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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
(No Fee Required)
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
(No Fee Required)
For the transition period from ____________ to ____________
Commission file number 0-25494
REMEDY CORPORATION
(exact name of Registrant as specified in its charter)
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DELAWARE 77-0265675
(State or Other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or Organization)
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1505 SALADO DRIVE, MOUNTAIN VIEW, CA 94043
(650) 903-5200
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, $.00005 PAR VALUE;
PREFERRED SHARE PURCHASE RIGHTS, $.00005 PAR VALUE;
REGISTERED ON THE NASDAQ NATIONAL MARKET
(Title of Class)
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 [ ]
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 in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 3, 1998 was approximately $465,206,727 (based on the
last reported sale price of $18.875 on March 3, 1998 on the Nasdaq National
Market).
The number of shares of Common Stock outstanding as of March 3, 1998 was
28,828,730.
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT FORM 10-K REFERENCE
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Proxy Statement for Registrant's Annual Part III, Items 10-13
Meeting
to be held on May 28, 1998 Part II, Items 6-8
Annual Report to Stockholders for the Part IV, Item 14
fiscal
year ended December 31, 1997
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PART I
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The statements contained in this Report that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements regarding the
Company's expectations, beliefs, intentions or strategies regarding the future.
All forward-looking statements included in this document are based on the
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statement. The Company's actual
results could differ materially from the results discussed herein. Factors that
might cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors" in Item 1 of this section, as well as those
discussed elsewhere in this Report, and the risks discussed in the Company's
Securities and Exchange Commission Filings.
ITEM 1. BUSINESS.
Remedy Corporation ("Remedy" or the "Company") develops, markets and
supports highly adaptable, client/server applications software for support and
business processes. The Company's Remedy Help Desk application is primarily used
today as an internal help desk application for tracking and resolving support
requests and problems in PC, UNIX and NT computing environments. The Company's
Action Request System ("AR System") is used as the foundation on which the
Company's applications are based. Additional applications provided by the
Company include Remedy Asset Management, Remedy Change Management, and Remedy
Service Level Agreements. Additionally, the Company provides companion products,
such as ARWeb and Flashboards, for complete customer solutions. Due to its
versatility, the AR System is also used as the foundation for automating and
consolidating additional internal business operations related to the help desk,
in a market referred to as the Consolidated Operations Management ("COM")
market.
The Company was incorporated on November 20, 1990 in Delaware. The Company
maintains its executive offices and principal facilities at 1505 Salado Drive,
Mountain View, California 94043. Its telephone number is (650) 903-5200.
BACKGROUND
The Company believes that few organizations have fully realized the
potential benefits offered by client/server computing. In particular, the need
for an adaptable internal help desk must be addressed as a prerequisite for a
well-managed computing infrastructure. Moreover, to realize the full benefits of
applying client/server applications to meet the demands of changing support and
business processes, the Company believes that a new class of highly adaptable,
client/server application software is required.
The Company's technology and applications are also well suited for a
variety of internal business processes in the COM market, including change
management, asset management, customer and technical support, defect tracking,
service level agreement tracking, project tracking, facilities management and
inventory management. These applications are based on the Company's AR System,
which employs an easy-to-use client interface over a workflow server and an
incident tracking relational database. The following are the key attributes of
the Remedy solution:
Adaptability Without Programming. The AR System offers users the
versatility of a spreadsheet, enabling customers to create or alter all visual,
functional and process definitions without programming. End users can customize
their interface to match their role in a process. Departments or lines of
business can select and tailor the information to be tracked and define the
workflow of a process. Information technology organizations can quickly adapt
the AR System to any internal operational process that involves a group of
people who must proactively respond to frequent incidents or requests. When a
process needs to be changed, creating the database fields, process workflow and
application linkages can occur rapidly. More importantly, the application is
adaptable to meet most future requirements, without costly programming.
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Scalable, High Performance Architecture. The Company's product
architecture offers users departmental to enterprise scalability with high
system performance. Remedy applications are scalable across a range of sites
from small department networks to multi-site, global implementations.
Performance is optimized as only the required amount of information is moved
between clients and servers, thereby minimizing end user response time and
maximizing utilization of an organization's computing and networking resources.
Fast and Broad Deployment. The Company's application design and licensing
practices allows for fast deployment to a broad range of users. While the Remedy
Help Desk application is highly adaptable, it comes as a complete solution,
ready to provide a high degree of functionality to users upon initial
installation. User capabilities for self help, status query and direct problem
submission are all offered at no cost to users, providing additional value to
both user and help desk staff.
Integration with Third-Party Software and Systems. The Company's software
is designed to integrate (generally without programming) with a wide variety of
computer and telecommunication technologies and products, including desktop
applications, telephony devices, network management systems and legacy systems.
The Company's products integrate with many of the most prevalent Windows, MAC
and UNIX desktop applications, such as e-mail, document or media browsers,
spreadsheets and document editors. The Company's software links with automatic
call distributors and interactive voice response systems to simultaneously
display customer profile and historical problem resolution data for the support
personnel as the call is being answered. Workflow notifications, such as
incident arrivals, transfers or delegations, and incident resolution notices,
are frequently sent via e-mail, pagers, facsimile systems or voice response
units. Network management outage alarms are sent from leading network management
systems, such as SunNet Manager or HP OpenView, to Action Request System
servers, automatically creating a problem report to be handled by the internal
help desk staff.
The Company's AR System foundation provides important technology for
organizations implementing process improvement or re-engineering. New process
solutions or modifications can be quickly prototyped for evaluation. Proactive
workflow notifications can reduce delays previously caused by unaddressed
requests. Information is more readily available to the people making the
decisions and serving the customer. Process performance can be easily monitored,
measured and displayed, identifying problems or additional opportunities for
further improvement. These features represent fundamental enabling technologies
critical for building successful client/server applications for support and
business processes.
PRODUCTS
REMEDY HELP DESK
The Remedy Help Desk, based on the AR System foundation, is a client/server
application that is primarily used as an internal help desk application for
tracking and resolving support requests and problems in PC, UNIX and NT
computing environments. Due to its versatility, the Remedy Help Desk application
is easily adapted to and used for many other internal operations. Using simple
point-and-click methods, customers adapt the application's workflow and tracking
capability to the unique information, process and integration requirements of
their department or enterprise.
The client/server architecture of the Remedy Help Desk balances
functionality among three elements: desktop client, workflow server and database
server. The desktop client and workflow server communicate via industry standard
remote procedure calls that allow clients to access servers over local area
networks ("LANs"), wide area networks ("WANs"), and dial-up phone lines, without
concern about mixed hardware or software environments. The workflow server
actively manages and coordinates the progress of incidents from inception to
closure. It makes all routing, escalation, access control and integration
decisions prior to communicating new or updated information to the database
server. The product employs a low-impact transaction model that moves only the
necessary information between client and workflow server, thereby conserving
bandwidth and giving users WAN and dial-up performance that is similar to LAN
performance. The database server stores and maintains incident information and
related information, such as detailed information about the computing
configuration of the customer that submitted an incident. The contents of the
database become a knowledge repository that can be consulted in resolving future
incidents. The database
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may be co-resident with the server or on a different system, in which case it is
accessed using the database vendor's communication methods.
FLASHBOARDS
Flashboards is an independent companion product to the Remedy Help Desk. It
presents panels of graphical charts and meters that show current and historical
measures of process quality and performance. Such measures are useful for
organizations that want a quantitative view of their processes, whether for
continual improvement or to make informed planning decisions. The product's
client/server architecture is similar to that of the Remedy Help Desk. Clients
run on the desktops of users who are managing or participating in a process,
such as a customer support hot-line, and support one or more visual panels. The
Flashboard Server is designed to run on any processor and accesses the AR Server
for statistics about the process. It optimizes access to the AR Server on behalf
of all users, greatly reducing load compared to other report and statistics
generating tools. The Flashboard Administrator Tool allows point-and-click
definition of panels, which contain graphical representations of virtually any
process metric accessible in the AR System. The product features the ability to
continually view and compare the process metrics over time. Users are able to
view several metrics synchronized in time for quickly correlating multiple
trends. Flashboards is highly adaptable and assists organizations in meeting
their quality and operational goals as they constantly change and evolve.
ARWEB
ARWeb is an independent companion product to the Remedy Help Desk. It is a
gateway between the Remedy Help Desk application and a World Wide Web server. It
is designed to allow Internet browsers to be clients of the Remedy Help Desk.
The product converts the form-like views of the Remedy Help Desk into Worldwide
Web browser forms dynamically and automatically as they are accessed. Since the
Remedy Help Desk allows flexible customization of forms, Worldwide Web browser
users will benefit from that customization without learning HTML, the Worldwide
Web browser graphics forms language.
DISTRIBUTED SERVER OPTION
The Distributed Server Option for the Remedy Help Desk expands the help
desk solution to multiple locations and multiple applications across the
corporate enterprise. The highly efficient architecture enables information
transfer to specialized departments or individuals throughout the enterprise. It
enables automatic data transfer between AR System servers while maintaining
consistent information throughout the environment. Each site retains its
autonomy for administration and operation while benefiting from sharing
information with other sites. The Distributed Server Option coordinates requests
between independent support organizations, provides centralized dispatching of
services through different operations groups, links different organizations and
applications and creates a knowledge base of solutions for the entire
enterprise.
CUSTOMERS
As of the end of December 1997, the Company had licensed its software to
more than 2,800 customers at over 5,250 sites. In 1997, no customer accounted
for more than 10% of the Company's total revenue.
PRODUCT PRICING
The domestic end user list price for the Remedy Help Desk application,
which comes with the Action Request System foundation, is $9,500, which includes
server software and three "write licenses." These licenses enable three
individuals at a customer site to modify and manage existing information in the
database. The Company has structured its pricing policies so that a customer has
an unlimited number of "read-only licenses" for creating new action requests and
for reading information in the database. For example, in the case of a customer
using the Remedy Help Desk application, the three write licenses would enable
three support staff to modify and manage existing information in the database
and the unlimited number of read-only licenses would enable an unlimited number
of end users to submit action requests and monitor their
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status. If a customer needs more than three write licenses, the Company offers
additional packages of five fixed or floating licenses. The Company's list price
for five additional fixed licenses is $4,000, and for five additional floating
licenses is $10,000. Floating licenses control the number of simultaneous users
accessing a server, rather than being associated with either specific computers
or specific users. License fees are subject to varying discounts depending on
customer volume. The Company offers an annual maintenance program to its
licensees that includes product updates and hotline support.
The Company's indirect sales channels include value-added resellers
("VARs"), system integrators ("SIs"), independent software vendors ("ISVs") and
original equipment manufacturers ("OEMs"), who license the Company's products at
a discount for relicensing. In addition, distributors, who resell our products,
are also part of our indirect sales channel. The Company expects to increase
revenue from the indirect channels and distributors as a percentage of total
revenue, which could adversely affect the Company's operating margins because
the sale of a greater number of licenses will be required to offset the lower
net license fees generated on the sale of the same products through indirect
resellers.
The Company believes that its products currently 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.
SALES AND MARKETING
The Company markets its software and services through its direct
headquarters-based sales organization and through its indirect sales channels
(VARs, SIs, ISVs, OEMs and distributors). The Company's headquarters-based
direct sales force accounted for approximately 56% of the Company's total
revenue for 1997, and sales through indirect channels accounted for
approximately 44%. As of December 31, 1997, the Company's sales and marketing
organization consisted of 224 individuals, 110 at the Company's offices in
Mountain View, California, 35 in the United Kingdom, 23 in Pleasanton,
California, 16 in Maryland, 13 in Germany, 12 in New Jersey, 7 in France, 5 in
Singapore, 2 in Australia, and 1 in Canada.
The Company's direct sales organization consists of technically proficient
sales people who consummate most sales through telephone contact with existing
or prospective customers. Each sales representative typically travels three to
five days per month to visit existing and prospective customers, which include
both direct customers and indirect channels. The Company's marketing
organization provides leads to members of the sales force. Leads are primarily
generated through public relations, seminars, trade shows and the Company's web
site.
The Company increased the size of its headquarters-based direct sales force
from 100 to 157 individuals in 1997. The Company intends to substantially
increase the size of its sales force in 1998 and beyond, which is required if
the Company is to achieve significant revenue growth in the future. Competition
for such persons is intense, and there can be no assurance that the Company will
be able to attract highly qualified sales personnel. If the Company is unable to
hire such people on a timely basis, the Company's business, operating results
and financial condition could be adversely affected.
The Company's sales and marketing organization is complemented by indirect
sales channels (VARs, SIs, ISVs and OEMs), who license the Company's products at
a discount for relicensing, and may provide training, support and customer
services to end users. The Company anticipates that the percentage of its total
revenue derived from indirect sales, particularly through VARs and SIs, will
increase in the future. However, there can be no assurance that the Company will
be able to attract and retain VARs, SIs, ISVs and OEMs that will be able to
market the Company's products effectively. In addition, there can be no
assurance that any existing VAR, SI, ISV or OEM will continue to represent the
Company's products. The Company expects that any material increase in the
Company's indirect sales as a percentage of revenue will adversely affect the
Company's average selling prices and gross margins due to the lower unit prices
that the Company receives when selling through indirect channels.
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The Company and its indirect sales channels generally sell the Remedy Help
Desk and related applications and services through a sales representative with
occasional help from a pre-sales engineer. To further encourage sales, the
Company conducts comprehensive marketing programs that include public relations,
seminars, trade shows, user group meetings and ongoing customer communications
programs.
For 1995, 1996 and 1997, international sales represented 31%, 37% and 37%,
respectively, of the Company's total revenue.
CUSTOMER SERVICE AND SUPPORT
The Company's customer service and support organization provides customers
with technical support, education and consulting services. The Company believes
that providing a high level of customer service and technical support is
critical to customer satisfaction and the Company's success. In providing
service and support to customers, the Company uses its own products extensively.
As of December 31, 1997, the Company had 132 people in its customer service and
support organization. Most of the Company's customers currently have support
agreements with the Company.
Technical Support. The Company offers telephone, electronic mail and fax
customer support through its support services staff. Additional customer support
is provided by the Company's VARs, SIs, ISVs and OEMs. Initial product license
fees do not include software maintenance. Customers are entitled to receive new
software releases, maintenance releases and support for a separate annual fee.
Education. The Company offers a comprehensive education and training
program to customers. Training classes are offered through in-house facilities
at the Company's offices in Pleasanton, California. The Company also provides
on-site training services upon request by customers. Fees for education and
training services are charged separately from the Company's software products.
Consulting. The Company's consultants are available to work closely with
customers' information systems organizations. These consulting services
generally consist of assisting customers who are planning large implementations
or who wish to outsource the specialization of the Company's products to their
needs. Fees for consulting services are charged separately from the Company's
software products.
RESEARCH AND DEVELOPMENT
Since its inception, the Company has made substantial investments in
research and development. The Company believes that its future performance will
depend in large part on its ability to maintain and enhance its current product
line, develop new products that achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. The Company intends to expand its existing product offerings and
to introduce new products for the client/server application software market. In
the development of new products and enhancements to existing products, the
Company uses its own tools extensively. Although the Company expects that
certain of its new products will be developed internally, the Company may, based
on timing and cost considerations, acquire technology and/or products from third
parties or consultants.
As of December 31, 1997, the Company's research and development staff
consisted of 166 employees. The Company's total expenses for research and
development for fiscal years 1995, 1996 and 1997 were $7.2 million, $13.3
million and $21.2 million, respectively. The Company anticipates that it will
continue to commit substantial resources to research and development in the
future. To date, the Company's development efforts have not resulted in any
capitalized software development costs.
RISK FACTORS
In addition to the other information in this report on Form 10-K, the
following factors should be considered carefully.
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,
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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 this revenue 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 is 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. In the quarter ended December
31, 1997, the Company received significantly fewer orders than expected, which
had an immediately adverse effect on the Company's financial performance for the
quarter. The Company's operating results were below the expectations of public
market analysts and investors, and the Company's stock price declined
significantly. It is likely that in some future quarter the Company's operating
results will again 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.
The Company's business has experienced and is expected to continue to
experience a level of seasonality, in part due to customer buying patterns. In
recent years, the Company has generally had weaker demand in the quarter ending
in March. The Company believes this pattern will continue and accordingly
anticipates total revenue and net income in the quarter ending March 31, 1998
will be lower than in the quarter ended December 31, 1997.
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. In the fourth quarter of 1997, IBM
announced that it had acquired Software Artistry, a competitor of the Company.
Following the announcement, the Company has experienced a lengthened sales
process, as many prospective customers have taken time to evaluate the impact of
the Software Artistry acquisition in making their purchase decisions. There can
be no assurance that the Company will be able to compete successfully against
current and future
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competitors or that competitive 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 1997, the Company released several
new products, along with significant upgrades to existing products. These
products are subject to significant technical risks. If the new products 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 began
shipping products in 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 1998 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. The Company increased the size of its
headquarters-based direct sales force from 42 to 100 in 1996 and from 100 to 157
in 1997. 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 AR System, the applications Remedy provides,
which are built upon the Action Request System
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foundation, 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 market acceptance of the AR System
foundation and applications 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. 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 AR System foundation and
other applications. There can be no assurance that the Company will continue to
be successful in marketing the AR System or any new or enhanced products or
applications.
Management of Growth; Dependence Upon Key Personnel. The Company has
recently experienced a period of significant growth that has placed a
significant strain upon its management systems and resources. The Company
recently implemented a number of new financial and management controls,
reporting systems and procedures. The Company's ability to compete effectively
and to manage future growth, if any, will require the Company to continue to
improve its financial and management controls, reporting systems and procedures
on a timely basis and expand, train and manage its employee work force. There
can be no assurance that the Company will be able to do so successfully. The
Company's failure to do so could have a material adverse effect upon the
Company's business, operating results and financial condition. The Company's
future performance depends in significant part upon the continued service of its
key technical, sales and senior management personnel, none of whom is bound by
an employment agreement. The loss of the services of one or more of the
Company's current executive officers could have a material adverse effect on the
Company's business, operating results and financial condition. The Company has
experienced several changes at the executive officer level in the past few
quarters. In November 1997, Vasu Devan, the Company's Vice President, Sales,
left the Company. David Mahler, the Company's Vice President, Business
Development, acted as Vice President, Worldwide Sales from November 1997 to
March 1998. In March 1998, Michael L. Dionne, Senior Vice President of Worldwide
Sales, joined the Company as Vasu Devan's replacement. The Company has also
experienced significant turnover in the sales organization in the fourth quarter
of 1997, which had an adverse impact on the Company's sales and operating
results in that quarter. If the Company continues to experience turnover in its
sales organization, the Company business, operating results and financial
position could be materially adversely affected. In addition, Bernard Cote, the
Company's Vice President, Customer Support, began a medical leave of absence in
February 1998. Mr. Cote is expected to rejoin Remedy at a future date. In March
1998, Richard P. Allocco, Vice President and General Manager of Worldwide
Customer Services, joined the Company as Bernard Cote's replacement. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical, sales and managerial personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
can retain its key technical, sales and managerial employees or that it can
attract, assimilate or retain other highly qualified technical, sales and
managerial personnel in the future.
Expansion of Indirect Channels. An integral part of the Company's strategy
is to continue to develop the marketing channels of value added resellers
(VARs), system integrators (SIs), independent software vendors (ISVs) and
original equipment manufacturers (OEMs), and to increase the proportion of the
Company's customers licensed through these channels. VARs, SIs, ISVs and OEMs
accounted for approximately 44% of the Company's total revenue in 1997. The
Company is currently investing, and intends to continue to invest, significant
resources to develop these channels, which could adversely affect the Company's
operating margins. There can be no assurance that the Company will be able to
attract VARs, SIs, ISVs and OEMs that will be able to market the Company's
products effectively and will be qualified to provide timely and cost-effective
customer support and service. In addition, the Company's agreements with VARs,
SIs, ISVs and OEMs are not exclusive and in many cases may be terminated by
either party without cause, and many of the Company's VARs, SIs, ISVs and OEMs
carry competing product lines. Therefore, there can be no assurance that any
VAR, SI, ISV or OEM will continue to represent the Company's products, and the
inability to recruit, or the loss of important VARs, SIs, ISVs or OEMs could
adversely affect the Company's results of operations. In addition, if it is
successful in selling products through these channels, the Company expects that
any material increase in the Company's indirect sales as a percentage of total
revenue will adversely affect the Company's average selling prices and gross
margins due to the lower unit prices that the Company receives when selling
through indirect channels.
9
<PAGE> 10
International Operations. International sales represented approximately
37% of the Company's revenue in 1997. The Company currently has seven
international wholly-owned subsidiaries, which are primarily sales offices,
which are located in the United Kingdom, France, Germany, Singapore, Australia,
Japan and Canada. The Company believes that its continued growth and
profitability will require expansion of its international operations.
Accordingly, the Company intends to continue to expand its international
operations and enter additional international markets, which will require
significant management attention and financial resources and could adversely
affect the Company's operating margins. In order to successfully expand
international sales in 1998 and subsequent periods, the Company must establish
additional foreign operations, hire additional personnel and recruit additional
international resellers. To the extent that the Company is unable to do so in a
timely manner, the Company's growth, if any, in international sales will be
limited, and the Company's business, operating results and financial condition
could be materially adversely affected. In addition, there can be no assurance
that the Company will be able to maintain or increase international market
demand for the Company's products. The Company's international sales are
currently denominated in U.S. dollars. An increase in the value of the U.S.
dollar relative to foreign currencies could make the Company's products more
expensive and, therefore, potentially less competitive in those markets.
Additional risks inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs of localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences including restrictions on the repatriation
of earnings, and the burdens of complying with a wide variety of foreign laws.
There can be no assurance that such factors will not have a material adverse
effect on the Company's future international sales and, consequently, the
Company's results of operations. In addition, because a substantial majority of
the Company's international sales are indirect, any material increase in the
Company's international sales as a percentage of total revenue will adversely
affect the Company's average selling prices and gross margins due to the lower
unit prices that the Company receives when selling through indirect channels.
Dependence on Growth in the Client/Server Computing Market; General
Economic and Market Conditions. Substantially all of the Company's revenue have
been attributable to sales of the Remedy Help Desk and associated applications,
which are built upon the AR System foundation, which are utilized in
client/server computing environments. This product is currently expected to
account for a significant part of the Company's future revenue. Although demand
for the Remedy Help Desk and associated applications has grown in recent years,
the client/server computing market is still an emerging market. The Company's
future financial performance will depend in large part on continued growth in
the number of organizations adopting client/server computing environments and
the number of applications developed for use in those environments. There can be
no assurance that the market for client/server computing will continue to grow.
If the client/server computing market fails to grow or grows more slowly than
the Company currently anticipates, the Company's business, operating results and
financial condition would be materially adversely affected. During recent years,
segments of the personal computer industry have experienced significant economic
downturns characterized by decreased product demand, production overcapacity,
price erosion, work slowdowns and layoffs. The Company's operations may in the
future experience substantial fluctuations from period to period as a
consequence of such industry patterns, general economic conditions affecting the
timing of orders from major customers, and other factors affecting capital
spending. There can be no assurance that such factors will not have a material
adverse effect on the Company's business, operating results or financial
condition.
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success is heavily dependent upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. The Company presently has no patents or patent applications
pending. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy
10
<PAGE> 11
can be expected to be a persistent problem. In selling its products, the Company
relies primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, it is possible that such licenses may be unenforceable under the laws
of certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an extent as do the laws of
the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. The Company is
not aware that any of its products infringes the proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time-
consuming, result in costly litigation, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the
Company's business, operating results and financial condition.
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. In selling its products, the Company relies
primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, it is possible that such licenses may be unenforceable under the laws
of certain jurisdictions. For these and other reasons, it is possible that the
limitation of liability provisions contained in the Company's license agreements
may not be effective. Although the Company has not experienced any product
liability claims to date, the sale and support of products by the Company may
entail the risk of such claims. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
Year 2000 Compliance The Company is aware of the issues associated with
the programming code in existing computer systems as the year 2000 approaches.
The "year 2000 problem" is pervasive and complex, as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Management does not currently anticipate that the Company will
incur significant operating expenses or be required to invest heavily in
computer systems improvements to be year 2000 compliant. However, significant
uncertainty exists concerning the potential costs and effects associated with
any year 2000 compliance. Any year 2000 compliance problems of either the
Company or its vendors could materially adversely affect the Company's business,
results of operations and financial condition.
Remedy's software currently supports any date value set by the operating
system. All date information, such as creation dates, modification dates, and
time/date stamps, is generated using the date value provided by our customer's
operating system.
ITEM 2. PROPERTIES.
The Company's principal administrative, sales and marketing facility is
located in approximately 51,000 square feet of space in Mountain View,
California. This facility is subleased to the Company through June 2001. The
Company also leases two other facilities of approximately 43,000 square feet
each in Mountain View, California, through October 2005. In December 1995, the
Company began to occupy one of the 43,000 square foot facilities for use
primarily for product development. The Company is currently subleasing the
second facility to a third party through June 1999. In addition, the Company's
support center is located in two facilities totaling approximately 77,000 square
feet of space in Pleasanton, California. These facilities are leased to the
Company through the year 2000. The Company also leases office space in Maryland,
New Jersey, Virginia, United Kingdom, Frankfurt, Paris, Singapore and Tokyo. The
Company believes that suitable additional or alternative space will be available
in the future on commercially reasonable terms as needed.
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
12
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security-holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 4A. OFFICERS OF THE REGISTRANT.
The officers of the Company, and their ages as of March 30, 1998, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lawrence L. Garlick.......................... 49 Chairman of the Board and Chief Executive
Officer
David A. Mahler.............................. 41 Vice President, Business Development and
Director
Richard P. Allocco........................... 43 Vice President and General Manager,
Worldwide Customer Services
Todd Basche.................................. 43 Vice President, Engineering
Eric S. Bergan............................... 40 Vice President, Independent Software
Vendors
Bernard R. Cote.............................. 50 Vice President
George A. de Urioste......................... 42 Vice President, Finance and Operations, and
Chief Financial Officer
Michael L. Dionne............................ 49 Senior Vice President, Worldwide Sales
Matthew R. Miller............................ 34 Vice President, Marketing
</TABLE>
Mr. Garlick co-founded the Company in November 1990. Since that time he has
served as Chairman of the Board and Chief Executive Officer of the Company. From
September 1984 to June 1990, Mr. Garlick was employed most recently as Vice
President of Distributed Systems by Sun Microsystems, Inc. ("Sun"), a
manufacturer of computer workstations. Prior to joining Sun, Mr. Garlick was
employed by Xerox Corporation ("Xerox"), a document management company, for six
years. Mr. Garlick holds B.S.E.E. and M.S.E.E. degrees in computer engineering
from Stanford University.
Mr. Mahler co-founded the Company in November 1990. Since June 1995, he has
served as Vice President, Business Development. Between November 1997 and March
1998, Mr. Mahler also served as acting Vice President, Worldwide Sales. From
April 1993 to June 1995, Mr. Mahler served as Vice President, Marketing. From
November 1990 to March 1993, Mr. Mahler served as Vice President, Marketing and
Chief Financial Officer. From November 1978 to October 1990, Mr. Mahler was
employed most recently as product marketing manager at Hewlett-Packard Company,
a manufacturer of computers and related products. Mr. Mahler holds a B.S. degree
in computer science from Case Western Reserve University.
Mr. Allocco joined the Company in March 1998 as Vice President and General
Manager, Worldwide Customer Services. From January 1996 to February 1998, Mr.
Allocco was employed most recently as Senior Vice President, Marketing and Field
Support by Siemens Business Communication Systems, Inc., a manufacturer of
telecommunication and related network equipment. Prior to joining Siemens, Mr.
Allocco served as Vice President and General Manager, Western Area, at Siemens
ROLM Communications, a manufacturer of telecommunication and related network
equipment, from May 1989 to May 1995. Mr. Allocco was employed by IBM
Corporation, an information systems and applications manufacturer, for over 12
years in various sales, marketing and management positions, prior to joining
Rolm. Mr. Allocco holds a B.A. degree in economics from University of Notre
Dame.
Mr. Basche joined the Company in August 1997 as Vice President,
Engineering. From January 1993 to May 1997, Mr. Basche was employed most
recently as Vice President by Visioneer, Inc., a shrink-wrapped consumer
hardware and software products company. Prior to joining Visioneer, Mr. Basche
was employed from February 1989 to February 1993, as Director of Desktop and
Graphics Systems for Sun. Mr. Basche holds a B.S. degree in electrical
engineering from Northeastern University.
13
<PAGE> 14
Mr. Bergan joined the Company in April 1993 and since August 1997 has
served as Vice President, Independent Software Vendors. From April 1993 to
August 1997, Mr. Bergan was Vice President, Engineering. From October 1991 to
March 1993, Mr. Bergan was employed most recently as Director of Engineering,
Applications by NetLabs Inc., a network management software company. Prior to
joining NetLabs, Mr. Bergan was employed by Pyramid Technology Corp., a computer
manufacturer, for four years, serving as Director of Data Bases, Applications
Engineering, and SW Quality Assurance. Mr. Bergan holds a B.S. degree in
computer science from the University of Kansas and a M.S. degree in computer
science from Johns Hopkins University.
Mr. Cote joined the Company in November 1993 as Vice President, Customer
Support. Since February 1998, Mr. Cote has been on medical leave and is expected
to return to the Company at a future date. From March 1984 to May 1993, Mr. Cote
was employed most recently as Vice President of Worldwide Support by Sun. Prior
to joining Sun, Mr. Cote was employed by Digital Equipment Corporation, a
manufacturer of computers and related products, for over fifteen years in
various customer support management roles. Mr. Cote holds an A.A. degree from
Chabot College.
Mr. de Urioste joined the Company in March 1993 as Vice President, Finance
and Operations, and Chief Financial Officer. From January 1991 to June 1992, Mr.
de Urioste was employed most recently as Chief Financial Officer by TeamOne
Systems, Inc. (TeamOne), a configuration management software company. Prior to
joining TeamOne, Mr. de Urioste served as Manager of Financial Planning and
Analysis at ASK Computer Systems, Inc., a manufacturing management software
company, from November 1988 to November 1990. Mr. de Urioste is a Certified
Public Accountant and holds a B.S. degree in accounting from the University of
Southern California and a M.B.A. degree in finance and international business
from the University of California, Berkeley.
Mr. Dionne joined the Company in March 1998 as Senior Vice President,
Worldwide Sales. From May 1983 to March 1997, Mr. Dionne was employed most
recently as Senior Vice President and General Manager, Service and Support at
Apple Computer, Inc., a manufacturer of computers and related products. Prior to
joining Apple, Mr. Dionne was employed by Xerox Corporation, a document
management company, for six years in various sales and management positions. Mr.
Dionne holds a B.S. degree in business administration from Bryant College.
Mr. Miller joined the Company in July 1996 as Vice President, Marketing.
From April 1993 to July 1996, Mr. Miller was employed most recently as Vice
President of Marketing at Gupta Corporation, a provider of client-server tools
and databases. From June 1989 to May 1992, he was employed by Oracle
Corporation, a database software provider, most recently serving as Director of
Marketing for the Desktop Products Division. Mr. Miller holds a B.A. degree in
psychology and computer science from Cornell University and a M.B.A. degree in
finance and marketing from Columbia University.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on The Nasdaq Stock Market under
the symbol "RMDY" since March 17, 1995. The following table sets forth, for the
fiscal quarters indicated, the high and low sale prices of the Company's Common
Stock as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1997:
First Quarter...................................... $54.63 $31.50
Second Quarter..................................... $47.63 $25.25
Third Quarter...................................... $47.13 $34.44
Fourth Quarter..................................... $47.00 $20.88
Fiscal 1996:
First Quarter...................................... $28.25 $15.50
Second Quarter..................................... $45.13 $26.50
Third Quarter...................................... $40.88 $21.63
Fourth Quarter..................................... $55.75 $38.13
</TABLE>
The stock prices set forth in the table above have been adjusted to reflect
the three-for-two stock dividend effected March 25, 1996 and the two-for-one
stock dividend effected October 25, 1996.
On March 3, 1998 the closing sale price of the Common Stock was $18.875 per
share. On that date, there were 135 holders of record.
DIVIDENDS
The Company has never paid cash dividends on its capital stock and does not
expect to pay cash dividends in the foreseeable future. In addition, the
Company's bank credit agreement currently restricts the Company's ability to pay
cash dividends without the bank's consent.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing under the caption "Selected Financial Data" in
the Company's 1997 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1997
Annual Report to Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements and supplementary data in
the Company's 1997 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NOT APPLICABLE
15
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT.
The information under the caption "Election of Directors" as set forth in
the Company's proxy statement for its annual stockholders' meeting to be held on
May 28, 1998 is incorporated herein by reference.
Information concerning officers is included in Part I under the caption
"Item 4a. Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Executive Compensation and related
information" as set forth in the Company's proxy statement for its annual
stockholders' meeting to be held on May 28, 1998 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information under the caption "Security Ownership of Certain Beneficial
Owners and Management" as set forth in the Company's proxy statement for its
annual stockholders' meeting to be held on May 28, 1998 is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Relationships and Related
Transactions" as set forth in the Company's proxy statement for its annual
stockholders' meeting to be held on May 28, 1998 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
A) 1. CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements are incorporated herein by
reference from the Company's 1997 Annual Report to Stockholders:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
-------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 36
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... 23
Consolidated Statements of Income for each of the three
years ended December 31, 1995, 1996 and 1997.............. 24
Consolidated Statements of Stockholders' Equity for each of
the three years ended December 31, 1995, 1996 and 1997.... 25
Consolidated Statements of Cash Flows for each of the three
years December 31, 1995, 1996 and 1997.................... 26
Notes to Consolidated Financial Statements.................. 27-34
</TABLE>
16
<PAGE> 17
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule for each of the
three years in the period ended December 31, 1995, 1996 and 1997 is submitted
herewith:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II: Valuation and Qualifying Accounts and
Reserves.................................................. 20
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or required, or the information required to be set forth therein is
included in the Financial Statements or Notes thereto, which are incorporated
herein by reference from the Company's 1997 Annual Report to Stockholders.
3. EXHIBITS.
See Item 14(c).
B) REPORTS ON FORM 8-K
1. None
C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<C> <S>
3.1**** Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.1 and 3.2.
4.2* Specimen Common Stock certificate.
4.3* Restated Investor Rights Agreement, dated May 4, 1992, among
the Registrant and the investors and the founders named
therein.
4.4* Amendment of Restated Investor Rights Agreement, dated April
23, 1994, among the Registrant and the investors named
therein.
4.5* Second Amendment of Restated Investor Rights Agreement,
dated January 18, 1995, among the Registrant and the
investors named therein.
10.1* Form of Indemnification Agreement entered into between the
Registrant and its directors and officers.
10.2* The Registrant's 1991 Stock Option/Stock Issuance Plan and
forms of agreements thereunder.
10.3* The Registrant's 1995 Stock Option/Stock Issuance Plan and
forms of agreements thereunder.
10.4* The Registrant's Employee Stock Purchase Plan and forms of
agreements thereunder.
10.5* The Registrant's 1995 Non-Employee Directors Stock Option
Plan and forms of agreements thereunder.
10.6* Business Loan Agreement by and between the Registrant and
Silicon Valley Bank (SVB), dated January 4, 1993.
10.7* Promissory Note from Registrant to SVB, dated January 4,
1993.
10.8* Loan Modification Agreement by and between the Registrant
and SVB, dated August 3, 1994.
10.9* Negative Pledge Agreement by and between the Registrant and
SVB, dated August 3, 1994.
10.10** Loan Modification Agreement by and between the Registrant
and SVB, dated June 5, 1995.
10.11* Lease Agreement by and between the Registrant and Charleston
Properties (Charleston), dated March 11, 1994, regarding the
space located at 1500 Salado Drive.
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<C> <S>
10.12* License Agreement for use of Real Property by and between
the Registrant and Sun Microsystems, Inc. (Sun), dated March
11, 1994, regarding the space located at 1500 Salado Drive,
and related consent of Charleston, dated March 10, 1994.
10.13* License Agreement for use of Real Property by and between
the Registrant and Sun, dated March 11, 1994, regarding the
space located at 1505 Salado Drive, and related consent of
Peery/Arrillaga, dated March 9, 1994.
10.14* Form of Action Request System Shrink Wrap License Agreement.
10.15* Form of Value Added Reseller Agreement.
10.16 Loan Modification Agreement by and between the Registrant
and SVB, dated June 21, 1996.
10.17 Amended and Restated Business Loan Agreement by and between
the Registrant and SVB, dated June 15, 1997.
10.18 Amended and Restated Promissory Note by and between the
Registrant and SVB, dated June 15, 1997
10.19 Lease Agreement by and between the Registrant and Greiner,
Inc. Pacific, dated March 29, 1996, regarding the space
located at 5890 Stoneridge Drive.
10.20 Lease Agreement by and between the Registrant and Viacom
International Inc., dated March 17, 1997, regarding the
space located at 5924 Stoneridge Drive.
13.1 1997 Annual Report
14.1*** Rights Agreement dated as of July 25, 1997, between the
Company and Harris Trust Savings Bank, including the
Certificate of Designation of Series A Junior Participating
Preferred Stock, Form of Right Certificate and Summary of
Rights to Purchase Preferred Shares attached thereto as
Exhibits A, B and C, respectively.
21.1* Subsidiary of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page
19).
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for period ended March 31,
1996
27.3 Restated Financial Data Schedule for period ended June 30,
1996
27.4 Restated Financial Data Schedule for period ended September
30, 1996
27.5 Restated Financial Data Schedule for period ended December
31, 1996
27.6 Restated Financial Data Schedule for period ended March 31,
1997
27.7 Restated Financial Data Schedule for period ended June 30,
1997
27.8 Restated Financial Data Schedule for period ended September
30, 1997
</TABLE>
- ---------------
* Incorporated by reference from the Exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-89026).
** Incorporated by reference from the Exhibits to Remedy Corporation's Form
10-K Annual Report for the year ended December 31, 1995.
*** Incorporated by reference from the Exhibits to Remedy Corporation's Form
8-A, dated July 29, 1997.
**** Incorporated by reference from the Exhibits to Remedy Corporation's
Definitive Proxy Statement for Annual Meeting of Stockholders, dated April
16, 1997.
Remedy, Remedy Corporation, Action Request System, AR System, ARWeb,
Flashboards, Distributed Server Option, Remedy Help Desk, Remedy Asset
Management, Remedy Change Management, and Remedy Service Level Agreements are
all registered or other trademarks of Remedy Corporation. All other trademarks
and registered trademarks mentioned in this Report on Form 10-K may be
trademarks, registered trademarks or service marks of the companies with which
they are associated.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 24th day of
March, 1998.
REMEDY CORPORATION
LAWRENCE L. GARLICK
By:
--------------------------------------
Lawrence L. Garlick
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ LAWRENCE L. GARLICK Chairman of the Board and March 24, 1998
- --------------------------------------------- Chief Executive Officer (Principal
Lawrence L. Garlick Executive Officer)
/s/ DAVID A. MAHLER Vice President, Business March 24, 1998
- --------------------------------------------- Development and Director
David A. Mahler
/s/ GEORGE A. DE URIOSTE Vice President, Finance and March 24, 1998
- --------------------------------------------- Operations, and Chief Financial
George A. de Urioste Officer (Principal Financial and
Accounting Officer)
/s/ HARVEY C. JONES, JR. Director March 24, 1998
- ---------------------------------------------
Harvey C. Jones, Jr.
/s/ JOHN F. SHOCH Director March 24, 1998
- ---------------------------------------------
John F. Shoch
/s/ JAMES R. SWARTZ Director March 24, 1998
- ---------------------------------------------
James R. Swartz
</TABLE>
19
<PAGE> 20
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Remedy Corporation of our report dated January 22, 1998, included in
the 1997 Annual Report to Stockholders of Remedy Corporation.
Our audits also included the consolidated financial statement schedule of
Remedy Corporation listed in Item 14(a)2. This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the consolidated financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 File Nos. 33-90378, 33-91560 and 333-29191) pertaining to
the Employee Stock Purchase Plan and the 1995 Stock Option/Stock Issuance Plan
and 1995 Non-Employee Directors Stock Option Plan of Remedy Corporation of our
report dated January 22, 1998 with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the consolidated financial statement
schedule included in this Annual Report (Form 10-K) for the year ended December
31, 1997.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 26, 1998
20
<PAGE> 21
REMEDY CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS (IN THOUSANDS):
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS END OF PERIOD
- ----------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995......... $ 178 $ 413 $ 0 $ 50(1) $ 541
Year Ended December 31, 1996......... $ 541 $ 833 $ 0 $126(1) $1,248
Year Ended December 31, 1997......... $1,248 $1,076 $ 0 $350(1) $1,974
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<C> <S>
3.1**** Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.1 and 3.2.
