<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-25494
REMEDY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0265675
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1505 SALADO DRIVE, MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(415) 903-5200
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
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 preceding 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 [ ]
There were 27,636,214 shares of the Company's Common Stock, par value
$.00005, outstanding on July 31st, 1997.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.... 3
Condensed Consolidated Statements of Income for the Three and Six Months Ended June
30, 1997 and June 30, 1996....................................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and June 30, 1996........................................................... 5
Notes to Condensed Consolidated Financial Statements............................... 6
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................... 7
PART II OTHER INFORMATION
Item 4 -- Submission of Matters to a Vote of Security Holders...................... 14
Item 6 -- Exhibits and Reports on Form 8-K......................................... 14
SIGNATURE.......................................................................... 15
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REMEDY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
JUNE 30, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 54,487 $ 39,770
Short-term investments.............................................. 47,553 46,987
Accounts receivable, net of allowance for doubtful accounts of
$1,364 and $1,248, respectively.................................. 20,128 24,189
Prepaid expenses and other current assets........................... 2,308 1,161
Deferred tax assets................................................. 2,076 2,035
-------- --------
Total current assets........................................ 126,552 114,142
Property and equipment, net........................................... 7,546 5,292
-------- --------
$ 134,098 $119,434
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 1,209 $ 1,639
Accrued compensation and related liabilities........................ 3,424 6,636
Income taxes payable................................................ -- 1,837
Other accrued liabilities........................................... 4,300 5,652
Deferred revenue.................................................... 12,604 10,430
Current portion of obligations under capital leases................. 252 230
-------- --------
Total current liabilities................................... 21,789 26,424
Noncurrent portion of obligations under capital leases................ 418 513
Stockholders' equity:
Common Stock and additional paid-in capital......................... 72,661 64,305
Notes receivable from stockholders.................................. (60) (60)
Deferred compensation............................................... (165) (255)
Retained earnings................................................... 39,455 28,507
-------- --------
Total stockholders' equity.................................. 111,891 92,497
-------- --------
$ 134,098 $119,434
======== ========
</TABLE>
See accompanying notes.
3
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REMEDY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Product............................................... $21,126 $12,594 $37,190 $21,932
Maintenance and service............................... 8,876 4,418 16,113 8,081
------- ------- ------- -------
Total revenue................................. 30,002 17,012 53,303 30,013
Costs and expenses:
Cost of product revenue............................... 694 645 1,629 1,202
Cost of maintenance and service revenue............... 3,565 2,153 6,686 4,091
Research and development.............................. 4,305 3,180 8,020 5,492
Sales and marketing................................... 10,669 4,945 18,217 8,742
General and administrative............................ 2,086 1,464 3,579 2,821
------- ------- ------- -------
Total costs and expenses...................... 21,319 12,387 38,131 22,348
Income from operations.................................. 8,683 4,625 15,172 7,665
Interest income, net.................................... 992 655 1,864 1,158
------- ------- ------- -------
Income before provision for income taxes................ 9,675 5,280 17,036 8,823
Provision for income taxes.............................. 3,512 1,900 6,088 3,176
------- ------- ------- -------
Net income.............................................. $ 6,163 $ 3,380 $10,948 $ 5,647
======= ======= ======= =======
Net income per common and common equivalent share....... $ 0.20 $ 0.11 $ 0.36 $ 0.19
======= ======= ======= =======
Shares used in computing per share amounts.............. 30,195 30,136 30,285 29,860
======= ======= ======= =======
</TABLE>
See accompanying notes
4
<PAGE> 5
REMEDY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 10,948 $ 5,647
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 1,403 760
Amortization of deferred compensation............................. 90 89
Changes in assets and liabilities:
Accounts receivable............................................. 4,061 (464)
Prepaid expenses and other current assets....................... (1,147) (750)
Deferred tax asset.............................................. (41) (212)
Accounts payable................................................ (430) 155
Accrued compensation and related liabilities.................... (3,212) (658)
Income taxes payable............................................ 2,701 4,841
Other accrued liabilities....................................... (1,352) 1,265
Deferred revenue................................................ 2,174 1,180
-------- --------
Net cash provided by operating activities.............................. 15,195 11,853
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.................................... (65,578) (47,741)
Maturities of short-term investments................................... 65,012 42,655
Capital expenditures................................................... (3,611) (1,864)
-------- --------
Net cash used in investing activities.................................. (4,177) (6,950)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations..................... (119) (54)
Proceeds from issuance of common stock................................. 3,818 1,420
-------- --------
Net cash provided by financing activities.............................. 3,699 1,366
-------- --------
Net increase in cash and cash equivalents.............................. 14,717 6,269
Cash and cash equivalents at beginning of period....................... 39,770 31,452
-------- --------
Cash and cash equivalents at end of period............................. $ 54,487 $ 37,721
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
REMEDY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1997, and the
condensed consolidated statements of income for the three months and six months
ended June 30, 1997 and 1996, and the condensed consolidated statements of cash
flows for the six months ended June 30, 1997 and 1996, have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1997 and
for all periods presented have been made. The condensed consolidated balance
sheet at December 31, 1996 has been derived from the audited financial
statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. These condensed financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company's 1996 Annual Report on Form 10-K filed with the
Securities and Exchange Commission in March 1997.
