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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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, 1999
[ ] 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
WWW.REMEDY.COM
REGISTRANT'S INTERNET ADDRESS
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(R)
(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, 2000 was approximately $1,642,541,291 (based on the
last reported sale price of $63.156 on March 3, 2000 on the NASDAQ Stock
Market).
The number of shares of Common Stock outstanding as of March 3, 2000 was
30,597,275.
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 26, 2000
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REMEDY CORPORATION
FISCAL YEAR 1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations................................... 13
Quantitative and Qualitative Disclosures about Market
Item 7A. Risk........................................................ 23
Item 8. Financial Statements and Supplementary Data................. 24
Changes in and Disagreements With Accountants on Accounting
Item 9. and Financial Disclosure.................................... 24
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 25
Item 11. Executive Compensation...................................... 26
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 26
Item 13. Certain Relationships and Related Transactions.............. 26
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14. 8-K......................................................... 27
Signatures.............................................................. 50
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PART I
The discussion in this Form 10-K (10-K) contains forward-looking statements
that involve risks and uncertainties. The statements contained in this 10-K 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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 on page 13 and "Quantitative and
Qualitative Disclosures about Market Risk" in Item 7A on page 23 of this
document. The risk factors set forth in other reports or documents we file from
time to time with the Securities and Exchange Commission, particularly the
quarterly reports on Form 10-Q should also be reviewed.
ITEM 1. BUSINESS
OVERVIEW
Remedy(R) Corporation ("Remedy" or the "Company") develops, markets and
supports highly adaptable software products and solutions that simplify
service-intensive business processes. Remedy, its partners and its customers can
quickly adapt the robust out-of-the-box functionality of Remedy solutions as
business requirements change. Customers establish a competitive advantage by
responding rapidly and cost effectively to opportunities. Remedy solutions
deliver the agility to accelerate the customer's unique eBusiness advantages.
Remedy offers adaptable applications for eBusiness Infrastructure Management and
Customer Relationship Management (eCRM). Remedy is one of the largest providers
of enterprise solutions with over 8,400 customer sites in more than 70
countries, including over 60% of the Fortune 100.
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.
Remedy shipped the first version of the Action Request System(R) product
and foundation technology (AR System(TM)) in December of 1991. Customers most
typically have started with a modest installation and over the years proliferate
the solution throughout their enterprise. At the same time they add additional
solutions. In addition to the eBusiness Infrastructure Management solutions
provided by Remedy, the Company's customers and partners have had a long history
of creating solutions on top of the AR System foundation to solve other types of
service-intensive business processes. These solutions have included external
customer service and support, project tracking, change management, purchase
requisitions, product defect tracking, asset management, network and system
management, and inventory management tracking. The Company has now created many
out-of-the-box solutions in these areas and is continuing the proliferation
strategy to existing customers as well as introducing the solutions to new
customers.
REMEDY SUCCESSES. The Company's solutions lead the industry in fastest
customer deployment and lowest cost to deploy. Remedy also has been the leading
innovator in the following areas of IT services innovation: web-based help desk,
multi-tier help desk, distributed server technology, mobile client links,
graphical service level management products, and ERP links for any service desk.
The Company has a very high customer satisfaction rating; 97% of sites would
recommend Remedy products to a colleague according to a third party survey.
FAST PATH TO PRODUCTION. The Company's solutions design and licensing
practices promote rapid deployment in meeting three of the most important
eBusiness challenges: customer service, eProcurement and infrastructure
management. While the GartnerGroup says that half of all client/server solutions
exceed their expected completion times and budgets and almost two thirds take
more than a year to finish, Remedy's philosophy and results are different.
Remedy provides out-of-the-box enterprise solutions that can be quickly
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and easily adapted to unique requirements. The average Remedy installation is
fully deployed in less than 45 days and our large enterprise installations are
typically implemented in approximately 3 months.
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, hand-held devices, network management systems
and legacy systems. The Company's solutions 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 Sun Microsystems' Solstice SunNet Manager or Hewlett
Packard's HP OpenView, to AR System servers, automatically creating a problem
report to be handled by the internal help desk staff. Separately installable
links are sold by Remedy for Oracle, SAP and the Palm computing platform.
ADAPTABLE EBUSINESS SOLUTIONS. Remedy provides a ready-to-deploy eBusiness
foundation and solutions that are easy to change at will. Customers use the
solutions as is, out-of-the-box or point-and-click to easily tailor them to
specific company requirements. The concept is similar to spreadsheet software,
which can be used as a simple tabular calculating platform or be modified to
include sophisticated formulas and style changes to create unique solutions.