4.2* Specimen Common Stock certificate.
4.3* Restated Investor Rights Agreement, dated May 4, 1992, among
the Registrant and the investors and the founders named
therein.
4.4* Amendment of Restated Investor Rights Agreement, dated April
23, 1994, among the Registrant and the investors named
therein.
4.5* Second Amendment of Restated Investor Rights Agreement,
dated January 18, 1995, among the Registrant and the
investors named therein.
10.1* Form of Indemnification Agreement entered into between the
Registrant and its directors and officers.
10.2* The Registrant's 1991 Stock Option/Stock Issuance Plan and
forms of agreements thereunder.
10.3* The Registrant's 1995 Stock Option/Stock Issuance Plan and
forms of agreements thereunder.
10.4* The Registrant's Employee Stock Purchase Plan and forms of
agreements thereunder.
10.5* The Registrant's 1995 Non-Employee Directors Stock Option
Plan and forms of agreements thereunder.
10.6* Business Loan Agreement by and between the Registrant and
Silicon Valley Bank (SVB), dated January 4, 1993.
10.7* Promissory Note from Registrant to SVB, dated January 4,
1993.
10.8* Loan Modification Agreement by and between the Registrant
and SVB, dated August 3, 1994.
10.9* Negative Pledge Agreement by and between the Registrant and
SVB, dated August 3, 1994.
10.10** Loan Modification Agreement by and between the Registrant
and SVB, dated June 5, 1995.
10.11* Lease Agreement by and between the Registrant and Charleston
Properties (Charleston), dated March 11, 1994, regarding the
space located at 1500 Salado Drive.
10.12* License Agreement for use of Real Property by and between
the Registrant and Sun Microsystems, Inc. (Sun), dated March
11, 1994, regarding the space located at 1500 Salado Drive,
and related consent of Charleston, dated March 10, 1994.
10.13* License Agreement for use of Real Property by and between
the Registrant and Sun, dated March 11, 1994, regarding the
space located at 1505 Salado Drive, and related consent of
Peery/Arrillaga, dated March 9, 1994.
10.14* Form of Action Request System Shrink Wrap License Agreement.
10.15* Form of Value Added Reseller Agreement.
10.16 Loan Modification Agreement by and between the Registrant
and SVB, dated June 21, 1996.
10.17 Amended and Restated Business Loan Agreement by and between
the Registrant and SVB, dated June 15, 1997.
10.18 Amended and Restated Promissory Note by and between the
Registrant and SVB, dated June 15, 1997
10.19 Lease Agreement by and between the Registrant and Greiner,
Inc. Pacific, dated March 29, 1996, regarding the space
located at 5890 Stoneridge Drive.
10.20 Lease Agreement by and between the Registrant and Viacom
International Inc., dated March 17, 1997, regarding the
space located at 5924 Stoneridge Drive.
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<C> <S>
13.1 1997 Annual Report
14.1*** Rights Agreement dated as of July 25, 1997, between the
Company and Harris Trust Savings Bank, including the
Certificate of Designation of Series A Junior Participating
Preferred Stock, Form of Right Certificate and Summary of
Rights to Purchase Preferred Shares attached thereto as
Exhibits A, B and C, respectively.
21.1* Subsidiary of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page
19).
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for period ended March 31,
1996
27.3 Restated Financial Data Schedule for period ended June 30,
1996
27.4 Restated Financial Data Schedule for period ended September
30, 1996
27.5 Restated Financial Data Schedule for period ended December
31, 1996
27.6 Restated Financial Data Schedule for period ended March 31,
1997
27.7 Restated Financial Data Schedule for period ended June 30,
1997
27.8 Restated Financial Data Schedule for period ended September
30, 1997
</TABLE>
- ---------------
* Incorporated by reference from the Exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-89026).
** Incorporated by reference from the Exhibits to Remedy Corporation's Form
10-K Annual Report for the year ended December 31, 1995.
*** Incorporated by reference from the Exhibits to Remedy Corporation's Form
8-A, dated July 29, 1997.
**** Incorporated by reference from the Exhibits to Remedy Corporation's
Definitive Proxy Statement for Annual Meeting of Stockholders, dated April
16, 1997.
<PAGE> 1
Exhibit 3.2
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
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
<PAGE> 2
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
3
<PAGE> 4
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.
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
4
<PAGE> 5
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 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.
5
<PAGE> 6
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.
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.
6
<PAGE> 7
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
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.
7
<PAGE> 8
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.
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-
8
<PAGE> 9
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 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.
9
<PAGE> 10
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 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
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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.
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.
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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 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
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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 or
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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.
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CERTIFICATE OF ADOPTION BY THE SECRETARY OF
REMEDY CORPORATION
The undersigned, Robert V. Gunderson, Jr., hereby certifies that
he is the duly elected and acting Secretary of Remedy Corporation, a Delaware
corporation (the "Corporation"), and that the Bylaws attached hereto constitute
the Bylaws of said Corporation in effect as of the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
name this 25th day of July, 1997.
/s/ Robert V. Gunderson,
------------------------------------
Robert V. Gunderson, Jr.
Secretary
<PAGE> 1
EXHIBIT 10.16
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of June 21, 1996, by
and between Remedy Corp. ("Borrower") whose address is 1505 Salado Drive,
Mountain View, CA 94043, and Silicon Valley Bank ("Lender") whose address is
3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among
other documents, a Promissory Note, dated January 4, 1993, in the original
principal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the
"Note"). The Note has been modified pursuant to Loan Modification Agreements,
dated June 4, 1993, June 4, 1994, August 3, 1994, pursuant to which, among other
things, the principal amount was increased to Three Million and 00/100 Dollars
($3,000,000.00), and June 5, 1995, pursuant to which, among other things, the
principal amount of the Note was increased to Five Million and 00/100 Dollars
($5,000,000.00). The Note, together with other promissory notes from Borrower to
Lender, is governed by the terms of a Business Loan Agreement, dated January 4,
1993, between Borrower and Lender, as such agreement may be amended from time to
time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness".
2. DESCRIPTION OF COLLATERAL: In connection with the repayment of the
Indebtedness, Borrower has agreed with Lender, among other things, not to sell,
transfer, assign, mortgage, pledge, lease, grant a security interest in, or
encumber any of Borrower's inventory, equipment, accounts, chattel paper,
contract rights, general intangibles, instruments, documents, fixtures and
deposit accounts without Lender's prior written consent, which consent shall
not be unreasonably withheld.
Hereinafter, all documents evidencing or securing the Indebtedness shall be
referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modifications to Note.
1. Payable in one payment of all outstanding principal plus
all accrued unpaid interest on June 15, 1997 (the "Maturity
Date"). In addition, Borrower will pay regular monthly
payments of all accrued unpaid interest due as of each
payment date, beginning July 15, 1996, and all subsequent
interest payments are due on the same day of each month
thereafter.
2. The principal amount of the Note is hereby increased to Ten
Million and 00/100 Dollars ($10,000,000.00).
3. The interest rate to be applied to the unpaid principal
balance of the Note is currently equal to Lender's current
Index (the "Prime Interest Rate"). Notwithstanding the
foregoing, at Borrower's option, Borrower may elect either
the Prime Interest Rate or the LIBOR Rate plus 2.50%, as
described in Exhibit "A" attached hereto.
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B. Modification(s) to Loan Agreement
1. The paragraph entitled "Financial Covenants" is hereby
amended, in its entirety, to read as follows:
Borrower shall maintain, on a quarterly basis, beginning
with the quarter ending June 30, 1996, a minimum Quick
Ratio less deferred revenue of 2.00 to 1.00; and a maximum
total debt minus subordinated debt and deferred revenue to
tangible net worth plus subordinated debt ratio of 1.00 to
1.00. Furthermore, Borrower shall maintain profitability
on a quarterly basis.
For the purposes of calculation, deferred revenue shall
be excluded for liabilities. Quick Ratio is defined as
Cash plus cash equivalents plus short term investments
divided by current liabilities minus deferred revenue.
2. Notwithstanding anything to the contrary contained in the
paragraph entitled "Loans, Acquisitions and Guaranties",
Borrower may enter into mergers or acquisitions, provided,
however, such amounts involved to do so, shall not exceed
fifteen percent (15%) of Borrower's cash, cash equivalent
and short term investment balance, as determined by
Borrower's financial statements and verification of cash
accounts. Any amounts that exceed the aforementioned 15%
will require Lender's written consent prior to such merger
or acquisition.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the above-described changes.
5. NO DEFENSES OF BORROWER. Borrower (and each Guarantor and Pledgor) signing
below, agree that, as of this date, it has no defenses against the obligations
to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each Guarantor and Pledgor) signing below
understand and agree that in modifying the existing Indebtedness, Lender is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement the terms of the Existing Loan Documents remain
unchanged and in full force and effect. Lender's agreement to modifications to
the existing Indebtedness pursuant to this Loan Modification Agreement in no way
shall obligate Lender to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Lender and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Lender in writing. No maker, endorser, or guarantor will
be released by virtue of this Loan Modification Agreement. The terms of this
Paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
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This Loan Modification Agreement is executed as of the date first written above.
BORROWER: LENDER:
REMEDY CORP. SILICON VALLEY BANK
By: /s/ GEORGE DE URIOSTE By: /s/ [SIG]
------------------------------- -------------------------------
Name: George de Urioste Name: Waterson
----------------------------- -----------------------------
Title: Vice President of Finance Title: SVP
---------------------------- ----------------------------
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EXHIBIT "A"
SUPPLEMENT TO LOAN MODIFICATION AGREEMENT
This supplement to Loan Modification Agreement (this "Agreement") is a
supplement to the Loan Modification Agreement (the "Loan Modification
Agreement") dated June 21, 1996 between Silicon Valley Bank and Remedy Corp.
("Borrower") and forms a part of and is incorporated into the Loan Modification
Agreement.
1 . Definitions.
"Advance" or "Advances" mean Advances made by Lender on Borrower's
behalf pursuant to that certain Promissory Note originally dated January 4,
1993, as amended.
"Business Day" means a day of the year (a) that is not a Saturday,
Sunday or other day on which banks in the State of California or the City of
London are authorized or required to close and (b) on which dealings are carried
on in the interbank market in which Lender customarily participates.
"Interest Period" means for each LIBOR Rate Advance, a period of
approximately one, two or three months as the Borrower may elect, provided that
the last day of an Interest Period for a LIBOR Rate advance shall be determined
in accordance with the practices of the LIBOR interbank market as from time to
time in effect, provided, further, in all cases such period shall expire not
later than the applicable Maturity Date.
"Interest Rate" shall mean as to: (a) Prime Rate Advances, a rate per
annum equal to the Prime Rate or (b) LIBOR Rate Advances, a rate of 2.500% per
annum in excess of the LIBOR Rate (based on the LIBOR Rate applicable for the
Interest Period selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate
Advance, the rate of interest per annum determined by Lender to be the per annum
rate of interest as which deposits in United States Dollars are offered to
Lender in the London interbank market in which Lender customarily participates
at 11:00 A.M. (local time in such interbank market) TWO (2) BUSINESS DAYS before
the first day of such Interest Period for a period approximately equal to such
Interest Period and in an amount approximately equal to the amount of such
Advance.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate
Advances, a rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by (ii)
1 minus the Reserve Requirement for such Interest Period.
"LIBOR Rate Advance" means any Advances made or a portion thereof on
which interest is payable based on the LIBOR Rate in accordance with the terms
hereof.
"Prime Rate" means the variable rate of interest per annum, most
recently announced by Lender as its "prime rate," whether or not such announced
rate is the lowest rate available from Lender. The interest rate applicable to
the Prime Rate Advances shall change on each date there is a change in the Prime
Rate.
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"Prime Rate Advances" means any Advance made or a portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
hereof.
"Regulatory Change" means, with respect to Lender, any change on or
after the date of this Agreement in United States federal, state or foreign laws
or regulations, including Regulation D, or the adoption or making on or after
such date of any interpretations, directives or requests applying to a class of
lenders including Lender of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reserve Requirement" means, for any Interest Period, the average
maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Lender by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of "LIBOR
Base Rate" or (ii) any category of extensions of credit or other assets which
include Advances.
2. Requests for Advances: Confirmation of Initial Advance. Each LIBOR
Rate Advance shall be made upon the irrevocable written request of Borrower
RECEIVED BY LENDER NOT LATER THAN 11:00 A.M. (SANTA CLARA, CALIFORNIA TIME) ON
THE BUSINESS DAY THREE (3) BUSINESS DAYS PRIOR TO THE DATE SUCH ADVANCE IS TO BE
MADE. Each such notice shall specify the date such Advance is to be made, which
day shall be a Business Day; the amount of such Advance, the Interest Period for
such Advance, and comply with such other requirements as Lender determines are
reasonable or desirable in connection therewith.
Each written request for a LIBOR Rate Advance shall be in the form of
an Advance Request as set forth on Exhibit A, which shall be duly executed by
the Borrower.
EACH PRIME RATE ADVANCE SHALL BE MADE UPON THE IRREVOCABLE WRITTEN
REQUEST OF BORROWER RECEIVED BY LENDER NOT LATER THAN 11:00 A.M. (SANTA CLARA,
CALIFORNIA TIME) ON THE BUSINESS DAY ONE (1) BUSINESS DAY PRIOR TO THE DATE SUCH
ADVANCE IS TO BE MADE. Each such notice shall specify the date such Advance is
to be made, which day shall be a Business Day and the amount of such Advance,
and comply with such other requirements as Lender determines are reasonable or
desirable in connection therewith.
3. Conversion/Continuation of Advances.
(a) Borrower may from time to time submit in writing a request that
Prime Rate Advances be converted to LIBOR Rate Advances or that any existing
LIBOR Rate Advances continue for an additional Interest Period. Such request
shall specify the amount of the Prime Rate Advances which will constitute LIBOR
Rate Advances (subject to the limits set forth below) and the Interest Period to
be applicable to such LIBOR Rate Advances. Each written request for a conversion
to a LIBOR Rate Advance or a
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continuation of a LIBOR Rate Advance shall be substantially in the form set
forth on Exhibit B, which shall be duly executed by the Borrower. Subject to the
terms and conditions contained herein, THREE (3) BUSINESS DAYS AFTER LENDER'S
RECEIPT OF SUCH A REQUEST FROM BORROWER, such Prime Rate Advances shall be
converted to LIBOR Rate Advances or such LIBOR Rate Advances shall continue, as
the case may be provided that:
(i) no Event of Default or event which with notice or passage of time or
both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any notice of termination of this
Agreement;
(iii) Borrower shall have complied with such customary procedures as
Lender has established from time to time for Borrower's requests for LIBOR Rate
Advances;
(iv) the amount of a LIBOR Rate Advance shall be $500,000.00 or such
greater amount which is an integral multiple of $50,000; and
(v) Lender shall have determined that the Interest Period or LIBOR Rate
is available to Lender which can be readily determined as of the date of the
request for such LIBOR Rate Advance.
Any request by Borrower to convert Prime Rate Advances to LIBOR Rate
Advances or continue any existing LIBOR Rate Advances shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender shall not be
required to purchase United States Dollar deposits in the London interbank
market or other applicable LIBOR Rate market to fund any LIBOR Rate Advances,
but the provisions hereof shall be deemed to apply as if Lender had purchased
such deposits to fund the LIBOR Rate Advances.
(b) Any LIBOR Rate Advances shall automatically convert to Prime
Rate Advances upon the last day of the applicable Interest Period, UNLESS LENDER
HAS RECEIVED AND APPROVED A COMPLETE AND PROPER REQUEST TO CONTINUE SUCH LIBOR
RATE ADVANCE AT LEAST THREE (3) BUSINESS DAYS PRIOR TO SUCH LAST DAY in
accordance with the terms hereof. Any LIBOR Rate Advances shall, at Lender's
option, convert to Prime Rate Advances in the event that (i) an Event of
Default, or event which with the notice or passage of time or both would
constitute an Event of Default, shall exist, (ii) this Agreement shall
terminate, or (iii) the aggregate principal amount of the Prime Rate Advances
which have previously been converted to LIBOR Rate Advances, or the aggregate
principal amount of existing LIBOR Rate Advances continued, as the case may be,
at the beginning of an Interest Period shall at any time during such Interest
Period exceeds either (A) the aggregate principal amount of the NOTE then
outstanding or (B) the Advances then available to Borrower hereunder. Borrower
agrees to pay to Lender, upon demand by Lender (or Lender may, at its option,
charge Borrower's Deposit account) any amounts required to compensate Lender for
any loss (including loss of anticipated profits), cost or expense incurred by
such person, as a result of the conversion of LIBOR Rate Advances to Prime Rate
Advances pursuant to any of the foregoing.
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(c) On ALL ADVANCES, INTEREST SHALL BE PAYABLE BY BORROWER TO LENDER
MONTHLY IN ARREARS NOT LATER THAN THE FIRST (1ST) DAY OF EACH CALENDAR MONTH AT
THE APPLICABLE INTEREST RATE.
4. Additional Requirements/Provisions Regarding LIBOR Rate Advances;
Etc.
(a) IF FOR ANY REASON (INCLUDING VOLUNTARY OR MANDATORY PREPAYMENT OR
ACCELERATION), LENDER RECEIVES ALL OR PART OF THE PRINCIPAL AMOUNT OF A LIBOR
RATE ADVANCE PRIOR TO THE LAST DAY OF THE INTEREST PERIOD FOR SUCH ADVANCE,
BORROWER SHALL IMMEDIATELY NOTIFY BORROWER'S ACCOUNT OFFICER AT SILICON VALLEY
BANK AND, ON DEMAND BY LENDER, PAY LENDER THE AMOUNT (if any) by which (i) the
additional interest which would have been payable on the amount so received had
it not been received until the last day of such Interest Period exceeds (ii) the
interest which would have been recoverable by Lender by placing the amount so
received on deposit in the certificate of deposit markets or the offshore
currency interbank markets, as the case may be, for a period starting on the
date on which it was so received and ending on the last day of such Interest
Period at the interest rate determined by Lender in its reasonable discretion.
Lender's determination as to such amount shall be conclusive absent manifest
error.
(b) Borrower shall pay to Lender, upon demand by Lender, from time to
time such amounts as Lender may determine to be necessary to compensate it for
any costs incurred by Lender that Lender determines are attributable to its
making or maintaining of any amount receivable by Lender hereunder in respect of
any Advances relating thereto (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), in each case resulting from
any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
Lender under this Agreement in respect of any Advances (other than changes which
affect taxes measured by or imposed on the overall net income of Lender by the
jurisdiction in which such Lender has its principal office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of Lender (including any Advances or any
deposits referred to in the definition of "LIBOR Base Rate"); or
(iii) imposes any other condition affecting this Agreement (or any
of such extensions of credit or liabilities).
Lender will notify Borrower of any event occurring after the date of this
Agreement which will entitle Lender to compensation pursuant to this section as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Lender will furnish Borrower with a statement setting
forth the basis and amount of each request by Lender for compensation under this
Section 4. Determinations and allocations by Lender for purposes of this Section
4 of the affect of any Regulatory Change on its costs of maintaining its
obligations to make Advances or of making or maintaining Advances or on amounts
receivable by it in respect of Advances, and of the additional amounts required
to compensate Lender in respect of any Additional Costs, shall be conclusive
absent manifest error.
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(c) Borrower shall pay to Lender, upon the request of Lender, such
amount or amounts as shall be sufficient (in the sole good faith opinion of such
Lender) to compensate it for any loss, costs or expense incurred by it as a
result of any failure by Borrower to borrow an Advance on the date for such
borrowing specified in the relevant notice of borrowing hereunder.
(d) If Lender shall determine that the adoption or implementation of any
applicable law, rule, regulation or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender (or its
applicable lending office) with any respect or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on capital of Lender or any person or entity controlling Lender (a
"Parent") as a consequence of its obligations hereunder to a level below that
which Lender (or its Parent) could have achieved but for such adoption, change
or compliance (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by Lender to be material, then from time to time,
within 15 days after demand by Lender, Borrower shall pay to Lender such
additional amount or amounts as will compensate Lender for such reduction. A
statement of Lender claiming compensation under this Section and setting forth
the additional amount or amounts to be paid to it hereunder shall be conclusive
absent manifest error.
(e) If at any time Lender, in its sole and absolute discretion,
determines that: (i) the amount of the LIBOR Rate Advances for periods equal to
the corresponding Interest Periods are not available to Lender in the offshore
currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect
the cost to Lender of lending the LIBOR Rate Advance, then Lender shall promptly
give notice thereof to Borrower, and upon the giving of such notice Lender's
obligation to make the LIBOR Rate Advances shall terminate, unless Lender and
the Borrower agree in writing to a different interest rate Advances shall
terminate, unless Lender and the Borrower agree in writing to a different
interest rate applicable to LIBOR Rate Advances. If it shall become unlawful for
Lender to continue to fund or maintain any Advances, or to perform its
obligations hereunder, upon demand by Lender, Borrower shall prepay the Advances
in full with accrued interest thereon and all other amounts payable by Borrower
hereunder (including, without limitation, any amount payable in connection with
such prepayment pursuant to Section 4(a)).
5
<PAGE> 9
EXHIBIT A
ADVANCE REQUEST
The undersigned hereby certifies as follows:
I, _______________, am the duly elected and acting __________________ of
Remedy Corp. ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain
Supplement to Loan Modification Agreement together with the Loan Agreement by
and between Borrower and Silicon Valley Bank ("Lender) (the "Loan Agreement").
The terms used in this Advance Request which are defined in the Existing Loan
Documents have the same meaning herein as described to them therein.
Borrower hereby requests on __________, 19____ an Advance as follows:
(a) The date on which the Advance is to be made is ___________, 19___.
(b) The amount of the Advance is to be ___________ ($____________), for
an Interest Period of __________ (one, two or three months please specify).
All representations and warranties of Borrower stated in the Advance
Agreement are true, correct and complete in all material respects as of the date
of this request for an Advance; provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
IN WITNESS WHEREOF, this Advance Request is executed by the undersigned
as of this ________ day of ___________, 19__.
REMEDY CORP.
By:
-------------------------------------
Title:
----------------------------------
FOR INTERNAL LENDER USE ONLY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
------------------ ---------- ------------------- -------------
<S> <C> <C> <C>
2.5%
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 10
EXHIBIT B
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, ___________, am the duly elected and acting _______________ of Remedy
Corp. ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain
Supplement to Loan Modification Agreement together with the Loan Agreement and
Promissory Note by and between Borrower and Silicon Valley Bank ("Lender") (the
"Existing Loan Documents"). The terms used in this LIBOR Rate Change/Extension
Certificate which are defined in the Existing Loan Documents have the same
meaning herein as ascribed to them therein.
Borrower hereby requests on _________________, 19__
(a) ____(i) A rate conversion of an existing Prime Rate Advance from a
Prime Rate Advance to a LIBOR Rate Advance; or
____(ii) A continuation of an existing LIBOR Rate Advance as a
LIBOR Rate Advance;
[Check (i) or (ii) above]
(b) The date on which the Advance is to be made is ______________,
19___.
(c) The amount of the Advance is to be _________________ ($___________),
for an Interest Period of __________ (one, two or three months, please specify).
All representations and warranties of Borrower stated in the Advance
Agreement are true, correct and complete in all material respects as of the date
of this request for an Advance; provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate
is executed by the undersigned as of this ___________ day of ___________, 19___.
REMEDY CORP.
By:
-------------------------------------
Title:
----------------------------------
FOR INTERNAL LENDER USE ONLY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
------------------ ---------- ------------------- -------------
<S> <C> <C> <C>
2.5%
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 1
EXHIBIT 10.17
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
Borrower: Remedy Corp.
1505 Salado Drive
Mountain View, CA 94043
Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
- ------------------------------------------------------------------------------
THIS AMENDED AND RESTATED BUSINESS LOAN AGREEMENT between Remedy Corp.
("Borrower") and Silicon Valley Bank ("Lender") is made and executed on the
following terms and conditions. Borrower has received prior commercial loans
from Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, including those which may be described on any exhibit
or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees that:
(a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations,warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at
all times shall be subject to Lender's sole judgment and discretion; and (c) all
such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of June 15, 1997, and shall continue
thereafter until all indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Amended and Restated Business
Loan Agreement, as this Amended and Restated Business Loan Agreement may be
amended or modified from time to time, together with all exhibits and
schedules attached to this Amended and Restated Business Loan Agreement
from time to time.
Borrower. The word "Borrower" means Remedy Corp.. The word "Borrower" also
includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Indebtedness. The word "Indebtedness" means and includes any and all
indebtedness of Borrower to Lender, now or hereafter arising or incurred,
including, without limitation, the Indebtedness evidenced by the Note,
including all principal and interest, together with all other indebtedness
and costs and expenses for which Borrower is responsible under this
Agreement or under any Related Documents.
Lender. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens for taxes,
assessments, or similar charges either not yet due or being contested in
good faith; (b) liens of materialmen, mechanics, warehousemen, or carriers,
or other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (c) purchase money liens or
purchase money security interests upon or in any property acquired or held
by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens", (d) liens
and security interests which, as of the date of this Agreement, have been
disclosed to any approved by the Lender in writing; and (e) liens for
capital leases; (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreement, loan agreement,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.
<PAGE> 2
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 2
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Negative
Pledge Agreement; and (c) any other documents required under this Agreement
or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
is validly existing and in good standing in all states in which Borrower
is doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower, do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change
in Borrower's financial condition subsequent to the date of the most
recent financial statement supplied to Lender. Borrower has not material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and
as accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has
not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release" and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or otherwise applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. Except as disclosed to and acknowledge by Lender in writing,
Borrower represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any hazardous waste or substance by any person on, under, about or from
any of the properties. (b) Borrower has no knowledge of, or reason to
believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance on, under, about or from the properties by any prior owners
or occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(c) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the properties shall use, generate, manufacture, store,
treat, dispose of, or release any hazardous waste or substance on, under,
about or from any of the properties; and any such activity shall be
conducted in compliance with all applicable federal, state, and local
laws, regulations, and ordinances, including without limitation those
laws, regulations and ordinances described above. Borrower authorizes
Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances and such representations and
warranties are to the best of Borrower's knowledge. Borrower hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may directly or indirectly sustain or
suffer resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have
been known to
<PAGE> 3
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 3
Borrower. The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties, other
than litigation, claims, or other events, if any, that have been disclosed to
and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
Lien Priority. Borrower acknowledges and agrees, among other things, not to
sell, transfer, assign, mortgage, pledge, lease, grant a security interest in,
or encumber any of Borrower's inventory, equipment, accounts, chattel paper,
contract rights, general intangibles, instruments, documents, fixtures and
deposit accounts without Lender's prior consent, which consent shall not be
unreasonably withheld.
Binding Effect. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respect with all applicable
requirements of law and regulations, and (i) no Reportable Event nor Prohibited
Transaction (as defined in ERISA) has occurred with respect to any such plan,
(ii) Borrower has not withdrawn from any such plan or initiated steps to do so,
(iii) no steps have been taken to terminate any such plan, and (iv) there are
no unfunded liabilities other than those previously disclosed to Lender in
writing.
Investment Company Act. Borrower is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
Public Utility Holding Company Act. Borrower is not a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
Regulations G, T and U. Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T and
U of the Board of Governors of the Federal Reserve System).
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 1505 Salado Drive, Mountain View, CA 94043. Unless
Borrower has designated otherwise in writing this location is also the office
or offices where Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting to
state any material fact necessary to make such information not misleading.
Claims and Defenses. There are no defenses or counterclaims, offsets or other
adverse claims, demands or actions of any kind, personal or otherwise, that
Borrower, Grantor, or any Guarantor could assert with respect to the Note, Loan,
Indebtedness, this Agreement, or the Related Documents.
Survival of Representations and Warranties. Borrower understands and agrees that
Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advance to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
Financial Records Maintain it books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit lender
to examine and audit borrower's books and records at all reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no event
later than ninety (90) days after the end of each fiscal year, Borrower's 10K
report, balance sheet and income statement for the year ended, audited by a
certified public accountant satisfactory to Lender, and, as soon as available,
but in no event later than forty-five (45) days after the end of each fiscal
quarter, Borrower's balance sheet and profit and loss statement for the period
ended, prepared and certified as correct to the best knowledge and belief by
Borrower's chief financial officer or other officer or person acceptable to
Lender. All financial reports required to be provided under this Agreement shall
be prepared in accordance with generally accepted accounting principles, applied
on a consistent basis, and certified by Borrower as being true and correct.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
quarterly, within 45 days, provided that an outstanding balance exists under
Borrower's line of credit facility, and at the time of each disbursement of
Loan proceeds, with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are
<PAGE> 4
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 4
true and correct as of the date of the certificate and further certifying
that, as of the date of the certificate, no Event of Default exists under
this Agreement.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations as Lender
may request from time to time.
Financial Covenants. Borrower shall maintain, on a quarterly basis, a minimum
Quick Ratio of 2.00 to 1.00, and profitability, net of capitalized software.
For calculation purposes, Quick Ratio is defined as cash plus cash
equivalents plus short term investments divided by current liabilities minus
deferred revenue. Except as provided above, all computations made to
determine compliance with the requirements contained in this paragraph shall
be made in accordance with generally accepted accounting principles, applied
on a consistent basis, and certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and discharge
any such assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to delivery to Lender at any
time a written statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
Environmental Studies. Promptly conduct and complete, at Borrower's expense,
all such investigations, studies, samplings and testings as may be requested
by Lender or any governmental authority relative to any substance defined as
toxic or a hazardous substance under any applicable federal, state, or local
law, rule, regulation, order or directive, or any waste or by-product
thereof, at or affecting any property or any facility owned, leased or used
by Borrower.
Inspection. Permit employees or agents of Lender at any reasonable time with
reasonable notice to examine or audit Borrower's books, accounts, and record
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender, such consent not to be unreasonably withheld:
Indebtedness and Liens. (a) Except for trade debt and equipment leases
incurred in the normal course of business and indebtedness to Lender
contemplated by this Agreement, create, incur or assume indebtedness for
borrowed money, including capital leases, (b) except as allowed as a
Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a
security interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
<PAGE> 5
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 5
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (Borrower is allowed to merge or acquire another entity,
provided however, that if an outstanding principal balance exists under
Borrower's line of credit facility, Borrower's involvement in such mergers
or acquisitions is limited to fifteen percent (15%) of Borrower's cash,
cash equivalents and short term investment balances as determined by
Borrower's financial statement and verification of cash accounts), (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however, that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure, if such alteration
or amendment would have a material adverse effect.
Loans. Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, or (b) incur any obligation as surety or guarantor other than
in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan which would cause Lender to reasonably doubt
Borrower's ability to satisfy its obligations under this agreement; or (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender.
LOAN ADVANCES. Lender, in its discretion, will make loans to Borrower, in
amounts determined by lender, up to the amounts as defined and permitted in
this Agreement and the Related Documents, including, but not limited to, any
Promissory Notes, executed by Borrower (the "Credit Limit"). Borrower is
responsible for monitoring the total amount of Loans and Indebtedness
outstanding from time to time, and Borrower shall not permit the same, at any
time to exceed the Credit Limit. If at any time the total of all outstanding
Loan and Indebtedness exceeds the Credit Limit, Borrower shall immediately pay
the amount of the excess to Lender, without notice or demand. Notwithstanding
the terms and conditions as set forth in this Agreement, the sum of (a) the
outstanding principal balance under Borrower's line of credit facility plus (b)
the outstanding letters of credit (including drawn by unreimbursed letters of
credit) plus (c) the Foreign Exchange Reserve plus (d) the Cash Management
Services shall not exceed at any one time $15,000,000.00.
LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement,
Lender agrees to issue or cause to be issued letters of credit for the account
of Borrower in an aggregate face amount not to exceed (i) $15,000,000.00 minus
(ii) the then outstanding principal balance of the Note; provided that the face
amount of outstanding letters of credit (including drawn but unreimbursed
letters of credit) shall not in any case exceed Fifteen Million and 00/100
Dollars ($15,000,000.00). Each such letter of credit shall have an expiry date
no later than one hundred eighty (180) days after the maturity date of
Borrower's line of credit facility provided that Borrower's letter of credit
reimbursement obligation shall be secured by cash on terms acceptable to Lender
in its sole discretion and shall be subject to the terms and conditions of
Lender's form of application and letter of credit agreement.
Borrower shall indemnify, defend and hold Lender harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any letters of credit.
Borrower may request that Lender issue a letter of credit payable in a currency
other than United States dollars. If a demand for payment is made under any
such letter of credit, Lender shall treat such demand as an Advance to Borrower
of the equivalent of the amount thereof (plus cable charges) in United States
currency at the then prevailing rate of exchange in San Francisco, California,
for sales of that other currency for cable transfer to the country of which it
is the currency.
Upon the issuance of any letter of credit payable in a currency other than
United States Dollars, Lender shall create a reserve (the "Letter of Credit
Reserve") under the line of credit facility for Letters of Credits against
fluctuations in currency exchange rates, in an amount equal to ten percent
(10%) of the face amount of such letter of credit. The amount of such reserve
may be amended by Lender from time to time to account for fluctuations in the
exchange rate. The availability of funds under the line of credit facility
shall be reduced by the amount of such reserve for so long as such letter of
credit remains outstanding.
FOREIGN EXCHANGE SUBLIMIT. Subject to the terms of this Agreement, as amended
from time to time, Borrower may utilize up to $15,000,000.00 for spot and
future foreign exchange contracts (the "Exchange Contracts"). Borrower shall
not request an Exchange Contract at any time it is not in compliance with any
of the terms of this Agreement. All Exchange Contracts must provide for
delivery of settlement on or before the maturity date of the line of credit
facility. The limit available at any time shall be reduced by the following
amounts (the "Foreign Exchange Reserve") on each day (the "Determination
Date"): (i) on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed more than two business days from the
Determination Date, 10% of the gross amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange Contracts on which delivery is to be effected
or settlement allowed within two business days after the Determination Date,
100% of the gross amount of the Exchange Contracts. In lieu of the Foreign
Exchange Reserve for 100% of the gross amount of any Exchange Contract, the
Borrower may request that Lender debit Borrower's bank account with Lender for
such amount, provided Borrower has immediately available funds in such amounts
in its bank account.
Lender may, in its discretion, terminate the Exchange Contracts at any time (a)
that an Event of Default occurs or (b) that there is not sufficient
availability under the line of credit facility and Borrower does not have
available funds in its bank account to satisfy the Foreign Exchange Reserve. If
Lender terminates the Exchange Contracts, and without limitation of the FX
Indemnity Provisions (as referred to below), Borrower agrees to reimburse
Lender for any and all fees, costs and expenses relating thereto or arising in
connection therewith.
Borrower shall not permit the total gross amount of all Exchange Contracts on
which delivery is to be effected and settlement allowed in any two business day
period to be more than $15,000,000.00 nor shall Borrower permit the total gross
amount of all Exchange Contracts to which Borrower is a party, outstanding at
any one time, to exceed $15,000,000.00.
<PAGE> 6
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 6
Borrower shall execute all standard form applications and agreements of Lender
in connection with the Exchange Contracts, and without limiting any of the
terms of such applications and agreements, Borrower will pay all standard fees
and charges of Lender in connection with the Exchange Contracts.
Without limiting any of the other terms of this Agreement or any such standard
form applications and agreement of Lender, Borrower agrees to indemnify Lender
and hold it harmless, from and against any and all claims, debts, liabilities,
demands, obligations, actions, costs and expenses (including, without
limitation, attorneys' fees of counsel of Lender's choice), of every nature and
description which it may sustain or incur, based upon, arising out of, or in
any way relating to any of the Exchange Contracts or any transactions relating
thereto or contemplated thereby (collectively referred to as the "FX Indemnity
Provisions").
CASH MANAGEMENT SUBLIMIT. Borrower may utilize up to an aggregate amount not to
exceed $15,000,000.00 for Cash Management Services provided by Lender, which
services may include merchant services, PC-ACH, direct deposit of payroll,
Business Credit Card, and other related check cashing services as defined in
that certain Cash Management Services Agreement provided to Borrower in
connection herewith (a"Cash Management Service", or the "Cash Management
Services"). All amounts actually paid by Lender in respect of a Cash Management
Service or Cash Management Services shall, when paid, constitute an Advance
under the line of credit facility.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor or Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of nay of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, liability
under, any Guaranty of the Indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at Law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative any may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
DEFAULT RATE. Following an Event of Default, including failure to pay upon final
maturity, Lender, at its option, may do one or both of the following: (a)
increase the variable interest rate on the Note to five percentage points
(5.000%) over the otherwise effective interest rate payable thereunder, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the interest rate provided in the Note.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Amendment, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Amendment and Restatement. This Amended and Restated Business Loan
Agreement amends and restates the terms and conditions of that certain
Business Loan Agreement dated January 4, 1993, as amended.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of Santa
Clara County, the State of California. Lender and Borrower hereby waive the
right to any jury trial in any action, proceeding, or counterclaim brought
by either Lender or Borrower against the
<PAGE> 7
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 7
other. (Initial Here [INITIALS] ) This Agreement shall be governed by and
----------
construed in accordance with the laws of the State of California.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under this
Agreement shall be joint and several, and all references to Borrower shall mean
each and every Borrower. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will have
all the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against Lender
or against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's obligation
under the Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any personal
claims or defenses that Borrower may have against Lender.
BORROWER INFORMATION. Borrower consents to the release of information on or
about Borrower by Lender in accordance with any court order, law or regulation
and in response to credit inquiries concerning Borrower.
NON-LIABILITY OF LENDER. The relationship between Borrower and Lender is a
debtor and creditor relationship and not fiduciary in nature, nor is the
relationship to be construed as creating any partnership or joint venture
between Lender and Borrower. Borrower is exercising its own judgment with
respect to Borrower's business. All information supplied to Lender is for
Lender's protection only and no other party is entitled to rely on such
information. There is no duty for Lender to review, inspect, supervise, or
inform Borrower of any matter with respect to Borrower's business. Lender and
Borrower intend that Lender may reasonably rely on all information supplied by
Borrower to Lender, together with all representations and warranties given by
Borrower to Lender, without investigation or confirmation by lender and that
any investigation or failure to investigate will not diminish Lender's right to
so rely.
NOTICE OF LENDER'S BREACH. Borrower must notify Lender in writing of any breach
of this Agreement or the Related Documents by Lender and any other claim, cause
of action or offset against Lender within thirty (30) days after the occurrence
of such breach or after the accrual of such claim, cause of action or offset.
Borrower waives any claim, cause of action or offset for which notice is not
given in accordance with this paragraph. Lender is entitled to rely on any
failure to give such notice.
BORROWER INDEMNIFICATION. Borrower shall indemnify and hold Lender harmless
from and against all claims, costs, expenses, losses, damages, and liabilities
of any kind, including but not limited to attorneys' fees and expenses, arising
out of any matter relating directly or indirectly to the Indebtedness, whether
resulting from internal disputes of the Borrower, disputes between Borrower and
any Guarantor, or whether involving any third parties, or out of any other
matter whatsoever related to this Agreement or the Related Documents, but
excluding any claim or liability which arises as a direct result of Lender's
gross negligence or willful misconduct. The indemnity shall survive full
repayment and satisfaction of the Indebtedness and termination of this
Agreement.
COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of
which, when so executed, shall be deemed an original, but all such
counterparts, taken together, shall constitute one and the same Agreement.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this Agreement,
if Borrower is in default with any term or condition of this agreement. Lender
may pay someone else to help collect the Loans and to enforce this Agreement,
and Borrower will pay that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses, whether
or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower also
will pay any court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile, and shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the notice
is to change the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute notice
to all Borrowers. For notice purposes, Borrower will keep Lender informed at
all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any
other persons or circumstances. If feasible, any such offending provision shall
be deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be construed to
require Lender to make any Loan or other financial accommodation to any
subsidiary or affiliate of Borrower.
<PAGE> 8
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
PAGE 8
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in all
cases such consent may be granted or withheld in the sole discretion of
Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AMENDED AND
RESTATED BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF JUNE 15, 1997.
BORROWER:
Remedy Corp.