The results of operations for the three and six months ended June 30, 1997
are not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year.
2. STOCK SPLIT
All shares and per-share amounts have been adjusted to reflect the
two-for-one stock dividend effected October 25, 1996.
3. EARNINGS PER SHARE
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issuable upon the exercise
of stock options, using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the quarters ended June 30, 1997 and
June 30, 1996 of $.03 and $.02 per share, respectively. The impact is expected
to result in an increase in primary earnings per share for the six months ended
June 30, 1997 and June 30, 1996 of $.04 and $.03 per share, respectively. The
impact of Statement No. 128 on the calculation of fully diluted earnings per
share for these quarters is not expected to be material.
4. STOCKHOLDERS RIGHTS
In July 1997, The Company's Board of Directors adopted a Stockholder Rights
Plan, effective July 25, 1997, and declared a dividend distribution of one
Preferred Share Purchase Right on each outstanding share of Remedy's common
stock. Following the acquisition by a person or group of 20 percent or more of
Remedy's common stock and prior to an acquisition of 50 percent or more of the
common stock, the Board of Directors may exchange the Rights (other than Rights
owned by such person or group), in whole or in part, for consideration per Right
consisting of one-half of the common stock that would be issuable upon exercise
of one Right. Alternatively, the Rights may be redeemed for 1/10th of a cent per
Right, at the option of the Board of Directors, prior to the acquisition by a
person or group of beneficial ownership of 20 percent or more of Remedy's common
stock or if a person or group announces a tender offer, the consummation of
which would result in ownership by a person or group of 20 percent or more of
the Company's common stock. The non-taxable dividend distribution will be made
on August 29, 1997, payable to Stockholders of record on that date. The Rights
will expire on July 24, 2007.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Remedy Corporation (the "Company") develops, markets and supports highly
adaptable, client/server applications software for support and business
processes. The Company was founded in November 1990 and made its initial product
shipments in December 1991. The Company has been profitable since the quarter
ended June 30, 1992. There can be no assurance, however, that the Company will
remain profitable on a quarterly or annual basis in the future.
Although the Company has experienced significant percentage growth in
revenues and net income in recent years, the Company does not believe prior
growth rates are sustainable or indicative of future operating results. In
addition, the Company expects increased competition and intends to invest
significantly in its business. As a result, the Company does not expect to
sustain current operating margins in the future.
The Company believes that its products are priced substantially below most
of its competitors' products. The market for the Company's products is highly
competitive, and the Company expects that it will face increasing pricing
pressures from its current competitors and new market entrants. Any material
reduction in the price of the Company's products would negatively affect gross
margins and could materially adversely affect the Company's business, operating
results and financial condition if the Company were unable to increase unit
sales.
This Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in the
"Additional Factors That May Affect Future Results" section on page 11.
RESULTS OF OPERATIONS
The Company's quarterly operating results have in the past and may in the
future vary significantly depending on factors such as increased competition,
the timing of new product announcements and changes in pricing policies by the
Company and its competitors, market acceptance of new and enhanced versions of
the Company's products, the size and timing of significant orders, the mix of
direct and indirect sales, changes in operating expenses, changes in Company
strategy, personnel changes, foreign currency exchange rates and general
economic factors. The Company operates with virtually no order backlog because
its software products typically are shipped shortly after orders are received.
Furthermore, the Company has often recognized a substantial portion of its
revenue in the last month of a quarter, with this revenue frequently
concentrated in the last week of a quarter. As a result, product revenue in any
quarter is substantially dependent on orders booked and shipped in that quarter,
and revenue for any future quarter is not predictable with any degree of
certainty. Product revenue is also difficult to forecast because the market for
client/server application software products is rapidly evolving, and the
Company's sales cycle, from initial trial to multiple copy purchases and the
provision of support services, varies substantially from customer to customer.
In addition, the Company expects that sales derived through indirect channels,
which are harder to predict and have lower margins than direct sales, will
increase as a percentage of total revenue. The Company's expense levels are
based, in part, on its expectations as to future revenues. If revenue levels are
below expectations, operating results are likely to be adversely affected. Net
income may be disproportionately affected by a reduction in revenue because a
proportionately smaller amount of the Company's expenses varies with its
revenue. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to any of the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially adversely affected.