Remedy's open architecture and versatility allow IT professionals to lead the
eBusiness productivity effort. More importantly, Remedy's solutions are
adaptable to meet most future requirements without costly programming.
PRODUCTS
CORE PRODUCT SOLUTIONS. Remedy's primary core product solution is the AR
System, a flexible foundation for automating complex business processes
throughout the enterprise. Built for adaptability in a continuously changing
business environment, the AR System allows for rapid prototyping and affordable
applications. ARWeb(R) is Remedy's first Web deployment solution. It is a light
client with quick access using an HTML base to leverage corporate intranets for
cost-effective deployment of Remedy applications. Remedy Web(TM) was introduced
in 1999 as a 100% Pure Java client for customers who require the highest
possible user interface functionality from the browser. Remedy Service Level
Agreements(TM) (SLA) solution helps managers track service quality and
communicate that quality to their customers. By automating negotiated service
commitments, SLA provides for proactive alerting, notification and measurement.
Flashboards(R) application monitors service levels and tracks trends in internal
operations using an intuitive graphical interface allowing for proactive
management of service quality and commitments. Remedy's Distributed Server
Option(TM) application expands any Remedy solution to multiple locations across
the enterprise, enabling the automatic transfer of tracking data between AR
System servers while maintaining consistent information throughout the
environment. Remedy Approval Server(TM) provides a single web-based approval
solution that streamlines approval cycles throughout an enterprise and across
all Remedy solutions. The AR System reduces the cost of automating many internal
business processes by using simple point-and-click methods to adapt the
solution's workflow and tracking capability to the unique information, process
and integration requirements of the customer's department or enterprise. The AR
System is also the foundation for all of Remedy's out-of-the-box solutions,
including those for eBusiness Infrastructure Management and Customer
Relationship Management, as well as partner solutions and customer adaptations.
EBUSINESS INFRASTRUCTURE SOLUTIONS (EBIS). Remedy has a number of eBIS
solutions that link together to support eBusiness infrastructure. From initial
procurement of an asset on through the IT function, the Remedy products link
together to form an integrated value chain which is quick to install and
adaptable as business needs change. The Remedy Help Desk(TM) application is a
solution used for tracking and resolving IT support requests and problems. Using
simple point-and-click methods, customers quickly adapt the application's
workflow and tracking capability to the unique information, process and
integration requirements of their department or enterprise. The help desk
consists of integrated capabilities to help with problem
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management, problem resolution, change management, asset management and
procurement. According to a survey conducted by the Aberdeen Group, Remedy is
the worldwide leader in help desk software with nearly a 26% share of the
internal help desk market -- more than twice that of our closest competitor.
Remedy Change Management(TM) enables IT professionals to plan, track and
implement changes quickly and efficiently, and creates a history log to help
diagnose problems. Remedy Asset Management(TM) provides control over diverse IT
assets to help reduce ownership costs, synchronize asset information across the
enterprise and achieve a better return on investment. As part of an initiative
to expand the Company's asset management practice, Remedy acquired Fortress
Technologies, Inc. (Fortress) in September 1999. Fortress is a leading
consulting asset management firm that enables Remedy to offer a complete set of
lifecycle services to analyze customers IT management infrastructure.
Purchasing@Work(TM) is designed to save customers time and money by utilizing
their existing investments in corporate web-based Intranet or Internet
applications by integrating into back office ERP systems. Purchasing@Work
streamlines the purchasing process for non-production materials and services for
better supplier management, realizing economies of scale and reducing maverick
spending through the use of on-line catalogs.
Remedy offers a broad range of Help Desk(TM) customer services, including
the Remedy Rapid Results program. This program minimizes the necessary use of
customer internal resources for setting up an internal help desk by using Remedy
consultants. The program guarantees implementation in 15-days.
CUSTOMER RELATIONSHIP MANAGEMENT. Remedy's eCRM solutions are developed and
marketed to support web and client/server based solutions for acquisition and
retention of long-term profitable customers. With nearly half of Remedy's
current customer sites adapting the AR System for external support processes,
Remedy has the largest installed base of customers in this market. In 1999
Remedy shipped a new product suite to offer an out-of-the-box solution for
customers. This suite includes Remedy Customer Support for technical support,
Remedy Quality Management for product quality assurance, Remedy Leads Management
for opportunity and campaign management, and Sales Continuum for sales force
automation. These are comprehensive applications for eCRM, which are designed
for fast deployment and scalability from small companies to large enterprise
use. To expand the eCRM product offering, the Company obtained sales force
automation technology through the acquisition of Pipestream Technologies, Inc.
in July 1999. Remedy's eCRM products are designed for fast deployment, and are
extremely adaptable to our customers changing business needs.
