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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-27741
VIADOR INC.
(Exact name of Registrant as specified in its charter)
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Delaware 94-3234636
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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167 Second Avenue
San Mateo, California 94401
(Address of principal executive offices) (Zip Code)
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(650) 685-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the Registrant
was required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $259,061,862 as of March 27, 2000 based upon the closing price
of the Registrant's Common Stock on the Nasdaq National Market reported for
March 27, 2000. Shares of Common Stock held by each executive officer and
director and by each person who beneficially owns more than 5% of the
outstanding Common Stock have been excluded in that such persons may under
certain circumstances be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination of affiliate
status for any other purpose.
17,151,539 shares of the Registrant's $0.001 par value Common Stock were
outstanding at March 27, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or portions thereof) are incorporated by reference
into the Parts of this Form 10-K noted:
Part III incorporates by reference from the definitive proxy statement for
the Registrant's 1999 Annual Meeting of Stockholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.
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VIADOR INC.
Form 10-K Annual Report
for the fiscal year ended December 31, 1999
Table of Contents
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Item No. Page
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PART I
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1. Business...................................................... 1
2. Properties.................................................... 13
3. Legal Proceedings............................................. 14
4. Submission of Matters to a Vote of Security Holders........... 14
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters........................................... 14
6. Selected Financial Data....................................... 15
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 16
7A. Quantitative and Qualitative Disclosures About Market Risk.... 33
8. Financial Statements and Supplementary Data................... 33
9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure...................................... 33
PART III
10. Directors and Executive Officers of the Registrant............ 34
11. Executive Compensation........................................ 34
12. Security Ownership of Certain Beneficial Owners and
Mangement..................................................... 34
13. Certain Relationships and Related Transactions................ 34
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 34
Exhibit Index................................................. 34
Signatures.................................................... 36
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PART I
ITEM 1. BUSINESS
Except for the historical financial information contained herein, the
matters discussed in this Annual Report on Form 10-K may be considered
"forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. Such statements include declarations regarding the intent,
beliefs or current expectations of Viador and our management. Such forward-
looking statements are not guarantees of future performance and involve a
number of risks and uncertainties. Actual results could differ materially from
those indicated by such forward-looking statements. We undertake no obligation
to publicly release the results of any revision to these forward-looking
statements that may be made to reflect events or circumstances after the dates
hereof or to reflect the occurrence of unanticipated events. Important factors
that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to: the company's
short operating history which makes it difficult to predict its future results
of operations; the dependence of the company's revenue upon the company's
suite of products; the company's history of operating losses and expected
future losses which could impede its ability to address the risks and
difficulties encountered by companies in new and rapidly evolving markets; the
company's future operating results could fluctuate which may cause volatility
or a decline in the price of the company's stock.
Overview
We develop and market internet software that enables businesses to create
enterprise information portals for both business-to-business, or B2B, and
business-to-employee, or B2E use. 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.
We were incorporated as Infospace Inc. in California in December 1995. In
January 1999, the Company changed its name to Viador, Inc. and in October
1999, we reincorporated in the state of Delaware. Our principal headquarters
are located at 167 Second Avenue, San Mateo, California 94401, and our
telephone number is (650) 685-3000. Our common stock is listed on the Nasdaq
National Market under the symbol "VIAD". Our home page is located on the Web
at http://www.viador.com, where you can find additional information about us
and our products; however, that information is generally not targeted at
investors and is not a part of this report. All references to "we", "us",
"our", and "Viador" refer to Viador Inc.
Recent Developments
Since our initial public offering in October of 1999 through December 1999,
we continue to grow our business presence, acquire customers and partners,
release new products, make key additions to our management team and have been
recognized by the industry with several prestigious awards.
Product Announcements
In the fourth quarter of 1999, we introduced the Business-to-Business E-
Portal(TM), a product and services offering that will allow personalized
communication and information exchange between businesses. Our B2B E-Portal,
targeted at "dot.coms" and brick-and-mortar companies alike, is helping
companies generate revenue and get to market faster by giving them the ability
to securely share information and services with customers, partners and
suppliers.
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We also announced the Viador B2B E-Portal ICE(TM) rapid implementation
methodology to support customers deploying Viador's B2B E-Portal. The ICE
rapid implementation methodology, available exclusively from us and our
strategic systems integration partners, brings a proven, repeatable process
that guides customers through the ideation, creation and extension, or ICE, of
their enterprise portals. The ICE methodology helps companies implement an
enterprise portal in as little as six weeks.
We also announced that Viador E-Portal Suite(TM) will be made available in
French, German, Japanese and Spanish.
New Customers
We announced that Shiseido Company, Ltd., one of the world's most
prestigious cosmetic brands, has deployed the Viador E-Portal Suite to provide
its worldwide operations with secure browser-based access to sales, production
and inventory information. With 60 offices around the world, the company is
leveraging our technology to speed time to market, streamline distribution,
and reduce operational costs.
We also announced strong customer acceptance of the new B2B E-Portal by 12
companies, such as Apparel Internetworking Corporation, Broden, Charles
Schwab, FaceTime Communications, Gelco Information Network, Heads Up,
Mediaplex, OnDemand, PMH Caramanning, RREEF, transchannel and VARStreet.com.
These companies represent multiple industries including healthcare, insurance,
finance and manufacturing, and range from brick-and-mortar to pure play
Internet companies. All are leveraging our solutions to quickly roll out
business-to-business portals to increase their level of service to customers
and to increase their speed to revenue.
Strategic Partnerships
We announced new or expanded partnerships with:
IBM. We announced that Viador E-Portal Suite will support IBM's Enterprise
Information Portal that integrates a wide variety of unstructured information
in the form of text, images, audio and video.
Broden. A leading computing and solutions integrator will be extending
Broden's full range of products and consulting services with the addition of
our E-Portal Suite(TM). As part of its solutions offerings for steamship
companies, Broden plans to incorporate our technology into its newest service
called "CargoTrends." CargoTrends allows users to access, organize and analyze
data from disparate data sources, as well as gain access to real-time
information on shipping trends and market information on the industry--data
important to making crucial business decisions.
Deloitte Consulting. One of the world's top management consulting firms has
chosen to include Viador's enterprise portal technology in solutions it
proposes to Global 1,000 companies. Through this agreement, Deloitte
Consulting will include our E-Portal Suite(TM) as preferred technology to be
used in industry-specific e-Business solutions.
Hynet. Our customers will be able to access business-critical information
such as sales proposals, marketing collateral and globalization of e-Content
through Hynet Directive(TM) XML repository via our E-Portal Suite(TM).
Internet content and service providers. These partnerships will allow users
of our enterprise portal to access CNET technology and business news,
infoUSA's Internet yellow and white pages, ON24's syndicated streaming
broadcast news, as well as TRIP.com's travel booking and tracking
capabilities.
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Awards
We were recognized by the industry with 2 new awards:
Federal Computer Week. We were listed as one of the "10 Hot Companies to
Watch." Federal Computer Week recognizes us as a company that offers an
innovative solution that helps budget-constrained agencies to unlock
information from their internal systems through a web-based enterprise portal.
Crossroads 2000 A-List Award. For the first time ever, an Enterprise
Information Portal vendor was awarded by this prestigious consulting
organization and we were chosen. These awards are unique because they are the
only ones that validate the business utility of emerging technology in the
enterprise. The Award was announced for Group 2: Excellence in Execution. Our
E-Portal Suite was given the award by Open Systems Advisors, Inc. after
detailed review and in-depth interviews with our customers.
Management additions
S. Ramakrishnan, former chief information officer and vice president in the
Global Consumer Bank group at Citibank, was named our vice president of
engineering and chief technology officer. Mr. Ramakrishnan, who brings years
of Fortune 1000 experience to our management team, is responsible for leading
Viador's overall technology direction, and overseeing the execution of product
development.
Business Acquisitions
We recently acquired our distributor in Switzerland, Viador AG, which is now
our wholly-owned subsidiary. See "Distribution--International" on page 9.
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 items of 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
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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.
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's 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.
Enterprise Information Portals
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.
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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. 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 in the B2B and B2E market segments. 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.
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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.
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 can be used with 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.
Build World Class Service and Support Operations. Superior customer service,
training and support are 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 Group, 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.
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.
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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 Unix. 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, content and application:
. 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 and in documents stored in file
systems;
. event data, such as news or stock quotes, that is constantly changing
and which is delivered in real time;
. internet content in the form of news feeds from the WWW; and
. applications operating within an organization or as services over the
internet.
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.
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
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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, ODBC, Microsoft Office, internal company networks and
others.
Viador Sentinel is an integrated B2B 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
work seamlessly together 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
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. 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
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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 half-day training
seminars as an inducement to potential customers.
Distribution
We have designed our distribution strategy to address the particular
requirements of our diverse target customers. We distribute our products
directly through a direct sales force. We distribute our products indirectly
through Original Equipment Manufacturers, or OEMs, Value Added Resellers, or
VARs, and systems integrators.
Direct Sales. We sell our software primarily through our domestic direct
sales organization, with sales professionals located in twenty-seven
geographic regions in the United States and Canada. Additionally, the field
sales force is complemented by direct telesales and telemarketing
representatives based at our headquarters in San Mateo, California. 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.
International. We believe it is important to have an international presence
and intend to continue to conduct business in markets outside the United
States through a combination of subsidiaries and distributors. We conduct
business internationally through a variety of distribution and service
partners. 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. We recently acquired our distributor in
Switzerland, Viador AG, which is now a wholly-owned subsidiary of our company.
OEMS. We have established OEM relationships to leverage our sales efforts.
For example, we have OEM reseller agreements with several leading systems
vendors to bundle our server software with certain of their product offerings.
Some of our OEM partners include IBM and Micromuse.
VARS and Systems Integrators. VARs and systems integrators customize,
configure, and install our software products with complementary hardware,
software, and services. In combining these products and services, these
resellers are able to deliver more complete Viador-based solutions to address
specific customer needs. We may also help these VARs and systems integrators
design customized applications to meet the unique requirements of these
customers. Some of our VAR and Systems Integration partners include ACS,
Deloitte Consulting, Daou Systems and Nextera.
Since our products affect users throughout the customer's organization, our
sales effort involves multiple decision makers and frequently include the
chief executive officer, 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 two 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. For further discussion regarding these risks,
see "Risk Factors That May Affect Future Results--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" on page 26.
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
9
<PAGE>
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 That May
Affect Future Results--If we do not expand our customer base, we may never
become profitable and our stock price will likely decline" on page 24.
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. We believe that
significant investments in research and development are required to remain
competitive. While we intend to continue to invest a significant percentage of
our total revenues in research and development, a number of our competitors
are in a position to expend substantially more absolute dollars on research
and development than we are. Our research and development expenditures were
$5.9 million, $2.5 million, and $1.4 million for the years ended December 31,
1999, 1998 and 1997, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation--Operating Expenses--Research
and Development" on page 20. For a discussion of risks related to our product
development, see "Risk Factors That May Affect Future Results--Risks Related
To Our Industry--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," on page 31.
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.
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
10
<PAGE>
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
That May Affect Future Results--Risks Related To Our Industry--The markets in
which we compete are highly competitive and we may not be able to compete
effectively" and "Risk Factors That May Affect Future Results--Risks Related
To Viador--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 31 and 30, 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 or ten year 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 products is difficult, particularly
because the global nature of the internet makes it difficult to control the
ultimate destination
11
<PAGE>
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 That May Affect Future
Results--Risks Related To Viador--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" on page 29.
Employees
As of December 31, 1999, we had a total of 152 employees, including 78
people in sales and marketing, 43 people in engineering, 24 people in
operations and 7 people in finance and administration. 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, procedures and controls on a timely basis. 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.
Executive Officers of the Registrant
The following table sets forth certain information regarding our current
executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Stan X. Wang................ 37 Chief Executive Officer, President,
Chairman of the Board of Directors
Executive Vice President and General
Jonathan M. Harding......... 47 Manager
Vice President, Chief Financial Officer
Raja H. Venkatesh........... 38 and Secretary
Vice President, International Business
Ben C. Connors.............. 42 Development
Vice President, Engineering and Chief
Subramanian Ramakrishnan.... 41 Technology Officer
Steven C. Dille............. 39 Vice President, Marketing
</TABLE>
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
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<PAGE>
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 Executive Vice President and General
Manager since January 2000. Mr. Harding served as Senior Vice President of
North American Operations from April 1998 to January 2000. 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 International 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 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 an
M.B.A. from Harvard Business School.
Subramanian Ramakrishnan has served as Vice President, Engineering and Chief
Technology Officer since November 1999. Prior to joining Viador, Mr.
Ramakrishnan has held numerous positions worldwide at Citibank, including
marketing and product development director, regional operations and technology
director, and group MIS director. Most recently, he served as Chief
Information Officer and Vice President in the Global Consumer Bank group at
Citibank. Mr. Ramakrishnan holds a B.S. in Engineering from the Indian
Institute of Technology and an MBA from the Indian Institute of Management.
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.
ITEM 2. PROPERTIES
We currently lease the following facilities: our corporate headquarters in
San Mateo, California and sales offices in New York, New York; Boston,
Massachusetts; Arlington, Virginia; League City, Texas; Huntington Beach,
California; Palm Coast, Florida and Sylvan Lake, Michigan. In February 2000,
we entered into an agreement to lease approximately 60,000 square feet for our
own new corporate headquarters in Mountain View, California. We anticipate
that we will move our headquarters from San Mateo to Mountain View by June
2000. We believe that existing facilities will be adequate for the foreseeable
future.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Our common stock has traded on the Nasdaq National Market under the symbol
"VIAD" since October 26, 1999. The following table sets forth the range of
high and low sales prices reported on the National Market for our common stock
for the periods indicated.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1999
Fourth Quarter (from October 26).......................... $56.00 $ 9.00
Fiscal 2000
First Quarter (through March 27, 2000).................... $64.81 $25.75
</TABLE>
On March 27, 2000, the latest practicable trading day before the printing of
this annual report, the closing price per share of our common stock was
$61.50. As of March 27, 2000, there were 180 holders of record of our common
stock. Because many shares of Viador common stock are held by brokers and
other institutions on behalf of stockholders, we are unable to estimate the
total number of stockholders represented by these record holders. Because the
market price of our common stock is subject to fluctuation, the market value
of the shares of our common stock may increase or decrease. We have never
declared or paid any cash dividends on our common stock since our
incorporation and anticipate that for the foreseeable future, we will continue
to retain any earnings for use in our business.
Use of Proceeds of Initial Public Offering
The effective date of our registration statement on Form S-1 filed under the
Securities Act of 1933 (No. 333-84041) relating to the initial public offering
of our common stock, was October 25, 1999. A total of 4,600,000 shares of our
common stock were sold at a price of $9.00 per share to an underwriting
syndicate led by Bear, Stearns & Co. Inc., CIBC World Markets Corp. and U.S.
Bancorp Piper Jaffray, Inc. The offering commenced on October 25, 1999 and
closed on October 29, 1999. The initial public offering resulted in gross
proceeds of $41.4 million, $2,898,000 of which was the underwriting discount.
Expenses related to the offering totaled approximately $1.3 million. We
received net proceeds in the amount of $37,232,000. From the time of receipt
through December 31, 1999, the proceeds were applied toward working capital
requirements and capital expenditures.
14
<PAGE>
ITEM 6. 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 page 16. The statements of operations data for the years ended
December 31, 1999, 1998 and 1997 and the balance sheet data as of December 31,
1999 and 1998 are derived from our financial statements that have been audited
by KPMG LLP, independent auditors, which are included elsewhere in this
filing. The statement of operations data for the years ended December 31, 1996
and 1995 and the balance sheet data as of December 31, 1997, 1996 and 1995 are
derived from audited financial statements that are not included in this
filing. 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
16.
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------ -----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues............................. $ 10,151 $ 3,825 $ 1,582 $ 997 $ 80
Cost of revenue...................... 2,691 1,387 903 314 10
-------- ------- ------- ------ -----
Gross profit......................... 7,460 2,438 679 683 70
-------- ------- ------- ------ -----
Operating expense:
Sales and marketing................ 11,266 4,295 1,802 125 11
Research and development........... 5,931 2,481 1,351 364 15
General and administrative......... 2,940 1,365 936 358 8
Amortization of stock-based
compensation...................... 1,254 445 -- -- --
-------- ------- ------- ------ -----
Total operating expense.......... 21,391 8,586 4,089 847 34
-------- ------- ------- ------ -----
Operating income (loss).............. (13,931) (6,148) (3,410) (164) 36
Interest income (expense), net....... 624 (63) 62 10 --
Net income (loss).................... $(13,307) $(6,211) $(3,348) $ (154) $ 36
======== ======= ======= ====== =====
Basic and diluted net income (loss)
per share........................... $ (2.20) $ (1.82) $ (1.34) $(0.08) $0.02
Weighted average shares used in
computing basic and diluted net
income (loss) per share............. 6,043 3,416 2,495 1,993 1,563
<CAPTION>
December 31
-----------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------ -----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 44,720 $ 4,181 $ 1,029 $ 290 $ 42
Working capital...................... 41,755 2,771 (317) (5) 78
Total assets......................... 52,178 7,185 2,918 530 123
Long-term obligations, including
current portion..................... -- -- -- 100 --
Total stockholders' equity
(deficit)........................... 43,458 3,371 90 (67) 86
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical financial information contained herein, the
matters discussed in this Annual Report on Form 10-K may be considered
"forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. Such statements include declarations regarding the intent,
beliefs or current expectations of Viador and our management. Such forward-
looking statements are not guarantees of future performance and involve a
number of risks and uncertainties. Actual results could differ materially from
those indicated by such forward-looking statements. We undertake no obligation
to publicly release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances after the
dates hereof or to reflect the occurrence of unanticipated events. Important
factors which could cause actual results to differ materially from those in
the forward-looking statements, include but are not limited to: the company's
short operating history which makes it difficult to predict its future results
of operations; the dependence of the company's revenue upon the company's
suite of products; the company's history of operating losses and expected
future losses which could impede its ability to address the risks and
difficulties encountered by companies in new and rapidly evolving markets; the
company's future operating results could fluctuate which may cause volatility
or a decline in the price of the company's stock.
Overview
We develop and market internet software that enables businesses to create
enterprise information portals. Our products enable 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. We had net
losses of approximately $13.3 million, $6.2 million and $3.3 million for the
years ended December 31, 1999, 1998 and 1997, respectively. In addition, the
Company had an accumulated deficit of approximately $23 million as of
December 31, 1999.
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 Asia 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.
Recent Events
In January 2000, Viador acquired a subsidiary in Switzerland. See Note 8 of
Notes to Financial Statements.
Segment Presentation
We manage and evaluate the performance of our business through a single
operating segment: Enterprise information portals.
16
<PAGE>
Results of Operations
The following table and discussion compares the results of operations in
absolute dollars and as a percentage of total revenues for the three years
ended December 31:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues
Licenses.................... $ 7,320 72 % $ 2,283 60 % $ 839 53 %
Service..................... 2,831 28 % 1,542 40 % 743 47 %
-------- ----- ------- ----- ------- -----
Total Revenue............... 10,151 100% 3,825 100% 1,582 100 %
-------- ----- ------- ----- ------- -----
Cost of Revenue............. 2,691 27 % 1,387 36 % 903 57 %
Gross profit................ 7,460 73 % 2,438 64 % 679 43 %
-------- ----- ------- ----- ------- -----
Operating expense
Sales and marketing....... 11,266 111 % 4,295 112 % 1,802 114 %
Research and Development.. 5,931 58 % 2,481 65 % 1,351 85 %
General and
administrative........... 2,940 29 % 1,365 36 % 936 59 %
Amortization of stock-
based compensation....... 1,254 12 % 445 12 % --
-------- ----- ------- ----- ------- -----
Total operating expenses.... 21,391 211 % 8,586 224 % 4,089 258 %
-------- ----- ------- ----- ------- -----
Operating loss.............. (13,931) (137)% (6,148) (161)% (3,410) (216)%
Interest income (expense),
net........................ 624 6% (63) (2)% 62 4 %
-------- ----- ------- ----- ------- -----
Net income (loss)........... $(13,307) (131)% $(6,211) (162)% $(3,348) (212)%
======== ===== ======= ===== ======= =====
</TABLE>
Revenues
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 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 compatibility 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
17
<PAGE>
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. 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, which is
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.
Total Revenue. Revenue was approximately $ 10.1 million, $3.8 million and
$1.6 million in 1999, 1998 and 1997, respectively, representing an increase of
$6.3 million, or 166 %, from 1998 to 1999 and an increase of approximately
$2.2 million, or 138%, from 1997 to 1998. The increase in revenue as a
percentage of total revenues and in absolute dollars from each corresponding
previous year was primarily due to increased license revenue as the
availability of new software products attracted new customers.
License Revenue. License revenue was $7.3 million, $2.3 million, and
$839,000 in 1999, 1998 and 1997, respectively. License revenue increased $5.0
million or 217% from 1998 to 1999 as we introduced new features in our
existing products and introduced new software products in 1999. License
revenue increased $1.4 million or 174% from 1997 to 1998 as our products
gained market acceptance.
Service Revenue. Service revenue for the years ended December 31, 1999,
1998, and 1997 was $2.8 million, $1.5 million, and $743,000, or 28%, 40% and
47% of total revenue, respectively. Service revenues increased by $1.3 million
or 87% from 1998 to 1999 primarily because of increase in labor force in the
service area, which permitted Viador to further expand its services. Service
revenue increased by $757,000 or 102% from 1997 to 1998 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.
Channel Mix. We distribute our products directly through a direct sales
force. We distribute our products indirectly through Original Equipment
Manufacturers ("OEMs"), Value Added Resellers ("VARs") and systems
integrators. Indirect channel revenues for the years ended December 31, 1999,
1998 and 1997 were 5.4%, 3.6% and 0% of total revenues, respectively. Indirect
channel revenues increased both as a percentage of total revenues and in
absolute dollars from each corresponding previous year primarily because of
the expanded use of channel partners and their customer base. In general, the
distribution of revenues among channels will fluctuate in future periods
depending on the timing of new product releases, Viador's ability to expand
its use of OEMs and VARs, the timing of direct sales to large customer
accounts and customer buying patterns.
Geographic Mix. International revenues (sales outside of the United States)
for years ended December 31, 1999, 1998 and 1997 were 6%, 12% and 14% of total
revenue, respectively. International revenues increased in absolute dollars
from each corresponding previous year because of increased distribution
channels and customer base in international market. See Note 6 of Notes to
Financial Statements for further geographic information.
Viador will continue to make investments in international markets by direct
expansion, acquisition or partnering with OEMs, VARs and distributors
throughout the world. International revenues may fluctuate in
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future periods as a result of competition, the general demand for Internet-
and intranet-related products in international markets, and general economic
conditions of the regions.
Gross Margin
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Gross Margin
License gross margin:
License revenue......................... $7,320 $2,283 $ 839
Cost of license revenue................. 130 -- --
------ ------ -----
Gross Margin.......................... $7,190 $2,283 $ 839
====== ====== =====
Service gross margin:
Service revenue......................... $2,831 $1,542 $ 743
Cost of service revenue................. 2,561 1,387 903
------ ------ -----
Gross Margin.......................... $ 270 $ 155 $(160)
====== ====== =====
</TABLE>
Viador's gross margin consists of license and service revenues offset by the
costs of these licenses and services. Our cost of license revenue includes
royalties due to third parties for integrated technology, the cost of manuals
and product documentation and shipping costs, including the costs associated
with the electronic transmission of software to new customers and an
allocation of our facilities and depreciation expenses. Our cost of service
revenue includes salaries and related expenses for our customer support,
professional consulting and training services organizations as well as an
allocation of our facilities and depreciation expenses.
License gross margins for the years ended December 31, 1999, 1998 and 1997
were 98%, 100%, and 100% of license revenues, respectively. The decrease in
license gross margin from 1998 to 1999 is primarily due to royalties paid to
one of our partners for integrated technology. Service gross margins for the
years ended December 31, 1999, 1998 and 1997 were 10%, 10%, and (22%) of
service revenues, respectively. Service gross margin as percentage of total
service revenue increased from 1997 to 1998 as corresponding service revenue
increased by more than 100% between years, exceeding our fixed costs of
providing services.
Cost of revenue
Our cost of revenue includes salaries and related expenses for our customer
support, professional consulting 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 and
shipping costs, including the costs associated with the electronic
transmission of software to new customers and an allocation of our facilities
and depreciation expenses. The cost of license revenue has not been
significant to date.
Cost of revenue for the years ended December 31, 1999, 1998 and 1997 was
$2.7 million, $1.4 million and $0.9 million or 27%, 36% and 57% of total
revenues, respectively. Cost of revenue as a percentage of total revenue
decreased by 9% from 1998 to 1999 and 21% from 1997 to 1998. The decrease
resulted primarily from the increased dollars 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 our products by existing customers. The cost of our license
revenue also may increase.
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Operating Expenses
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, bonuses, travel and entertainment costs,
telephone expenses, rent, facilities costs and third-party professional
service fees. The sales and marketing category of operating expenses includes
expenditures specific to the category, 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 and
depreciation expense for office furniture and equipment. Viador's total
operating expenses for the years ended December 31, 1999, 1998 and 1997 were
$21.4 million, $8.6 million and $4.1 million, or 211%, 224%, and 258% of total
revenues, respectively. Operating expenses increased for each year compared to
the corresponding earlier year in absolute dollars as we increased sales and
marketing activities, developed new distribution channels, funded greater
levels of research and development, broadened professional services and
support, and improved operational and financial systems.
Sales and Marketing
Sales and marketing expenses consist of operating expenses associated with
Viador's sales, marketing, international and other business development
efforts. Sales and marketing expenses for the years ended December 31, 1999,
1998 and 1997 were $11.3 million, $4.3 million, and $1.8 million, or 111%,
112%, and 114% of total revenue, respectively. Sales and marketing expenses
increased in absolute dollars from 1998 to 1999 due to increased staffing,
sales commissions, tradeshow events and increased investment in international
costs. Sales and marketing expenses increased in absolute dollars from 1997 to
1998 due to an increase in selling commissions and travel expenses for sales
personnel.
Research and Development
Research and development expenses consisted primarily of compensation and
outside contractor fees to support research and development ("R&D")
activities. Research and development expenses for the years ended December 31,
1999, 1998 and 1997 were $5.9 million, $2.5 million, and $1.4 million, or 58%,
65%, and 85% of total revenues, respectively. R&D expenses increased in
absolute dollars for each year compared to the corresponding earlier year as
we increased the number of engineers, launched new products and put quality
assurance programs in place. We believe that our research and development is
critical to our future success and we anticipate that research and development
expenses will grow significantly in future periods.
General and Administrative
General and administrative expenses for all years presented consist
primarily of compensation and fees for professional services. General and
administrative expenses for the years ended December 31, 1999, 1998 and 1997
were $2.9 million, $1.4 million, and $936,000, or 29%, 36% and 59% of total
revenues respectively. General and administrative expenses increased in
absolute dollars from 1998 to 1999 due to an increase in staffing and
professional services for legal and accounting, reflecting increased business
activity and support requirements. General and administrative expenses
increased in absolute dollars from 1997 to 1998 due to expansion of our
facilities and increases in staffing, depreciation expenses, legal and
accounting expenses.
Amortization of Stock-based Compensation
Amortization of stock-based compensation primarily consists of charges
incurred for employee stock options issued at less than the fair market value
at the date of grant. Amortization of stock-based compensation for the years
ended December 31, 1999, 1998 and 1997 was $1.2 million, $445,000 and $0, or
12%, 12% and 0% of total revenues respectively.
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Operating Loss
For the years ended December 31, 1999, 1998 and 1997, operating loss was
$13.9 million, $6.1 million and $3.4 million or (137%), (161%) and (216%) of
total revenues.
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
year since inception and, as of December 31, 1999, had an accumulated deficit
of approximately $23 million. We anticipate that our operating expenses will
increase in future years 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.
Interest Income (Expenses), Net
Interest income (expense) net, for the years ended December 31, 1999, 1998,
and 1997 was $624,000, ($63,000), and $62,000, respectively. The increase from
1998 to 1999 was primarily due to investment returns on our initial public
offering proceeds received in late October 1999. 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 of 1998.
Income Tax
Viador provided no income tax provision for the years ended December 31,
1999, 1998 and 1997. The net deferred tax assets at December 31, 1999 were $0,
net of a valuation allowance of $9.6 million, of which $8.9 million relates to
net operating loss and tax credit carryforwards. Realization of Viador's net
deferred tax assets depends on Viador generating sufficient taxable income in
future years in appropriate tax jurisdictions to obtain benefit from the
reversal of temporary differences and from net operating loss and credit
carryforwards. See Note 5 of Notes to Financial Statements.
Liquidity and Capital Resources
From our inception, we have financed our operations primarily through an
initial public offering in which we raised money and private equity placements
totaling approximately $63.8 million. At December 31, 1999, we had an
accumulated deficit of approximately $23 million and cash and cash equivalents
of approximately $44.7 million.
At December 31, 1999, Viador's principal source of liquidity was $44.7
million in cash, cash equivalents, and short-term investments, representing a
$40.5 million increase from the December 31, 1998 balance of $4.2 million.
Viador's cash, cash equivalents and short-term investments are managed to be
available for working capital, strategic investment opportunities, or other
potential cash needs in the future. Viador has no material debt.
