
</TABLE>
- ----------
(1) Based on the initial public offering price of $9.00 per share less the
exercise price payable per share.
Aggregated Option/SAR Exercises and Fiscal Year-End Values
The following table sets forth information with respect to the Named
Executive Officers concerning their exercise of stock options during the fiscal
year ended December 31, 1998 and the number of shares subject to unexercised
stock options held by them as of the close of such fiscal year. No stock
appreciation rights were exercised during the fiscal year ended December 31,
1998, and no stock appreciation rights were outstanding at the close of such
year.
Aggregated Option Exercises in 1998 and Year-End Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Year-End at Year-End(1)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stan X. Wang............ -- -- 898,783 -- $8,045,905 --
Ben C. Connors.......... -- -- -- -- -- --
Jonathan Harding........ -- -- 79,167 -- $ 693,503 --
Steven C. Dille......... -- -- 58,334 -- $ 511,006 --
Paul C. Vilandre........ -- -- 96,222 -- $ 842,905 --
</TABLE>
- ----------
(1) Based on the initial public offering price of $9.00 per share less the
exercise price payable per share.
Employee Benefit Plans
1999 Stock Incentive Plan.
Introduction. The 1999 Stock Incentive Plan is intended to serve as the
successor program to both our 1996 Stock Option/Stock Issuance and 1997 Stock
Option/Stock Issuance Plans. The 1999 plan was adopted by the board on July 20,
1999 and has been approved by our stockholders. The 1999 plan will become
effective when the underwriting agreement for this offering is signed. At that
time, all outstanding options under our existing 1996 and 1997 plans will be
transferred to the 1999 plan, and no further option grants will be made under
the 1996 or 1997 plans. The transferred options will continue to be governed by
their existing terms, unless our compensation committee decides to extend one
or more features of the 1999 plan to those options. Except as otherwise noted
below, the transferred options have substantially the same terms as will be in
effect for grants made under the discretionary option grant program of our 1999
plan.
47
<PAGE>
Share Reserve. 7,000,000 shares of our common stock have been authorized for
issuance under the 1999 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1996 and 1997 plans plus an
additional increase of approximately 2,000,000 shares. The share reserve under
our 1999 plan will automatically increase on the first trading day in January
of each calendar year, beginning with calendar year 2000, by an amount equal to
five percent of the total number of shares of our common stock outstanding on
the last trading day of December in the prior calendar year, but in no event
will this annual increase exceed 3,000,000 shares. In addition, no participant
in the 1999 plan may be granted stock options or direct stock issuances for
more than 1,000,000 shares of common stock in total in any calendar year.
Programs. Our 1999 plan has five separate programs:
. the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
. the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones, the completion of a specified period of service
or as a bonus for past services;
. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
. the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
director or retainer fee otherwise payable to them in cash each year to
the acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our 1999 plan
include our officers and other employees, our board members and any consultants
we hire.
Administration. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the time or times when
each option is to become exercisable, the vesting schedule to be in effect for
the option grant or stock issuance, the maximum term for which any granted
option is to remain outstanding and the consideration for stock issuances. The
compensation committee will also have the authority to select the executive
officers and other highly compensated employees who may participate in the
salary investment option grant program in the event that program is put into
effect for one or more calendar years.
Plan Features. Our 1999 plan will include the following features:
. The exercise price for any options granted the plan may be paid in cash
or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
. The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1996 or 1997 plans, in return for the grant
of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of our common
stock on the new grant date.
. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from
48
<PAGE>
us equal to the fair market value of the shares subject to the
surrendered options less the exercise price payable for those shares. We
may make the payment in cash or in shares of our common stock. None of
the options under our 1996 or 1997 plan have any stock appreciation
rights.
Change in Control. The 1999 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
. In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or replaced with a
similar incentive program will immediately become exercisable for all
the option shares. In addition, all outstanding repurchase rights with
respect to unvested shares under the 1999 plan will automatically
terminate, except to the extent our repurchase rights with respect to
those shares are to be assigned to the successor corporation.
. The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the
optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under our 1999 plan
may be accelerated upon similar terms and conditions.
. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than fifty percent of our outstanding voting stock or a change in
the majority of our board through one or more contested elections. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
. The options currently outstanding under our 1996 and 1997 plans will
immediately vest in the event we are acquired, unless those options are
assumed by the acquiring entity and our repurchase rights with respect
to any unvested shares subject to those options are assigned to such
entity. However, several options outstanding under the 1996 and 1997
plans contain additional acceleration provisions. Some of those options
will vest up to 50% of the unvested shares immediately upon the
acquisition, whether or not those options are assumed, and other of
those options will immediately vest upon an involuntary termination of
the optionee's employment within 18 months following an acquisition in
which those options are assumed.
Salary Investment Option Grant Program. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees
may elect to reduce his or her base salary for the calendar year by an amount
not less than $10,000 nor more than $50,000. Each selected individual who makes
such an election will automatically be granted, on the first trading day in
January of the calendar year for which his or her salary reduction is to be in
effect, an option to purchase that number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of our common stock on the grant date. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date. As a result, the option will be structured so
that the fair market value of the option shares on the grant date less the
exercise price payable for those shares will be equal to the amount of the
salary reduction. The option will become exercisable in a series of twelve
equal monthly installments over the calendar year for which the salary
reduction is to be in effect.
Automatic Option Grant Program. Each individual who first becomes a non-
employee board member at any time on or after the effective date of this
offering will receive an option grant to purchase 15,000 shares of common stock
on the date such individual joins the board. In addition, on the date of each
annual stockholders meeting held after the effective date of this offering,
each non-employee board member who is to continue to serve as a non-employee
board member, including each of our current non-employee board members, will
automatically be granted an option to purchase 5,000 shares of common stock,
provided such individual has served on the board for at least six months.
49
<PAGE>
Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option which are not vested at the
time of the optionee's cessation of board service. The shares subject to each
initial 15,000-share automatic option grant will vest in a series of six
successive semi-annual installments upon the optionee's completion of each six-
month period of board service over the thirty-six-month period measured from
the grant date. However, the shares will immediately vest in full upon certain
changes in control or ownership or upon the optionee's death or disability
while a board member. The shares subject to each annual 5,000-share automatic
grant will be fully-vested when granted.
If the financial accounting treatment for non-employee director stock
options proposed in the March 31, 1999 Exposure Draft of the Financial
Accounting Standards Board under APB Opinion No. 25 is adopted, then the
following changes shall be made to the foregoing provisions of the Automatic
Option Grant Program:
. The 15,000-share option grant shall not be made to a newly-elected or
appointed non-employee Board member until the first Annual Stockholders
Meeting held more than twelve months after the date of his or her
initial election or appointment to the Board. At that annual meeting,
the non-employee Board member shall also receive an option grant for an
additional 5,000 shares under the annual grant portion of the Automatic
Option Grant Program.
. One-third of the shares subject to the 15,000-share option grant shall
be immediately vested at the time of the option grant, and the remaining
shares shall vest in a series of twenty-four successive equal monthly
installments upon the Optionee's completion of each month period of
Board service over the twenty-four-month period measured from the grant
date.
Director Fee Option Grant Program. If this program is put into effect in the
future, then each non-employee board member may elect to apply all or a portion
of any cash retainer fee for the calendar year to the acquisition of a below-
market option grant. The option grant will automatically be made on the first
trading day in January in the calendar year for which the non-employee board
member would otherwise be paid the cash retainer fee in the absence of his or
her election. The option will have an exercise price per share equal to one-
third of the fair market value of the option shares on the grant date, and the
number of shares subject to the option will be determined by dividing the
amount of the retainer fee applied to the program by two-thirds of the fair
market value per share of our common stock on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal
to the portion of the director or retainer fee applied to that option. The
option will become exercisable in a series of twelve equal monthly installments
over the calendar year for which the election is in effect. However, the option
will become immediately exercisable for all the option shares upon the death or
disability of the optionee while serving as a board member.
Additional Program Features. Our 1999 plan will also have the following
features:
. Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
. Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share
based upon the highest price per share of our common stock paid in that
tender offer.
50
<PAGE>
. The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later
than June 15, 2009.
1999 Employee Stock Purchase Plan.
Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the board
on July 20, 1999 and has been approved by our stockholders. The plan will
become effective immediately upon the signing of the underwriting agreement for
this offering. The plan is designed to allow our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
Share Reserve. 300,000 shares of our common stock will initially be reserved
for issuance. The reserve will automatically increase on the first trading day
in January of each calendar year, beginning in calendar year 2000, by an amount
equal to two percent of the total number of outstanding shares of our common
stock on the last trading day in December in the prior calendar year. In no
event will any such annual increase exceed 800,000 shares.
Offering Periods. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering covered is
signed and will end on the last business day in October 2001. The next offering
period will start on the first business day in November 2001, and subsequent
offering periods will be set by our compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of May and November each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will
be applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per
share on the participant's entry date into the offering period or, if lower,
85% of the fair market value per share on the semi-annual purchase date. Semi-
annual purchase dates will occur on the last business day of April and October
each year. However, a participant may not purchase more than 1,200 shares on
any purchase date, and not more than 120,000 shares may be purchased in total
by all participants on any purchase date. Our compensation committee will have
the authority to change these limitations for any subsequent offering period.
Reset Feature. If the fair market value per share of our common stock on any
purchase date is less than the fair market value per share on the start date of
the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of the acquisition. The purchase price will be equal to
85% of the market value per share on the participant's entry date into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.
Plan Provisions. The following provisions will also be in effect under the
plan:
. The plan will terminate no later than the last business day of October
2009.
. The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
51
<PAGE>
Change of Control Arrangements
A limited number of employees have stock options that will partially
accelerate upon a change of control. Typically, one half of the person's
options will vest upon a change of control.
Limitation of Liability and Indemnification
Our certificate of incorporation eliminates, to the fullest extent permitted
by Delaware law, liability of a director to Viador or our stockholders for
monetary damages for conduct as a director. Although liability for monetary
damages has been eliminated, equitable remedies such as injunctive relief or
rescission remain available. In addition, a director is not relieved of his or
her responsibilities under any other law, including the federal securities
laws.
Our certificate of incorporation requires us to indemnify our directors to
the fullest extent permitted by Delaware law. We also expect to enter into
indemnification agreements with each of our directors. We believe that the
limitation of liability provisions in our certificate of incorporation and
indemnification agreements may enhance our ability to attract and retain
qualified individuals to serve as directors. For additional discussion of the
limitation of liability provisions in our certificate of incorporation, see
"Description of Capital Stock" beginning on page 58.