7
<PAGE> 8
The following table sets forth, as a percentage of total revenue, statement
of income data for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Product............................................. 70% 74% 70% 73%
Maintenance and service............................. 30 26 30 27
---- ---- ---- ----
Total revenue............................... 100 100 100 100
Costs and expenses:
Cost of product revenue............................. 2 4 3 4
Cost of maintenance and service revenue............. 12 13 13 14
Research and development............................ 14 19 15 18
Sales and marketing................................. 36 29 34 29
General and administrative.......................... 7 8 7 9
---- ---- ---- ----
Total costs and expenses.................... 71 73 72 74
---- ---- ---- ----
Income from operations................................ 29 27 28 26
Interest income, net.................................. 3 4 4 4
---- ---- ---- ----
Income before provision for income taxes.............. 32 31 32 30
Provision for income taxes............................ 12 11 11 11
---- ---- ---- ----
Net income............................................ 20% 20% 21% 19%
==== ==== ==== ====
</TABLE>
Revenue
The Company's revenue is derived from two sources: product licenses and
fees for services. License revenue is derived from product licensing fees, while
service revenue is derived from maintenance support services, training and
consulting. Product revenue is recognized upon delivery only if no significant
vendor obligations remain and collection of the resulting receivable is deemed
probable. Delivery is defined in certain contracts as delivery of the product
master or first copy for noncancelable product licensing arrangements under
which the customer has certain software reproduction rights. Service revenue
from customer maintenance fees for ongoing customer support and product updates
is recognized ratably over the term of the maintenance contract, which is
typically twelve months. Service revenue from training and consulting is
recognized when the services are performed. Fees for such services are charged
separately from the Company's software products. The Company's license
agreements generally do not provide a right of return. However, reserves are
maintained for return allowances and potential credit losses, which have not
been significant to date.
The Company distributes the majority of its products through its
headquarters-based direct sales force which is complemented by indirect sales
channels, including value-added resellers (VARs), system integrators (SIs) and
original equipment manufacturers (OEMs). Sales derived through indirect channels
accounted for approximately 46% of the Company's total billings for the quarter
ended June 30, 1997 and the six months ended June 30, 1997. The Company expects
that sales derived through indirect channels, which have lower average selling
prices and gross margins than direct sales, will increase as a percentage of
total revenue. As a result, the Company expects that its gross margins on
product sales may decline if sales through indirect channels increase.
Product Revenue. The Company currently derives substantially all of its
product revenue from licenses of the Action Request System. Revenue from product
licenses increased by 68% from $12.6 million for the quarter ended June 30, 1996
to $21.1 million in the comparable quarter in 1997. Product license fees
increased 70% from $21.9 million for the six months ended June 30, 1996 to $37.2
million in the comparable period in 1997. The growing acceptance of the
Company's software products in both U.S. and international markets is a
8
<PAGE> 9
major factor in these increases. International sales accounted for approximately
37% and 38% of the Company's total revenue for the quarters ended June 30, 1997
and 1996, respectively. International sales accounted for approximately 38% of
the Company's total revenue for the six months ended June 30, 1997 and 1996.
Substantially all of the period-to-period growth in product revenue was due to
higher unit sales volumes. The prices of the Company's products have remained
relatively constant from 1992 through June 30, 1997. The Company intends to
continue to enhance its current software products as well as to develop new
software products. As a result, the Company anticipates that revenue from
product licenses will continue to represent a substantial majority of its
revenue in the foreseeable future. The Company expects that prior growth rates
of the Company's product revenue may not be sustainable in the future.
Maintenance and Service Revenue. Maintenance and service revenue increased
by 101% from $4.4 million for the quarter ended June 30, 1996 to $8.9 million in
the comparable quarter in 1997. Service revenue increased 99% from $8.1 million
for the six months ended June 30, 1996 to $16.1 million in the comparable 1997
period. This growth is primarily due to increased licensing activity, which has
resulted in increases in revenue from maintenance and support, training and
consulting services. Renewal of maintenance contracts after the initial one-year
term also contributes to the growth rate. The Company expects that prior growth
rates of the Company's installed base and, consequently, in the Company's
service revenue, may not be sustainable in the future.
Costs and Expenses
Cost of Product Revenue. Cost of product revenue consists primarily of the
costs of royalties paid to third-party vendors, product media and duplication,
manuals, packaging materials, personnel-related costs and shipping expenses.