In 1999, cash used in operating activities of approximately $9.9 million was
primarily attributable to a net loss for the year of $13.3 million, and also
due to the increase in accounts receivable, accounts payable and accrued
liabilities. Cash used in investing activities of $1.6 million related
primarily to capital expenditures. The capital expenditures primarily
consisted of purchases of computer hardware and software. Viador anticipates
that capital expenditures will increase in future periods for leasehold
improvement expenditures related to our new corporate facility and personal
computer requirements for our increasing staff. Cash provided by financing
activities of $52.0 million for 1999 was primarily attributable to proceeds
from our initial public offering in October 1999.
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In the years 1998 and 1997, cash used in operating activities of $4.8
million and $2.3 million, respectively, was primarily attributable to a net
loss for the year of $6.2 million and $3.3 million, partially offset by
amortization and depreciation. Cash used in investing activities of $484,000
and $342,000 during 1998 and 1997, respectively, related primarily to capital
expenditures. The capital expenditures primarily consisted of purchases of
computer hardware and software as well as furniture and fixtures related to
additional leased facilities. Cash provided by financing activities of $8.5
million and $3.4 million for 1998 and 1997, respectively, were primarily
attributable to net proceeds from private equity placements.
Deferred revenues primarily consist of the unrecognized portion of license
and service revenues received pursuant to subscription and support contracts,
consulting and prepaid license royalties. Deferred revenues increased to $5.0
million at December 31, 1999 from $2.7 million at December 31, 1998 due to
increased sales activities.
Viador's principal commitments as of December 31, 1999 consisted of
obligations under noncancelable operating leases for monthly rent. See Note 7
of Notes to Financial Statements. Viador has a $2.5 million line of credit
with a commercial bank for the purpose of financing working capital
requirements and equipment purchases. As of December 31, 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 line of credit and 1.25% over
the bank rate, as announced by the bank from time to time, for the equipment
loan.
We believe that our existing cash and cash equivalents, funds available
under our existing credit facility and the net proceeds from our initial
public offering will be sufficient to fund our working capital and capital
expenditures for at least 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. We have negotiated a lease for
a new headquarters facility, which will provide space for future growth. See
Note 8 of Notes to Financial Statements. 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
our operations being less than expected;
. our development plans or projections proving to be inaccurate; or
. our engaging in acquisitions or other strategic transactions.
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.
Year 2000 Disclosure
Since entering the year 2000, the Company has not experienced any major year
2000-related disruption in the operation of its systems. Although most year
2000 problems should have become evident on January 1, 2000, additional year
2000-related problems may become evident only after that day. The Company will
continue to monitor its operations and systems over the next couple of months
but does not expect to encounter any significant impacts to its business due
to year 2000 exposures. The Company has incurred no costs to date associated
with year 2000 remediation efforts and expects to incur only minimal expenses
going forward. See "Risk Factors That May Affect Future Results--Risks Related
to Viador--We are at risk of Year 2000 issues" on page 30.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
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.
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;
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<PAGE>
. 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 services consist of maintenance, support, consulting and training.
Service revenue represented 28%, 40% and 47% of total revenue for 1999, 1998
and 1997, respectively. 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.
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 December 31, 1999, we had an accumulated net deficit of approximately $23
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
principally depends 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 a favorable reputation for Viador 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.
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<PAGE>
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;
. 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.
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,
there were two customers whose revenues exceeded 10% of our total revenue for
each of the quarters ended December 31, 1999, September 30, 1999 and March 31,
1999. Another customer accounted for 18% of recognized revenue for the quarter
ended June 30, 1999. No other customer accounted for more than 10% of
quarterly recognized revenue during each of the corresponding quarters during
1999. 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.
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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.
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We may be unable to maintain or grow our international operations, which could
slow or undermine our overall growth.
During 1999, 1998 and 1997, we derived 6%, 12% and 14%, respectively, of our
total revenue from sales outside the United States. During the past three
years, we have derived our international revenue primarily from sales in
Canada, Europe and Asia Pacific. 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. 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 Europe and Asia pacific region (the region), such as
fluctuation in currency, general economic conditions in the region and
regulatory uncertainties associated with being a foreign company doing
business in the region.
We also have committed additional resources to customizing our products for
selected international markets, including German, French and Spanish-speaking
markets, among others, and in 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.
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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,
that facilitates the retrieval of frequently changing real-time data, from On
Display. 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 our initial public 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.
28
<PAGE>
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 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 to sell software services over the internet
successfully attracts customers, some of those internet customers may
otherwise have bought our software 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 are in the process of hiring a number of financial and accounting
personnel. 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 61 employees at December 31, 1997 to 83 employees
at December 31, 1998 to 152 employees at December 31, 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, our Chief Technology Officer, our
Vice President of Marketing, our Vice President of Business Development 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 or
29
<PAGE>
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.
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.
We are at risk of Year 2000 issues
We have not experienced any Year 2000-related disruption in the operation of
our systems. Although most Year 2000 problems should have become evident on
January 1, 2000, additional Year 2000-related problems may become evident in
the future and have a material adverse effect on our business and operations.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Disclosure" beginning on page 22.
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, Infoseek and others. For
more information regarding our recent strategic relationships, see Item 1.
"Business--Recent Developments." 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.
30
<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.
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.
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
31
<PAGE>
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. A delay in any 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.
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.
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
32
<PAGE>
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.
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 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment Portfolio
Viador places its investments in instruments that meet high credit quality
standards, as specified in Viador's investment policy guidelines; the policy
also limits the amount of credit exposure to any one issue, issuer, or type of
instrument. Our interest income is sensitive to changes in the general level
of U.S. interest rates, particularly since the majority of our cash or cash
equivalent investments are in short-term instruments. Due to the short-term
nature of our investments, we believe that there is no material risk exposure.
At December 31, 1999, 1998 and 1997, our cash investments were all short-term
and had a weighted average interest rate ranging from 2.39% to 6.28% . The
fair value of our cash investments approximated the book value as of December
31, 1999, 1998 and 1997 of $44.7 million, $4.1 million, and $1.0 million,
respectively.
Impact of Foreign Currency Rate Change
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Supplementary Data of Viador, Inc. required by
this item are set forth on the pages indicated for Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
33
<PAGE>
PART III
The Company's Proxy Statement for its 2000 Annual Meeting of Stockholders,
which, when filed pursuant to Regulation 14A under the Securities and Exchange
Act of 1934, will be incorporated by reference in this Annual Report on Form
10-K pursuant to General Instruction G(3) of Form 10-K, provides the
information required under Part III (Items 10, 11, 12 and 13), except for the
information with respect to the Company's executive officers who are not
directors, which is included in "Item 1. Business-Executive Officers of the
Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.......................................... F-2
Balance Sheets as of December 31, 1999 and 1998....................... F-3
Statements of Operations for the years ended December 31, 1999, 1998,
and 1997............................................................. F-4
Statements of Stockholders' Equity for the years ended December 31,
1999, 1998, and 1997................................................. F-5
Statements of Cash Flows for the years ended December 31, 1999, 1998,
and 1997............................................................. F-6
Notes to Financial Statements......................................... F-7
</TABLE>
2. Financial Statement Schedule
The following Financial Statement Schedule of the Registrant is filed as
part of this Report.
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts........................... S-1
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or notes thereto.
3. Exhibits. The following Exhibits are filed as part of, or incorporated by
reference into, this Report:
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Title
------- -------------
<C> <S>
*3.1 Form of Amended and Restated Certificate of Incorporation
*3.2 Form of Amended and Restated Bylaws
*4.1 Reference is made to Exhibit 3.1
*4.2 Reference is made to Exhibit 3.2
*4.3 Specimen Common Stock certificate
*4.4 Amended and Restated Investors' Rights Agreement, among the Registrant
and the parties listed on Schedule A thereto, dated May 21, 1999
*10.1 Form of Amended and Restated 1997 Stock Option and Incentive Plan
*10.2 Form of 1999 Stock Incentive Plan
*10.3 Form of 1999 Employee Stock Purchase Plan
*10.4 Form of Indemnification Agreement for Officers and Directors
*10.5 Assignment of Lease, by and between the Registrant and Valley of
California, Inc., and Consent to Assignment, dated as of December 16,
1997 and related office leases
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Title
------- -------------
<C> <S>
*10.6 Collateral Assignment, Patent Mortgage and Security Agreement, by and
between the Registrant and Comerica Bank--California, dated March 4,
1997
*10.7 Revolving Credit Loan and Security Agreement, by and between the
Registrant and Comerica Bank--California, dated March 17, 1999
*10.8 SpaceSQL Version 4.0 License Agreement by and between the Registrant
and IBM Corporation, dated September 18, 1998
*10.9 Software Marketing and Distributorship Agreement by and between the
Registrant and Mitsui & Co. Ltd, dated June 26, 1997
*10.10 Variable Rate Single Payment Note by and between the Registrant and
Comerica Bank--California, dated June 29, 1999
10.11 Alza Corporation Sublease to Viador Inc., by and between the
Registrant and Alza Corporation, dated January 31, 2000
10.12 Stock Purchase Agreement, by and among Messrs. Andreas Zwimpfer, David
Keat, Charles Fraefel, Chula de Silva and Tim Moser and the
Registrant, dated January 20, 2000
23.1 Consent of KPMG LLP, dated March 29, 2000
27.1 Financial Data Schedule
</TABLE>
- --------
* Incorporated by reference to the corresponding exhibits of the Registrant's
Registration Statement on Form S-1 (File No. 333-84041) filed on October 25,
1999.
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the last quarter
of the fiscal year ended December 31, 1999.
(c) See the Exhibit Index of this Form 10-K.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized on this
29th day of March 2000.
VIADOR CORPORATION
/s/ Stan X. Wang
By: _________________________________
Stan X. Wang
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stan Wang and Raja Venkatesh jointly
and severally, as such person's attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Annual Report on Form 10-K and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorney-in-
fact, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Exchange
Act of 1934, this Form 10-K has been signed below by the following persons on
March 29, 2000 on behalf of the Registrant and in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Stan X. Wang President, Chief March 29, 2000
______________________________________ Executive Officer and
Stan X. Wang Director (Principal
Executive Officer)
/s/ Raja H. Venkatesh Chief Financial Officer, March 29, 2000
_____________________________________ (Principal Financial
Raja H. Venkatesh Officer and Principal
Accounting Officer)
/s/ Teddy Kiang Director March 29, 2000
______________________________________
Teddy Kiang
/s/ Dawn G. Lepore Director March 29, 2000
______________________________________
Dawn G. Lepore
/s/ Chong Sup Park Director March 29, 2000
______________________________________
Chong Sup Park
/s/ Virginia M. Turezyn Director March 29, 2000
______________________________________
Virginia M. Turezyn
</TABLE>
36
<PAGE>
VIADOR INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets as of December 31, 1999 and 1998.......................... F-3
Statements of Operations for the years ended December 31, 1999, 1998, and
1997.................................................................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1999,
1998, and 1997.......................................................... F-5
Statements of Cash Flows for the years ended December 31, 1999, 1998, and
1997.................................................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Viador Inc.:
We have audited the accompanying balance sheets of Viador Inc. (the
Company), as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999. 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, 1999 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, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
January 20, 2000, except as to note 8,
which is as of January 31, 2000
F-2
<PAGE>
VIADOR INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31
-----------------
1999 1998
-------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 44,720 $ 4,181
Accounts receivable, net of allowance of $208,000 and
$53,000 in 1999 and 1998, respectively................... 5,435 2,404
Other current assets...................................... 320 --
-------- -------
Total current assets.................................... 50,475 6,585
Property and equipment, net............................... 1,413 577
Other assets.............................................. 290 23
-------- -------
Total assets............................................ $ 52,178 $ 7,185
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 942 $ 542
Accrued liabilities....................................... 2,258 379
Accrued vacation.......................................... 548 186
Deferred revenue.......................................... 4,972 2,707
-------- -------
Total liabilities....................................... 8,720 3,814
Bank borrowings, commitments and contingencies (Note 7)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; --
10,000,000 and 5,208,333 shares authorized as of December
31, 1999 and 1998, respectively; no shares and 4,306,866
issued and outstanding as of December 31, 1999 and 1998,
respectively; aggregate liquidation preferences of $0 and
$12,441 as of December 31, 1999 and 1998, respectively... -- 4
Common Stock, $0.001 par value; 100,000,000 and 16,666,667
shares authorized as of December 31, 1999, and 1998
respectively; 16,559,238 and 4,664,589 shares issued and
outstanding as of December 31, 1999 and 1998,
respectively............................................. 17 5
Additional paid-in capital................................ 68,255 14,221
Deferred stock-based compensation......................... (1,796) (1,148)
Treasury stock............................................ (34) (34)
Accumulated deficit....................................... (22,984) (9,677)
-------- -------
Total stockholders' equity.............................. 43,458 3,371
-------- -------
Total liabilities and stockholders' equity.............. $ 52,178 $ 7,185
======== =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
VIADOR INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Revenue:
License........................................ $ 7,320 $ 2,283 $ 839
Service........................................ 2,831 1,542 743
--------- ------- -------
Total revenue................................ 10,151 3,825 1,582
Cost of revenue.................................. 2,691 1,387 903
--------- ------- -------
Gross profit................................. 7,460 2,438 679
--------- ------- -------
Operating expenses:
Sales and marketing............................ 11,266 4,295 1,802
Research and development....................... 5,931 2,481 1,351
General and administrative..................... 2,940 1,365 936
Amortization of stock-based compensation....... 1,254 445 --
--------- ------- -------
Total operating expenses..................... 21,391 8,586 4,089
--------- ------- -------
Operating loss............................... (13,931) (6,148) (3,410)
Interest income.................................. 624 134 68
Interest expense ................................ -- (197) (6)
--------- ------- -------
Net loss..................................... $ (13,307) $(6,211) $(3,348)
========= ======= =======
Basic and diluted net loss per share............. $ (2.20) $ (1.82) $ (1.34)
========= ======= =======
Shares used in computing basic and diluted net
loss per share.................................. 6,043 3,416 2,495
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
VIADOR INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible Notes Total stock-
preferred stock Common stock Additional Deferred receivable Accu- holders'
------------------ ------------------ paid-in stock-based Treasury from mulated 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,
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...... -- -- 395,784 -- 197 -- -- -- -- 197
Issuance of
Series C
convertible
preferred stock
net of $38
issuance
costs.......... 2,495,994 3 -- -- 14,540 -- -- -- -- 14,543
Cashless
exercise of
warrants for
preferred
stock.......... 2,923 -- -- -- -- -- -- -- -- --
Issuance of
common stock in
public offering
net of $4,168
issuance
costs.......... -- -- 4,600,000 5 37,227 -- -- -- -- 37,232
Warrants for
services
performed...... -- -- -- -- 37 -- -- -- -- 37
Preferred stock
converted to
common stock... (6,805,783) (7) 6,805,783 7 -- -- -- -- -- --
Options issued
to
nonemployees... -- -- -- -- 35 -- -- -- -- 35
Exercise of
warrants....... -- -- 93,082 -- 95 -- -- -- -- 95
Deferred stock-
based
compensation
related to
stock option
grants......... -- -- -- -- 1,903 (1,903) -- -- -- --
Amortization of
stock-based
compensation... -- -- -- -- -- 1,255 -- -- -- 1,255
Net loss........ -- -- -- -- -- -- -- -- (13,307) (13,307)
---------- --- ---------- --- ------- ------- ---- ----- -------- -------
Balances as of
December 31,
1999............ -- -- 16,559,238 $17 $68,255 $(1,796) $(34) $ -- $(22,984) $43,458
========== === ========== === ======= ======= ==== ===== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
VIADOR INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(13,307) $(6,211) $(3,348)
Adjustments to reconcile net loss to net cash
used in operating activities:
Cancellation of stockholder notes................ -- 103 --
Issuance of options for services performed....... 35 188 --
Interest on bridge loan.......................... -- 63 --
Interest on note receivable from stockholders.... -- -- 11
Warrants issued for services performed........... 37 88 --
Amortization of discount on bridge loan.......... -- 130 --
Amortization of deferred stock-based
compensation.................................... 1,255 445 --
Software sold in exchange for property and
equipment....................................... -- -- (22)
Depreciation and amortization.................... 635 248 89
Changes in operating assets and liabilities:
Accounts receivable............................ (3,031) (931) (1,342)
Other assets................................... (587) 52 (4)
Accounts payable and accrued liabilities....... 2,641 360 261
Deferred revenue............................... 2,265 626 2,020
-------- ------- -------
Net cash used in operating activities............ (10,057) (4,839) (2,335)
-------- ------- -------
Cash flows used in investing activities--
acquisition of property and equipment........... (1,471) (484) (342)
-------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock........... 37,524 8 1
Proceeds from issuance of preferred stock, net... 14,543 6,467 3,515
Proceeds from bridge loan........................ -- 1,870 --
Proceeds from issuance of warrants............... -- 130 --
Borrowing under line of credit................... -- 500 100
Repayment under line of credit................... -- (500) (100)
Repayment of loan from stockholder............... -- -- (100)
-------- ------- -------
Net cash provided by financing activities........ 52,067 8,475 3,416
-------- ------- -------
Net increase in cash and cash equivalents.......... 40,539 3,152 739
Cash and cash equivalents, beginning of year....... 4,181 1,029 290
-------- ------- -------
Cash and cash equivalents, end of year............. $ 44,720 $ 4,181 $ 1,029
======== ======= =======
Supplemental disclosure of non cash financing
activities:
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 $ --
======== ======= =======
Preferred stock converted to common stock........ $ 7 $ -- $ --
======== ======= =======
Deferred stock-based compensation................ $ 1,903 $ 1,593 $ --
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(1) Business of the Company
Viador Inc. (the Company) was incorporated as Infospace Inc. in California
in December 1995. In 1999, the Company changed its name to Viador Inc. and
reincorporated in the State of Delaware. 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 98-9. 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 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, in accordance with the provisions of SOP 98-9, license revenue is
recorded under the residual method described in SOP 98-9 for 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 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 compatibility 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.
F-7
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. Professional services fees are generally recognized 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.
Clients typically purchase maintenance agreements annually, and maintenance
agreements are priced based on a percentage of the product license fee. The
Company recognizes 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) 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.
(d) 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 to customers in diversified
industries. 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. The Company maintains
reserves to provide for estimated credit losses. Actual credit losses could
differ from such estimates.
(e) 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.
(f) Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, 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 December 31, 1999,
technological feasibility was established concurrent with the general release
of the software and therefore, no costs have been capitalized.
F-8
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company accounts for the costs of computer software developed or
obtained for internal use in accordance with Statement of Position 98-1 (SOP
98-1), "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," which was effective for fiscal years beginning after
December 15, 1998. This statement requires that certain costs incurred during
a software development project be capitalized. These costs generally include
external direct costs of materials and services consumed in the project and
internal costs such as payroll and benefits of those employees directly
associated with the development of the software. Though the adoption of SOP
98-1 required the Company to modify its method of accounting for software, it
did not have a material impact in its financial statements.
(g) 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.
(h) 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.
(i) 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.
(j) Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, in accounting for
its fixed employee plan stock options. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
F-9
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(k) Advertising Expense
The cost of advertising is generally expensed as incurred. Such costs are
included in sales and marketing expense and totaled approximately $935,000,
$273,000, and $114,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
(l) Comprehensive Income
The Company has no material components of other comprehensive income (loss)
for all periods presented.
(m) 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>
Year Ended
December 31,
-----------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Shares issuable under stock options...................... 3,966 3,045 2,823
Shares of restricted stock subject to repurchase......... 925 765 1,636
Shares issuable pursuant to warrants to purchase common
and convertible preferred stock......................... -- 90 --
Shares of convertible preferred stock on an "as if
converted" basis........................................ -- 4,310 1,545
</TABLE>
The weighted-average exercise price of stock options was $3.24, $0.12, and
$0.05 for the years ended December 31, 1999, 1998 and 1997, 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 for
the year ended December 31, 1998. There were no warrants outstanding during
the year ended December 31, 1997.
(n) Initial Public Offering and Reverse Stock Split
On October 25, 1999 the Company completed an initial public offering (IPO)
of 4,600,000 shares at a price of $9.00 per share; proceeds net of direct
issuance costs amounted to $37,232,000. On the IPO date, the Company effected
a 1-for-2.4 reverse stock split of its common stock. The accompanying
financial statements have been retroactively restated to give effect to the 1-
for-2.4 reverse stock split.
(o) 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
F-10
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
its financial position, results of operations, or cash flows. The Company will
be required to adopt SFAS No. 133 in fiscal 2001.
(p) Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
(3) Property and Equipment
A summary of property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1999 1998
------ ----
<S> <C> <C>
Computers and software.......................................... $1,492 $608
Furniture and fixtures.......................................... 697 120
Leasehold improvements.......................................... 214 204
------ ----
2,403 932
Less accumulated depreciation and amortization.................. 990 355
------ ----
$1,413 $577
====== ====
</TABLE>
(4) Stockholders' Equity
(a) Convertible Preferred Stock
All of the then outstanding shares of the Company's convertible preferred
stock was automatically converted into .417 shares of common stock upon the
closing of the Company's initial public offering on October 25, 1999.
The rights, preferences, privileges, and restrictions of Series A, B and C
convertible preferred stock prior to conversion were as follows:
. Each share of convertible preferred stock was 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.
. Series A, B, and C convertible preferred stockholders were entitled to
noncumulative dividends of $0.10, $0.13 and $0.15 per share per annum,
respectively, when and if declared by the Company's Board of Directors.
. Each share of Series A, B and C convertible preferred stock had a
liquidation preference of $2.47, $3.12 and $5.84 per share,
respectively, plus any declared but unpaid dividends over holders of
common stock.
In 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 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 expired upon
the completion of the initial public offering in October 1999.
F-11
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1999, the Company issued 2,495,994 shares of Series C convertible
preferred stock for $5.84 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 were the same as the holders of Series A
and B convertible preferred stock discussed above, except that the dividend
rate was $0.15 per share, and the liquidation preference was $5.84 per share.
The Series C preferred stock was converted into common stock upon completion
of the initial public offering in October 1999.
(b) Stock Plans
The Company's Board of Directors adopted the 1999 Stock Incentive Plan (the
1999 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 lesser of 5%
of the total number of shares outstanding or 3,000,000 shares; the increase in
the number of shares reserved as of January 1, 2000 was 827,962. 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 employees 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. As of
December 31, 1999, there were 2,541,319 additional shares available for grant
under the 1999 plan.
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. 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 1998, the Company repurchased 26,920 shares of common stock at prices
ranging from $0.11 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 also 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 1999, the Company issued options to purchase 12,691 shares of common
stock at exercise prices ranging from $0.24 to $10.01 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.
F-12
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's options under the 1999 Plan is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1999 1998 1997
-------------------- ------------------- --------------------
Weighted- Weighted Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 3,045,363 $0.12 2,822,481 $0.05 2,364,583 $0.05
Granted................. 1,394,849 9.39 723,737 0.26 570,580 0.10
Exercised............... (395,784) 0.58 (78,990) 0.10 (20,833) 0.05
Canceled................ (78,339) 3.33 (421,865) 0.05 (91,849) 0.05
--------- --------- ---------
Outstanding at end of
period................. 3,966,089 3.24 3,045,363 0.12 2,822,481 0.05
--------- --------- ---------
Options vested and
exercisable at end of
period................. 2,335,966 0.20 1,780,226 0.07 854,941 0.05
--------- --------- ---------
Weighted-average fair
value of options
granted during the
period with exercise
prices equal to fair
value at date of
grant.................. $1.47 $ -- $0.02
Weighted-average fair
value of options
granted during the
period with exercise
prices less than fair
value at date of
grant.................. $4.30 $1.73 $ --
</TABLE>
As of December 31, 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 Weighted- Weighted-
remaining average average
Number contractual exercise Number exercise
Exercise prices outstanding life (years) price exercisable price
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.05.............. 2,047,387 6.73 0.05 1,994,254 0.05
0.24.............. 591,791 8.30 0.24 270,311 0.24
0.62.............. 150,139 9.03 0.62 29,642 0.62
5.28.............. 450,453 9.46 5.28 25,853 5.28
9.00.............. 273,826 9.81 9.00 15,000 9.00
10.01.............. 342,227 9.63 10.01 906 10.01
29.00.............. 23,642 9.88 29.00 -- --
41.25.............. 86,624 9.99 41.25 -- --
--------- ---------
3,966,089 2,335,966
========= =========
</TABLE>
(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 expired upon the initial public offering 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.
F-13
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
performed in 1998. These warrants expired upon the initial public offering 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 1999, the Company issued warrants to purchase 4,007 shares of Series C
preferred stock at a price of $5.84 per share in exchange for services; the
Company also issued 3,479 warrants to purchase common stock at a price of
$0.62 per share in exchange for services. These warrants were fair valued at
$15,000 and $22,000, respectively, and expired upon the initial public
offering of the Company's common stock. There were no outstanding warrants as
of December 31, 1999. The 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, 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 $3,496,000 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. The
amortization of deferred stock compensation, combined with expense associated
with stock options granted to non-employees, relates to the following items in
the accompanying statements of operations (in thousands):
<TABLE>
<CAPTION>
Year Ended
December
31,
-----------
1999 1998
---- ------
<S> <C> <C>
Cost of revenue.................................................... $ 40 $ 113
Research and development........................................... 159 427
Sales and marketing................................................ 311 638
General and administrative......................................... 123 112
---- ------
Total.......................................................... $633 $1,290
==== ======
</TABLE>
There was no amortization of deferred stock compensation nor expense
associated with stock options granted to non-employees in 1997.
F-14
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported................................... $(13,307) $(6,211) $(3,348)
Pro forma..................................... (15,284) (6,229) (3,357)
Basic and diluted net loss per share:
As reported................................... $ (2.20) $ (1.82) $ (1.34)
Pro forma..................................... (2.53) (1.82) (1.35)
</TABLE>
For all grants that were granted prior to the Company's initial public
offering in October 1999, the fair value of these options was determined using
the minimum value method, which assumes no volatility except for non-
employees. The fair value for the options granted subsequent to the Company's
initial public offering was estimated at the date of grant using a Black-
Scholes option pricing model. The fair value of the Company's stock based
awards was estimated assuming no expected dividends and the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Expected Life................................ 3.9 years 4.1 years 4.6 years
Risk-free interest rate...................... 5.7% 5.6% 6.5%
Volatility................................... 88.67% 65% 65%
</TABLE>
(e) 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 outstanding shares, or 800,000
shares; the increase in the number of shares reserved as of January 1, 2000
was to 331,185. 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.
As of December 31, 1999 approximately $300,000 was withheld from employee
payroll for the first purchase of shares expected on April 30, 2000.
F-15
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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, 1999,
1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Reserves and accruals....................... $ 684 $ 523 $ 116
Net operating loss and tax credit
carryforwards.............................. 8,932 3,266 1,366
------- ------- -------
Gross deferred tax assets................... 9,616 3,789 1,482
Less: valuation allowance................... (9,616) (3,788) (1,474)
------- ------- -------
Total deferred tax assets................. -- 1 8
Deferred tax liabilities--property and
equipment.................................... -- (1) (8)
------- ------- -------
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, 1999 and 1998 was an increase of $5,828,000
and $2,314,000, respectively.
As of December 31, 1999, the Company has net operating loss carryforwards
for federal and state income tax purposes of approximately $19 million and $18
million, respectively, available to reduce future income subject to income
taxes. The federal net operating loss carryforwards expire beginning in 2012
through 2019. The state net operating loss carryforwards expire beginning in
2003.
As of December 31, 1999, the Company also has research credit carryforwards
for federal and state income tax purposes of approximately $451,000 and
$354,000, 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.
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
The Company has 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
F-16
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
Year Ended December
31,
---------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Revenue
License.............................................. $ 7,320 $2,283 $ 839
Services:
Consulting......................................... 1,694 1,112 638
Maintenance........................................ 1,137 430 105
------- ------ ------
$10,151 $3,825 $1,582
======= ====== ======
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
Percentage of
Total Revenue
---------------- Percentage of
Year Ended Total Accounts
December 31, Receivable
---------------- -----------------
1999 1998 1997 December 31, 1999
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Customer A.................................. 8% 15% 5% 2%
Customer B.................................. 4% 11% 10% --
</TABLE>
Revenues aggregating 3% of total revenue for the year ended December 31,
1999 were generated from a customer who is also a stockholder of the Company,
and whose ownership percentage was 3.7% as of December 31, 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 6%, 12% and 14% of
total revenue for the years ended December 31, 1999, 1998 and 1997. Sales did
not exceed 3% for any one country outside of North America in any period
presented.
(7) Bank Borrowings, Commitments and Contingencies
In 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%. In 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 December 31, 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.
F-17
<PAGE>
VIADOR INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company leases its facilities and certain equipment under noncancelable
operating lease agreements. Rent expense was approximately, $528,000, $293,000
and $103,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Future minimum lease payments under noncancelable operating
leases for the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
December 31
--------------
(in thousands)
<S> <C>
2000...................................................... $ 3,906
2001...................................................... 4,066
2002...................................................... 4,156
2003...................................................... 4,229
2004...................................................... 4,319
Thereafter................................................ 360
-------
Total.................................................. $21,036
=======
</TABLE>
During 1999 the Company entered into software marketing and distribution
agreements with distributors located in Germany and Hong Kong. Some of the
agreements include 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 December 31, 1999, no sales
have been reported by the distributors.
(8) Subsequent Events
On January 20, 2000, the Company acquired a European distributor for
$2,000,000 in cash and notes.