52
<PAGE>
CERTAIN TRANSACTIONS
Since August 31, 1999, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeded or will exceed $60,000 and in
which any director, executive officer, holder of more than 5% of our common
stock or any member of the immediate family of any of the foregoing persons had
or will have a direct or indirect material interest other than (A) compensation
agreements and other arrangements, which are described where required in
"Management" and (B) the transactions described below. We believe each of the
transactions described below was negotiated at arms-length and were on terms as
favorable as those obtainable from disinterested third parties.
Preferred Stock Financings
Since May 23, 1997, we have issued 2,495,994 shares of our Series C
Preferred Stock at a price of $5.8416 per share, 2,763,632 shares of our Series
B Preferred Stock at a price of $3.12 per share and 1,543,235 shares of our
Series A Preferred Stock at a weighted average price of $2.2777 per share in a
series of private financings. We issued these securities pursuant to preferred
stock purchase agreements and an investors' rights agreement on substantially
similar terms except for terms relating to date and price, under which we made
standard representations, warranties, and covenants, and which provided the
purchasers thereunder with registration rights, information rights, and rights
of first refusal, among other provisions standard in venture capital
financings. The purchasers of our preferred stock included, among others, the
following holders of 5% or more of our common stock, directors, and entities
associated with directors:
<TABLE>
<CAPTION>
Shares of Preferred Stock
Purchased Total Shares
-------------------------- on an Effective
Series As-Converted Price Per
Name Series A Series B C Basis Share
- ---- -------- --------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Stan X. Wang................ 4,891 -- -- 4,891 $2.0448
Ruby McGrath................ 7,336 -- -- 7,336 2.0448
Y. P. Cheng................. 48,905 -- -- 48,905 2.0448
Teddy Kiang & Sylvia Te-Yi
Kiang...................... 24,453 -- 102,712 127,165 5.1115
Crosslink Semiconductor,
Inc. (Taiwan)(1)........... 94,523 -- -- 94,523 2.0448
Information Technology
Ventures II, L.P.(2)(3).... -- 1,762,821 427,965 2,190,786 3.6516
Standard Foods Taiwan,
Ltd.(4).................... -- 494,165 -- 494,165 3.12
</TABLE>
- ----------
(1) Teddy Kiang, a director of Viador, is the investment representative of
Crosslink Semiconductor, Inc. (Taiwan).
(2) Virginia Turezyn, a director of Viador, is a principal member of ITV
Management II, LLC, the general partner of Information Technology Ventures
II, L.P.
(3) Includes shares held by ITV Affiliates Fund II, L.P., an entity affiliated
with Information Technology Ventures II, L.P.
(4) Teddy Kiang, a director of Viador, is the investment representative for
Standard Foods Taiwan, Ltd.
Amended and Restated Investors' Rights Agreement
Under the terms of an investors' rights agreement dated May 21, 1999, among
Viador and the holders of our preferred stock, the investors acquired certain
registration rights with respect to their capital stock of Viador. At any time
after three-months following our initial public offering, holders of 40% or
more of the outstanding preferred stock may require us to effect registration
under the Securities Act covering at least 40% of the outstanding Registrable
Securities, as defined in the investors' rights agreement, subject to the board
of directors' right to defer such registration for a period up to 60 days.
However, Viador is obligated to effect only two of those registrations. In
addition, if we propose to issue equity securities under the Securities Act for
our own account in an underwritten public offering, then any of the investors
has a right, subject to quantity
53
<PAGE>
limitations determined by the underwriters, to request that Viador register
that investor's Registrable Securities. All registration expenses incurred in
connection with the first two demand registrations described above and all
piggyback registrations will be borne by Viador. The participating investors
will pay for underwriting discounts and commissions incurred in connection with
those registrations. We have agreed to indemnify the investors against certain
liabilities in connection with any registration effected pursuant to this
investors' rights agreement, including Securities Act liabilities.
Amended and Restated Right of First Refusal and Co-Sale Agreement
Under the terms of a right of first refusal and co-sale agreement dated May
21, 1999 among Viador and some of its investors, those investors acquired first
refusal and co-sale rights with respect to their shares of preferred stock.
Subject to customary exceptions, in the event that any of our management
members, as defined in the right of first refusal and co-sale agreement, or
major shareholders, as defined in the right of first refusal and co-sale
agreement, proposes to sell shares of common stock, an investor may elect to
participate pro-rata in that sale or purchase the shares being sold on the same
terms and conditions as the seller. These rights will terminate upon completion
of this offering.
Amended and Restated Voting Agreement
Under a voting agreement dated May 21, 1999 among Viador, the common
shareholders, as defined in the voting agreement, and the holders of our
Series A preferred stock, Series B preferred stock and Series C preferred
stock, one of our directors is elected by the holders of the common stock and
the holders of our Series A preferred stock and another of our directors is
elected by the holders of our Series B preferred stock. This agreement shall
terminate upon the completion of this offering.
Certain Business Relationships
Dawn G. Lepore, a director of Viador, also serves as Executive Vice
President and Chief Information Officer and a member of the Management
Committee of the Charles Schwab Corporation. Sales to Schwab accounted for more
than 5% of Viador's gross revenues during fiscal year 1998.
Indemnification Agreements
We expect to enter into indemnification agreements with each of our
directors and officers containing provisions that may require us to indemnify
our directors and officers against liabilities that may arise as by reason of
their status or service as officers or directors, other than liabilities
arising from willful misconduct of a culpable nature, and to advance their
expenses incurred as a result of any proceeding against them. For additional
information regarding these agreements, see "Management--Executive Compensation
and Other Information--Limitation of Liability and Indemnification" on page 52.
Mitsui Agreement
We have entered into an agreement with Mitsui & Co., Ltd. under which Mitsui
acts as our exclusive distributor in Japan. The agreement has a term of three
years from the date of commercial release of the first Japanese version of our
software, which occurred in the summer of 1998. The agreement specifies that
Mitsui will contribute technical resources to adapt the product for the
Japanese market. Under the agreement, Mitsui pays us royalties equal to 40% of
our list price for the software it sells in Japan, and it prepaid $200,000 of
royalties to us in connection with the execution of the agreement. The
agreement requires that Mitsui dedicate two trained salespeople to sell our
software in Japan and that Mitsui provide all direct support for customers. The
terms of the agreement are no less favorable to us than similar contracts that
we have entered into with third parties that are not affiliated with us.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of August 31, 1999
(except as indicated in the footnotes below) with respect to the beneficial
ownership of our common stock by:
. each person known by us to own beneficially more than 5%, in the
aggregate, of the outstanding shares of our common stock,
. the directors and Named Executive Officers of Viador who hold securities
of Viador, and
. all executive officers and directors as a group.
Unless otherwise indicated, the address for each shareholder is c/o Viador
Inc., 167 Second Avenue, San Mateo, CA 94401. Except as indicated by footnote,
we understand that the persons named in the table below have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
Shares of common stock subject to options, which are currently exercisable
or exercisable within 60 days of August 31, 1999, are deemed outstanding for
computing the percentages of the person holding such options but are not deemed
outstanding for computing the percentages of any other person. The number of
shares reflects the number of shares of common stock in the aggregate assuming
the conversion of the preferred stock. The percentage of common stock
outstanding as of August 31, 1999 is based on 11,855,957 shares of common stock
outstanding on that date, assuming that all outstanding preferred stock has
been converted into common stock and the exercise of warrants to purchase
84,842 shares of our capital stock prior to the consummation of this offering.
For additional information about the ownership and terms of our stock,
see "Description of Capital Stock--Preferred Stock" on page 58. "Beneficial
Ownership of Shares Before the Offering" reflects the beneficial ownership of
the common stock, assuming the conversion of the preferred stock. "Beneficial
Ownership of Shares After the Offering" reflects the beneficial ownership of
common stock, assuming the conversion of the preferred stock and after giving
effect to the Offering.
<TABLE>
<CAPTION>
Beneficial Beneficial
Ownership of Ownership of
Shares Before the Shares After the
Offering Offering
----------------- -----------------
Name of Beneficial Owner Number Percent Number Percent
------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Entities affiliated with Information
Technology Ventures(1)................... 2,190,786 18.5% 2,190,786 13.8%
Entities affiliated with Mitsui & Co.,
Ltd.(2).................................. 606,209 5.1% 606,209 3.8%
Jia-Bao Chu(3)............................ 1,326,838 10.7% 1,326,838 8.1%
Kin Lui(4)................................ 1,088,928 8.9% 1,088,928 6.7%
Stan X. Wang(5)........................... 2,120,318 16.6% 2,120,318 12.7%
Jonathan M. Harding(6).................... 162,501 1.4% 162,501 1.0%
Raja H. Venkatesh(7)...................... 100,000 * 100,000 *
Ben C. Connors(8)......................... 530,735 4.3% 530,735 3.2%
Steven C. Dille(9)........................ 125,000 1.0% 125,000 *
Paul C. Vilandre(10)...................... 96,222 * 96,222 *
Teddy Kiang(11)........................... 160,499 1.3% 160,499 1.0%
Dawn G. Lepore(12)........................ 16,667 * 16,667 *
Chong Sup Park(13)........................ 20,834 * 20,834 *
Virginia Turezyn(14)...................... -- -- -- --
All directors and executive officers as a
group (ten persons)(15).................. 3,332,776 25.1% 3,332,776 19.3%
</TABLE>
- ----------
* Less than 1%.
(1) Stock consists of 1,698,160 shares of Series B Preferred Stock and 412,267
shares of Series C Preferred Stock held by Information Technology Ventures
II, L.P. and 64,661 shares of Series B Preferred Stock and 15,698 shares
of Series C Preferred Stock held by ITV Affiliates Fund II, L.P. Ms.
Turezyn, a director of Viador, is a principal member of ITV Management II,
LLC, the general partner of Information Technology Ventures II, L.P. and
ITV Affiliates Fund II, L.P. The general partners of Information
Technology Ventures, Mark Dubovoy, Sam H. Lee and Virginia M. Turezyn,
have voting and dispositive
55
<PAGE>
powers with respect to shares held by Information Technology Ventures II,
L.P. and ITV Affiliates Fund II, L.P. The address for Information
Technology Ventures is 100 Hamilton Avenue, Suite 400, Palo Alto,
California 94301.
(2) Stock consists of 121,242 shares of Series A Preferred Stock held by
Mitsui & Co. (USA), Inc., 323,311 shares of Series A Preferred Stock held
by Mitsui & Co., Ltd., 80,828 shares of Series A Preferred Stock held by
Mitsui Comtek Corporation and 80,828 shares of Series A Preferred Stock
held by MVC Global Japan Fund I. The address for Mitsui & Co. (USA), Inc.
is 200 Park Avenue, New York, NY 10166. Kenichi Yamamoto, the General
Manager of the Information Technology Marketing Division of Mitsui & Co.