By: /s/ GEORGE A. de URIOSTE
------------------------------------------
Name: George a. de Urioste
----------------------------------------
Title: Vice President, Finance and
---------------------------------------
Chief Financial Officer
---------------------------------------
LENDER:
Silicon Valley Bank
By: /s/ COLLEEN ATKINSON
------------------------------------------
Name: Colleen Atkinson
----------------------------------------
Title: Vice President
---------------------------------------
<PAGE> 1
EXHIBIT 10.18
AMENDED AND RESTATE PROMISSORY NOTE
Borrower: Remedy Corp.
1505 Salado Drive
Mountain View, CA 94043
Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
- --------------------------------------------------------------------------------
Principal Amount: $15,000,000.00 Initial Rate: 8.500%
Date of Note: June 15, 1997
PROMISE TO PAY. Remedy Corp. ("Borrower") promises to pay to Silicon Valley
Bank ("Lender"), or order, in lawful money of the United States of America, the
principal amount of Fifteen Million & 00/100 Dollars ($15,000,000.00) or so
much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date
of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on June 14, 1998. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
July 14, 1997, and all subsequent interest payments are due on the same day of
each month after that. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate the Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at any given time. Lender will
tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each time the prime rate is
adjusted by Silicon Valley Bank. The Index currently is 8.500% per annum. The
interest rate to be applied to the unpaid principal balance of this Note will
be at a rate equal to the Index, resulting in an initial rate of 8.500% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender, specifically that Amended and Restated Business Loan
Agreement and Negative Pledge Agreement, both of even date herewith. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is knowingly
false or misleading in any material respect either now or at the time made or
furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to
take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (g) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is
impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay
upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 5.000 percentage points over the Index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any increased
rate). Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of California. If there
is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Santa Clara County, the State of California.
Lender and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower against the
other. (Initial Here [INITIALS] ) This Note shall be governed by and construed
------------
in accordance with the laws of the State of California.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Note or any other
loan with Lender; or (d) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit funds received from
its business activities in accounts maintained by Borrower at Silicon Valley
Bank. Borrower hereby requests and authorizes Lender to debit any of Borrower's
accounts with Lender, specifically, without limitation, Account Number
02-732084-70, for payments of principal and interest due on the loan and any
other obligations owing by Borrower to Lender. Lender
<PAGE> 2
AMENDED AND RESTATED PROMISSORY NOTE
PAGE 2
will notify Borrower of all debits which Lender makes against Borrower's
accounts. Any such debits against Borrower's accounts in no way shall be deemed
a set-off.
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT. This Note is subject to and shall
be governed by all the terms and conditions of the Amended and Restated
Business Loan Agreement of even date herewith, between Lender and Borrower, as
such agreement may be amended from time to time, which Business Loan Agreement
is incorporated herein by reference.
AMENDMENT AND RESTATEMENT. This Amended and Restated Promissory Note amends and
restates the terms and conditions of the obligations of Borrower under that
certain Promissory Note dated January 4, 1993, as amended (the "Original Note")
from Borrower to Lender. Nothing contained in this Amended and Restated
Promissory Note shall be deemed to create or represent the issuance of new
indebtedness or exchange by Borrower of the Original Note for a new Promissory
Note.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note, and
unless otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be released
from liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER HAS READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISION. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
Remedy Corp.
By: /s/ GEORGE A. DE URIOSTE
---------------------------------
George A. de Urioste
Name: ---------------------------------
Title: Vice President, Finance and
---------------------------------
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.19
CUSHMAN REALTY CORPORATION
REMEDY CORPORATION
5890 STONERIDGE DR.
PLEASANTON, CA
SUBLEASE & DIRECT LEASE SUMMARY
For Sub-Lease Transaction Dated: March 29, 1996
Addendum to Sublease Dated: March 29,1996
Consent of Master Lessor Dated: May 21, 1996
Master Lease Dated: November 16,1989
LEASE INFORMATION LEASE CLAUSE
- --------------------------------------------------------------------------------
CONTACTS
Sublessor
Greiner, Inc. Pacific
5890 Stoneridge Dr.
Pleasanton, CA
Sublessee
Remedy Corporation
1505 Salado Drive
Mountain View, CA 94044
Attention: Manager, Contracts
Sublessee Real Estate Broker
Cushman Realty Corporation
1334 N. California Blvd, Suite 440
Walnut Creek, CA 94596
Sublessor Real Estate Broker
Colliers Parrish International
<TABLE>
<CAPTION>
Critical Dates
<S> <C>
Sub-Lease Commencement July 1, 1996
Sub-Lease Expiration August 31,2000
Direct Lease Commencement September 1, 2000
Termination Option (Notice by) September 2, 2000
Renewal Option I (Notice by) November 30, 2002
Direct Lease Expiration May 31, 2003
Renewal Option 2 (Notice by) December 31, 2004
Renewal Option 3 (Notice by) December 31, 2005
Renewal Option 4 (Notice by) December 31,2006
</TABLE>
Cushman Realty Corporation makes no warranty a to the accuracy of this
information. This information should be verified by tenant.
<PAGE> 2
CUSHMAN REALTY CORPORATION
REMEDY CORPORATION
5890 STONERIDGE DR.
PLEASANTON, CA
LEASE SUMMARY (Page 2)
For Sub-Lease Transaction Dated: March 29, 1996
Addendum to Sublease Dated: March 29, 1996
Consent of Master Lessor Dated: May 21, 196
Master Lease Dated: November 16, 1989
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
LEASE INFORMATION LEASE CLAUSE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sub-Lease Term: 50 Months Sub-Lease, Para. 3.1
Direct Lease Term: 33 Months Consent Mast. Lessor, Para. (i)
Sub-Lease Commencement Date: July 1, 1996 Sub-Lease Para. 3.1
Direct Lease Commencement Date: September 1, 2000 Consent Mast. Lessor, Para. (i)
Sub-Lease Expiration Date: August 31, 2000 Sub-Lease Para. 3.1
Direct Lease Expiration Date: May 31, 2003 Consent Mast. Lessor, Para. (i)
Total Building Square Feet: 30,000 Sub-Lease, Para. 2
Rentable Square Feet: 30,000 Sub-Lease, Para. 2
Useable Square Feet: Not Addressed
Load Factor: Not Addressed
Lease Type: Modified Gross
Pro-Rata Share: 100.00%
</TABLE>
SUB-LEASE RENT SCHEDULE
<TABLE>
<CAPTION>
Months Annual Rate (p.s.f.) Mo. Payment Annual Rent
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-21 $16.20 $ 40,500 $486,000 Sub-Lease, Para. 4 &
22-50 $16.80 $ 42,000 $504,000 Sub-Lease Add., Para. 3
Effective Rent: $16.55 $ 41,370
Total Rent Commitment: $2,068.500
</TABLE>
DIRECT LEASE RENT SCHEDULE
<TABLE>
<CAPTION>
Months Annual Rate (p.s.f.) Mo. Payment Annual Rent
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-33 $16.80 $ 42,000 $504,000 Consent Mast. Lessor, Para. (ii)
Effective Rent: $16.80 $ 42,000
Total Rent Commitment: $1,386,000
Oper. Exp. & Electric Base Year: 1996 Sub-Lease Add., Para. 4 (ii)
Real Estate Taxes Base Year: 1996 Sub-Lease Add., Para. 4 (ii)
Tenant Expenses: Janitorial service, Utilities, and Trash collection Sub-Lease Add., Para. 3 (ii)
Holdover Rent: 200% of final base rent during lease term. Master Lease, Para. 14.06
Sub-Lease Late Charge: 10% 10 day grace period Sub-Lease Add., Para. 3 (ii)
Direct Lease Late Charge: 10% 3 day grace period Consent Mast. Lessor, Para. (x)
Sub-Landlord T.I. Allowance per R.S.F. $0.00 Sub-Lease, Para. 12
Audit Rights: Once every year. Sub-Lease Add., Para. 4 (iii)
</TABLE>
<PAGE> 3
CUSHMAN REALTY CORPORATION
REMEDY CORPORATION
5890 STONERIDGE DR.
PLEASANTON, CA
LEASE SUMMARY (Page 3)
For Sub-Lease Transaction Dated: March 29, 1996
Addendum to Sublease Dated: March 29, 1996
Consent of Master Lessor Dated: May 21, 196
Master Lease Dated: November 16, 1989
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
LEASE INFORMATION LEASE CLAUSE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RENEWAL OPTIONS: Applies to direct lease.
(1) TERM: 2 YEARS RATE: 95% OF FMV Consent Mast. Lessor, Para. (iii)
NOTICE BY: 11/30/02
(2) TERM: 1 YEAR RATE: CPI OVER OPTION 1 Consent Mast. Lessor, Para. (iv)
NOTICE BY: 11/30/04
(3) TERM: 1 YEAR RATE: CPI OVER OPTION 2 Consent Mast. Lessor, Para. (v)
NOTICE BY: 11/30/05
(3) TERM: 1 YEAR RATE: CPI OVER OPTION 3 Consent Mast. Lessor, Para. (vi)
NOTICE BY: 11/30/06
OPTION RENTAL FLOOR: The Mo. rent for options 1, 2, 3, & 4 shall Consent Mast. Lessor, Para. (vii)
not be less than $42,000
EARLY TERMINATION RIGHT: Consent Mast. Lessor, Para. (viii)
At any time during the Direct Lease Term. Sublessee may terminate
the new lease with 9 months notice & payment to Master Lessor of
4 Months base rent + any unamortized Leasing Commissions
USE: General Office use and any other legal purpose. Sub-Lease, Para. 6.1 &
Sub-Lease Add., Para. 12
ALTERATIONS: All alterations shall be constructed by licensed contractors. Sub-Lease Add., Para. 6 &
Sublessor must approve all Alterations. Master Lease, Para. 8
Permitted Tenant's alteration limit: All
INDEMNIFICATION: Mutual Indemnification Sub-Lease Add., Para. 20
PARKING: Sublessee shall have the right to use not less than 120 parking spaces. Sub-Lease Add., Para. 9
No charge for parking.
SUBLESSEE'S OBLIGATION TO MAINTAIN Sub-Lease Add., Para. 5(1)(a)
No obligation to perform and/or pay for any maintenance, repairs,
or replacements of the structure of the Building, the skylights and
the roof.
SUBLESSOR'S OBLIGATION TO MAINTAIN Sub-Lease Add., Para. 5(1)(b)
All repairs to the mech., plumb., HVAC and elect. systems in
excess of $2,500 per item shall be amortized over its useful life
and added to operating expenses.
ASSIGNMENT OF SUBLETTING: Sub-Lease Add., Para. 7
Sublessor may not unreasonably withhold, delay or condition its
consent for Sublessee to assign or sub-sublet all or a portion of the
premises. Sublessee will be obligated to pay to sublessor 50% of
any "Excess Rent" from transaction, if for more than 15,000 sq. ft.
TENANT INSURANCE REQUIREMENTS:
$1,000,000 per person per injury, $1,000,000 per person per occurrence Lease Para. 6.03
$500,000 Property Damage.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cushman Realty Corporation makes no warranty or representation as to the
accuracy or completeness of this information. The information should be verified
by the tenant.
<PAGE> 4
STANDARD SUBLEASE
American Industrial Real Estate Association
[AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION LOGO]
1. PARTIES. This Sublease, dated, for reference purposes only, March 29, 1996,
is made between Greiner, Inc. Pacific (herein called "Sublessor") and Remedy
Corporation, A Delaware Corporation (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon the conditions
set forth herein, that certain real property situated in the County of Alameda,
State of California, commonly known as 5890 Stoneridge Drive and described as a
30,000 square foot two-story office building on approximately 2.36 acres. Said
real property, including the land and all improvements thereon, is hereinafter
called the "Premises."
3. TERM.
3.1 TERM. The term of this Sublease shall be for 50 months commencing on
July 1, 1996 and ending on August 31, 2000 unless sooner terminated pursuant to
any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of Premises to Sublessee on said
date. Sublessor shall not be subject to any liability therefore, nor shall such
failure affect the validity of this Lease the obligations of Sublessee hereunder
or extend the term hereof, but in such case Sublessee shall not be obligated to
pay rent until possession of the Premises is tendered to Sublessee; provided,
however, that if Sublessor shall not have delivered possession of the Premises
within six (6) days from said commencement date, Sublessee may, at Sublessee's
option, by notice in writing to Sublessor within ten (10) days thereafter,
[ILLEGIBLE] this Sublease, in which event the parties shall be discharged from
all obligations thereunder. If Sublessee occupies the Premises prior to
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date Sublessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal monthly
payments of $40,500.00 in advance, or 1st day of each month of the term hereof.
Sublessee shall pay Sublessor upon the execution hereof $40,500.00 as rent for
the first month of the lease term. The rent shall increase to $42,000 per month
at the beginning of the 22nd month of the Sublease term. (See Paragraph 3 of the
Ad[ILLEGIBLE] Rent for any period during the term hereof which is for less than
one month shall be a prorata portion of the monthly installment Rent shall be
payable in lawful money of the United States to Sublessor at the address stated
herein or to such other persons or at such other places as Sublessor may
designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $42,000.00 as security for Sublessee's [ILLEGIBLE] performance of
Sublessees obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with rent to any provision of this
Sublease. Sublessor may use, apply or retain all or any portion of said deposit
for the payment of any rent or other cha[ILLEGIBLE] default or for the payment
of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion
of said deposit, Sublessee shall [ILLEGIBLE] ten (10) days after written demand
therefore deposit cash with Sublessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated and Sublessee's failure to do so
shall be a material breach of this Sublease Sublessor shall not be required to
keep said deposit separate from its general accounts if Sublessee performs all
of Sublessee's obligations hereunder, said deposit, or so much thereof as
ha[ILLEGIBLE] theretofore been applied by Sublessor, shall be returned, without
payment of interest or other increment for its use to Sublessee for at
Subles[ILLEGIBLE] option, to the last assignee, if any, of Sublessee's interest
hereunder) at the expiration of the term hereof, and after Sublessee has
vacate[ILLEGIBLE] Premises. No trust relationship is created herein between
Sublessor and Sublessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for office use and for
no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use for which Sublessee will use Premises, does
not violate any applicable building code regulation or ordinance at the time
that this Sublease is executed in the event that it is determined that this
warranty has been violated, then it shall be the obligation of the Sublessor,
after written notice from Sublessee, to promptly, at Sublessor's cost and
expense, rectify any such violation. In the event that Sublessee does not give
to Sublessor written notice of the violation of this warranty w[ILLEGIBLE] year
from the commencement of the term of this Sublease, it shall be conclusively
deemed that such violation did not exist and the correction of the [ILLEGIBLE]
shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a). Sublessee shall, at
Sublessee's expense, comply promptly with all applicable state ordinances rules
regulations orders, restrictions of record, and requirements in effect during
the term or any part of the term hereof regulating use by Sublessee of the
Premises. Sublessee shall not use or permit the use of the Premises in any
manner that will tend to create waste, nuisance or, if there shall be more than
one tenant of the building containing the Premises, which shall tend to disturb
such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a) Sublessee
hereby accepts the Premises in their condition existing as o[ILLEGIBLE] date of
the execution hereof, subject to all applicable zoning, municipal county and
state laws ordinances and regulations governing and regula[ILLEGIBLE] Sublessee
acknowledges that neither Sublessor nor Sublessor's agents have made any
representation or warranty as to the suitability of Premises for the conduct of
Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached here
marked Exhibit 1 dated Nov. 16, 1989 wherein Pleasanton Willow Partners is the
lessor hereinafter referred to as the "Master Lessor."
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease word "Lessor" is used it shall be
deemed to mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations, which have arisen prior to the termination of this Sublease
Sublessee does hereby expressly assume and agree to perform and comply with for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom N/A
[ILLEGIBLE] American Industrial Real Estate Association 1978
<PAGE> 5
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations." The
obligations that Sublessee has nor assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations."
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive and
collect, directly from Sublessee, all rent owning and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rent from the Sublessee, be deemed liable
to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that the default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid to Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor than the Sublease shall
not be effective unless, within 10 days of the date hereof, Master Lessor signs
this Sublease thereby giving its consent to the Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantor consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master Lessor
of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee, if such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to Colliers
Parish International, a license real estate broker, (herein called "Broker"), a
fee as set forth in a separate agreement between Sublessor and Broker.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any extension
or renewal, upon the execution of any new lease, as to a new lease transaction
or the exercise of a right of first refusal to lease; or at the close of escrow,
as to the exercise of any option to purchase or other sale transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under this Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
<PAGE> 6
12. Additional provisions (if there are no additional provisions draw a line
from this point to the next printed word after the space left here if the
additional provisions place the same here).
Subtenant shall take the premises in the current "as is" condition. All
retenanting shall be at the subtenant's sole cost and expense. Subtenant
would use their own architect for design and construction services and
would hire their own general contractor to perform the necessary work. All
firms engaged by Subtenant shall be licensed to do work in their field in
the State of California. Sublandlord shall not be involved in management
or supervision of the Tenant Improvements and Subtenant shall gain
approvals for said work directly with the Landlord per the terms of the
Master Lease.
13. The following attached documents are made a part of this Sublease document:
Exhibit A - Addendum to Sublease
Exhibit B - Consent of Master Lessor
Exhibit C - Master Lease between Pleasanton Willow Partners and Bissell &
Karn,
Exhibit D - Subordination, Non-Disturbance and Attornmet Agreement
If the Sublease has been filled in it has been prepared for submission to
your attorney for his approval. The representation or recommendation is
made by the real estate broker or its agents or employees as to the legal
sufficiency, legal effect, or tax consequences of this Sublease or the
transaction relating thereto.
Executed at 11:30 AM Greiner, Inc. Pacific
--------------------------- --------------------------------
on May 16, 1996 By [SIG]
------------------------------------ ------------------------------
address 5890 StoneRidge Dr. By Vice President
------------------------------- ------------------------------
Pleasanton, California
- -------------------------------------- "Sublessor" (Corporate Seal)
Executed at Remedy Corporation
--------------------------- --------------------------------
on May 21, 1996 By [SIG]
------------------------------------ ------------------------------
address 1505 Salado Drive By CEO
------------------------------- ------------------------------
Mountain View, CA 94043
- -------------------------------------- "Sublessor" (Corporate Seal)
Executed at
--------------------------- --------------------------------
on By
------------------------------------ ------------------------------
address By
------------------------------- ------------------------------
- -------------------------------------- "Master Lessor" (Corporate Seal)
Executed at
--------------------------- --------------------------------
on By
------------------------------------ ------------------------------
address By
------------------------------- ------------------------------
- -------------------------------------- "Guarantor"
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you re
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles,CA 90071
(213)687-8777.
<PAGE> 7
ADDENDUM TO SUBLEASE
ADDENDUM TO SUBLEASE ("Addendum"), dated for reference purposes only
March 29, 1996, is made by and between Greiner, Inc. Pacific ("Sublessor"), and
Remedy Corporation ("Sublessee"), pursuant to the Standard Sublease dated March
29, 1996, between Sublessor and Sublessee (the "Sublease Form") to which this
Addendum is attached. The Sublease Form and this Addendum are hereinafter
collectively referred to as the "Sublease" and each reference in the Sublease
Form and herein to the "Sublease" shall be deemed to refer to both documents
collectively. This Addendum is an integral part of the Sublease, and, in the
event of any inconsistency between this Addendum and the Sublease Form (or
between this Addendum and the Master Lease), then as between Sublessor and
Sublessee the terms of this Addendum shall control (and where so specified as
binding on Master Lessor, this Addendum also shall control, provided that Master
Lessor executes the Consent of Master Lessor attached hereto). Any
cross-reference from, this Addendum to the Sublease Form or the Master Lease is
for convenience of reference only and such cross-reference should not be
construed as a limitation on the scope or affect of this Addendum, and this
Addendum shall, as between Sublessor and Sublessee only, be deemed to modify all
portions of the Sublease Form, and/or the Master Lease to which this Addendum
has relevance. Unless otherwise defined, all terms used in this Addendum shall
have the same meanings as given them in the Sublease Form.
1. Sublease Commencement Date; Condition of the Premises,
Notwithstanding anything in Section 3 or elsewhere in the Sublease Form to the
contrary, the term of the Sublease (the "Sublease Term") shall commence on the
first business day following Sublessor's complete vacation from the first floor
of the Premises and relocation to the second floor of the Premises (such date is
referred to herein as the "Sublease Commencement Date"); provided that if
Sublessor does not, by May 22, 1996, completely vacate the first floor of the
Premises and relocate to the second floor of the Premises, the Rent Commencement
Date (as defined in Paragraph 2(i) of this Addendum) shall be deferred in
accordance with Paragraph 2(iii) of this Addendum. The Sublease Term shall
expire an August 31, 2000 (the "Sublease Expiration Date"). Following the
Sublease Commencement Date, Sublessee shall have the right to commence its
alterations and installation of communications and computer networks and cabling
on the first floor of the Premises, and thereafter commence occupancy of the
first floor of the Premises. By no later than June 28, 1996, Sublessor shall
completely vacate the second floor of the Premises; provided that if Sublessor
does not, by June 28, 1996, completely vacate the second floor of the Premises,
the Rent Commencement Date shall be deferred in accordance with Paragraph 2(iv)
of this Addendum. As to each portion of the Premises vacated by Sublessor,
Sublessor shall remove all of Sublessor's personal property, and shall leave
such portion of the Premises in broom-clean condition with all operating
systems, including mechanical, plumbing, heating, ventilation, air conditioning,
and electrical in good working condition, and otherwise in its "as-is"
condition.
1
EXHIBIT "A"
<PAGE> 8
2. Rent Commencement Date.
(i) The date on which Sublessee's obligation to pay rent commences
under this Sublease is referred to herein as the "Rent Commencement Date".
(ii) Notwithstanding anything in Section 4 or elsewhere in the
Sublease Form, to the contrary, but subject to the provisions of Paragraphs
2(iii) and 2(iv) below, the Rent Commencement Date shall be the later of (a)
July 1, 1996, or (b) the expiration of two (2) weeks following Sublessor's
vacation from the entire Premises in accordance with Paragraph 1 of this
Addendum.
(iii) If Sublessor does not, by May 22, 1996, completely vacate the
first floor of the Premises and relocate to the second floor of the Premises,
the Rent Commencement Date shall be deferred beyond the date otherwise provided
for in Paragraph 2(ii) above for a period of time equal to the number of days
that elapse following May 22, 1996 until Sublessor completes its vacation from
the first floor of the Premises and relocation to the second floor of the
Premises.
(iv) If Sublessor does not, by June 28, 1996, completely vacate the
second floor of the Premises, the Rent Commencement Date shall be deferred
beyond, the date otherwise provided for in Paragraph 2(ii) above (as such date
may be deferred pursuant to Paragraph 2(iii) above) for a period of time equal
to the number of days that elapse following June 28, 1996 until Sublessor
completes its vacation from the second floor of the Premises.
3. Rent; Late Charge; Security Deposit.
(i) Notwithstanding anything in Section 4 or elsewhere in the
Sublease Form to the contrary, rent for the first twenty-one (21) months
following the Rent Commencement Date shall be $40,500 per month, and for the
remaining balance of the Sublease Term, the rent shall be $42,000 per month
(with the rent for any partial calendar month prorated on the basis of a 30-day
month).
(ii) Notwithstanding anything in the Master Lease or in the Sublease
Form to the contrary (including, without limitations Article 4.04 of the Master
Lease), Sublessee shall have no obligation to pay any late charge on any
delinquent installment of rent or other sum, due Sublessor under the Sublease
unless Sublessee's failure to pay continues for ten (10) days following the due
date therefor.
(iii) Notwithstanding anything in the Master Lease or in the Sublease
Form to the contrary (including without limitation, Article 4.05 of the Master
Lease), the amount of the Security Deposit shall be $42,000, and such amount
shall be invested in a segregated, interest-bearing account, with the interest
thereon remaining in said account for the benefit of Sublessee.
4. Operating Expenses. Notwithstanding anything in the Master Lease or
in the Sublease Form to the contrary (including without limitations Articles
4.03, 5.01,
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<PAGE> 9
6.01 and 7.01 of the Master Lease), the following shall apply with respect to
the payment of Operating Expenses, Insurance Expenses, and Tax Expenses (each as
defined in the Master Lease, and hereinafter collectively referred to as
"Sublease Expenses"):
(i) Sublessee shall contract separately for and pay for directly, all
janitorial services for the Premises, utility expenses for the Premises,
security for the Premises, and trash collection for the Premises (except that
Sublessor shall pay for same or shall reimburse Sublessee for same to the extent
they pertain to Sublessor's occupancy of the second floor of the Premises prior
to the Rent Commencement Date);
(ii) Sublessor shall pay all Sublease Expenses pertaining to the
Premises, as and when required by the Master Lease, and commencing on the first
day of the first month following the first anniversary of the Rent Commencement
Date, Sublessee shall reimburse Sublessor therefor; provided that Sublessee's
liability therefor shall be limited solely to increases in such Sublease
Expenses over the Sublease Expenses Base (as hereinafter defined), except that
in no event shall Sublessee be obligated to pay or reimburse Sublessor for (a)
any increase in Tax Expenses attributable to a sale or other conveyance of the
Premises, the Building, and/or the Lot, or (b) any costs or expenses relating to
the operation of the Building and/or the Premises incurred after 1996 that are
of a class or type that were not incurred during 1996 (e.g., if Master Lessor
elects to first employ 24-house drive-by security for the Premises after the
1996, Sublessee shall have no obligation, to pay any portion of the cost
therefor). Sublessee shall reimburse Sublessor as required by the preceding
sentence on a monthly basis, concurrently with the payment of rent so long as
Sublessor has delivered to Sublessee a statement or other documentation prepared
by Master Lessor evidencing increases in the Sublease Expenses payable by
Sublessee; provided that Sublessee's obligation to make such payments shall not
begin until the first day of the first month following the first anniversary of
the Rent Commencement Date. As used herein, the Sublease Expense Base shall mean
the sum of all of the Operating Expenses (other than those that are payable by
Sublessee pursuant to Paragraph 4(i) of this Addendum), Insurance Expenses and
Tax Expenses paid or incurred with respect to the Premises during calendar year
1996 (as evidenced by a statement or other documentation prepared by Master
Lessor, which shall be delivered to Sublessee prior to March 31, 1997);
(iii) No more often than once every calendar year, upon reasonable
notice, Sublessee may request that Sublessor obtain from Master Lessor
permission for Sublessee or its authorized agents to inspect, at Sublessee's
sole cost and during business hours, Master Lessor's records and documents
comprising the basis for calculating Operating Expenses, Tax Expenses, and
Insurance Expenses under the Master Lease, and to obtain copies of such records
and documents at Sublessee's sole cost and expense (and Master Lessor, by
executing the Consent of Master Lessor attached hereto, agrees to provide
Sublessee the opportunity to review its records and documents in accordance with
and subject to provisions of this Paragraph 4(iii), and such obligation shall be
binding between Sublessee and Master Lessor); and
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<PAGE> 10
(iv) The first sentence of Article 4.03 of the Master Lease shall be
revised to read as follows for the purposes of the Sublease: "'Additional Rent',
shall mean all monies, except Base Rent, required to be paid by Sublessee to
Sublessor under the Sublease, including without limitation any late payments,
interest, and payments required to be made to Sublessor for increases in
Sublease Expenses over the Sublease Expense Base."
5. Repairs and Maintenance.
(i) Notwithstanding anything in the Master Lease or in the Sublease
Form to the contrary (including, without limitation, Article 7.02 of the Master
Lease), the parties agree as follows with respect to the repair and maintenance
of the Premises and the components thereof:
(a) Except for damage resulting from acts or negligent omissions
of Sublessee (which Sublessee shall, repair at its expense, subject to
Article 6.08 of the Master Lease), Sublessee shall have no obligation to
perform and/or pay for (whether directly or as part of Sublessee's
obligation to reimburse Sublessor for increases in Sublease Expenses
over the Sublease Expense Base) any maintenance, repairs, or
replacements of the structure of the Building, the skylights and the
roof (accept as provided in clause (d)(2) of Paragraph 6(i) of this
Addendum), the foundation and subfloor of the Building, underground
utilities, and the parking areas around the Building (except that the
cost of sweeping and cleaning the parking areas allocable to the
Building shall be Included in Operating Expenses);
(b) All repairs and replacements of the mechanical, plumbing,
healing, ventilation, air conditioning, and electrical systems services
the Premises (or any components thereof) costing in excess of Two
Thousand Five Hundred Dollars ($2,500) per item of repair or replacement
shall be performed by Sublesssor or its contractors, and the cost of
each such repair or replacement shall be amortized over its useful life,
and such monthly amortized cost shall be included in Operating Expenses;
and
(c) All other routine repairs and maintenance of and to the
mechanical, plumbing, heating, ventilation, air conditioning and
electrical systems serving the Premises shall be performed by Sublessor
or its contractors, and the costs of such routine repairs and
maintenance shall be included in Operating Expenses.
(ii) Notwithstanding anything in the Master Lease or in the Sublease
Form to the contrary (including, without limitation, Article 7.02 of the Master
Lease), Sublessee shall have no obligation to repair any damage to the Premises
resulting from fire other casualty, condemnation, the negligence or willful
misconduct of Sublessor or Master Lessor (or their respective agents, employees,
contractors, or invitees), or ordinary wear and tear (and Master Lessor, by
executing the Consent of Master Lessor attached hereto, agrees that the
provisions of this Paragraph 5(ii) shall be binding as between Sublessee and
Master Lessor).
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<PAGE> 11
6. Alterations.
(i) Notwithstanding anything in the Master Lease or in the Sublease
Form to the contrary (including, without limitation, Article 8.02 of the Master
Lease): (a) all alterations, additions or improvements (collectively
"Alterations") made to the Premises by Sublessee shall be installed or
constructed by contractors and subcontractors properly licensed with the State
of California and only after Sublessee has obtained all building permits
necessary to legally construct the Alterations and has obtained, when necessary,
the consent of the Hacienda Business Park Owners' Association with respect to
such Alterations; (b) Sublessor approves of Sublessee's construction of
Alterations consistent with the space plan attached hereto as Exhibit 1; (c)
Sublessee shall have no obligation to pay any fee or other compensation to
Sublessor in connection with its management or supervision of the construction
of the Alterations contemplated by the attached space plan; and (d) Sublessee
shall have the right to install microwave, satellite and/or DDS dishes on the
roof of the Building provided that (1) Sublessee shall at the expiration of the
Sublease Term remove all such equipment installed by Sublessee, and (2)
Sublessee shall be responsible for and pay all costs associated with the
installation, removal, adjustment, maintenance, monitoring of all such equipment
installed by Sublessee, together with the costs of repair, replacement, or
renovation of the roof which is reasonably necessary to maintain the integrity
of the roof to the extent such repair, replacement, and/or renovation is
attributable to Sublessee's installation, removal, adjustment, maintenance or
monitoring of such equipment. By executing the Consent of Master Lease attached
hereto, Master Lessor agrees to the construction by Sublessee of Alterations
consistent with the space plan attached hereto as Exhibit 1, as well as
Sublessee's installation of microwave, satellite, and/or DDS dishes on the roof
of the Building in accordance with and subject to clause (d) above, and that
Master Lessor shall not be entitled to any fee or other compensation in
connection with its management or supervision of the construction of the
Alterations contemplated by the attached space plant.
(ii) Notwithstanding anything in the Master Lease or in the Sublease
Form to the contrary (including, without limitation, Articles 8.02 and 16.13 of
the Master Lease), Sublessee shall not have any obligation to remove any
Alterations made to the Premises by Sublessor or Sublessee, although Sublesee
reserves the right to do so. If Sublessee elects to remove any of its
Alterations, Sublessee shall repair any damage caused by such removal. Sublessee
shall have the right, however, to use any improvements installed in the Premises
by or for Sublessor. By executing the consent of Master Lessor attached hereto,
Master Lessor agrees to the provisions of this Paragraph 6(ii) as binding
between Sublessee and Master Lessor.
7. Assignment and Subletting. Notwithstanding anything in the Master
Lease or in the Sublease Form to the contrary (including, without limitation,
Article 14 of the Master Lease): (a) Sublessor shall not unreasonably withhold,
delay, or condition its consent to Sublessee's request to assign the Sublease or
sub-sublet all or any portion of the Premises, and Sublessor may not withhold
its consent if Master Lessor consents to such assignment or sub-sublet; (b)
without the prior consent of
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<PAGE> 12
Sublessor (but only after Sublessee has given notice to Sublessor) Sublessee may
assign the Sublease or sub-sublet all or any portion of the Premises to any
Affiliate (as hereinafter defined), subsidiary, parent, or division of Sublessee
or to any person or entity with which Sublessee is merged, consolidated, or
reorganized, or to which all or substantially all of Sublessee's assets or stock
is sold or transferred (without payment to Sublessor of any Excess Rent, as
otherwise contemplated by clause (d) below); (c) Sublessor shall have no right
to cancel or terminate the Sublease under Article 14.02 of the Master Lease; and
(d) Sublessee shall be obligated to pay to Sublessor only fifty percent (50%)
of any "Excess Rent" (as hereinafter defined), but only if Sublessee's
sub-sublease or assignment pertains to more than 15,000 square feet of the
Premises; otherwise, Sublessee shall have no obligation to pay any Excess Rent
to Sublessor. As used herein, the term "Affiliate" shall mean any person or
entity that controls, is controlled by, or is under common control with
Sublessee, and the term "Excess Rent" shall mean the amount by which all rent
and other amounts payable to Sublessee under its sub-sublease or assignment (but
excluding amounts paid to Sublessee allocable to trade fixtures and equipment at
a price not in excess of Sublessee's cost) exceeds the sum of (a) the rent and
the increases in Sublease Expenses payable by Sublessee hereunder, plus (b) the
costs incurred by Sublessee in connection with such sub-sublease or assignment,
including without limitation commissions, attorneys' fees, improvement
allowances and the like. By executing the Consent of Master Lessor attached
hereto, Master Lessor agrees to the provisions of the Paragraph 7 as binding
between Sublessee and Master Lessor (with each reference herein to "Sublessor"
applying as well to Master Lessor), except that Subleassee shall have no
obligation to pay Excess Rent to Master Lessor.
8. Signage. Provided that Sublessee obtains all approvals required from
the Hacienda Owners Association and the City of Pleasanton, Sublessee shall have
the right, notwithstanding anything in the Master Lease or in the Sublease Form
to the contrary (including, without limitation, Article 14 of the Master Lease),
to install building and monument signage or both Stoneridge Drive and Willow
Road. By executing the Consent of Master Lessor attached hereto, Master Lessor
agrees to the provisions of this Paragraph 8 as binding between Sublessee and
Master Lessor.
9. Parking. Notwithstanding anything in the Master Lease or in the
Sublease Form to the contrary (including without limitation, Article 10.03 of
the Master Lease), Sublessee shall have the exclusive right to use not less than
120 parking spaces in the Common Areas surrounding the Premises, and Sublessor
shall take no action to interfere with Sublessee's use thereof. By executing the
Consent of Master Lessor attached hereto, Master Lessor agrees to the provisions
of this Paragraph 9 as binding between Sublessee and Master Lessor (with the
reference herein to "Sublessor" applying as well to Master Lessor).
10. Insurance; Waiver of Subrogation
(i) Notwithstanding anything in the Master Lease or in the Sublease
Form to the contrary (including without limitation, Articles 6.02 and 6.04 of
the
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<PAGE> 13
Master Lease), Sublessee shall have the right to self insure its personal
property in the Premises.
(ii) Notwithstanding anything in the Master Lease or in the
Sublease Form to the contrary (including, without limitation, Article 6 of the
Master Lease), Sublessor hereby approves of the insurance obtained by Sublessee
as shown on the certificate of insurance attached hereto as Exhibit 2 and
approves of Chubb Insurance Company as the issuer thereof (and Master Lessor, by
executing the Consent of Master Lessor attached hereto, also approves of such
insurance and such insurance company).
(iii) Notwithstanding anything in the Master Lease or in the
Sublease Form to the contrary (including without limitation, Article 6.08 of the
Master Lease), each of Sublessor, Sublessee, and Master Lessor (by virtue of its
execution of the Consent of Master Lessor attached hereto) (each a "Waiving
Party") (i) hereby waives all claims such party may have against the others to
the extent such claims, are covered by any property insurance carried by the
Waiving Party or required to be carried by the Waiving Party under the Master
Lease or the Sublease, and (ii) shall, upon obtaining the policies of insurance
required hereunder, give notice to its insurance carrier or carriers that the
foregoing mutual wavier of subrogation is contained in this instrument.
11. Damage and Destruction; Eminent Domain. Notwithstanding anything in
the Master Lease or in the Sublease Form to the contrary (including, without
limitation, Articles 11 and 12 of the Master Lease): (a) in the event of any
damage to the Premises (or to the Building which impairs the use, occupancy
and/or access to the Premises even without actual damage to the Premises) which
would require more than ninety (90) days to repair, then Sublessee shall have
the right to terminate the Sublease by giving written notice thereof to
Sublessor within thirty (30) days following the date of the casualty; (b) in the
event of any termination of the Sublease resulting from a termination of the
Master Lease pursuant to Article 11 of the Master Lease, the termination of the
Sublease shall be effective as of the date of the casualty; and (c) in the event
of any damage or destruction or condemnation that otherwise would be covered by
Articles 11 or 12 of the Master Lease, Sublessor shall have no right to
terminate the Sublease under any circumstances (other than upon Master Lessor's
termination of the Master Lease).
12. Use of Premises. Notwithstanding anything in the Master Lease or in
the Sublease Form to the contrary (including without limitation, Article 10.01
of the Master Lease): (i) Sublessee shall have the right to use the Premises for
general office purposes and for any other legal uses related thereto (and Master
Lessor, by executing the Consent of Master Lessor attached hereto) hereby
consents to such use of the Premises); and (ii) Sublessee shall have no
obligation to (a) remedy or cure any instance of noncompliance in the Premises,
the Building and/or the Lot (as defined in the Master Lease), with Regulations
(as defined in the Master Lease) existing as of the Sublease Commencement Date,
(b) make or pay for (including, without limitation, any amortized portion of the
cost of) any Alterations to the Premises in
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<PAGE> 14
order to comply with any Regulations effective as of the Sublease Commencement
Date or enacted thereafter, except to the extent such Alterations are
necessitated by Sublessee's particular use of the Premises or Alterations
requested to be made by Sublessee after the Sublease Commencement Date, or (c)
remedy, cure, or comply with any Regulations relating to the release of
Hazardous Materials (as defined in the Master Lease) in, on, under, or about the
Sublease Premises, the Building, and/or the Lot, except to the extent such
release results from the acts or negligent omissions of Sublessee or Sublessee's
agents, invitees, customers, sub-sublessees, or contractors.
13. Default. Notwithstanding anything in the Master Lease or in the
Sublease Form to the contrary (including, without limitation, Article 13.01 of
the Master Lease): (i) Sublessee's vacation or abandonment of the Premises shall
not constitute a default under the Sublease; and (ii) Sublessee shall not be in
default of the Sublease as a result of Sublessee's failure to pay rent or any
other sum when due unless Sublessee's failure to pay continues for ten (10) days
following Sublessee's receipt from Sublessor of written notice of the
delinquency.
14. Estoppel Certificate. At Sublessee's request, Sublessor shall
deliver to Sublessee an estoppel certificate in reasonable form indicating that
the Sublease is unmodified and in full force and effect, that there are no
defaults by Sublessor or Sublessee thereunder, and that there are no facts or
circumstances which with the giving of notice or the passage of time (or both)
would constitute a default by Sublessor or Sublessee hereunder (or, if the facts
are inconsistent with the foregoing, Sublessor shall described such
inconsistencies).
15. Waiver. The provisions of Article 16.01 of the Master Lease as
incorporated into the Sublease shall be mutual and inure to the benefit of both
Sublessor and Sublessee.
16. Notices. Notwithstanding anything in the Master Lease or in the
Sublease Form to the contrary (including, without limitation, Article 16.18 of
the Master Lease), any notice sent or required to be sent as between Sublessor
and Sublessee under the terms of the Master Lease or the Sublease shall be
deemed given only on actual receipt or refusal of delivery.
Notices shall be addressed as follows:
If to Sublessee: Remedy Corporation
1505 Salado Drive
Mountain View, CA 94043
Attn: Manager, Contracts
If to Sublessor:
---------------------------
---------------------------
---------------------------
or to such other address as either party may give the other by proper notice.
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<PAGE> 15
17. Brokerage Commissions. Sublessor shall pay brokerage commissions to
Colliers Parrish International and Cushman Realty Corporation pursuant to a
separate agreement, and in no event shall Sublessee have any liability therefor.