In January 2000, the Company issued a warrant to a third party as
consideration for entering into a joint marketing, training and product
implementation arrangement. The warrant is for 50,000 shares of Viador common
stock at a price of $45 per share, exerciseable at any time prior to January
2002. The $621,600 fair value of the warrant was determined using the Black-
Scholes option pricing model using the following assumptions: no dividends;
contractual life of 2 years; risk-free interest rate of 5.8%; and expected
volatility of 88.67%. The fair value of the warrant will be amortized to
marketing expense over the seven year term of the arrangement.
In late January 2000, the Company entered into a facilities lease agreement
expiring in January 2005 which includes monthly base rental payments ranging
from $250,000 to $281,000 per month plus a proportionate share of taxes,
insurance and other expenses. In connection with the lease, the Company issued
a warrant to the landlord for 50,000 shares of Viador common stock at a price
of $17.88 per share, exerciseable at any time prior to January 2001. The
$907,050 fair value of the warrant was determined using the Black-Scholes
option pricing model using the following assumptions: no dividends;
contractual life of 1 year risk-free interest rate of 5.8%; and expected
volatility of 88.67%. The fair value of the warrant will be amortized over 5
years to rent expense. The Company also issued a letter of credit secured by a
certificate of deposit for $1,688,718 to the landlord for the term of the
lease as a security deposit.
F-18
<PAGE>
VIADOR CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Balance
Balance at Costs at End
Beginning and of
Classification of Period Expenses Deductions/Write-Offs Period
- -------------- ---------- -------- --------------------- -------
<S> <C> <C> <C> <C>
For the year 1999
Allowance for doubtful
accounts.................. $53 $237 $ (82) $208
For the year 1998
Allowance for doubtful
accounts.................. $50 $108 $(105) $ 53
For the year 1997
Allowance for doubtful
accounts.................. $20 $ 43 $ (13) $ 50
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
------- -------------------
<C> <S>
*3.1 Form of Amended and Restated Certificate of Incorporation
*3.2 Form of Amended and Restated Bylaws
*4.1 Reference is made to Exhibit 3.1
*4.2 Reference is made to Exhibit 3.2
*4.3 Specimen Common Stock certificate
*4.4 Amended and Restated Investors' Rights Agreement, among the Registrant
and the parties listed on Schedule A thereto, dated May 21, 1999
*10.1 Form of Amended and Restated 1997 Stock Option and Incentive Plan
*10.2 Form of 1999 Stock Incentive Plan
*10.3 Form of 1999 Employee Stock Purchase Plan
*10.4 Form of Indemnification Agreement for Officers and Directors
*10.5 Assignment of Lease, by and between the Registrant and Valley of
California, Inc., and Consent to Assignment, dated as of December 16,
1997 and related office leases
*10.6 Collateral Assignment, Patent Mortgage and Security Agreement, by and
between the Registrant and Comerica Bank--California, dated March 4,
1997
*10.7 Revolving Credit Loan and Security Agreement, by and between the
Registrant and Comerica Bank--California, dated March 17, 1999
*10.8 SpaceSQL Version 4.0 License Agreement by and between the Registrant
and IBM Corporation, dated September 18, 1998.
*10.9 Software Marketing and Distributorship Agreement by and between the
Registrant and Mitsui & Co. Ltd, dated June 26, 1997
*10.10 Variable Rate Single Payment Note by and between the Registrant and
Comerica Bank--California, dated June 29, 1999
10.11 Alza Corporation Sublease to Viador Inc., by and between the
Registrant and Alza Corporation, dated January 31, 2000
10.12 Stock Purchase Agreement, by and among Messrs. Andreas Zwimpfer, David
Keat, Charles Fraefel, Chula de Silva and Tim Moser and the
Registrant, dated January 20, 2000
23.1 Consent of KPMG, LLP, dated March 29, 2000
27.1 Financial Data Schedule
</TABLE>
- --------
* Incorporated by reference to the corresponding exhibits of the Registrant's
Registration Statement on Form S-1 (File No. 333-84041) filed on October 25,
1999.
<PAGE>
EXHIBIT 10.11
ALZA CORPORATION
SUBLEASE
TO
VIADOR INC.
(BUILDING THREE)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE NUMBER
- -------------- -----------
<S> <C> <C>
1. USE............................................................................................................. 2
2. TERM............................................................................................................ 3
A. Term........................................................................................................ 3
B. Sublease Commencement Date and Sublease Rent Commencement Date.............................................. 4
C. Early Fixturization Period.................................................................................. 4
3. [INTENTIONALLY DELETED]......................................................................................... 4
4. RENT............................................................................................................ 4
A. Basic Rent.................................................................................................. 4
B. Time for Payment............................................................................................ 5
C. Late Charge and Interest on Rent in Default................................................................. 5
D. Management Fee.............................................................................................. 6
E. Additional Rent............................................................................................. 6
F. Place of Payment of Basic Rent, Management Fee and Additional Rent.......................................... 8
G. Security Deposit............................................................................................ 9
5. RULES AND REGULATIONS AND COMMON AREA........................................................................... 11
6. PARKING......................................................................................................... 12
7. ACCEPTANCE AND SURRENDER OF SUBLEASE PREMISES................................................................... 13
8. ALTERATIONS AND ADDITIONS....................................................................................... 14
9. TENANT MAINTENANCE.............................................................................................. 16
A. Subtenant's Responsibilities................................................................................ 16
B. Building and Interior Common Area Maintenance............................................................... 17
C. Common Area Maintenance..................................................................................... 17
D. Janitorial and Other Services............................................................................... 17
10. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE BUILDING AND THE COMMON AREAS OF THE BUILDING AND THE
COMPLEX......................................................................................................... 18
11. UTILITIES....................................................................................................... 19
12. TAXES........................................................................................................... 21
A. Real Property Taxes......................................................................................... 21
B. Taxes on Subtenant's Property............................................................................... 22
13. LIABILITY INSURANCE............................................................................................. 23
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE....................................... 23
15. REAL PROPERTY INSURANCE......................................................................................... 24
16. INDEMNIFICATION................................................................................................. 25
17. COMPLIANCE...................................................................................................... 25
18. LIENS........................................................................................................... 26
19. ASSIGNMENT AND SUBLETTING....................................................................................... 26
20. SUBORDINATION AND MORTGAGES..................................................................................... 29
21. ENTRY BY LANDLORD............................................................................................... 29
22. BANKRUPTCY AND DEFAULT.......................................................................................... 30
A. Default.................................................................................................... 30
23. ABANDONMENT..................................................................................................... 32
24. HAZARDOUS MATERIALS............................................................................................. 33
25. DESTRUCTION..................................................................................................... 36
26. EMINENT DOMAIN.................................................................................................. 37
27. SALE OR CONVEYANCE BY LANDLORD.................................................................................. 38
28. ATTORNMENT TO LENDER OR THIRD PARTY............................................................................. 39
29. HOLDING OVER.................................................................................................... 39
30. CERTIFICATE OF ESTOPPEL......................................................................................... 39
31. RELATIONSHIP TO MASTER LEASE.................................................................................... 40
32. RIGHT OF LANDLORD TO PERFORM.................................................................................... 40
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
33. ATTORNEYS' FEES................................................................................................. 41
34. WAIVER.......................................................................................................... 41
35. NOTICES......................................................................................................... 41
36. EXAMINATION OF LEASE............................................................................................ 42
37. DEFAULT BY LANDLORD............................................................................................. 42
38. CORPORATE AUTHORITY............................................................................................. 43
39. LIMITATION OF LIABILITY......................................................................................... 43
40. SIGNS........................................................................................................... 44
41. CONSENT......................................................................................................... 45
42. AUTHORITY TO EXECUTE............................................................................................ 45
43. BROKERS......................................................................................................... 45
44. FIRST RIGHT OF REFUSAL EXCLUSIVE TO VIADOR...................................................................... 46
45. MISCELLANEOUS AND GENERAL PROVISIONS............................................................................ 47
A. Use of Building Name........................................................................................ 47
B. Choice of Law; Severability................................................................................. 47
C. Definition of Terms......................................................................................... 47
D. Time Of Essence............................................................................................. 48
E. Quitclaim................................................................................................... 48
F. Incorporation of Prior Agreements; Amendments............................................................... 48
G. Recording................................................................................................... 48
H. Diminution of Light, Air or View............................................................................ 48
46. AGREEMENT NOT TO CAPITALIZE REPAIRS AND/OR REPLACEMENTS TO PREMISES, ETC........................................ 48
47. SECURITY CARD ACCESS SYSTEM; LOBBY RECEPTIONIST & SECURITY...................................................... 49
</TABLE>
EXHIBITS:
---------
A - Master Lease
B - Depiction of the Sublease Premises
C - Description of the Plans Reflecting the Tenant Improvements
ii
<PAGE>
INDEX OF DEFINED TERMS
DEFINED TERM PARAGRAPH
Additional Rent 4E, 10
Affiliate 19D
Anniversary Date 24B
Basic Rent 4A
Building Introduction
CC&R's 1
Common Area 5
Complex Introduction
Destruction 7
Early Occupancy Period 2C
Environmental Laws 24A
Excess Rent 19B
Existing Contamination 24E
First Right Space 44
First Right Sublessee 44
Hazardous Materials 24
Insurance Cost 15
Interest Rate 4C
Landlord Introduction
Lender 20A
Management Fee 4D
Master Lease Introduction
Other Buildings Introduction
Other Leases Introduction
Parcel Introduction
Party (Parties) Caption
Permitted Successor 19F
Permitted Transfer 19G
Property 24
Real Property Taxes 12
Rent 4
Rental 4
Response Actions 24C
Rules and Regulations 5
Security Deposit 4G
Strategic Parties 19E
Sublandlord Caption, 47
Sublease Commencement Date 2B
Sublease Premises Introduction, 47C
Sublease Rent Commencement Date 2B
Subtenant Caption, 47C
Subtenant's Environmental Indemnification 24E
Subtenant's Hazardous Materials Activities 24B
Subtenant's Proportionate Share Introduction
Subtenant's Responsibilities 9
Tax Collector 12
Tenant Improvements 7
Term 2A
iii
<PAGE>
SUBLEASE
(BUILDING M-12)
THIS SUBLEASE, made and entered into as of the 31st day of January, 2000
(the "Effective Date"), between ALZA CORPORATION, a Delaware corporation
("Sublandlord"), and VIADOR INC., a Delaware corporation ("Subtenant", with
Sublandlord and Subtenant sometimes individually referred to as a "Party" and
collectively referred to herein as the "Parties").
WITNESSETH:
P/A CHARLESTON ROAD LLC, a California limited liability company, as
Landlord ("Landlord") and Sublandlord, as Tenant, are parties to a Lease
Agreement (Building Three) dated September 1, 1997 (the "Master Lease"), a copy
of which is attached hereto as Exhibit A hereto. Under the Master Lease,
---------
Landlord leases to Sublandlord a Building having a street address of 2000
Charleston Road, Mountain View, California and commonly referred to by
Sublandlord as Building M-12 in ALZA Plaza (which building shall be referred to
herein as the "Building"). The entire approximately 13-acre single unsubdivided
parcel of land (the "Parcel") located to the southeast of the intersection of
Charleston Road and Amphitheatre Parkway, in the City of Mountain View, County
of Santa Clara, State of California, on which the Building and the Sublease
Premises are located, is identified on Exhibit A to the Master Lease. As used
---------
herein "Complex" shall mean and include all of the Parcel, the Building, the
other two buildings also currently leased by Sublandlord from Landlord under
leases similar to the Master Lease (hereinafter referred to respectively as the
"Other Buildings" and the "Other Leases"), the underground parking structure,
and all other buildings, improvements, fixtures and equipment now or hereafter
situated on the Parcel.
Sublandlord now desires to sublease to Subtenant and Subtenant now desires
to sublease from Sublandlord the entirety of the first floor (including the
adjacent outdoor patio underneath the second floor overhang) and the entirety of
the second floor of the Building (collectively, the "Sublease Premises"), other
than those portions of the first and second floors which constitute common areas
for the Building, which Sublease Premises and first and second floor common
areas are more particularly depicted on Exhibit B attached hereto, on the terms,
---------
covenants and conditions contained herein and Subtenant covenants as a material
part of the consideration for this Sublease to perform and observe each and all
of said terms, covenants and conditions.. This Sublease is made upon the
conditions of such performance and observance.
For purposes of this Sublease, it is agreed that the Sublease Premises
comprises 67,592 gross rentable square feet, the Building comprises 139,611
gross rentable square feet, and the Complex
1
<PAGE>
comprises 408,097 gross rentable square feet, and the "Subtenant's Proportionate
Share" shall constitute 48.41% where Subtenant's Proportionate Share relates to
expenses associated with the Building and 16.60% where Subtenant's Proportionate
Share relates to expenses associated with the Complex.
It is acknowledged that Sublandlord intends to occupy other portions of the
Building and the Other Buildings in the Complex. Accordingly, when this
Sublease refers either to other tenants or other occupants of the Building or
the Complex, such reference shall include, as applicable, Sublandlord to the
extent it then occupies the Building or the Complex. For convenience, attached
hereto is an Index of Defined Terms which identifies the Paragraph or other
location where various defined terms are defined in this Sublease, with all such
defined terms being initially capitalized.
1. USE. Subtenant may use the Sublease Premises for general office use and for
no other purpose or use. Subtenant shall cause any such use to be in
conformance with all applicable governmental laws, regulations, rules and
ordinances. In addition, Subtenant shall have the nonexclusive right in common
with Sublandlord and other occupants of the Building to use the Common Areas of
the Building throughout the Term of this Sublease. Subtenant shall not do or
permit to be done in or about the Sublease Premises (or to the extent within
Subtenant's control, the Complex) nor bring or keep or permit to be brought or
kept in or about the Sublease Premises (or to the extent within Subtenant's
control, the Complex) anything which is prohibited by or will in any way
increase the existing rate of (or otherwise adversely affect) fire or any
insurance covering the Complex or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Complex or any part
thereof, or any of its contents. Subtenant shall not do or permit to be done
anything in, on or about the Sublease Premises or the Complex which will in any
way unreasonably obstruct or interfere with the rights of Sublandlord or other
tenants or occupants of the Complex or injure or unreasonably annoy them, or use
or allow the Sublease Premises to be used for any improper, immoral, or unlawful
purpose, nor shall Subtenant cause, maintain or permit any nuisance in, on or
about the Sublease Premises or the Complex. No sale by auction shall be
permitted on the Sublease Premises or in the Complex. Subtenant shall not place
any loads upon any floors, walls, or ceilings of the Sublease Premises which
endanger the Building's structure, or place any harmful fluids or other
materials in the drainage system of the Building or the Common Area, or overload
the Building's electrical or other mechanical systems. No waste materials or
refuse shall be dumped upon or permitted to remain upon any part of the Building
or on any portion of the Common Area of the Complex, except in trash containers
placed inside exterior enclosures approved by Sublandlord for that purpose or
inside of the Building proper in areas designated for such purpose. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Building, except in screened storage
2
<PAGE>
areas approved by Sublandlord. Subtenant shall not place anything or allow
anything to be placed near the glass of any window, door, partition or wall
which may appear unsightly from outside the Sublease Premises. No loudspeaker or
other device, system or apparatus which can be heard outside the Sublease
Premises shall be used in or at the Sublease Premises without the prior written
consent of Sublandlord. Subtenant shall not commit or suffer to be committed any
waste in or upon the Sublease Premises. Subtenant shall indemnify, defend and
hold Landlord and Sublandlord harmless against any loss, expense, damage,
reasonable attorneys' fees, or liability arising out of failure of Subtenant to
comply with any applicable law relating to Subtenant's use of the Sublease
Premises or with which Subtenant is otherwise obligated to comply under the
terms of this Sublease. Subtenant shall comply with any covenant, condition, or
restriction ("CC&R's") affecting the Sublease Premises (if any), with the
Parties acknowledging that currently there are no CC&R's. Sublandlord agrees
that it shall exercise any approval rights it may have, if any, as to any CC&R's
being recorded against the Complex so as not to approve any CC&R's which would
unreasonably interfere with any uses permitted by Subtenant under this Sublease
of the Sublease Premises or the Complex. The provisions of this Paragraph are
for the benefit of Landlord and Sublandlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Sublease Premises or the
Complex. Sublandlord hereby represents and warrants to Subtenant that the
consent of the Landlord is not required for the execution and delivery of this
Sublease or the occupancy of the Sublease Premises by Subtenant. Sublandlord
hereby indemnifies, defends, protects and agrees to hold Subtenant harmless from
any and all costs, claims, causes of action or liabilities resulting from the
failure of the foregoing representation and warranty to be true and correct.
2. TERM.
A. Term. The Term ("Term") of this Sublease shall commence on February 1,
2000 (the "Sublease Commencement Date"), and shall expire at 11:59 p.m. on day
preceding the fifth (5th) anniversary of the Sublease Commencement Date.
Subtenant shall not have any right or option to extend the Term, notwithstanding
any right of Sublandlord to extend the term of the Master Lease. If, for any
reason, the Master Lease terminates prior to the expiration of the Term, this
Sublease shall automatically terminate absent any agreement at such time of the
then owner of the Building that this Sublease shall continue as a direct lease
between such owner and Subtenant. Sublandord agrees that if (i) the Master Lease
is terminated by Landlord as a result of any default by Sublandlord thereunder,
(ii) Subtenant is not then in default under the terms of this Sublease beyond
any applicable cure period and (iii) Landlord does not allow Subtenant to remain
in possession of the Sublease Premises under the terms of this Sublease
following the termination of the Master Lease, Sublandlord shall be obligated to
indemnify, defend,
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protect and hold Subtenant harmless from any loss or liabilities Subtenant may
incur arising from the premature termination of the Master Lease.
B. Sublease Commencement Date and Sublease Rent Commencement Date. The
"Sublease Rent Commencement Date" shall be the Sublease Commencement Date. If,
for any reason other than delays attributable to Subtenant, Sublandlord cannot
deliver possession of the Sublease Premises to Subtenant by the contemplated
Sublease Commencement Date, Sublandlord shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Sublease or the
obligations of Subtenant hereunder; but in such case, the Sublease Commencement
Date shall not occur and Subtenant shall not be obligated to pay any Rent
hereunder until the date when Sublandlord delivers possession of the Sublease
Premises to Subtenant.
C. Early Fixturization Period. Beginning on the Effective Date and
continuing until the Sublease Commencement Date (the "Early Fixturization
Period"), Subtenant and its contractors and suppliers, shall have the right to
enter the Sublease Premises for the purposes of constructing and installing any
alterations or additions and any furniture, fixtures or equipment that Subtenant
is permitted to install pursuant to the terms of this Sublease. No Basic Rent
shall be payable during the Early Fixturization Period and only such items of
Additional Rent as constitute variable costs incurred by Sublandlord reasonably
attributable to the activities of Subtenant and its contractors and suppliers
during such Early Fixturization Period (such as utilities consumed in such
construction and installation activities) shall be payable by Subtenant, but
Subtenant shall be obligated during such Early Fixturization Period to observe
and perform all of the other provisions of this Sublease, including without
limitation, the insurance and indemnity provisions of this Sublease.
3. [INTENTIONALLY DELETED]
4. RENT. The term "Rent" or "Rental", as either may be used hereunder, shall
consist of (i) Basic Rent, as defined within Paragraph 4A below, (ii) Additional
Rent, as defined within Paragraph 4E below and (iii) the Management Fee as
defined within Paragraph 4D below. In any instance where "Rent" or "Rental" is
used in place of "Basic Rent" or "Additional Rent", it shall be understood that
"Rent" or "Rental" includes "Basic Rent", "Additional Rent" and "Management
Fee".
A. Basic Rent. The scheduled monthly Basic Rent per gross rentable square
foot of the Sublease Premises during the first year of the Term for this
Sublease following the Sublease Rent Commencement Date shall be Three Dollars
and Seventy Cents ($3.70).
On each anniversary of the Sublease Rent Commencement Date during the Term,
the monthly Basic Rent shall increase by the amount equal to three percent (3%)
of the Basic Rent calculated for the
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month preceding such anniversary, to the effect that the Monthly Basic Rent
shall be as follows during the respective months of the term of this Sublease:
- -------------------------------------------------------------------------------
Months Monthly Basic Rent per Monthly Basic Rent
Gross Rentable Square Foot for the Sublease
Premises
- -------------------------------------------------------------------------------
1-12 $ 3.70 $250,090.40
- -------------------------------------------------------------------------------
13-24 $3.811 $257,593.11
- -------------------------------------------------------------------------------
25-36 $3.925 $265,298.60
- -------------------------------------------------------------------------------
37-48 $4.043 $273,274.46
- -------------------------------------------------------------------------------
49-60 $4.164 $281,453.09
- -------------------------------------------------------------------------------
B. Time for Payment. Full monthly Basic Rent, Management Fee and Additional
Rent (as scheduled by Sublandlord) is due in advance, on the first day of each
calendar month, with such amount for the first full calendar month of the Term
to be payable by Subtenant to Sublandlord upon execution of this Sublease by the
Parties. In the event that the Sublease Commencement Date occurs on a date other
than the first day of a calendar month, on the Sublease Commencement Date
Subtenant shall pay to Sublandlord Management Fee and Additional Rent for the
period from such Sublease Commencement Date to the first day of the next
succeeding calendar month that proportion of the monthly Management Fee and
Additional Rent hereunder for the number of days between the Sublease
Commencement Date and the first day of the next succeeding calendar month. In
the event that the Sublease Rent Commencement Date occurs on a date other than
the first day of a calendar month, on the Sublease Rent Commencement Date
Subtenant shall pay to Sublandlord Basic Rent for the period from such Sublease
Rent Commencement Date to the first day of the next succeeding calendar month
that proportion of the monthly Basic Rent hereunder for the number of days
between the Sublease Rent Commencement Date and the first day of the next
succeeding calendar month. In the event that the Term for any reason ends on a
date other than the last day of a calendar month, on the first day of the last
calendar month of the Term, Subtenant shall pay to Sublandlord as Basic Rent,
Management Fee and Additional Rent for the period from said first day of said
last calendar month to and including the last day of the Term that proportion of
the monthly Basic Rent, Management Fee and Additional Rent hereunder for the
number of days between said first day of said last calendar month and the last
day of the Term.
C. Late Charge and Interest on Rent in Default. Notwithstanding any other
provision of this Sublease, if any installment of Basic Rent, Management Fee
and/or Additional Rent (collectively "Rent") is not received by Sublandlord from
Subtenant within nine (9) calendar days after the same becomes due, Subtenant
shall immediately pay to Sublandlord a late charge in an amount equal to ten
percent (10%) of the amounts due and not so paid. In no event shall this
provision for a late charge be deemed to grant Subtenant a grace period or
extension of time within which to pay any Rent installment as set forth in this
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Paragraph 4 or to prevent Sublandlord from exercising any right or remedy
available to Sublandlord upon Subtenant's failure to pay each Rent installment
due under this Sublease when due. If any Rent remains delinquent for a period in
excess of nine (9) calendar days, then, in addition to such late charge,
Subtenant shall pay to Sublandlord interest on any Rent that is not so paid from
said ninth day at the rate of Bank of America's Prime Rate (or equivalent rate)
plus five percent (5%) per annum on the unpaid amount (the "Interest Rate"), but
in no event greater than the maximum rate of interest permitted by applicable
law, until paid in full.
D. Management Fee. Subtenant shall pay to Sublandlord, in addition to the
Basic Rent and Additional Rent, a management fee ("Management Fee") on a monthly
basis equal to three percent (3%) of the Basic Rent and any scheduled Additional
Rent payable to Sublandlord for such month, with such Management Fee to be
payable throughout the Term.
E. Additional Rent. Beginning on the Sublease Commencement Date and
continuing throughout the Term, Subtenant shall pay (i) to the governmental
agency, public utility, or other third party entitled to receive such payment
where such governmental agency, public utility, or other third party is directly
invoicing Subtenant for the same and (ii) otherwise to Sublandlord (or to
Sublandlord's designated agent or to Landlord or to such other third party if
subsequently directed in writing to do so by Sublandlord), in addition to the
Basic Rent and Management Fee and as Additional Rent, the following:
(a) Subtenant's Proportionate Share of all Taxes relating to the
Complex as set forth in Paragraph 12, and
(b) Subtenant's Proportionate Share of all insurance premiums
relating to the Complex, as set forth in Paragraph 15, and
(c) Subtenant's Proportionate Share (or as otherwise reasonably
determined by Sublandlord) to the extent applicable, of expenses for the
operation, maintenance and repair of the Building and the Common Area of
the Complex, as set forth in Paragraphs 9.B, 9.C and 10, and
(d) All charges, costs and expenses which Subtenant is required to
pay hereunder, together with all interest and penalties, costs and
expenses, including reasonable attorneys' fees and legal expenses, that may
accrue thereon in the event of Subtenant's failure to pay such amounts, and
all damages, reasonable costs and expenses which Sublandlord may incur by
reason of default of Subtenant (pursuant to Paragraph 22 of this Sublease,
i.e. Subtenant has received notice of a default under this Sublease and the
applicable cure period has expired and Subtenant has not then cured such
default) or failure on Subtenant's part to comply with the terms and
conditions of this Sublease.
In the event of nonpayment by Subtenant of Additional Rent, Sublandlord
shall have all the rights and remedies with respect thereto as Sublandlord has
for nonpayment of Basic Rent.
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Notwithstanding anything to the contrary in the definition of Additional
Rent as set forth in this Paragraph 4E or Paragraph 10, Additional Rent shall
not include any of the following:
(1) Any ground or underlying lease rental;
(2) Bad debt expenses and interest, principal, points and fees on
debts, bad debt expenses or amortization on any mortgage or other debt
instrument encumbering the Building or the Complex;
(3) Costs incurred by Sublandlord or Landlord for repair of damage
to the Complex to the extent Sublandlord or Landlord is reimbursed by
insurance proceeds or by third parties (including third party tenants) or
costs of repair or maintenance of the Complex to the extent such work is
performed without additional charge pursuant to warranties from third
parties held by Sublandlord or Landlord for the performance of such repair
or maintenance work;
(4) Depreciation on the Sublease Premises or the Complex,
amortization and interest (on loans Sublandlord or Landlord may have
against the Sublease Premises or the Complex), except on equipment,
materials, tools, supplies and vendor-type equipment purchased by any party
to enable that party to supply services that party might otherwise contract
for with a third party where such depreciation, amortization and interest
payments would otherwise have been included in the charge for such third
party's services, all as determined in accordance with generally accepted
accounting principles;
(5) Advertising and promotional expenditures, and costs of signs in
or on the Complex identifying other third party tenants, unless such
expenditure is related to damage caused by Subtenant or a default by
Subtenant;
(6) Except as otherwise provided in Paragraph 22 of this Sublease,
marketing costs, including leasing commissions, attorneys' fees, space
planning costs, and other costs and expenses incurred in connection with
lease negotiations;
(7) Except as otherwise provided in Paragraph 22 of this Sublease,
costs, including permit, license and inspection costs, incurred with
respect to the installation of tenant improvements made for other third
party tenants or incurred in renovating or otherwise improving, decorating,
painting or redecorating vacant space for other third party tenants;
(8) Costs incurred due to the violation by Sublandlord or other
third party tenants of the terms and conditions of any lease of space in
the Complex which lease is not related to the Sublease Premises and which
costs incurred are not related to Subtenant hereunder.
Notwithstanding anything herein to the contrary, any costs incurred by
Sublandlord in repairing or maintaining the Complex which under generally
accepted accounting principles are considered costs that should be capitalized,
such costs shall be amortized over their useful life as determined in accordance
with generally accepted accounting principles, together with interest thereon at
the Interest Rate, and
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Subtenant shall pay Subtenant's Proportionate Share thereof only to the extent
the amortized portion of such cost accrues during the Term of this Sublease.
The Additional Rent due hereunder shall be paid to the party provided above
(i) within ten (10) calendar days for Taxes and Property Insurance (to the
extent such Taxes or Property Insurance shall be payable to the applicable
taxing authority or insurer within thirty (30) days after the date of
presentation of such invoice) and within fifteen (15) calendar days for all
other Additional Rent items, after presentation of invoice from Sublandlord or
Sublandlord's agent setting forth such Additional Rent and/or (ii) at the option
of Sublandlord, Subtenant shall pay to Sublandlord monthly, in advance,
Subtenant's pro rata share of an amount estimated by Sublandlord to be
Sublandlord's approximate average monthly expenditure for such Additional Rent
items, which estimated amount shall be reconciled within one hundred fifty (150)
calendar days after the end of each calendar year, or more frequently if
Sublandlord elects to do so at Sublandlord's sole and absolute discretion, as
compared to Sublandlord's actual expenditure for said Additional Rent items,
with Subtenant paying to Sublandlord, upon demand, any amount of actual expenses
expended by Sublandlord in excess of said estimated amount, or Sublandlord
refunding to Subtenant (provided Subtenant is not in default in the performance
of any of the terms, covenants and conditions of this Sublease) any amount of
estimated payments made by Subtenant in excess of Sublandlord's actual
expenditures for said Additional Rent items. Within thirty (30) calendar days
after receipt of Sublandlord's written reconciliation together with supporting
documentation, Subtenant shall have the right, at Subtenant's sole expense, to
commence a review and/or audit, at a mutually convenient time at Sublandlord's
office, of Sublandlord's records relating to the foregoing expenses. Any audit
must be conducted by Subtenant or an independent nationally recognized
accounting firm that is not being compensated by Subtenant or other third party
on a contingency fee basis. If an audit (not a review) reveals that Sublandlord
has overcharged Subtenant, the amount overcharged shall be credited to
Subtenant's account within seventy-five (75) calendar days after the audit is
concluded.