Ltd., has voting and dispositive powers with respect to that entity's
shares. Yasushi Okazaki, the General Manager of the Electronics and
Information Division of Mitsui & Co., Inc., has voting and dispositive
powers with respect to that entity's shares. Hitoshi Suga, the President
and Chief Executive Officer of MVC Global Corporation, has voting and
dispositive powers with respect to shares held by MVC Global Japan Fund
I. Masaaki Miura, the President of Mitsui Comtek Corporation, has voting
and dispositive powers with respect to shares held by that entity.
(3) Stock consists of 800,094 shares of common stock held directly by Mr.
Chu, of which 32,548 shares are subject to repurchase by Viador, and
526,744 shares of common stock subject to options exercisable within 60
days of August 31, 1999.
(4) Stock consists of 702,680 shares of common stock held directly by Mr.
Lui, of which 30,813 shares are subject to repurchase by Viador, and
386,248 shares of common stock subject to options exercisable within 60
days of August 31, 1999.
(5) Stock consists of 1,216,644 shares of common stock held directly by Mr.
Wang, of which 43,405 shares are subject to repurchase by Viador, 4,891
shares of Series A Preferred Stock held directly by Mr. Wang and 898,783
shares of common stock subject to options exercisable within 60 days of
August 31, 1999.
(6) Stock consists of 158,334 shares of common stock subject to options
exercisable within 60 days of August 31, 1999 held by Mr. Harding and
4,167 shares of common stock subject to options exercisable within 60
days held by his wife.
(7) Stock consists of 100,000 shares of common stock subject to options
exercisable within 60 days of August 31, 1999.
(8) Stock consists of 530,735 shares of common stock held directly by Mr.
Connors of which 32,176 shares are subject to repurchase by Viador.
(9) Stock consists of 125,000 shares of common stock subject to options
exercisable within 60 days of August 31, 1999.
(10) Stock consists of 96,222 shares of common stock subject to options
exercisable within 60 days of
August 31, 1999, of which 4,972 shares were exercised by Mr. Vilandre on
February 5, 1999 and 2,084 shares were exercised by Mr Vilandre on June
11, 1999. Of these shares, 4,972 shares are held directly by Mr. Vilandre
and 2,084 shares are held by his wife and children.
(11) Stock consists of 24,453 shares of Series A Preferred Stock and 102,712
shares of Series C Preferred Stock held directly by Mr. Kiang and his
wife and 33,334 shares of common stock subject to options exercisable
within 60 days of August 31, 1999. Excludes 494,165 shares of Series B
Preferred Stock, as converted, and warrants to purchase 46,875 shares of
common stock at an exercise price of $0.72 per share held by Standard
Foods Taiwan, Ltd; 94,523 shares of Series A Preferred Stock, held by
Crosslink Semiconductor, Inc. (Taiwan); 50,000 shares of Series A
Preferred Stock held by Eric S. Chen; 50,000 shares of Series A Preferred
Stock held by Ju-Liang Chen; 50,000 shares of Series A Preferred Stock
held by Paula Chen; 24,453 shares of Series A Preferred Stock and 102,712
shares of Series C Preferred Stock held by the Chen Living Trust dated
7/22/96; 24,453 shares of Series A Preferred Stock and 102,712 shares of
Series C Preferred Stock held by the Cheng Living Trust dated 8/8/95;
24,453 shares of Series A Preferred Stock and 102,712 shares of Series C
Preferred Stock held by Ter-Fung Tsao and 24,453 shares of Series A
Preferred Stock and 102,712 shares of Series C Preferred Stock held by
Wendy Te-Hua Wang, for all of whom Crosslink Technology Partners LLC
holds a power
56
<PAGE>
of attorney. Mr. Kiang, a director of Viador, is a Managing Director of
Crosslink Technology Partners LLC and the investment representative for
Standard Foods Taiwan, Ltd. and Crosslink Semiconductor, Inc. (Taiwan).
Mr. Kiang disclaims beneficial ownership of the shares of preferred and/or
common stock held by Crosslink Semiconductor, Inc. (Taiwan), Standard
Foods Taiwan, Ltd., Eric S. Chen, Ju-Liang Chen, Paula Chen, Chen Living
Trust dated 7/22/96, Cheng Living Trust dated 8/8/95, Ter Fung Tsao and
Wendy Te-Hua Wang, except to the extent of his pecuniary interest therein.
(12) Stock consists of 16,667 shares of common stock subject to options
exercisable within 60 days of August 31, 1999.
(13) Stock consists of 20,834 shares of common stock subject to options
exercisable within 60 days of
August 31, 1999.
(14) Excludes an aggregate of 2,190,786 shares of Series B and Series C
preferred stock, as converted, held by Information Technology Ventures
II, L.P. and ITV Affiliates Fund II, L.P. Ms. Turezyn, a director of
Viador, is a principal member of ITV Management II, LLC, the general
partner of Information Technology Ventures II, L.P. and ITV Affiliates
Fund II, L.P. Ms. Turezyn disclaims beneficial ownership of the shares
held by Information Technology Ventures II, L.P. and ITV Affiliates Fund
II, L.P.
(15) See footnotes 5 through 13 above. Includes options exercisable for
1,446,285 shares of common stock within 60 days of August 31, 1999 under
the 1997 Stock Option/Stock Issuance Plan.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of Viador
will consist of 100,000,000 shares of common stock, $0.001 par value per share,
and 10,000,000 shares of preferred stock, $0.001 par value per share.
Common Stock
As of August 31, 1999, assuming the conversion of all outstanding preferred
stock into common stock and the exercise of warrants to purchase 84,842 shares
of our capital stock, prior to the consummation of this offering, 11,855,957
shares of our common stock were outstanding and held of record by 129
stockholders. After this offering, 15,855,957 shares will be outstanding.
Concurrently with the completion of this offering, each outstanding share of
our preferred stock will be exchanged for and converted into one share of our
common stock. The following description of rights assumes this conversion.
Holders of common stock are entitled to receive dividends as may from time
to time be declared by our Board of Directors out of funds legally available
therefor. For a description of our dividend policy, see "Dividend Policy" on
page 17. Holders of common stock are entitled to one vote per share on all
matters on which the holders of common stock are entitled to vote and do not
have any cumulative voting rights. Holders of common stock have no preemptive,
conversion, redemption or sinking fund rights. In the event of a liquidation,
dissolution or winding up of Viador, holders of common stock are entitled to
share equally and ratably in the assets of Viador, if any, remaining after the
payment of all our liabilities and the liquidation preference of any then
outstanding class or series of preferred stock. The outstanding shares of
common stock are, and the shares of common stock offered by us in this offering
when issued will be, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to any series of preferred
stock that we may issue in the future, as described below.
Preferred Stock
Our Board of Directors has the authority to issue preferred stock in one or
more series and to fix the number of shares constituting any such series and
the preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by our stockholders. The issuance of
preferred stock by our Board of Directors could adversely affect the rights of
holders of common stock.
The potential issuance of preferred stock may have the effect of delaying or
preventing a change in control of Viador, may discourage bids for our common
stock at a premium over the market price of the common stock and may adversely
affect the market price of, and the voting and other rights of the holders of,
common stock. Immediately after this offering there will be no shares of
preferred stock outstanding, and we have no current plans to issue shares of
preferred stock.
Certain Anti-takeover, Limited Liability and Indemnification Provisions
Effect of Delaware Anti-takeover Statute. We are subject to Section 203 of
the Delaware General Corporation Law, as amended, which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless:
. prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned
58
<PAGE>
. by persons who are directors and also officers and
. by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combinations to include:
. any merger or consolidation involving the corporation or any majority-
owned subsidiary of the corporation and any other person or entity;
. subject to certain exceptions, any sale, transfer, pledge or other
disposition of 10% or more of the assets of the corporation or any
majority-owned subsidiary of the corporation involving the interested
stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation or any majority-owned subsidiary
of the corporation of any stock of the corporation to the interested
stockholder;
. any transaction involving the corporation or any majority-owned
subsidiary of the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the
corporation or any majority-owned subsidiary of the corporation
beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any majority-owned subsidiary of the
corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more or the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certificate of Incorporation and Bylaw Provisions. Our certificate of
incorporation and bylaws include provisions that may have the effect of
discouraging, delaying or preventing a change in control of Viador or an
unsolicited acquisition proposal that a stockholder might consider favorable,
including a proposal that might result in the payment of a premium over the
market price for the shares held by stockholders. These provisions are
summarized in the following paragraphs.
Classified Board of Directors. Our certificate of incorporation and bylaws
provide for our board to be divided into three classes of directors serving
staggered, three year terms. The classification of the board has the effect of
requiring at least two annual stockholder meetings, instead of one, to replace
a majority of the members of the Board of Directors. For additional discussion
regarding our classified board, see "Management--Classified Board" on page 45.
Supermajority Voting. Our certificate of incorporation requires the approval
of the holders of at least 66 2/3% of our combined voting power to effect
certain amendments to the certificate of incorporation. Our bylaws may be
amended by either a majority of the Board of Directors or the holders of at
least 66 2/3% of our combined voting power.
Authorized but Unissued or Undesignated Capital Stock. Our authorized
capital stock consists of 100,000,000 shares of common stock and 10,000,000
shares of preferred stock. No preferred stock will be designated upon
consummation of this offering. After this offering, we will have outstanding
15,855,957 shares of common stock. The authorized but unissued--and in the case
of preferred stock, undesignated--stock may
59
<PAGE>
be issued by the Board of Directors in one or more transactions. In this
regard, our certificate of incorporation grants the Board of Directors broad
power to establish the rights and preferences of authorized and unissued
preferred stock. The issuance of shares of preferred stock pursuant to the
Board of Director's authority described above could decrease the amount of
earnings and assets available for distribution to holders of common stock and
adversely affect the rights and powers, including voting rights, of such
holders and may have the effect of delaying, deferring or preventing a change
in control of Viador. The Board of Directors does not currently intend to seek
stockholder approval prior to any issuance of preferred stock, unless otherwise
required by law.
Special Meetings of Stockholders. Our certificate of incorporation and
bylaws provide that special meetings of stockholders of Viador may be called
only by the Board of Directors.
No Stockholder Action by Written Consent. Our certificate of incorporation
and bylaws provide that an action required or permitted to be taken at any
annual or special meeting of the stockholders of Viador may only be taken at a
duly called annual or special meeting of stockholders. This provision prevents
stockholders from initiating or effecting any action by written consent.