Except for the brokers referred to in the preceding sentence, each party
represents to the other that it has not dealt with any broker, agent, or finder
for which a commission or fee is payable. Except as set forth above, each party
shall indemnify, defend, and hold harmless the other from any claims, demands,
or judgments for commissions or fees arising from such party's breach of this
representation.
18. Exclusion of Certain Provisions of Master Lease. Notwithstanding
anything contained in the Master Lease or in the Sublease Form to the contrary,
the following provisions of the Master Lease are NOT incorporated into the
Sublease (which provisions shall have no effect as between Sublessor and
Sublessee): Articles 1.06, 4.02, 4.03 (first sentence), 5.01 (first sentence),
6.01 (first sentence), 6.02 (third sentence), 6.04, 6.09, 7.01 (first sentence),
14.02, and 16.04; provided that following the expiration of the Sublease Term
upon the commencement of the New Lease (as defined in the Consent of Master
Lessor), the provisions of Articles 1.06, 6.09, and 16.04 shall be reinstated
and in full force and effect as between Master Lessor and Sublessee.
19. Sublessor's Warranties And Representations. Sublessor warrants and
represents to Sublessee as follows:
(i) The Master Lease attached to the Sublease Form as Exhibit
"1" is a true and complete copy thereof, and there have been no changes or
amendments thereto except as contained therein.
(ii) Sublessor is in full compliance with the provisions of the
Master Lease, and has timely performed all of the obligations of "Tenant"
thereunder, and there exist no facts or circumstances which with the giving of
notice or the passage of time (or both) would constitute a default by Sublessor
(as Tenant) under the Master Lease.
(iii) Master Lessor is in full compliance with the provisions of
the Master Lease, and has timely performed all of the obligations of "Landlord"
thereunder, and there exist no facts or circumstances which with the giving of
notice or the passage of time (or both) would constitute a default by Master
Lessor (as Landlord) under the Master Lease.
(iv) Until the Sublease Expiration Date, Sublessor shall perform
all of the obligations of Tenant under the Master Lease (except to the extent
such obligations have been delegated to Sublessee hereunder), and shall not take
any action to terminate the Master Lease. Sublessor hereby agrees to indemnify,
protect, defend, and hold harmless Sublessee from and against any and all
claims, liabilities, losses, damages and expenses (including reasonable
attorneys' fees) arising from or in connection with a termination of the
Sublease due to a termination of the Master Lease resulting from or in
connection with a default by Sublessor (as Tenant) under
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<PAGE> 16
the Master Lease, except to the extent such default results from a default by
Sublessee of the Sublease.
20. Indemnification. Notwithstanding anything in the Master Lease or in
the Sublease Form to the contrary (including, without limitation, Article 6.09
of the Master Lease), Sublessor and Sublessee agree that the following
provisions shall apply as between Sublessor and Sublessee in lieu of said
Article 6.09 of the Master Lease:
(i) Sublessee shall indemnify and hold Sublessor and the
Premises, Building and Lot harmless from and against: (a) all liabilities,
penalties, losses, damages, costs and expenses, demands, causes of action,
claims of judgments in connection with any injury to persons or damage to
property arising from or growing out of any injury to any person or persons or
any damage to any property occurring in or on the Premises during Sublessee's
occupancy thereof, or as a result of any accident or other occurrence occasioned
by any act or negligent omission of Sublessee, Sublessee's officers, employees,
agents, servants, subtenants, concessionaires, contractors, or visitors, or
arising from Sublessee's use, maintenance, occupation or operation of the
Premises, Building, Common Area, and Lot; and (b) all legal costs and charges,
including reasonable attorneys' fees, in connection with such matters and the
defense of any action arising out of the same or in discharging the Property
from any and all liens, charges or judgments which may accrue or be placed
thereon by reason of any act or negligent omission of Sublessee; provided,
however, that Sublessee shall not indemnify Sublessor for any injury or damage
arising as the result of Sublessor's negligence or willful misconduct.
(ii) Sublessor shall indemnify and hold Sublessee and the
Premises, Building and Lot harmless from and against (a) all liabilities,
penalties, losses, damages, costs and expenses, demands, causes of action,
claims of judgments in connection with any injury to persons or damage to
property arising from or growing out of any injury to any person or persons or
any damage to any property occurring in or on the Premises during Sublessor's
occupancy thereof, or as a result of any accident or other occurrence occasioned
by any act or negligent omission of Sublessor, Sublessor's officers, employees,
agents, servants, subtenants, concessionaires, contractors, or visitors, or
arising from Sublessor's use, maintenance, occupation or operation of the
Premises, Building, Common Area, and Lot, and (b) all legal costs and charges,
including reasonable attorneys' fees, in connection with such matters and the
defense of any action arising out of the same or in discharging the Property
from any and all liens, charges or judgments which may accrue or be placed
thereon by reason of any act or negligent omission of Sublessor; provided,
however, that Sublessor shall not indemnify Sublessee for any injury or damage
arising as the result of Sublessee's negligence or willful misconduct.
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<PAGE> 17
21. Limitation on Liability. Notwithstanding anything in the Master Lease
or in the Sublease Form to the contrary (including, without limitation, Article
16.04 of the Master Lease), Sublessor and Sublessee agree that the following
provision shall apply as between Sublessor and Sublessee in lieu of said Article
16.04 of the Master Lease: The obligations of Sublessor under the Sublease are
not personal obligations of the individual partners, directors, officers and
shareholders of Sublessor, and Sublessee shall not seek recourse against the
assets of the individual partners, directors, officers and shareholders of
Sublessor arising from any breach of such obligations.
22. Consent of Master Lessor and Lender. The Sublease shall be of no
force or effect unless both of the following occur within ten (10) days after
execution of the Sublease Form and this Addendum by Sublessor and Sublessee: (i)
Master Lessor executes (a) the Sublease Form where shown for Master Lessor, and
(b) the Consent of Master Lessor attached to this Addendum, and (ii) Berkshire
Life Insurance Co., the holder of a first deed of trust encumbering the Lot,
consents in writing to the Sublease on a form reasonably acceptable to
Sublessor, Sublessee, and Master Lessor.
23. Execution in Counterparts; by Facsimile. This Addendum and the
Sublease Form may be executed in counterparts, and transmitted by facsimile by
and to each of the parties, and each such counterpart shall be deemed an
original, and all of them together shall constitute a single instrument.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Addendum
as of the date set forth above.
SUBLESSEE SUBLESSOR
Remedy Corporation Greiner, Inc. Pacific
By: [SIG] BY: [SIG]
----------------------------- -------------------------------
Its: CEO Its: Vice President
---------------------------- ------------------------------
11
<PAGE> 18
CONSENT OF MASTER LESSOR
The undersigned is the Master Lessor named in the foregoing Sublease.
The undersigned, as Landlord under the Master Lease, hereby consents to the
Sublease Form and the foregoing Addendum to Sublease ("Addendum") on the terms
set forth therein; provided that at all times during the term of the Sublease
and the New Lease (as hereinafter defined) each policy of insurance obtained by
Sublessee pursuant to Article 6.03 of the Master Lease shall (1) be issued by an
insurance company reasonably satisfactory to Master Lessor (provided that Master
Lessor has agreed that Chubb Insurance Company is a satisfactory issuer), (2)
name Pleasanton Willow Partners and each of its partners as a primary,
additional insured, and (3) include a provision stating that such policy will
not be canceled unless notice thereof has been given to Master Lessor not less
than fifteen (15) days prior to cancellation.
Sublessor expressly consents to Paragraph 7(b) of this Addendum as well
as any further assignment of the Sublease or sub-subletting of the Premises by
Sublesee pursuant to said Paragraph 7(b), and no further consent of Master
Lessor shall be required in connection with Sublessee's exercise of its rights
under said Paragraph 7 so long as Sublessee is riot in default of its
obligations under the Sublease at the time of such exercise. Sublessor further
agrees that it shall have no right to withhold its consent to any sub-sublease
of the Premises during the term of the Sublease (or to any sublease of the
Premises during the term of the New Lease) so long as (1) Sublessee is not in
default of its obligations under the Sublease (or the New Lease) at the time of
such sub-sublease (or sublease), (2) Sublessee remains liable for the
performance of all obligations Sublessee under the Sublease (or the New Lease),
and (3) the sub-sublessee (or the sublessee) does not, by the nature of its
activities in the Premises, either increase the cost of insuring the Building or
present an increased risk of Hazardous Materials contamination of the Premises,
the Building, or the Lot.
In addition, by executing this instrument, Master Lessor expressly
agrees to the provisions of Paragraphs 4(iii), 5(ii), 6(i), 6(ii), 8, 9, 10(ii),
10(iii), and 12 of this Addendum, and said Paragraph 10(iii) of this Addendum
shall constitute a three party agreement binding among and inuring to the
benefit of Sublessor, Sublessee, and Master Lessor. This Consent does not
constitute consent to any further sublease of the Master Premises and/or the
Premises except by Sublessee pursuant to Paragraph 7(b) of this Addendum. As
between Master Lessor and Sublessor, nothing contained in the Sublease or in the
Addendum shall be deemed to release Sublessor from its primary liability to
Master Lessor under the Master Lease.
In connection with giving its consent to the Sublease, Master Lessor
hereby agrees to lease the Premises directly to Sublessee on the terms set forth
in the Sublease (with Master Lessor, as 'Landlord," having all the rights of
Sublessor against Sublessee and having all of the obligations of Sublessor in
favor of Sublessee and all of the obligations of Master Lessor in favor of
Sublessor, and with Sublessee, as "Tenant," having all of the rights and
obligations of Sublessee) except as set forth in the following subparagraphs (i)
through (xi):
12
"EXHIBIT "B"
<PAGE> 19
(i) The initial term (the "Initial Term") of the lease between Master
Lessor and Sublessee (the "New Lease") will commence on the day immediately
following the Sublease Expiration Date or any earlier termination of the Master
Lease, and will expire on May 31, 2003; subject to the First Extension Option,
the Second Extension Option, the Third Extension Option, the Fourth Extension
Option, and the Early Termination Right (each as described below).
(ii) The Base Rent for the entire Initial Term of the New Lease shall be
equal to Forty-Two Thousand Dollars ($42,000) per month, and as Additional Rent,
Sublessee shall continue to pay increases in Sublease Expenses over the Sublease
Expense Base.
(iii) Sublessee shall have the exclusive right and option (the "First
Extension Option"), which Sublessee must exercise, if at all, by giving written
notice to Master Lessor at least 180 days prior to the expiration of the Initial
Term, to extend the term of the New Lease beyond the Initial Term for a period
of two (2) years ("First Extended Term") on all of the terms set forth in the
New Lease, except that the aggregate of the rent and other amounts payable to
Master Lessor shall be fixed for the entire First Extended Term at an amount
equal to ninety-five percent (95%) of then current fair market rent for renewals
by tenants of similar credit and similar facilities within the Tri-Valley market
area, taking into account all relevant factors affecting the determination of
rent, but the value of all tenant improvements installed in the Premises (other
than those funded by Master Lessor) shall be excluded from consideration of fair
market rent; and if Sublessee and Master Lessor do not agree upon the fair
market rent for the Premises in accordance with the foregoing criteria within
fifteen (15) days following Sublessee's exercise of the First Extension Option,
the provisions set forth in subparagraphs (a) and (b) below shall apply.
Notwithstanding the foregoing, any purported or attempted exercise of the
First Extension Option shall be ineffective and of no force or effect if an
Event of Default (as hereinafter defined) exists at the time of such purported
or attempted exercise thereof. As used herein, the term Event of Default shall
mean that Sublessee has failed to perform a material obligation under the New
Lease, and has not remedied such failure following receipt of written notice of
such default from Master Lessor.
(a) If Sublessee and Master Lessor do not agree upon the fair
market rent for the Premises within fifteen (15) days following
Sublessee's exercise of the First Extension Option, each party shall,
within thirty (30) days following Sublessee's exercise of the First
Extension Option, appoint a real estate appraiser who shall be a member
of the American Institute of Real Estate Appraisers ("AIREA") and shall
be experienced in the appraisal of rental value for comparable
properties in the Tri-Valley market area, and such appraisers shall each
determine the fair market monthly Tent for the Premises taking into
account all relevant factors affecting the determination of rent;
provided, however, that in their determination of fair market rent the
appraisers shall not take into account the added value, if any,
attributable to tenant improvements installed in the Premises (other
than those funded by Master Lessor) as compared to what would have been
the fair market rent for the
13
<PAGE> 20
Premises absent such improvements. Such appraisers shall, within forty-five
(45) days after their appointment, complete their appraisals and submit
their appraisal reports to Master Lessor and Sublessee. If the fairmarket
monthly rent of the Premises established in the two (2) appraisals varies
by ten percent (10%) or less of the higher rental, the average of two shall
be multiplied by 95% and the resulting product shall be the rent for the
Premises for the First Extended Term. If said fair market monthly Base Rent
varies by more than ten percent (10%) of the higher rental, said
appraisers, within ten (10) days after submission of the last appraisal,
shall appoint a third appraiser who shall be a member of the AIREA and who
shall be similarly qualified and experienced. Such third appraiser shall,
within forty-five (45) days after his appointment, determine by appraisal
the fair market monthly rent of the Premises, taking into account the same
factors referred to above and submit his appraisal report to Master Lessor
and sublesee. The fair market monthly rent determined by the third
appraiser for the Premises shall be averaged with whichever of the other
two appraised values is closest to that determined by the third appraiser,
and said average shall be multiplied by 95% and the resulting product shall
be the rent for the Premises for the First Extended Term. If either Master
Lessor or Sublessee fails to appoint an appraiser, or if an appraiser
appointed by either of them fails, after his appointment, to submit his
appraisal within the required period in accordance with the foregoing, the
appraisal submitted by the appraiser properly appointed and timely
submitting his appraisal shall be controlling. If the two appraisers
appointed by Master Lessor and Sublessee are unable to agree upon a third
appraiser within the required period in accordance with the foregoing,
application shall be made within twenty (20) days thereafter by either
Master Lessor or Sublessee to the AIREA, which shall appoint a member of
said institute willing to serve as appraiser. Each party shall bear the
cost of the appraiser appointed by such party, and the cost of the third
appraiser, if any, shall be borne equally by Master Lessor and Sublessee.
(b) Notwithstanding anything in the foregoing subparagraph (a) or any
other provision of the New Lease to the contrary, if the fair market rent
for the Premises as determined by appraisal for the First Extended Term is
not acceptable to Sublesee, Sublessee shall be entitled to rescind its
exercise of the First Extension Option by notifying Master Lessor in
writing of said rescission within ten (10) business days of receiving
notification of the appraisers' final determination of fair market rent,
and if Sublessee rescinds its exercise of the First Extension Option,
Sublessee shall pay the costs of all appraisals and the term of the new
lease shall expire on the later of (1) May 1, 2003, or (2) the expiration
of one hundred twenty (120) days following Sublessee's delivery of its
notice of rescission of the First Extension Option, and if the term
continues after May 1, 2003, the rent payable for the period between May 1,
2003 and the expiration of the term of the New Lease shall be equal to
ninety-five percent (95%) of the fair market rent for the Premises as
determined by the appraisers. If Sublessee fails to notify Master Lessor in
writing of said rescission within
14
<PAGE> 21
said ten (10) day period, Tenant shall be deemed to have accepted the
appraisers' determination of fair market rent.
(iv) Provided that Sublessee has previously exercised the First Extension
Option, Sublessee shall have the exclusive right and option (the "Second
Extension Option") to extend the term of the new lease for a period of one (1)
year following the expiration of the First Extended Term (the "Second Extended
Term") on all of the terms set forth in the New Lease, except that the aggregate
of the rent and other amounts payable to Master Lessor for each month of the
Second Extended Term shall be equal to aggregate of the rent and other amounts
payable to Master Lessor during each month of the First Extended Term multiplied
by a fraction, the numerator of which is the Index (as hereinafter defined) most
recently published as of the commencement of the Second Extended Term, and the
denominator of which is the Index most recently published as of the commencement
of the First Extended Term. As used herein, the "Index" shall mean the Consumer
Price Index for All Urban Consumers, for San Francisco-Oakland-San Jose
Metropolitan Area (1982-84=100), as published by the United States Department of
Labor Statistics. Sublessee must exercise the Second Extension Option, if at
all, by giving written notice to Master Lessor at least 180 days prior to the
expiration of the First Extended Term; provided that any purported or attempted
exercise of the Second Extension Option shall be ineffective and of no force or
effect if an Event of Default exists at the time or such purported or attempted
exercise thereof.
(v) Provided that Sublesee has previously exercised the First Extension
Option and the Second Extension Option, Sublessee shall have the exclusive right
and option (the "Third Extension Option") to extend the term of the new lease
for a period of one (1) year following the expiration of the Second Extended
Term (the "Third Extended Term") on all of the terms set forth in the New Lease,
except that the aggregate of the rent and other amounts payable to Master Lessor
for each month of the Third Extended Term shall be equal to aggregate of the
rent and other amounts payable to Master Lessor during each month of the Second
Extended Term multiplied by a fraction, the numerator of which is the Index most
recently published as of the commencement of the Third Extended Term, and the
denominator of which is the Index most recently published as of the commencement
of the Second Extended Term. Sublessee must exercise the Third Extension Option,
if at all, by giving written notice to Master Lessor at least 180 days prior to
the expiration of the Second Extended Term; provided that any purported or
attempted exercise of the Third Extension Option shall be ineffective and of no
force or effect if an Event of Default exists at the time of such purported or
attempted exercise thereof.
(vi) Provided that Sublessee has previously exercised the First Extension
Option, the Second Extension Option, and the Third Extension Option, Sublessee
shall have the exclusive right and option (the "Fourth Extension Option") to
extend the term of the new lease for a period of one (1) year following the
expiration of the Third Extended Term (the "Fourth Extended Term") on all of the
terms set forth in the New Lease, except that the aggregate of the rent and
other amounts payable to Master Lessor for each month of the Fourth Extended
Term shall be equal to
15
<PAGE> 22
aggregate of the rent and other amounts payable to Master Lessor during each
month of the Third Extended Term multiplied by a fraction, the numerator of
which is the Index most recently published as of the commencement of the Fourth
Extended Term, and the denominator of which is the Index most recently published
as of the commencement of the Third Extended Term. Sublessee must exercise the
Fourth Extension Option, if at all, by giving written notice to Master Lessor at
least 180 days prior to the expiration of the Third Extended Term; provided that
any purported or attempted exercise of the Fourth Extension Option shall be
ineffective and of no force or effect if an Event of Default exists at the time
of such purported or attempted exercise thereof.
(vii) Notwithstanding the foregoing subparagraphs (iii), (iv), (v) and
(vi), the rent for the Premises for the First Extended Term, the Second Extended
term, the Third Extended Term, and the Fourth Extended Term shall be not less
than Forty-Two Thousand Dollars ($42,000) per month.
(viii) Sublessee shall have the right (the "Early Termination Right") to
terminate the New Lease (during the Initial Term only) by giving nine (9) months
prior written notice thereof, and paying to Master Lessor upon such early
termination an amount equal to four (4) months of base rent, plus any leasing
commissions incurred by Master Lessor in connection with entering into the New
Lease that have not been amortized (assuming an interest rate thereon of 9%)
during Sublessee's occupancy.
(ix) The provisions of clause (a) of Paragraph 11 of the Addendum shall,
for the purposes of the New Lease, be revised to read as follows: "(a) in the
event of any damage to the Premises (or to the Building which impairs the use,
occupancy and/or access to the Premises even without actual damage to the
Premises) which would require more than one hundred thirty-five (135) days to
repair, then Sublessee shall have the right to terminate the Sublease by giving
written notice thereof to Sublessor within thirty (30) days following the date
of the casualty."
(x) The provision of clause (ii) of Paragraph 13 of the Addendum shall,
for the purposes of the New Lease, be revised to read as follows: "(ii)
Sublessee shall not be in default of the Sublease as a result of Sublessee's
failure to pay rent or any other sum when due unless Sublessee's failure to pay
continues for three (3) business days following Sublessee's receipt from
Sublessor of written notice of the delinquency."
(xi) The provisions of Paragraphs 20 and 21 of the Addendum shall be of
no force or effect as between Sublessee and Master Lessor, and the provisions of
Articles 6.09 and 16.04 of the Master Lease shall be deemed reinstated in the
New Lease.
16
<PAGE> 23
This Consent of Master Lessor and the Sublease Form may be executed in
counterparts, and transmitted by facsimile by and to each of the parties, and
each such counterpart shall be deemed an original, and all of them together
shall constitute a single instrument.
Dated: May 17, 1996 MASTER LESSOR
PLEASANTON WILLOW PARTNERS
By: [SIG]
-------------------------
Its: Managing General Partner
------------------------
Sublessee hereby agrees to the terms of the New Lease.
Dated: May 21, 1996 SUBLESSEE
REMEDY CORPORATION
By: [SIG]
-------------------------
Its: CEO
------------------------
17
<PAGE> 24
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
TIES AGREEMENT, dated the 14th day of May, 1996, is between Berkshire
Life Insurance Co. ("Lender") and Remedy Corporation, a California corporation
("Subtenant").
WITNESSETH:
WHEREAS, Subtenant has entered into a certain sublease dated as of March
29, 1996 (the "Sublease") with Greiner, Inc. Pacific, as Sublandlord and where
Pleasanton Willow Partners, a California general partnership is the Landlord
("Borrower), covering the property more fully described in Exhibit A attached
hereto and made a part hereof (the "Premises"); and
WHEREAS, Borrower has given to Lender a deed of trust upon the Premises
in the original principal sum of Two Million Three Hundred Thousand and No/100
Dollars ($2,300,000.00) (the "Deed of Trust") which Deed of Trust has been
recorded in the Recorder's Office of Alameda County as document Number
95-240328; and
WHEREAS, Subtenant desire to be assured of continued occupancy of the
Premises under the terms of the Sublease in the event that the lien of the Deed
of Trust is foreclosed upon;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The Sublease is and shall be subject and subordinate to the lien and
effect of the Deed of Trust insofar as it affects the real and personal
property of which the Premises from a part, and to all renewals,
modifications, consolidations, replacements and extensions thereof.
2. If Lender takes possession of the Premises as mortgagee-in-possession or
forecloses the Deed of Trust or otherwise, Lender agrees not to affect
or disturb Subtenant's right to possession of the Premise or any of
Subtenant's other rights under the Sublease in the exercise of Lender's
rights, except in accordance with the terms of the Sublease.
3. If the Lender succeeds to the interest of Borrower or any other landlord
under the Lease or to title to the Premises, Lender and Subtenant hereby
agree to be bound to one another under all of the terms, covenants and
conditions of the Lease and Sublease. Accordingly, from and after such
event, Lender and Subtenant shall have the same remedies against one
another for the breach of any agreement contained in the Lease and
Sublease as Subtenant and Borrower had before Lender succeeded to the
interest of Borrower, provided, however, that:
(a) Under shall not be bound by any rent or additional rent which
Subtenant might have paid for more than the one month in advance to any
prior landlord (including Borrower);
<PAGE> 25
(b) Lender shall not be subject to any offsets or defenses which
Subtenant may have against Landlord under the Lease (unless such offsets
or defenses are specifically provided for in the Lease, including
without limitation, provision regarding Payment of tenant improvement
allowances); and
(c) Lender shall not be liable or responsible for or with respect to the
retention, application or return to Subtenant of any security deposit
paid to any prior landlord (including the Sublandlord), whether or not
still held by such prior Sublandlord, unless Lender has actually
received for its own account as landlord the full amount of the security
deposit.
4. if any other party acquires title to or the right to possession of the
Premises upon the foreclosure of the Deed of Trust, or upon the sale of
the Premises by Lender or its successors or assigns after foreclosure or
acquisition of title in lieu thereof or otherwise, that Party and
Subtenant shall be bound to one another under all of the terms,
covenants and conditions of the Lease.
5. Subtenant hereby represents and covenants:
(a) that Subtenant is now the sole owner of the subleasehold estate
created by the Sublease and shall not hereafter assign the Lease except
as permitted by the terms thereof;
(b) not to seek to terminate the Sublease by reason of any default of
Borrower (or the then landlord) without prior written notice thereof to
Lender and the lapse thereafter of such time as under the Lease was
granted to Borrower to remedy the default, within which time Lender, at
its option, may remedy any such default;
(c) upon the prior written request of Lender, to promptly certify in
writing to Lender in connection with any proposed assignment of the Deed
of Trust, whether or not any default on the part of Borrower then exists
under the Lease or Sublease.
6. Lender agrees that-the Lease provisions regarding damage and destruction
and condemnation shall prevail, notwithstanding any provisions in the
Deed of Trust or any other document to the contrary.
7. Lender hereby covenants and agrees to and with Subtenant to give
Subtenant written notice of any default by Borrower under the Deed of
Trust at the time as such notice is given to Borrower.
8. This Agreement shall be binding upon and shall extend to and benefit the
successors and assigns of the parties hereto and to the subtenants of
Tenant which are permitted under the Lease.
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers the day and year first above written.
LENDER: BERKSHIRE LIFE INSURANCE COMPANY
By:/s/ PRESCOTT F. HILL
-------------------------------------
Name: Prescott F. Hill
Title: Vice President
BORROWER: PLEASANTON WILLOW PARTNERS TENANT: GREINER, INC.
By:/s/ RICHARD W. KARN By: /s/ THOMAS M. WINTON
--------------------------------- -------------------------------------
Name: Richard W. Karn Name: Thomas M. Winton
------------------------------- -----------------------------------
Title: Managing General Partner Title: Vice President
------------------------------ ----------------------------------
SUBTENANT: REMEDY CORPORATION
By: /s/ LAWRENCE L. GARLICK
-------------------------------------
Name: Lawrence L. Garlick
----------------------------------
Title: Chairman and CEO
----------------------------------
<PAGE> 27
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT, dated the 14th day of May, 1996, is between Berkshire
Life Insurance Co. ("Lender") and Remedy Corporation, a California corporation
("Subtenant").
WITNESSETH:
WHEREAS, Subtenant has entered into a certain sublease dated as of March
29, 1996 (the "Sublease") with Greiner, Inc. Pacific, as Sublandlord and where
Pleasanton Willow Partners, a California general partnership is the Landlord
("Borrower"), covering the property more fully described in Exhibit A attached
hereto and made a part hereof (the "Premises"); and
WHEREAS, Borrower has given to Lender a deed of trust upon the Premises
in the original principal sum of Two Million Three Hundred Thousand and No/100
Dollars ($2,300,000.00) (the "Deed of Trust") which Deed of Trust has been
recorded in the Recorder's Office of Alameda County as document Number
95-240328; and
WHEREAS, Subtenant desire to be assured of continued occupancy of the
Premises under the terms of the Sublease in the event that the lien of the Deed
of Trust is foreclosed upon;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The Sublease is and shall be subject and subordinate to the lien and
effect of the Deed of Trust insofar as it affects the real and personal
property of which the Premises from a part, and to all renewals,
modifications, consolidations, replacements and extensions thereof.
2. If Lender takes possession of the Premises as mortgagee-in-possession or
forecloses the Deed of Trust or otherwise, Lender agrees not to affect
or disturb Subtenant's right to possession of the Premise or any of
Subtenant's other rights under the Sublease in the exercise of Lender's
rights, except in accordance with the terms of the Sublease.
3. If the Lender succeeds to the interest of Borrower or any other landlord
under the Lease or to title to the Premises, Lender and Subtenant hereby
agree to be bound to one another under all of the terms, covenants and
conditions of the Lease and Sublease. Accordingly, from and after such
event, Lender and Subtenant shall have the same remedies against one
another for the breach of any agreement contained in the Lease and
Sublease as Subtenant and Borrower had before Lender succeeded to the
interest of Borrower; provided, however, that:
(a) Lender shall not be bound by any rent or additional rent which
Subtenant might have paid for more than the one month in advance to any
prior landlord (including Borrower);
<PAGE> 28
(b) Lender shall not be subject to any offsets or defenses which
Subtenant may have against Landlord under the Lease (unless such offsets
or defenses are specifically provided for in the Lease, including
without limitation, provision regarding payment of tenant improvement
allowances); and
(c) Lender shall not be liable or responsible for or with respect to the
retention, application or return to Subtenant of any security deposit
paid to any prior landlord (including the Sublandlord), whether or not
still held by such prior Sublandlord, unless Lender has actually
received for its own account as landlord the full amount of the security
deposit.
4. If any other party acquires title to or the right to possession of the
Premises upon the foreclosure of the Deed of Trust, or upon the sale of
the Premises by Lender or its successors or assigns after foreclosure or
acquisition of title in lieu thereof or otherwise, that party and
Subtenant shall be bound to one another under all of the terms,
covenants and conditions of the Lease.
5. Subtenant hereby represents and covenants:
(a) that Subtenant is now the sole owner of the subleasehold estate
created by the Sublease and shall not hereafter assign the Lease except
as permitted by the terms thereof;
(b) not to seek to terminate the Sublease by reason of any default of
Borrower (or the then landlord) without prior written notice thereof to
Lender and the lapse thereafter of such time as under the Lease was
granted to Borrower to remedy the default, within which time Lender, at
its option, may remedy any such default;
(c) upon the prior written request of Lender, to promptly certify in
writing to Lender in connection with any proposed assignment of the Deed
of Trust, whether or not any default on the part of Borrower then exists
under the Lease or Sublease.
6. Lender agrees that the Lease provisions regarding damage and destruction
and condemnation shall prevail, notwithstanding any provisions in the
Deed of Trust or any other document to the contrary.
7. Lender hereby convenants and agrees to and with Subtenant to give
Subtenant written notice of any default by Borrower under the Deed of
Trust at the time as such notice is given to Borrower.
8. This Agreement shall be binding upon and shall extend to and benefit the
successors and assigns of the parties hereto and to the subtenants of
Tenant which are permitted under the Lease.
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers the day and year first above written.
LENDER: BERKSHIRE LIFE INSURANCE COMPANY
By:/s/ PRESCOTT F. HILL
-------------------------------------
NAME: Prescott F. Hill
TITLE: Vice President
BORROWER: PLEASANTON WILLOW PARTNERS TENANT: GREINER, INC.
By:/s/ RICHARD W. KARN BY: /s/ THOMAS M. WINTON
--------------------------------- -------------------------------------
Name: Richard W. Karn Name: Thomas M. Winton
------------------------------- -----------------------------------
Title: Managing General Partner TITLE: VICE PRESIDENT
------------------------------ ----------------------------------
SUBTENANT: REMEDY CORPORATION
By: /s/ LAWRENCE L. GARLICK
-------------------------------------
NAME: Lawrence L. Garlick
----------------------------------
TITLE: CHAIRMAN AND CEO
----------------------------------
<PAGE> 30
PLEASANTON WILLOW PARTNERS
BUILDING AT STONERIDGE DRIVE AND WILLOW ROAD
ESTIMATED BUDGET FOR EXPENSES
<TABLE>
<CAPTION>
A. Assessments - 2.357-ac. parcel Annual Monthly
------ -------
<S> <C> <C>
$ 43,600 $ 3,633
Hacienda Business Park Owners Association
North Pleasanton Improvement Districts
No. 2, Series A
No. 3, Series A
No. 3, Series B
North Pleasanton Fire Protection Refund District
B. Estimated Property Taxes $ 50,000 $ 4,167
C. Insurance:
Fire, Liability, $ 7,800 $ 650
Earthquake, Etc.
D. Operating Expenses
1. Janitorial, Windows $ 28,800 $ 2,400
2. Landscape Maintenance
Parking Area Sweeping
Pest Control, Etc. $ 12,000 $ 1,000
3. Equipment Maintenance,
Repair, Etc. $ 6,720 $ 560
4. Tenant Improvement,
Maintenance/Repair Reserve $ 14,400 $ 1,200
-------- --------
$ 61,920 $ 5,160
5. Contingency 10% $ 6,240 $ 520
-------- --------
$ 68,160 $ 5,680
6. Administration 10% $ 6,840 $ 570
-------- --------
$ 75,000 $ 6,250
GRAND TOTAL $176,400 $ 14,700
</TABLE>
<PAGE> 31
STANDARD FORM LEASE
(MULTI-OCCUPANCY)
THIS LEASE ("Lease"), dated November 16, 1989, is made by and between
Pleasanton Willow Partners ("Landlord"), a partnership and Bissell & Karn, Inc.
("Tenant"), a corporation.
1. DEFINED TERMS, TABLE OF CONTENTS, EXHIBITS, PREMISES AND LANDLORD'S
RESERVED RIGHTS
1.01 Defined Terms.
Landlord: Pleasanton Willow Partners
Landlord's Address: 7 Twelve Oaks Drive
Pleasanton, CA 94588
Tenant: Bissell & Karn, Inc.
Tenant's Address: 2551 Merced Street (current) 5890 Stoneridge Drive (Future)
San Leandro, CA 94577 Pleasanton, CA 94588
Legal Description of Land: See Exhibit A attached hereto.
Approximately 102,700 sq. ft. site area depicted and described in Exhibit A
and located at the southeast corner of Stoneridge Drive and Willow Road,
Pleasanton, CA.
Building:
30,000 sq. ft. building designated Building A on Exhibit A.
Premises: See Exhibit A.
30,000 sq. ft. of the above noted building.
Rentable Square Feet of the Premises: 30,000 sq. ft.
Rentable Square Feet of the Building: 30,000 sq. ft.
Tenant improvements for the rentable area shall not exceed $25.00/sq. ft. for a
total allowance of $750,000.00. Any cost for tenant improvements, which shall
include improvements for all working areas, lavatories, kitchen and lunchroom
areas between the finished exterior walls and outside of the core stair and
elevator areas, which shall exceed the total allowance shall be paid by Bissell
& Karn, Inc.
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<PAGE> 32
Premises Address:
Street Address: 5890 Stoneridge Drive,
City and State: Pleasanton, CA 94588
County: Alameda County
Term: Ten (10) years
Scheduled Commencement Date: September 1, 1990
Annual Base Rent: Three Hundred Ninety Six Thousand and no/100 Dollars
($396,000.00)
Monthly Base Rent: Thirty-three Thousand and no/100 Dollars ($33,000.00)
Rent Escalations: The Monthly Base Rent shall remain fixed for 30 months from
the Schedule Commencement Date through February 28, 1993. Beginning March 1,
1993, and for each 30 month period thereafter, the Monthly Base Rent shall be
adjusted in accordance with Paragraph 4.02. The minimum Monthly Base Rent
effective March 1, 1993 shall be $36,407.00 and shall remain fixed through
August 31, 1995. On September 1, 1995, the minimum Monthly Base Rent shall be
$40,165.00 and shall remain fixed through February 1998. On March 1, 1998 the
minimum Monthly Base Rent shall be $44,311.00 and shall be fixed through August
31, 2000.
Prepaid Rent: -0-
Security Deposit: $33,000.00
Tax and Assessments Base: -0-
Tenant's Share of Tax and Assessments Expenses: 100%
Insurance Base: -0-
Tenant's Share of Insurance Expenses: 100%
Tenant's Share of Operating Expenses: 100%
Permitted Uses: Professional Design, Surveying and Management Services
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<PAGE> 33
Date of Recordation of Declaration of Covenants, Conditions and Restrictions:
Notices: Landlord: Tenant:
Pleasanton Willow Partners Bissell & Karn, Inc.
7 Twelve Oaks Drive 5890 Stoneridge Drive
Pleasanton, CA 94588 Pleasanton, CA 94588
Broker:
Broker's Fee or Commission, if any, paid by:
Parking Spaces:
Riders to Lease:
The foregoing provisions constitute the defined terms ("Defined Terms").
Each reference in this Lease to Article 1.01 or the Defined Terms shall be
construed to incorporate the applicable Defined Terms in this Article 1.01.
"LANDLORD" "TENANT"
PLEASANTON WILLOW PARTNERS BISSELL & KARN, INC.
By [SIG] By [SIG]
----------------------- -----------------
Its Partner Its President
------------------ ------------
By [SIG] By [SIG]
----------------------- -----------------
Its Partner Its Secretary
------------------ ------------
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<PAGE> 34
3. TERM
The term shall commence on the earliest of the following dates
("Commencement Date"): (a) the Scheduled Commencement Date, as may be extended;
(b) the date when the Premises are Ready for Occupancy (but only if Landlord
constructs Tenant Improvements in the Premises); or (c) the date when Tenant
occupies the Premises. The Term shall end after the expiration of the Term
described in Article 1.01.
4. RENT
4.01 Base Rent. The annual base rent ("Base Rent") shall be the sum of
the Annual Base Rent set forth in Article 1.0 payable in equal monthly
installments equal to the Monthly Base Rent set forth in Article 1.01. Tenant
shall pay the Monthly Base Rent to Landlord in advance upon the first day of
each calendar month of the Term, at Landlord's address or at such other place
designated by Landlord in a notice to Tenant, without any prior demand therefor
and without any deduction, abatement or setoff whatsoever. If the Term shall
commence or end on a day other than the first day of a calendar month, then
Tenant shall pay, upon the Commencement Date and first day of the last calendar
month, a pro rata portion of the Monthly Base Rent prorated on a per diem
basis, with respect to the portions of the fractional calendar month included
in the Term. Upon executing this Lease, Tenant shall pay the first full month's
Monthly Base Rent owing hereunder along with Tenant's Security Deposit provided
in Article 4.05 below.
4.02. Escalation. The Base Rent shall be adjusted during the Term as
provided in Article 1.01 in accordance with the increase in the Consumer Price
Index ("CPI") for All Urban Consumers, All Items, for the San Francisco-Oakland
Metropolitan Area, as published by the Bureau of Labor Statistics of the U.S.
Department of Labor, using the year 1967 as a base of 100, follows: (a) the CPI
published for the month nearest preceding the month in which the Term commences
shall be the Base Index, (b) at the adjustment date the Base Rent shall be
adjusted by multiplying he Base Rent by a factor computed by adding one (1) to
a fraction, the numerator of which shall be the difference between the CPI for
the month nearest preceding the adjustment date and the Base Index, and the
denominator of which shall be the Base Index; (c) in no event shall the Base
Rent, as adjusted hereunder, be less than that payable during he lease year
immediately preceding such adjustment; (d) in the event that there is change in
the method of calculation of the CPI, Landlord shall, at Landlord's option, be
permitted to make such adjustment as may be necessary in order to approximate
the result that would have occurred had there been no change in the method of
calculating the CPI; and (e) if it becomes impossible to make the adjustment
provided in (d) above, or if the CPI fails to exist then the CPI shall be
replaced by such other index selected by Landlord as may be generally
recognized as a successor index, or if none, then any other reasonable index
which Landlord may select. Nevertheless, the adjusted Base Rent shall be
increased at the adjustment date by a minimum of four percent (4%) per year
cumulative over the initial Base Rent.
4.03. Additional Rent and Estimated Payments. "Additional Rent" shall
include all monies, except for Base Rent, required to be paid by Tenant to
Landlord under the Lease, including without limitation, any late payments,
interest, and payment required to be made by Tenant to Landlord on account of
costs incurred by Landlord for Tax Expenses, Insurance Expenses, and Operating
Expenses. Tenant shall pay Additional Rent within five (5) days after written
notice from Landlord. "Rent" shall mean Base Rent and Additional Rent. Prior to
the commencement of each of Landlord's accounting years of the Term, Landlord
shall estimate the Additional Rent payable by Tenant pursuant to this provision
and Tenant shall pay to Landlord on the first of each month in advance,
one-twelfth (1/12) of Landlord's estimated amount. At the end of each year
there shall be an adjustment made to account for any difference between the
actual and the estimated Additional Rent for the previous year. If Tenant has
overpaid the amount of Additional Rent owing pursuant to this provision,
Landlord shall credit Tenant the amount of such overpayment in determining
Tenant's estimated payments for the following lease year; provided, that in the
case of overpayment for the final lease year of the Term, Landlord shall refund
such overpayment to Tenant within thirty (30) days after the end of Landlord's
accounting year. If Tenant has underpaid the amount of Additional Rent owing
pursuant to this provision, Tenant shall pay the amount of such underpayment to
Landlord, as Additional Rent, within thirty (30) days after the end of
Landlord's accounting year. In the event the Building is not fully occupied
during any year of the Term, an adjustment shall be made in computing Operating
Expenses for such year so that the same shall be computed for such year as
though the Building had been fully occupied during such year.