The respective obligations of Sublandlord and Subtenant under this
Paragraph 4 shall survive the expiration or other termination of the Term, and
if the Term shall expire or shall otherwise terminate on a day other than the
last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the Term expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
F. Place of Payment of Basic Rent, Management Fee and Additional Rent. All
Rent hereunder and all payments hereunder for Additional Rent which are to be
paid to Sublandlord shall be paid to Sublandlord at the following address ALZA
Corporation, 1900 Charleston Road, Mountain View,
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California 94039, Attention: Senior Director, Real Estate & Facilities, or to
such other person or to such other place as Sublandlord may from time to time
designate in writing.
G. Security Deposit. Subtenant shall, upon execution of this Sublease,
deposit with Sublandlord a security deposit ("Security Deposit") in an amount in
cash equal to six (6) times the monthly Basic Rent payable during the last year
of the Term of this Sublease (with the possible alternative use of a letter of
credit being addressed later in this Paragraph). The Security Deposit shall be
held by Sublandlord as a Security Deposit for the faithful performance by
Subtenant of all of the terms, covenants, and conditions of this Sublease to be
kept and performed by Subtenant during the Term. If Subtenant defaults with
respect to any provision of this Sublease and such default is not cured within
any applicable cure period, including, but not limited to, the provisions
relating to the payment of Rent or any other monetary sums due hereunder,
Sublandlord may (but shall not be required to) use, apply or retain all or any
part of this Security Deposit for the payment of such amount in default, or any
other amount which Sublandlord or Landlord or both may spend by reason of
Subtenant's default or to compensate Sublandlord or Landlord or both for any
other loss or damage which Sublandlord or Landlord or both may suffer by reason
of Subtenant's default. If any portion of the Security Deposit is so used or
applied, Subtenant shall, within ten (10) calendar days after written demand
therefor, deposit cash with Sublandlord in the amount sufficient to restore the
Security Deposit to its original amount. Subtenant's failure to do so shall be a
material breach of this Sublease. Sublandlord shall not be required to keep this
Security Deposit separate from its general funds, and Subtenant shall not be
entitled to interest on the Security Deposit. If Subtenant fully and faithfully
performs every provision of this Sublease to be performed by it, the Security
Deposit or any balance thereof shall be returned to the last party recognized by
Sublandlord as Subtenant hereunder (or at Sublandlord's option, to the last
assignee of Subtenant's interest hereunder) at the expiration of the Term and
after Subtenant has vacated the Sublease Premises. In the event of termination
of Sublandlord's interest in this Sublease, Sublandlord shall transfer the
Security Deposit to Sublandlord's successor in interest whereupon Subtenant
agrees to release Sublandlord from liability for the return of such Deposit or
the accounting therefor.
Notwithstanding the above, Subtenant shall have the right, at Subtenant's
sole election, to substitute for all or part of the cash Security Deposit to be
held by Sublandlord, an irrevocable letter of credit, drawn upon an
institutional lender reasonably acceptable and accessible to Sublandlord in form
and content reasonably satisfactory to Sublandlord and for a term equal to at
least one year (with the letter of credit required to be renewed or replaced by
Subtenant so as to be available to be drawn on at any time during the Term plus
a period of sixty (60) calendar days). Said financial institution must agree
that the presentment for demand may be made in at least one of the following
locations: San Jose, Santa Clara, San Francisco, Mountain View or Palo Alto,
California. Such irrevocable letter of credit shall be renewed
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<PAGE>
by the issuer (or replaced with a similarly qualifying letter of credit
reasonably acceptable to Sublandlord) at least thirty (30) calendar days prior
to the expiration date thereof from time to time during the Term, and shall be
held by Sublandlord as security for the faithful performance by Subtenant of all
the terms, covenants and conditions of this Sublease to be kept and performed by
Subtenant. If, for any reason, Subtenant fails to cause the irrevocable letter
of credit to be so renewed or replaced at least thirty (30) days prior to its
expiration date, Sublandlord shall have the right to immediately draw upon the
letter of credit in full and hold the proceeds thereof as a cash Security
Deposit hereunder. If Subtenant has theretofore funded the Security Deposit all
or in part in cash, all (or such portion) of the cash Security Deposit held by
Sublandlord shall be refunded to Subtenant upon Sublandlord's receipt of an
acceptable irrevocable letter of credit equating to such amount. If Subtenant
defaults with respect to any provisions of this Sublease and such default is not
cured within any applicable cure period, including but not limited to provisions
relating to the payment of Rent, Sublandlord may (but shall not be required to)
draw down on the irrevocable letter of credit for payment of any sum which
Sublandlord may spend or become obligated to spend by reason of Subtenant's
default, or to compensate Sublandlord for any loss or damage which Sublandlord
may suffer by reason of Subtenant's default. Sublandlord and Subtenant
acknowledge that such irrevocable letter of credit will be treated as if it were
a cash Security Deposit, and such irrevocable letter of credit may be drawn down
upon by Sublandlord in the amount then due to Sublandlord upon demand and
presentation of evidence of the identity of Sublandlord to the issuing bank, in
the event that Subtenant defaults with respect to any provision of this Sublease
and such default is not cured within any applicable cure period. Sublandlord
covenants to Subtenant that it shall not make a drawing on such irrevocable
letter of credit unless Sublandlord, in good faith, believes (i) Subtenant is in
default in the performance of its obligations under this Sublease or (ii) such
drawing is appropriate because of the failure of such irrevocable letter of
credit to have been appropriately renewed. If any portion of the irrevocable
letter of credit is used or applied pursuant hereto, Subtenant shall, within ten
(10) calendar days after receipt of a written demand therefor from Sublandlord,
restore and replace the value of such security by either (i) depositing cash
with Sublandlord in the amount equal to the sum drawn down under the irrevocable
letter of credit, or (ii) increasing the irrevocable letter of credit to its
value immediately prior to such application. Subtenant's failure to replace the
value of the security as provided in the preceding sentence shall be a material
breach of its obligation under this Sublease. The letter of credit shall further
provide to the effect: (i) that it shall automatically renew for additional
periods of one (1) year each from the expiry date or future expiry date, unless
at least thirty (30) days prior to any expiry date the issuer notifies
Sublandlord by registered mail of the issuer's election not to renew the letter
of credit and (ii) if the issuer is unable or unwilling to so renew the letter
of credit, the issuer shall deem such to automatically constitute a draw request
from Sublandlord upon the letter of credit without
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<PAGE>
further demand, and with the issuer on or before the expiration of such letter
of credit to deposit for Sublandlord's account an amount equal to the amount
remaining committed but undrawn under the letter of credit (unless issuer has
sought and obtained from Sublandlord prior thereto a written acknowledgment by
Sublandlord of the termination of the requirement of this Sublease for such
letter of credit to be so renewed, in which event issuer shall not be required
to make such a deposit for Sublandlord's account).
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Sublease and such rules and regulations ("Rules and
Regulations") as (i) Landlord may hereafter from time to time prescribe for the
Complex or any portion thereof, and (ii) Sublandlord may hereafter from time to
time reasonably prescribe for the Complex or any portion thereof, Subtenant and
Subtenant's employees, invitees and customers shall, in common with other
occupants of the Complex in which the Sublease Premises are located, and their
respective employees, invitees and customers, and others entitled to the use
thereof, have the non-exclusive right to use the access roads, parking areas,
and facilities provided and designated by Landlord or Sublandlord for the
general use and convenience of the occupants of the Complex in which the
Sublease Premises are located, which areas and facilities are referred to herein
as "Common Area". This right shall terminate upon the termination of this
Sublease. Subtenant acknowledges and agrees that Landlord has reserved the
right, and Sublandlord hereby reserves the right, from time to time to make
reasonable changes in the shape, size, location, amount and extent of Common
Area. Landlord has further reserved, and Sublandlord hereby reserves, the right
to promulgate such reasonable Rules and Regulations relating to the use of the
Common Area, and any part or parts thereof, as either Landlord or Sublandlord
may deem appropriate for the best interests of the occupants of the Complex or
the Building. The Rules and Regulations shall be binding upon Subtenant upon
delivery of a copy of them to Subtenant, and Subtenant shall abide by them and
cooperate in their observance. Such Rules and Regulations may be reasonably
amended by the promulgator, Landlord or Sublandlord, from time to time, with ten
(10) calendar days advance notice, and all amendments shall be effective five
(5) calendar days after delivery of a copy to Subtenant. If there is any
conflict between Rules and Regulations promulgated by Landlord and Sublandlord,
those Rules and Regulations promulgated by Landlord in accordance with the
Master Lease shall govern. Neither Landlord nor Sublandlord shall be responsible
to Subtenant for the non-performance by any other tenant or occupant of the
Complex of any of said Rules and Regulations (but the foregoing shall not excuse
Sublandlord from any responsibility under the other provisions of this Sublease
for the activities or omissions of Sublandlord as an occupant of the Complex).
To the extent of Sublandlord's obligations under the Master Lease,
Sublandlord shall operate, manage and maintain the Common Area in conformity
with a good standard of maintenance and repair, or
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replacement, and in good and sanitary condition, provided that to the extent the
Master Lease requires Landlord to perform any services or to insure, maintain,
repair or restore all or any part of the Complex or the Sublease Premises, or
provides Sublandlord with rights enforceable against Landlord, Sublandlord's
obligations to Subtenant with respect to such matters shall be limited to
Sublandlord's exercise of commercially reasonable efforts to enforce the
obligations of Landlord with respect to such matters.
6. PARKING. Subtenant shall, without any separately assessed parking fees
or charges being applicable, have the (i) non-exclusive right throughout the
Term of this Sublease, to use with the other tenants or other occupants of the
Complex, Subtenant's Proportionate Share of the parking spaces in the common
parking area of the Complex not designated for use by individuals with
disabilities (with Subtenant's Proportionate Share currently equating to 144 of
the 869 regular parking spaces in the garage (one of which 144 will be the
reserved space referred to in clause (ii) below), and 45 of the 273 above ground
regular parking spaces for employees and visitors), and (ii) the exclusive right
throughout the Term of this Sublease, to one (1) reserved parking space at a
location reasonably close to the Sublease Premises in the underground parking
garage, which shall be marked as reserved by Sublandlord, at Sublandlord's sole
expense. Subtenant agrees that Subtenant, Subtenant's employees, agents,
representatives, and/or invitees shall not use parking spaces in excess of said
assigned parking spaces allocated to Subtenant hereunder. Sublandlord shall have
the right, at Sublandlord's reasonable discretion, as well as Landlord having
certain additional rights under the Master Lease, to specifically designate the
location of some or all of Subtenant's parking spaces within the common parking
area of the Complex, in which event Subtenant agrees that Subtenant, Subtenant's
employees, agents, representatives and/or invitees shall not use any parking
spaces other than those parking spaces specifically designated by Sublandlord
for Subtenant's use (or if only a portion of the parking spaces to which
Subtenant is entitled to use are so designated for Subtenant's exclusive use,
Subtenant's employees, agents, representatives and/or invitees shall not use any
parking spaces which are designated for exclusive use by other tenants or
occupants). Said parking spaces, if specifically designated by Sublandlord to
Subtenant, may be relocated by Sublandlord at any time, and from time to time,
but shall be assigned on a non-discriminatory basis as to Subtenant and the
other tenants and occupants of the Complex. Sublandlord reserves the right, at
Sublandlord's reasonable discretion, to rescind any specific designation of
parking spaces, thereby returning Subtenant's parking spaces to the common
parking area. Sublandlord shall give Subtenant written notice of any change in
Subtenant's parking spaces. Sublandlord, in designating any parking spaces for
Subtenant's use, shall not discriminate against Subtenant as to the location of
assigned parking spaces relative to the location of the Building, and further
shall not discriminate against Subtenant's visitors as to any allocation, if
any, of the designated visitor's parking spaces. Subtenant shall not, at any
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time, park, or permit to be parked, any trucks or vehicles adjacent to the
loading area so as to interfere in any way with the use of such areas, nor shall
Subtenant, at any time, park or permit the parking of Subtenant's trucks and
other vehicles or the trucks and vehicles of Subtenant's suppliers or others, in
any portion of the common areas not designated by Sublandlord for such use by
Subtenant. Subtenant shall not park nor permit to be parked, any inoperative
vehicles or equipment on any portion of the common parking area or other common
areas of the building. Subtenant agrees to assume responsibility for compliance
by its employees with the parking provision contained herein. If Subtenant or
its employees park in other than designated parking areas, then Sublandlord may
charge Subtenant, as an additional charge, and Subtenant agrees to pay Fifteen
Dollars ($15.00) per day for each day or partial day each such vehicle is
parking in any area other than that designated. Subtenant hereby authorizes
Sublandlord, at Subtenant's sole expense, to tow away from the Complex any
vehicle belonging to Subtenant or Subtenant's employees parked in violation of
these provisions, or to attach violation stickers or notices to such vehicles.
Subtenant shall use the parking area for vehicle parking only and shall not use
the parking areas for storage. Subtenant acknowledges that a security card is
required for access to the underground parking, and that accordingly, it is not
generally available for use by visitors for parking. Subtenant agrees that it
shall, if requested by Sublandlord, require all of its employees to park in the
underground parking area so as to leave the outside parking areas fully
available for visitors to the Complex.
7. ACCEPTANCE AND SURRENDER OF SUBLEASE PREMISES. Upon the Sublease
Commencement Date, Subtenant, as to Sublandlord (but not necessarily as to any
architect or contractor), accepts the Building and improvements included in the
Sublease Premises and the Common Area as being in good and sanitary order,
condition and repair and accepts the Building and improvements included in the
Sublease Premises in their then present condition and without representation or
warranty by Sublandlord as to the condition of the Building or as to the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be by
written agreement executed by Sublandlord and Subtenant. Subtenant agrees on the
last day of the Term, or on the sooner termination of this Sublease, to
surrender the Sublease Premises promptly and peaceably to Sublandlord in good
condition and repair (damage by Acts of God, fire or other causes for which
Subtenant is not obligated to repair pursuant to Paragraph 25 ("Destruction"),
and normal wear and tear excepted), with all interior walls painted, or cleaned,
and repaired or replaced, if damaged; all floors cleaned and waxed; all carpets
cleaned and shampooed; all broken, marred or nonconforming acoustical ceiling
tiles replaced; the interior side of all interior and exterior windows washed;
the HVAC, plumbing and electrical systems and lighting within the Sublease
Premises in good order and repair, including replacement of any burned out or
broken light bulbs or ballasts; together with all alterations, additions, and
improvements which may have been made,
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in, to, or on the Sublease Premises (except moveable trade fixtures installed at
the expense of Subtenant and such other items that Subtenant, under this
Sublease, is allowed to remove, if any) except that Subtenant shall ascertain
from Sublandlord within thirty (30) days before the end of the Term, as to any
portion of the Sublease Premises which does not conform to the configuration of
the tenant improvements previously installed by Sublandlord (the "Tenant
Improvements") as reflected on the plans listed on Exhibit C, whether
---------
Sublandlord desires to have such portion of the Sublease Premises or any part or
parts thereof restored to their configuration as reflected on the plans listed
on Exhibit C, and if Sublandlord shall so desire, then Subtenant shall restore
---------
said portion of the Sublease Premises or such part or parts thereof before the
end of this Sublease at Subtenant's sole cost and expense to the configuration
as reflected on the plans listed on Exhibit C, except to the extent, if any,
---------
Sublandlord in approving any proposed additions or alterations by Subtenant
pursuant to Paragraph 8 hereof, agrees that such proposed addition or alteration
shall not be required to be removed. Subtenant, on or before the end of the Term
or sooner termination of this Sublease, shall remove all of Subtenant's personal
property and trade fixtures from the Sublease Premises, and all property not so
removed on or before the end of the Term or sooner termination of this Sublease
shall be deemed abandoned by Subtenant and title to same shall thereupon pass to
Sublandlord without compensation to Subtenant. Sublandlord, may, upon
termination of this Sublease, remove all moveable furniture and equipment so
abandoned by Subtenant, at Subtenant's sole cost, and repair any damage caused
by such removal at Subtenant's sole cost. If the Sublease Premises be not
surrendered at the end of the Term or sooner termination of this Sublease,
Subtenant shall indemnify Sublandlord against loss or liability resulting from
the delay by Subtenant in so surrendering the Sublease Premises including,
without limitation, any claims made by Landlord or any succeeding subtenant
founded on such delay. Nothing contained herein shall be construed as an
extension of the Term or as a consent of Sublandlord to any holding over by
Subtenant. The voluntary or other surrender of this Sublease or the Sublease
Premises by Subtenant or a mutual cancellation of this Sublease shall not work
as a merger and, at the option of Sublandlord, shall either terminate all or any
existing sub-subleases or sub-subtenancies or operate as an assignment to
Sublandlord of all or any such sub-subleases or sub-subtenancies.
8. ALTERATIONS AND ADDITIONS. Subtenant shall not make, or suffer to be
made, any alteration or addition to the Sublease Premises, or any part thereof,
without the written consent of Sublandlord first had and obtained by Subtenant
with such consent of Sublandlord to be subject to Sublandlord' sole discretion
(subject to the following paragraph setting forth a different standard for
Sublandlord's approval as to certain alterations and additions), and further
subject to Landlord's approval rights under the Master Lease, but at the cost of
Subtenant, and (except as may be otherwise consented to
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in writing by Sublandlord at the time of Subtenant's request) any addition to,
or alteration of, the Sublease Premises, except moveable furniture and trade
fixtures, shall, upon termination, become a part of the Sublease Premises and
belong to Sublandlord, subject to the right of Sublandlord to require that some
or all of such additions and alterations be removed by Subtenant pursuant to the
provisions of Paragraph 7 ("Acceptance and Surrender of Sublease Premises")
unless Sublandlord, at the time of its requested approval of such addition or
alteration, agrees in writing that such addition or alteration shall not be
required to be removed by Subtenant at the end of the term of this Sublease.
Sublandlord reserves the right to approve all contractors and mechanics proposed
by Subtenant to make any such alterations and additions, and currently requires
that any alterations or additions to be performed to the Sublease Premises prior
to or within the first year following the Sublease Commencement Date, are to be
performed by Vance Brown, Inc., the contractor currently engaged to construct
the Tenant Improvements, under a separate contract to be entered into between
such contractor and Subtenant, and shall in all events be subject to any
applicable approval rights of Landlord and any other applicable requirements for
making alterations or additions to the Building under the Master Lease.
Subtenant shall retain title to all moveable furniture and trade fixtures placed
in the Sublease Premises. All office heating, lighting, electrical, air
conditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Subtenant, together with all property that has become an
integral part of the Sublease Premises, shall not be deemed trade fixtures.
Subtenant agrees that it will not proceed to make any such alteration or
addition, without having obtained consent from Sublandlord (and if required,
Landlord) to do so, and until ten (10) business days from the receipt of such
consent, in order that Sublandlord and Landlord may post appropriate notices to
avoid any liability to contractors or material suppliers for payment for
Subtenant's alteration or addition. Subtenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
Subtenant shall, if required by Sublandlord or Landlord, secure at Subtenant's
own cost and expense, a completion and lien indemnity bond, satisfactory to
Sublandlord, for such work, provided that Sublandlord agrees that Sublandlord
shall not require any such bond unless either (i) at the time of such alteration
the net worth of Subtenant is reasonably estimated to be less than $39,000,000,
or (ii) the alteration in question is reasonably estimated to cost more than
$250,000. Subtenant further covenants and agrees that any mechanic's lien filed
against the Sublease Premises or any part of the Complex for work claimed to
have been done for, or materials claimed to have been furnished to Subtenant,
will be discharged by Subtenant, by bond or otherwise, within five (5) calendar
days after notice to Subtenant of filing thereof, at the cost and expense of
Subtenant. Any exceptions to the foregoing must be made in writing and executed
by all of Sublandlord, Landlord and Subtenant.
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Notwithstanding the foregoing standard for consent by Sublandlord of any
proposed alteration or additions by Subtenant, Sublandlord agrees that it shall
not unreasonably withheld its consent to any proposed alterations by Subtenant
if the proposed alterations are (i) non-structural in nature; (ii) do not reduce
the market value or general utility of the Sublease Premises for office use; and
(iii) may be reasonably removed and the Sublease Premises restored to the
condition reflected in the plans for the Tenant Improvements as described in
Exhibit C upon the expiration of the Term of the Sublease. Subtenant shall be
- ---------
obligated prior to the expiration or earlier termination of the Term of the
Sublease to remove any alterations or additions and return the portion of the
Sublease Premises affected by any such alterations or additions to the same
condition as reflected in the plans for the Tenant Improvements as described in
Exhibit C, unless Sublandlord, pursuant to Paragraph 7 above, subsequently
- ---------
waives such requirement. If either: (i) at the time of such addition or
alteration the net worth of Subtenant is reasonably estimated to be less than
$39,000,000, or (ii) the addition or alteration in question is reasonably
estimated to cost more than $250,000, Sublandlord shall have the right in its
reasonable discretion in approving any such proposed addition or alteration, to
require Subtenant to deposit with Sublandlord additional security for
Subtenant's performance of the construction of the same, which additional
security shall be returned to Subtenant upon the lien free completion of such
addition or alteration.
9. TENANT MAINTENANCE.
A. Subtenant's Responsibilities. Subject to Paragraph 25 ("Destruction"),
Subtenant shall, at its sole cost and expense, keep and maintain the interior of
the Sublease Premises and every part thereof in a good standard of maintenance
and repair, or replacement, and in good and sanitary condition (collectively
"Subtenant's Responsibilities"). Subtenant's Responsibilities include, but are
not limited to, janitorization (except as such may be provided by Sublandlord
pursuant to Paragraph 9.D), all windows (interior and exterior), window frames,
plate glass and glazing (destroyed by accident or act of third parties), truck
doors, plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps, bulbs, tubes and ballasts), heating
and air conditioning systems (such as compressors, fans, air handlers, ducts,
mixing boxes, thermostats, time clocks, boilers, heaters, supply and return
grills), all outside balconies, all interior improvements within the Sublease
Premises including but not limited to wall coverings, window coverings, carpet,
floor coverings, partitioning, ceilings, doors (both interior and exterior),
including closing mechanisms, latches, locks, automatic fire extinguishing
systems, and all other interior improvements of any nature whatsoever. Areas of
excessive wear shall be replaced at Subtenant's sole expense upon termination of
the Sublease. Subtenant's responsibilities under this
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Paragraph shall not extend to any structural members inside the Sublease
Premises or any of the foregoing items to the extent located outside of the
Sublease Premises. To the extent Sublandlord is the beneficiary of any
contractor or supplier warranties relating to any items Subtenant becomes
obligated hereunder to repair, Sublandlord shall cooperate with Subtenant in
providing to Subtenant the benefit of the warranty relating to the same.
Subtenant hereby waives all rights under, and benefits of, Subsection 1 of
Section 1932 and Section 1941 and 1942 of the California Civil Code and under
any similar law, statute or ordinance now or hereafter in effect. In the event
any of the above Subtenant's Responsibilities apply to any other third party
tenant(s) of Sublandlord where there is common usage with other third party
tenant(s), such maintenance responsibilities may be undertaken by Landlord or
Sublandlord and Subtenant's Proportionate Share of the related charges shall be
allocated to the Sublease Premises and paid by Subtenant as Additional Rent
pursuant to Paragraph 4.E.
B. Building and Interior Common Area Maintenance. Sublandlord shall
maintain, repair and replace as required, the interior and exterior portions of
the Building and the general building systems and services and common areas
(including, but not limited to, the first floor lobby, elevators, roof, truck
doors, HVAC equipment, and any interior common areas in the Building) that are
not the responsibility of Subtenant to maintain under the provisions of
Paragraph 9A hereof. Subtenant's Proportionate Share of all costs and expenses
incurred by Sublandlord in so maintaining, repairing and replacing the same,
shall be allocated to and borne by Subtenant as Additional Rent pursuant to
Paragraph 4.E.
C. Common Area Maintenance. At all times during the Term that Sublandlord
is also the tenant under the Other Leases, then Sublandlord shall be responsible
to keep, maintain, repair and replace as required, the Common Area of the
Complex (including appurtenances) and every part thereof in a good standard of
maintenance, repair and replacement as required, and in good and sanitary
condition. Sublandlord's maintenance, repair and replacement responsibilities
herein referred to include, but are not limited to, janitorization, landscaping,
sidewalks, driveways, underground and above ground parking areas, including
striping and sealing, irrigation sprinkler systems, parking lot and exterior
Building lighting, ponds, fountains, waterways, drains, lawns, shrubbery and
other planted areas, plumbing and utility systems within the Common Area, and
electrical systems within the Common Area. Subtenant's Proportionate Share of
all costs and expenses incurred by Sublandlord in so maintaining, repairing and
replacing the same, shall be allocated to and borne by Subtenant as Additional
Rent pursuant to Paragraph 4.E. To the extent that Landlord is required to
maintain the Common Area under the Master Lease, including circumstances in
which Sublandlord is not the tenant under the Other Leases, Sublandlord shall
have no further obligation to maintain such Common Area and the last sentence of
Paragraph 5, above, shall apply.
D. Janitorial and Other Services
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During the Term of this Sublease Sublandlord shall furnish janitorial
services to the Sublease Premises using the same janitorial service providers at
the same frequency time and in the same general manner as is provided to
Sublandlord in connection with the remainder of the Building, and Subtenant
shall pay Subtenant's Proportionate Share of the expense thereof.
Notwithstanding the foregoing, if Sublandlord determines, in Sublandlord's sole
discretion, that it no longer wishes to provide such services for the Sublease
Premises, then Sublandlord may terminate its obligation to provide such
janitorial services to the Sublease Premises upon written notice thereof at
least thirty (30) days in advance, in which case Subtenant shall be required to
provide such janitorial services to the Sublease Premises at Subtenant's sole
expense, and Subtenant shall no longer be required to pay Subtenant's
Proportionate Share of Sublandlord's janitorial services as relates to interior
offices (as distinguished from janitorial services for the common areas for
which Subtenant shall remain responsible for Subtenant's Proportionate Share).
Further, to the extent that Subtenant determines, in Subtenant's sole
discretion, that Subtenant is dissatisfied with the quality of such janitorial
services, or any other services supplied to the Sublease Premises and the entire
Building by a third party vendor hired by Sublandlord which may be terminated
without curtailing the availability of such services to Sublandlord, Subtenant
may terminate such services to the Sublease Premises upon written notice thereof
to Sublandlord at least thirty (30) days in advance, in which event Subtenant
shall thereafter provide such services to the Sublease Premises at Subtenant's
sole expense (using a service provider consented to in advance by Sublandlord,
which consent shall not be unreasonably withheld) and Subtenant's additional
rent obligation shall be appropriately adjusted to reflect the expense savings
to Sublandlord realized by Subtenant's directly providing such services to the
Sublease Premises.
10. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE BUILDING AND THE
COMMON AREAS OF THE BUILDING AND THE COMPLEX. Subtenant shall pay to Sublandlord
the Subtenant's Proportionate Share of all expenses of operation, maintenance
and repair of the Building, and the Common Area of the Complex (including the
underground parking garage) and the Building, whether paid or incurred by
Landlord and charged to Sublandlord under the Master Lease, or paid or incurred
directly by Sublandlord, including, but not limited to, license, permit, and
inspection fees; security; utility charges associated with the Common Area,
including the underground parking garage and the exterior plaza, and all
landscaping and lighting (including water and sewer charges); all charges
incurred in the maintenance and replacement of landscaped areas, lakes, parking
lots, sidewalks, driveways; maintenance, repair and replacement of all fixtures
and electrical, mechanical and plumbing systems; structural elements and
exterior surfaces of the Building and any improvements; salaries and employee
benefits of personnel and payroll taxes applicable
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thereto; supplies, materials, equipment and tools; the cost of capital
expenditures which have the effect of reducing operating expenses, provided,
however, that in the event Sublandlord or Landlord make such capital
improvements, Sublandlord or Landlord or both shall amortize their investment or
costs in said improvements (together with interest at the Interest Rate on the
unamortized balance) as an operating expense in accordance with generally
accepted accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Sublandlord's debt
repayments; interest on charges, expenses directly or indirectly incurred by
Sublandlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest; or executive salaries.
11. UTILITIES.
A. Intentionally Deleted.
B. As Additional Rent and in accordance with Paragraph 4E of this Sublease,
Subtenant shall pay the Subtenant's Proportionate Share of the cost of all
utility charges such as water, gas, electricity, (including HVAC), telephone,
telex and other electronic communications service, if applicable, sewer service,
waste pick-up and any other utilities, materials or services furnished directly
to the Building in which the Sublease Premises are located, including, without
limitation, any temporary or permanent utility surcharge or other exactions
whether now or hereafter imposed. To the extent any utilities are separately
metered to the Sublease Premises, Subtenant shall bear the entire cost thereof,
and shall pay the charges for the same to Sublandlord, or as directed by
Sublandlord, directly to the utility company or other provider of the service.
To the extent that Subtenant is directly billed for any utility charges,
Subtenant shall not be responsible for any corresponding utility charges billed
for other occupiable office space (as distinguished from Common Areas) in the
Building.