TECHNOLOGY
Remedy's solutions are unique in that they are all developed and deployed
on a single, open process-automation eBusiness foundation- the Remedy Action
Request System. This foundation is the common, central element of all Remedy
solutions. It is highly scalable, adaptable and can automatically share data and
business rules between solutions. It is the primary integration point among
Remedy solutions and among these solutions and the products of other vendors. AR
System product upgrades have backward compatibility without requiring solutions
built upon it to be reworked.
BROAD INTEGRATION AND PLATFORM SUPPORT. The open design and published,
multi-threaded application programming interface (API) enables a wide range of
integrations and extensions, including the Internet and World Wide Web, e-mail
systems, automatic call distribution systems, integrated voice response systems,
pagers, report writers, knowledge databases, case-based reasoning tools, network
and system management platforms, transaction processing systems, enterprise
resource planning (ERP) systems, corporate information (CIS) systems and other
application suites. With its extremely broad platform support, Remedy's AR
System server supports UNIX (e.g., Sun, HP, IBM,) and Windows NT as well as the
database engines from the major relational database vendors (e.g., Oracle,
Microsoft, Informix, Sybase, IBM). Remedy delivers the power of the workflow
server to users via a broad range of clients, including Web browsers, Microsoft
Windows 95/98/NT, Sun Microsystems' Java platform, OSF Motif and even
leading-edge clients like 3Com's Palm and e-mail systems. The clients were
designed in conjunction with well-known and respected usability specialists to
help maximize the productivity of the application users. Remedy's AR System
supports a "write once, run anywhere" architecture so applications can be built
in one environment and deployed to multiple operating environments. In addition,
any changes to the business rules or forms are automatically
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distributed to the clients, thereby eliminating software distribution costs.
These adaptable applications can be compared to spreadsheets, which can be used
as is or modified by changing formulas, moving and deleting items, and making
stylistic changes. No coding is required to customize Remedy solutions, and
non-IT professionals can do so.
MULTI-TIER ARCHITECTURE. The multi-tier architecture of Remedy's AR System
delivers high performance by combining the power of the latest relational
databases with a customizable workflow server to deliver power to users where
they need it. The Remedy architecture balances functionality among the following
elements: client, workflow server, web-based application server and database
server. The client is intentionally very thin, in an optimization to favor a
web-centric system. The desktop client and workflow server communicate via
industry standard protocols 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.
WEB CLIENTS. Web-based clients communicate with the Remedy Web(TM)
Application Server using a combination of industry standard HTTP and a
high-performing Remedy proprietary protocol, optimized to run light over the
wire. Remedy's web-based products use industry standard web-based page
technologies such as HTML, Javascript, and Java to allow Remedy's workflow to be
delivered through all industry-standard web browsers.
POINT-AND-CLICK DEVELOPMENT ENVIRONMENT. A major benefit of Remedy's
architecture is that customizations and business rules are made with
point-and-click simplicity without programming. While most enterprise solutions
require procedural coding by highly trained consultants, Remedy solutions can be
customized and extended through point-and-click interfaces without procedural
programming. The Action Request System acts as a development environment, and
generates the necessary code and database changes automatically. This advantage
has been the hallmark of Remedy's "adaptable applications" throughout the
history of the Company. Since most enterprise solutions cause an organization to
incur huge consulting costs for maintenance and enhancements, Remedy solutions
offer a significant and easily demonstrated advantage. Organizations use this
adaptability to change the customer experience or business rules frequently,
thereby achieving differentiation and cost savings. Organizations with
Remedy-based solutions often use these point-and-click development capabilities
in the same way they use Rapid Application Development (RAD) tools like
Microsoft Visual Basic. Solutions are rapidly prototyped and developed for
users, and there is extensive iteration in order to take into account new
requirements or extensions. This style of development fits the eBusiness model
well, and can be used to differentiate from competitors.
CUSTOMERS
As of December 31, 1999, the Company had licensed its software to more than
4,600 customers at more than 8,400 sites, including over 60% of the Fortune 100.
In 1999, no customer accounted for more than 10% of the Company's total revenue.
Remedy serves many vertical industries, including computer, finance, government,
semiconductor and telecom/network.