4.04 Interest and Late Charge. If any installment of Rent is not paid
promptly when due, such amount shall bear interest at the maximum rate
permitted by law from the date on which said payment shall be due until the
date on which Landlord shall receive said payment regardless of whether or not
a notice of default or notice of termination has been given by Landlord. In
addition, Tenant shall pay Landlord a late charge of ten percent (10%) of the
amount delinquent. Landlord and Tenant recognize that the damage which Landlord
shall suffer as a result of Tenant's failure to pay Rent is difficult to
ascertain, said late charge being the best estimate of the damage which
Landlord shall suffer in the event of Tenant's late payment. This provision
shall not relieve Tenant of Tenant's obligation to pay Rent at the time and in
the manner herein specified.
4.05 Security Deposit. Upon execution of this Lease, Tenant shall
deposit the Security Deposit in cash with Landlord. The Security Deposit shall
secure Tenant's obligation to: (a) pay Rent; (b) maintain the Premises and
repair damages thereto; (c) surrender the Premises to Landlord in clean
condition and good repair upon termination of this Lease; and (d) discharge
Tenant's other obligations hereunder. Landlord may use and commingle the
Security Deposit with other funds of Landlord. If Tenant fails to perform any
of Tenant's obligations hereunder, Landlord may, but without obligation, apply
all or any portion of the Security Deposit toward fulfillment of Tenant's
unperformed obligations. If Landlord does so apply any portion of the
2
<PAGE> 35
Security Deposit. Tenant shall upon depend by Landlord, immediately pay Landlord
sufficient cash to restore the Security Deposit to the full original amount.
The Security Deposit shall not bear interest. Upon termination of this Lease,
if Tenant has performed Tenant's obligations hereunder, Landlord shall return
the Security Deposit to Tenant. If Landlord transfers Landlord's rights under
this Lease, Landlord may deliver the Security Deposit to the transferee,
whereupon Landlord shall be released from any further liability to Tenant with
respect to the Security Deposit.
5. REAL PROPERTY TAXES
5.01. Tenant's Obligations. Tenant shall pay to Landlord, pursuant to
the terms of Article 4.03, Tenant's Share of Tax Expenses multiplied by the
amount, if any, by which the Tax Expenses in each of Landlord's accounting years
of the Term exceeds the Tax Base. "Tax Expenses" shall include the sum of the
following: all real estate taxes and other taxes relating to the Premises,
Building and Lot (collectively "Property"), assessments, governmental charges,
fees and levies, general and special, ordinary and extraordinary, unforeseen as
well as foreseen, of any kind and nature for public improvements, services or
benefits (collectively "Tax Expenses") and all other fees or taxes which may be
levied in lieu of any of the above, which are assessed, levied, confirmed,
imposed or become a lien upon the Property, or become payable during the Term;
provided, however, that:
(a) The amount owed by Tenant for Tax Expenses, as set forth in this
Article 5.01, shall be prorated between Landlord and Tenant so that Tenant
shall pay that portion which the part of such period within the Term bears
to the entire period; and
(b) Any sum payable by Tenant, which would not otherwise be due until
after the date of the termination of this Lease, shall be paid by Tenant to
Landlord upon such termination.
5.02. Limitation. Nothing contained in this Lease shall require Tenant
to pay any franchise, corporate, estate, inheritance, succession or transfer
tax of Landlord, or any income, profits or revenue tax or charge, upon the net
income of Landlord; provided, however, that if under the laws of the United
States Government or the state in which the Property is located, or any
political subdivision thereof, a tax or excise on rent, or any other tax
however described, is levied or assessed by any such political body against
Landlord on account of rentals payable to Landlord from the Property, Tenant
shall pay Tenant's proportionate share of such tax or excise on rent, as
Tenant's proportionate share is reasonably determined by Landlord.
5.03. Personal Property Taxes. Prior to delinquency, Tenant shall pay all
taxes and assessments levied upon trade fixtures, inventories, and other
personal property located on the Property.
6. INSURANCE
6.01. Tenant's Obligations. Tenant shall pay to Landlord, pursuant to
the terms of Article 4.03, Tenant's Share of Insurance Expenses multiplied by
the amount, if any, by which the Insurance Expenses in each of Landlord's
accounting years of the Term exceed the Insurance Base. "Insurance Expenses"
shall include the cost of all premiums for insurance maintained by Landlord on
or related to the Property, including without limitation, the cost of premiums
for insurance maintained under Articles 6.02, 6.05, and 6.10. The amount owed by
Tenant for Insurance Expenses, as set forth in this Article 6.01, shall be
prorated between Landlord and Tenant so that Tenant shall pay that proportion
which the part of such period within the Term bears to the entire period.
6.02. Property. During the Term, Landlord shall procure and maintain
in full force and effect with respect to the Building, a policy or policies of
all risk insurance (including sprinkler leakage coverage and any other
endorsements required by the holder of any fee or leasehold mortgage) in an
amount equal to at least eighty percent (80%) of the full insurance replacement
value (replacement cost new, including debris removal, and demolition) thereof.
If the annual premiums charged Landlord for such casualty insurance exceed the
standard premium rates because the nature of Tenant's operations results in
increased exposure, then Tenant shall, upon receipt of appropriate premium
invoices, reimburse Landlord for such increased amount. During the Term, Tenant
shall maintain in full force and effect a similar policy of insurance with
respect to all tenant improvements owned by Tenant (but not with respect to
those owned by Landlord) pursuant to the terms of this Lease, insuring one
hundred percent (100%) of the full replacement value of said tenant
improvements.
6.03. Liability. Tenant shall, at Tenant's sole expense, maintain in
full force a policy or policies of comprehensive public liability insurance,
written by an insurance company approved by Landlord and in the form customary
to the locality in which the Property is located, insuring Tenant's activities
and those of Tenant's employees, agents, licensees and invitees with respect to
the Property against loss, damage or liability for personal injury or death of
any person or loss or damage to property occurring on the Property or as a
result of occupancy of the Property in amounts of not less than: (a) Personal
injury per person: One Million and No/100 Dollars ($1,000,000.00); (b) Personal
injury per occurrence: One Million and No/100 Dollars ($1,000,000.00); and (c)
Property damage: Five Hundred Thousand and No/100 Dollars ($500,000.00). If
Tenant has in full force and effect a blanket policy of liability insurance
with the same coverage for the Property as described above, as well as coverage
of other premises and properties of Tenant, or in which Tenant has some
interest, such blanket insurance shall satisfy the requirements hereof.
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<PAGE> 36
6.04. Fire and All Risk Coverage Insurance. Tenant, at Tenant's
expense, shall provide and keep in force during the Term of this Lease a
policy or policies of all risk insurance covering loss or damage to Tenant's
fixtures, equipment and tenant improvements that Tenant has installed at
Tenant's sole cost and expense to the Premises, in an amount equal to the full
replacement value thereof.
6.05. Rental Abatement Insurance. Landlord shall maintain in full
force and effect rental abatement insurance against abatement or loss of Rent
in case of fire or other casualty, in an amount at least equal to the amount of
the Rent payable by Tenant during one (1) year next ensuing, as reasonably
determined by Landlord.
6.06. Insurance Certificates. Tenant shall furnish to Landlord on the
Commencement Date, and thereafter within thirty (30) days prior to the
expiration of each such policy, certificates of insurance issued by the
insurance carrier of each policy of insurance carried by Tenant pursuant
hereto. Each certificate shall expressly provide that such policies shall not
be cancellable or subject to reduction of coverage or otherwise be subject to
modification except after thirty (30) days prior written notice to the parties
named as insureds in this Article 6.06. Landlord, Landlord's successors and
assigns, and any nominee of Landlord holding any interest in the Premises,
including, without limitation, any ground lessor and the holder of any fee or
leasehold mortgage, shall be named as insureds under each policy of insurance
maintained by Tenant.
6.07. Tenant's Failure. If Tenant fails to maintain any insurance
required in this Lease, Tenant shall be liable for all losses and costs
resulting from said failure. Tenant shall also be responsible for reimbursing
Landlord for any costs incurred by Landlord pursuant to article 16.16. Nothing
herein shall be a waiver of any of Landlord's rights and remedies under any
other article of this Lease or at law or equity.
6.08. Waiver of Subrogation. All policies of property and liability
coverage insurance which either party obtains in connection with the property
shall include a clause or endorsement denying the insurer any rights of
subrogation against the other party. Tenant waives any rights of recovery
against Landlord for injury or loss due to hazards covered by insurance to the
extent of the proceeds recovered therefrom.
6.09. Indemnification of Landlord. Tenant shall indemnify and hold
Landlord and the Premises, Building and Lot harmless from and against: (a) all
liabilities, penalties, losses, damages, costs and expenses, demands, causes of
action, claims or judgments in connection with any injury to persons or damage
to property arising from or growing out of any injury to any person or persons
or any damage to any property occurring in, on, or about the Premises, or as a
result of any accident or other occurrence occasioned by any act or omission of
Tenant, Tenant's officers, employees, agents, servants, subtenants,
concessionaires, contractors, or visitors, or arising from the use,
maintenance, occupation or operation of the Premises, Building, Common Area,
and Lot; and (b) all legal costs and charges, including reasonable attorneys'
fees, in connection with such matters and the defense of any action arising out
of the same or in discharging the Property from any and all liens, charges or
judgments which may accrue or be placed thereon by reason of any act or
omission of Tenant; provided, however that Tenant shall not indemnify Landlord
or any injury or damage arising as the result of Landlord's willful misconduct.
6.10. Earthquake and Flood Insurance. In addition to any other
insurance policies carried by Landlord in connection with the Building,
Landlord may elect to procure and maintain in full force and effect during the
Term, with respect to the Building, a policy of earthquake/volcanic action and
flood and/or surface water insurance, in an amount not to exceed one hundred
percent (100%) of the full insurance replacement value (including debris
removal and demolition) of the Building, including rental value insurance
against abatement or loss of rent in the case of damage or loss covered under
such earthquake/volcanic and flood and/or surface water insurance.
7. OPERATING EXPENSES, REPAIRS AND MAINTENANCE.
7.01. Operating Expenses. Tenant shall pay to Landlord, pursuant to
the terms of Article 4.03, all Operating Expenses incurred by landlord.
"Operating Expenses" shall include all reasonable and necessary expenses,
unless expressly excepted in this Article 7.01, incurred by Landlord for the
administration, management, cleaning, maintenance, painting and repair of the
Property (including without limitation, the Common Area). Operating Expenses
shall include, without limitation: Landlord's administrative charge of ten
percent (10%), and the cost of utilities relating to the Property that are not
separately metered to the Premises. Operating Expenses shall not include
Insurance Expenses and Tax Expenses.
7.02. Tenant Repairs and Maintenance. Tenant shall, at Tenant's sole
expense, keep, maintain, repair and replace the Premises and all doors,
subfloors and floor coverings, including all plumbing, electrical wiring,
ceilings, interior walls, interior surfaces of exterior walls, signs, all
heating and air conditioning systems, all fire sprinkler systems, all
skylights, and other fixtures and equipment in good repair and in a clean and
safe condition, casualties covered by insurance excepted to the extent of
proceeds received. Tenant shall, at Tenant's sole expense, immediately replace
all broken glass, including skylights, in the Premises with glass equal to the
specification and quality of the original glass. Tenant shall, at Tenant's sole
expense, enter a regularly scheduled preventive maintenance/service contract
with a maintenance contractor approved by Landlord for servicing all heating
and air conditioning systems and equipment in the Premises. In the event Tenant
fails to enter such a maintenance/service contract, Landlord shall be entitled
to enter such a contract, and Tenant shall pay to Landlord as Additional Rent,
as upon demand by Landlord, any costs incurred by Landlord in producing such a
contract. Tenant shall, at Tenant's sole expense, repair any area damaged by
Tenant, Tenant's agents, employees and visitors, provided that Tenant obtains
Landlord's
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<PAGE> 37
prior approval with respect to the method and quality of such repair. Tenant
hereby waives the provisions of California Civil Code Sections 1941 and 1942 and
any similar or successor laws, to the extent applicable, regarding Tenant's
right to terminate this Lease or make repairs and deduct the cost thereof from
Rent. All repairs shall be completed by contractors approved by Landlord. Any
replacements required of Tenant shall be made with equipment and/or materials
equal to the specification and quality of the original. Tenant shall install rug
protectors in all carpeted areas in which desk chairs are located. Any damage to
the asphalt of the parking areas resulting from Tenant's use of forklifts or
other equipment shall be repaired by Landlord at Tenant's sole cost and expense.
7.03. Landlord Repair and Maintenance. Landlord shall, at Landlord's
expense, after written notice from Tenant, repair in a prompt and diligent
manner any damage to structural portions of the Premises and the roof of the
Building. In the event Landlord elects, in Landlord's sole discretion, to
replace the roof or to paint the exterior walls of the Building, such
replacement or painting shall be at Landlord's sole expense. However, if such
damage is caused or such replacement or painting is made necessary by an act or
omission of Tenant, then Tenant shall reimburse Landlord for Landlord's expense
in performing such repairs, replacements, or painting. There shall be no
abatement of Rent during the performance of any work described in this Article
7.03. Landlord shall not be liable to Tenant for injury or damage that may
result from any defect in the construction or condition of the Premises, nor for
any damage that may result from interruption of Tenant's use of the Premises
during any repairs by Landlord. Tenant waives any right to repair at the expense
of Landlord under any law, regulation, statute, or ordinance, now or hereafter
in effect.
7.04. Inspection of Premises. Landlord may enter the Premises at
reasonable times upon advance notice to Tenant in order to inspect the same, to
inspect the performance by Tenant of the terms and conditions hereof, to affix
reasonable signs and displays and to show the Premises to prospective
purchasers, tenants and lenders. There shall be no abatement of Rent for any
such entry of the Premises.
7.05. Liens. Tenant shall promptly pay and discharge all claims for
labor performed, supplies furnished and services rendered at the request of
Tenant and shall keep the Property free of all mechanic's and materialmen's
liens in connection therewith. Landlord shall have the right to post on the
Property, or in the immediate vicinity thereof, notices of non-responsibility
for any construction, alteration or repair by Tenant on the Property. If any
such lien is filed, Landlord may, but shall not be required to, take such
action as may be necessary to remove such lien, and Tenant shall pay Landlord
such amounts expended by Landlord together with interest thereon at the maximum
legal rate from the date of expenditure.
8. ALTERATIONS
8.01. Fixtures and Personal Property. Tenant, at Tenant's sole expense,
may install necessary trade fixtures, equipment and furniture in the Premises,
provided that such items are installed and removable without structural damage
to the Building. Landlord reserves the right to approve or disapprove curtains,
draperies, shades, paint and other interior improvements visible from outside
the Premises on wholly aesthetic grounds. Landlord may remove or replace such
items at Tenant's sole expense if Tenant fails to obtain Landlord's written
approval prior to installation. Said trade fixtures, equipment and furniture
shall remain Tenant's property and shall be removed by Tenant prior to
expiration of the Term or earlier termination of this Lease. Upon Landlord's
prior written approval, Tenant may install temporary improvements in the
interior of the Premises, provided that such temporary improvements are
installed and removable without structural damage to the Building. Such
temporary improvements shall remain Tenant's property and shall be removed by
Tenant on expiration of the Term or earlier termination of this Lease. Tenant
shall assume the risk of damage to any of Tenant's fixtures. Tenant shall
repair, at Tenant's sole expense, all damage caused by the installation or
removal of trade fixtures, equipment, furniture or temporary improvements. If
Tenant fails to remove the foregoing items on termination of this Lease,
Landlord may keep and use them or remove any of them and cause them to be stored
or sold in accordance with applicable law, at Tenant's sole expense.
8.02. Alterations. Tenant shall not make or allow to be made any
alterations, additions or improvements to the Premises, either at the inception
of this Lease or subsequently during the Term, without obtaining the prior
written consent of Landlord. With respect to any alterations, additions, or
improvements approved by Landlord, Tenant shall, at Landlord's election, remove
such alterations, additions or improvements at Tenant's expense prior to
expiration of the Term and repair any damage caused by said removal. Tenant
shall deliver to Landlord full and complete plans and specifications of all
such alterations, additions or improvements, and no such work shall be commenced
by Tenant until Landlord has given its written approval thereof. Landlord does
not expressly or implicitly covenant or warrant that any plans or specifications
submitted by Tenant are safe or that the same comply with any applicable laws,
lawful ordinances, etc. Further, Tenant shall indemnify and hold Landlord
harmless from any loss, cost or expense, including attorneys' fees and costs,
incurred by Landlord as a result of any defects in design, materials or
workmanship resulting from Tenant's alterations, additions or improvements to
the Premises. All alterations, additions and improvements shall remain the
property of Tenant until termination of this Lease, at which time they shall be
and become the property of Landlord. All repairs, alterations, additions, and
restoration by Tenant hereinafter required or permitted shall be done in a good
and workmanlike manner and in compliance with all applicable laws and lawful
ordinances, by-laws, regulations and order of any federal, state, county,
municipal or other public authority and of the insurers of the Building. Tenant
shall not permit liens of any kind to be imposed upon the Premises or Building
and Tenant shall discharge of record any such liens within five (5) days after
written notice thereof. Tenant shall reimburse Landlord for Landlord's
reasonable charges for reviewing and approving or disapproving plans and
specifications for any alterations proposed by Tenant. Tenant shall require that
any
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<PAGE> 38
contractors used by Tenant by licensed and carry a comprehensive liability
insurance policy covering bodily injury in the amounts of Three Million Dollars
($3,000,000) per person and Three Million Dollars ($3,000,000) per occurrence
and covering property damage in the amount of One Million Dollars ($1,000,000).
Landlord may require proof of such insurance prior to commencement of any work
on the Premises.
9. UTILITIES AND EASEMENTS
9.01. Utilities. Tenants shall promptly pay all charges for heat, water,
gas, electricity, telephone, sewage, air conditioning, ventilating, refuse and
any other utilities or materials used or consumed on the Premises. Landlord
shall not be liable to Tenant for interruption in or curtailment of any utility
service, nor shall any such interruption or curtailment constitute constructive
eviction or grounds for rental abatement. If any such utilities are not
separately metered, Tenant shall pay a pro rata share, based on use, as
determined by Landlord; such expenses shall be an element of Operating Expenses
pursuant to the terms of Article 7.01.
9.02. Easements. Landlord may grant easements on the Lot and dedicate
for public use portions of the Lot without Tenant's consent; provided that no
such grant or dedication shall substantially interfere with Tenant's use of the
Premises. Upon Landlord's demand, Tenant shall execute, acknowledge and deliver
to Landlord documents, instruments, maps and plats necessary to effectuate
Tenant's covenants hereunder.
10. USE OF PREMISES
10.01 General. The Premises shall be used for the Permitted Uses,
consistent with the Declaration of Covenants, Conditions and Restrictions and
any supplement thereto. By entering the Premises, Tenant accepts the Premises
in the condition existing as of the date of such entry, subject to all
applicable municipal, country, state and federal statutes, laws and ordinances,
including zoning ordinances and regulations governing and relating to the use,
occupancy and possession of the Premises (collectively "Regulations"). Tenant
shall, at Tenant's sole expense, comply with all Regulations now in force or
which may hereafter be in force relating to the Premises and the use of the
Premises, and Tenant shall secure any permits therefor. Furthermore, Tenant
agrees, by Tenant's entry, that Tenant has conducted an investigation of the
Premises and the acceptability of the Premises for Tenant's use, to the extent
that such investigation might affect or influence Tenant's execution of this
Lease. Tenant acknowledges that Landlord has made no representations or
warranties in connection with the physical condition of the Premises or
Tenant's use of the same upon which Tenant has relied directly or indirectly
for any purpose. Tenant shall not commit waste, interfere with any other
tenants in the Building, overload the floors or structure of the Building,
subject the Premises to any use which would damage the Premises or raise or
violate any insurance coverage required by this Lease or take any action that
would impair parking or alter parking spaces. Tenant shall strictly comply with
all statutes, laws, ordinances, rules, regulations, and precautions now or
hereafter mandated or advised by any federal, state, local or other
governmental agency with respect to the use, generation, storage, or disposal
of hazardous, toxic, or radioactive materials (collectively, "Hazardous
Materials"). As herein used, Hazardous Materials shall include, but not be
limited to, those materials identified in Sections 66680 through 66685 of Title
22 of the California Administrative Code, Division 4, Chapter 30, as amended
from time to time, and those substances defined as "hazardous substances,"
"hazardous materials," "hazardous wastes," (toxic substances," or other similar
designations in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et. seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
California Health and Public Safety Code Section 25117 and any other
governmental statutes, laws, ordinances, rules, regulations, and precautions.
Tenant shall not cause, or allow anyone else to cause, any Hazardous Materials
to be used, generated, stored, or disposed of on or about the Premises, Lot, or
Building without the prior written consent of Landlord, which consent may be
withheld in the sole discretion of Landlord, and which consent may be revoked
at any time. Tenant's indemnification of Landlord pursuant to Section 6.09,
above, shall extend to all liability, including all foreseeable and
unforeseeable consequential damages, directly or indirectly arising out of the
use, generation, storage, or disposal of Hazardous Materials by Tenant or any
person claiming under Tenant, including, without limitation, the cost of any
required or necessary repair, cleanup, or detoxification and the preparation of
any closure or other required plans, whether such action is required or
necessary prior to or following the termination of this Lease, to the full
extent that such action is attributable, directly or indirectly, to the use,
generation, storage, or disposal of Hazardous Materials by Tenant or any person
claiming under Tenant. Neither the written consent by Landlord to the use,
generation, storage, or disposal of Hazardous Materials nor the strict
compliance by Tenant with all statutes, laws, ordinances, rules, regulations,
and precautions pertaining to Hazardous Materials shall excuse Tenant from
Tenant's obligation of indemnification pursuant to this subsection. Tenant's
obligations pursuant to the foregoing indemnity shall survive the termination
of this Lease.
10.02. Signs. Any sign placed by Tenant on the Premises, except in the
interior of the Premises, shall contain only Tenant's name and no advertising
material. No signs shall be placed on the exterior of the Premises without
Landlord's written approval of the location, material, size, design and content
thereof nor without Tenant's obtaining any necessary permit therefor. If
Landlord installs a sign for Tenant, Tenant shall reimburse Landlord for any
costs incurred by Landlord within five (5) days of demand by Landlord. Tenant
shall remove any sign upon termination of this Lease and shall return the
Premises to their condition prior to the placement of said sign.
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10.03. Parking. Landlord shall not be liable to Tenant nor shall this Lease
be affected if any parking is impaired by moratorium, initiative, referendum or
Regulation. Any monetary obligations imposed relative to parking rights with
respect to the Premises shall be considered as Real Property Taxes and shall be
paid by Tenant under Article 5. Landlord grants Tenant the right to use the
number of parking spaces located in the parking areas adjoining the Premises as
set forth in Article 1.01, with the specific parking spaces and the rules
regulating the use thereof to be designated, from time to time, by Landlord.
Tenant shall not use the areas outside of the Premises for the placement of
dumpsters, refuse collection, outdoor storage or parking of cars and/or trucks
which are not in working order.
11. DAMAGE AND DESTRUCTION
11.01. Reconstruction. If the Building is damaged or destroyed, Landlord
shall, except as hereinafter provided, diligently repair or rebuild the
Building to substantially the condition in which the Building existed
immediately prior to such damage or destruction, provided that insurance is
available to pay one hundred percent (100%) or more of the cost of such
restoration, excluding the deductible amount. Tenant shall repair any damage
which is estimated in good faith by Landlord to be less than the deductible
amount under any applicable insurance policy of Landlord; provided, however,
that such deductible amount shall not exceed Ten Thousand Dollars ($10,000.00).
Landlord shall reimburse Tenant upon written demand for expenses incurred by
Tenant in such repair work to the extent of any proceeds received by Landlord
from the insurance described in Article 6.02. Landlord shall not be obligated
to repair any improvements made or paid for by Tenant.
11.02. Rent Abatement. Rent shall be abated proportionately, but only to
the extent of any proceeds received by Landlord from rental abatement insurance
described in Article 6.05, during any period when, by reason of such damage or
destruction, Landlord reasonably determines that there is substantial
interference with Tenant's use of the Premises, having regard to the extent to
which Tenant may be required to discontinue Tenant's use of the Premises. Such
abatement shall commence upon the date of such damage or destruction and end
upon substantial completion by Landlord of the repair or reconstruction which
Landlord is obligated or undertakes to do. If Landlord reasonably determines
that continuation of business is not practical pending reconstruction, Base
Rent shall abate to the extent of proceeds from rental abatement insurance
until reconstruction is substantially completed or until business is totally or
partially resumed, whichever occurs earlier.
11.03. Option to Terminate. If the Building is damaged or destroyed to the
extent that Landlord determines that the Building cannot, with reasonable
diligence, be fully repaired or restored by Landlord within one hundred eighty
(180) days after the date of the damage or destruction, notwithstanding the
fact that the Premises have not been damaged or destroyed, the sole right of
both Landlord and Tenant shall be the option to terminate this Lease.
Landlord's determination with respect to the extent of damage or destruction
shall be conclusive on Tenant. Landlord shall notify Tenant of Landlord's
determination, in writing, within thirty (30) days after the date of the damage
or destruction. If Landlord determines that the Building can be fully repaired
or restored within the one hundred eighty (180) day period, or if Landlord
determines that such repair or restoration cannot be made within said period
but neither party elects to terminate within thirty (30) days from the date of
said determination, this Lease shall remain in full force and effect and
Landlord shall diligently repair and restore the damage as soon as reasonably
possible.
11.04 Uninsured Casualty. In the event the Building is damaged or destroyed
and is not fully covered by the insurance proceeds received by Landlord under
the insurance policies required under Article 6.02, Landlord may terminate this
Lease by written notice to Tenant given within thirty (30) days after the date
of notice to Landlord that said damage or destruction is not so covered. If
Landlord does not elect to terminate this Lease, the Lease shall remain in full
force and effect, and the Building shall be repaired and rebuilt in accordance
with the provisions for repair set forth in Article 11.01.
11.05. Waiver. With respect to any damage or destruction which Landlord is
obligated to repair or may elect to repair under the terms of this Article 11,
Tenant waives all rights to terminate this Lease pursuant to rights otherwise
presently or hereafter accorded by law to tenants, including, without
limitation, any rights arising pursuant to California Civil Code Sections 1932
and 1933.
12. EMINENT DOMAIN
12.01. Total Condemnation. If all of the Premises is condemned by eminent
domain, inversely condemned or sold in lieu of condemnation, for any public or
quasi-public use or purpose ("Condemned"), this Lease shall terminate as of the
date of title vesting in such proceeding, and Rent shall be adjusted to the
date of termination. Tenant shall immediately notify Landlord of any such
occurrence.
12.02. Partial Condemnation. If any portion of the Premises if Condemned,
and such partial condemnation renders the Premises unusable for Tenant's
business, as reasonably determined by Landlord, or if a substantial portion of
the Building is Condemned as reasonably determined by Landlord, this Lease
shall terminate as of the date of title vesting in such proceeding and Rent
shall be adjusted to the date of termination. If such partial condemnation does
not render the Premises unusable for the business of Tenant or less than a
substantial portion of the Building is Condemned, Landlord shall promptly
restore the Premises to the extent of any condemnation proceeds recovered by
Landlord, less the portion thereof lost in such condemnation, and this Lease
shall continue in full force and effect except that after the date of such
title vesting, the Base Rent, Tenant's Share of Tax
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Expenses. Tenant's Share of Insurance Expenses, and Tenant's Share of Operating
Expenses shall all be adjusted, as reasonably determined by Landlord. Tenant
hereby waives the provisions of California Code of Civil Procedure Section
1265.130 permitting a court of law to terminate this Lease.
12.03 Landlord's Award. If the Premises re wholly or partially Condemned,
Landlord shall be entitled to the entire award paid for such condemnation,
subject to the provisions of Article 12.04, and Tenant waives any claim to any
part of the award from Landlord or the condemning authority.
12.04 Tenant's Award. Tenant shall have the right to recover from the
condemning authority, but not from Landlord, such compensation as may be
separately awarded to Tenant in connection with costs in removing Tenant's
merchandise, furniture, fixtures, leasehold improvements and equipment to a new
location.
12.05 Temporary Condemnation. In the event of a temporary condemnation of
the Premises, as reasonably determined by Landlord, this Lease shall remain in
effect and Tenant shall receive any award made for such condemnation. If a
temporary condemnation remains in effect at the expiration or earlier
termination of this Lease, Tenant shall pay Landlord the reasonable cost of
performing any obligations required of Tenant by this Lease with respect to the
surrender of the Premises, and upon such payment Tenant shall be excused from
such obligations. If a temporary condemnation is for a period which extends
beyond the Term, this Lease shall terminate as of the date of occupancy by the
condemning authority, the award shall be distributed as provided in Articles
12.03 and 12.04 above, and Rent shall be adjusted to the date of such occupancy.
12.06 Delivery of Documents. Tenant shall immediately execute and
deliver to Landlord all instruments required to effectuate the provisions of
this Article 12.
13. DEFAULT
13.01 Events of Defaults. The occurrence of any of the following events
shall constitute an "Event of Default" by Tenant with or without notice from
Landlord:
a. Vacation or Abandonment. Vacation or abandonment of the Premises;
b. Payment. Failure to pay Rent due hereunder on the date when due;
c. Performance. Default in the performance of Tenant's covenants,
agreements and obligations hereunder, except default in the payment of Rent,
the default continuing for fifteen (15) days after notice thereof from Landlord;
d. Assignment. A general assignment by Tenant for the benefit of
creditors;
e. Bankruptcy. The filing of a voluntary petition by Tenant or the
filing of an involuntary petition by any of Tenant's creditors seeking the
rehabilitation, liquidation or reorganization of Tenant under any law relating
to bankruptcy, insolvency or other relief of debtors;
f. Receivership. The appointment of a receiver or other custodian to
take possession of substantially all of Tenant's assets or this leasehold;
g. Insolvency, Dissolution, Etc. Tenant's insolvency or inability to pay
Tenant's debts, or failure generally to pay Tenant's debts when due; or any
court entering a decree or order directing the winding up or liquidation of
Tenant or of substantially all of Tenant's assets; or Tenant taking any action
toward the dissolution or winding up of Tenant's affairs or the cessation or
suspension of Tenant's use of the Premises; or
h. Attachment. Attachment, execution or other judicial seizure of
substantially all of Tenant's assets or this leasehold. Tenant hereby waives the
redemption provisions of California Code of Civil Procedure Sections 1174 and
1179.
13.02. Landlord's Remedies.
a. Abandonment. If Tenant abandons the Premises, this Lease shall continue
in effect. Landlord shall not be deemed to terminate this Lease other than by
written notice of termination from Landlord, and landlord shall have all of the
remedies of a landlord provided by Section 1951.4 of the Civil Code of the
State of California. After abandonment of the Premises by Tenant, Landlord may
give notice of termination.
b. Termination. Following the occurrence of any Event of Default, Landlord
shall have the right, as long as the default continues, to terminate this Lease
by written notice to Tenant setting forth: (i) the default; (ii) the
requirements to cure it; and (iii) a demand for possession, which shall be
effective either three (3) days after it is given or upon expiration of the
time specified in Article 13.01 hereinabove, whichever occurs later.
c. Possession. Following termination under Subarticle 13.02(b) above,
without prejudice to other remedies Landlord may have by reason of Tenant's
default or of such termination, Landlord may: (i) peaceably re-enter the
Premises upon voluntary surrender by Tenant or remove Tenant therefrom and any
other persons occupying the Premises, using such legal proceedings as may be
available; (ii) repossess the Premises or relet the Premises or any part
thereof for such term (which may be for a term extending beyond the Term), at
such rental and upon such other terms and conditions as Landlord in Landlord's
sole discretion shall determine, with the right to make reasonable alterations
and repairs to the Premises; and (iii) remove all personal property therefrom.
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d. Recovery. Following termination under Subarticle 13.02(b) above,
Landlord shall have all the rights and remedies of a landlord provided by
Section 1951.2 of the Civil Code of the State of California. The amount of
damages which Landlord may recover following termination under subsection (b)
above shall include: (i) the worth at the time of the award of the unpaid rent
and other amounts which had been earned at the time of termination; (ii) the
worth at the time of the award of the amount of such rental loss that the Tenant
proves could have been reasonably avoided; (iii) the worth at the time of the
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 Tenant proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all detriments proximately caused by Tenant's failure to perform its
obligations under this Lease. The "worth at the time of the award" of the amount
referred to in (iii) above shall be computed by discounting such amount at
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
e. Additional Remedies. In addition to the foregoing remedies and so
long as this Lease is not terminated, Landlord shall have the right to remedy
any default of Tenant, to maintain or improve the Premises without terminating
this Lease or incur expenses on behalf of Tenant in seeking a new subtenant, to
cause a receiver to be appointed to administer the Premises and new or existing
subleases and to add to the Rent payable hereunder all of Landlord's reasonable
costs in so doing, with interest at the maximum rate permitted by law from the
date of such expenditure until the same is repaid.
f. Other. If Tenant causes or threatens to cause a breach of any of
the covenants, terms or conditions contained in the Lease, Landlord shall be
entitled to obtain all sums held by Tenant, by any trustee or in any account
provided for herein to enjoin such breach or threatened breach, and to invoke
any remedy allowed at law, in equity, by statute or otherwise, through re-entry,
summary proceedings and other remedies were not provided for in this Lease.
g. Cumulative. Each right and remedy of Landlord provided for in this
Lease or now or hereafter existing at law or equity, by statute or otherwise,
shall be cumulative and shall not preclude Landlord from exercising any other
rights or remedies provided for in this Lease or now or hereafter existing at
law or equity, by statute or otherwise.
h. Indemnification. Nothing in this Article 13 shall affect the right
of Landlord to indemnification by Tenant in accordance with Article 6.09 for
liability arising from personal injuries or property damage prior to the
termination of Lease.
14. ASSIGNMENT AND SUBLETTING
14.01 Approval. Tenant shall not assign, mortgage, pledge or otherwise
transfer this Lease, in whole or in part, nor sublet permit occupancy by any
party other than Tenant of all or any part of the Premises, without the prior
written consent of Landlord in each instance. If Lessee is a corporation or a
partnership, the transfer of fifty percent (50%) or more of the beneficial
ownership interest of the corporate stock or in the partnership of Tenant, as
the case may be, shall constitute an assignment hereunder for which such consent
is required. Landlord may withhold Landlord's consent to any assignment or
subletting provided the withholding is not done unreasonably. This Lease may not
be assigned by operation of law. Any purported assignment or subletting contrary
to the provisions hereof without Landlord's prior written consent shall be void.
The consent of Landlord to any assignment or subletting shall not constitute a
waiver of the necessity for such consent to any subsequent assignment or
subletting. Under no circumstances shall this Lease be assigned, sublet, or
assumed, in whole or in part, until Landlord receives adequate assurance of
future performance of all the terms and conditions of the Lease. Such adequate
assurance shall include adequate assurance: (a) of the source of Rent due under
the Lease; (b) that the assignment, subletting [ILLEGIBLE] assumption of the
Lease shall not cause any breach in any respect of any provision in any other
lease, financing agreement or master agreement relating to the Building or
Property; and (c) that the assignment, subletting, or assumption shall not
disrupt in any respect any tenant mix or balance in the Building or on the
Premises.
14.02 Landlord Option.
a. Right to Cancel. In connection with any proposed assignment or
sublease, Landlord shall have an option to cancel and terminate this Lease if
the request is to assign the Lease or to sublet all of the Premises; or, if the
request is to sublet a portion of the Premises only, to cancel and terminate
this Lease with respect to such portion. Landlord may exercise such option in
writing within thirty (30) days after Landlord's receipt from Tenants of such
request, and in each case such cancellation or termination shall occur as of the
date set forth in Landlord's notice of exercise of such option, which shall not
be less than sixty (60) days nor more than one hundred twenty (120) days
following the giving of such notice.
b. Cancellation. If Landlord exercises Landlord's option to cancel
this Lease or any portion thereof, Tenant shall surrender possession of the
Premises, or the portion thereof which is the subject of the option, as the case
may be, on the [ILLEGIBLE] set forth in such notice in accordance with the
provisions of this Lease relating to surrender of the Premises at the expiration
of the Term. If this Lease is cancelled as to a portion of the Premises only,
Rent after the date of cancellation shall be [ILLEGIBLE] on a pro rata basis, as
determined by Landlord.
c. Noncancellation. If Landlord does not exercise Landlord's option to
cancel this Lease pursuant to the foregoing provisions, Landlord may withhold
Landlord's consent to such assignment or subletting, provided such consent is
unreasonably withheld.
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14.03. Bonus Rental. If Tenant receives rent or other consideration for any
assignment or sublease in excess of the Rent in case of the sublease of a
portion of the Premise, in excess of such Rent that is fairly allocable to such
portion, as determined Landlord, after appropriate adjustments to assure that
all other payments required hereunder are appropriately taken in account, Tenant
shall pay Landlord one hundred percent (100%) of the difference between each
such payment of rent or [ILLEGIBLE] consideration and the Rent required
hereunder.
14.04. Scope. If this Lease is (a) assigned, (b) the underling beneficial
interest of Tenant is transferred or (c) the Premises or any part thereof is
sublet or occupied by anyone other than Tenant, Landlord may collect rent from
the assignee, subtenant, or occupant and apply the net amount collected to the
Rent herein reserved and apportion any excess rent so collected in accordance
with the terms of Article 14.03; provided that no such assignment, subletting,
occupancy or collection shall be deemed a waiver of this covenant, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of
Tenant herein contained. No assignment or subletting shall affect the
continuing liability of Tenant (which, following assignment, shall be joint and
several with the assignee), and Tenant shall not be released from performing
any of the terms, covenants and conditions of this Lease.
14.05. Release. Whenever Landlord conveys any interest in the Property,
Landlord shall be automatically released from further performance of the
covenants of this Lease, and from all further liabilities, obligations, costs,
expenses, demands, causes of action, claims and judgments connected with this
Lease. The effective date of Landlord's release shall be the date the assignee
executes an assumption of such assignment. If requested, Tenant shall execute a
form of release and such other documentation as may be required to further
effect the provision of this Article 14.05. This Lease and each of the Lease's
covenants and conditions shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, successors, assignees and
legal representatives, subject to the provisions hereof. Any successor or
assignee of Tenant who accepts an assignment of this Lease and enters into
possession hereunder shall thereby be bound by the covenants and conditions
hereof. Nothing herein contained shall be deemed to give a right of assignment
to Tenant without the written consent of Landlord.
14.06. Holding Over. If Tenant, or any of Tenant's successors or
assigns holds over the Premises or any part thereof after expiration of the
Term, unless otherwise agreed to in writing by Landlord, such holding over
shall constitute a tenancy from month to month only, at a rent equal to twice
the Base Rent owed during the final year of the Term. This Article 14 shall not
be construed as Landlord's permission for Tenant to hold over.
14.07. Waiver. Tenant waives notice of any default of any assignee or
sublessee and agrees that Landlord may, at Landlord's option, proceed against
Tenant without having taken action against or joined such assignee or
sublessee, except that Tenant shall have the benefit of any indulgences,
waivers and extensions of time granted to any such assignee or sublessee.
15. ESTOPPEL CERTIFICATE, ATTORNEMENT AND SUBORDINATION
15.01. Estoppel Certificate. Within ten (10) days after request by
Landlord, Tenant shall deliver, in recordable form, an estoppel certificate in
the form determined by Landlord or Landlord's mortgagee or purchaser, to any
proposed mortgagee, purchaser or Landlord. Tenant's failure to deliver said
statement in such time period shall be conclusive upon Tenant that (a) this
Lease is in full force and effect, without modification except as may be
represented by Landlord; (b)there are no [ILLEGIBLE] defaults in Landlord's
performance and Tenant has no right of offset, counterclaim or deduction against
Rent hereunder; and [ILLEGIBLE] no more than one period's Base Rent has been
paid in advance.
15.02. Attornment. Tenant shall, if requested, attorn to the purchaser upon
a foreclosure, sale or grant of a deed in lieu of foreclosure of the Property,
and recognize such purchaser as Landlord under this Lease in the event of (a) a
foreclosure proceeding; (b) the exercise of the power of sale under any mortgage
or deed of trust made by Landlord, Landlord's successors or assigns which
encumbers the Premises, or any part thereof; (c) the termination of a ground
lease; or (d) a sale of the Property.
15.03. Subordination. The rights of Tenant hereunder are subject and
subordinate to the lien of any mortgage or [ILLEGIBLE] resulting from any other
method of financing or refinancing, now or hereafter in force against the
Premises, and to all [ILLEGIBLE] made upon the security thereof; provided,
however, that notwithstanding such subordination, so long as the Tenant is not
in default under this Lease, this Lease shall not be terminated or subject to
termination by any trustee's sale, action to enforce [ILLEGIBLE] security or
proceeding or action in foreclosure. If requested, Tenant shall execute whatever
documentation may be required to further effect the provisions of this Article
15.03.