Notice Procedures. Our bylaws establish advance notice procedures with
regard to all stockholder proposals to be brought before meetings of
stockholders of Viador, including proposals relating to the nomination of
candidates for election as directors, the removal of directors and amendments
to our certificate of incorporation or bylaws. These procedures provide that
notice of such stockholder proposals must be timely given in writing to the
Secretary of Viador prior to the meeting. Generally, to be timely, notice must
be received by our Secretary not less than 120 days prior to the meeting. The
notice must contain certain information specified in the bylaws.
Other Anti-takeover Provisions. See "Management--Executive Compensation and
Other Information--Employee Benefit Plans" beginning on page 47 for a
discussion of certain provisions of the 1999 Stock Incentive Plan which may
have the effect of discouraging, delaying or preventing a change in control of
Viador or unsolicited acquisition proposals.
Limitation of Director Liability. Our certificate of incorporation limits
the liability of our directors, in their capacity as directors but not in their
capacity as officers, to Viador or our stockholders to the fullest extent
permitted by Delaware law. Specifically, directors of Viador will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability:
. for any breach of the director's duty of loyalty to Viador or our
stockholders;
. for acts or omissions which involve intentional misconduct or a knowing
violation of law;
. under Section 174 of the Delaware General Corporation Law, which relates
to unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. for any transaction from which the director derived an improper personal
benefit.
Indemnification Arrangements. Our certificate of incorporation provides that
the directors and officers of Viador shall be indemnified and provide for the
advancement to them of expenses in connection with actual or threatened
proceedings and claims arising out of their status as directors and officers to
the fullest extent permitted by the Delaware General Corporation Law. We expect
to enter into indemnification agreements with each of our directors and
executives officers that will provide them with rights to indemnification and
expense advancement to the fullest extent permitted under the Delaware General
Corporation Law.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Boston Equiserve.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock. Future sales of substantial amounts of common stock in the public
market, or the prospect of such sales, could adversely affect prevailing market
prices.
Upon completion of this offering, based on the number of shares outstanding
as of August 31, 1999, 15,855,957 shares of common stock will be outstanding.
Of these shares, all of the 4,000,000 shares sold in this offering will be
freely tradable without restriction under the Securities Act, unless purchased
by an "affiliate" of Viador, as that term is defined in Rule 144. The remaining
11,855,957 shares outstanding after completion of this offering are "restricted
securities" as defined in Rule 144 and may be sold in the public market only if
registered under the Securities Act or if they qualify for an exemption from
registration, including an exemption pursuant to Rule 144.
Holders of over 99% of our outstanding common stock as of the date hereof
have agreed that, subject to certain exceptions and consents, during the period
beginning from the date of this prospectus, and continuing to and including the
date 180 days after the date of this prospectus, they will not offer to sell,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of, or, in any manner, transfer all or a
portion of the economic consequences associated with ownership of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock beneficially owned by them. Upon expiration of these
agreements, 6,175,078 shares will be eligible for immediate resale in the
public market subject to the volume and other limitations of Rule 144. An
additional 4,666,578 shares will be eligible for immediate resale in the public
market pursuant to Rule 144 subject to the volume and manner of sale
limitations in Rule 144 on the date which is one year after the date of this
prospectus.
In general under Rule 144, a person, including an "affiliate" of Viador, who
has beneficially owned restricted shares for at least one year is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock, approximately
159,000 shares immediately following this offering, or the average weekly
trading volume of the common stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about Viador. Rule 144(k) provides that a person who is not an
"affiliate" of the issuer at any time during the three-months preceding a sale
and who has beneficially owned shares for at least two years is entitled to
sell those shares at any time without compliance with the public information,
volume limitation, manner of sale and notice provisions of Rule 144.
As of August 31, 1999, options to purchase 3,426,976 shares of common stock
were outstanding under the Amended and Restated 1997 Stock Option/Stock
Issuance Plan. We intend to file as soon as practicable following completion of
this offering a registration statement on Form S-8 under the Securities Act
covering shares of common stock reserved for issuance under the 1999 Stock
Incentive Plan. Based on the number of options expected to be outstanding upon
completion of this offering and shares reserved for issuance under the 1999
Stock Incentive Plan, the registration statement would cover 7,000,000 shares.
For additional information about our stock options see "Management--Executive
Compensation and Other Information--Employee Benefit Plans" beginning on page
47. The registration statement will become effective immediately upon filing,
whereupon, subject to the satisfaction of applicable exercisability periods,
Rule 144 volume limitations applicable to affiliates and, in certain cases, the
agreements with the underwriters referred to above, shares of Common Stock to
be issued upon exercise of outstanding options granted pursuant to the 1999
Stock Incentive Plan, to the extent that such shares were held by affiliates,
will be available for immediate resale in the open market.
61
<PAGE>
UNDERWRITING
The underwriters of this offering named below, for whom Bear, Stearns & Co.
Inc., CIBC World Markets Corp. and U.S. Bancorp Piper Jaffray Inc. are acting
as representatives, have severally agreed with Viador, subject to the terms and
conditions of the Underwriting Agreement (the form of which has been filed as
an exhibit to the Registration Statement on Form S-1 of which this prospectus
is a part), to purchase from Viador the aggregate number of shares of common
stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc. ................................... 1,500,000
CIBC World Markets Corp. ................................... 750,000
U.S. Bancorp Piper Jaffray Inc. ............................ 750,000
BancBoston Robertson Stephens Inc. ......................... 80,000
Hambrecht & Quist LLC....................................... 80,000
Lehman Brothers Inc. ....................................... 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 80,000
Salomon Smith Barney Inc. .................................. 80,000
SG Cowen Securities Corporation............................. 80,000
Thomas Weisel Partners LLC.................................. 80,000
Aegis Capital Corp.......................................... 40,000
Corinthian Partners, L.L.C. ................................ 40,000
Dain Rauscher Wessels....................................... 40,000
E*OFFERING.................................................. 40,000
First Albany Corporation.................................... 40,000
Jefferies & Company......................................... 40,000
Jesup & Lamont Securities Corporation....................... 40,000
JWGenesis Capital Markets, LLC.............................. 40,000
Legg Mason Wood Walker, Incorporated........................ 40,000
Needham & Company, Inc. .................................... 40,000
Raymond James & Associates, Inc. ........................... 40,000
---------
Total..................................................... 4,000,000
=========
</TABLE>
The nature of the respective obligations of the underwriters is such that
all of the shares of common stock (other than shares of common stock covered by
the over-allotment option described below) must be purchased if any are
purchased. Those obligations are subject, however, to various conditions,
including the approval of certain matters by counsel. We have agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act, and, where such indemnification is unavailable, to
contribute to payments that the underwriters may be required to make in respect
of such liabilities.
We have been advised that the underwriters propose to offer the shares of
common stock directly to the public initially at the public offering price set
forth on the cover page of this prospectus and to certain selected dealers at
such price less a concession not to exceed $0.38 per share, that the
underwriters may allow, and such selected dealers may reallow, a concession to
certain other dealers not to exceed $0.10 per share and that after the
commencement of this offering, the public offering price and the concessions
may be changed.
We have granted to the underwriters an option to purchase in the aggregate
up to 600,000 additional shares of common stock to be sold in this offering
solely to cover over-allotments, if any. The option may be exercised in whole
or in part at any time within 30 days after the date of this prospectus. To the
extent the option is exercised, the underwriters will be severally committed,
subject to certain conditions, including the approval of certain matters by
counsel, to purchase the additional shares of common stock in proportion to
their respective purchase commitments as indicated in the preceding table.
62
<PAGE>
The underwriting discount is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The following table shows the underwriters' discounts to be paid to the
underwriters by us. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Per share Total
------------------- ---------------------
Without With Without With
Over- Over- Over- Over-
Allotment Allotment Allotment Allotment
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions payable by us.......... $ 0.63 $ 0.63 $2,520,000 $2,898,000
</TABLE>
We estimate that the total expenses of the offering, excluding underwriters'
discounts and commissions, will be approximately $1,000,000.
At our request, the underwriters have reserved for sale at the initial
public offering price up to 200,000 shares of the common stock offered hereby
for sale to certain directors, officers, other employees, business affiliates
and related persons of Viador who have expressed an interest in purchasing
shares. The number of shares available for sale to the general public will be
reduced to the extent any reserved shares are purchased. Any reserved shares
not so purchased will be offered by the underwriters on the same basis as the
other shares offered hereby.
Our executive officers, directors and our current stockholders, holding over
99% of our common stock, have agreed that, subject to certain limited
exceptions, for a period of 180 days after the date of this prospectus, without
the prior written consent of Bear, Stearns & Co. Inc., they will not, directly
or indirectly, issue, offer to sell, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of, or, in
any manner, transfer all or a portion of the economic consequences associated
with the ownership of any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock beneficially owned by
them. In addition, we have agreed that, for a period of 180 days after the date
of this prospectus, without the prior written consent of Bear, Stearns & Co.
Inc., we will not, directly or indirectly, offer, sell, contract to sell, grant
any option to purchase, pledge or otherwise dispose (or announce any offer,
sale, contract to sell, grant of an option to purchase, pledge or other
disposition) of any shares of common stock or securities convertible into or
exercisable or exchangeable for common stock. Notwithstanding this restriction,
we may issue shares of common stock or options to purchase common stock under
our 1999 Stock Incentive Plan, shares of common stock upon exercise of warrants
to purchase common stock that were issued and outstanding on the date of this
prospectus or up to 1,586,000 shares of common stock in connection with
acquisitions of businesses, technologies or products complementary to ours, so
long as the recipients of these shares agree to be bound by the lock-up
agreement executed by our directors and officers for the remainder of the 180-
day lock-up period.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price was determined through
negotiations among Viador and the representatives of the underwriters. Among
the factors considered in making such determination were:
.our financial and operating history and condition;
.market valuations of other companies engaged in activities similar to
ours;
.our prospects and prospects for the industry in which we do business
in general;
.our management;
.prevailing equity market conditions; and
.the demand for securities considered comparable to those of Viador.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
63
<PAGE>
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than have been sold to them by Viador. The underwriters may elect
to cover any such short position by purchasing shares of common stock in the
open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock in the
open market and may impose penalty bids, under which selling concessions
allowed to syndicate members or other broker-dealers participating in this
offering are reclaimed if shares of common stock previously distributed in this
offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of the common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of the common stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
64
<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered in this offering
will be passed upon for us by Brobeck, Phleger & Harrison LLP, Palo Alto,
California. Brobeck, Phleger & Harrison LLP and certain attorneys currently
affiliated with Brobeck, Phleger & Harrison LLP currently hold an aggregate of
36,018 shares of our capital stock and a warrant to purchase an additional
12,500 shares of our capital stock. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Latham & Watkins, San
Francisco, California.