Sublandlord shall cause to be furnished (except to the extent the last
sentence of Paragraph 5 shall apply to limit Sublandlord's responsibility to the
extent Landlord is responsible for causing to be furnished) to the Sublease
Premises and subject to the Rules and Regulations of the Common Area
hereinbefore referred to, (i) water, gas and electricity suitable for the
permitted use of the Sublease Premises and (ii) between the hours of 8:00 am and
6:00 p.m., Mondays through Fridays (holidays excepted) heat and air-conditioning
required for the comfortable use and occupation of the Sublease Premises for the
uses permitted under this Sublease. Heat and air-conditioning shall generally
be available to be turned on by Subtenant at such other times or on such other
days as Subtenant may desire. Subtenant agrees that at all times it will
cooperate fully with Sublandlord and Landlord, and shall abide by all reasonable
regulations and requirements that Sublandlord or Landlord may prescribe for the
proper
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functioning and protection of the Building heating, ventilating and air-
conditioning systems. Whenever heat generating machines, equipment, or any
other devices (including exhaust fans) are used in the Sublease Premises by
Subtenant which affect the temperature maintained by the air-conditioning system
beyond the reasonable handling capacity of the existing system, Landlord or
Sublandlord shall have the right to install, or require Subtenant to install,
supplementary air-conditioning units in the Sublease Premises and the cost of
installation, operation and maintenance thereof, shall be paid by Subtenant to
Sublandlord upon demand by Sublandlord. If Subtenant uses any apparatus or
device in the Sublease Premises (including, without limitation, electronic data
processing machines or machines using current in excess of 110 Volts) which
increase the amount of electricity, gas, water or air-conditioning consumed in
the Sublease Premises on an average per square foot basis above that which would
be furnished or supplied to any other portion of the Building on an average per
square foot basis for general office use, Sublandlord shall be entitled to
reasonably allocate to Subtenant the cost of any utilities supplied by
Sublandlord to the Building which are disproportionately consumed by Subtenant
provided that Sublandlord shall correspondingly reasonably allocate any similar
disproportionate consumption by any other tenant(s) in the Building to such
other tenant(s). If Subtenant shall require heating, air-conditioning, water,
gas, or electric current in excess of that usually furnished or supplied to any
similar sized space in the Building, Sublandlord may cause an electric current,
gas or water meter to be installed in the Sublease Premises in order to measure
the amount of electric current, gas or water consumed for any such excess use.
The cost of any such meter and of the installation, maintenance and repair
thereof, all charges for such excess water, gas and electric current consumed
(as shown by such meters and at the rates then charged by the furnishing public
utility); and any additional expense incurred by Sublandlord in keeping account
of electric current, gas, or water so consumed shall be paid by Subtenant, and
Subtenant agrees to pay Sublandlord such amount within ten (10) calendar days
after receipt of a reasonably detailed invoice for the same from Sublandlord.
Sublandlord agrees that if any other occupant of the Building shall require on a
per square foot basis, heating, air-conditioning, water, gas, or electric
current materially in excess of that usually furnished or supplied to the
Sublease Premises on a per square foot basis, and such utilities are not
separately metered for the Sublease Premises, Sublandlord shall in good faith
adjust Subtenant's Proportionate Share of such water, gas or electric bill for
the Building to reflect the allocation to such other occupant of the Building of
the excessive consumption.
Neither Landlord nor Sublandlord shall be liable for and Subtenant shall
not be entitled to any abatement or reduction of Rent by reason of any
interruption or failure of utility services to the Sublease Premises when such
interruption or failure is caused by accident, breakage, repair, strikes,
lockouts, or other labor disturbances or labor disputes of any nature, or by any
other cause, similar or dissimilar, beyond the reasonable control of Sublandlord
or Landlord.
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12. TAXES.
A. Real Property Taxes. As Additional Rent and in accordance with Paragraph
4E of this Sublease, Subtenant shall pay to Sublandlord, or if Sublandlord so
directs, directly to Landlord or to the applicable tax collector ("Tax
Collector"), all Real Property Taxes relating to the Sublease Premises accruing
with respect to the Sublease Premises commencing on the Sublease Commencement
Date and throughout the Term. In the event the Sublease Premises leased
hereunder consist of only a portion of the entire tax parcel, Subtenant shall
pay to Sublandlord as they become due, pursuant to statements submitted to
Subtenant by Sublandlord, the Subtenant's Proportionate Share of such Real
Property Taxes for the Building and the Complex. If the tax billing pertains
100% to the Sublease Premises, and Sublandlord chooses to have Subtenant pay
said Real Property Taxes directly to the Tax Collector, then in such event it
shall be the responsibility of Subtenant to obtain the bills and pay, prior to
delinquency, the applicable Real Property Taxes pertaining to the Sublease
Premises, and failure to receive a bill for taxes and/or assessments shall not
provide a basis for cancellation of or non-responsibility for payment of
penalties for nonpayment or late payment by Subtenant. The term "Real Property
Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership of the Complex)
now or hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy assessments,
which are levied or assessed against, or with respect to the value, occupancy or
use of, all or any portion of the Complex (as now constructed or as may at any
time hereafter be constructed, altered, or otherwise changed) or Landlord's or
Sublandlord's interest therein; any improvements located within the Complex
(regardless of ownership); the fixtures, equipment and other property of
Landlord or Sublandlord, real or personal, that are an integral part of and
located in the Complex; or parking areas, public utilities, or energy within the
Complex; (ii) all area wide taxes, charges, levies or fees imposed by reason of
environmental regulation or other governmental control, including, but not
limited to, any taxes, charges, levies or fees related to on-site originated
Hazardous Materials contamination caused or contributed to by Subtenant's
Hazardous Materials Activities; and (iii) all costs and fees (including
reasonable attorneys' fees) incurred by Landlord or Sublandlord in reasonably
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax. If at any time during the Term the taxation or
assessment of the Complex prevailing as of the Sublease Commencement Date shall
be altered so that in lieu of or in addition to any Real Property Tax described
above there shall be levied, assessed or imposed (whether by reason of a change
in the method of taxation or assessment, creation of a new tax or charge, or any
other cause) an alternate or additional tax or charge (i) on the
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value, use or occupancy of the Complex or on Landlord's or Sublandlord's
interest therein or (ii) on or measured by the gross receipts, income or rentals
from the Complex, on Landlord's or Sublandlord's business of leasing the
Complex, or computed in any manner with respect to the operation of the Complex,
then any such tax or charge, however designated, shall be included within the
meaning of the term "Real Property Taxes" for purposes of this Sublease. If any
Real Property Tax is based upon property or rents unrelated to the Complex, then
only that part of such Real Property Tax that is fairly allocable to the Complex
shall be included within the meaning of the term "Real Property Taxes."
Notwithstanding the foregoing, the term "Real Property Taxes" shall not include
estate, inheritance, gift or franchise taxes of Landlord or Sublandlord or the
federal or state net income tax imposed on Landlord's or Sublandlord's income
from all sources or penalties incurred as a result of Landlord's or
Sublandlord's negligence, inability or unwillingness to make payments of, and/or
to file any tax or informational returns with respect to any Real Property Taxes
when due.
B. Taxes on Subtenant's Property.
(a) Subtenant shall be liable for and shall pay five (5) business days
before delinquency, taxes levied against any personal property or trade fixtures
placed by Subtenant in or about the Sublease Premises. If any such taxes on
Subtenant's personal property or trade fixtures are levied against Sublandlord
or Landlord, or Sublandlord's or Landlord's property or if the assessed value of
the Sublease Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Subtenant, and if Sublandlord
or Landlord, after written notice to Subtenant, pays the taxes based on such
increased assessment, which Sublandlord shall have the right to do regardless of
the validity thereof, but only under proper protest if requested by Subtenant,
Subtenant shall within ten (10) business days after demand, as the case may be,
repay to Sublandlord or Landlord the taxes so levied against Sublandlord or
Landlord, or the portion of such taxes resulting from such increase in the
assessment; provided that in any such event Subtenant shall have the right, in
the name of Sublandlord and with Sublandlord's full cooperation, but at no cost
or responsibility or liability of any type whatsoever to Sublandlord, to bring
suit in any court of competent jurisdiction to recover the amount of such taxes
on Subtenant's personal property and trade fixtures so paid under protest, and
any net amount so recovered shall belong to Subtenant.
(b) If the Subtenant improvements in the Sublease Premises, whether
installed, and/or paid for by Sublandlord or Subtenant and whether or not
affixed to the Building so as to become a part thereof, are assessed for Real
Property Tax purposes at a valuation higher than the valuation at which standard
office improvements in other space in the Complex are assessed, then the Real
Property Taxes levied against Landlord or Sublandlord or the Complex by reason
of such excess assessed valuation shall be deemed to be taxes levied against
personal property of Subtenant and shall be governed by the
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provisions of Paragraph 12B(a) above. If the records of the County Assessor are
available and sufficiently detailed to serve as a basis for determining whether
said Subtenant improvements are assessed at a higher valuation that standard
office improvements in other space in the Complex, such records shall be binding
on both the Sublandlord and the Subtenant. If the records of the County Assessor
are not available or sufficiently detailed to serve as a basis for making said
determination, the actual cost of construction shall be used. Sublandlord agrees
to exercise good faith efforts to apply such standards on an equivalent basis to
any other tenants of the Building whose tenant improvements may be assessed for
Real Property Tax purposes at a valuation higher than the valuation at which
standard office improvements in other space in the Complex are assessed.
13. LIABILITY INSURANCE. Subtenant, at Subtenant's expense, agrees to keep in
force during the Term a policy of commercial general liability insurance with
combined single limit coverage of not less than Five Million Dollars
($5,000,000) (which amount may be obtained through primary or umbrella coverage
or a combination of both) per occurrence for bodily injury and property damage
occurring in, on or about the Sublease Premises, the Building or the Complex,
including parking and landscaped areas. Such insurance shall be primary and
noncontributory as respects any insurance carried by Landlord or Sublandlord
with respect to all or any portion of the Complex, but may be provided under any
blanket policy maintained by Subtenant. The policy or polices effecting such
insurance shall name Sublandlord and Landlord as additional insureds, and shall
insure any liability of Sublandlord and Landlord, contingent or otherwise, as
respects acts or omissions of Subtenant, its agents, employees or invitees or
otherwise arising out of any conduct or transactions of any of said persons in
or about or concerning the Sublease Premises, including any failure of Subtenant
to observe or perform any of its obligations hereunder; shall be issued by an
insurance company admitted to transact business in the State of California; and
shall provide that the insurance effected thereby shall not be canceled, except
upon thirty (30) calendar days' prior written notice to Landlord and
Sublandlord. A certificate of insurance as to said policy shall be delivered to
Sublandlord (and, upon Sublandlord's request, to Landlord). If, during the Term,
in the considered opinion of Landlord's Lender, insurance advisor, or counsel,
the amount of insurance described in this Paragraph 13 is not adequate,
Subtenant agrees to increase said coverage to such reasonable amount as
Landlord's Lender, insurance advisor, or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE.
Subtenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and special equipment
installed and paid for by Subtenant within the Sublease Premises for the
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full replacement value thereof. The proceeds from any of such policies shall be
used for the repair or replacement of such items so insured.
Subtenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
15. REAL PROPERTY INSURANCE. Sublandlord's obligations with regard to real
property insurance shall be limited as provided in the last sentence of
Paragraph 5 above and shall not include any obligation of Sublandlord to carry
such insurance. As Additional Rent and in accordance with provisions of
Paragraph 4E of this Sublease, Subtenant shall pay to Sublandlord (or
Sublandlord's agent if so directed in writing by Sublandlord), the Subtenant's
Proportionate Share of (i) the deductibles (as provided in such insurance
policies to the extent allocable to damage occurring to the Building or the
Common Area and subject to the provisions of Paragraph 25) on insurance claims
and (ii) the annual cost of the policy or policies of insurance covering loss or
damage to the Sublease Premises, Building and Complex (excluding routine
maintenance and repairs and incidental damage or destruction caused by accidents
or vandalism for which Subtenant may be responsible under Paragraph 9) in the
amount of the full replacement value thereof, providing protection against those
perils included within the classification of "all risks" insurance and flood
and/or earthquake insurance, if available, plus a policy of rental income
insurance in the amount of one hundred (100%) percent of twelve (12) months' (i)
Basic Rent and (ii) Additional Rent (collectively "Insurance Cost"). Subtenant
understands that (i) the annual Insurance Cost is subject to change each year
(or more frequently if new policies are added or existing policies are
replaced), and (ii) Subtenant shall be responsible for paying the Subtenant's
Proportionate Share for the Complex and the Building of said total Insurance
Cost, including any such increased rates relating thereto as a result of any
Excess Insurance Cost (as defined below) resulting from Subtenant's particular
use of the Sublease Premises or Complex. If the Insurance Cost increases due to
Subtenant's particular use and/or some other Subtenant's particular use of the
Sublease Premises or Complex ("Excess Insurance Cost"), (i) Subtenant shall be
obligated to pay one hundred percent (100%) of said Excess Insurance Cost
related to Subtenant's particular use, (ii) Subtenant shall not be obligated to
pay any portion of said Excess Insurance Cost related to some other tenant's
particular use, and (iii) Subtenant shall be obligated to pay Subtenant's
Proportionate Share of the total Insurance Cost (excluding any Excess Insurance
Cost to be paid by Subtenant or any other tenant(s) pursuant to clauses (i) or
(ii) above. Sublandlord agrees to exercise good faith efforts to apply such
standards on an equivalent basis to any other tenants of the Complex whose use
causes the total Insurance Cost to be disproportionately increased. Except as
otherwise expressly provided in this Sublease, Subtenant shall have no interest
in nor any right to the
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proceeds of any insurance procured by Sublandlord or Landlord for the Sublease
Premises or the Complex.
Sublandlord and Subtenant do each hereby release each other and Landlord,
to the extent of Subtenant's insurance coverage and any insurance coverage of
Landlord or Sublandlord, from any liability for loss or damage caused by fire or
any of the extended coverage casualties included in the releasing party's
insurance policies, irrespective of the cause of such fire or casualty;
provided, however, that if the insurance policy of either releasing Party
prohibits such waiver, then this waiver shall not take effect until consent to
such waiver is obtained. If such waiver is so prohibited, the insured Party
affected shall promptly notify the other Party thereof.
16. INDEMNIFICATION. Neither Landlord nor Sublandlord shall be liable to
Subtenant and Subtenant hereby waives all claims against Landlord or Sublandlord
for any injury to or death of any person or damage to or destruction of property
in or about the Sublease Premises by or from any cause whatsoever, including,
without limitation, gas, fire, oil electricity or leakage of any character from
the roof, walls, basement or other portion of the Sublease Premises except to
the extent that the same results primarily from the willful misconduct or active
negligence of Landlord or Sublandlord (and in such case, the exception to such
limitation or liability shall apply only to such party to whom such willful
misconduct or active negligence is attributable), or Landlord's or Sublandlord's
(as applicable) agents, servants, employees, invitees or contractors of which
negligence Sublandlord or Landlord (as applicable) has knowledge and reasonable
time to correct. Except as to injury to persons or damage to property to the
extent arising from the willful misconduct or the active negligence of
Sublandlord or Landlord, their respective agents, servants, employees, invitees,
or contractors (as applicable), Subtenant shall hold Sublandlord and Landlord
harmless from and defend Sublandlord and Landlord against any and all expenses,
including reasonable attorneys' fees, in connection therewith, arising out of
any injury to or death of any person or damage to or destruction of property
occurring in, on or about the Sublease Premises, or any part thereof, from any
cause whatsoever, occurring during the Term.
17. COMPLIANCE. Subtenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect relating to the Sublease Premises; with
the requirements of any board of fire underwriters or other similar body now or
hereafter constituted; and with any direction or occupancy certificate issued
pursuant to law by any public officer; provided, however, that no such failure
shall be deemed a breach of the provisions of this Sublease if Subtenant,
immediately upon notification, commences to remedy or rectify said failure. The
judgment of any court of competent jurisdiction or the admission of Subtenant in
any action against
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Subtenant, whether either Landlord or Sublandlord be a party thereto or not,
that Subtenant has violated any such law, statute, ordinance or governmental
rule, regulation, requirement, direction or provision, shall be conclusive of
that fact as between Sublandlord and Subtenant. Subtenant shall, at its sole
cost and expense, comply with any and all requirements pertaining to said
Sublease Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering the
Sublease Premises.
18. LIENS. Subtenant shall keep the Sublease Premises and the Complex free
from any liens arising out of any work performed, materials furnished or
obligations incurred by Subtenant. In the event that Subtenant shall not, within
eight (8) calendar days following notice of the imposition of any such lien,
cause the same to be released of record, Landlord and Sublandlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as it shall deem
proper or as required by the Landlord under the Master Lease, including payment
of the claim giving rise to such lien. All sums paid by Landlord or Sublandlord
or both for such purpose, and all expenses incurred by them in connection
therewith, shall be payable to Sublandlord by Subtenant on demand with interest
at the Bank of America Prime Rate (or equivalent thereof) of interest plus five
percent (5%) per annum, but in no event greater then the maximum rate of
interest permitted by applicable law. Notwithstanding anything to the contrary
in this Paragraph 18, Subtenant shall have the right to provide Sublandlord with
a bond in the amount of the Lien in a form satisfactory to Sublandlord and to
contest the Lien, in which event Sublandlord shall not be entitled to pay or
discharge the Lien, provided the Lien is removed within sixty (60) calendar days
from the date the Lien is filed.
19. ASSIGNMENT AND SUBLETTING.
A. Intentionally Deleted.
B. Except as otherwise expressly provided in Paragraphs D, E and F below,
Subtenant shall not assign, transfer, or hypothecate the leasehold estate under
this Sublease, or any interest therein, and shall not sub-sublet the Sublease
Premises, or any part thereof, or any right or privilege appurtenant thereto, or
suffer any other person or entity to occupy or use the Sublease Premises, or any
portion thereof, without, in each case, the prior written consent of Sublandlord
which consent may be withheld in Sublandlord's sole discretion (and will be
further subject to obtaining Landlord's written consent to the extent required
under the Master Lease). Whether or not the consent of Sublandlord is required
to any assignment, transfer, or sub-subletting Subtenant is required to pay when
received to Sublandlord, as Additional Rent, one hundred percent (100%) of all
excess rents and/or additional consideration (including any Management Fee) as
and when collected by Subtenant from its assignees, transferees, or sub-
subtenants
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to the extent in excess of the Rent payable by Subtenant to Sublandlord as
allocable to the portion of the Sublease Premises being sub-subleased or
assigned (collectively "Excess Rent", with Excess Rent to be calculated after
deducting any Additional Rent or other payments or expenses being reasonably
incurred by Subtenant under this Sublease or any items of additional rent
payable by any sub-subtenants under any sub-sublease (and if a gross sub-
sublease, after deducting the reasonable cost of such additional rent items to
the extent included in the base rent under any such sub-sublease), including by
way of example, any payments by Subtenant or any sub-subtenants relating to
utility services, janitorial services, security services and the costs of taxes,
insurance, maintenance and repair); provided, however, that before paying to
Sublandlord the remainder of such Excess Rent, Subtenant shall first be entitled
to recover from such Excess Rent the amount of any reasonable leasing
commissions (not to exceed $100,000 as to any transaction) paid by Subtenant to
third parties not affiliated with Subtenant, which leasing commission shall be
amortized on a straight line basis (without interest) over the stated term of
the sub-subletting and deducted on such amortized basis from the respective
installments of Excess Rent otherwise payable to Sublandlord. Subtenant shall,
by not less than twenty (20) calendar days written notice, advise Sublandlord of
its intent to assign or transfer Subtenant's interest in the Sublease or to sub-
sublet the Sublease Premises or any portion thereof for all or any part of the
Term. Within twenty (20) calendar days after receipt of said written notice,
Sublandlord may, by giving written notice to Subtenant of its election (i) as to
an assignment, elect to terminate this Sublease and (ii) as to a proposed sub-
sublease, elect to terminate this Sublease as to the portion of the Sublease
Premises so proposed to be sub-subleased, with such termination to be effective
as of the later of the date specified in Subtenant's notice for such proposed
assignment or sub-sublease to take effect or the date by which Sublandlord is
required to respond under this provision as to granting or withholding its
consent. Sublandlord shall respond to any request for its consent to any
assignment or sub-sublease within thirty (30) calendar days following written
request therefore. In the event any proposed assignment or sub-sublease is
approved by Sublandlord, no such permitted assignee or sub-sublessee shall
assign or transfer this Sublease, either in whole or in part, or sub-sublet the
whole or any part of the Sublease Premises, without also having obtained the
prior written consent of Sublandlord unless such consent is not required
pursuant to the provisions of Paragraphs D, E or F below (and will be further
subject to obtaining Landlord's written consent to the extent required under the
Master Lease). A consent of Sublandlord to one assignment, transfer,
hypothecation, sub-subletting, occupation or use by any other person shall not
release Subtenant from any of Subtenant's obligations hereunder or be deemed to
be a consent to any subsequent similar or dissimilar assignment, transfer,
hypothecation, sub-subletting, occupation or use by any other person. Any such
assignment, transfer, hypothecation, sub-subletting, occupation or use without
such consent shall be void and shall constitute a breach of this Sublease by
Subtenant. Except as otherwise expressly
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provided to the contrary in this Sublease, the leasehold estate under this
Sublease shall not, nor shall any interest therein, be assignable for any
purpose by operation of law without the written consent of Sublandlord. As a
condition to its consent, Sublandlord shall require Subtenant to pay all
reasonable expenses incurred by Sublandlord or Landlord or both in connection
with the assignment or sub-subletting, and Sublandlord shall require Subtenant's
assignee or transferee to assume in writing all of the obligations under this
Sublease thereafter accruing and for Subtenant to remain liable to Sublandlord
under the Sublease. Any sub-subtenant from Subtenant shall only have the right
to enter into a sub-sublease with Sublandlord's and Landlord's written approval.
C. Notwithstanding the approval standard set forth in Paragraph B above,
Sublandlord agrees that it shall not unreasonably withheld its consent to any
proposed sub-sublease by Subtenant of a full floor (but not a partial floor) of
the Sublease Premises to any third party otherwise reasonably acceptable to
Sublandlord pursuant to a form of sub-sublease otherwise reasonably acceptable
to Sublandlord, but (i) such does not affect the requirement to also obtain the
prior consent of Landlord to the extent required by the provisions of the Master
Lease and (ii) Sublandlord shall also have the termination right as to the
Sublease with respect to the portion of the Sublease Premises proposed to be so
sub-subleased as provided in Paragraph B above.
D. Conditioned upon Sublandlord being provided by Subtenant with ten days
prior written notice of each such sub-subletting together with a copy of the
sub-sublease, Subtenant may, without the need for the prior written consent of
Sublandlord to such sub-subletting, on up to five (5) occasions during the Term
of this Sublease (but with never more than two such sub-sublettings being in
effect concurrently), sub-sublet a portion of the Sublease Premises to any
affiliate of Subtenant or to a company with which Subtenant has a material
business relationship (an "Affiliate"). Any such sub-subletting to an Affiliate
shall otherwise be on all of the terms and conditions of this Sublease,
including the obligation to obtain any required consent of Landlord thereto and
the obligation to pay to Sublandlord any Excess Rent, except that Sublandlord's
right of recapture as set forth in Paragraph B above shall not apply.
E. Conditioned upon Sublandlord being provided by Subtenant with ten days
prior written notice of any such allowed co-occupancy, the requirement for
Sublandlord's prior written consent is waived by Sublandlord as to Subtenant
allowing up to ten thousand (10,000) square feet of space in the Sublease
Premises to be shared with third parties with whom Subtenant has a business
relationship ("Strategic Parties"), provided that: (a) no sub-sublease is
executed and no rent is paid in connection with such use; (b) no additional
partitioning or demising walls are to be built in connection with such use; and
(c) such use of the Sublease Premises by such Strategic Parties shall not
significantly increase the foot traffic or wear and tear on the Sublease
Premises.
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F. Conditioned upon Sublandlord being provided by Subtenant with ten days
prior written notice of any such proposed assignment and reasonably appropriate
information as to the financial condition of the contemplated assignee, the
requirement for Sublandlord's prior written consent is waived by Sublandlord as
to Subtenant assigning this Sublease to any entity into which Subtenant is
merging or which entity will be acquiring all or substantially all of the assets
of Subtenant (a "Permitted Successor"), provided that such Permitted Successor
will have a net worth immediately thereafter equal to or greater than $43
million.
G. Any assignment of this Sublease to a Permitted Successor, a sub-
subletting of a portion of the Sublease Premises to an Affiliate or the use of a
permitted portion of the Sublease Premises by a Strategic Party in compliance
with the terms and conditions of this Sublease is herein referred to
collectively as a "Permitted Transfer".
20. SUBORDINATION AND MORTGAGES.
A. In the event Landlord's or Sublandlord's title or leasehold interest is
hereafter encumbered by a deed of trust upon the interest of Landlord or
Sublandlord in the land and buildings upon which the Sublease Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender") to
Landlord or Sublandlord, Subtenant shall, at the request of Landlord,
Sublandlord or Lender, execute in writing an agreement (in form reasonably
acceptable to Lender), subordinating its rights under this Sublease (subject to
customary nondisturbance protection in favor of Subtenant) to the lien of such
deed of trust, or, if so requested, agreeing that the lien of Lender's deed of
trust shall be or remain subject and subordinate to the rights of Subtenant
under this Sublease. Notwithstanding any such subordination, Subtenant's
possession under this Sublease shall not be disturbed if Subtenant is not in
default beyond any applicable cure period and so long as Subtenant shall pay all
Rent and observe and perform all of the provisions set forth in this Sublease,
and any subordination agreement shall reflect the agreement of the Lender to the
same and the Lender's agreement upon any foreclosure to recognize this Sublease.
B. Subtenant hereby agrees that Subtenant shall not encumber or pledge (in
any manner whatsoever) its leasehold interest in the Sublease Premises,
including the Interior Improvements and/or Subtenant's equipment.
21. ENTRY BY LANDLORD. Sublandlord reserves for itself and for Landlord, and
shall at all reasonable times after at least twenty four (24) hours notice
(except in emergencies or in case Landlord exercises its right of entry under
the Master Lease) have, together with Landlord, the right to enter the Sublease
Premises to inspect them; to perform any services to be provided by Landlord or
Sublandlord hereunder; to make repairs or provide any services to a contiguous
tenant(s) (if any); to submit the
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Sublease Premises to prospective purchasers, mortgagees or tenants; to post
notices of non-responsibility; and to alter, improve or repair the Sublease
Premises or other parts of the Building and any portion of the Complex, all
without abatement of Rent, and may erect scaffolding and other necessary
structures in or through the Sublease Premises where reasonably required by the
character of the work to be performed; provided, however that the business of
Subtenant shall be interfered with to the least extent that is reasonably
practical. Any entry to the Sublease Premises by Landlord or Sublandlord for the
purposes provided for herein shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Sublease
Premises or an eviction, actual or constructive, of Subtenant from the Sublease
Premises or any portion thereof.
22. BANKRUPTCY AND DEFAULT.
A. Default: The commencement of a bankruptcy action or liquidation action
or reorganization in bankruptcy action or insolvency action or an assignment of
or by Subtenant for the benefit of creditors, or any similar action undertaken
by Subtenant, or the insolvency of Subtenant, shall, at Sublandlord's option,
constitute a breach of this Sublease by Subtenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Subtenant's unexpired Sublease, the trustee
or receiver shall notify Sublandlord in writing of its election within thirty
(30) calendar days after any order for relief in any liquidation action or
within thirty (30) calendar days after the commencement of any action.
Within thirty (30) calendar days after the court approval of the
assumption of this Sublease, the trustee or receiver shall cure (or provide
adequate assurance to the reasonable satisfaction of Sublandlord that the
trustee or receiver shall cure) any and all previous defaults under the
unexpired Sublease and shall compensate Sublandlord for all actual pecuniary
loss and shall provide adequate assurance of future performance under said
Sublease to the reasonable satisfaction of Sublandlord. Adequate assurance of
future performance, as used herein, includes, but shall not be limited to: (i)
assurance of source and payment of Rent, and other consideration due under this
Sublease; and (ii) assurance that the assumption or assignment of this Sublease
will not breach any provision in any agreement relating to the above described
Sublease Premises.
Nothing contained in this Paragraph shall affect the exercising of any
right of Sublandlord to refuse to accept an assignment upon commencement or in
connection with a bankruptcy, liquidation, reorganization or insolvency action
or an assignment of Subtenant for the benefit of creditors or other similar act.
Nothing contained in this Sublease shall be construed as giving or granting or
creating an equity in the Sublease Premises to Subtenant. In no event shall the
leasehold estate under this Sublease, or any interest therein, be assigned by
voluntary or involuntary bankruptcy proceeding without
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the prior written consent of Sublandlord and, if required by the provisions of
the Master Lease, Landlord. In no event shall this Sublease or any rights or
privileges hereunder be an asset of Subtenant under any bankruptcy, insolvency
or reorganization proceedings.
The failure of Subtenant to perform or honor any covenant, condition
or representation made under this Sublease shall constitute a default hereunder
by Subtenant upon expiration of the appropriate grace period hereinafter
provided. Subtenant shall have a period of five (5) calendar days following the
date of written notice from Sublandlord within which to cure any default in the
payment of Rent when otherwise due hereunder. Subtenant shall have a period of
fifteen (15) calendar days following the date of written notice from Sublandlord
within which to cure any other default by Subtenant under this Sublease;
provided, however, that if the nature of Subtenant's failure is such that more
than fifteen (15) calendar days is reasonably required to cure the same,
Subtenant shall not be in default so long as Subtenant commences performance
within such fifteen (15) calendar day period and thereafter prosecutes the same
to completion, provided that in no event shall the cure period of Subtenant
hereunder exceed the respective cure period afforded to Sublandlord under the
Master Lease. Upon an uncured default of this Sublease by Subtenant,
Sublandlord shall have the following rights and remedies in addition to any
other rights or remedies available to Sublandlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code
Section 1951.2 including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid Rent for the balance of the Term
after the time of award exceeds the amount of rental loss for the same period
that Subtenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2.