16. MISCELLANEOUS
16.01. Waiver. No waiver by Landlord or any default or breach of any
covenant by Tenant hereunder shall be implied from any omission by Landlord to
take action on account of such default if such default persists or is repeated,
and no express waiver shall affect any default other than the default specified
in the waiver and then said waiver shall be operative only for the time and to
the extent therein stated. Waivers of any covenant, term or condition contained
herein by Landlord shall not be construed [ILLEGIBLE] waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
Landlord to any [ILLEGIBLE] Tenant requiring further consent or approval by
Landlord shall not be deemed to waive or render unnecessary Landlord's consent
or approval to any subsequent similar acts. No waiver by Landlord of any
provision under this Lease shall be effective unless in writing and signed by
Landlord. Landlord's acceptance of full or partial payment of Rent during the
continuance of
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breach of this Lease shall not continue a waiver of any such breach of this
Lease. Tenants by Landlord to mitigate the damage caused by Tenant's breach of
this Lease shall not be construed as a waiver of Landlord's right to recover
damages under Article 13.
16.02 Financial Statements. Within ten (10) days after Landlord's written
request, Tenant shall deliver to Landlord current audited financial statements
of Tenant.
16.03 Accord and Satisfaction. No payment by Tenant of a lesser amount than
the Rent nor any endorsement on any [ILLEGIBLE] or letter accompanying any check
or payment as Rent shall be deemed an accord and satisfaction of full payment of
Rent, Landlord may accept such payment without prejudice to Landlord's right to
recover the balance of such Rent or to pursue other remedies.
16.04. Limitation of Landlord's Liability. The obligations of Landlord
under this Lease are not personal obligations of individual partners,
directors, officers and shareholders of Landlord, and Tenant shall look solely
to the Building for satisfaction of any liability and shall not look to other
assets of Landlord nor seek recourse against the assets of the individual
partners, directors, officers and shareholders of Landlord.
16.05 Entire Agreement. This Lease sets forth all the covenants,
agreements, conditions and understandings between Landlord and Tenant concerning
the Property, and there are no covenants, agreements, conditions or
understandings, either [ILLEGIBLE] or written, between Landlord and Tenant other
than as set forth herein. No alteration, amendment, change or addition to Lease
shall be binding upon Landlord and Tenant unless in writing and signed by both
Landlord and Tenant.
16.06. Time. Time is of the essence of this Lease.
16.07. Attorneys' Fees. In any action which Landlord or Tenant brings to
enforce its respective rights hereunder, unsuccessful party shall pay all costs
incurred by the prevailing party including reasonable attorneys' fees, to be
fixed by the [ILLEGIBLE] and said costs and attorneys' fees shall be a part of
the judgment in said action.
16.08. Captions and Article Letters. The captions, article letters and
table of contents appearing in this Lease are inserted as a matter of
convenience and in no way define or limit the provisions of this Lease.
16.09. Severability. If any provision of this Lease or the application of
any such provision shall be held by a court of competent jurisdiction to be
invalid, void or unenforceable to any extent, the remaining provisions of this
Lease and application thereof shall remain in full force and effect and shall
not be affected, impaired or invalidated.
16.10. Applicable Regulations. This Lease, and the rights and obligations
of the parties hereto, shall be construed to be enforced in accordance with the
laws of the State of California.
16.11. Rules and Regulations. At all times during the Term, Tenant shall
comply with the rules and regulations ("Rules and Regulations") for the Building
and the Lot, as set forth in Exhibit C (and such amendments as Landlord may
reasonably adopt) attached hereto and by this reference made a part thereof.
16.12. Examinations of Lease. Submission of this Lease to Tenant does not
constitute an option to Lease, and this Lease is not effective otherwise until
execution and delivery by both Landlord and Tenant.
16.13. Surrender. Upon the expiration or earlier termination of this Lease,
Tenant shall surrender the Premises to Landlord in good order, condition and
repair, except for reasonable wear and tear or as otherwise provided in Articles
11 and 12. Tenant shall not commit or allow any waste or damage to be committed
on any portion of the Premises or Building. All property Tenant is required to
surrender shall become Landlord's property upon the termination of this Lease.
Landlord may cause [ILLEGIBLE] said personal property that is not removed from
the Premises within thirty (30) days after the date of any termination of Lease
to be removed from the Premises and stored at Tenant's expense, or, at
Landlord's election said personal property thereafter shall belong to Landlord
without the payment of any consideration, subject to the any person holding
perfected security interest therein.
16.14. Corporate Authority. If Tenant executes this Lease as a corporation,
each of the persons executing this Lease on behalf of Tenant hereby covenants
and warrants that (i) Tenant is a duly authorized and existing corporation; (ii)
Tenant is qualified to do business in the State of California; (iii) Tenant has
full right and authority to enter into this Lease; and, (iv) of the persons
executing on behalf of Tenant is authorized to do so.
16.15. Baker. Tenant warrants that it has had no dealings with any real
estate broker or agent other than the broker set forth in Article 1.01
("Broker") in connection with the negotiation of this Lease, and that it knows
of no other real estate broker or agent who is entitled to any commission or
finder's fee in connection with this Lease. Tenant agrees to indemnify Landlord
and hold Landlord harmless from and against any and all claims, demands, losses,
liabilities, lawsuits, judgments, costs expenses (including without limitation,
attorneys' fees and costs) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of Tenant's dealings with any real
estate broker or agent other than Broker.
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16.16. Landlord's Right to Perform. Upon Tenant's failure to perform
[ILLEGIBLE] obligation of Tenant hereunder, [ILLEGIBLE] without limitation,
payment of Tenant's insurance premiums, charges of contractors who have supplied
materials or labor [ILLEGIBLE] Premises, etc., Landlord shall have the right to
perform such obligations of Tenant on behalf of Tenant and/or to make
[ILLEGIBLE] on behalf of Tenant to such parties. Tenant shall reimburse Landlord
the reasonable cost of Landlord's [ILLEGIBLE] obligations on Tenant's behalf,
including reimbursement of any amounts that may be expended by Landlord, plus
interest [ILLEGIBLE] maximum rate permitted by law, as Additional Rent.
16.17. Modification for Lender. If, in connection with obtaining
construction, interim or permanent financing [ILLEGIBLE] Building, the lender
shall request reasonable modifications in this Lease as a condition to such
financing, Tenant [ILLEGIBLE] unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not materially [ILLEGIBLE]
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights [ILLEGIBLE].
16.18. Notices. All notices to be given hereunder shall be in writing
and mailed postage prepaid by certified or [ILLEGIBLE] mail, return receipt
requested, or delivered by personal delivery, to Landlord's Address and Tenant's
Address, or to [ILLEGIBLE] place as Landlord or Tenant may designate in a
written notice given to the other party. Notices shall be deemed [ILLEGIBLE]
receipt or three (3) days after the date of mailing.
16.19. Special provisions. Rider to Lease as indicated in Article 1.01
are attached hereto and made a part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date and
year first above written.
"Landlord" "Tenant"
[SIG]
- ---------------------------------- ----------------------------------
By [SIG] [ILLEGIBLE]
------------------------------- -------------------------------
Its Partner Its President
--------------------------- ---------------------------
By [SIG] By [SIG]
------------------------------- -------------------------------
Its Partner Its Secretary
--------------------------- ---------------------------
12
<PAGE> 45
LEASE AMENDMENT NO. 1
The Lease dated November 16, 1989 by and between Pleasanton Willow Partners,
Landlord, and Bissell & Karn, Inc., Tenant, is amended in Section 10, Use of
Premises, Paragraph 10.01, General, to add to the paragraph the following
language:
"Tenant's use of the Premises shall be consistent with the provisions of
the Declaration of Covenants, Conditions and Restrictions for Hacienda
Business Park (No. 2) on January 24, 1985, Series No. 85-104396, Alameda
County Official Records. Tenant acknowledges and agrees that this Lease
is subject to said Declaration, that Tenant will comply with the
provisions of the Declaration and that the provisions of this sentence are
an integral part of this Lease."
The intent of this amendment is to comply with the requirements of the stated
covenants, conditions and restrictions that it be made a part of the lease
agreement for properties which are subject to its provisions whether or not it
is so stated in the lease.
LANDLORD TENANT
Pleasanton Willow Partners Bissell & Karn, Inc.
By [SIG] By [SIG]
------------------------------- -------------------------------
Its Partner Its President
By [SIG] By [SIG]
------------------------------- -------------------------------
Its Partner Its Treasurer
<PAGE> 1
Exhibit 10.20
[REMEDY CORPORATION LOGO]
Bldg 2
Abstract Date: September 12, 1997
5924 STONERIDGE DRIVE
PLEASANTON, CALIFORNIA
LEASE SUMMARY
DOCUMENTS:
SUBLEASE DATE: MARCH 17, 1997
MASTER LEASE DATED: DECEMBER 27, 1985
ADDENDUM TO LEASE DATED: DECEMBER 27, 1985
CONSENT AND AGREEMENT OF LANDLORD DATED: MARCH 19, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Lease Information Lease Clause
- --------------------------------------------------------------------------------
<S> <C>
CONTACTS
LANDLORD
A. L. McCormick -------------------
c/o Bob Rouse
4040 Civic Center Drive
Suite 219
San Rafael, CA 94903-4191
SUBLESSOR
Viacom International, Inc. --------------------
1515 Broadway
New York, New York 10036
CRITICAL DATES
LEASE TERM 3 years, 9 months N/A
--------------------
COMMENCEMENT March 19, 1997 Sublease Para 2
--------------------
EXPIRATION December 31, 2000 Sublease Para 2
--------------------
EARLY TERMINATION (NOTICE) N/A
--------------------
RENEWAL OPTION 1 (NOTICE) March 1, 1999 Consent Para 2(a)
--------------------
RENEWAL OPTION 1 (NOTICE) June 30, 2000
--------------------
RENEWAL OPTION 1 (NOTICE) July 31, 2000
--------------------
RENEWAL OPTION 2 (NOTICE) N/A
--------------------
EXPANSION OPTION (NOTICE)
--------------------
</TABLE>
Cushman Realty Corporation makes no warranty or representation as to the
accuracy or completeness of this information. The information should be
verified by Remedy Corporation.
CUSHMAN REALTY CORPORATION
<PAGE> 2
Abstract Date: September 12, 1997
[REMEDY CORPORATION LOGO]
5924 STONERIDGE DRIVE
PLEASANTON, CALIFORNIA
LEASE SUMMARY (PAGE 2)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Lease Information Lease Clause
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL BUILDING SQUARE FEET: 47,000 Lease Para 2
-------- ---------------------------
RENTABLE SQUARE FEET: 47,000 Lease Para 2
--------- ---------------------------
USEABLE SQUARE FEET: N/A
--------- ---------------------------
LOAD FACTOR: N/A
--------- ---------------------------
PRO-RATA SHARE: 100%
--------- ---------------------------
RENT:
LEASE TYPE: NET
DATES ANNUAL RATE (P.S.F.) MO. PAYMENT ANNUAL RENT Sublease Para 3(a)
- ------------------------------------------------------------------------------------- ---------------------------
3/15/97 - 12/31/97 11.40 44,650 535,800
- --------------------- ---------- ------------
1/1/98 - 12/31/00 11.76 46,060 552,720
- --------------------- ---------- ------------
- --------------------- ---------- ------------
- ------------------------------------- ---------- ------------
EFFECTIVE RENT: 11.69
----------- ---------- --------------------------
HOLDOVER RENT: Rate: 150% Sublease Para 2
------------------------ --------------------------
Damages: N/A Lease Para 26
------------------------ --------------------------
LATE CHARGE: 6% penalty after 5 days after notice Sublease Para 4
------------------------------------------- --------------------------
SECURITY DEPOSIT: $46,000 (one month) Sublease Para 3(b)
------------------------------------------- --------------------------
T.I. ALLOWANCE: None Sublease Para. 7(a)
------------------------------------------- --------------------------
OVERSTANDARD T.I.: N/A
------------------------------------------- --------------------------
EXPENSES:
------------------------------------------- --------------------------
------------------------------------------- --------------------------
RESPONSIBLE PARTY: Sublease Para 3(c)
------------------------------------------- --------------------------
Insurance: Tenant Lease Addendum Para 59/60
------------------------------------------- --------------------------
Taxes: Tenant Lease Para II
------------------------------------------- --------------------------
Common Area: Tenant
------------------------------------------- --------------------------
Utilities: Tenant
------------------------------------------- --------------------------
Janitorial: Tenant
------------------------------------------- --------------------------
Other:
-------------------------------------------
Operating Expense Caps: N/A
-------------------------------------- --------------------------
TENANT'S OBLIGATION TO REPAIR/MAINTAIN:
All except roof, skylights, structural Sublease Para 7(b)
------------------------------------------- --------------------------
Lease Para 7.1
------------------------------------------- --------------------------
-------------------------------------------
LANDLORD'S OBLIGATION TO REPAIR/MAINTAIN:
Roof, skylights, structural Sublease Para 7(b)
------------------------------------------- --------------------------
Lease Para 7.4
------------------------------------------- --------------------------
-------------------------------------------
AUDIT RIGHTS: N/A
------------------------------------ ---------------------------
------------------------------------
</TABLE>
Cushman Realty Corporation makes no warranty or representation as to the
accuracy or completeness of this information. The information should be
verified by Remedy Corporation.
CUSHMAN REALTY CORPORATION
<PAGE> 3
Abstract Date: September 12, 1997
[REMEDY CORPORATION LOGO]
5924 STONERIDGE DRIVE
PLEASANTON, CALIFORNIA
LEASE SUMMARY (PAGE 3)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Lease Information Lease Clause
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
RENEWAL OPTION: Consent Para 2(a)
--------------------------
(1) TERM: 5/31/01 or 5/31/03 RATE: Same or FMV
--------------------- ------------------
Notice Dates: 3/1/99 - 6/30/00 - 7/31/00
-------------------------------------------
Tenant Improvements: None
-------------------------------------------
Operating Expenses: Net
-------------------------------------------
EXPANSION OPTIONS:
--------------------------
Space: N/A
-------------------------------------------
Tenant Improvements:
-------------------------------------------
Rent:
-------------------------------------------
Notice Date:
-------------------------------------------
TERMINATION OPTION: N/A
------------------------------------------------- --------------------------
-------------------------------------------------
PARKING: Ratio:
------------------- --------------------------
Rate: Free
-------------------
USE: Office Sublease Para 5(a)
------------------------------------------------------------ ---------------------------
------------------------------------------------------------
ASSIGNMENT & SUBLETTING: Sublease Para 6(a)
--------------------------
LL Approval: Required Lease Para 12
-------------------------------------------------- ---------------------------
Affiliates: Exception - Sublease Para 6(c)/lease 12.2
--------------------------------------------------
Profit Sharing: N/A
--------------------------------------------------
Recapture Rights: N/A
--------------------------------------------------
Other:
--------------------------------------------------
ALTERATIONS: Consent Para 3.9(b)
-----------------------------
LL Approval: Required Sublease Para 7(d)
-------------------------------------------------- ---------------------------
Limitation: $25,000/bldg. permit Lease Addendum Para 53
-------------------------------------------------- ---------------------------
Restoration: Can be required Lease Para 7.2/7.5
-------------------------------------------------- ---------------------------
INDEMNIFICATION: Sublessee indemnifies Sublessor Sublease Para 12
-------------------------------------------------- ---------------------------
--------------------------------------------------
TENANT INSURANCE REQUIREMENTS: Consent Para 4
---------------------------
Property insurance (100% replacement) Sublease Para 8(a)(b)
---------------------------------------------------------------- ---------------------------
Earthquake (purchased from Sublandlord) Lease Addendum Para 54/55
---------------------------------------------------------------- ---------------------------
Comprehensive general liability
----------------------------------------------------------------
LANDLORD INSURANCE REQUIREMENTS:
---------------------------------------------------------------- --------------------------
----------------------------------------------------------------
ESTOPPEL CERTIFICATE: Required Lease Addendum Para 61
------------------------------------------------- --------------------------
Lease Para 16
------------------------------------------------- --------------------------
ADDITIONAL PROVISIONS:
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
</TABLE>
Cushman Realty Corporation makes no warranty or representation as to the
accuracy or completeness of this information. The information should be
verified by Remedy Corporation.
CUSHMAN REALTY CORPORATION
<PAGE> 4
SUBLEASE
SUBLEASE, dated as of the 17 day of March, 1997, by and between Viacom
International Inc., a Delaware corporation, with offices located at 1515
Broadway, New York, New York 10036, hereinafter referred to as "Sublessor" and
Remedy Corporation, a Delaware corporation, with offices located at 1505 Salado
Drive, Mountain View, California 94043, hereinafter referred to as "Sublessee".
WITNESSETH
WHEREAS, A. L. McCormick, hereinafter referred to as "Landlord", and
Viacom International, Inc., an Ohio corporation, predecessor in interest to
Sublessor, entered into a certain Lease dated December 27 1985, as the same has
been amended, (the "Lease") with respect to the building, containing
approximately 47,000 square feet, situated on land located at 5924 Stoneridge
Drive, Pleasanton, California (the "Demised Premises") being more particularly
described in the Lease, a copy of which is attached hereto as Exhibit "A" and
made a part hereof; and
WHEREAS, Sublessor wishes to sublease to Sublessee and Sublessee wishes to
sublease from Sublessor the Demised Premises.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, it is mutually agreed as follows:
1. Sublessor hereby subleases to Sublessee the Demised Premises upon
and subject to the terms and conditions hereinafter set forth.
2. The term of the Sublease shall commence as of the date on which (i)
this Sublease is fully executed or (ii) Landlord grants its consent to this
Sublease, whichever is later (the "Commencement Date") and shall terminate on
December 31, 2000. Upon expiration or sooner termination of the Sublease, if
Sublessee shall hold over and remain on the Demised Premises, such holding over
shall not be deemed to be an extension of this
<PAGE> 5
2
Sublease, but shall be deemed to create a tenancy-at-sufferance, and, in
addition to any rights Sublessor may have under this Sublease or the Lease in
the event of a default, Sublessee shall be obligated to pay to Sublessor an
amount equal to 150% of the base monthly rent payable by Sublessor under the
Lease on the date before such hold over for each day that Sublessee remains in
occupancy of the Demised Premises. Notwithstanding the foregoing, in the event
that Sublessee and Landlord enter into a separate agreement for the lease of the
Demised Premises and Sublessee is entitled to remain in possession of the
Demised Premises pursuant to such agreement from and after December 31, 2000,
Sublessee shall not be deemed to be holding over beyond December 31, 2000.
3. (a) For the period commencing on the March 15, 1997 through and
including December 31, 1997, Sublessee shall pay to Sublessor a base monthly
rent of Forty Four Thousand Six Hundred Fifty and 00/100 ($44,650.00) Dollars,
based on a monthly rate of $.95 per square foot. For the period commencing on
January 1, 1998 through December 31, 2000, Sublessee shall pay to Sublessor a
base monthly rent of Forty Six Thousand Sixty and 00/100 ($46,060.00) Dollars,
based on a monthly rate of $.98 per square foot. No base monthly rent shall be
payable for the first month of the term; however, Sublessee shall be obligated
to pay all other amounts due hereunder and perform all other obligations
required to be performed hereunder from and after the Commencement Date.
(b) Sublessee shall deposit with Sublessor, upon execution hereof,
(i) the first month's base rent and (ii) the sum of Forty Six Thousand Sixty and
00/100 ($46,060.00) Dollars as security for the faithful performance and
observance by Sublessee of the terms, provisions and conditions of this Sublease
(the "Security Deposit"). In the event Sublessee defaults in respect to any of
the terms, provisions and conditions of this Sublease, including without
limitation, the payment of rent, Sublessor may use, apply or retain the whole or
any part of the Security Deposit, to the extent required, for the payment of any
rent or other sum as to which Sublessee is in default or for any sum which
Sublessor may expend or may be required to expend by reason of Sublessee's
default, and in such event, Sublessee shall pay
<PAGE> 6
3
to Sublessor upon demand a sum sufficient to restore the Security Deposit to
its original amount. Sublessor agrees to retain the Security Deposit in an
interest bearing account, the type of such account to be determined in
Sublessor's reasonable sole discretion. Provided Sublessee shall not be in
default hereunder, Sublessor shall return the Security Deposit together with any
accrued interest thereon to Sublessee (less any amounts which Sublessor may
retain as permitted by the terms hereof) promptly following the expiration of
the Sublease.
(c) Sublessee shall be responsible for and shall pay any and all
taxes, assessments, heat, water and sewer charges, electric and other utility
charges, as well as any other charges required by the Lease and relating to the
Demised Premises, it being understood that this Sublease is a double net
sublease, and except as specifically set forth herein, any and all costs
relating to the Demised Premises that would be payable by Sublessor as tenant
under the Lease shall be borne by Sublessee.
(d) All rent shall be payable on the first day of each month
without any set-off or deduction whatsoever to Sublessor at 1515 Broadway, New
York, New York 10036 Attention: David H. Williamson, unless otherwise specified
in a written notice to Sublessee as hereinafter provided. Rent for any other
period of less than one month shall be apportioned based on the number of days
in that month.
(e) Sublessee and Sublessor agree to cooperate with each other in
seeking reductions of real property taxes applicable to, or the assessed
valuation of, the Demised Premises for the 1996-1997 tax year and subsequent
years during the term of this Sublease. Said cooperation shall include the
filing of any appeal or protest of the valuation of the Demised Premises by the
county tax assessor if such action is requested by either party in writing. Any
tax reductions resulting therefrom, after deducting all expenses incurred in
such appeal or protest, shall be apportioned between Sublessor and Sublessee on
a prorata basis in accordance with their respective occupancies of the Demised
Premises during the respective tax year (including the 1996-1997 tax year, with
Sublessee's occupancy commencing as of the Commencement Date).
<PAGE> 7
4
4. In addition to such remedies as may be provided in the Lease or this
Sublease, Sublessor shall be entitled to a late charge of six percent (6%) of
the amount of the monthly rent if any payment of monthly rent is not received
within five (5) days after Sublessee's receipt of notice that timely payment of
monthly rent by Sublessee has not been made. The parties agree that damages to
Sublessor as a result of a late payment or an unpaid check by Sublessee are
difficult to ascertain and that these charges represent a fair and reasonable
estimate of said damages. Acceptance by Sublessor of a late charge shall not
constitute a waiver by Sublessor of any default of Sublessee nor prevent
Sublessor from exercising any right or remedy hereunder or otherwise available
by law.
5. (a) Sublessee shall use the Demised Premises solely for office use
and for no other purposes.
(b) Sublessee shall have the exclusive right to use the monument
signage currently used by Sublessor. All costs related to Sublessee's use of the
sign or any other signage permitted by Sublessor and Landlord shall be the sole
responsibility of Sublessee, including without limitation, any permits required
in connection therewith.
(c) Nothing shall be done upon or about the Demised Premises which
shall be unlawful, improper, or contrary to any law, ordinance, regulation or
requirement of any public authority or insurance inspection or rating bureau or
similar organization having jurisdiction and Sublessee will promptly comply with
any such law, ordinance, regulation or requirement.
6. (a) Sublessee shall not, by operation of law or otherwise,
transfer, assign, sublet, enter into license agreements, mortgage or hypothecate
this Sublease or the Sublessee's interest in and to the Demised Premises without
first procuring the prior written consent of Sublessor and Landlord. Sublessor
agrees that its consent required in the immediately preceding sentence shall not
be unreasonably withheld or delayed and in no event shall Sublessor withhold its
consent if Landlord grants its consent. Any attempted transfer, assignment,
subletting, license agreement, mortgage or hypothecation without Sublessor's and
Landlord's prior written consent shall be void and confer no rights upon any
third person. In
<PAGE> 8
5
the event of any sublease or assignment by Sublessee, Sublessee shall not be
relieved from its covenants and obligations for the Sublease term. The
acceptance of rent by Sublessor from any other person or entity shall not be
deemed a waiver by Sublessor of any provision hereof. Sublessee agrees to
reimburse Sublessor for any reasonable fees (not to exceed $500 per request)
incurred in conjunction with the processing and documentation of any such
requested transfer, assignment, subletting, licensing agreement, change in
ownership, mortgage or hypothecation of this Sublease or Sublessee's interest in
and to the Demised Premises.
(b) The consent of Sublessor and Landlord to any transfer,
assignment, sublease, license agreement, change in ownership, mortgage or
hypothecation of this Sublease is not and shall not operate as a consent to any
future or further transfer, assignment, sublease, license agreement, change in
ownership, mortgage or hypothecation.
(c) Notwithstanding the above, Sublessee may, upon delivery of
written notice to Sublessor, sublet the Demised Premises without Sublessor's
consent (i) to any corporation which controls, is controlled by or is under
common control with Sublessee (hereinafter, an "Affiliate") provided that such
corporation remains an Affiliate of Sublessee throughout the remaining term of
this Sublease, (ii) to any corporation resulting from the merger or
consolidation of Sublessee, or (iii) to any person or entity which acquires all
of the assets of Sublessee as a going concern of the business that is being
conducted on the Demised Premises, provided that any subletting by Sublessee
shall be, at all times, subject and subordinate to this Sublease and the Lease.
This subsection (c) shall apply only to a subletting by Sublessee of the Demised
Premises and not to an assignment by Sublessee of its interests hereunder.
7. (a) Sublessee agrees to take the Demised Premises in its "as is"
condition. Sublessee is fully familiar with the physical condition of the
Demised Premises. To the best of Sublessor's knowledge, without having made any
investigation, Sublessor represents that it has not caused late charges to
become payable for three (3) consecutive installments of rent under the Lease
and that the Demised Premises are in good working order: otherwise,
<PAGE> 9
6
Sublessor makes no other representations or warranties to Sublessee with
respect to the Demised Premises.
(b) With the exception of the repair and maintenance of the roof,
skylights and structural portions of the building (which Sublessor shall be
obligated to maintain in good order and condition at Sublessor's sole cost and
expense), Sublessee shall be responsible for all maintenance and repairs to the
Demised Premises in order to keep the Demised Premises in good order and
condition and as otherwise required by the Lease. Sublessee shall also be
responsible for any capital expenditures involving the replacement of any
portion of the building systems that become necessary during the term of this
Sublease (the "Capital Expenditures"). Any Capital Expenditures shall require
the prior written approval of Sublessor and Landlord, which consent shall not be
unreasonably withheld, and may not be withheld if Sublessee's failure to make
the replacement contemplated by such Capital Expenditure would either constitute
a breach of this Sublease or the Lease, or materially impairs Sublessee's use or
occupancy. Notwithstanding the above, where the useful life of any such
replacement shall extend beyond the expiration of the term of this Sublease,
Sublessee's obligation with respect to the Capital Expenditures related thereto
shall not, in any calendar year, exceed the following amounts (the "Limits"):
(i) $40,000, in 1997;
(ii) $30,000, in 1998;
(iii) $20,000, in 1999; and
(iv) $10,000, in 2000.
To the extent that the total Capital Expenditures in any calendar year are in
excess of the Limits, Sublessor shall be responsible to pay for such excess and
shall reimburse Sublessee for such excess within 30 days following Sublessee's
presentation of reasonable evidence substantiating the Capital Expenditure.
(c) All personal property of every kind placed or stored by
Sublessee at the Demised Premises shall be so placed or stored at the sole risk
of Sublessee. Neither
<PAGE> 10
7
Sublessor nor Landlord shall be liable to Sublessee or any other person for
any injury, loss, damage or inconvenience occasioned by any cause whatsoever to
said personal property unless caused by Sublessor's negligence, willful
misconduct or breach of this Sublease, provided that Sublessor's liability
therefor shall not exceed $1,000.00.
(d) Subject to the provisions of Paragraph 2 hereof, upon
termination of the Sublease, Sublessee shall quit and surrender the Demised
Premises in accordance with the terms of the Lease. All improvements or fixtures
installed in the Demised Premises, including those previously installed by
Sublessor, which are affixed to the Demised Premises shall be removed upon the
termination of this Sublease to the extent required by Landlord. Sublessee shall
repair all damage or defacement to the Demised Premises and to the fixtures,
appurtenances and equipment of Landlord therein, caused by the Sublessee's
removal of its furniture, fixtures, equipment, machinery and the like and the
removal of any improvements or alterations.
8. (a) Sublessee shall, at its sole cost and expense, keep the
Demised Premises insured against loss or damage by fire, windstorm and casualty
in an amount equal to 100% of the full replacement cost thereof. The policies
shall be written to insure Sublessee, Sublessor and Landlord as their interests
may appear and shall be primary and non-contributory. Sublessor shall maintain
insurance against loss or damage to the Demised Premises by earthquake in an
amount equal to 100% of the full replacement cost thereof, and Sublessee shall
pay to Sublessor, as additional rent, all costs incurred by Sublessor with
respect thereto, within thirty (30) days after receipt of an invoice therefor.
In the event of any loss or damage to the Demised Premises by earthquake, (i)
Sublessor shall assign to Sublessee all insurance proceeds received under its
earthquake insurance coverage and (ii) Sublessor and Sublessee shall be
responsible for any deductible amount in the ratio of 2 to 1 (for every two
dollars that Sublessor pays toward the deductible, Sublessee shall be obligated
to pay one dollar); provided that Sublessee's liability under this clause (ii)
shall not exceed $83,333.33.
<PAGE> 11
8
(b) Sublessee shall also maintain throughout the term of the
Sublease, with Sublessor and Landlord named as additional insureds,
comprehensive general liability insurance in amounts not less than the amounts
set forth in Paragraph 8 of the Lease.
(c) Sublessee will furnish proof of such insurance coverage to
Sublessor and Landlord on or prior to the date of commencement of the Sublease
term. Such policies shall contain a waiver of the insurer's right of subrogation
against the Sublessor and Landlord, and shall require the insurer to give
Sublessor and Landlord thirty (30) days notice prior to the expiration or
cancellation of insurance coverage.
(d) Sublessee will not do anything on the said Demised Premises to
make void or voidable any insurance upon the Demised Premises or render
necessary any increased or extra premium for the said insurance. If, as a result
of improper maintenance, poor housekeeping, or any other conduct or other
activities an the part of Sublessee, the Landlord's or Sublessor's insurance
premiums are increased, Sublessee will pay the additional cost thereof, and in
the event the conduct of Sublessee's business results in an increase in
insurance premiums to be paid by Sublessor, Sublessee shall pay to the Sublessor
the amount of such increase.
9. If the Demised Premises or any part thereof shall be damaged by fire
or other casualty, Sublessee shall give immediate notice thereof to Sublessor
and this Sublease shall continue in full force and effect except to the extent
that Sublessor's interest as tenant under the Lease may be terminated or
affected thereby. If Sublessor's interest as tenant under the Lease is
terminated as a result of any damage by fire or casualty, Sublessor's interest
in this Sublease shall likewise be terminated.
10. Sublessee hereby represents and warrants to Sublessor as follows:
(i) Sublessee shall operate and maintain the Demised Premises in good condition
and repair, in accordance with sound property management practices and the
provisions of this Sublease, and (ii) Sublessee shall not use, generate or store
any hazardous or toxic materials (as determined under federal, state or local
law) upon the Demised Premises, except that
<PAGE> 12
9
Sublessee shall be permitted to use standard office products and cleaning
supplies in reasonable quantities and in compliance with applicable laws.
11. Sublessor covenants that upon Sublessee paying the rent and
additional rent and observing and performing all of the terms, covenants and
conditions of this Sublease on its part to be observed and performed, Sublessee
may peaceably and quietly enjoy the Demised Premises, subject, nevertheless, to
the terms, limitations and conditions of this Sublease and of the Lease.
12. Sublessee agrees to indemnify and hold Sublessor harmless against
all loss, damage, liability, or expense (including reasonable attorneys' fees
and other attendant expenses) arising out of injury to third parties or their
property occurring on the Demised Premises or arising in connection with
anything owned or controlled by Sublessee or resulting from any act, failure to
act, or negligence of Sublessee or its employees, agents or invitees, or from
any nuisance suffered on the Demised Premises.
13. (a) Sublessee represents that it has read and is familiar with the
Lease. It is specifically understood and agreed that this Sublease and each and
every provision hereof is and shall remain subject to the Lease and each and
every provision thereof, and that in the event that the Lease shall terminate
for any reason whatsoever, then, in that event this Sublease shall ipso facto
terminate and neither party hereto shall thereby acquire any right or cause of
action against the other party by reason of such termination unless caused by
Sublessor's failure to perform its obligations under the Lease.
(b) Except as otherwise specifically provided in this Sublease,
the terms, provisions, covenants, rules and regulations, rights, obligations,
remedies and agreements of the Lease are incorporated herein by reference with
the same force and effect as if they were fully set forth herein except that any
reference in the Lease to "Landlord", "Tenant" and "Premises" shall mean
Sublessor, Sublessee and Demised Premises, respectively, as such terms are used
in this Sublease, and shall, as between Sublessor and Sublessee, constitute the
terms of this Sublease except to the extent they do not relate to the Demised
Premises or
<PAGE> 13
10
are inapplicable, inappropiate, inconsistent with or modified by the provisions
of this Sublease. Notwithstanding anything herein contained, the only services
or rights to which Sublessee is entitled hereunder are those to which Sublessor
is entitled under the Lease except for Sublessor's maintenance and repair
obligations described in paragragh 7 above. In all instances where consent of
the "Landlord" is required by the Lease, for purposes of this Sublease consent
of both the Sublessor and the Landlord shall be required.
(c) Except as otherwise specifically provided in this Sublease,
Sublessee covenants and agrees to comply with all of the terms, covenants,
conditions and obligations of the Lease to be kept and performed on the part of
the tenant thereunder insofar as they relate to the Demised Premises. Sublessee
shall not commit or permit to be committed any act or omission or allow any
condition to exist which shall violate any term or condition of the Lease.
Sublessee shall neither do nor permit anything to be done which would cause the
Lease to be terminated or forfeited by reason of any right of termination or
forfeiture reserved or vested in the Landlord under the Lease, and Sublessee
shall indemnify and hold Sublessor harmless from and against all claims,
liabilities and damages of any kind whatsoever by reason of any breach or
default on the part of Sublessee.
(d) To the extent that the Lease requires or obligates Landlord to
maintain, repair, restore, or otherwise expend any monies for preserving and
maintaining all or any portion of the Demised Premises or to furnish any
services to the Demised Premises, such obligation shall not pass to the
Sublessor by reason of this Sublease and shall remain with the Landlord.
(e) Sublessor hereby represents and warrants to Sublessee that it
is not in default under any provision under the Lease and that the Lease is in
full force and effect. Sublessor hereby acknowledges that Sublessor's failure to
pay the rent owing by Sublessor to Landlord under the Lease will cause Sublessee
to incur damages, costs and expenses not contemplated by this Sublease.
Accordingly, during any period in which Sublessor is in default of its
obligation to pay rent under the Lease, Sublessee shall, upon giving Sublessor
at least five (5) days' prior written notice, have the right to pay all rent and
other sums owing by
<PAGE> 14
11
Sublessee to Sublessor hereunder directly to Landlord. Any sums paid directly
to Landlord in accordance with this Subparagraph shall be credited toward the
amount payable by Sublessee to Sublessor under this Sublease.
(f) Sublessor agrees, upon receipt from Sublessee of written
notice of any default, obligation or duty of the Landlord under the Lease, to
promptly notify the Landlord of Sublessee's notice and to use its best efforts
to cause Landlord to rectify or fulfill any default, obligation or duty as
listed in Sublessee's notice.
(g) Notwithstanding anything herein contained, as between
Sublessor and Sublessee, and for purposes of this Sublease, the following
provisions of the Lease are hereby deleted: Paragraph 1, 3, 4, 7.1, 9.5(a),
12.2, 13.4, 26, 39, 48(a), 48(b), 48(c), 48(d), 49, 50, 62, 63, 65, 66 and the
second paragraph of 55.
14. This Sublease shall, at the option of Sublessor, be terminated upon
the happening of any of the following events:
(a) if default shall be made in the payment of rent or any
installment thereof or any other sum required to be paid by Sublessee under this
Sublease and such default shall continue for five (5) days after receipt of
notice from Sublessor to Sublessee;
(b) if default shall be made in the observance or performance of
any other covenant or condition in this Sublease which Sublessee is required to
observe or perform, and such default shall continue for thirty (30) days after
written notice to Sublessee (provided however that if the nature of Sublessee's
default is such that more than thirty (30) days are reasonably required for its
cure, then Sublessee shall not be deemed to be in default if Sublessee commenced
such cure within said 30-day period and thereafter diligently prosecutes such
cure to completion);
(c) if the leasehold interest of Sublessee shall be taken on
execution or by other process of law which would permit a third party to have
possession of the Demised Premises;
(d) if Sublessee shall be judicially declared bankrupt or
insolvent according to law;
<PAGE> 15
12
(e) if any assignment shall be made of the property of Sublessee
for the benefit of creditors;
(f) if a receiver, guardian, conservator, trustee in involuntary
bankruptcy or other similar officer shall be appointed to take charge of all or
any substantial part of Sublessee's property by a court of competent
jurisdiction;
(g) if a petition shall be filed for the reorganization of
Sublessee under any provisions of the Bankruptcy Code now or hereafter enacted
and such proceeding is not dismissed within sixty (60) days after it is begun;
or
(h) if Sublessee shall file a petition for such reorganization, or
for arrangements under any provisions of the Bankruptcy Code now or hereafter
enacted and providing a plan for a debtor to settle, satisfy or extend the time
for the payments of debts.
15. (a) In case of termination of this Sublease because of violation
or default on Sublessee's part, including but not limited to a failure to pay
rent as provided herein, Sublessor may, at its option, in accordance with
applicable law, immediately or at any time thereafter, and without demand or
notice, enter into and upon the Demised Premises or any part thereof in the name
of the whole and repossess the same and expel Sublessee and those claiming
through or under it and remove its effects (forcibly, if necessary) without
being deemed guilty of any manner of trespass and without prejudice to any
remedy which might otherwise be used for arrears of rent or for preceding breach
of covenant. In addition, Sublessor may, at its option, without notice, either
in its own name or as agent of Sublessee, re-let the Demised Premises, or any
part thereof, on such terms and for such rent as it may deem expedient or
proper, and such re-letting shall not operate as a waiver of any right which
Sublessor would otherwise have to hold Sublessee responsible for the rent
previously stated. Upon such re-letting, Sublessor shall collect the rent
therefor from the person or persons to whom the same shall be re-let, and, after
paying the expenses of such re-letting and collection, shall apply what remains
from the amount received by it against the amount due or to become due from
Sublessee under this Sublease. Notwithstanding any such re-letting, Sublessor
retains the option of recovering as
<PAGE> 16
13
damages a sum which at the time of termination would represent the difference
between the rental value of the Demised Premises and the rent and other payments
herein required for the residue of the term, and Sublessee agrees to indemnify
Sublessor against any loss of rent and other payments which Sublessor may suffer
or incur by reason of termination of this Sublease because of violation or
default on Sublessee's part.
(b) Sublessee shall pay and discharge all costs of Sublessor,
including reasonable attorneys' fees, expenses and court costs, that shall arise
from successfully enforcing any of the terms, covenants and agreements contained
in this Sublease.
16. Sublessee covenants with Sublessor that the failure of Sublessor to
insist in any one or more instances upon the strict and literal performance of
any of the covenants, terms or conditions of this Sublease, or to exercise any
option of Sublessor herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant, term, condition or option, but
the same shall continue and remain in full force and effect. The receipt by
Sublessor of rent with knowledge of the breach of any covenant, term, condition
or provision hereunder shall not be deemed to be a waiver of such breach, and no
waiver by Sublessor of any such covenant, term, condition or provision, or of
the breach thereof, shall be deemed to have been made by Sublessor unless
expressly agreed to in writing by Sublessor. No acceptance of partial payment of
rent or any other payments required hereunder shall be deemed to be in full
satisfaction of the amount due unless agreed to in writing by Sublessor.
17. The respective successors and assigns of Sublessor and Sublessee,
subject to the foregoing provisions as to transfers, assignments, insolvency or
by operation of law or legal process, shall bear the burdens and enjoy the
benefits of all of the covenants, terms, conditions, privileges and agreements
contained in or acquired by the provisions of this Sublease, the same as if such
successors and assigns had been specifically mentioned in each and every case
where Sublessor or Sublessee is mentioned.