Cost of product revenue increased from $645,000 for the quarter ended June 30,
1996 to $694,000 for the comparable quarter in 1997, representing 5% and 3% of
the related product revenue in such quarters, respectively. Cost of product
revenue increased from $1.2 million for the first six months ended June 30, 1996
to $1.6 million in the comparable 1997 period, representing 5% and 4% of related
product revenue in such periods, respectively. The increase in the dollar
amounts of cost of product revenue for the quarter ended June 30, 1997 was
primarily due to the higher volumes of product shipped during the quarter.
Because all development costs incurred in the research and development of new
software products and enhancements to existing software products have been
expensed as incurred, cost of product revenue includes no amortization of
capitalized software development costs.
Cost of Maintenance and Service Revenue. Cost of maintenance and service
revenue consists primarily of personnel-related costs incurred in providing
telephone support, consulting and training to customers. Cost of maintenance and
service revenue increased from $2.2 million for the quarter ended June 30, 1996
to $3.6 million in the comparable quarter in 1997, representing 49% and 40% of
the related maintenance and service revenue for the respective quarters. Cost of
maintenance and service revenue increased from $4.1 million for the six months
ended June 30, 1996 to $6.7 million in the comparable 1997 period, representing
51% and 41%, respectively, of the related maintenance and service revenue in
such periods. Cost of maintenance and service revenue increased significantly in
absolute dollars from the quarter ended June 30, 1996 to the quarter ended June
30, 1997, primarily due to increased personnel-related costs as the Company
continued to build its customer support and training organizations. In addition,
such costs increased from quarter to quarter due to the Company's increased
partnering with third-party service providers to deliver consulting services to
its customers. The Company believes that cost of maintenance and service revenue
will increase in dollar amounts in the future.
Research and Development. Research and development expenses were $3.2
million and $4.3 million, or 19% and 14% of total revenue, for the quarters
ended June 30, 1996 and June 30, 1997, respectively. Research and development
expenses increased from $5.5 million for the six months ended June 30, 1996 to
$8.0 million in the comparable 1997 period, or 18% and 15% of total revenue,
respectively. The increases in dollar amounts in research and development
expenses were primarily attributable to increased staffing and associated
support for software engineers required to expand and enhance the Company's
product line. The Company believes that research and development expenses will
continue to increase in dollar amounts in the future.
9
<PAGE> 10
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses of sales and marketing personnel, as well as
promotional expenses. Sales and marketing expenses were $4.9 million and $10.7
million, or 29% and 36% of total revenue, for the quarters ended June 30, 1996
and June 30, 1997, respectively. Sales and marketing expenses increased from
$8.7 million for the six months ended June 30, 1996 to $18.2 million in the
comparable 1997 period, or 29% and 34% of total revenue, respectively. The
increases in sales and marketing expenses in both absolute dollar amounts and as
a percentage of total revenue were primarily due to the expansion of sales and
marketing resources and increased marketing activities, including trade shows
and promotional activities. The Company believes that such expenses will
increase in dollar amounts and may increase as a percentage of total revenue in
the future as the Company expands its sales and marketing staff.
General and Administrative. General and administrative expenses were $1.5
million and $2.1 million, or 9% and 7% of total revenue, for the quarters ended
June 30, 1996 and June 30, 1997, respectively. General and administrative
expenses increased from $2.8 million for the six months ended June 30, 1996 to
$3.6 million for the comparable 1997 period, or 9% and 7% of total revenue,
respectively. The increases in dollar amounts were primarily the result of
increased staffing and associated expenses necessary to manage and support the
Company's growth. The Company believes that its general and administrative
expenses will increase in dollar amounts and may increase as a percentage of
total revenue in the future as the Company expands its staffing.
Interest Income, net
Interest Income, net. Interest income, net was $655,000 and $992,000 for
the quarters ended June 30, 1996 and June 30, 1997, respectively. Interest
income, net increased from $1.2 million for the six months ended June 30, 1996
to $1.9 million for the comparable 1997 period. The increase in interest income,
net for the quarter ended June 30, 1997 is primarily due to the investment of
increased amounts of cash provided by operating activities.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1997 and June 30, 1996, the Company's
cash provided by operating activities was $15.2 million and $11.9 million,
respectively. The Company's net cash provided by operations for the six months
ended June 30, 1997 was primarily attributable to the net income generated in
the six-month period.
During the six months ended June 30, 1997 and June 30, 1996, the Company's
investing activities have consisted of purchases of short-term investments and
property and equipment. Purchases of short-term investments exceeded maturities
by $566,000 for the six months ended June 30, 1997, primarily due to investment
of cash provided by operating activities during the period. To date, the Company
has not invested in derivative securities or any other financial instruments
that involve a high level of complexity or risk. Management expects that, in the
future, cash in excess of current requirements will continue to be invested in
investment grade, interest-bearing securities.