(b) The rights and remedies provided by California Civil Code Section
1951.4 which allows Sublandlord to continue the Sublease in effect and to
enforce all of its rights and remedies under this Sublease, including the right
to recover Rent as it becomes due, for so long as Sublandlord does not terminate
Subtenant's right to possession; acts of maintenance or preservation, efforts to
relet the Sublease Premises, or the appointment of a receiver upon Sublandlord's
initiative to protect its interest under this Sublease shall not constitute a
termination of Subtenant's right to possession.
(c) The right to terminate this Sublease by giving notice to Subtenant
in accordance with applicable law.
(d) To the extent provided by law, the right and power to enter the
Sublease Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Subtenant, and to sell such property and apply such proceeds therefrom
pursuant to applicable California law. Sublandlord may from time to time sublet
the Sublease Premises or any part thereof for such term or terms (which may
extend beyond the Term) and at such
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Rent and such other terms as Sublandlord in its reasonable sole discretion may
deem advisable, with the right to make alterations and repairs to the Sublease
Premises. Upon each subletting, (i) Subtenant shall be immediately liable to pay
Sublandlord, in addition to any other indebtedness other than Rent due from
Subtenant to Sublandlord hereunder, the reasonable cost of such subletting (to
the extent allocable to the remaining Term), including, but not limited to,
reasonable attorneys' fees, and any real estate commissions actually paid, and
the cost of such reasonable alterations and repairs incurred by Sublandlord and
the amount, if any, by which the Rent hereunder allocable to the subleased
premises for the period of such subletting (to the extent such period does not
exceed the Term) exceeds the amount to be paid as Rent by the subtenant for the
subleased premises for such period or (ii) at the option of Sublandlord, rents
received from such subletting shall be applied first to payment of indebtedness
other than Rent due hereunder from Subtenant to Sublandlord; second, to the
payment of any costs of such subletting and of such alterations and repairs;
third, to payment of Rent due and unpaid hereunder; and the residue, if any,
shall be held by Sublandlord and applied in payment of future Rent as the same
becomes due hereunder. If Subtenant has been credited with any Rent to be
received by such subletting under option (i) and such Rent shall not be promptly
paid to Sublandlord by the subtenant(s), or if such rentals received from such
subletting under option (ii) during any month be less than that to be paid
during the month by Subtenant hereunder, Subtenant shall pay any such deficiency
to Sublandlord. Such deficiency shall be calculated and paid monthly. No taking
possession of the Sublease Premises by Sublandlord shall be construed as an
election on its part to terminate this Sublease unless a written notice of such
intention be given to Subtenant. Notwithstanding any such subletting without
termination, Sublandlord may at any time thereafter elect to terminate this
Sublease for such then uncured previous default.
(e) The right to have a receiver appointed for Subtenant upon
application by Sublandlord in accordance with applicable laws, to take
possession of the Sublease Premises and to apply any rental collected from the
Sublease Premises and to exercise all other rights and remedies granted to
Sublandlord pursuant to this Paragraph 22.
B. Intentionally Deleted.
23. ABANDONMENT. Subtenant shall not vacate or abandon the Sublease Premises
at any time during the Term (except that Subtenant may vacate so long as it pays
Rent, provides a security service to check the Sublease Premises during normal
business hours from Monday to Friday, and otherwise performs its obligations
hereunder) and if Subtenant shall abandon, vacate or surrender said Sublease
Premises, or be dispossessed by the process of law, or otherwise, any personal
property belonging to Subtenant and left on the Sublease Premises shall be
deemed to be abandoned, at the option of Sublandlord.
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24. HAZARDOUS MATERIALS. Sublandlord and Subtenant agree as follows with
respect to the existence or use of "Hazardous Materials" (as defined herein) on,
in, under or about the Sublease Premises and the real property located beneath
said Sublease Premises and the Common Area (hereinafter collectively referred to
as the "Property"):
A. As used herein, the term "Hazardous Materials" shall mean any material,
waste, chemical, mixture or byproduct which is or hereafter is defined, listed
or designated under Environmental Laws (defined below) as a pollutant, or as a
contaminant, or as a toxic or hazardous substance, waste or material, or any
other hazardous, toxic, biohazardous, or radioactive material, waste, chemical,
mixture or byproduct, or which is listed, regulated or restricted by any
Environmental Law (including, without limitation, petroleum hydrocarbons or any
distillates or derivatives or fractions thereof, polychlorinated biphenyls, or
asbestos). As used herein, the term "Environmental Laws" shall mean any
applicable Federal, State of California or local government law (including
common law), statute, regulation, rule, ordinance, permit, license, order,
requirement, agreement, or approval, or any determination, judgment, directive,
or order of any executive or judicial authority at any level of Federal, State
of California or local government (whether now existing or subsequently adopted
or promulgated) relating to pollution or the protection of the environment,
ecology, natural resources, or public health and safety.
B. Subtenant shall obtain Sublandlord's written consent, which may be
withheld in Sublandlord's sole discretion (and shall be additionally subject to
Landlord's right of review and consent under the Master Lease), prior to the
occurrence of any Subtenant's Hazardous Materials Activities (defined below);
provided, however, that Sublandlord's consent shall not be required for normal
use in compliance with applicable Environmental Laws of customary cleaning,
household and office supplies, such as mild cleaners and other common janitorial
supplies, lubricants and copier toner and personal use items, such as cigarettes
and/or medicines. As used herein, the term "Subtenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage, disposal,
treatment, transportation, discharge, or emission of any Hazardous Materials on,
in, beneath, to, from, at or about the Property, in connection with Subtenant's
use of the Property, or by Subtenant or by any of Subtenant's agents, employees,
contractors, vendors, invitees, visitors or its future subtenants or assignees.
Subtenant agrees that any and all Subtenant's Hazardous Materials Activities
shall be conducted in strict, full compliance with applicable Environmental Laws
at Subtenant's expense, and shall not result in any contamination of the
Property or the environment. Subtenant agrees to provide Sublandlord with prompt
written notice of any spill or release of Hazardous Materials at the Sublease
Premises during the term of the Sublease of which Subtenant becomes aware (and
of any spill or release of Hazardous Materials anywhere at the Property if the
spill or release is caused by Subtenant or by any of Subtenant's agents,
employees, contractors, vendors, invitees, visitors or its future subtenants or
assignees), and further agrees to provide
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Sublandlord with prompt written notice of any material violation of
Environmental Laws in connection with Subtenant's Hazardous Materials Activities
of which Subtenant becomes aware. If Subtenant's Hazardous Materials Activities
involve Hazardous Materials other than normal use of customary cleaning,
household and office supplies and personal use items, Subtenant also agrees at
Subtenant's expense: (i) to install such Hazardous Materials monitoring, storage
and containment devices as required by the governing agencies associated with
any Subtenant's Hazardous Materials Activities or otherwise specifically
required by any governing agency of Subtenant; (ii) provide Sublandlord with a
written inventory of such Hazardous Materials (other than customary cleaning,
household and office supplies and personal use items), including an update of
same each year upon the anniversary date of the Sublease Commencement Date
("Anniversary Date"); and (iii) on each Anniversary Date, retain a qualified
environmental consultant, reasonably acceptable to Sublandlord, to evaluate
whether Subtenant is in compliance with all applicable Environmental Laws with
respect to Subtenant's Hazardous Materials Activities (with Subtenant, at its
expense, to submit to Sublandlord a report from such environmental consultant
which discusses the environmental consultant's findings within two (2) months
following the respective Anniversary Date). Subtenant, at its expense, shall
promptly undertake and complete any and all steps necessary, and in full
compliance with applicable Environmental Laws, to fully correct any and all
problems or deficiencies identified by the environmental consultant relating to
Subtenant's Hazardous Materials Activities, and promptly provide Sublandlord
with documentation of all such corrections.
C. Prior to termination or expiration of the Sublease, Subtenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which came to be located at the Property as a result of Subtenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Subtenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) if applicable, obtaining from the local Fire Department or
other appropriate governmental authority with jurisdiction a written concurrence
that closure has been completed in compliance with applicable Environmental
Laws. Subtenant shall promptly provide Sublandlord with copies of all claims,
notices, work plans, data and reports prepared, received or submitted in
connection with any such closure activities.
D. If either Landlord or Sublandlord, in its reasonable discretion,
believes that the Property has become contaminated as a result of Subtenant's
Hazardous Materials Activities, either Sublandlord or Landlord or both, in
addition to any other rights they may have under the Master Lease, this Sublease
or under Environmental Laws or other laws, may enter upon the Property and
conduct inspection, sampling and analysis, including but not limited to
obtaining and analyzing samples of soil and groundwater, for the purpose of
determining the nature and extent of such contamination. Subtenant shall
promptly
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reimburse Landlord or Sublandlord or both (as applicable) for the costs
of such an investigation, including but not limited to reasonable attorneys'
fees, Landlord, or Sublandlord or both, incur with respect to any such
investigation that discloses Hazardous Materials contamination for which
Subtenant is liable under this Sublease. Subtenant shall not perform any
invasive sampling, testing, or drilling to identify the presence of any
Hazardous Materials at the Property without Sublandlord's prior written consent
and also obtaining any Landlord's consent required under the Master Lease.
Subtenant shall promptly provide Sublandlord with copies of any claims, notices,
work plans, data and reports prepared, received or submitted in connection with
any sampling, testing or drilling performed pursuant to the preceding sentence.
E. Subtenant shall indemnify, defend (with legal counsel acceptable to
Sublandlord or Landlord or both, as applicable, whose consent to counsel shall
not unreasonably be withheld by Sublandlord, subject to Landlord's consent
rights under the Master Lease) and hold harmless Sublandlord and Landlord, their
employees, assigns, successors, members, and agents from and against any and all
claims (including, but not limited to, third party claims from a private party
or a government authority), liabilities, obligations, losses, causes of action,
demands, governmental proceedings or directives, fines, penalties, expenses,
costs (including but not limited to reasonable attorneys', consultants' and
other experts' fees and costs), and damages, which arise from or relate to: (i)
Subtenant's Hazardous Materials Activities; (ii) any Hazardous Materials
contamination caused by Subtenant prior to the Sublease Commencement Date; or
(iii) the breach of any obligation of Subtenant under this Paragraph 24
(collectively, "Subtenant's Environmental Indemnification"). Subtenant's
Environmental Indemnification shall include but is not limited to the obligation
to promptly and fully reimburse Sublandlord and Landlord (as applicable) for
losses in or reductions to rental income, and diminution in fair market value of
the Property caused by or resulting from any such indemnified matter.
Subtenant's Environmental Indemnification shall further include but is not
limited to the obligation to diligently and properly implement to completion, at
Subtenant's expense, any and all environmental investigation, removal,
remediation, monitoring, reporting, closure activities, or other environmental
response action (collectively, "Response Actions") associated with any such
indemnified matter. Subtenant shall promptly provide Sublandlord (and, if
requested by Sublandlord, Landlord) with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.
F. It is agreed that the Subtenant's responsibilities related to Hazardous
Materials will survive the expiration or termination of this Sublease and that
Landlord or Sublandlord or both may obtain specific performance of Subtenant's
responsibilities under this Paragraph 24. It is further acknowledged by the
Parties that Exhibit E to the Master Lease reflects certain Hazardous Materials
that Sublandlord
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and its environmental consultants, during their earlier analysis, inspection and
testing of the Complex and certain adjacent property, determined existed on or
about the Complex ("Existing Contamination"). The Parties agree that
notwithstanding anything to the contrary in this Sublease, Subtenant's
Environmental Indemnification shall not extend to, and Subtenant shall have no
responsibility, liability or indemnification obligation to Landlord or
Sublandlord under this Sublease or at law for, any Hazardous Materials present
in, on, under or about the Complex or any adjacent property as of the date of
this Sublease Agreement or for any Hazardous Materials in groundwater that may
hereafter migrate to or under the Complex, including any such Existing
Contamination (including, but not limited to, in the event of any release of any
such Existing Contamination or any migration of any such Existing Contamination
onto or off of the Complex), except to the extent, and then only to the extent,
to which Subtenant may contribute to any such Existing Contamination or may
cause any such Existing Contamination to be released or migrate.
25. DESTRUCTION. In the event the Sublease Premises and/or Common Area is
destroyed in whole or in part from any cause, except for routine maintenance and
repairs and incidental damage and from destruction caused from vandalism and
accidents for which Subtenant is responsible under Paragraph 9, neither
Sublandlord nor Subtenant shall have the right to terminate this Sublease except
upon the occurrence of limited circumstances provided hereinbelow, and
Sublandlord shall be obligated to rebuild or restore the Sublease Premises
and/or Common Area so damaged or destroyed to its condition prior to the damage
or destruction at Sublandlord's sole cost and expense, with the exception that
Subtenant shall be solely responsible for all or such portion of the deductible
amount of any insurance coverage as is then reasonably allocable to the
rebuilding or restoration of the Sublease Premises under the insurance policies
then being carried by Sublandlord pursuant to Paragraph 15 hereof. In the event
any other portion of the Complex is damaged or destroyed (such as either of the
other two buildings in the Complex), Sublandlord shall not be obligated
hereunder to rebuild or restore the same, but shall be obligated to cause such
other portion of the Complex to be restored to a safe and aesthetically pleasing
condition.
Subtenant shall be entitled to a reduction in Rent after the occurrence of
such damage and while such rebuilding or restoration is being made in the
proportion that the area of the Sublease Premises rendered untenantable by such
damage or destruction bears to the total area of the Sublease Premises.
Sublandlord shall within thirty (30) days after the occurrence of such damage or
destruction, provide Subtenant with Sublandlord's (or Landlord's) contractor's
estimate of the time required to complete the rebuilding or restoration of the
Sublease Premises or the Common Area. If it is reasonably estimated by
Sublandlord's (or Landlord's) contractor that the rebuilding or restoration will
exceed four (4) months following the date of the occurrence of such damage or
destruction, then either Sublandlord or Subtenant
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shall have the right to terminate this Sublease by giving written notice to the
other within fifteen (15) days following receipt of Sublandlord's estimated time
to rebuild or restore the Sublease Premises and/or the Common Area.
Notwithstanding anything herein to the contrary, Sublandlord's obligation to
rebuild or restore the Sublease Premises shall be limited to the Tenant
Improvements as described in the plans listed in Exhibit C and shall expressly
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exclude any restoration of (i) any alterations or additions made by Subtenant to
the Sublease Premises or (ii) any Subtenant's trade fixtures, equipment,
inventory or merchandise, the responsibility for which shall be upon Subtenant.
Notwithstanding the foregoing, (a) in the event that all or any portion of
the Sublease Premises and/or the Common Area is damaged or destroyed within the
final six (6) months of the Term of this Sublease to such an extent that
Subtenant cannot reasonably use the Sublease Premises for its intended purpose,
then either Sublandlord or Subtenant shall have the right to terminate this
Sublease, to be exercised by written notice to the other, delivered, if at all,
within thirty (30) days following the date of such damage or destruction.
If Sublandlord elects to terminate this Sublease as provided herein versus
rebuilding and/or restoring said damage or destruction as provided for herein,
Subtenant shall not be liable for paying any insurance deductible related to the
repair of such damage or destruction provided Subtenant did not cause such
damage or destruction; if Subtenant elects to terminate this Sublease as
provided herein, Subtenant shall be obligated to pay any insurance deductible
related to the repair of the Sublease Premises; and if this Sublease is not
terminated, Subtenant shall be obligated to pay any insurance deductible related
to the repair of the Sublease Premises.
Unless this Sublease is terminated pursuant to the foregoing provisions,
this Sublease shall remain in full force and effect. The Parties hereby
expressly waive the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4 of the California Civil Code.
In the event Landlord rather than Sublandlord is obligated to repair any
particular damage or destruction under the provisions of the Master Lease, then
Sublandlord's obligation as to repairing such damage or destruction shall be
limited as provided under the last sentence of Paragraph 5.
26. EMINENT DOMAIN. If all or any part of the Sublease Premises shall be taken
by any public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Sublease shall terminate as to any portion of
the Sublease Premises so taken or conveyed on the date when title vests in the
condemner, Landlord and Sublandlord shall be entitled to any and all payment,
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such taking or conveyance, and Subtenant shall have no
claim against Landlord or Sublandlord or otherwise for the value of any
unexpired Term. Notwithstanding the foregoing sentence, any compensation
specifically
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awarded Subtenant for loss of business (including severance damages associated
with Subtenant's other business activities), Subtenant's trade fixtures,
personal property, moving costs or loss of goodwill, shall be and remain the
property of Subtenant.
If (A) (i) any action or proceeding is commenced for the taking of the
Sublease Premises or any material part thereof, or if Landlord or Sublandlord is
advised in writing by any entity or body having the right or power of
condemnation of its intention to condemn the Sublease Premises or any material
part thereof, or (ii) any of the foregoing events occur with respect to the
taking of any material portion of the Common Area which make it impractical for
Sublandlord to continue to lease the Sublease Premises to Subtenant with
reasonable Common Area amenities, and (B) Landlord or Sublandlord shall decide
to discontinue the use and operation of the Building, or decide to demolish or
materially redesign and rebuild the Building, then, in any of such events
Sublandlord shall have the right to terminate this Sublease by giving Subtenant
written notice thereof and this Sublease shall then terminate on the date
preceding the date of conveyance.
In the event of such a partial taking or conveyance of the Sublease
Premises, if the portion of the Sublease Premises taken or conveyed is so
substantial that the Subtenant can no longer reasonably conduct its business,
Subtenant shall have the privilege of terminating this Sublease within sixty
(60) calendar days following the date of such taking or conveyance, upon written
notice to the Sublandlord of its intention so to do, and upon giving of such
notice this Sublease shall terminate on the last day of the calendar month next
following the month in which such notice is given, upon payment by Subtenant of
the Rent (apportioned in such manner as provided in the following paragraph)
from the date of such taking or conveyance to the date of termination.
If a portion of the Sublease Premises and/or Complex be taken by
condemnation or conveyance in lieu thereof and neither Sublandlord nor Subtenant
shall terminate this Sublease as provided herein, this Sublease shall continue
in full force and effect as to the part of the Sublease Premises not so taken or
conveyed and the recipient of the award shall restore the Sublease Premises
and/or Complex to the extent reasonably practicable, and the Rent herein shall
be apportioned as of the date of such taking or conveyance so that thereafter
the Rent to be paid by Subtenant shall be in the ratio that the area of the
portion of the Sublease Premises not so taken or conveyed bears to the total
area of the Sublease Premises prior to such taking.
27. SALE OR CONVEYANCE BY SUBLANDLORD. In the event of a sale or conveyance of
the interest of Sublandlord in this Sublease, upon written assumption by the
successor in interest of the obligations and liabilities under this Sublease,
the transferor shall thereby be released from any then current and any further
liability upon any of the terms, covenants or conditions (express or implied)
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herein contained in favor of Subtenant, and in such event, insofar as such
transfer is concerned, Subtenant agrees to look solely to the responsibility of
the successor in interest of such transferor in and to the Sublease Premises and
this Sublease. This Sublease shall not be affected by any such sale or
conveyance, and Subtenant agrees to attorn to the successor in interest of such
transferor.
28. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of
Sublandlord in this Sublease is encumbered by a deed of trust or other financing
instrument, and such interest is acquired by the Lender or any third party
through judicial foreclosure or by exercise of a power of sale at private
trustee's foreclosure sale, Subtenant hereby agrees to attorn to the purchaser
at any such judicial foreclosure or foreclosure sale and to recognize such
purchaser as the Sublandlord under this Sublease. In the event the lien of the
deed of trust securing the loan from a Lender to Sublandlord is prior and
paramount to this Sublease, this Sublease shall nonetheless continue in full
force and effect for the remainder of the unexpired Term, at the same Rental
herein reserved and upon all the other terms, conditions and covenants herein
contained.
29. HOLDING OVER. Any holding over by Subtenant after expiration or other
termination of the Term with the written consent of Sublandlord delivered to
Subtenant shall not constitute a renewal or extension of the Sublease or give
Subtenant any rights in or to the Sublease Premises except as expressly provided
in this Sublease. Any holding over after the expiration or other termination of
the Term, with the consent of Sublandlord, shall be construed to be a tenancy
from month to month, on the same terms and conditions herein specified insofar
as applicable except that the monthly Basic Rent shall be increased to an amount
equal to one hundred fifty (150%) percent of the monthly Basic Rent required
during the last month of the Term.
30. CERTIFICATE OF ESTOPPEL. Subtenant and/or Sublandlord shall at any time
upon not less than ten (10) calendar days prior written notice from the other
Party execute, acknowledge and deliver to the requesting Party a statement in
writing (i) certifying that this Sublease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Sublease, as so modified, is in full force and effect) and the date to
which the Rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the Party's knowledge, any uncured defaults
on the part of the requesting Party hereunder, or specifying such defaults, if
any, are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Sublease Premises, or any assignee
or subtenant of the Sublease Premises. A requested Party's failure to deliver
such statement within such time shall be conclusive upon the requested Party
that this Sublease is in full
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force and effect, without modification except as may be represented by the
requesting Party; that there are no uncured defaults in the requesting Party's
performance, and that not more than one month's Rent has been paid in advance.
Sublandlord and Subtenant further agree to appropriately and timely respond to
the respective reasonable inquiries of the auditors of the other Party, but such
response shall be limited to the respective knowledge of the responding Party.
31. RELATIONSHIP TO MASTER LEASE. This Sublease is subject to all of the terms
and conditions of the Master Lease. Subtenant hereby agrees to be bound by and
observe for the benefit of Landlord and Sublandlord, each and all of the
conditions and restrictions to be observed by Sublandlord, as Tenant, under the
Master Lease. Without limiting the foregoing, Subtenant shall not commit or
permit to be committed on the Sublease Premises any act or omission which shall
violate any term, covenant or condition of the Master Lease. Any default notice
or other notice of any obligation (including any billing or invoice for any
Subtenant's Rent or any other expense or charge falling due under this Sublease)
from Landlord which is received by Subtenant (whether directly or as a result of
being forwarded by Sublandlord to Subtenant) shall constitute such notice from
Sublandlord to Subtenant under this Sublease without the need for any additional
notice from Sublandlord. This Sublease is and shall be at all times subject and
subordinate to the Master Lease, including all rights of Landlord thereunder.
Without limiting the generality of the foregoing, in the event of termination of
Sublandlord's interest under the Master Lease for any reason (including, without
limitation, upon the occurrence of any casualty or condemnation pertaining to
the Sublease Premises), this Sublease shall terminate coincidentally therewith
without any liability of Sublandlord to Subtenant (except as may be otherwise
provided in Paragraph 2.A above).
32. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of this
Sublease to be performed or observed by Subtenant shall be performed or observed
by Subtenant at Subtenant's sole cost and expense and without any reduction of
Rent. If Subtenant shall fail to pay any sum of money, or other Rent, required
to be paid by it hereunder or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
fifteen (15) calendar days after written notice thereof by Sublandlord or
Landlord, Sublandlord or Landlord, without waiving or releasing Subtenant from
any obligation of Subtenant hereunder, may, but shall not be obliged to, make
any such payment or perform any such other term or covenant on Subtenant's part
to be performed. All sums so paid by Sublandlord or Landlord and all necessary
costs of such performance by Sublandlord or Landlord together with interest
thereon at the Interest Rate, but in no event greater then the maximum rate of
interest permitted by applicable law, from the date of such payment or
performance by Sublandlord or
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Landlord, shall be paid (and Subtenant covenants to make such payment) to
Sublandlord or Landlord, as applicable, within ten (10) business days after
demand by Sublandlord or Landlord, and Sublandlord or Landlord shall have (in
addition to any other right or remedy of Sublandlord or Landlord) the same
rights and remedies in the event of nonpayment by Subtenant as in the case of
failure by Subtenant in the payment of Rent hereunder.
33. ATTORNEYS' FEES.
A. In the event that either Sublandlord or Subtenant should bring suit
for the possession of the Sublease Premises, for the recovery of any sum due
under this Sublease, or because of the breach of any provision of this Sublease,
or for any other relief against the other Party hereunder, then all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing Party
therein shall be paid by the other Party, which obligation on the part of the
other Party shall be deemed to have accrued on the date of the commencement of
such action and shall be enforceable whether or not the action is prosecuted to
judgment.
B. In addition to any other rights of Landlord or Sublandlord under this
Sublease to defense or indemnification by Subtenant, should Landlord or
Sublandlord be named by a third party as a defendant in any suit brought by such
third party principally against Subtenant in connection with or arising out of
Subtenant's alleged improper or tortious conduct associated with the Sublease
Premises or the Complex, Subtenant shall pay to Sublandlord Sublandlord's or
Landlord's (to the full extent applicable) reasonable costs and expenses
incurred in such suit, including reasonable attorney's fees (but Sublandlord
agrees to cooperate with Subtenant in Subtenant's efforts to provide a joint
defense to such suit or otherwise to minimize the costs of such defense or the
settlement of such suit.)
34. WAIVER. The waiver by either Party or by Landlord of any other Party's
failure to perform or observe any term, covenant or condition herein contained
to be performed or observed by such waiving Party shall not be deemed to be a
waiver of such term, covenant or condition or of any subsequent failure of the
Party failing to perform or observe the same or any other such term, covenant or
condition therein contained, and no custom or practice which may develop between
the Parties hereto during the Term shall be deemed a waiver of, or in any way
affect, the right of either Party to insist upon performance and observance by
the other Party in strict accordance with the terms hereof.
35. NOTICES. All notices, demands, requests, advices or designations which may
be or are required to be given by either Party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by
Sublandlord to Subtenant shall be sufficiently given, made or delivered if
personally
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delivered to or sent to Subtenant by United States certified or registered mail,
postage prepaid or by a reputable same day or overnight courier service
addressed to Subtenant: (i) prior to the later of the Sublease Commencement Date
or Subtenant's actual occupancy of the Sublease Premises, at 167-2nd Avenue, San
Mateo, California 94401, Attention: Chief Financial Officer (and an additional
copy shall be sent to Subtenant at 167-2nd Avenue, San Mateo, California 94401,
Attention: Legal Department) and (ii) after the later of the Sublease
Commencement Date or Subtenant's actual occupancy of the Sublease Premises, at
2000 Charleston Road, Mountain View, California 94039, Attention: Chief
Financial Officer (and an additional copy shall be sent to Subtenant at 2000
Charleston Road, Mountain View, California 94039, Attention: Legal Department).
All notices, demands, requests, advices or designations by Subtenant to
Sublandlord shall be sufficiently given, made or delivered if personally
delivered to or sent to Sublandlord by United States certified or registered
mail, postage prepaid, or by a reputable same day or overnight courier service
addressed to Sublandlord at its offices at 1900 Charleston Road, Mountain View,
California 94039, Attn: Manager Corporate Real Estate (and an additional copy
shall be sent to Sublandlord at 1900 Charleston Road, Mountain View, California
94039, Attention: Executive Vice President and General Counsel). All notices,
demands, requests, advices or designations by either Party to Landlord shall be
sufficiently given, made or delivered if personally delivered to or sent to
Landlord by United States certified or registered mail, postage prepaid, or by a
reputable same day or overnight courier service addressed to Landlord at its
offices at c/o Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa
Clara, CA 95054 Attn: Richard T. Peery.
Each notice, request, demand, advice or designation referred to in this
Paragraph shall be deemed received on the date of receipt or refusal to accept
receipt at the address so provided for notices if sent in the manner herein
provided, as the case may be. Either Party shall have the right, upon ten (10)
calendar days written notice to the other, to change its address for notices as
provided herein; however, Sublandlord shall send Subtenant notices to only one
address (provided that in the event of a notice of default, Sublandlord will
provide an additional copy of such notice of default to such one additional
addressee as may be duly notified by Subtenant to Sublandlord in accordance with
the provisions of this Sublease).
36. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by either Subtenant or Sublandlord does not constitute a reservation
of or option for a Sublease, and this instrument is not effective as a sublease
or otherwise until its execution and delivery by both Sublandlord and Subtenant.
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37. DEFAULT BY LANDLORD. Sublandlord shall not be in default unless Sublandlord
fails to perform obligations required of Sublandlord within a reasonable time,
but in no event earlier than thirty (30) calendar days after written notice by
Subtenant to Sublandlord and to the holder of any first mortgage or deed of
trust or other financing instrument encumbering the interest of Sublandlord in
this Sublease whose name and address shall have theretofore been furnished to
Subtenant in writing, specifying wherein Sublandlord has failed to perform such
obligations; provided, however, that if the nature of Sublandlord's obligations
is such that more than thirty (30) calendar days are required for performance,
then Sublandlord shall not be in default if Sublandlord commences performance
within such thirty (30) calendar day period and thereafter diligently prosecutes
the same to completion.
38. CORPORATE AUTHORITY. Each individual executing this Sublease on behalf of
Subtenant or Sublandlord represents and warrants that he or she is duly
authorized to execute and deliver this Sublease on behalf of said corporation in
accordance with the by-laws of said corporation and that this Sublease is
binding upon said corporation in accordance with its terms. Subtenant shall,
within five (5) calendar days after execution of this Sublease, deliver to
Sublandlord a certified copy of the resolution of the Board of Directors of said
corporation authorizing or ratifying the specific execution of this Sublease by
the individual executing said Sublease. In lieu of said corporate resolution,
Subtenant may, at Subtenant's option, provide Sublandlord with an outside legal
opinion stating that the parties executing this Sublease on behalf of Subtenant
are authorized to do so by the Board of Directors.
39. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Subtenant and all successors and assigns to Subtenant as respects
Subtenant's interest under this Sublease, covenant and agree that, in the event
of any actual or alleged failure, breach or default hereunder by Sublandlord or
by Landlord under the Master Lease:
A. the sole and exclusive remedy against Landlord shall be against
Landlord's interest in the Building;
B. no officer, director, shareholder, constituent member or partner of
Sublandlord or Landlord (as applicable) shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the limited
liability company or partnership);
C. no service of process shall be made against any officer, director,
shareholder, constituent member or partner of Sublandlord or Landlord (as
applicable) (except as may be necessary to secure jurisdiction of the limited
liability company or partnership);
D. no officer, director, shareholder, constituent member or partner of
Sublandlord or Landlord (as applicable) shall be required to answer or otherwise
plead to any service of process;
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E. no judgment will be taken against any officer, director, shareholder,
constituent member or partner of Sublandlord or Landlord (as applicable);
F. any judgment taken against any officer, director, shareholder,
constituent member or partner of Sublandlord or Landlord (as applicable) may be
vacated and set aside at any time without hearing;
G. no writ of execution will ever be levied against the assets of any
officer, director, shareholder, constituent member or partner of Sublandlord or
Landlord (as applicable); and
H. these covenants and agreements are enforceable by Sublandlord and
Landlord and also by any officer, director, shareholder, constituent member or
partner of Sublandlord or Landlord.
Subtenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in this
Sublease or imposed by statute or at common law with respect to this Sublease.
40. SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Sublease Premises or any exterior windows of the Sublease Premises without
the written consent of Sublandlord (and the consent of Landlord if required by
the provisions of the Master Lease) first had and obtained and Sublandlord shall
have the right, if Subtenant shall fail to have obtained such consent, to remove
any such sign, placard, picture, advertisement, name or notice to and at the
expense of Subtenant. If Subtenant is allowed to print or affix or in any way
place a sign in, on, or about the Sublease Premises, upon expiration or other
sooner termination of this Sublease, Subtenant at Subtenant's sole cost and
expense shall both remove such sign and repair all damage in such a manner as to
restore all aspects of the appearance of the Sublease Premises to the condition
prior to the placement of said sign.
All approved signs or lettering on any outside doors or walls of the
Building shall be printed, painted, affixed or inscribed at the expense of
Subtenant by a person approved of by Sublandlord or Landlord.
Subtenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Sublease Premises.
Subject to obtaining Sublandlord's prior approval to the same, Subtenant
shall have the right, at its expense (i) to affix decals co-existent with decals
of Sublandlord on each of the doors to the Building, provided such decals are of
a similar size and at a corresponding location to the decals of Sublandlord, and
(ii) to erect appropriate signage reflecting the name of Subtenant on the common
monument sign intended to be installed to reflect the names of occupants (as
distinguished from ALZA Plaza signage) at one of the two driveway entrances to
the Complex (at either Charleston Road or Amphitheatre Parkway); provided that
the size, graphics and content of such sign shall be subject to all applicable
laws, the
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obtaining of any required permits and the prior written consent of Sublandlord,
not to be unreasonably withheld, and Subtenant's signage shall be subordinate in
size and location to the signage on such monument sign identifying Sublandlord's
occupancy. Further, Sublandlord agrees to apply for, and use commercially
reasonable efforts to obtain, any and all permits, variances or other
governmental approvals necessary for the ability to install a total of two
monument signs (one at an entrance to each of the Charleston Road and
Amphitheatre Parkway driveways to the Complex). If the required governmental
approvals are obtained, Subtenant shall have the right to erect appropriate
signage on the common monument signs at both driveways to the Complex, subject
to the foregoing terms of this Sublease. In addition, subject to Sublandlord's
prior approval of the design and location, Subtenant shall have the right to
install at Subtenant's expense, appropriate signage in the lobby of the Building
and directional signage near the Building. No exterior signage on the Building
by Subtenant shall be permitted.
41. CONSENT. Whenever the consent or approval of Sublandlord is required
hereunder to any action or request of Subtenant, the granting or withholding of
such consent or approval shall be in the reasonable discretion of Sublandlord
unless another standard for such consent or approval is expressly stated herein.
If the Master Lease requires Landlord's consent to any such requested consent or
approval, then Landlord's denial or delay of its written consent or approval
shall constitute reasonable grounds for Sublandlord to withhold its consent or
approval to any requested action or request of Subtenant.
42. AUTHORITY TO EXECUTE. The parties executing this Sublease hereby warrant
and represent that they are properly authorized to execute this Sublease and
bind the Parties on behalf of whom they execute this Sublease and to all of the
terms, covenants and conditions of this Sublease as they relate to the
respective Parties hereto.
43. BROKERS. Upon the Sublease Commencement Date and the occupancy of the
Sublease Premises by Subtenant, and provided Sublandlord shall have received
from Subtenant (i) payment in full of the first month's Rent, (ii) an insurance
certificate evidencing Subtenant's liability insurance coverage as required
under Paragraph 13, (iii) an acceptable corporate authority as provided in
Paragraph 38, and (iv) the Security Deposit as provided in Paragraph 4.G,
Sublandlord shall pay a brokerage commission (i) to Kenmark Commercial, Inc. in
an amount equal to Three Dollars ($3.00) per gross rentable square foot of the
Sublease Premises as stated in the recitals to this Sublease and (ii) to CRESA
Partners LLC in an amount as required pursuant to a separate written agreement
between Sublandlord and CRESA Partners LLC (formerly known as Catalyst Real
Estate Group) (with Kenmark Commercial, Inc. and CRESA Partners LLC hereinafter
collectively referred to as "Brokers"). Each of Sublandlord and Subtenant
45
<PAGE>
represents and warrants to the other that no party other than Brokers is
entitled to any real estate brokerage or salesperson commission or any finders'
fee as a result of such Party's action in connection with the leasing of the
Sublease Premises to Subtenant. Each of Sublandlord and Subtenant shall save,
protect, defend, indemnify and hold the other harmless from and against any
claim to the contrary by any salesperson, broker or finder based upon such
salesperson's, broker's or finder's relationship with such Party.
44. FIRST RIGHT OF REFUSAL EXCLUSIVE TO VIADOR. In the event (i) Viador, Inc.
is the Subtenant under this Sublease and has not itself subleased to any third
party any portion of the Sublease Premises, except in connection with Permitted
Transfers and (ii) provided Subtenant has not earlier committed a default
pursuant to Paragraph 22 ("Bankruptcy and Default") of this Sublease (i.e.
Subtenant received notice of a default under this Sublease and the applicable
cure period expired without Subtenant having cured such default during the cure
period), in any of the terms, covenants, and conditions of this Sublease, then
Subtenant, during the Term and subject to the provisions hereinafter contained,
shall have the First Right of Refusal to sublease from Sublandlord any other
portion of the Building then being separately offered by Sublandlord for
sublease (hereinafter referred to as "First Right Space") upon the terms and
conditions set forth herein. Such right of first refusal shall not apply with
respect to (a) any proposed sublease where the term of such sublease would
commence during the last twelve months of the Term of this Sublease or (b) any
proposed sublease to an affiliate of Sublandlord or to any party which has a
material business relationship with Sublandlord, or (c) any proposed sublease
which is in conjunction with a contemplated assignment of Sublandlord's interest
in the Master Lease or in any of the Other Leases or a subleasing by Sublandlord
to such party of all or any portion of the Other Buildings. Except as otherwise
provided above, in the event Sublandlord receives an offer during the Term of
this Sublease from a third party to sublease all or any portion of the First
Right Space at a rental and upon terms and conditions which are satisfactory to
Sublandlord, Sublandlord shall, prior to being unconditionally bound to a lease
agreement with a third party for said First Right Space, offer said First Right
Space to Subtenant at the same rental and other economic terms and conditions
upon which Sublandlord is willing to sublease said First Right Space to the
third party. Subtenant shall have ten days after receipt of written notice of
said rental and other economic terms and conditions in which to accept said
rental and other economic terms and conditions in writing; provided, however,
that if such proposal contains any unusually restrictive provision (such as a
use clause that would restrict Subtenant from the uses permitted by Subtenant
hereunder) such provision shall be inapplicable to Subtenant in the event of the
acceptance of the rental and other economic terms and conditions so offered. In
the event Subtenant rejects or fails to accept said rental and other economic
terms and conditions so presented by Sublandlord
46
<PAGE>
within such ten day period, and Sublandlord proceeds within one hundred eighty
days thereafter to sublease such First Right Space to such third party (a "First
Right Sublessee") at a base rent that is not less than ninety-five percent (95%)
of the base rent presented to Subtenant, then Subtenant shall have no further
First Right of Refusal for such First Right Space (but if Sublandlord does not
so sublease the First Right Space, then such First Right of Refusal shall be
reinstated as to such First Right Space). The failure of Subtenant to exercise
such First Right of Refusal to sublease any First Right Space shall not preclude
Subtenant from having such First Right of Refusal apply again in accordance with
the other conditions of this Paragraph if (i) the First Right Space shall later
again be offered by Sublandord for sublease in accordance with the provisions of
this Paragraph (but such First Right of Refusal shall be subordinate to any
extension of the former sublease or any new sublease that may theretofore or
thereafter be committed to by, or negotiated between, Sublandlord and such First
Right Sublessee as to the First Right Space, or (ii) any other portion of the
Building (other than such First Right Space that was subleased to the First
Right Sublessee) is later offered by Sublandord for sublease in accordance with
the provisions of this Paragraph. In the event Subtenant so accepts said rental
and other economic terms and conditions, Subtenant must execute a sublease
agreement for said First Right Space within twenty (20) days from receipt of a
sublease agreement from Sublandlord which conforms to such accepted terms and
which embodies the other terms and conditions of this Sublease. If Subtenant
fails to execute such a sublease agreement within such twenty day period,
Subtenant shall have no further First Right of Refusal for said First Right
Space, and Sublandlord shall be free to execute a sublease with a third party
without further obligation to Subtenant with respect to said First Right Space
so offered to Subtenant. The First Right of Refusal of Subtenant is granted for
the benefit of Viador, Inc. only, and may not be assigned or transferred by
Subtenant.
45. MISCELLANEOUS AND GENERAL PROVISIONS.
A. Use of Building Name. Subtenant shall not, without the written
consent of Sublandlord, use the name of the Building for any purpose other than
as the address of the business conducted by Subtenant in the Sublease Premises.
B. Choice of Law; Severability. This Sublease shall in all respects be
governed by and construed in accordance with the laws of the State of California
in the jurisdiction of Santa Clara County. If any provision of this Sublease
shall be invalid, unenforceable or ineffective for any reason whatsoever, all
other provisions hereof shall be and remain in full force and effect.
C. Definition of Terms. The term "Sublease Premises" includes the space
leased hereby and any improvements now or hereinafter installed therein or
attached thereto. The term "Sublandlord" or any pronoun used in place thereof
includes the plural as well as the singular and the successors and
47
<PAGE>
assigns of Sublandlord. The term "Landlord" or any pronoun used in place thereof
includes the plural as well as the singular and the successors and assigns of
Landlord. The term "Subtenant" or any pronoun used in place thereof includes the
plural as well as the singular and individuals, firms, associations,
partnerships and corporations, and their and each of their respective heirs,
executors, administrators, successors and permitted assigns, according to the
context hereof, and the provisions of this Sublease shall inure to the benefit
of and bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. The term
"including" means including, but not limited to. Words used in any gender
include other genders. If there be more than one Subtenant the obligations of
Subtenant hereunder are joint and several. The paragraph headings of this
Sublease are for convenience of reference only and shall have no effect upon the
construction or interpretation of any provisions hereof.
D. Time Of Essence. Time is of the essence of this Sublease and of each and
all of its provisions.
E. Quitclaim. At the expiration or earlier termination of this Sublease,
Subtenant shall execute, acknowledge and deliver to Sublandlord or Landlord (as
applicable), within ten (10) calendar days after written demand from Sublandlord
or Landlord to Subtenant, any quitclaim deed or other document reasonably
required by any reputable title company, licensed to operate in the State of
California, to remove the cloud or encumbrance created by this Sublease on the
Property and/or Complex of which the Sublease Premises are a part.
F. Incorporation of Prior Agreements; Amendments. This Sublease along with
any exhibits and attachments hereto constitutes the entire agreement between
Sublandlord and Subtenant relative to the leasing by Subtenant from Sublandlord
of the Sublease Premises and this Sublease and the exhibits and attachments may
be altered, amended or revoked only by an instrument in writing signed by both
Sublandlord and Subtenant. Sublandlord and Subtenant agree hereby that all prior
or contemporaneous oral agreements between and among themselves and their agents
or representatives relative to the leasing of the Sublease Premises are merged
in or revoked by this Sublease.
G. Recording. Subtenant shall not record this Sublease or any short form
memorandum hereof.
H. Diminution of Light, Air or View. Subtenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord or Sublandlord or another) shall
in any way affect this Sublease, entitle Subtenant to any reduction of Rent
hereunder or result in any liability of Landlord or Sublandlord to Subtenant.
48
<PAGE>
46. AGREEMENT NOT TO CAPITALIZE REPAIRS AND/OR REPLACEMENTS TO PREMISES, ETC.
Sublandlord's willingness to enter into this Sublease with Subtenant under the
terms stated herein and for the benefit of Subtenant and for valuable
consideration, which is hereby acknowledged, the following agreement between the
Parties affects the interpretation of the foregoing provisions of this Sublease
or any rights that might otherwise exist in favor of Subtenant at law with
respect to the leasing of the Sublease Premises from Sublandlord.
Subtenant understands and acknowledges that this Sublease shall be deemed
and construed to be a "net lease", and during the Term Subtenant shall pay
Sublandlord the Rent and other payments due hereunder, free of any charges,
assessments, impositions, expenses or deductions of any kind and without
abatement, deduction or setoff unless otherwise expressly provided in this
Sublease, and Sublandlord shall not be expected or required as a result of the
relationship between Sublandlord and Subtenant created by this Sublease, to be
obligated to make any payment to or on behalf of Subtenant or be under any other
obligation to Subtenant hereunder except to the extent specifically provided in
this Sublease, and Subtenant agrees to pay all costs and expenses of every kind
which may arise or become due from Subtenant under the provisions of this
Sublease during the Term. Except as expressly provided in this Sublease,
neither Sublandlord not Landlord shall be liable and/or responsible under the
provisions of this Sublease for contributing any money for any maintenance,
repairs and/or replacement of the Sublease Premises or any part thereof and as
to the maintenance, repairs or replacement obligations of Subtenant under this
Sublease, Subtenant waives any and all rights it might otherwise have to assert
that such expenditure is more appropriately a Landlord or Sublandlord
expenditure which should be treated as a capital expenditure and/or to be
amortized as an item of Additional Rent hereunder. Nothing herein shall be
deemed to relieve Sublandlord from its express obligations under this Sublease,
including, but not limited to, Sublandlord's obligations under Paragraph 25
hereof in the event of damage or destruction, or under the various provisions
herein applicable to Sublandlord's maintenance and repair obligations with
respect to the Common Area or with respect to the Building.
By placing their initials below, both Parties acknowledge their
understanding and their agreement with the provisions of this Paragraph.
Initials: _________ Initials: ___________
Subtenant Sublandlord
47. SECURITY CARD ACCESS SYSTEM; LOBBY RECEPTIONIST & SECURITY. Sublandlord has
installed a security card access system at the principal entrances to the
Building for the control of after hours access to the Building and to the
underground parking garage. Sublandlord shall, upon receipt of a
49
<PAGE>
list of Subtenant's employees to be located in the Sublease Premises, provide
Subtenant with a reasonable number of security cards (which may be coded to
reflect the respective employee issued such card) sufficient for the use by such
identified employees of Subtenant. Subtenant shall promptly notify Sublandlord
of any termination of employment of any of such employees so that their security
card can be coded to no longer afford such employee access to the Building.
Subtenant shall be responsible for returning all such security cards to
Sublandlord upon the expiration of the Term or earlier termination of this
Sublease. Subtenant shall pay to Sublandlord its reasonably estimated cost of
(i) purchasing the security cards, (ii) replacing any lost or unreturned
security cards and (iii) programming any computers as to the employees and
access to be afforded to the employees of Subtenant by such security cards.
Sublandlord may decide to, but is not obligated to, have a lobby receptionist or
security guard at the existing reception area in the ground floor common area
during the hours the Building is open to public access, to control access during
such hours to the Building. Subtenant may also position a lobby receptionist at
the existing reception area. Sublandlord may also decide to, but is not
obligated to, have an after hours security guard or security service patrol the
Building or the Complex. The operation and programming of the security card
system and the expense of any lobby receptionist, security guards or security
services, shall be included as part of the expenses referred to in Paragraph 10
for which Subtenant shall be responsible for Subtenant's Proportionate Share;
provided, however, that Subtenant shall have the right, in Subtenant's sole
discretion, upon thirty (30) days prior written notice to Sublandlord, to hire a
reputable independent security guard service for purposes of patrolling the
interior of the Sublease Premises in lieu of the security services previously
supplied by Sublandlord, in which case Subtenant's Proportionate Share of
Sublandlord's cost of providing security services to the Project shall be
appropriately adjusted to reflect the savings realized by Sublandlord by
Subtenant's providing at its expense such interior security services to the
Sublease Premises. Notwithstanding the foregoing, Sublandlord shall have no
liability to Subtenant in the event of the failure of the security system, lobby
receptionist, security guard or security services either to work as contemplated
or to avoid any improper or unlawful entry or improper or unlawful acts of any
then current or former employees of Subtenant or Sublandlord or any third
parties.
50
<PAGE>
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed and delivered
this Sublease as of the day and year first written above.
SUBLANDLORD: SUBTENANT:
ALZA CORPORATION VIADOR INC.
a Delaware corporation a Delaware corporation
By /s/ Harold Fethe By /s/ Stan X. Wang
----------------------------- ----------------------------
Title: Senior VP of HR & Facilities Title: President and CEO
----------------------------- ------------------------
Harold Fethe Stan X. Wang
----------------------------- ------------------------
Type or Print Name Type or Print Name
51
<PAGE>
EXHIBIT A
MASTER LEASE
[SEE THE IMMEDIATELY FOLLOWING AGREEMENT]
1
<PAGE>
EXHIBIT B
DEPICTION OF THE SUBLEASE PREMISES
[SEE THE IMMEDIATELY FOLLOWING TWO PAGES]
1
<PAGE>
EXHIBIT C
DESCRIPTION OF THE PLANS REFLECTING THE TENANT IMPROVEMENTS
[SEE THE IMMEDIATELY FOLLOWING LISTINGS OF PLANS]
1
<PAGE>
EXHIBIT 10.12
STOCK PURCHASE AGREEMENT
Between
Mr. Andreas Zwimpfer, Riedsortstrasse 59, 6553 Weggis, Switzerland
Mr. David Keat, Doffstrasse 227, 5462 Siglistorf, Switzerland
Mr. Charles Fraefel, Maienweg 8, 5102 Rupperswil, Switzerland
Mr. Chula de Silva, Dorfstrasse 59, 5425 Schneisingen, Switzerland
Mr. Tim Moser, Bergackerstrasse 33, 6330 Cham, Switzerland
"the Sellers"
and
Viador, Inc., 167 Second Ave., San Mateo, CA, USA 94401
"the Purchaser"
WHEREAS Viador AG, Tafernstrasse 4, 5405 Baden-Dattwil, Switzerland (the
"Company"), has a share capital of CHF 100'000, divided into 100 registered
shares with a nominal value of CHF 1'000 each;
WHEREAS the Sellers together own all registered shares of the Company;
WHEREAS the Sellers intend to sell these shares to the Purchaser and the
Purchaser intends to purchase such shares from the Sellers;
<PAGE>
NOW, THEREFORE the parties have come to the following agreement.
ARTICLE 1
---------
Sale and Purchase of Shares,
----------------------------
Purchase Price
--------------
1.1 Sale and Purchase of Shares. Subject to the terms and conditions defined
---------------------------
herein, Sellers hereby agree to sell and transfer to Purchaser and
Purchaser agrees to buy from the Sellers, all of their respective rights,
title and interest in and to 100 registered shares of the Company with a
nominal value of CHF 1'000 each.
1.2 Purchase Price. The purchase price amounts to USD 20'000 per share, i.e.
--------------
USD 2'000'000 (United States Dollars two million) for all the shares sold
pursuant to art. 1.1 of this Agreement.
The purchase price shall be paid as follows:
(a) On the Closing Date, Purchaser shall pay to each of the Sellers a total sum
of USD 1'000'000 (United States Dollars one million) allocated between and
amongst the respective Sellers as set forth in Exhibit 1.2.a.
-----
(b) At any time after the Closing Date that Purchaser, at its sole discretion
may so elect, but no later than three Business Days (as defined in art. 1.5
of this Agreement) following the first anniversary of the Closing Date (the
"Payment Date"), the Purchaser shall deliver to each Seller either of the
following: (i) such number of registered shares in the Purchaser that,
based on the twenty
<PAGE>
days average NASDAQ closing price of Purchaser's stock for the twenty days
period ending three Business Days prior to the Payment Date, corresponds to
the amount in United States Dollars as set forth in Exhibit 1.2.b next to
-------------
such Seller's name (the "Future Shares"), it being understood that any
fractions of Future Shares below one shall be paid out in cash to the
respective Seller or, (ii) the actual net amount of United States Dollars
as set forth in Exhibit 1.2.b. Purchaser's election to make said payment by
-------------
delivery of Future Shares or by cash as set forth herein, shall be within
Purchaser's sole discretion. Should Purchaser by the Payment Date neither
have delivered the Future Shares nor paid the amount provided for under
this article 1.3 (b), then Purchaser shall exclusively be entitled and
shall exclusively be obliged to effect the cash payment as provided for
under this article 1.3 (b). In such an event the Purchaser shall, in
addition, pay an interest rate of twelve (12) percent per year on the
amount due (including interest accrued thereon pursuant to article 1.3),
such interest being due as from the Payment Date.
If the Purchaser is no longer listed on NASDAQ or some equivalent stock ex-
change and/or if a third party gains control over the Purchaser, the
Purchaser shall no longer hand over the Future Shares to the Sellers as
provided for by this art. 1.2 (b) but shall, within 10 days after such
event pay to the Sellers the amount that is set forth in Exhibit 1.2b. A
------------
third party gains control over the Purchaser in the sense of this article
1.2 (b) if it, alone or in a concerted action with others, directly or
indirectly, acquires at least fifty percent of all the shares in the
Purchaser or appoints at least half of the Purchaser's board members.
1.3 Interest on Amounts Owing. Purchaser shall pay six percent (6%) interest
per annum on all amounts owing to Sellers. Payment of such interest shall
be by the same means, and subject to the same terms, conditions and
limitations,
<PAGE>
set forth in art. 1.2, 1.2(a) and 1.2(b) herein. Interest shall be payable
from the first day following the Closing Date and shall be calculated based
on a 365 days calendar year. There shall be no prepayment penalty.
1.4 Notice of Payment Date. Purchaser shall give notice of the Payment Date to
Sellers no later than twenty Business Days preceding the Payment Date.
1.5 Business Days. For purposes of this Agreement a Business Day shall mean any
other day than a Saturday, a Sunday or a day on which commercial banks in
the State of California are required or authorized to be closed by the law
of the State of California or by U.S. Federal Law.
ARTICLE 2
---------
Closing
-------
2.1 Closing Date of Transaction. The transaction described in this Agreement
---------------------------
shall be consummated at the offices of Baker & McKenzie, at Zollikerstrasse
225 in Zurich, on January 20, 2000. The date at which the transaction
described in this Agreement is to be consummated shall hereinafter be
referred to as the "Closing Date".
2.2 Transfer of Shares and Payment of Purchase Price.
------------------------------------------------
a) On the Closing Date, Sellers shall deliver to Purchaser:
- 100 registered shares of the Company with a nominal value of CHF 1'000
each, endorsed in blank;
- an unanimous written resolution of the Company's Board of Directors
<PAGE>
consenting to the transfer of these shares to the Purchaser and the re-
gistration of the Purchaser as sole shareholder in the Company's share
register;
- the share register of the Company in which the Purchaser has been
registered as shareholder for the amount of shares purchased;
- letters of resignation of the Company's directors in accordance with
art. 5 of this Agreement.
b) On the Closing Date, Purchaser shall pay a net amount of USD 1'000'000
(United States Dollars one million) to be used as payment to Sellers in
frac-tions indicated next to each Seller's name in Exhibit 1.2a. On the
------------
Closing Date, Purchaser, directly or indirectly as it may decide in its
sole discretion, shall transfer USD 1'000'000 to a trust account of
Sellers' Swiss Counsel Baker & McKenzie at UBS AG in Zurich-Bellevue,
account No. 225-P2718045.5 for further distribution to the Sellers in
accordance with Exhibit 1.2a. For purposes of this Article 2.2 the payment
by Purchaser shall be effected and completed upon arrival of USD 1'000'000
net in the UBS trust account. Purchaser shall then have met all of its
obligations under this art. 2.2b and shall have no responsibility for the
further transfer of the respective amounts each of the Sellers.
c) If Purchaser elects to transfer its registered shares, in lieu of cash, as
set forth in Art. 1.2(b), no later than three Business Days following the
first anniversary of the Closing Date, the Purchaser shall
- deliver to each of the Sellers a copy of an unanimous written resolution
of the Purchaser's board of directors consenting to the transfer of these
<PAGE>
shares to the Sellers and the registration of the Sellers as
Shareholders in the Purchaser's share register;
- deliver to each of the Sellers a copy of the respective entries in the
share register of the Purchaser in which the Sellers have been
registered as Shareholders for the amount of shares they receive
pursuant to art. 1.2 (b).
- deposit with a bank or broker, to be designated by each of the Sellers
in accordance with art. 2.3 of this Agreement, such number of Future
Shares as this Seller is entitled to pursuant to art. 1.2 (b). Such
delivery may, within the sole discretion of the Purchaser, be effected
through physical delivery of share certificates or in book entry form.
- deliver to each of the Sellers the opinion of Purchaser's counsel as
provided for under art. 4.5.
2.3 Designation of Accounts. In order to enable the Purchaser to effect, at its
sole discretion, the cash payment (which shall be effected through wire
transfer) or the delivery of Future Shares as provided for in art. 1.2(b)
hereof, each of the Sellers shall, no later than 20 Business Days following
the Closing Date, notify in writing to the Purchaser, (i) his bank account
to which any cash payment shall be made and (ii) his bank deposit and/or
brokerage account to which any delivery of Future Shares shall occur.
Each Seller may at any time, but no later than ten Business Days prior to
the first anniversary of the Closing Date and, in any event, no later than
ten Business Days after the Purchaser's notice of election in accordance
with article 1.2 (b), notify the Purchaser in writing of another bank
account and/or bank deposit and/or brokerage account.
<PAGE>
2.4 Right to Rescind the Agreement. Sellers may rescind this Agreement if the
------------------------------
amounts provided for in Exhibit 1.2b are not paid on the Closing Date as
provided for in art. 2.2b of this Agreement.
Purchaser may rescind this Agreement if the documents mentioned in art.
2.2.a of this Agreement are not remitted on the Closing Date.
ARTICLE 3
---------
Representations and Warranties of Sellers
-----------------------------------------
Sellers jointly and severally represent and warrant for the Company as follows
(articles 3.1 through 3.18):
3.1 Organization and Qualification. The Company is duly organized and validly
------------------------------
exists under the laws of Switzerland and has full right and authority to
own and to operate its properties and to engage in the business in which it
is now engaged. Exhibit 3.1 contains the Articles of Incorporation and
-----------
organizational regulations of the Company as in force on the Closing Date.
3.2 Capital Structure. As of the Closing Date, the Company has a share capital
-----------------
of CHF 100'000. No further capital, non-voting stock, convertible
securities or similar rights in the Company have been or will by the
Closing Date be created, issued, or agreed to be issued. All the shares
sold pursuant to art. 1.1 of this Agreement have been validly issued and
fully paid-in, and represent all ownership interest in the Company.
3.3 Ownership. As of the Closing Date, Sellers are the sole owners of and have
---------
<PAGE>
good and valid title to the shares sold in accordance with art. 1 of this
Agreement, free and clear of all liens, encumbrances, options, charges,
equities and claims arising from any privilege, pledge or security
arrangement. On the Closing Date Sellers have full right and capacity to
transfer and sell complete title to such shares.
Upon delivery of the documents mentioned in art. 2.2.a of this Agreement,
Purchaser will receive good and valid title to such shares, free and clear
of all liens, encumbrances or other rights of third parties.
3.4 Minutes of the Shareholders' Meetings and of the Board of Directors'
--------------------------------------------------------------------
Meetings. Exhibit 3.4 contains true copies of all the Minutes of
-------- -----------
Shareholders' Meetings and Directors Meetings of the Company. The Sellers
warrant that neither the shareholders' meeting nor the board of directors
of the Company have adopted any resolutions which are not recorded in these
minutes.
3.5 Financial Statements. Exhibit 3.5 contains the balance sheets and the
-------------------- -----------
profit and loss statement of the Company as of December 31, 1999. These
financial statements are in accordance with U.S. Generally Accepted
Accounting Principles and show a true and fair view of the financial
condition of the Company as of December 31, 1999.
In particular, on December 31, 1999 the Company had no more liabilities
(including contingent liabilities) than those recorded on the balance
sheets set forth, in Exhibit 3.5.