18. All notices provided for hereunder shall be in writing and sent by
overnight courier service or by registered or certified mail, return receipt
requested, to the Sublessor at
<PAGE> 17
14
Viacom International Inc., 1515 Broadway, New York, New York 10036,
Attention: David H. Williamson, with a copy thereof similarly sent to Viacom
Inc., at 1515 Broadway, New York, New York 10036, Attention: General Counsel,
and to the Sublessee at the Demised Premises, with a copy to Remedy Corporation,
1505 Salado Drive, Mountain View, California 94043, Attention: Manager of
Contracts. Either party may at any time change the address for such notices by
mailing to the other party as aforesaid a notice setting forth the changed
address.
19. This Sublease is subject to the consent of the Landlord.
20. Sublessor and Sublessee each represent to the other that there was
no real estate broker involved with respect to this transaction other than
Cushman Realty Corporation, and they hereby indemnify and hold each other
harmless from and against any and all brokerage claims arising out of this
Sublease. Sublessor agrees that any commission due Cushman Realty Corporation
shall be paid by Sublessor under a separate agreement.
21. Time shall be of the essence for the performance of each and every
term, condition and covenant of this Sublease on the part of Sublessee to be
performed.
22. THE TERMS AND CONDITIONS OF THIS SUBLEASE SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA.
23. In case any one or more of the provisions contained herein shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Sublease, and the Sublease shall be construed as if such provision had
not been contained herein.
24. The parties represent and warrant that this Sublease has been duly
authorized and the party signing is so authorized to execute this Sublease.
25. This Sublease may not be modified or amended except by a written
agreement signed by the parties hereto.
26. This Agreement may be executed in counterparts, each of which shall
be deemed an original, and all of which together shall constitute one and the
same instrument.
<PAGE> 18
15
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date and year first above written.
SUBLESSOR:
ATTEST: VIACOM INTERNATIONAL INC.
BY: /s/ ROBIN L. TAUBIN BY: /s/ WILLIAM ROSKIN
------------------------------- ----------------------------------
Name: Robin L. Taubin Name: William Roskin
----------------------------- --------------------------------
Title: Assistant Secretary Title: Senior Vice-President
---------------------------- -------------------------------
SUBLESSEE:
ATTEST: REMEDY CORPORATION
BY: /s/ CARAJANE FINN BY: /s/ LAWRENCE GARLICK
------------------------------- ----------------------------------
Name: Carajane Finn Name: Lawrence Garlick
----------------------------- --------------------------------
Title: VP of Employee Services Title: Chairman & CEO
---------------------------- -------------------------------
<PAGE> 19
CONSENT AND AGREEMENT OF LANDLORD
The undersigned ("Landlord") is the Landlord named in the that certain
Lease dated December 27, 1985, as amended (the "Lease"), by and between
Landlord and Viacom International, Inc., an Ohio corporation (Viacom-Ohio").
Viacom International, Inc., a Delaware corporation, successor-in-interest to
Viacom-Ohio ("Sublessor"), and Remedy Corporation ("Sublessee") have executed
that certain Sublease dated March 17, 1997 (the "Sublease"), a copy of which is
attached hereto as Exhibit A, for the purpose of subleasing the Demised
Premises (as defined in the Sublease) to Sublessee. All capitalized terms not
defined in this Consent and Agreement of Landlord (this "Consent") shall have
the meanings attributed to them in the Sublease.
1. Consent. Landlord hereby consents to the terms and conditions of
the Sublease and Sublessee's use and occupancy of the Demised Premises as set
forth hereinbelow. In addition, by executing this instrument, Landlord
expressly agrees to the provisions of Paragraphs 5(b), 6(c) and 7(b) of the
Sublease and Landlord agrees that Paragraph 8.5 of the Lease shall constitute a
three party agreement binding among and inuring to the benefit of Sublessor,
Sublessee, and Landlord. Notwithstanding the consent granted herein, Sublessee
expressly agrees that (a) the Sublease is and shall be, at all times, subject
to and subordinate to the Lease, (b) Landlord is not and shall not be bound by
the terms, provisions and conditions of the Sublease, and (c) the Sublease and
this Consent, or either of them, in no way modify, amend or alter the terms of
the Lease, except as otherwise provided herein. Subject to subparagraph 2(d)
below, nothing in either this Consent or the Sublease shall be construed to
release or discharge Sublessor from any liability under the Lease. Except as
provided in Paragraph 5 of this Consent, any further subletting of the Premises
by either Sublessor or Sublessee or any assignment of the Lease by Sublessor or
assignment of the Sublease by either Sublessor or Sublessee shall require
Landlord's prior written consent as provided in the Lease. Any and all
amendments to the Sublease shall be subject to Landlord's prior written consent.
2. Option to Extend.
(a) Provided there exists no event of default under the Lease, Landlord
hereby agrees that Sublessee shall have the option to extend (the "Extension
Option") its occupancy of the Demised Premises by electing to assume all of
Sublessor's obligations, as tenant, arising under the Lease after December 31,
2000, on the same terms and conditions as the Lease, except as otherwise
provided in subparagraph 2(b) below. Sublessee shall be entitled to exercise
the Extension Option by notifying Landlord in writing during the period from
February 1, 1999, to March 1, 1999. The foregoing notice shall specify whether
the term of the Lease, as extended, shall expire on May 31, 2001, or May 31,
2003, as described below in subparagraphs 2(b) and 2(c). If Sublessee fails to
timely exercise the Extension Option in accordance with this paragraph, the
Extension Option shall automatically terminate.
(b) Unless Sublessee elects to extend the term of the Lease as provided
in subparagraph 2(c) below, the term under the Lease shall be extended for a
period of five (5) months and shall terminate on May 31, 2001 (the "5-Month
Extended Term"). Monthly rent during the 5-Month
1
<PAGE> 20
Extended Term shall be the same as the monthly Rent payable by Sublessor, as
tenant, under the Lease as of the last month of the term of the lease (the
"Last Month's Rent").
(c) In lieu of extending the term of the Lease for only five (5) months,
Sublessee shall be permitted to extend the term of the Lease for a period of
twenty-nine (29) months (the "29-Month Option)". If Sublessee elects to extend
the term of the Lease for a period of twenty-nine (29) months, the Lease shall
terminate on May 31, 2003 (the "29-Month Extended Term"). The monthly rent
during the 29-Month Extended Term shall be the then current fair market rent for
similar facilities within the geographic area in which the Demised Premises are
located, but shall not be less than the Last Month's Rent nor more than 112% of
the Last Month's Rent. On or before June 30, 2000, Landlord and Sublessee shall
mutually determine the monthly rent for the 29-Month Extended Term and if the
parties fail to reach agreement by June 30, 2000, then the 29-Month Option shall
automatically terminate, unless on or prior to June 30, 2000, Sublessee
notifies Landlord that a monthly Rent for the 29-Month Extended Term equal to
112% of the Last Month's Rent is acceptable to Sublessee. In the event the
29-Month Option terminates, Sublessee shall be permitted to extend the term of
the Lease for the 5-Month Extended Term by notifying Landlord of its election
to so do during the period from July 1, 2000 through July 31, 2000. If
Sublessee fails to provide Landlord with such written notice, Sublessee's right
to occupy the Demised Premises during the 5-Month Extended Term shall
automatically terminate.
(d) If Sublessee exercises the Extension Option and assumes all of
Sublessor's obligations, as tenant, arising under the Lease after December 31,
2000, Sublessor shall be released from all liability for obligations arising
under the Lease after December 31, 2000.
3. Sublessee's Improvements. Landlord acknowledges that Sublessee intends
to make certain alterations to and improvements of the Demised Premises subject
to the Sublease, which alterations and improvements are described on Exhibit B
to the Sublease. By executing this Consent, Landlord consents to the making of
the alterations and improvements shown on Exhibit B, except for those
alterations and improvements identified on Exhibit B as being disapproved by
Landlord. The alterations and improvements shown on Exhibit B that are not
disapproved by Landlord are referred to herein as the "Approved Improvements."
By executing this Consent, Landlord also agrees that, notwithstanding anything
to the contrary in the Lease or the Sublease, the undersigned and its successors
and assigns shall not require the removal of the Approved Improvements from the
Premises at the expiration or sooner termination of the Sublease or the Lease
(as the Lease may be extended by Sublessee's exercise of the Extension Option).
The foregoing consent shall not apply to any other alterations, additions or
improvements made to the Premises. Landlord further agrees that, upon surrender
of the Demised Premises at the expiration of the Sublease or the Lease (as the
lease may be extended by Sublessee's exercise of the Extension Option), (i)
Landlord will not require the removal by Sublessor or Sublessee of any
alterations, additions or improvements which have been made by Sublessor to the
Demised Premises as of the date of this Consent, and (ii) Landlord will not
require Sublessor to remove any alterations, additions or improvements that
Sublessee may make to the Demised Premises during the term of the Sublease;
provided that Landlord reserves the right to require Sublessee to remove any
alterations, additions or improvements made to Demised Premises during the term
of the
2
<PAGE> 21
Sublease (other than the Approved Improvements) if so requested by Landlord in
accordance with the Lease (as modified by subparagraph 9(b) of this Consent).
4. Sublessee's Insurance. Landlord agrees that the insurance
requirements set forth in Paragraphs 8.2 and 8.3 of the Lease shall be
satisfied by the Sublessee's maintenance of the policies required thereby in
lieu of Sublessor maintaining such insurance; provided that if Sublessee fails
to maintain such insurance, Sublessor shall not be released from its
obligations under Paragraphs 8.2 and 8.3 of the Lease.
5. Further Sublettings. Landlord agrees that it shall have no right to
withhold its consent to any sub-sublease of the Demised Premises during the term
of the Sublease so long as (1) the sub-sublease (or sublease) is for a term of
not greater than one year and is with respect to not more than one-half of the
Demised Premises, (2) Sublessee is not in default of its obligations under the
Sublease at the time of such sub-sublease (or sublease), (3) Sublesee remains
liable for the performance of all obligations Sublessee under the Sublease, and
(4) the sub-sublessee (or the sublessee) does not, by the nature of its
activities in the Demised Premises, either increase the cost of insuring he
Demised Premises or present an increased risk of Hazardous Materials
contamination of the Demised Premises.
6. Brokerage Commissions. If Sublessee exercises the Extension Option
and notifies Landlord that Cushman Realty Corporation ("Broker") represents
Sublessee in connection with the Lease as so extended, Landlord agrees to pay
to Broker a commission in connection with the extended Lease pursuant to the
terms and conditions of a separate agreement between Landlord and Broker.
7. Delivery of Notices. From and after the date hereof, Landlord shall
deliver to Sublessee copes of any notices it delivers to Sublessor in
connection with the Lease, including, without limitation, any notices of breach
or default by Sublessor of its obligations under the Lease.
8. Contest of Property Taxes. Landlord agrees to cooperate with
Sublessee and Sublessor as requested from time to time in the contest of any
property taxes payable with respect to the Demised Premises or any protests or
appeals regarding the assessed valuation of the Demised Premises, provided that
Landlord shall not be obligated to incur any out-of pocket costs or expenses in
connection therewith. During the term of the Sublease, any savings or
reductions in property taxes respecting the Demised Premises resulting from
said contests shall inure to the benefit of Sublessee and Sublessor in
accordance with the terms of the Sublease. Following the expiration or
termination of the Sublease or the Lease (as extended by Sublessee's exercise
of the Extension Option), any such savings or reductions shall be prorated among
Sublessee and Landlord as of the expiration or termination date such that
Sublessee receives the benefit of any portion of the savings attributable to
the term of the Sublease or the Lease (as extended), as applicable. The terms
of this paragraph shall survive the term of the Sublease and the Lease (as
extended).
3
<PAGE> 22
9. Related Provisions in Lease. In connection with the Sublease and the
Lease, the parties agree as follows:
(a) Any earthquake damage to the Demised Premises, even if covered by
earthquake insurance, shall not be an "Insured Loss" for the purposes of
subparagraph 9.1(c) of the Lease.
(b) Landlord shall have the right to require Sublessee to remove any
alterations, additions or improvements made to the Demised Premises during the
term of the Sublease (collectively, "Sublease Term Improvements") and to
restore the Demised Premises to their condition existing prior to the
installation of such Sublease Term Improvements, regardless of whether the
Sublease Term Improvements (i) reduce the value of the Building, or (ii) reduce
the value of the rental income Landlord can obtain for the Demised Premises, or
(iii) inhibit or impair the use of the Demised Premises as general office
space. The parties acknowledge that the purpose of this provision is to
eliminate the conditions set forth in paragraph 53 of the Lease which otherwise
would limit Landlord's right to require the removal of the Sublease Term
Improvements. Notwithstanding the two preceding sentences, in no event shall
Landlord have the right to require the removal of the Approved Improvements.
10. Counterparts. This Consent may be executed in counterparts, and
transmitted by facsimile by and to each of the parties, and each such
counterpart shall be deemed an original, and all of them together shall
constitute a single instrument.
LANDLORD
Dated: March 19, 1997 JOHN H. McCORMICK, TRUSTEE OF
------------------------ THE A. L. McCORMICK 1991 TRUST
By: /s/ JOHN H. McCORMICK
-------------------------------
Its: Trustee
------------------------------
SUBLESSEE
Dated: March 17, 1997 REMEDY CORPORATION
------------------------ a Delaware corporation
By: /s/ LAWRENCE GARLICK
-------------------------------
Its: Lawrence Garlick
------------------------------
Chairman & CEO
SUBLESSOR
Dated: March 18, 1997 VIACOM INTERNAITONAL, INC.
------------------------ a Delaware corporation
By: /s/ WILLIAM ROSKIN
-------------------------------
Its: William Roskin
------------------------------
Senior Vice-President
4
<PAGE> 23
EXHIBIT B
Approved Improvements
[Floor Plan -- Remedy Corporation -- Viacom Building, Pleasanton]
<PAGE> 1
1997 Annual Report
Corporate Profile
Remedy Corporation is the world's leading provider
of automated help desk solutions designed to increase employee and
organizational productivity across the enterprise. Addressing the needs of the
consolidated operations management (COM) market, Remedy's easy
to use and deploy, scalable, and highly adaptable
technology and products extend beyond the help desk
to include such applications as change management,
asset management, defect tracking, and more.
Founded in 1990, Remedy maintains corporate headquarters in Mountain View,
California, with offices in Pleasanton, California; New Jersey, Maryland,
Virginia, United Kingdom, Australia, Canada, Frankfurt, Paris, Singapore, and
Tokyo. The Company sells its products globally through direct sales and a
network of value-added resellers, original equipment manufacturers and system
integrators. Remedy's stock is traded under the Nasdaq symbol "RMDY."
<TABLE>
<CAPTION>
Financial Highlights
Year Ended December 31,
(in thousands, except per share amounts)
<S> <C> <C> <C>
1995 1996 1997
Consolidated Statements of Income Data:
Total revenue $ 40,117 $ 80,635 $ 129,184
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
Income from operations 10,189 23,707 38,475
Net income 7,561 16,824 27,290
Basic net income per share (1) $ 0.32 $ 0.64 $ 0.99
Diluted net income per share (1) $ 0.27 $ 0.56 $ 0.89
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
(in thousands)
1995 1996 1997
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 56,186 $ 86,757 $ 133,833
Working capital 60,767 87,718 138,102
Total assets 74,733 119,434 181,616
Total stockholders' equity $ 63,131 $ 92,497 $ 148,072
</TABLE>
(1) The earnings per share amounts have been restated as required to
comply with Statement of Financial Accounting Standards
No. 128 and Staff Accounting Bulletin No. 98. See Note 2 of Notes to
Consolidated Financial Statements.
To Our Stockholders,
<PAGE> 3
Customers, Partners and Employees:
1997 was another outstanding year of growth, profitability and help desk market
leadership for Remedy Corporation. The impressive gains we realized in new
customers and installed sites were mirrored by similar increases
in the number and variety of applications that our highly adaptable technology
continued to spawn during the year. We introduced new products and services,
all while expanding our sales channels and partnerships. We also engaged in
substantial infrastructure building activities designed to support and extend
Remedy's acknowledged leadership position in providing help desk and
consolidated operations management (COM) solutions to an ever-expanding global
customer base.
For the year ended December 31, 1997, Remedy reported revenues of $129.2
million, an increase of 60% compared to revenues of $80.6 million in 1996. Net
income for the year grew 62% to $27.3 million, or $0.89 per share, adjusted for
dilution, compared to 1996's net income of $16.8 million, or $0.56 per share,
adjusted for dilution. Remedy's balance sheet remains strong, with cash, cash
equivalents and short-term investments totaling $133.8 million at the end of
1997, compared to $86.8 million at the close of the previous year.
<PAGE> 4
Acknowledged Market Leadership Remedy's excellent financial performance was the
natural outgrowth of the strong leadership position the Company holds in the
help desk market. According to an independent industry analyst firm, the
Aberdeen Group, Remedy's 22% market share was more than twice that of any other
competitor in 1997. Other organizations such as Datapro have estimated our share
to be as high as 67%, when using a different but perhaps even more important
metric--number of users served--to measure the market.
In 1997 Remedy led the way in virtually every help desk market category,
including revenues, customers, sites, partners and channel sales. In the last
year alone, we added almost 2,000 new sites and 1,000 customers to our installed
base, growing to more than 5,250 sites and over 2,800 customers spread
throughout 61 countries around the world. International business, another area
of leadership which represents an important focus for Remedy moving forward,
rose to an all-time high of $48.1 million, or 37% of our total revenues.
Our success was underscored by a number of key industry awards and
acknowledgments we received during 1997. For the second consecutive year,
Business Week included Remedy among its Top 25 Hot Growth Companies in the
United States, and we were named #13 in the Silicon Valley "Fast 50," a
third-party survey that tracked revenue growth for high technology companies
over the past four years. Federal Computer Week Magazine acknowledged Remedy as
the "Best Help Desk Vendor." We were voted best help desk application by
integators and resellers around the country in an independent election sponsored
by Network VAR Magazine.
A High-Growth Market All of this good news is significant in light of the
continued rapid growth of the internal help desk market. According to the
Gartner Group and the Meta Group, the revenue opportunities for help desk
solutions serving the enterprise market will likely triple from 1996--when the
worldwide market was $600 million--to an estimated $1.8 billion in the year
2000.
<PAGE> 5
The reason for this rapid growth is that the help desk has become a
crucial ingredient in the recipe for success for large businesses and
enterprises in today's information age. Organizations are now being called upon
to cope with tremendous complexity and rapid rates of change in their
information infrastructures. Business processes--which ultimately, we believe,
boil down to people processes--are in a constant state of flux. As these
processes continue to migrate to the desktop, they're creating greater
challenges than ever for information technology (IT) professionals.
As a result, automated help desk solutions that are adaptable, scalable,
and easy to use and deploy, can have a huge impact on productivity--not only
for IT staffs, but also in a way that ultimately removes obstacles for all
employees across the enterprise to provide organizations with a genuine
competitive edge in the business arena. And that's where Remedy's technology
and products are really making a difference.
Building On An Adaptable Foundation Remedy's success is grounded in the Action
Request System(R) (AR System), the software foundation upon which all of our
applications are based. The easy-to-use AR System provides customers with the
fastest path to production in the industry, dramatically reducing the time
required to deploy help desk and other applications across the enterprise. It
scales easily to accommodate the needs of thousands of users. And best of all,
the Remedy Help Desk, based on
the AR System, is the most adaptable help desk solution available today. This
enables our customers to easily and quickly make changes to keep in step with
their evolving business needs.
During the year, Remedy introduced AR System Version 3.0, which features
enhanced performance, an improved interface, and expanded database integration
capabilities with third-party products. We increased penetration of our Web
product initiatives, ARWeb and the Multi-Processing Server Option, and
introduced a Java-based version of Flashboards, Remedy's real-time visual
monitoring offering. We also added support for Windows NT across our entire
product line, further extending the reach of Remedy's industry-leading
technology and products. These activities were indicative of our increased R&D
spending, which grew 60% in the last year to more than $21 million--the highest
among all help desk companies in the industry today.
<PAGE> 6
Remedy's Unique Business Model Remedy's solid financial performance and
continued success are also a function of our unique business model. Because our
products are highly scalable and adaptable, much of our business is derived
from expansion within our existing customer base, and more sites begin to take
advantage of our products, adapting them in turn to create an ever-widening
stream of applications. Key infrastructure building activities, new service
offerings, and expanded partnerships all amplified the performance of this
business model in 1997.
Remedy made substantial investments in sales and marketing during the
year, including the opening of new offices in Australia, Canada, and Japan to
support our increasing international business. Overall headcount for the
company grew from 411 to 648. Our service and support organization continues to
stand out as a key competitive advantage, with customer satisfaction and repeat
business at record levels, punctuated by Remedy's support contract renewal rate
of 90%. During the year, we also expanded our training advantage--not only for
customers, but also for third-party Remedy Approved Consultants as well. By the
end of 1997, in fact, more than 1,000 people a month were receiving training on
our technology and products.
Training also helps to expand Remedy's market presence throughout our many
partnerships across the industry. We've developed a variety of value-added
reseller, independent software vendor and product partner programs, and now
have more than 130 channel partners and almost four dozen product partnerships
in place. As a result of these relationships, indirect sales through VARs, ISVs
and OEMs accounted for 44% of Remedy's revenues in 1997, an all-time high for
the Company. We plan to continue to leverage the many advantages of these
partnerships to even greater effect in the future.
<PAGE> 7
Beyond the Help Desk While the help desk remains Remedy's principal market
focus, much of our business has been--and continues to be--derived from
creative applications developed by our customers, some 62% of whom adapt our
products to create applications that complement their help desks. Most of these
applications lie in the arena of consolidated operations management (COM),
where customers can buy specific Remedy applications or build an integrated
system based on the foundation provided by the AR System to manage such
well-known IT operations as change management, defect tracking, asset
management, and similar functions. Many of these are multi-continent
deployments.
The expanded COM applications of Remedy technology represent a natural
evolution of the enterprise help desk that have helped propel our business model
forward. In addition, many of our customers have extended the use of Remedy
products even farther, beyond the boundaries of information technology, to
encompass a much broader array of opportunities. More than 500 of our customers,
for example, are already using the AR System and related products for such
employee-related services as purchase requisition tracking. Taking our
customers' lead, we plan to actively pursue application opportunities beyond the
help desk and COM in 1998.
One other factor has contributed to Remedy's success: we practice what we
preach. In all respects, we live our product. People at Remedy have adapted the
AR System to create more than 100 applications designed to meet their own
specific job needs and help consolidate Remedy's many business operations. I'm
proud to say that every one of our employees has the opportunity to use, sell,
support, and impact the quality of our products. The following pages in this
report provide some insight into how these products have helped make us all much
more productive and efficient--and how they've enabled us to grow Remedy's
business and meet the needs of our customers much faster and better than we ever
could have done without them.
I want to thank all of Remedy's stockholders, customers, partners--and most
of all, our employees--for their support. On behalf of everyone at the Company,
I look forward to the challenge of continuing to build on our success, as we
help people and organizations all over the world rapidly adapt to change that is
demanded of every healthy business.
<PAGE> 8
LAWRENCE L. GARLICK
Chairman of the Board and Chief Executive Officer
"It's great to have somebody call into the help desk and log a critical ticket,
and have people working on the problem before the user has a chance to even
worry about it. The real beauty of the AR System is the ability to develop it to
whatever your needs are...the system works that well."
Tricia Brownfield
Director of CNN Center Support
Turner Broadcasting
Remedy is the world's leading provider of help desk solutions, with an
installed global base of more than 5,200 sites.
A helping hand:
The internal help desk is a critical information technology resource that boosts
employee productivity and efficiency by automating business support and tracking
processes across the enterprise.
Leading the way:
<PAGE> 9
With a revenue marketshare more than twice that of any competitor, Remedy is
the clear leader in a market forecast to grow to $1.8 billion in the year 2000.
According to Datapro, nearly two out of every three help desk users are Remedy
customers.
More than 44% of Remedy's customers use the flexible AR System for asset
management or change management.*
* Source: market research study by Quality Resource Associates for Remedy
Corporation Q1 1998.
Taking stock of assets:
Remedy's help desk solutions can easily be adapted to manage any number of
business processes. Asset Management, a Remedy application based on the AR
System, makes for more efficient use of assets by putting accurate information
at the fingertips of help desk and IT managers.
Change is constant:
Remedy's change management capabilities enable IT managers to plan, track, and
implement changes to their network more quickly than ever before, while paving
the way for faster problem diagnosis and management.
"The only limitation with the
Remedy System is really your imagination."
Jackie Engstrom
Project Manager
Knight-Ridder Information
Remedy's help desk solutions are increasingly being used by customers in an
expanding variety of applications that go well beyond the boundaries of
information technology.
<PAGE> 10
Better customer service:
Almost half of Remedy customers have adapted the AR System for use in a range of
customer service and support applications, streamlining business processes
through developing "external" uses for Remedy's help desk technology.
Purchasing power:
Almost 10% of Remedy's customers have adapted the AR System to track and
expedite purchase requisitions--an application that benefits from the same ease
of use, quick deployment and flexible workflow advantages Remedy technology
provides for
IT-based applications.
Remedy's products and technology stretch the boundaries of business processes,
planning and implementation.
Empowering employees:
From new employee set-up to benefits tracking, vacation and sick-time
monitoring through a variety of employee services, customers are extending the
reach of Remedy's highly adaptable help desk solutions to create new
levels of employee productivity and efficiency.
a sample of Over 200 AR System Applications:
Industrial accident tracking
OSHA compliance
Bus & truck quality
Warehouse inventory
<PAGE> 11
Contractor management
Rail signal tracking
Bank ATM monitoring
Fleet vehicle scheduling
Taxi status tracking
Airline event tracking
Service request management
"Letters to the President"
Mail order request tracking
Parts service trackingSoftware feature tracking
Job control
Product release management
Maintenance contract
Car dealer support
Phone book
Vendor performance
Human resources hotline
Vehicle maintenance tracking
Child welfare case tracking
SAP task tracking
Work loading systems
Telescope incidents
"We hosted the top executives from a major global corporation...people who were
looking for ways
<PAGE> 12
to boost their business productivity. We visited Remedy, and everyone was
really impressed by how the business processes worked--not to mention the fact
that the people there were using Remedy products to make it all happen. It was
the ultimate, in terms of credibility."
Professor Homa Bahrami
Senior Lecturer, Haas School of Business
University of California at Berkeley
The Remedy story:
Close to Home
At Remedy, our products are much more than simply something we sell to
other companies to improve their business processes. That's because, across all
operations of the Company, we rely on our products to make a real impact on our
productivity and efficiency. In their own words, some of our people have
expressed the ways in which Remedy's technology has made a difference in their
lives. Here's what they had to say:
the enterprise
Lori Laub Chief Information Officer
In her role as Remedy's vice president of information systems, Lori's
responsibilities include overseeing the design and implementation of all
internal systems within the Company.
"At Remedy, we're in the business of processing change. That means
delivering adaptable applications that allow our customers to run their
businesses their way. We believe very strongly in that mission, because we
practice what we preach...and that's the ultimate proof.
<PAGE> 13
Internally, we use the Action Request System (AR System) as our help desk
solution...from an IT perspective, there's no question that it makes things run
much better and more efficiently. It allows us to adapt to change really
quickly, and change is constant. But the help desk is just part of a much bigger
story. That's because our people at Remedy have adapted the AR System for use in
over 100 different process tracking applications, across just about every
department in the Company. On their own, they've gone far beyond the help desk
to come up with really creative uses of the technology.
Whether you're talking about human resources, sales, facilities, finance,
or marketing--we're our own best advertisement. And the best part about it all
is that we continue to be surprised about the ways in which we're able to use
our products. Take our Customer First program. We use the AR System to track
all of our external activities with customers: sales leads, quotes, orders,
shipments, reference information...the status of pending deals.
We also use the AR System to set and deliver against expectations with all
of our Service Level Agreements. It's great for escalations and notifications,
keeping customers abreast of changes, gaining customer satisfaction ratings on
each request handled...things like that. No matter what the function, our people
can make process changes much faster than they ever could before. It helps us to
be consistent in the way in which we deal with all our customers...nothing falls
through the cracks or gets lost.
You know the old saying--the salesman has to be the first one sold. Well,
we really believe in what we're selling. We know from firsthand experience just
how great our products are, because they've really made a difference in
improving the productivity of our people."
the help desk
Behshad Beheshti Help Desk Manager
Behshad heads up Remedy's internal help desk staff, which relies on the Action
Request System (AR System) and its companion products to track and resolve all
of the Company's internal
<PAGE> 14
information technology issues.
"At the help desk, we're here to help...it's that simple. Our job is to
serve requests, answer questions--ultimately, to solve problems. The staff
averages more than 3,000 requests each quarter, and that number gets bigger all
the time. It's a global issue, really...as Remedy grows, we have to serve a
larger employee base, across many different sites and time zones.
The bottom line for us is that the AR System makes it very easy to adapt to
change. And it scales easily. Even though we're growing very fast, we haven't
had to add IT staff in the way you might expect. With all the new employees
coming in, and the fact we now provide around-the-clock support for our
worldwide enterprise--well, we only had to add one person to do it. The
staff-to-task ratio is great. We have the same personnel, basically... only
we're handling a much broader scope.
The AR System is great for problem analysis, because it elevates issues
directly to the problem solver. If there's a bottleneck in the process, it's
really easy to identify. You can be proactive with it...it lets you analyze and
manage things, and it gives you a record of every problem and solution. We're
able to use the request information we track to help determine root causes of
problems, so we can continually improve our processes. Plus, the AR System
interfaces with all kinds of third party technologies and computing
environments, from pagers to email, to Excel and a lot more.
You know, the problems get more complex all the time. It's always more,
more, more...more people to support, more tickets, more work. But with our
technology, with all that automated intelligence, the complexity becomes pretty
transparent. I'd use Remedy products no matter where I worked...it just so
happens that I work here."
the department
Reggie Rosales Senior Buyer
<PAGE> 15
As a member of Remedy's purchasing department, Reggie's responsibilities
are altogether different from those of the Company's IT staff. But she and her
co-workers have adapted Remedy's technology for their own specific applications.
"You know, before I came here, I worked for a software company--and I
didn't have a clue how their products worked. The great thing here is that
beyond understanding what our products do...I actually use them to make a real
difference in my own work. It makes you a believer.
What we've done in our department is we've adapted the Action Request
System (AR System) to handle all our purchase requisitions. In the old days, we
used to route paper. Things would get lost on desks, it took a lot of phone
calls to get things right...it was just a lot more complicated.
Once we decided on what our business process was going to be--all the
little details--it only took us a few days to adapt the AR System to fit what
we needed. It's great. In the approval process, for example, we know exactly
where a req needs to go, who needs to sign it, and so on. It tracks everything.
And it really gives people the sense they haven't been ignored, that they have
a way to take responsibility.
We've got things set up so that requesters are notified every 24 hours
when there's an outstanding request. The notifier sends an email or flashes
red, meaning 'take action.' You can see exactly where the problem is, if there
is one. There's no such thing as a black hole.
I'll tell you...it's really eliminated the phone calls to us, and a lot of
wasted effort. Since I've been here, our 'business' within the purchasing
department has doubled--but we've still got the same headcount, other than one
person we added to take on additional responsibilities. And best of all, it was
easy. Once we determined the process we wanted to use, the IT guys developed the
application to support that process right away. It was that simple."
Our success was unctly where a req needs to go, who needs to sign it, and
so on. It tracks everything. And it really gives people the sense they haven't
been ignored, that they have a way to take responsibility.
<PAGE> 16
We've got things set up so that requesters are notified every 24 hours
when there's an outstanding request. The notifier flashes red, meaning 'take
action.' You can see exactly where the problem is, if there is one. There's
no such thing as a black hole.
I'll tell you...it's really eliminated the phone calls to us, and a lot of
wasted effort. Since I've been here, our 'business' within the purchasing
department has doubled--but we've still got the same headcount, other than one
person we added to take on additional responsibilities. And best of all, it
was easy. Once we determined the process we wanted to use, the IT guys
developed the application to support that process right away. It was that
simple."
the workgroup
Tom George Product Marketing Manager
Tom recently joined Remedy as a senior product marketing manager. Right from
the start, he began to realize the benefits of his new company's
technology--because setting up new employees to be immediately effective and
productive is one of the primary uses for which Remedy has adapted the Action
Request System (AR System) for internal use.
"When I walked into my office the first day, there was a message on the screen
of my computer that said, 'Welcome, Tom George.' Everything was configured and
ready to go--everything had been thought of. I got my network access password
at the orientation later that morning, and I was ready to go to work. There was
nothing holding me back.
But I still needed a little help. I wasn't familiar with Microsoft Outlook,
which Remedy uses as an email system. I could've called the help desk guys, of
course, but I thought 'If you're working at a help desk company, you'd better
start using the product.' So I fired up the AR System. It was really easy to
use, so I typed in my request for help. About an hour later, I got a call from
one of the help desk guys, and we set up an appointment for the next day. And
that was that...
<PAGE> 17
Now that I'm here, I use the AR System on a regular basis for all sorts of
things--room scheduling for meetings, tracking requests from my staff, and so
on.
I better use it...it's the product I'm paid to market! (he laughs) But I'll
tell you something...that first day I walked in here, it felt good. It felt like
I was working for a real help desk company. It was immediately evident that the
productivity around here was very high. There was nothing holding me back.
First impressions really matter, you know. If things are disorganized from
the start, chances are they'll be disorganized the rest of the way, too. But at
Remedy, everyone makes sure you're taken care of. And the AR System makes it
easy to do just that."
<PAGE> 18
Selected Consolidated Financial Data
Year Ended December 31,
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Income Data:
Total revenue $ 8,493 $19,750 $40,117 $80,635 $129,184
Income from operations 2,316 4,982 10,189 23,707 38,475
Net income 1,720 3,059 7,561 16,824 27,290
Basic net income per share(1) $ 0.24 $0.37 $0.32 $0.64 $0.99
Diluted net income per share(1) $ 0.09 $0.14 $0.27 $0.56 $0.89
Shares used in computing basic per share amounts(1) 7,231 8,237 23,439 26,365 27,614
Shares used in computing diluted per share amounts(1) 18,152 22,528 27,642 30,031 30,524
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
(in thousands)
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 1,266 $3,007 $56,186 $86,757 $133,833
Working capital 1,959 4,423 60,767 87,718 138,102
Total assets 4,487 12,006 74,733 119,434 181,616
Long-term obligations - 219 324 513 502
Total stockholders' equity $ 2,573 $5,882 $63,131 $92,497 $148,072
</TABLE>
(1) All shares and per-share amounts have been adjusted to reflect the
three-for-two stock dividend effected March 25, 1996 and the two-for-one
stock dividend effected October 25, 1996. The earnings per share amounts
have been restated as required to comply with Statement of Financial
Accounting Standards No. 128 and Staff Accounting Bulletin No.98. See Note
2 of Notes to Consolidated Financial Statements.
<PAGE> 19
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
This annual report contains forward-looking statements that involve risks
and uncertainties. The statements contained in this annual report that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on the
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statement. The Company's actual
results could differ materially from the results discussed herein. Factors that
might cause such a difference include, but are not limited to, those discussed
in "Risk Factors" in the Company's Report on Form 10K for the fiscal year ended
December 31, 1997, which was filed with the Securities and Exchange Commission
in March 1998.
The following table sets forth, as a percentage of total revenue,
consolidated statements of income data for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997
<S> <C> <C> <C>
Revenue:
Product 76% 76% 71%
Maintenance and service 24 24 29
Total revenue 100 100 100
Costs and Expenses:
Cost of product revenue 5 4 3
Cost of maintenance and service revenue 16 13 12
Research and development 18 16 16
Sales and marketing 27 29 33
General and administrative 9 9 6
Total costs and expenses 75 71 70
Income from operations 25 29 30
Interest income, net 4 3 3
Income before provision for income taxes 29 32 33
Provision for income taxes 10 12 12
Net income 19% 20% 21%
</TABLE>
REVENUE
Total revenue was $40.1 million, $80.6 million and $129.2 million in 1995, 1996
and 1997, respectively, representing increases of 101% from 1995 to 1996 and 60%
from 1996 to 1997. The Company's revenue is derived from two sources, product
licenses and fees for services including maintenance and support, training and
consulting. 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),
independent software vendors (ISVs) and original equipment manufacturers (OEMs).
Sales derived through indirect channels accounted for approximately 44% of the
Company's total revenue in 1997 as compared to 42% in 1996. 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.
<PAGE> 20
International sales accounted for 31% of total revenue in 1995 and 37% of
total revenue in both 1996 and 1997. The increasing volume of international
sales is primarily attributable to an increase in the Company's international
marketing efforts and an increase in the number of international resellers
marketing the Company's products. International sales are denominated and
collected in U.S. currency. The majority of international sales were made in
Europe, with lower amounts in Latin America, Canada and the Pacific Rim. The
Company intends to continue to expand its international operations and enter
additional international markets. Currently the Company maintains offices in the
United Kingdom, France, Germany, Singapore, Australia, Japan and Canada. The
Company also expects to increase the staffing levels of its international based
operations in 1998. Because a substantial majority of the Company's
international sales are indirect, any material increase in the Company's
international sales as a percentage of total revenue will adversely affect the
Company's average selling prices and gross margins due to the lower unit prices
that the Company receives when selling through indirect channels. Although the
Company's international revenue is currently not at risk for currency
fluctuations because such sales are currently denominated in U.S. dollars, an
increase in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in those markets. The Company has not engaged in foreign currency
hedging activities.
Product Revenue The Company currently derives substantially all of its product
revenue from licenses of the AR System. Revenue from product licenses was $30.4
million, $61.1 million and $92.1 million in 1995, 1996 and 1997, respectively.
This represents increases of 101% from 1995 to 1996 and 51% from 1996 to 1997.
Substantially all of the period-to-period growth in product revenue was due to
higher unit sales volumes as the prices of the Company's products have remained
relatively constant from 1992 through 1997.
The Company intends to continue to enhance its current software products as
well as to develop new 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 both market
penetration and competition will increase, and, as a result, that prior growth
rates of the Company's product revenue will not be sustainable in the future.
Maintenance and Service Revenue Maintenance and service revenue was $9.7
million, $19.5 million and $37.1 million in 1995, 1996 and 1997, respectively,
representing increases of 101% from 1995 to 1996 and 90% from 1996 to 1997. This
growth over prior year is primarily due to increased licensing activity and the
renewal of maintenance contracts after the initial one-year term. The Company
expects that as market penetration and competition increase, prior growth rates
of the Company's installed base and, consequently, in the Company's maintenance
and service revenue, may not be sustainable in the future.
COST OF REVENUE
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 was $1.9 million, $2.9 million and $3.3 million in 1995,
1996 and 1997, respectively, representing 6%, 5% and 4% of the related product
revenue for each year, respectively. The increases in the dollar amount of cost
of product revenue in each successive year reflect the higher volumes of product
shipped in each year. The decrease in costs as a percentage of the related
product revenue from 1995 to 1996 and from 1996 to 1997 was primarily due to
economies of scale realized as a result of shipping greater quantities of
product in 1996 and 1997. Because all development costs incurred in the research
and development of 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. See Note 2 of Notes to
Consolidated Financial Statements.
Cost of Maintenance and Service Revenue Cost of maintenance and service
revenue consists primarily of personnel related costs incurred in providing
telephone support, consulting services and training to customers. Cost of
maintenance and service revenue was $6.2 million, $10.4 million and $15.2
million in 1995, 1996 and 1997, respectively, representing 64%, 53% and 41% of
the related maintenance and service revenue for each year, respectively. The
increases in the dollar amounts of cost of maintenance and service since 1995
were primarily a result of increased personnel related costs, as the Company
continued to build its customer support and training organizations. In addition,
from 1996 to 1997, costs increased 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 and may increase as a percentage of total
revenue in the future.
<PAGE> 21
OPERATING EXPENSES
Research and Development Research and development expenses were $7.2 million,
$13.3 million and $21.2 million or 18% of total revenue in 1995 and 16% of total
revenue in both 1996 and 1997. The increases in dollar amounts in research and
development expenses since 1995 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.
Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have been insignificant. Through December 31, 1997, all research
and development costs have been expensed.
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 $11.0 million, $23.3
million and $42.6 million, or 27%, 29% and 33% of total revenue, in 1995, 1996
and 1997, respectively. The increases in dollar amounts in sales and marketing
expenses were primarily due to the expansion of sales and marketing resources
and increased marketing activities, including trade shows and promotional
expenses. The Company believes that such expenses will increase in dollar
amounts in the future as the Company expands its sales and marketing staff.