Cash used to purchase property and equipment was $3.6 million and $1.9
million during the six months ended June 30, 1997 and June 30, 1996,
respectively, primarily for computer workstations and file servers for the
Company's growing employee base. The Company expects that the rate of purchases
of property and equipment will remain constant or increase as the Company's
employee base grows. The Company's principal commitments consist primarily of
leases on its headquarters and Pleasanton facilities, and its telephone system.
At June 30, 1997, the Company had $54.5 million in cash and cash
equivalents, $47.5 million in short-term investments and $104.7 million of
working capital. The Company also has available a $15 million unsecured bank
line of credit that expires in June 1998. There were no borrowings outstanding
under this line of credit as of June 30,1997.
The Company believes that its current cash, cash equivalents and short-term
investments balances, cash available under its line of credit and cash flow from
operations will be sufficient to meet its working capital and
10
<PAGE> 11
capital expenditure requirements for at least the next 12 months. Although
operating activities may provide cash in certain periods, to the extent the
Company experiences growth in the future, the Company anticipates that its
operating and investing activities may use cash. Consequently, significant
future growth may require the Company to obtain additional equity or debt
financing. There can be no assurance that, in the event that additional
financing is required, the Company will be able to raise such additional
financing on acceptable terms or at all.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have in the past and may in the future vary
significantly depending on factors such as increased competition, the timing of
new product announcements and changes in pricing policies by the Company and its
competitors, market acceptance of new and enhanced versions of the Company's
products, the size and timing of significant orders, the mix of direct and
indirect sales, changes in operating expenses, changes in Company strategy,
personnel changes, foreign currency exchange rates fluctuations and general
economic factors. The Company operates with no significant order backlog because
its software products typically are shipped shortly after orders are received.
Furthermore, the Company has often recognized a substantial portion of its
revenue in the last month of a quarter, with these revenues frequently
concentrated in the last weeks of a quarter. As a result, product revenue in any
quarter is substantially dependent on orders booked and shipped in that quarter,
and revenue for any future quarter are not predictable with any significant
degree of certainty. Product revenue is also difficult to forecast because the
market for client/server application software products is rapidly evolving, and
the Company's sales cycle, from initial trial to multiple copy purchases and the
provision of support services, varies substantially from customer to customer.
In addition, the Company expects that sales derived through indirect channels,
which are harder to predict and have lower margins than direct sales, will
increase as a percentage of total revenue. The Company's expense levels are
based, in part, on its expectations as to future revenue. If revenue levels are
below expectations, operating results are likely to be adversely affected. Net
income may be disproportionately affected by a reduction in revenue because a
proportionately smaller amount of the Company's expenses varies with its
revenue. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to all of the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially adversely affected.
Competition. The client/server application software market is intensely
competitive and subject to rapid change. Competitors vary in size and in the
scope and breadth of the products and services offered. The Company encounters
competition from a number of sources, including: (i) other software companies,
(ii) third-party professional services organizations that develop custom
software, and (iii) management information systems departments of potential
customers that develop custom software. In addition, because there are
relatively low barriers to entry in the software market, the Company expects
additional competition from other established and emerging companies as the
client/server application software market continues to develop and expand.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. Some of the
Company's current, and many of the Company's potential, competitors have
significantly greater financial, technical, marketing and other resources than
the Company. As a result, they 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 the
Company can. The Company also expects that competition will increase as a result
of software industry consolidations. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive
11
<PAGE> 12
pressures faced by the Company will not materially adversely affect its
business, operating results and financial condition
Dependence on New Products and Rapid Technological Change; Risk of Product
Bugs. The client/server application software market is characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. The life cycles of the Company's products are difficult to
estimate. The Company's future success will depend upon its ability to enhance
its current products and to develop and introduce new products on a timely basis
that keep pace with technological developments and emerging industry standards
and address the increasingly sophisticated needs of its customers. There can be
no assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products, or that its new products and product enhancements
will adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial condition
will be materially adversely affected. During the past year, the Company
released several new products, along with significant upgrades to existing
products. These new products, and upgrades to existing products, are subject to
significant technical risks. If the new products and upgrades do not achieve
market acceptance, the Company's business, operating results and financial
condition will be materially adversely affected. Software products as complex as
those offered by the Company may contain undetected errors or failures when
first introduced or when new versions are released. The Company has in the past
discovered software errors in certain of its new products and enhancements after
their introduction and has experienced delays or lost revenue during the period
required to correct these errors. Although the Company has not experienced
material adverse effects resulting from any such errors to date, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
Limited Operating History; Future Operating Results Uncertain; Need to
Increase Sales Force. The Company was incorporated in November 1990 and did not
begin shipping products until December 1991. Although the Company has
experienced significant percentage growth in revenue and net income in recent
years, the Company does not believe prior growth rates are sustainable or
indicative of future operating results. There can be no assurance that the
Company will remain profitable on a quarterly or annual basis. In addition, the
Company's limited operating history makes the prediction of future operating
results difficult or impossible. Future operating results will depend on many
factors, including the demand for the Company's products, the level of product
and price competition, the Company's success in expanding its direct sales force
and indirect distribution channels, the ability of the Company to develop and
market new products and control costs, and the percentage of the Company's
revenue derived from indirect channels, which have lower margins than direct
sales. In particular, the Company intends to hire a significant number of
additional sales personnel in the second half of 1997 and beyond, which is
required if the Company is to achieve significant revenue growth in the future.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its existing sales personnel or that it can attract,
assimilate or retain additional highly qualified sales persons in the future. In
the past, the Company has experienced difficulty in recruiting a sufficient
number of sales persons. If the Company is unable to hire such personnel on a
timely basis, the Company's business, operating results and financial condition
could be adversely affected. The Company expects increased competition and
intends to invest significantly in its business. As a result, the Company does
not expect to sustain current operating margins in the future.