-----------
In particular, the Company has good and clear title, free of all liens
and/or other encumbrances whatsoever, to all assets listed on the balance
sheets set forth in Exhibit 3.5.
-----------
<PAGE>
3.6 Absence of Adverse Changes. Sellers represent and warrant that in the
--------------------------
period between December 31, 1999 and the Closing Date, the Company:
- has not suffered any adverse changes in their financial position or
assets or business;
- has conducted its business in the ordinary course and has not made any
unusual contracts, contract changes or commitments, and has not sold,
assigned or transferred any tangible or intangible assets other than in
the ordinary course of business;
- has not incurred any obligation or liability (absolute or contingent)
except current liabilities incurred in the ordinary course of business
and has not mortgaged, pledged or subjected to a lien or encumbrance any
of its tangible or intangible assets;
- has not suffered any damage, destruction or loss by fire or other
casualty;
- has not made any declaration, setting aside, or payment of any dividend
or any other distribution of profit, or any direct or indirect
redemption, purchase or other acquisition of any quotas or shares of the
Company;
- has not increased the total compensation payable to its employees, and
has not adopted any profit sharing plan, bonus plan or new pension or
benefit plan.
3.7 Permits and Authorizations. The Company has all the permits and authori-
--------------------------
<PAGE>
zations which are necessary to carry on its business. The fact that this
Agreement is executed and the transaction contemplated herein is
consummated will not lead to the automatic termination of such permits and
authorizations and will also not give rise to any right of the competent
authorities or other third parties to terminate such permits and
authorizations.
3.8 Claims and Litigation. As of the Closing Date, there are no actions, suits
---------------------
or proceedings pending or threatened or likely to be asserted against the
Company either in court or before any administrative board, agency or
commission.
3.9 Taxes. As of the Closing Date, the Company has timely filed all tax returns
-----
for income taxes, sales taxes, withholding taxes, stamp taxes, payroll
taxes, social security taxes and property taxes and all other taxes of
every kind whatsoever required by law to have been filed, and all such tax
returns are complete and accurate. Sellers are liable for any taxes to be
paid on constructive dividends paid by the Company to the Sellers or to
third parties before the Closing Date.
The Company has paid or made adequate provisions for all taxes which have
become due by the Closing Date, whether pursuant to said returns or
pursuant to any assessment, and there is no further liability for any such
taxes and no interests or penalties accrued or accruing with respect
thereto.
3.10 Agreements with Third Parties. The Company is not in default under any
-----------------------------
agreements to which it is a party. Sellers, furthermore, represent and
warrant that neither the execution of this Agreement nor the consummation
of the transaction contemplated herein will terminate any agreements to
which the Company is a party or give rise to any right of a third party to
terminate such
<PAGE>
agreements. This Agreement, when effective, shall not cause any breach (ma-
terial or minor) of any agreement to which the Sellers or the Company or
any of them is a party.
Exhibit 3.10 contains copies of all the following agreements which the
------------
Company has concluded:
- license agreements;
- leases and leasing contracts which provide for annual payments of more
than CHF 10'000;
- agreements with suppliers or customers with a term of more than three
months or a contract value of more than CHF 10'000 or which grant
customers a payment term of more than sixty days;
- contracts with works councils, labor unions and/or other employee
organizations;
- distributorship and agency agreements;
- guarantees and sureties granted with respect to any obligation of third
parties (including the Sellers and any parties related with him);
- joint venture and cooperation agreements;
- confidentiality agreements;
- management and consulting agreements;
<PAGE>
- severance contracts with employees, agents and distributors,
- non-compete agreements and non-solicitation agreements obliging the
Company;
- other contracts or commitments in excess of CHF 10'000 or which cannot
be terminated on three months notice without payment of compensation.
- other agreements, which contain any provision limiting or prohibiting
any rights of assignment or sublicense, including but not limited to
such limitations or prohibitions resulting from a change of ownership
clause contained in such agreements.
- other shareholder agreements (including without limitation voting
agreements, voting pooling agreements, proxy agreements, share transfer
agreements, warrant and/or option agreements, co-sale agreements, buy-
sell agreements and share purchase agreements).
- other agreements which contain an indemnity provision and/or hold
harmless provision in which the Company is an indemnitor or may
otherwise be obliged to hold any other party harmless from any amount of
loss, damage, liability or the like.
Sellers warrant that these copies are true, accurate and complete, these
agreements are binding and in force on the Closing Date, the text of these
agreements covers the full scope of such agreements and that there are no
other oral or written agreements between the Company and the third parties
concerned.
<PAGE>
3.11 Intellectual Property/Know-how. The Company owns at the Closing Date all
------------------------------
the know-how and all patents, trademarks, trade names, copyrights, domain
names and other intellectual property rights which are necessary for the
conduct of its business as it is now conducted. In particular, all the
patents, trade names, copyrights, trademarks and domain names set forth in
Exhibit 3.11 are valid and owned by the Company. Furthermore, Sellers
------------
warrant that such patents, trade names, copyrights, trademarks and domain
names do not violate the rights of any third party, third parties do not
have any rights to and, to the best of Sellers' knowledge, are not
infringing such patents, trade names, copyrights, trademarks and domain
names and that the Company has no obligations to disclose such patents,
trade names, copyrights, trademarks and domain names to any third
parties.
3.12 Employment Matters. Exhibit 3.12 contains true copies of all employment
------------------ ------------
agreements of the Company concerning employees which have either signature
authority or a yearly salary exceeding CHF 12'000. Sellers warrant that the
text of these agreements covers the full scope of the agreements between
the Company and the employees concerned and that there are no other
agreements concerning the employment relationship. Sellers, furthermore,
warrant that such agreements are binding and in force on the Closing Date.
3.13 Social Security. Sellers warrant that all filings necessary in connection
with social security matters (AHV/IV/EO/ALV) have been made and that all
payments due have been timely effected.
3.14 Pension Plan. Sellers warrant that all accrued pension claims of the Com-
pany's present and former employees are adequately covered by funds of spe-
cial foundations by insurance contracts or by provisions the Company has
<PAGE>
specifically established for such purpose and that all insurance premiums,
if any, have been paid or accrued.
3.15 Insurance Policies. With the exception of insurance policies covering
------------------
single cars, all insurance policies of the Company are contained in Exhibit
3.13. Sellers warrant that such policies are in full force at the Closing
Date and that the Company has done nothing either by way of action or
inaction which might lead to the cancellation of such policies. Sellers,
furthermore, warrant that such insurance coverage is adequate for the risks
associated with the Company's activities and assets.
3.16 Compliance with Legal Requirements. The Company has not violated
----------------------------------
applicable laws, ordinances, regulations, decrees or orders of any
government entity.
Sellers warrant, in particular, that the Company and its plants, real
estate and equipment comply with all applicable labor, occupational health
and safety and environmental laws, regulations, decrees and orders, and the
competent authorities have not informed the Company that they will issue
any orders with which the Company does not yet comply as of the Closing
Date.
3.17 Product Liability. Sellers warrant that third parties have no claims
-----------------
against the Company in connection with any products delivered or services
rendered by the Company before the Closing Date.
3.18 Disclosure. Purchase has conducted a preliminary due diligence review. All
----------
information furnished by or on behalf of Sellers in connection with the
trans- action contemplated by this Agreement is accurate in all material
respects and Sellers are not aware of any facts of materially adverse
significance to the
<PAGE>
Company, its properties, or business operations which are not disclosed in
this Agreement or the Annexes to this Agreement.
ARTICLE 4
---------
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants for the Purchaser the following (articles 4.1
through 4.6):
4.1 Organization and Qualification. The Purchaser is duly organized and validly
------------------------------
exists under the laws of the State of Delaware and has full right and
authority to own and to operate its properties and to engage in the
business in which it is now engaged.
4.2 Authority. The Purchaser has the right, power and authority to execute and
---------
deliver this Agreement and to carry out its obligations hereunder. The
execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by the board of directors of Purchaser, and no other proceeding,
authorization or approval on the part of the Purchaser is necessary to
authorize the execution and delivery of this Agreement or the performance
by the Purchaser of any of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser, and when
executed and delivered by all required parties thereto, will be legal,
valid, and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with their respective terms, subject to applicable
bankruptcy, insolvency and other similar laws of general application
affecting the rights of creditors.
<PAGE>
4.3. Approvals. Except as set forth in Exhibit 4.3, no consent, approval,
--------- -----------
order, or authorization of, or notice of registration, filing with, any
governmental authority or third party is required by the Purchaser in
connection with the execution and the delivery of this Agreement, or the
consummation of the transactions contemplated hereby.
4.4. Non-Contravention. The execution and delivery of this Agreement and the
------------------
consummation of the transactions contemplated hereby will not (a) violate
any provision of the by-laws of the Purchaser; and, to the best of
Purchaser's knowledge, (b) violate any material obligation under any
contract to which the Purchaser is a party or by which it or any of its
assets is bound; (c) violate any lien or result in the creation or
imposition of any material lien upon any property of the Purchaser; or (d)
violate or conflict with any other material restriction or any law,
ordinance, rule, order, arbitration award, judgment or decree to which the
Purchaser or any of its property is subject.
4.5 Ownership. If Purchaser elects to transfer its registered shares, in lieu
---------
of cash, as set forth in art. 1.2(b), then Purchaser shall deliver to
Sellers good and valid title to the shares in accordance with art. 2.2.c of
this Agreement, free and clear of all liens, encumbrances, options,
charges, activities and claims arising from any privilege, pledge or
security arrangement and do not bear any restrictive legend. To that
effect, Purchaser shall also be required to issue instructions and hand
over an opinion of its counsel that the shares are saleable without
restriction on NASDAQ under U.S. law, to Seller's transfer agent.
On the first anniversary of the Closing the Future Shares will have been
validly issued and fully paid in. Immediately following the transfer the
Sellers
<PAGE>
can, without any restriction, sell all Future Shares on NASDAQ.
4.6 Partial Liquidation. Purchaser agrees not to take any measures within a
-------------------
period of five years as from the Closing Date that would qualify as an
indirect partial liquidation in the sense of Swiss tax law. In particular,
Purchaser agrees not to merge the Company and guarantees that the Company
does not pay any substance dividend paid out of funds that accumulated
prior to the Closing Date. In case the Purchaser is transferring the shares
of the Company and to a third party, the Purchaser shall oblige the
acquirer to observe this obligation.
The Sellers, however, agree to such a transaction provided that the
Purchaser submits a written confirmation by the competent tax authorities
that the relevant transaction does not trigger any negative tax
consequences for any of the Sellers.
ARTICLE 5
---------
Remedies
--------
5.1 Term of Warranties and Representations. The representations and warranties
--------------------------------------
set forth in art. 3 and 4 of this Agreement shall continue in effect until
the first anniversary of the Closing Date, except as otherwise specified in
this Article. The representations and warranties set forth in art. 3.9
shall continue in effect until the statute of limitation on the tax claims
concerned has expired.
The representations and warranties set forth in art. 4.4 of this Agreement
shall
<PAGE>
continue in effect for a period of 18 months as from the Closing Date and
the representations and warranties set forth in art. 4.5 for a period of
five years as from the Closing Date.
5.2 Waiver of Notification Requirement. The parties waive the notification and
----------------------------------
examination requirements pursuant to Art. 201 of the Swiss Code of Obliga-
tions, However, the Purchaser shall notify the Sellers within 60 days after
the Purchaser has detected a breach of warranties, describing in reasonable
detail such breach and any damages suffered by the Company as a result of
such breach.
5.3 Remedies. In case of a breach of warranty or representation by the Sellers,
--------
Sellers shall restitute to the Purchaser the amount by which the actual
situation of the Companies differs from the situation described in such
warranty or representation provided, however, that each Seller shall only
be liable for such a share in the amount due that corresponds to his share
as set forth in Exhibit 5.3. The Purchaser shall be entitled to reduce the
-----------
number of Future Shares to be handed over to each of the Sellers pursuant
to art. 1.2 (ii) by reducing the amounts set out in Exhibit 1.2b in
------------
proportion to each Seller's share as set out in Exhibit 5.3.
-----------
In case of a breach of warranty or representation by the Purchaser,
Purchaser shall restitute to each Seller the amount by which his actual
situation differs from the situation described in such warranty or
representation.
5.4 Procedure with Third Parties and Authorities. If a breach of warranty
--------------------------------------------
exists because any authorities or other third parties raise claims against
the Company or if the Company in connection with such a breach has to
enforce any rights or claims against authorities or other third parties,
such negotia-
<PAGE>
tions and proceedings shall be carried on in consultation with the Sellers
who may also take over such negotiations and proceedings and conduct them
themselves for the account of the Company.
ARTICLE 6
---------
Resignations of Directors
-------------------------
At the Closing Date, Sellers shall remit to Purchaser resignations of all the
directors of the Company. Such resignations shall contain a clause in which the
directors confirm that they have no claims against the Company.
Purchaser agrees to hold an extraordinary shareholders' meeting immediately
after the Closing Date and to elect new directors at such meeting. Purchaser
agrees to grant complete discharge to the present directors at such meeting for
their acts and decisions known or disclosed to Purchaser on or before the
Closing Date. The consent of the Purchaser to the Company's financial statements
and the discharge of the directors does not operate as a waiver of Purchaser's
claims under art. 3 of this Agreement.
ARTICLE 7
---------
Covenants
---------
7.1 Covenant not to Compete. The Sellers shall neither, for a period of two
-----------------------
years from the date hereof, accept any part or full time employment in any
of the following companies:
Plumtree, Epicentric, InfoImage, 2Bridge, Brio, Business Objects, Cognos,
Hummingbird, Verano and/or Information Advantage (hereinafter referred to
<PAGE>
as "Competitors")
nor act as a consultant or representative of any Competitor.
7.2 Conduct of Business. The Sellers shall secure from the date hereof until
-------------------
the Closing:
- no significant action and decision (in particular, regarding investments
and employment of managers) shall be taken without prior written
approval of Purchaser; and
- the Company shall not change the terms and conditions of any material
agreement or contract in which it is a party (all agreements contained
in Exhibit 3.10 shall be considered as material),
------------
7.3 Termination of Agreements between the Companies and Sellers and among
---------------------------------------------------------------------
Sellers. On or before the Closing Date, Sellers shall terminate all
-------
agreements existing between the Company and any Seller as well as any
Shareholders agreements, except for the existing employment relationships
between the Company and Messrs. Charles Fraefel and Chula de Silva. The
termination of such agreement shall not oblige the Company to make any
payments in compensation of termination such as severance payments or any
payment for a notification period extending beyond the Closing Date.
ARTICLE 8
---------
Miscellaneous
-------------
8.1 Cost. Each party bears the fees of its counsel and advisors. Purchaser
----
shall,
<PAGE>
however, bear all costs of Sellers' advisors and/or consultants directly
related to the due diligence review and to the preparation of the Company's
accounts under U.S. generally accepted accounting principles.
8.2 Notice. Any notice, request, instruction or other document deemed by either
------
party to be necessary or desirable to be provided to the other party shall
be in writing and shall be delivered by international overnight courier or
via Facsimile as follows:
If to Purchaser: Viador, Inc.
Attn. Mr. Ben Connors
167, Second Avenue
San Mateo, CA 94401
USA
Fax + 1-650-685 3098
With a copy to: Dr. Markus Guggenbuhl
Pestalozzi Haegi & Partners
Arterstrasse 24
P.O. Box
8032 Zurich
Switzerland
Fax + 41-1-254 34 10
If to Sellers: Mr. Andreas Zwimpfer
Riedsortstrasse 59
6553 Weggis
Switzerland
Fax + 41-41-391 00 59
With a copy to: Dr. Peter Reinert
Baker & McKenzie
Zollikerstrasse 225
P.O. Box
8034 Zurich
Fax + 41-1 384 12 84
<PAGE>
Each party may at any time change its address by giving notice to the other
party in the manner described above.
8.3 No Waiver. The failure of any of the parties to enforce any of the
---------
provisions of this Agreement, or any rights with respect thereto, shall in
no way be considered as a waiver of such provisions or rights or in any
way affect the validity of this Agreement. The waiver of any breach of
this Agreement by any party, hereto shall not operate to be construed as a
waiver of any other prior or subsequent breach.
8.4 Entire Agreement. This instrument embodies the entire agreement between the
----------------
parties hereto with respect to the transaction contemplated herein and
there have been and are no agreements or warranties between the parties
other than those set forth or provided for herein. This agreement may be
amended only in writing through a document signed by all the parties
hereto.
8.5 Binding on Successors. All of the terms, provisions and conditions of this
---------------------
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors, assigns and legal
representatives.
8.6 Announcements. Sellers and Purchaser shall consult before issuing press
-------------
releases or otherwise making any public statements or any statements to the
Company's employees with respect to this Agreement and shall not issue any
such press release or statement without the prior approval of the other
party. The parties shall not disclose any term of this Agreement to any
third parties without the explicit consent of the other party.
8.7. Counterparts. This Agreement may be executed in counterparts.
------------
<PAGE>
ARTICLE 9
---------
Transfer of Management Responsibility
-------------------------------------
As of the Closing Date, Purchaser takes over full responsibility for the
Company's management and operations.
ARTICLE 10
----------
Governing Law and Arbitration
-----------------------------
10.1 Governing Law. This Agreement shall be subject to and governed by Swiss
-------------
Law with the exception of the UN Convention on the International Sale of
Goods of April 11, 1980.
10.2 Arbitration. All disputes arising out of or in connection with this
-----------
agreement, including disputes on its conclusion, binding effect, amend-
ment or termination, shall be resolved, to the exclusion of the ordinary
courts, by an Arbitral Tribunal in Zurich in accordance with the Inter-
national Arbitration Rules of the Zurich Chamber of Commerce.
<PAGE>
IN WITNESS WHEREOF, the parties thereto have executed this agreement as of this
January 20, 2000.
Sellers: Purchaser:
Viador, Inc.
/s/ Andreas Zwimpfer /s/ Ben Connors
- -------------------- ---------------
Andreas Zwimpfer By: Ben Connors
Its: Vice President, Business Development and
International
/s/ David Keat
- --------------
David Keat
/s/ Charles Fraefel
- -------------------
Charles Fraefel
/s/ Chula de Silva
- ------------------
Chula de Silva
/s/ Tim Moser
- -------------
Tim Moser
<PAGE>
Exhibit 1.2a
On the Closing Date, the Purchaser shall pay to each of the Sellers the amount
set out next to, such Seller:
Andreas Zwimpfer USD 250'000
David Keat USD 250'000
Charles Fraefel USD 250'000
Chula de Silva USD 150'000
Tim Moser USD 100'000
<PAGE>
Exhibit 1.2b
Each of the Sellers shall receive such number of Future Shares corresponding to
the following amounts set next to his name:
Andreas Zwimpfer USD 250'000
David Keat USD 250'000
Charles Fraefel USD 250'000
Chula de Silva USD 150'000
Tim Moser USD 100'000
<PAGE>
Exhibit 4.3
If Purchaser elects to pay its indebtedness in accordance with Art 1.2(b) in
Future Shares, said future shares shall be Registered; as such, Purchaser shall
be required to and be responsible for registering said Future shares in
accordance with U.S. law and any applicable state laws.
<PAGE>
Exhibit 5.3
Liability of Sellers
Andreas Zwimpfer 25%
David Keat 25%
Charles Fraefel 25%
Chula de Silva 15%
Tim Moser 10%
<PAGE>
Index
1. Articles of Incorporation and organizational regulations of the Company.
(Exhibit 3.1)
2. Minutes of Shareholders' Meetings and Directors' Meetings of the Company.
(Exhibit 3.4)
3. Financial Statements.
(Exhibit 3.5)
4. Agreements with Third Parties.
(Exhibit 3.10)
5. Intellectual Property/Domain Names/Know-how.
(Exhibit 3.11)
6. Insurance Policies.
(Exhibit 3.13)
7. Arbeitsvertrage
(Exhibit 3.12)
<PAGE>
ORAGANIZATIONAL REGULATIONS
of
Viador AG
in
Baden-Dattwil
________________________________________________________________________________
Art. 1: Statutory Basis
- ------- ---------------
These Regulations are enacted by the Board of Directors in accordance with Arti-
cle 716b para. 2 of the Swiss Code of Obligations and Article 14 para. 2 of the
Articles of Incorporation of the Company.
The purpose of the Regulations is to define the executive powers within the Com-
pany and to delegate part of the responsibilities and powers of the Board of Di-
rectors to the Management of the Company.
Art. 2: Executive Bodies of the Company
- ------- -------------------------------
The Company has the following executive bodies:
1. The Board of Directors
2. The Management
Art. 3: Relationship with Viador Inc.
- ------- -----------------------------
The Company is a wholly owned subsidiary of Viador Inc., San Mateo, USA. In or-
der to ensure efficient group management, the Board of Directors of Viador Inc.
will issue directives as may be necessary from time to time. The Company shall
comply with those directives as long as they are not in violation with any
legal, statutory or other provisions as may be applicable in Switzerland or
elsewhere.
The parent company Viador Inc. shall delegate at least one representative to the
Board of Directors of the Company who shall inform the Company of all group ac-
tivities and other important affairs, thereby enabling the Board of Directors to
fulfill its legal duties and obligations.
<PAGE>
Art. 4: Board of Directors
- ------- ------------------
4.1 Organization
The Board of Directors elects from its members the Chairman and the Delegate
(Managing Director). The Board of Directors may appoint, as the case may be, a
Vice-Chairman. It may also appoint a secretary who does not necessarily have to
be a member of the Board.
4.2 Meetings
The Board of Directors shall convene as often as the business and affairs of the
Company require a meeting and whenever it is requested by one of its members,
but at least once a year.
It shall be necessary to give not less than ten days' notice of a meeting of the
Board of Directors to each director unless he otherwise agrees in writing or by
telex of by such other means as the Board may approve.
The meetings may also be held in the United States.
4.3 Resolutions
Board resolutions are taken by the majority of the votes of the directors
present and each resolution requires the affirmative vote of the Chairman except
if the Chairman sends a written waiver of participation to the Company. There is
no minimum quorum required.
4.4 Circular Resolutions and Other Forms of Resolutions
If a written proposal for a resolution has been submitted, the resolution may be
taken by circular letter, telefax or telegram, unless a director demands a
discussion in a formal meeting. A resolution by circular letter shall require
the approval of the majority of all the members of the Board of Directors,
including the Chairman of the Board of Directors.
Resolutions may also be taken by way of a telephone or video conference, unless
a director requests a discussion in a formal meeting. Resolutions by telephone
or video conference shall be minuted in accordance with Article 4.5.
4.5. Minutes
The meetings of the Board and the resolutions taken by the Board shall be
minuted. Such minutes shall in particular contain the declarations made by any
one member with the request to be minuted as well as all the resolutions.
The Minutes shall be signed by the Chairman of the meeting and the secretary.
<PAGE>
4.6 Information
Any member of the Board of Directors may request information about all the mat-
ters concerning the Company.
At meetings, all board members as well as all persons responsible for manage-
ment are required to provide the information requested. Outside meetings, each
Board member has the right to request information from the persons responsible
for the management regarding the general business affairs and, with the approval
of the Chairman, also regarding particular business transations.
4.7 Powers of the Board of Directors
The Board of Directors shall have the following non-transferable and inalienable
duties:
(i) The ultimate management of the Company and the giving of the necessary
directives;
(ii) The establishment of the organization;
(iii) The structuring of the accounting system and the financial controls as
well as the financial planning necessary to manage the Company;
(iv) The appointment and removal of the persons entrusted with the general
management and the representation of the Company, as well as the signa-
tory power of such persons;
(v) The ultimate supervision of the persons authorized to manage the Com-pany,
in particular, in view of compliance with the law, the Articles of Incor-
poration, these Regulations and the Board directives;
(vi) The preparation of the business report as well as the preparation of the
general meeting of shareholders and the implementation of its resolutions;
(vii) The notification of the judge in the case of overindebtedness of the
Company.
Art. 5: Delegation of the Management
- ------- ----------------------------
The Management of the Company shall consist of the Managing Director and the
Managers. The Management shall constitute itself and set up its own
organization. The Board of Directors fully delegates all powers it has to manage
the affairs of the Company to the extent the management is not by law reserved
to the Board of Directors (Art. 716a CO). In particular, the Management shall
implement the business policies of the Company as defined by the Board and
manage the day-to-day business of the Company.
<PAGE>
Art. 6: Reporting
- ------- ---------
In each meeting of the Board of Directors the management informs the Board on
the state of affairs of the Company so as to allow the Board of Directors to
comply with its statutory duty to ultimately manage and supervise the Company.
In particular, once a year the management provides the Board of Directors with
a comprehensive business report. If deemed necessary or appropriate, the
managing director may request the participation of other officers.
At any time, the Management shall report without delay to the Board of Directors
all significant changes, developments and other events affecting the business of
the Company.
Art. 7: Miscellaneous
- ------- -------------
7.1 Effectiveness
These Regulations shall become effective as of January [ ] 2000.
7.2 Modifications and Amendments
Modifications and amendments of these Regulations require a resolution of the
Board of Directors to be taken by a unanimous vote of all of the members of the
Board of Directors.
Place and date:
The Chairman of the Board:
- ---------------------
Ben Connors
<PAGE>
MINUTES
of the Extraordinary General Meeting of the Shareholders
of
Viador AG
in
Baden-Dattwil
held on [ ] 2000,
at the offices of Pestalozzi Haegi & Partners, Arterstrasse 24, CH-8032 Zurich
________________________________________________________________________________
Mr. Ben Connors opens the meeting and takes the chair. Dr. Markus Guggenbuhl
acts as secretary and scrutineer.
No objection is made against the form, place or date for which this meeting is
called. The Chairman states that all shares of the Company are represented at
the meeting and that today's Extraordinary General Meeting of the Shareholders
is therefore validly constituted as a universal meeting within the meaning of
Art. 701 of the Swiss Code of Oligations.
No objection is raised against these statements by any person present.
I. AGENDA
1. Resignation and Discharge of Members of the Board of Directors
2. Election of Members of the Board of Directors
******************
<PAGE>
II. MINUTES OF THE MEETING
1. Resignation of two Members of the Board of Directors
The general meeting of shareholders takes note of the resignation of
Messrs. Charles Zwimpfer and David Keat from the Board of Directors and
resolves to discharge both of them for their services rendered to the
Company to the extent such services are known or were disclosed to the
shareholders.
2. Election of new Member of the Board of Directors
The general meeting of shareholders elects Messrs. Ben Connors, San Mateo,
USA, and Dr. Markus Guggenbuhl, Meilen, as a new members of the Board of
Directors.
(Deutsche Ubersetzung: Die Generalversammlung wahlt die Herren Ben Connors,
San Mateo, USA, und Dr. Markus Guggenbuhl, Meilen, neu in den
Verwaltungsrat)
The meeting is closed at []
January [ ], 2000
The Chairman: The Secretary and Scrutineer:
- --------------------- ------------------------------
Ben Connors Dr. Markus Guggenbuhl
<PAGE>
CIRCULAR RESOLUTION
of the Board of Directors of
Viador AG
Baden-Dattwil
dated as of January 20, 2000
The undersigned, being all of the Directors of Viador AG, Baden-Dattwil, hereby
waive to require a meeting and approve, consent to and unanimously adopt the
following resolution:
AGENDA:
-------
1. Adoption of the organisational regulations
***
1. The Board further resolves to adopt the organisational regulations as at-
tached in Annex 1 hereto.
<PAGE>
ZIRKULARBESCHLUSS
des Verwaltungsrates der
Viador AG
Baden-Dattwil
per 20. January 2000
________________________________________________________________________________
Die unterzeichnenden Mitglieder des Verwaltungsrates der Viador AG, Baden-
Dattwil, verzichten hiermit auf die Einberufung einer Sitzung und fassen
einstimmig folgenden Beschluss:
TRAKTANDUM:
-----------
1. Annahme des Organisationsreglements
***
1. Der Verwaltungsrat beschliesst, das Organisationsreglement gemass Anhang 1
zu diesem Beschluss anzunehmen.
<PAGE>
__________________ ___________________________
Ben Connors Charles Fraefel
_________________________
Dr. Markus Guggenbuhl
<PAGE>
EXHIBIT 23.1
Report of Independent Auditors on Schedule and Consent
The Board of Directors
Viador Inc.:
The audit referred to in our report dated January 20, 2000 included the related
financial statement schedule as of December 31, 1999 and for each of the years
in the three-year period ended December 31, 1999, included in the Company's
annual report on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to incorporation by reference in the registration statement on Form
S-8 (No. 333-91805) of Viador Inc. of our reports dated January 20, 2000,
relating to the balance sheets of Viador Inc. as of December 31, 1999 and 1998
and the related statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999 and the
related schedule, which reports appear in the December 31, 1999, annual report
on Form 10-K of Viador Inc.
/s/ KPMG LLP
Mountain View, California
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 44,720
<SECURITIES> 0
<RECEIVABLES> 5,643
<ALLOWANCES> 208
<INVENTORY> 0
<CURRENT-ASSETS> 50,475
<PP&E> 2,403
<DEPRECIATION> 990
<TOTAL-ASSETS> 52,178
<CURRENT-LIABILITIES> 8,720
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 43,441
<TOTAL-LIABILITY-AND-EQUITY> 52,178
<SALES> 10,151
<TOTAL-REVENUES> 10,151
<CGS> 2,691
<TOTAL-COSTS> 21,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 624
<INCOME-PRETAX> (13,307)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,307)
<EPS-BASIC> (2.20)
<EPS-DILUTED> (2.20)
</TABLE>