EXPERTS
The Financial Statements and Schedule of Viador as of December 31, 1997 and
1998 and for each of the years in the three-year period ended December 31,
1998, have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent auditors, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Viador has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form S-1 under the Securities Act with
respect to the common stock offered in this offering. This prospectus is
materially complete, but omits certain information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to Viador and the common stock offered in this
offering, reference is made to such Registration Statement, exhibits and
schedules. For statements contained in this prospectus which refer to the
contents of any contract or other document reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. After consummation of this offering we will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will be required to file annual and quarterly
reports, proxy statements and other information with the Commission. The
Registration Statement, including the exhibits and schedules filed therewith,
as well as such reports and other information filed by us may be inspected
without charge at the public reference facilities maintained by the Securities
and Exchange Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Securities and Exchange Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Securities and Exchange Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates and from the Commission's Internet
Web site at http://www.sec.gov.
65
<PAGE>
VIADOR INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(unaudited)............................................................. F-3
Statements of Operations for the years ended December 31, 1996, 1997, and
1998, and for the six months ended June 30, 1998 and 1999 (unaudited)... F-4
Statements of Stockholders' Equity (Deficit) for the years ended December
31, 1996, 1997 and 1998, and for the six months ended June 30, 1999
(unaudited)............................................................. F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997, and
1998, and for the six months ended June 30, 1998 and 1999 (unaudited)... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Viador Inc.:
We have audited the accompanying balance sheets of Viador Inc. (the
Company), as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 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 financial position of Viador Inc., as of December
31, 1997 and 1998, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
June 11, 1999, except as to note 8,
which is as of October 25, 1999
F-2
<PAGE>
VIADOR INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30, 1999
---------------- -------------------
1997 1998 Actual Pro Forma
------- ------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,029 $ 4,181 $ 14,259 $ 14,338
Accounts receivable, net of allowance
of $50,000, $53,000 and $90,000 in
fiscal 1997, 1998 and June 30, 1999... 1,473 2,404 3,085 3,085
Other current assets................... 9 -- 410 410
------- ------- -------- --------
Total current assets................. 2,511 6,585 17,754 17,833
Property and equipment, net.............. 341 577 917 917
Other assets............................. 66 23 198 198
------- ------- -------- --------
$ 2,918 $ 7,185 $ 18,869 $ 18,948
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 222 $ 542 $ 686 $ 686
Accrued liabilities.................... 525 565 1,779 1,779
Deferred revenue....................... 2,081 2,707 3,120 3,120
------- ------- -------- --------
Total liabilities.................... 2,828 3,814 5,585 5,585
------- ------- -------- --------
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par
value; actual--4,166,667, 5,208,333,
and 10,416,666 shares authorized as of
December 31, 1997 and 1998, and June
30, 1999, respectively; 1,543,235,
4,306,866, and 6,802,860 shares issued
and outstanding as of December 31,
1997 and 1998, and June 30, 1999,
respectively; aggregate liquidation
preference of $3,819, $12,441, and
$27,022 as of December 31, 1997 and
1998, and June 30, 1999, respectively;
pro forma--10,000,000 shares
authorized; no shares issued and
outstanding........................... 2 4 7 --
Common stock, $0.001 par value;
actual--16,666,667, 16,666,667, and
20,833,333 shares authorized as of
December 31, 1997 and 1998, and June
30,1999 respectively; 4,612,512,
4,664,589, and 4,915,433 shares issued
and outstanding as of December 31,
1997 and 1998 and June 30, 1999,
respectively; pro forma--100,000,000
shares authorized; 11,803,134 shares
issued and outstanding................ 5 5 5 12
Additional paid-in capital............. 3,687 14,221 30,273 30,352
Deferred stock-based compensation...... -- (1,148) (2,029) (2,029)
Treasury stock......................... -- (34) (34) (34)
Notes receivable from stockholders..... (138) -- -- --
Accumulated deficit.................... (3,466) (9,677) (14,938) (14,938)
------- ------- -------- --------
Total stockholders' equity........... 90 3,371 13,284 13,363
------- ------- -------- --------
$ 2,918 $ 7,185 $ 18,869 $ 18,948
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
VIADOR INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
License.................... $ 56 $ 839 $ 2,283 $ 1,142 $ 2,131
Service.................... 941 743 1,542 612 1,159
------- -------- -------- -------- --------
Total revenue............ 997 1,582 3,825 1,754 3,290
Cost of revenue.............. 314 903 1,387 640 874
------- -------- -------- -------- --------
Gross profit............. 683 679 2,438 1,114 2,416
------- -------- -------- -------- --------
Operating expenses:
Research and development... 364 1,351 2,481 1,107 1,871
Sales and marketing........ 125 1,802 4,295 1,806 4,397
General and
administrative............ 358 936 1,365 374 996
Amortization of stock-based
compensation.............. -- -- 445 94 529
------- -------- -------- -------- --------
Total operating
expenses................ 847 4,089 8,586 3,381 7,793
------- -------- -------- -------- --------
Operating loss........... (164) (3,410) (6,148) (2,267) (5,377)
Interest income.............. 10 68 134 32 116
Interest expense............. -- (6) (197) (34) --
------- -------- -------- -------- --------
Net loss................. $ (154) $(3,348) $(6,211) $(2,269) $(5,261)
======= ======== ======== ======== ========
Basic and diluted net loss
per share................... $(0.08) $ (1.34) $ (1.82) $ (0.71) $ (1.28)
======= ======== ======== ======== ========
Shares used in computing
basic and diluted net loss
per share................... 1,993 2,495 3,416 3,177 4,126
======= ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
VIADOR INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes Total
preferred stock Common stock Additional Deferred receivable stockholders'
---------------- ----------------- paid-in stock-based Treasury from Accumulated equity
Shares Amount Shares Amount capital compensation stock stockholders deficit (deficit)
--------- ------ --------- ------ ---------- ------------ -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31,
1995............ -- $-- 1,843,752 $ 2 $ 48 $ -- $ -- $ -- $ 36 $ 86
Issuance of
common stock to
founders for
cash........... -- -- 187,504 -- 5 -- -- -- -- 5
Issuance of
common stock to
founders for
notes.......... -- -- 2,560,422 3 120 -- -- (123) -- --
Interest on
notes
receivable from
stockholders... (4) (4)
Net loss........ -- -- -- -- -- -- -- -- (154) (154)
--------- --- --------- --- ------- -------- ----- ----- --------- --------
Balances as of
December 31,
1996............ -- -- 4,591,678 5 173 -- -- (127) (118) (67)
Stock options
exercised...... -- -- 20,834 -- 1 -- -- -- -- 1
Issuance of
Series A
convertible
preferred
stock.......... 1,543,235 2 -- -- 3,513 -- -- -- -- 3,515
Interest on
notes
receivable from
stockholders... -- -- -- -- -- -- -- (11) -- (11)
Net loss........ -- -- -- -- -- -- -- -- (3,348) (3,348)
--------- --- --------- --- ------- -------- ----- ----- --------- --------
Balances as of
December 31,
1997............ 1,543,235 2 4,612,512 5 3,687 -- -- (138) (3,466) 90
Stock options
exercised...... -- -- 78,996 -- 8 -- -- -- -- 8
Repurchase of
stock in
settlement of
notes
receivable from
founders....... -- -- (26,919) (1) -- (34) 35 -- --
Cancellation of
stockholders
notes.......... -- -- -- -- -- -- -- 103 -- 103
Issuance of
Series B
convertible
preferred stock
net of $92
issuance
costs.......... 2,763,631 2 -- -- 8,528 -- -- -- -- 8,530
Deferred stock-
based
compensation
related to
stock option
grants......... -- -- -- -- 1,593 (1,593) -- -- -- --
Amortization of
stock-based
compensation... -- -- -- -- -- 445 -- -- -- 445
Warrants for
services
performed...... -- -- -- -- 88 -- -- -- -- 88
Options issued
to
nonemployees... -- -- -- -- 188 -- -- -- -- 188
Warrants issued
in connection
with bridge
loan........... -- -- -- -- 130 -- -- -- -- 130
Net loss........ -- -- -- -- -- -- -- -- (6,211) (6,211)
--------- --- --------- --- ------- -------- ----- ----- --------- --------
Balances as of
December 31,
1998............ 4,306,866 4 4,664,589 5 14,221 (1,148) (34) -- (9,677) 3,371
Stock options
exercised
(unaudited).... -- -- 250,844 -- 30 -- -- -- -- 30
Issuance of
Series C
convertible
preferred stock
net of $38
issuance costs
(unaudited).... 2,495,994 3 -- -- 14,540 -- -- -- -- 14,543
Warrants for
services
performed
(unaudited).... -- -- -- 37 -- -- -- -- 37
Options issued
to nonemployees
(unaudited).... -- -- -- -- 35 -- -- -- -- 35
Deferred stock-
based
compensation
related to
stock option
grants
(unaudited).... -- -- -- -- 1,410 (1,410) -- -- -- --
Amortization of
stock-based
compensation
(unaudited).... -- -- -- -- -- 529 -- -- -- 529
Net loss
(unaudited).... -- -- -- -- (5,261) (5,261)
--------- --- --------- --- ------- -------- ----- ----- --------- --------
Balances as of
June 30, 1999
(unaudited)..... 6,802,860 $ 7 4,915,433 $ 5 $30,273 $ (2,029) $ (34) $ -- $ (14,938) $ 13,284
========= === ========= === ======= ======== ===== ===== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
VIADOR INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months ended
Years Ended December 31, June 30,
-------------------------- ------------------
1996 1997 1998 1998 1999
---------------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating ac-
tivities:
Net loss...................... $ (154) $(3,348) $(6,211) $(2,269) $(5,261)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Cancellation of stockholder
notes...................... -- -- 103 -- --
Issuance of options for
services performed......... -- -- 188 -- 35
Interest on bridge loan..... -- -- 63 -- --
Interest on note receivable
from stockholders.......... 3 11 -- -- --
Warrants issued for services
performed.................. -- -- 88 -- 37
Amortization of discount on
bridge loan................ -- -- 130 -- --
Amortization of deferred
stock-based compensation... -- -- 445 93 529
Software sold in exchange
for property and
equipment.................. -- (22) -- -- --
Depreciation and
amortization............... 18 89 248 84 248
Changes in operating assets
and liabilities:
Accounts receivable........ -- (1,342) (931) 158 (681)
Other assets............... (69) (4) 52 19 (585)
Accounts payable and
accrued liabilities....... 440 261 360 75 1,358
Deferred revenue........... 11 2,020 626 (264) 413
------ -------- -------- -------- --------
Net cash provided by (used
in) operating activities.. 249 (2,335) (4,839) (2,104) (3,907)
------ -------- -------- -------- --------
Cash flows used in investing
activities--acquisition of
property and equipment........ (106) (342) (484) (218) (588)
------ -------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
common stock................. 5 1 8 3 30
Proceeds from issuance of
preferred stock, net......... -- 3,515 6,467 -- 14,543
Loan from stockholder......... 100 -- -- -- --
Proceeds from bridge loan..... -- -- 1,870 1,870 --
Proceeds from issuance of
warrants..................... -- -- 130 130 --
Borrowing under line of
credit....................... -- 100 500 500 --
Repayment under line of
credit....................... -- (100) (500) (300) --
Repayment of loan from
stockholder.................. -- (100) -- -- --
------ -------- -------- -------- --------
Net cash provided by
financing activities...... 105 3,416 8,475 2,203 14,573
------ -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... 248 739 3,152 (119) 10,078
Cash and cash equivalents,
beginning of period........... 42 290 1,029 1,029 4,181
------ -------- -------- -------- --------
Cash and cash equivalents, end
of period..................... $ 290 $ 1,029 $ 4,181 $ 910 $14,259
====== ======== ======== ======== ========
Supplemental disclosures of
cash flow information:
Cash paid during period for
interest..................... $ -- $ 6 $ 22 $ 9 $ --
====== ======== ======== ======== ========
Noncash financing activities:
Common stock issued to
founders for note
receivable.................. $ 123 $ -- $ -- $ -- $ --
====== ======== ======== ======== ========
Repurchase of common stock in
settlement of notes
receivable from
stockholders................ $ -- $ -- $ 35 $ -- $ --
====== ======== ======== ======== ========
Preferred stock issued upon
conversion of bridge loan
and accrued interest........ $ -- $ -- $ 2,063 $ -- $ --
====== ======== ======== ======== ========
Deferred stock-based
compensation................ $ -- $ -- $ 1,593 $ 1,114 $ 1,410
====== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
(1) Business of the Company
Viador Inc. (the Company) was incorporated as Infospace Inc. in California
in December 1995. In January 1999, the Company changed its name to Viador Inc.