Product Concentration. The Company currently derives substantially all of
its revenue from licenses of the Action Request System and related services.
Broad market acceptance of the Company's products is critical to the Company's
future success. As a result, a decline in demand for or failure to achieve broad
12
<PAGE> 13
market acceptance of the Action Request System as a result of competition,
technological change or otherwise, would have a material adverse effect on the
business, operating results and financial condition of the Company. A decline in
sales of the Action Request System could also have a material adverse effect on
sales of other Company products that may be sold to Action Request System
customers. The Company's future financial performance will depend in part on the
successful development, introduction and customer acceptance of new and enhanced
versions of the Action Request System and other products. There can be no
assurance that the Company will continue to be successful in marketing the
Action Request System or any new or enhanced products.
The Company's business entails a variety of additional risks not mentioned
above, such as Management of Growth; Dependence Upon Key Personnel, Expansion of
Indirect Channels, International Operations, Dependence on Growth in the
Client/Server Computing Market; General Economic and Market Conditions,
Dependence on Proprietary Technology; Risks of Infringement, and Product
Liability, which are set forth in the "Risk Factors" section of the Company's
1996 Report on form 10-K filed with the Securities and Exchange Commission in
March 1997.
13
<PAGE> 14
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1997, the Annual Meeting of Stockholders of Remedy Corporation
was held in Mountain View, California.
An election of directors was held, with the following individuals being
elected to the Board of Directors of the Company:
<TABLE>
<S> <C>
Lawrence L. Garlick...... (25,282,561 votes for, 3,050 votes withheld)
David A. Mahler.......... (25,282,561 votes for, 3,050 votes withheld)
Harvey C. Jones, Jr...... (25,282,561 votes for, 3,050 votes withheld)
John F. Shoch............ (25,127,311 votes for, 158,300 votes withheld)
James R. Swartz.......... (25,127,311 votes for, 158,300 votes withheld)
</TABLE>
Other matters voted upon at the meeting and the number of affirmative and
negative votes cast with respect to each such matter were as follows:
1. To approve an amendment to and restatement of the Company's Certificate
of Incorporation (i) to increase the number of shares of Common Stock
that the Company is authorized to issue from 60,000,000 to 120,000,000,
and (ii) to increase the number of shares of Preferred Stock that the
Company is authorized to issue from 10,000,000 to 20,000,000.
(19,655,067 votes in favor, 1,584,360 votes opposed, 3,317 votes
abstaining.)
2. To approve amendments of the 1995 Stock Option/Stock Issuance Plan,
including an increase to the number of shares available, as described in
the proxy statement. (14,907,317 votes in favor, 6,233,704 votes
opposed, 101,723 votes abstaining.)
3. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 1997. (25,248,645
votes in favor, 34,810 votes opposed, 2,156 votes abstaining.)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
11.1 Computation of Net Income Per Common and Common Equivalent Share
11.2 Amended Bylaws
27.1 Financial Data Schedule (Filed Electronically)
</TABLE>
(b) Reports on Form 8-K: None
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REMEDY CORPORATION
/s/ GEORGE A. DE URIOSTE
--------------------------------------
George A. de Urioste
Vice President, Finance and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial and
Accounting Officer)
Dated: July 31, 1997
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------------- -------------------------------------------------------------- ------------
<C> <S> <C>
11.1 Computation of Net Income Per Common and Common Equivalent
Share.........................................................