General and Administrative General and administrative expenses were $3.7
million, $7.1 million and $8.4 million or 9% as a percentage of total revenue in
both 1995 and 1996, and 7% of total revenue in 1997. 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 in the
future as the Company expands its staffing.
Interest Income Interest income was $1.4 million, $2.7 million and $4.3
million in 1995, 1996 and 1997, respectively. The increase in 1997 is primarily
due to the investment of increased amounts of cash provided by operating
activities.
PROVISION FOR INCOME TAXES
The effective tax rates for the years ended December 31, 1995, 1996 and 1997
were 35%, 36% and 36% respectively. The effective tax rates differ from the
federal statutory rate primarily due to state income taxes, offset by tax-exempt
interest income and research and development credits. See Note 9 of Notes to
Consolidated Financial Statements.
<PAGE> 22
VARIABILITY OF RESULTS
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, 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 rate 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, frequently concentrated in the last
weeks of the 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 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 of
future revenue. If revenue levels are below expectations, operating results are
likely to be adversely affected. Net income may also 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. In the quarter ended December 31, 1997, the Company received
significantly fewer orders than expected, which had an immediately adverse
effect on the Company's financial performance for the quarter. The Company's
operating results were below the expectations of public market analysts and
investors, and the Company's stock price declined significantly. It is likely
that in some future quarter the Company's operating results will again 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.
The Company's business has experienced and is expected to continue to
experience a level of seasonality, in part due to customer buying patterns. In
recent years, the Company has generally had weaker demand in the quarter ending
in March. The Company believes this pattern will continue and accordingly
anticipates total revenue and net income in the quarter ended March 31, 1998
will be lower than in the quarter ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in 1995, 1996 and 1997 was $10.7 million,
$30.9 million and $41.1 million, respectively, of which net income was a
significant component in each year. In all three years, cash from operations was
used to support the Company's working capital requirements, as such requirements
expanded, and in all three years the Company experienced significant growth in
receivables, accompanying the Company's increased sales volumes.
In 1995, 1996 and 1997, the Company's investing activities have consisted
entirely of purchases of short-term investments and of property and equipment.
In those years, the Company used $1.8 million, $3.9 million and $8.2 million,
respectively, of cash to purchase property and equipment, primarily 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 facilities
and its telephone system. See Note 4 of Notes to Consolidated Financial
Statements.
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.
At December 31, 1997, the Company had $133.8 million in cash and cash
equivalents and $138.1 million of working capital. The Company also has
available a $15.0 million unsecured bank line of credit that expires in June
1998. There were no borrowings outstanding under the line of credit as of
December 31, 1997.
The Company believes that its current cash and short-term investment
balances, cash available under its line of credit and cash flow from operations,
will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 12 months. Therefore, the Company may find it
necessary 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.
<PAGE> 23
OTHER MATTERS
Year 2000 Compliance The Company is aware of the issues associated with the
programming code in existing computer systems as the year 2000 approaches. The
"year 2000 problem" is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Management does not anticipate that the Company will incur
significant operating expenses or be required to invest heavily in computer
systems improvements to be year 2000 compliant. However, significant uncertainty
exists concerning the potential costs and effects associated with any year 2000
compliance. Any year 2000 compliance problems of either the Company or its
vendors could materially adversely affect the Company's business, results of
operations, financial condition and prospects.
Remedy's software currently supports any date value set by the operating
system. All date information, such as creation dates, modification dates, and
time/date stamps, is generated using the date value provided by our customer's
operating system.
New Accounting Pronouncements The Financial Accounting Standards Board (FASB)
approved the new American Institute of Certified Public Accountants Statement of
Position, Software Revenue Recognition (SOP 97-2), which provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions.
Based upon Remedy's reading and interpretation of SOP 97-2, the Company
does not believe that the implementation of SOP 97-2 will have a material
adverse affect on expected revenues or earnings. However, detailed
implementation guidelines for this standard have not yet been issued. Once
issued, such detailed guidance could lead to unanticipated changes in the
Company's current revenue accounting practices and material adverse changes in
the Company's reported revenues and earnings. In the event implementation
guidance is contrary to the Company's revenue accounting practices, the Company
believes it can change its current business practices to comply with this
guidance and avoid any material adverse effect on reported revenues and
earnings. However, there can be no assurance this will be the case. SOP 97-2
will be effective for the Company beginning in the first quarter of 1998.
In June 1997, the (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income and Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures About Segments of An Enterprise
and Related Information. SFAS 130 establishes rules for reporting and displaying
comprehensive income. SFAS 131 will require the Company to use the "management
approach" in disclosing segment information. Both statements are effective for
the Company during 1998. The Company does not believe that the adoption of
either SFAS 130 or SFAS 131 will have a material impact on the Company's results
of operations, cash flows, financial position or prospects.
<PAGE> 24
Consolidated Balance Sheets
December 31,
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 39,770 $ 70,568
Short-term investments 46,987 63,265
Accounts receivable, net of allowance for doubtful accounts of
$1,248 and $1,974, respectively 24,189 31,528
Prepaid expenses and other current assets 1,161 2,682
Deferred tax assets 2,035 3,101
Total current assets 114,142 171,144
Property and equipment, net 5,292 10,472
$119,434 $181,616
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,639 $1,230
Accrued compensation and related liabilities 6,636 5,519
Income taxes payable 1,837 806
Other accrued liabilities 5,652 6,141
Deferred revenue 10,430 18,986
Current portion of obligations under capital leases 230 360
Total current liabilities 26,424 33,042
Noncurrent portion of obligations under capital leases 513 502
Commitments and Contingencies
Stockholders' equity:
Preferred stock, par value $.00005 per share; authorized
10,000,000 and 20,000,000 shares, respectively; issued and outstanding: none - -
Common stock, par value $.00005 per share; authorized:
60,000,000 and 120,000,000 shares, respectively; issued and outstanding:
26,893,699 and 28,619,061 shares, respectively - -
Additional paid-in capital 64,305 92,397
Notes receivable from stockholders (60) (47)
Deferred compensation (255) (75)
Retained earnings 28,507 55,797
Total stockholders' equity 92,497 148,072
$119,434 $181,616
</TABLE>
See accompanying notes.
<PAGE> 25
Consolidated Statements of Income
Year Ended December 31,
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Revenue:
Product $30,390 $61,133 $ 92,133
Maintenance and service 9,727 19,502 37,051
Total revenue 40,117 80,635 129,184
Costs and expenses:
Cost of product revenue 1,866 2,926 3,300
Cost of maintenance and service revenue 6,188 10,364 15,176
Research and development 7,160 13,266 21,214
Sales and marketing 10,980 23,318 42,608
General and administrative 3,734 7,054 8,411
Total costs and expenses 29,928 56,928 90,709
Income from operations 10,189 23,707 38,475
Interest income 1,442 2,662 4,255
Interest expense 25 79 86
Income before provision for income taxes 11,606 26,290 42,644
Provision for income taxes 4,045 9,466 15,354
Net income $ 7,561 $16,824 $ 27,290
Net income per share:
Basic $0.32 $0.64 $0.99
Diluted $0.27 $0.56 $0.89
Shares used in computing per share amounts:
Basic 23,439 26,365 27,614
Diluted 27,642 30,031 30,524
</TABLE>
See accompanying notes.
<PAGE> 26
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Notes
(in thousands) Additional Receivable Total
Common Stock Paid-In from Deferred Retained Stockholders'
Shares Amount Capital Stockholders' Compensation Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 8,808 $ - $ 2,431 $(60) $(611) $ 4,122 $ 5,882
Common stock issued upon initial
public offering, net of issuance
costs of approximately $750 6,210 - 43,528 - - - 43,528
Preferred stock converted to
common stock 9,060 - - - - - -
Issuance of common stock upon
exercise of options and purchases
under the employee stock
purchase plan 1,593 - 875 - - - 875
Tax benefit from employee
stock transactions - - 5,108 - - - 5,108
Amortization of deferred
compensation - - - - 177 - 177
Net income - - - - - 7,561 7,561
Balance at December 31, 1995 25,671 - 51,942 (60) (434) 11,683 63,131
Issuance of common stock upon
exercise of options and purchases
under the employee stock
purchase plan 1,223 - 3,756 - - - 3,756
Tax benefit from employee
stock transactions - - 8,607 - - - 8,607
Amortization of deferred
compensation - - - - 179 - 179
Net income - - - - - 16,824 16,824
Balance at December 31, 1996 26,894 - 64,305 (60) (255) 28,507 92,497
Issuance of common stock upon
exercise of options and purchases
under the employee stock
purchase plan 1,725 - 14,383 - - - 14,383
Tax benefit from employee
stock transactions - - 13,709 - - - 13,709
Amortization of deferred
compensation - - - - 180 - 180
Repayment of note receivable - - - 13 - - 13
Net income - - - - - 27,290 27,290
Balance at December 31, 1997 28,619 $ - $92,397 $(47) $ (75) $55,797 $148,072
</TABLE>
See accompanying notes.
<PAGE> 27
Consolidated Statements of Cash Flows
Year Ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,561 $ 16,824 $ 27,290
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,016 1,810 3,371
Amortization of deferred compensation and other 177 179 193
Change in assets and liabilities:
Accounts receivable (5,547) (12,599) (7,339)
Prepaid expenses and other current assets (264) (600) (1,521)
Deferred tax assets (58) (996) (1,066)
Accounts payable 90 471 (409)
Accrued compensation and related liabilities 2,366 3,086 (1,117)
Income taxes, net of benefit from
employee stock transactions 1,742 13,113 12,678
Other accrued liabilities 967 3,918 489
Deferred revenue 2,601 5,698 8,556
Net cash provided by operating activities 10,651 30,904 41,125
Cash flows from investing activities:
Purchases of short-term investments (57,684) (106,562) (161,734)
Maturities of short-term investments 32,950 84,309 145,456
Capital expenditures (1,822) (3,942) (8,160)
Net cash used in investing activities (26,556) (26,195) (24,438)
Cash flows from financing activities:
Principal payments under capital lease obligations (53) (147) (272)
Proceeds from issuance of common stock 44,403 3,756 14,383
Net cash provided by financing activities 44,350 3,609 14,111
Net increase in cash and cash equivalents 28,445 8,318 30,798
Cash and cash equivalents at beginning of year 3,007 31,452 39,770
Cash and cash equivalents at end of year $ 31,452 $ 39,770 $ 70,568
Supplemental disclosure of cash flow information:
Interest paid during the year $ 15 $ 47 $ 57
Income taxes paid/(refunded) during the year $ 2,361 $ (2,647) $ 3,586
Supplemental schedule of noncash financing activities:
Equipment acquired under capital lease arrangements $ 204 $ 472 $ 392
</TABLE>
See accompanying notes.
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION OF THE COMPANY
The Company Remedy Corporation (the Company) develops, markets and supports
highly adaptable, client/server applications software for support and business
processes. The Company was incorporated in Delaware in November 1990. The
Company has wholly owned subsidiaries in the following countries: United
Kingdom, France, Germany, Singapore, Australia, Japan and Canada. These
subsidiaries serve primarily as sales offices.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after elimination of
all significant intercompany accounts and transactions.
Revenue Recognition Product revenue is derived from product licensing fees,
while maintenance and 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 receivables is deemed probable. Delivery is further 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. Product returns and sales allowances (which have not been
significant through December 31, 1997) are estimated and provided for at the
time of sale. Service revenue from customer maintenance fees for ongoing
customer support and product updates is recognized ratably over the term of
the maintenance agreement, which is typically twelve months. Payments for
maintenance fees are generally made in advance and are nonrefundable.
Service revenue from training and consulting are recognized when the services
are performed.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from these estimates.
Reclassifications Certain amounts for prior years have been reclassified to
conform to current year presentation.
Cash, Cash Equivalents and Short-Term Investments The Company considers all
highly liquid investments with a maturity from date of purchase of three months
or less to be cash equivalents. Cash and cash equivalents consist primarily of
cash on deposit with banks and high quality money market instruments. All other
liquid investments are classified as short-term investments. Short-term
investments consists primarily of auction market preferred stock and municipal
bonds.
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. At December 31, 1997, all investment securities were
designated as available-for-sale. Available-for-sale securities are carried at
fair value, using available market information and appropriate valuation
methodologies, with unrealized gains and losses reported in stockholders'
equity.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in the
statements of income. There have been no such transactions in the years ended
December 31, 1996 and 1997. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
At December 31, 1996, the Company's available-for-sale securities consisted
of the following: municipal obligations--$48,787,000; municipal auction rate
preferred stock--$14,250,000; and money market funds--$481,000. Of these
securities, $16,531,000 and $46,987,000 were classified as cash equivalents and
short-term investments, respectively.
At December 31, 1997, the Company's available-for-sale securities consisted
of the following: municipal obligations--$64,704,000; municipal auction rate
preferred stock--$23,824,000; and money market funds--$5,144,000. Of these
securities, $30,407,000 and $63,265,000 were classified as cash equivalents and
short-term investments, respectively.
As of December 31, 1996 and 1997, the difference between the fair value and
the amortized cost of available-for-sale securities was insignificant;
therefore, no valuation allowance was recorded in stockholders' equity. During
the years ended December 31, 1996 and 1997, realized gains and losses were not
material. As of December 31, 1996 and 1997, the contractual maturity of the
investments did not exceed one year.
<PAGE> 29
Depreciation and Amortization Depreciation is provided using the straight-line
method over the estimated useful lives of the assets, generally three years.
Leasehold improvements are amortized over the lesser of the term of the lease
or the estimated useful life of the asset.
Concentration of Credit Risk The Company sells its products primarily to end
users, value-added resellers, system integrators and original equipment
manufacturers. The Company performs ongoing credit evaluations of its
customers' financial condition, and generally no collateral is required. The
Company maintains reserves for credit losses, and such losses have been within
management's expectations.
Product Concentration The Company currently derives substantially all of its
revenue from the licensing of products in its AR System and fees from related
services. These products and services are expected to account for substantially
all of the Company's revenue for the foreseeable future. Consequently, a
reduction in demand for these products and services or a decline in sales of
these products and services, will adversely affect operating results.
Research and Development Research and development expenditures are generally
charged to operations as incurred. Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility. Based on
the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant. Through December 31, 1997,
all research and development costs have been expensed.
Advertising Costs The Company accounts for advertising costs as expense in
the period in which they are incurred. Advertising expense for the years ended
December 31 1995, 1996, and 1997 was $61,000, $175,000 and $896,000,
respectively.
Stock-Based Compensation In October 1995, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which encourages, but does not require, companies to record
compensation expense for stock-based employee compensation plans at fair value.
The Company has chosen to continue to apply Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock based plans and, accordingly, does
not recognize compensation expense related to its employees under its stock
option plans or employee stock purchase plans. Note 7 contains a summary of the
pro-forma effects to reported net income and net income per share for 1995,
1996 and 1997 if the Company had elected to recognize compensation expense
based on the fair value of the options granted as described by SFAS 123.
Earnings Per Share In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, " Earnings per
Share". SFAS 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to SFAS 128 requirements. Basic earnings per
share for 1995 and prior years have been restated to exclude the effect of
common equivalent shares pursuant to the Securities and Exchange Commission
Staff Accounting Bulletin (SAB) No. 98 (no effect on 1996 and 1997).
Basic earnings per share is computed using the weighted-average number of
common shares. Diluted earnings per share is computed using the weighted-average
number of common share equivalents outstanding during the period. Dilutive
common share equivalents consist of employee stock options using the treasury
method and dilutive convertible securities using the if-converted method.
<PAGE> 30
The following table sets forth the computation of basic and diluted earnings per
share:
Year ended December 31,
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Numerator:
Net Income $7,561 $16,824 $27,290
Denominator:
Denominator for basic earnings per share-weighted-average shares 23,439 26,365 27,614
Effect of dilutive securities:
Employee stock options 4,203 3,666 2,910
Dilutive potential common shares 4,203 3,666 2,910
Denominator for diluted earnings per share-adjusted weighted-average
shares and assumed conversions 27,642 30,031 30,524
Basic earnings per share $0.32 $0.64 $0.99
Diluted earnings per share $0.27 $0.56 $0.89
</TABLE>
Stock Split All shares and per-share amounts have been adjusted to reflect the
three-for-two stock dividend effected March 25, 1996 and the two-for-one stock
dividend effected October 25, 1996.
New Accounting Pronouncements The Financial Accounting Standards Board (FASB)
approved the new American Institute of Certified Public Accountants Statement of
Position, Software Revenue Recognition (SOP 97-2), which provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions.
Based upon Remedy's reading and interpretation of SOP 97-2, the Company
does not believe that the implementation of SOP 97-2 will have a material
adverse affect on expected revenues or earnings. However, detailed
implementation guidelines for this standard have not yet been issued. Once
issued, such detailed guidance could lead to unanticipated changes in the
Company's current revenue accounting practices and material adverse changes in
the Company's reported revenues and earnings. In the event implementation
guidance is contrary to the Company's revenue accounting practices, the Company
believes it can change its current business practices to comply with this
guidance and avoid any material adverse effect on reported revenues and
earnings. However, there can be no assurance this will be the case. SOP 97-2
will be effective for the Company beginning in the first quarter of 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income
and Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures
About Segments of An Enterprise and Related Information. SFAS 130 establishes
rules for reporting and displaying comprehensive income. SFAS 131 will require
the Company to use the "management approach" in disclosing segment information.
Both statements are effective for the Company during 1998. The Company does not
believe that the adoption of either SFAS 130 or SFAS 131 will have a material
impact on the Company's results of operations, cash flows, financial position or
prospects.
3 PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
December 31,
(in thousands)
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Machinery and equipment $7,567 $14,760
Furniture and fixtures 303 467
Purchased software 476 883
Leasehold improvements 501 1,289
8,847 17,399
Less accumulated depreciation (3,555) (6,927)
$5,292 $10,472
</TABLE>
<PAGE> 31
4 COMMITMENTS
Lease Agreements The Company leases its facilities under operating lease
arrangements. Certain of the leases provide for annual rent increases of
approximately 3%. Additionally, the Company leases certain equipment under
capital leases. The Company had capitalized property and equipment under lease
totaling $954,000 and $1,346,000 with associated accumulated amortization of
$244,000 and $529,000 at December 31, 1996 and 1997, respectively. All of these
assets were acquired in fiscal 1994, 1995, 1996 and 1997. Approximate annual
minimum rental commitments/future minimum lease payments under these leases are
as follows:
<TABLE>
<CAPTION>
(in thousands) Operating Capital
Leases Leases
<S> <C> <C>
1998 $ 4,894 $ 449
1999 4,434 427
2000 4,246 49
2001 2,562 24
2002 2,489 12
Thereafter 2,331 -
Total minimum lease payments $20,956 $ 961
Less amount representing interest (99)
Present value of future minimum lease payments 862
Less current portion (360)
Noncurrent obligations under capital leases $502
</TABLE>
Total rent expense for the years ended December 31, 1995, 1996, and 1997
was $754,000, $2,285,000 and $4,170,000, respectively.
5 BANK LINE OF CREDIT
The Company has available a bank line of credit that expires in June 1998,
under which $15.0 million is available. The agreement contains covenants that
require the Company to maintain certain financial ratios and to maintain
quarterly profitability. At December 31, 1997, the Company had no outstanding
balance under this line of credit and was in compliance with the required
covenants.
6 STOCKHOLDERS' EQUITY
Preferred Stock As of December 31, 1997, the Company had 20,000,000 shares of
preferred stock authorized.
Common Stock As of December 31, 1997, the Company had 120,000,000 shares of
common stock authorized. Certain shares of common stock issued by the Company
and outstanding at December 31, 1997, are subject to stock repurchase
agreements, whereby the Company has the option to repurchase the unvested
shares upon termination of employment for any reason, with or without cause, at
the original price paid for the shares. Generally, the stock vests 25% one year
after issuance and continues to vest on a pro-rata basis over the following 36
months. At December 31, 1997, 10,697 shares were subject to repurchase.
The Company recorded deferred compensation expense of $805,000 for the
difference between the grant price and the deemed fair value of certain of the
Company's common stock options granted in 1994. This amount is being amortized
over the vesting period of the individual options, generally four years.
Compensation expense recognized in 1995, 1996 and 1997 was $177,000, $179,000
and $180,000, respectively, and at December 31, 1997, deferred compensation
totaled $75,000.
7 COMPENSATION AND BENEFIT PLANS
401(K) Retirement Savings Plan The Company maintains a 401(K) retirement
savings plan to provide retirement benefits for substantially all of its
employees. Participants in the plan may elect to contribute from 2% to 15% of
their annual compensation to the plan, limited to the maximum amount allowed by
the Internal Revenue Code. The Company, at its discretion, may make annual
contributions to the plan. The Company has made no contributions to the plan
through December 31, 1997.
1995 Stock Option/Stock Issuance Plan In January 1995, the Board of Directors
(Board) adopted the 1995 Stock Option/Stock Issuance Plan (the 1995 Plan), as
the successor to the 1991 Stock Option/Stock Issuance Plan. Under the 1995 Plan,
12,649,780 shares of common stock, plus an additional 3,068,643 shares of common
stock, equal to the lesser of 10% of the number of shares of Common Stock and
Common Stock equivalents outstanding on the first day of 1998, are authorized
for issuance.
<PAGE> 32
Under the 1995 plan, options to purchase common stock may be granted and common
stock may be sold at prices not less than 85% of the fair market value at the
date of grant/issuance. Options issued under the plan become exercisable
according to a vesting schedule, which typically provides for the first 25% of
the option shares to become available after one year with the remaining shares
and options vesting on a pro-rata basis over the following 36 months.
1995 Non-Employee Directors Stock Option Plan During 1995, the Company
additionally adopted the 1995 Non-Employee Directors Stock Option Plan (the
Directors Plan), and reserved 337,500 shares for issuance, plus an additional
37,500 shares on the first day of 1997 and 1998. Under the Directors Plan, each
non-employee member of the Board is automatically granted an option to purchase
30,000 shares of the Company's stock upon initial appointment or election to
the Board, and 7,500 shares of the Company's stock upon reelection to the
Board, at not less than 100% of the fair market value of those shares at the
grant date. Stock options granted upon appointment or election to the Board
vest 25% annually. Stock options granted upon reelection to the Board vest 100%
after the fourth year of continuous service.
1995 Employee Stock Purchase Plan In January 1995, the Board and the
stockholders adopted the Employee Stock Purchase Plan (the Purchase Plan) and
reserved 1,200,000 shares for issuance thereunder. Under the Purchase Plan,
employees are granted the right to purchase shares of common stock at a price
per share that is 85% of the lesser of the fair market value of the shares at:
(i) the participant's entry date into the two-year offering period, or (ii) the
end of each six-month segment within such offering period. During fiscal 1997,
shares totaling 243,306 were issued under the Purchase Plan at an average price
of $17.95 per share.
The Company has elected to continue to follow APB 25 and related
interpretations in accounting for its employee stock options and employee stock
purchase plan because, as discussed below, the alternative fair value accounting
provided for under SFAS 123 requires use of option valuation models that were
not developed for use in valuing employee stock options and employee stock
purchase plans. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair value method of SFAS 123. The fair value for these options was estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for 1995, 1996 and 1997, respectively:
risk-free interest rate in the range of 5.38% to 7.06%; dividend yields of zero;
an expected volatility factor of the expected market price of the Company's
common stock of .65; and an expected life of the option of 5 years. The effects
of applying SFAS 123 for recognizing compensation expense and providing pro
forma disclosures in 1995, 1996 and 1997 are not likely to be representative of
the effect on reported net income in future years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility and expected option life. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of the
Company's employee stock options.
The fair value of the employee's purchase right was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995, 1996 and 1997: risk-free interest rate in the range of
5.37% to 6.19%; dividend yields of zero; expected volatility factor of the
market price of the Company's common stock of .65; and an expected life of six
months. The weighted-average fair value for shares issued under the employee
stock purchase plan for 1995, 1996 and 1997 were $3.12, $4.86 and $6.54,
respectively.
<PAGE> 33
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to pro forma net income over the options' vesting periods. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
1995 1996 1997
<S> <C> <C> <C>
Net income
Pro Forma $6,364 $10,368 $12,318
Net income per share
Pro Forma
Basic $0.27 $0.39 $0.45
Diluted $0.23 $0.36 $0.42
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully realized until 1998.
A summary of the Company's stock options activity for the three years ended
December 31, 1997 follows:
<TABLE>
<CAPTION>
Options Outstanding
Weighted-
Options Average
(in thousands, except per share amounts) available Number Exercise
for Grant of Shares Price per Share Price
<S> <C> <C> <C> <C>
Balance at December 31, 1994 1,252 4,891 $ 0.01-$ 3.08 $0.39
Additional shares reserved 600 - - -
Options granted (1,576) 1,576 $ 3.83-$20.33 $9.93
Options exercised - (1,491) $ 0.01-$ 2.50 $0.15
Options canceled or expired 343 (343) $ 0.01-$11.96 $1.79
Balance at December 31, 1995 619 4,633 $ 0.01-$20.33 $3.61
Additional shares reserved 2,997 - - -
Options granted (2,502) 2,502 $17.83-$53.75 $28.32
Options exercised - (1,002) $ 0.01-$25.38 $1.64
Options canceled or expired 329 (329) $ 0.01-$41.63 $11.05
Balance at December 31, 1996 1,443 5,804 $ 0.01-$53.75 $14.18
Additional shares reserved 1,592 - - -
Options granted (2,543) 2,543 $21.00-$49.00 $39.29
Options exercised - (1,483) $ 0.01-$41.63 $6.75
Options canceled or expired 567 (567) $ 0.13-$51.19 $30.83
Balance at December 31, 1997 1,059 6,297 $ 0.01-$53.75 $24.85
</TABLE>
The weighted-average fair value of options granted in 1995, 1996 and 1997 were
$4.96, $17.06 and $23.63, respectively.
The options outstanding at December 31, 1997 have been segregated into ranges
for additional disclosure as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Options Weighted- Weighted- currently Weighted-
outstanding average average exercisable average
Range of exercise prices at December remaining exercise at December exercise
31, 1997 contractual life price 31, 1997 price
<S> <C> <C> <C> <C> <C>
$0.01-$11.96 1,643,440 6.35 $ 2.82 1,509,839 $ 2.26
$12.29-$29.63 1,666,311 8.16 $ 19.03 621,099 $ 17.33
$31.75-$40.00 1,861,613 9.29 $ 37.19 182,296 $ 36.75
$40.44-$53.75 1,125,248 9.35 $ 45.23 127,572 $ 45.92
$ 0.01-$53.75 6,296,612 8.23 $ 24.85 2,440,806 $ 10.96
</TABLE>
<PAGE> 34
8 STOCKHOLDER'S RIGHTS PLAN
In July 1997, the Company's Board of Directors (the Board) adopted a
Stockholder Rights Plan, effective July 25, 1997, and declared a dividend
distribution of one Preferred Share Purchase Right (a Right) on each outstanding
share of Remedy's common stock. The Rights will not become exercisable, and will
continue to trade with the common stock, unless a person or group acquires 20
percent or more of Remedy's common stock or 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. Each Right will entitle a
stockholder to buy one one-thousandth of a share of a newly created Series A
Junior Participating Preferred Stock of the Company at an exercise price of $230
per one one-thousandth of a share. If a person or group acquires 20 percent or
more of Remedy's outstanding common stock or 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, each Right will entitle its
holder (other than the acquiring person or group) to purchase, at the Rights
then current exercise price, a number of Remedy's common stock shares having a
market value of twice that price. In addition, if Remedy is acquired in a merger
or other business combination transaction after a person has acquired 20 percent
or more of Remedy's outstanding common stock, each Right will entitle its holder
to purchase, at the Right's then current exercise price, a number of the
acquiring Company's common shares having a market value of twice that price.
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 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, prior to the acquisition by a person or group of beneficial
ownership of 20 percent or more of Remedy's common stock or a person or groups
announcing 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 was made on August 29, 1997, payable to
Stockholders of record on that date. The Rights will expire on July 24, 2007.
9 INCOME TAXES
The provision for income taxes consists of the following :
Year ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Federal:
Current $(1,080) $1,452 $ 2,169
Deferred (19) (817) (475)
(1,099) 635 1,694
State:
Current 39 261 128
Deferred (39) (178) (591)
0 83 (463)
Foreign:
Current 36 141 414
Income tax benefits attributable to employee stock plan
activity allocated to stockholder's equity 5,108 8,607 13,709
Provision for income taxes $ 4,045 $9,466 $15,354
</TABLE>
The difference between the provision for income taxes and the amount computed
by applying the federal statutory income tax rate to income before provision
for income taxes is explained below:
Year ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Tax at federal statutory rate $4,062 $9,201 $14,926
State tax, net of federal benefit 521 1,159 1,780
Research and development credit (111) (236) (372)
Tax exempt interest income (414) (678) (761)
Other (13) 20 (219)
Provision for income taxes $4,045 $9,466 $15,354
</TABLE>
<PAGE> 35
Significant components of the Company's deferred tax assets as of December 31,
1995, 1996 and 1997, respectively, are as follows:
Year ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Reserves and accruals not yet deductible for tax $832 $2,072 $2,352
Deferred revenue 242 226 746
Other (35) (263) 3
Total deferred tax assets $1,039 $2,035 $3,101
</TABLE>
10 SEGMENT AND GEOGRAPHIC, AND SIGNIFICANT CUSTOMER INFORMATION
The Company conducts its business within one industry segment. No customer
accounted for more than 10% of revenue in 1995, 1996, or 1997.
Net revenue from international customers accounted for 31% of total net
revenue in 1995 and 37% of total net revenue in 1996 and 1997. The majority of
export sales were made to Europe and Canada. The Company has had no significant
operations outside the United States through December 31, 1997.
11 LITIGATION
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Management currently believes that the ultimate
amount of liability, if any, with respect to any pending actions, either
individually or in the aggregate, will not materially affect the financial
position, results of operations or liquidity of the Company. However, the
ultimate outcome of any litigation is uncertain. If an unfavorable outcome were
to occur, the impact could be material. Furthermore, any litigation, regardless
of the outcome, can have an adverse impact on the Company's results of
operations as a result of defense costs, diversion of management resources, and
other factors.
<PAGE> 36
Selected Quarterly Consolidated Financial Data (unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Mar. 31, June 30, Sept. 30, Dec. 31,
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C> <C>
1996 Summary by Quarter
Total revenue $13,001 $17,012 $21,013 $29,609 $80,635
Income from operations 3,040 4,625 6,222 9,820 23,707
Income before provision for income taxes 3,543 5,280 6,864 10,603 26,290
Net income 2,267 3,380 4,393 6,784 16,824
Basic net income per share (1) $0.09 $0.13 $0.17 $0.25 $0.64
Diluted net income per share (1) $0.08 $0.11 $0.15 $0.22 $0.56
Shares used in computing basic per share amounts (1) 25,900 26,277 26,497 26,786 26,365
Shares used in computing diluted per share amounts (1) 29,586 30,136 29,861 30,540 30,031
Common Stock price per share: (1)
High (2) $28.25 $45.13 $40.88 $55.75 $55.75
Low (2) $15.50 $26.50 $21.63 $38.13 $15.50
1997 Summary by Quarter
Total revenue $23,301 $30,002 $37,066 $38,815 $129,184
Income from operations 6,489 8,683 11,655 11,648 38,475
Income before provision for income taxes 7,361 9,674 12,736 12,873 42,644
Net income 4,785 6,163 8,113 8,229 27,290
Basic net income per share (1) $0.18 $0.23 $0.29 $0.29 $0.99
Diluted net income per share (1) $0.16 $0.20 $0.26 $0.27 $0.89
Shares used in computing basic per share amounts (1) 26,973 27,326 27,789 28,368 27,614
Shares used in computing diluted per share amounts (1) 30,426 30,391 30,592 30,686 30,524
Common Stock price per share: (1)
High (2) $54.63 $47.63 $47.13 $47.00 $54.63
Low (2) $31.50 $25.25 $34.44 $20.88 $20.88
</TABLE>
(1) All shares and per-share amounts have been adjusted to reflect the
three-for-two stock dividend effected March 25, 1996 and the two-for-one
stock dividend effected October 25, 1996. The earnings per share amounts
have been restated as required to comply with Statement of Financial
Accounting Standards No. 128 and Staff Accounting Bulletin No. 98. See Note
2 of Notes to Consolidated Financial Statements.
(2) The Company's common stock has been traded on The Nasdaq National Stock
Market under the symbol RMDY since March 17, 1995. The table above
reflects the closing high and low sales prices of the Company's common
stock as reported by The Nasdaq National Stock Market.
<PAGE> 37
Report of Ernst & Young LLP Independent Auditors'
The Board of Directors and Stockholders
Remedy Corporation
We have audited the accompanying balance sheets of Remedy Corporation as of
December 31, 1996 and 1997 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Remedy Corporation at December 31, 1996 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Palo Alto, California
January 22, 1998
<PAGE> 38
CORPORATE DIRECTORY
OFFICERS
Lawrence L. Garlick
Chairman of the Board and
Chief Executive Officer
David A. Mahler
Vice President,
Business Development
Todd Basche
Vice President, Engineering
Richard P. Allocco
Vice President and General Manager of Worldwide Customer Services
George A. de Urioste
Vice President,
Finance and Operations
Chief Financial Officer
Michael L. Dianne
Senior Vice President,
Worldwide Sales
Carajane Finn
Vice President, Employee Services
Lori L. Laub
Vice President,
Information Systems
Matthew R. Miller
Vice President, Marketing
Eric S. Bergan
Vice President,
Independent Software Vendors
<PAGE> 39
BOARD OF DIRECTORS
Lawrence L. Garlick
Chairman of the Board and
Chief Executive Officer
David A. Mahler
Vice President,
Business Development
Harvey C. Jones, Jr.
Director
John F. Shoch
Director
James R. Swartz
Director
FORM 10-K
If you would like to receive,
without charge, a copy of the Company's Form 10-K as filed
with the Securities and Exchange Commission or would like to receive other
stockholder communications, please send your request to:
Investor Relations
Remedy Corporation
1505 Salado Drive
Mountain View, CA 94043
(650) 903-5200
<PAGE> 40
CORPORATE INFORMATION
TRANSFER AGENT
AND REGISTRAR
Harris Trust Company of California
601 South Figueroa, Suite 4900
Los Angeles, CA 90017
ANNUAL MEETING
The annual meeting of stockholders will be held at 4:00 p.m. on May 28, 1998,
at:
Remedy Corporation
Building 1
1505 Salado Drive
Mountain View, CA 94043
ADDRESS
Remedy Corporation
1505 Salado Drive
Mountain View, CA 94043
INTERNET
For more complete information about Remedy, visit our web site at
www.remedy.com
Copyright 1998 Remedy Corporation. All rights reserved. Remedy Corporation, the
Remedy Corporation logo, Flashboards, ARWeb, and Action Request System are
trademarks or registered trademarks of Remedy Corporation. All other company and
product names are or may be trademarks, registered trademarks or service marks
of the companies with which they are associated.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included in the Company's annual
report and is qualified in its entirety by reference to such condensed
consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 70,568
<SECURITIES> 63,265
<RECEIVABLES> 33,502
<ALLOWANCES> 1,974
<INVENTORY> 0
<CURRENT-ASSETS> 171,144
<PP&E> 17,399
<DEPRECIATION> 6,927
<TOTAL-ASSETS> 181,616
<CURRENT-LIABILITIES> 33,042
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 148,072
<TOTAL-LIABILITY-AND-EQUITY> 181,616
<SALES> 92,133
<TOTAL-REVENUES> 129,184
<CGS> 3,300
<TOTAL-COSTS> 18,476
<OTHER-EXPENSES> 21,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 42,644
<INCOME-TAX> 15,354
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,290
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.89
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements included in the Company's Form 10-Q and is
qualified in its entirety by reference to such condensed
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 32,178
<SECURITIES> 30,943
<RECEIVABLES> 8,343
<ALLOWANCES> 523
<INVENTORY> 0
<CURRENT-ASSETS> 74,929
<PP&E> 5,088
<DEPRECIATION> 2,097
<TOTAL-ASSETS> 77,920
<CURRENT-LIABILITIES> 10,097
<BONDS> 0
0
0
<COMMON> 53,996
<OTHER-SE> (449)
<TOTAL-LIABILITY-AND-EQUITY> 77,920
<SALES> 9,338
<TOTAL-REVENUES> 13,001
<CGS> 557
<TOTAL-COSTS> 2,495
<OTHER-EXPENSES> 2,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 3,543
<INCOME-TAX> 1,276
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,267
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements included in the Company's Form 10-Q and is
qualified in its entirety by reference to such condensed financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JAN-30-1996
<CASH> 37,721
<SECURITIES> 29,820
<RECEIVABLES> 12,822
<ALLOWANCES> 768
<INVENTORY> 0
<CURRENT-ASSETS> 83,172
<PP&E> 6,397
<DEPRECIATION> 2,505
<TOTAL-ASSETS> 87,064
<CURRENT-LIABILITIES> 13,248
<BONDS> 0
0
0
<COMMON> 56,549
<OTHER-SE> (405)
<TOTAL-LIABILITY-AND-EQUITY> 87,064
<SALES> 21,932
<TOTAL-REVENUES> 30,013
<CGS> 1,202
<TOTAL-COSTS> 5,293
<OTHER-EXPENSES> 5,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 8,823
<INCOME-TAX> 3,176
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,647
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements included in the Company's Form 10-Q and is
qualified in its entirety by reference to such condensed financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 42,049
<SECURITIES> 33,687
<RECEIVABLES> 15,508
<ALLOWANCES> 945
<INVENTORY> 0
<CURRENT-ASSETS> 94,229
<PP&E> 7,953
<DEPRECIATION> 2,971
<TOTAL-ASSETS> 99,211
<CURRENT-LIABILITIES> 17,265
<BONDS> 0
0
0
<COMMON> 60,010
<OTHER-SE> (360)
<TOTAL-LIABILITY-AND-EQUITY> 99,211
<SALES> 37,661
<TOTAL-REVENUES> 51,026
<CGS> 1,868
<TOTAL-COSTS> 8,541
<OTHER-EXPENSES> 8,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 15,687
<INCOME-TAX> 5,647
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,040
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements included in the Company's Form 10-Q and is
qualified in its entirety by reference to such condensed financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 39,770
<SECURITIES> 46,987
<RECEIVABLES> 25,437
<ALLOWANCES> 1,248
<INVENTORY> 0
<CURRENT-ASSETS> 114,142
<PP&E> 8,847
<DEPRECIATION> 3,555
<TOTAL-ASSETS> 119,434
<CURRENT-LIABILITIES> 26,424
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 92,497
<TOTAL-LIABILITY-AND-EQUITY> 119,434
<SALES> 61,133
<TOTAL-REVENUES> 80,635
<CGS> 2,926
<TOTAL-COSTS> 13,290
<OTHER-EXPENSES> 13,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 26,290
<INCOME-TAX> 9,466
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,824
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.56
</TABLE>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 45,165
<SECURITIES> 49,546
<RECEIVABLES> 19,078
<ALLOWANCES> 1,185
<INVENTORY> 0
<CURRENT-ASSETS> 116,558
<PP&E> 10,276
<DEPRECIATION> 4,210
<TOTAL-ASSETS> 122,624
<CURRENT-LIABILITIES> 23,404
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 98,738
<TOTAL-LIABILITY-AND-EQUITY> 122,624
<SALES> 16,064
<TOTAL-REVENUES> 23,301
<CGS> 935
<TOTAL-COSTS> 4,056
<OTHER-EXPENSES> 3,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 7,361
<INCOME-TAX> 2,576
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,785
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.16
</TABLE>
<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> 0.41
<EPS-DILUTED> 0.36
</TABLE>
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 58,276
<SECURITIES> 54,929
<RECEIVABLES> 29,888
<ALLOWANCES> 1,641
<INVENTORY> 0
<CURRENT-ASSETS> 145,615
<PP&E> 14,689
<DEPRECIATION> 5,859
<TOTAL-ASSETS> 154,445
<CURRENT-LIABILITIES> 27,979
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 125,949
<TOTAL-LIABILITY-AND-EQUITY> 154,445
<SALES> 64,191
<TOTAL-REVENUES> 90,369
<CGS> 2,478
<TOTAL-COSTS> 13,430
<OTHER-EXPENSES> 14,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 29,772
<INCOME-TAX> 10,711
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,061
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.62
</TABLE>