The Company develops web-based products designed to search, analyze and deliver
relevant information to users within and outside an enterprise.
(2) Summary of Significant Accounting Policies
(a) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
(b) Revenue Recognition
The Company has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4. SOP 97-2 as amended, generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair value of the elements. The
adoption of SOP 97-2, as amended, did not have a significant impact on the
Company's accounting for revenues.
In December 1998, the American Institute of Certified Public Accountants'
(AICPA) issued SOP 98-9, Software Revenue Recognition, with Respect to Certain
Arrangements, which requires recognition of revenue using the "residual method"
in a multiple element arrangement when fair value does not exist for one or
more of the delivered elements in the arrangement. Under the "residual method",
the total fair value of the undelivered elements is deferred and subsequently
recognized in accordance with SOP 97-2. The Company does not expect a material
change to its accounting for revenues as a result of the provisions of SOP 98-
9.
The Company licenses its products to end user customers, original equipment
manufacturers (OEM) and value added resellers (VAR). Software license revenue
from sales to end users is generally recognized upon receipt of a signed
contract or purchase order and delivery of the software, provided the related
fee is fixed and determinable and collectibility of the fee is probable and
vendor-specific objective evidence for all elements has been established. The
Company has established sufficient vendor-specific objective evidence to
ascribe a value to consulting services and post-contract customer support based
on the price charged when these elements are sold separately. Accordingly,
license revenue is recorded under the residual method described above in
arrangements in which licenses are sold with consulting services, post-contract
customer support or both. However, the entire fee related to arrangements that
require the Company to deliver specified additional features or upgrades is
deferred until delivery of the feature and/or upgrade has occurred, because the
Company does not have sufficient vendor-specific objective evidence of fair
value to allocate revenue to the various elements in such arrangements. All of
the contract software revenue related to arrangements involving consulting
services that are essential to the functionality of the software at the
customer site is deferred until the consulting services have been completed and
customer acceptance has been obtained using the completed contract method.
Contract software revenue related to arrangements to maintain the compatibility
of the company's software products with the software products or platforms of
the customer or other vendor is recognized ratably over the term of the
arrangement. License revenue from OEM and VAR arrangements in which the Company
earns a royalty based on a specified percentage of OEM and VAR sales to end
users incorporating the Company's software is recognized upon delivery to the
end user. Nonrefundable prepaid royalty fees received by the Company from OEM
and VAR customers are deferred and recognized as the end user sales are
reported to the Company by the OEM or VAR, unless the Company has an
arrangement to maintain the compatability of its
F-7
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
software products with the software products or platforms of the OEM or VAR. In
that case, due to the Company's software compatibility obligation, the prepaid
royalty fees are recognized as the end user sales are reported to the Company
by the OEM or VAR but limited to no more than the fee that would be
recognizable on a cumulative basis if the entire fee was being recognized
ratably over the term of the arrangement.
Service revenue consists of fees from professional services and from
maintenance and support. Professional services include integration of software,
application development, training and software installation. We bill
professional services fees either on a time and materials basis or on a fixed-
price schedule. We recognize professional services fees generally as the
services are performed except as described above where such services are
essential to the functionality of software sold as part of the arrangement. Our
clients typically purchase maintenance agreements annually, and we price
maintenance agreements based on a percentage of the product license fee. We
recognize revenue from maintenance and support agreements ratably over the term
of the agreement, which is typically one year.
Cost of service revenue includes salaries and related expenses for
consulting services, customer support, implementation and training services
organizations, costs of contracting with third parties contracted to provide
consulting services to customers. Cost of license revenue includes royalties
due to third parties for integrated technology, the cost of manuals and product
documentation, production media used to deliver our products and shipping
costs, including the costs associated with the electronic transmission of
software to new customers and an allocation of our facilities, communications
and depreciation expenses. Costs of license revenues have not been significant
to date.
(c) Initial Public Offering and Unaudited Pro Forma Balance Sheet
In May 1999, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission ("SEC") that would permit
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering ("IPO"). Following the closing of the
Company's IPO, the number of authorized shares of convertible preferred stock
and common stock will be 10,000,000 and 100,000,000, respectively. If the
offering is consummated under the terms presently anticipated, all the then
outstanding shares of the Company's convertible preferred stock will
automatically convert into 0.417 shares of common stock upon the closing of the
proposed IPO. The conversion of all of the convertible preferred stock and
warrants has been reflected in the accompanying unaudited pro forma
consolidated balance sheet as if it had occurred on June 30, 1999.
(d) Cash and Cash Equivalents
Cash and cash equivalents consists of cash and highly liquid investments
such as money market funds purchased with remaining maturities of three months
or less. The Company is exposed to credit risk in the event of default by the
financial institutions or the issuers of these investments to the extent of the
amounts recorded on the balance sheet.
(e) Financial Instruments and Concentration of Credit Risk
The carrying value of the Company's financial instruments, including cash
and cash equivalents and accounts receivable approximates fair market value.
Financial instruments that subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents and trade accounts receivable.
The Company sells its products and services primarily to established
customers. Credit risk is concentrated in North America and Asia. The Company
performs ongoing credit evaluations of its customer's financial condition and,
generally, requires no collateral from its customers.
F-8
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
(f) Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method
over the estimated useful lives of the respective assets generally three to
five years. Leasehold improvements are amortized on a straight line basis over
the shorter of the estimated useful lives of the assets or the lease term.
(g) Software Development Costs
Development costs incurred in the research and development of software
products are expensed as incurred until technological feasibility in the form
of a working model has been established. As of June 30, 1999, technological
feasibility was established concurrent with the general release of the software
and therefore, no costs have been capitalized.
(h) Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount of the
assets or fair value less costs to sell.
(i) Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be recovered.
(j) Defined Contribution Plan
The Company has a defined contribution retirement plan under Section 401(k)
of the Internal Revenue Code which covers substantially all employees. Eligible
employees may contribute amounts to the plan, via payroll withholding, subject
to certain limitations. Under the 401(k) plan, employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit and
to have the amount of such reduction contributed to the 401(k) plan. The 401(k)
plan permits, but does not require, additional matching contributions to the
401(k) plan by the Company on behalf of all participants in the 401(k) plan. To
date, the Company has not made any matching contributions to the 401(k) plan.
(k) Stock-Based Compensation
The Company uses the intrinsic-value method to account for all of its
employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No. 28.
F-9
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
(l) Advertising Expense
The cost of advertising is generally expensed as incurred. Such costs are
included in selling and marketing expense and totalled approximately $10,000,
$114,000, $273,000, $132,000, and $400,000, for the years ended December 31,
1996, 1997 and 1998, and for the six months ended June 30, 1998 and 1999,
respectively.
(m) Comprehensive Income
The Company has no material components of other comprehensive income (loss)
for all periods presented.
(n) Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, the accompanying
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, for the fair statement of the Company's
financial condition as of June 30, 1999 and its results of operations and cash
flows for the six months ended June 30, 1998 and 1999.
(o) Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock excluding shares of restricted stock
subject to repurchase summarized below. Diluted net loss per share is computed
using the weighted-average number of shares of common stock outstanding
excluding shares of restricted stock subject to repurchase and, when dilutive,
potential common shares from restricted stock options and warrants to purchase
common stock using the treasury stock method and from convertible securities
using the "as if converted" basis. The following potential common shares have
been excluded from the computation of diluted net loss per share for all
periods presented because the effect would have been antidilutive (in
thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
----------------- -----------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Shares issuable under stock options............. 2,365 2,823 3,045 3,315 3,287
Shares of restricted stock subject to
repurchase..................................... 2,560 1,636 765 1,209 348
Shares issuable pursuant to warrants to purchase
common and convertible preferred stock......... -- -- 90 63 102
Shares of convertible preferred stock on an "as
if converted" basis............................ -- 1,545 4,310 1,545 6,808
</TABLE>
The weighted-average exercise price of stock options was $0.05, $0.05 and
$0.12 for the years ended December 31, 1996, 1997, and 1998 and $0.10 and
$0.74 for the six months ended June 30, 1998 and 1999, respectively. The
weighted-average purchase price of restricted stock was $0.02 for all periods
presented. The weighted-average exercise price of the warrants was $0.70,
$0.72, and $0.89 for the year ended December 31, 1998 and for the six months
ended June 30, 1998 and 1999.
F-10
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
(q) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Because the Company does not currently hold any
derivative instruments and does not engage in hedging activities, the Company
expects that the adoption of SFAS No. 133 will not have a material impact on
its financial position, results of operations, or cash flows. The Company will
be required to adopt SFAS No. 133 in fiscal 2001.