11.2 Amended Bylaws................................................
27.1 Financial Data Schedule.......................................
</TABLE>
16
<PAGE> 1
EXHIBIT 11.1
REMEDY CORPORATION
COMPUTATION OF NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average number of common shares outstanding.... 27,326 28,276 27,150 26,088
Incremental common shares attributable to shares
issuable under employee stock plans.................. 2,869 3,656 3,135 3,772
------- ------- ------- -------
Total shares.................................... 30,195 30,136 30,286 29,860
======= ======= ======= =======
Net income:
Amount.................................................. $ 6,183 $ 3,380 $10,948 $ 5,647
======= ======= ======= =======
Per share............................................... $ 0.20 $ 0.11 $ 0.36 $ 0.19
======= ======= ======= =======
FULLY DILUTED
Weighted average number of common shares outstanding.... 27,326 26,277 27,150 26,088
Incremental common shares attributable to shares
issuable under employee stock plans.................. 3,050 3,861 3,226 3,880
------- ------- ------- -------
Total shares.................................... 30,376 30,138 30,376 29,968
======= ======= ======= =======
Net income:
Amount.................................................. $ 6,163 $ 3,380 $10,948 $ 5,647
======= ======= ======= =======
Per share............................................... $ 0.20 $ 0.11 $ 0.36 $ 0.18
======= ======= ======= =======
</TABLE>
17
<PAGE> 1
EXHIBIT 11.2
AMENDED AND RESTATED BYLAWS
OF
REMEDY CORPORATION
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Dover, County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the
election of directors shall be held at such time and place, within or without
the State of Delaware, as may be fixed from time to time by the Board of
Directors, and stated in the notice of the meeting. Meetings of stockholders
for any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing
with the year 1996, shall be held at such date and time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which they shall elect by a plurality vote a board of directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not fewer than ten (10) nor more than sixty
(60) days before the date of the meeting.
Section 4. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose
1
<PAGE> 2
germane to the meeting, during ordinary business hours, for a period of at
least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 5. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president and shall be
called by the president or secretary at the request in writing of a majority of
the Board of Directors.
Section 6. Written notice of a special meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be given not fewer than ten (10) nor more than
sixty (60) days before the date of the meeting, to each stockholder entitled to
vote at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted that might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the certificate of incorporation, a different vote is required,
in which case such express provision shall govern and control the decision of
such question.
Section 10. Unless otherwise provided in the certificate
of incorporation, each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
on after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Effective upon the closing of the
corporation's initial public offering of securities pursuant to a registration
statement filed under the Securities Act of 1933, as amended, the stockholders
of the corporation may not take action by written consent without a meeting but
must take any such actions at a duly called annual or special meeting.
2
<PAGE> 3
Section 12. Nominations of persons for election to the
Board of Directors and the proposal of business to be transacted by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice with respect to such meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of record of the
Corporation who was a stockholder of record at the time of the giving of the
notice provided for in the following paragraph, who is entitled to vote at the
meeting and who has complied with the notice procedures set forth in this
section.
For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of the
foregoing paragraph, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, such business must be a proper
matter for stockholder action under the General Corporation Law of the State of
Delaware and, if the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, solicits or participates in the
solicitation of proxies in support of such proposal or nominees, the
stockholder must have timely indicated its, or such beneficial owner's,
intention to do so as provided in subclause (c)(iii) of this paragraph. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than 60 days prior to
the first anniversary of the preceding year's annual meeting of stockholders;
provided, however, that if the date of the annual meeting is advanced more than
30 days prior to or delayed by more than 60 days after such anniversary date,
notice by the stockholder to be timely must be so delivered not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person as would be
required to be disclosed in solicitations of proxies for the election of such
nominees as directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and such person's written consent
to serving as a director if elected; (b) to any other business that the
stockholder proposes to bring before the meeting, a brief description of such
business, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner, (ii) the
class and number of shares of the Corporation that are owned beneficially and
of record by such stockholder and such beneficial owner, and (iii) whether
either such stockholder or beneficial owner intends to solicit or participate
in the solicitation of proxies in favor of such proposal or nominee or
nominees.