(3) Property and Equipment
A summary of property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1997 1998 1999
------ ------ --------
<S> <C> <C> <C>
Computers and software............................... $ 387 $ 608 $1,046
Furniture and fixtures............................... 61 120 260
Leasehold improvements............................... -- 204 214
------ ------ ------
448 932 1,520
Less accumulated depreciation and amortization....... 107 355 603
------ ------ ------
$ 341 $ 577 $ 917
====== ====== ======
</TABLE>
(4) Stockholders' Equity
(a) Convertible Preferred Stock
Convertible preferred stock outstanding as of June 30, 1999 is as follows
(in thousands):
<TABLE>
<CAPTION>
Shares Issued and
Designated Outstanding
---------- -----------
<S> <C> <C>
Series A............................................ 1,543 1,543
Series B............................................ 3,333 2,764
Series C............................................ 2,500 2,496
----- -----
7,376 6,803
===== =====
</TABLE>
The rights, preferences, privileges, and restrictions of Series A and B
convertible preferred stock are as follows:
. Each share of Series A and B convertible preferred stock is convertible
at the option of the holder, at any time after the date of issuance,
into one share of common stock, subject to adjustment for certain
dilutive events. Each share has voting rights equal to the common stock
on an "as-if-converted" basis.
. Conversion into common stock is automatic upon the closing of a public
offering of the Company's common stock at a purchase price of not less
than $7.42 and $5.00 per share and at an aggregate offering price of not
less than $7,500,000 and $15,000,000 for Series A and B convertible
preferred stock, respectively.
F-11
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
. Series A and B convertible preferred stockholders are entitled to
noncumulative dividends of $0.10 and $0.13 per share per annum,
respectively, when and if declared by the Company's Board of Directors.
As of June 30, 1999, no dividends have been declared.
. Each share of Series A and B convertible preferred stock has a
liquidation preference of $2.4744 and $3.12 per share, respectively,
plus any declared but unpaid dividends over holders of common stock.
In the event of liquidation of the Company, after payment has been made
to the holders of Series A and B convertible preferred stock of the full
preferential amounts, any remaining assets would be distributed ratably
amongst the common and convertible preferred stockholders in proportion
to their common ownership on an "as if converted" basis up to a maximum
of three times the initial preferred investment. Thereafter common
shareholders equally divide the remaining assets.
In April 1998, the Company issued $2,000,000 in convertible bridge notes,
bearing 9% interest, payable to certain preferred stockholders. The full amount
of the notes plus accrued interest payable of $63,000 was converted into
979,400 shares of Series B preferred stock in August 1998. In conjunction with
the issuance of the convertible notes, the Company issued warrants to purchase
62,500 common stock at an exercise price of $0.72 per share. The $130,000 fair
value assigned to the warrants and related discount on the notes was determined
using the Black-Scholes option pricing model using the following assumptions:
no dividends; contractual life of 5 years; risk-free interest rate of 6.9%; and
expected volatility of 65%. The discount on the notes payable was amortized to
interest expense over the period the notes were outstanding. The warrants
expire in April 2003 or upon the closing of an IPO, whichever occurs first.
On May 21, 1999, the Company issued 2,495,994 shares of Series C convertible
preferred stock for $5.8416 per share resulting in gross proceeds to the
Company of approximately $14,581,000. The rights, preferences, and privileges
of the holders of Series C preferred stock are the same as the holders of
Series A and B convertible preferred stock discussed above, except that the
dividend rate is $0.15 per share, and the liquidation preference is $5.8416 per
share. The Series C preferred stock will automatically convert into common
stock upon completion of the offering described in this prospectus.
(b) Stock Plan
The Company has reserved 5,047,326 shares of common stock for issuance under
its 1997 stock option plan (the Plan). The Plan provides for the issuance of
stock purchase rights, incentive stock options, or nonstatutory stock options.
The stock purchase rights are subject to a restricted stock purchase
agreement whereby the Company has the right to repurchase the stock upon the
voluntary or involuntary termination of the purchaser's employment with the
Company at the original issuance cost. The Company's repurchase right lapses
generally over a three year period. Through June 30, 1999, the Company has
issued 2,560,417 shares under restricted stock purchase agreements of which
347,695 are subject to repurchase at a weighted average price of $0.05 per
share. These restricted shares were issued to officers of the Company for full
recourse promissory notes with an interest rate of 9% and a term of three
years.
The incentive stock options under the Plan can be exercised at a price of at
least 85% of the stock's fair market value on the date of grant for employees
owning less than 10% of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock.
F-12
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
Under the Plan, options generally expire in 10 years. However, the term of
the options may be limited to 5 years if the optionee owns stock representing
more than 10% of the voting power of all classes of stock. Vesting periods are
determined by the Company's Board of Directors and generally provide for
shares to vest ratably over a 3 to 4 year period.
In August 1998, the Company repurchased 26,920 shares of common stock at
prices ranging from $.113 to $1.44 per share in settlement of $35,000 notes
receivable from two stockholders and forgave notes receivable from five other
stockholders totaling $103,000 for the return of 181,414 unvested stock
options. The Company recorded a $103,000 compensation charge for the
forgiveness of the notes.
The Company issued options to purchase 94,783 shares of common stock at
exercise prices ranging from $0.05 to $0.24 to non-employees for services
performed. The fair value of the options at the vesting date was determined to
be $188,000 using the Black-Scholes option pricing model using the following
assumptions: no dividends; contractual life of 10 years; risk-free interest
rate of 6.9%; and expected volatility of 65%. The fair value of the options
was charged to expense in 1998 as the related services were performed.
In the first six months of 1999, the Company issued options to purchase
9,358 shares of common stock at exercise prices ranging from $0.62 to $5.28 to
non-employees for services performed. The fair value of the options at the
vesting date was determined to be $35,000 using the Black-Scholes option
pricing model using the following assumptions: no dividends; contractual life
of 10 years; risk-free interest rate of 5.6%; and expected volatility of 65%.
The fair value of the options was charged to expense in 1999 as the related
services were performed.
As of December 31, 1998, there were 396,481 additional stock options
available for grant under the Plan.
(c) Warrants
In 1998, the Company issued warrants to purchase 12,500 shares of common
stock at an exercise price of $0.72 per share in exchange for services. These
warrants expire upon the earlier of August 2003, or upon an IPO of the
Company's common stock. The $39,000 fair value of the warrants was determined
using the Black-Scholes option pricing model, using the following assumptions:
no dividends; contractual life of 5 years; risk-free interest rate of 6.5%;
and expected volatility of 65%. The fair value of the warrants was charged to
expense in 1998 as the related services were performed.
In 1998, the Company issued warrants to purchase 14,760 shares of common
stock at prices ranging from $0.24 to $0.62 per share in exchange for
services. These warrants expire upon the earlier of five years from the grant
date, or upon an IPO of the Company's common stock. The $49,000 fair value of
the warrants was determined using the Black-Scholes option pricing model using
the following assumptions: no dividends; contractual life of 5 years; risk-
free interest rate of 6.5%; and expected volatility of 65%. The fair value of
the warrants was charged to expense in 1998 as the related services were
performed.
In May 1999, the Company issued warrants to purchase 4,007 shares of Series
C preferred stock at a price of $5.8416 per share in exchange for services.
These warrants expire upon the earlier of May 2003, or upon an IPO of the
Company's common stock. The $15,000 fair value of the warrants was determined
using the Black-Scholes option pricing model using the following assumptions:
no dividends; contractual life of 5 years; risk-free interest rate of 5.6%;
and expected volatility of 65%. The fair value of the warrants was charged to
expense in 1999 as the related services were performed.
F-13
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
In the first six months of fiscal 1999, the Company issued 3,479 warrants to
purchase common stock at a price of $0.62 per share in exchange for services.
These warrants expire upon the earlier of five years from the grant date, or
upon an IPO of the Company's common stock. The $22,000 fair value of the
warrants was determined using the Black-Scholes option pricing model using the
following assumptions: no dividends; contractual life of 5 years; risk-free
interest rate of 5.6%; and expected volatility of 65%. The fair value of the
warrants was charged to expense in 1999 as the related services were performed.
(d) Stock-Based Compensation
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted or restricted stock sold
because the exercise price of each option or purchase price of each share of
restricted stock equaled or exceeded the fair value of the underlying common
stock as of the grant date for each stock option or purchase date of each
restricted stock share, except for stock options granted and restricted stock
sold from September 1998 through June 1999. With respect to the stock options
granted and restricted stock sold from September 1998 to June 1999, the Company
recorded deferred stock compensation of $3,003,000 for the difference at the
grant or issuance date between the exercise price of each stock option granted
or purchase price of each restricted share sold and the fair value of the
underlying common stock. This amount is being amortized on an accelerated basis
over the vesting period, generally 48 months. Had compensation costs been
determined in accordance with SFAS No. 123 for all of the Company's stock-based
compensation plans, net loss and basic and diluted net loss per share would
have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported.................................. $ (154) $ (3,348) $ (6,211)
Pro forma.................................... (154) (3,357) (6,229)
Basic and diluted net loss per share:
As reported.................................. $ (0.08) $ (1.34) $ (1.82)
Pro forma.................................... (0.08) (1.35) (1.82)
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends, risk-free interest rate of 6.6%, 6.5%, and 5.6% for fiscal 1996,
1997, and 1998, respectively, and expected life of 4.3, 4.6 and 4.1 years for
1996, 1997 and 1998, respectively.
F-14
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
A summary of the status of the Company's options under the Plan is as
follows:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------------------------------- -------------------
1996 1997 1998 1999
------------------- -------------------- -------------------- -------------------
Weighted- Weighted- Weighted- Weighted
average average average Average
exercise exercise exercise Exercise
Shares price Shares price Shares price Shares Price
--------- --------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 2,364,583 $0.05 2,822,481 $0.05 3,045,363 $0.12
Granted................. 2,364,583 0.05 570,580 0.10 723,737 0.26 539,906 4.02
Exercised............... -- -- (20,833) 0.05 (78,990) 0.10 (250,836) 0.12
Canceled................ -- -- (91,849) 0.05 (421,865) 0.05 (47,370) 1.28
--------- --------- --------- ---------
Outstanding at end of
period................. 2,364,583 0.05 2,822,481 0.05 3,045,363 0.12 3,287,063 0.73
========= ========= ========= =========
Options vested and
exercisable at end of
period................. -- -- 854,941 0.05 1,780,226 0.07 1,955,438 0.11
========= ========= ========= =========
Weighted-average fair
value of options
granted during the
period with exercise
prices equal to fair
value at date of
grant.................. $0.01 $0.02 $ -- $1.07
Weighted-average fair
value of options
granted during the
period with exercise
prices less than fair
value at date of
grant.................. $ -- $ -- $1.73 $6.35
</TABLE>
As of December 31, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------- ---------------------
Weighted-
average Weighted- Weighted-
remaining average average
Exercise Number contractual exercise Number exercise
prices outstanding life (years) price exercisable price
-------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.05.............. 2,207,628 7.74 $0.05 1,559,203 0.05
0.24.............. 778,985 9.29 0.24 221,023 0.24
0.62.............. 58,750 9.88 0.62 -- --
--------- ---------
3,045,363 8.18 0.12 1,780,226 0.07
========= =========
</TABLE>
F-15
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
As of June 30, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
Options outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
average
remaining Weighted- Weighted-
contractual average average
Exercise Number life exercise Number exercise
Prices outstanding (years) price exercisable price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.05............... 2,041,548 7.24 $0.05 1,697,906 $0.05
0.24............... 679,753 8.79 0.24 241,733 0.24
0.62............... 180,335 9.52 0.62 2,743 0.62
5.28............... 385,427 10.00 5.28 13,056 5.28
--------- ---------
3,287,063 8.01 0.73 1,955,438 0.11
========= =========
</TABLE>
(5) Income Taxes
The differences between the income tax benefit computed at the federal
statutory rate and the Company's tax provision for all periods presented
primarily relate to net operating losses not benefited.
The types of temporary differences that give rise to significant portions of
the Company's deferred tax assets and liabilities as of December 31, 1996,
1997, and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Reserves and accruals..... $ 54 $ 116 $ 523
Net operating loss and tax
credit carryforwards..... 32 1,366 3,266
---- ------- -------
Gross deferred tax
assets................... 86 1,482 3,789
Less valuation allowance.. (83) (1,474) (3,788)
---- ------- -------
Total deferred tax
assets................. 3 8 1
Deferred tax liabilities--
property and equipment... (3) (8) (1)
---- ------- -------
Net deferred tax
assets................. $ -- $ -- $ --
==== ======= =======
</TABLE>
In light of the Company's recent history of operating losses, the Company
has provided a valuation allowance for its net deferred tax assets as it is
presently unable to conclude that it is more likely than not that the deferred
tax assets will be realized. The net change in the total valuation allowance
for the year ended December 31, 1998, was $2,314,000.
As of December 31, 1998, the Company has net operating loss carryforwards
for federal and state income tax purposes of approximately $6,700,000 available
to reduce future income subject to income taxes. The federal net operating loss
carryforwards expire between 2012 and 2019. The state net operating loss
carryforwards expire beginning in 2004.
As of December 31, 1998, the Company also has research credit carryforwards
for federal and state income tax purposes of approximately $210,000 and
$169,000, respectively, available to reduce future income taxes. The federal
research credit carryfoward expire beginning in 2011 through 2019. The research
credit carryforwards for state purposes carry forward indefinitely until
utilized. The Company has a foreign tax credit carryforward for federal tax
purposes in the amount of $20,000. The foreign tax credit carryforward expires
in 2002.
F-16
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
Federal and state tax laws impose substantial restrictions on the
utilization of net operating loss carryforwards in the event of an "ownership
change" as defined in Section 382 of the Internal Revenue Code. If the Company
has an ownership change, utilization of the above mentioned carryforwards could
be reduced significantly.
(6) Geographic, Segment and Significant Customer Information
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 establishes standards for the manner in which public
companies report information about operating segments in annual and interim
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The method
for determining what information to report is based on the way management
organizes the operating segments within the Company for making operating
decisions and assessing financial performance.
The Company's chief operating decision-maker is considered to be the chief
executive officer (CEO). The CEO reviews financial information presented on an
entity level basis accompanied by disaggregated information about revenues by
product type and certain information about geographic regions for purposes of
making operating decisions and assessing financial performance. The entity
level financial information is identical to the information presented in the
accompanying statements of operations. Therefore, the Company has determined
that it operates in a single operating segment: Enterprise information portal
systems. The disaggregated information reviewed on a product basis by the CEO
is as follows (in thousands):
<TABLE>
<CAPTION>
Six Months
Years Ended Ended June
December 31, 30,
------------------ -------------
1996 1997 1998 1998 1999
---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenue
License................................... $ 56 $ 839 $2,283 $1,142 $2,131
Services
Consulting............................... 940 638 1,112 518 823
Maintenance.............................. 1 105 430 94 336
---- ------ ------ ------ ------
$997 $1,582 $3,825 $1,754 $3,290
==== ====== ====== ====== ======
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
% of Total Accounts
% of Total Revenue Receivable
------------------------------------------- ---------------------
Six Months
Ended
Year Ended December 31, June 30,
--------------------------- ------------- December 31, June 30,
1996 1997 1998 1998 1999 1998 1999
------- ------- ------- ----- ----- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Customer A.............. 23% -- -- -- -- -- --
Customer B.............. 1% 10% 11% 6% 4% 14% 7%
Customer C.............. -- -- -- -- 12% 17% 1%
Customer D.............. 43% -- -- -- -- -- --
Customer E.............. -- 2% 5% 12% -- 1% --
Customer F.............. -- 5% 15% 17% 3% 6% --
Customer G.............. 18% 8% -- -- -- -- --
Customer H.............. -- -- 6% 10% 1% 4% 2%
</TABLE>
F-17
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
Revenues aggregating 6% and 4% of total revenues for the year ended December
31, 1998 and for the six months ended June 30, 1999, respectively, were
generated from customers who are also stockholders of the Company, and whose
ownership percentages ranged from 5% to 10% as of June 30, 1999.
The Company markets its products from its operations in North America.
International sales are primarily to customers in Canada, Europe and Asia
Pacific. Revenues derived from International sales were 14% and 12% for the
years ended December 31, 1997 and 1998 and 14% and 8% for the six months ended
June 30, 1998 and 1999. Sales did not exceed 4% for any one country outside of
North America in any period presented.
(7) Bank Borrowing, Commitments and Contingencies
In 1998 the Company had a $1.5 million line of credit. The contractual rate
of interest under this line of credit was 9.5%. The Company had no balances
outstanding under this line of credit at December 31, 1998.
On March 17, 1999, the Company entered into a $2,000,000 bank line of
credit. Borrowings under the agreement bear interest at the bank's base rate,
as announced by the bank from time to time, plus 1%. On March 17, 1999 the
Company also entered into a revolving equipment loan in the amount of $500,000.
This loan bears interest at the bank's base rate, as announced by the bank from
time to time, plus 1.25%. As of June 30, 1999, the Company had no balances
outstanding under the line of credit or the equipment loan. The loans are based
on a percentage of qualified outstanding accounts receivable and is secured by
a security interest in certain of the Company's intellectual property.
The Company leases its facilities and certain equipment under noncancelable
operating lease agreements expiring in the year 2000. Rent expense was
approximately $38,000, $103,000 and $293,000 for the years ended December 31,
1996, 1997 and 1998, respectively. Future minimum lease payments under
noncancelable operating leases are approximately $391,000 and $200,000 for
fiscal years 1999 and 2000, respectively.
On April 1, 1999 the Company entered into a software marketing and
distribution agreement with a distributor located in Germany. The agreement
includes a buyout obligation that can be exercised by the distributor following
the third anniversary of the agreement if minimum sales quotas and certain
conditions have been met. As of June 30, 1999, no sales have been reported by
the distributor.
In 1999, a third party advised the Company of objections to an advertising
campaign the Company undertook in connection with its name change. The third
party filed a complaint in California state court alleging that the Company
violated their right of publicity, the Lanham Act and unfair competition law
because of the advertising campaign. The complaint seeks an injunction against
further advertising that uses the third parties name or likeness, compensatory
damages, the Company's profits resulting from the advertising, punitive
damages, attorneys' fees and costs and interest. The Company estimates this
matter will result in a settlement of approximately $138,000 which has been
accrued as of June 30, 1999 and is reflected in the accompanying statements of
operations for the six months then ended.
(8) Subsequent Events
(a) Employee Stock Purchase Plan
The Company's Board of Directors adopted the Employee Stock Purchase Plan
(the Purchase Plan) on July 20, 1999 under which 300,000 shares have been
reserved for issuance. The Purchase Plan has been approved by the stockholders.
The number of shares reserved under the Purchase Plan will automatically
increase beginning on January 1 of each year by the lesser of an amount equal
to 2% of the total number of
F-18
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997, and 1998
(Information for the six months ended June 30, 1999 and 1999 is unaudited)
outstanding shares, or 800,000 shares. Under the Purchase Plan, eligible
employees may purchase common stock in an amount not to exceed 15% of an
employee's cash compensation. The purchase price per share will be 85% of the
common stock fair value at the lower of certain plan defined dates.
(b) 1999 Stock Incentive Plan
The Company's Board of Directors adopted the 1999 Stock Incentive Plan (the
Incentive Plan) on July 20, 1999 under which 7,000,000 shares have been
reserved for issuance. The number of shares reserved under the Incentive Plan
will automatically increase beginning on January 1 of each year by the lessor
of 5% of the total number of shares outstanding or 3,000,000 shares. The
Incentive Plan, which has five separate programs, allows non-employee board
members, executive officers and other highly compensated employees to purchase
shares using a portion of their salary or retainer fee. The Incentive Plan
allows eligible employee to be issued shares of common stock directly, upon the
attainment of performance milestones or the completion of services. The
Incentive Plan also allows automatic option grants at periodic intervals to
eligible non-employee board members to purchase shares of common stock.
(c) Reverse Stock Split and Reincorporation
On October 25, 1999, the Company's effected a 1-for-2.4 reverse stock split
of its common stock and reincorporated in the State of Delaware. The
accompanying financial statements have been retroactively restated to give
effect to the 1-for-2.4 reverse stock split and the reincorporation in
Delaware.
F-19
<PAGE>
[VIADOR LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this pro-
spectus. Neither Viador Inc. nor any underwriter has authorized anyone to pro-
vide prospective investors with different or additional information. This pro-
spectus is not an offer to sell nor is it seeking an offer to buy these securi-
ties in any jurisdiction where the offer or sale is not permitted. The informa-
tion contained in this prospectus is correct only as of the date of this pro-
spectus, regardless of the time of the delivery of this prospectus or any sale
of these securities.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
The Offering............................................................. 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 32
Management............................................................... 43
Certain Transactions..................................................... 53
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 62
Legal Matters............................................................ 65
Experts.................................................................. 65
Additional Information................................................... 65
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Until November 19, 1999 (25 days after the date of this prospectus), all deal-
ers that effect transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO OF VIADOR]
4,000,000 Shares
Common Stock
-------------------------
PROSPECTUS
-------------------------
Bear, Stearns & Co. Inc.
CIBC World Markets
U.S. Bancorp Piper Jaffray
October 25, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