Notwithstanding anything in the second sentence of the second
paragraph of this Section 12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Bylaw shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
3
<PAGE> 4
Only persons nominated in accordance with the procedures set
forth in this Section 12 shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this section. The chair of the meeting shall have the power and the duty to
determine whether a nomination or any business proposed to be brought before
the meeting has been made in accordance with the procedures set forth in these
Bylaws and, if any proposed nomination or business is not in compliance with
these Bylaws to declare that such defective proposed business or nomination
shall not be presented for stockholder action at the meeting and shall be
disregarded.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
record of the Corporation who is a stockholder of record at the time of giving
of notice provided for in this paragraph, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
12. Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders if the
stockholder's notice required by the third paragraph of this Section 12 shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Section 12. Nothing in this Section 12 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
Section 1. The number of directors that shall constitute
the whole board shall be determined by resolution of the Board of Directors or
by the stockholders at the annual meeting of the stockholders, except as
provided in Section 2 of this Article, and each director elected shall hold
office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen
4
<PAGE> 5
shall hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
Section 3. The business of the corporation shall be
managed by or under the direction of its board of directors, which may exercise
all such powers of the corporation and do all such lawful acts and things as
are not by statute or by the certificate of incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may
hold meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board
of Directors shall be held at such time and place as shall be fixed by the vote
of the stockholders at the annual meeting and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected Board of Directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 7. Special meetings of the board may be called
by the president on ten (10) days' notice to each director by mail or
forty-eight (48) hours notice to each director either personally or by
telephone, telegram or facsimile; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two (2) directors unless the board consists of only one director, in which
case special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of
the directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the
certificate of incorporation of these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
5
<PAGE> 6
Section 10. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one (1) or more committees,
each committee to consist of one (1) or more of the directors of the
corporation. The board may designate one (1) or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
6
<PAGE> 7
Section 14. Unless otherwise restricted by the
certificate of incorporation or bylaw, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the
statutes or of the certificate of incorporation or of these bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram,
telephone or facsimile.
Section 2. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation or
of these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be
chosen by the Board of Directors and shall be a president, treasurer and a
secretary. The Board of Directors may elect from among its members a Chairman
of the Board and a Vice Chairman of the Board. The Board of Directors may also
choose one or more vice-presidents, assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting
after each annual meeting of stockholders shall choose a president, a
treasurer, and a secretary, and may choose vice presidents, assistant
secretaries and assistant treasurers.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of
the corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the corporation shall be filled by the Board of
Directors.
7
<PAGE> 8
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. He shall have and may exercise such powers as are,
from time to time, assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board,
the Vice Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and of the stockholders at which he shall be present. He
shall have and may exercise such powers as are, from time to time, assigned to
him by the Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief operating
officer of the corporation; and in the absence of the Chairman and Vice
Chairman of the Board he shall preside at all meetings of the stockholders and
the Board of Directors; he shall have general and active management of the
business of the corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.
Section 9. The president shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the
event of his inability or refusal to act, the vice-president, if any, (or in
the event there be more than one vice-president, the vice-presidents in the
order designated by the directors, or in the absence of any designation, then
in the order of their election) shall perform the duties of the president, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice-presidents shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or president, under whose supervision he shall be. He shall
have custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of such assistant secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 12. The assistant secretary, or if there be more
than one, the assistant secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the
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<PAGE> 9
event of his inability or refusal to act, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. Unless otherwise appointed, the chief financial officer shall be
the treasurer.
Section 14. The treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, the
treasurer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be
more than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice-chairman of the Board of Directors, or the
president or a vice-president and the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the
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<PAGE> 10
qualification, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
that the corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may
be set forth on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholder
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to
any other action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
10
<PAGE> 11
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be
amended and supplemented from time to time, indemnify each of its agents made,
or threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of being an agent
11
<PAGE> 12
of the corporation or a predecessor corporation or, at the corporation's
request, a director or officer of another corporation, provided, however, that
the corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be an agent, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by an agent of the corporation in defending
a civil or criminal action, suit or proceeding by reason of the fact that he is
or was an agent of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations
to the corporation or any other willful and deliberate breach in bad faith of
such agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to
be a contract between the corporation and each agent who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made
a party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all
directors, officers and employees who are determined by the corporation or
otherwise to be or to have been "fiduciaries" of any employee benefit plan of
the corporation that may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Section 6, be
interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including without limitation, any plan of the
corporation that is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants
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<PAGE> 13
or beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to such Act of Congress shall be deemed
"fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or
repealed or new bylaws may be adopted by the stockholders or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new bylaws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal bylaws is conferred upon the Board of Directors by
the certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included in the Company's Form 10-Q
and is qualified in its entirety by reference to such condensed consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 54,487
<SECURITIES> 47,553
<RECEIVABLES> 21,492
<ALLOWANCES> 1,364
<INVENTORY> 0
<CURRENT-ASSETS> 126,552
<PP&E> 12,504
<DEPRECIATION> 4,958
<TOTAL-ASSETS> 134,098
<CURRENT-LIABILITIES> 21,789
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 111,891
<TOTAL-LIABILITY-AND-EQUITY> 134,098
<SALES> 37,190
<TOTAL-REVENUES> 53,303
<CGS> 1,629
<TOTAL-COSTS> 8,315
<OTHER-EXPENSES> 8,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 17,036
<INCOME-TAX> 6,088
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,948
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