SALES AND MARKETING
The Company markets its software and services through its regionally-based
direct sales force, a headquarters-based direct telesales force and through its
indirect sales channels, including value-added resellers (VARs), system
integrators (SIs) and independent software vendors (ISVs). The Company has sales
professionals in 9 offices throughout North America. Outside of North America,
the Company sells its products primarily through indirect sales channels and
direct sales professionals in 10 offices.
Generally, the AR System and related applications and services are sold
through a sales representative with occasional help from a systems engineer.
Telesales representatives generally sell standard products and services and they
pass large or more complicated deals on to regionally-based direct sales
representatives.
The Company's sales and marketing organization is complemented by indirect
sales channels (VARs, SIs and ISVs), who license the Company's products at a
discount for re-licensing, and may provide training, support and customer
services to end users. The Company increased the number of channel partners from
160
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to 181 in 1999. The Company's indirect sales as a percentage of revenue may
adversely affect the Company's average selling prices and gross margins due to
somewhat lower unit prices that the Company receives when selling through
indirect channels.
The Company's marketing organization provides leads to members of the sales
organization, and raises awareness of the Company among target decision-makers.
Leads are primarily generated through advertising, seminars, trade shows,
telesales and the Company's web site. To generate awareness, the Company
conducts comprehensive marketing awareness programs that include advertising,
public relations, user group meetings and ongoing customer communications
programs. In the last year, the marketing organization has launched a new
corporate branding campaign emphasizing Remedy's short implementation times.
For a geographical explanation of sales, see Note 16 of Notes to
Consolidated Financial Statements in Item 14 on page 48.
PROFESSIONAL SERVICES
The Company's professional services organization provides customers with
consulting, education and customer support services. The Company believes that
providing a high level of customer service and technical support is critical to
customer satisfaction and the Company's growth. The organization also trains the
Remedy partner community for the delivery of these services.
CONSULTING SERVICES. Consulting services consist of assisting customers in
a wide range of activities, from application designs, implementations and
re-architecting existing applications to align with company business practices
and strategy. The Company has been adding consultants focused on requirements
analysis, project management and implementation for large enterprise projects.
Fees for consulting services are generally charged separately from the Company's
software products. Remedy also has trained 245 Remedy Approved Consultants
(RACs) who work for 73 Remedy Partners in 24 countries.
CUSTOMER SUPPORT SERVICES. In providing technical support to customers, the
Company uses its own products extensively. Most of the Company's customers
currently have support agreements with the Company and over 90% renew their
contracts on a yearly basis. The Company offers telephone, electronic mail, Web
and fax support through its support services staff. Additional customer support
is provided in the United States and particularly in international markets by
the Company's VARs, SIs, and ISVs. Initial product license fees do not include
software maintenance. As part of their annual maintenance fee, customers are
entitled to receive software upgrades, maintenance releases and support for
licensed products.
EDUCATIONAL SERVICES. An important piece of the Company's strategy is to
offer comprehensive training to customers. Classes are offered through in-house
facilities at the Company's offices in Pleasanton, California, Columbia,
Maryland and Bracknell, in the United Kingdom. Courses are also available from
more than 33 Approved Education Partners around the world. Educational Services
also provides on-site training and customized training services. In 1999, the
Company and its partners trained almost 14,000 people. Fees for educational
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 has recently expanded its existing product offerings
to introduce new products. In the development of new products and enhancements
to existing products, the Company uses its own platform of products exclusively.
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. The Company's
total expenses for research and development for fiscal years 1999, 1998 and 1997
were $40.9 million, $33.7 million and $21.2 million, respectively.
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COMPETITION
The market for Remedy's products is intensely competitive and subject to
rapid change. The Company expects the number of competitors to continue
increasing with the Company's expansion into eCRM and eBusiness Infrastructure
Management markets. The Company encounters competition from a number of sources,
including:
(i) other software companies, including:
- providers of eBusiness Infrastructure Management Solutions such as
Peregrine Systems, Inc., Ariba Inc. and Concur Technologies, Inc.,
- providers of customer relationship software such as Onyx Software
Corp., Clarify Inc. (a wholly owned subsidiary of Nortel), and Pivotal
Corp;
(ii) third-party professional services organizations that develop custom
software
(iii) management information systems departments or outsourcers 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 software market continues to develop
and expand. Increased competition could 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. The Company also expects that competition could continue to increase as
a result of industry consolidations (e.g. Nortel and Clarify). 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.
The Company believes that the market for eCRM and eBusiness Infrastructure
Management solutions has historically not been well served by the application
software industry, particularly in the mid-tier, which has been characterized by
large-scale implementations requiring long implementation times and low success
rates. The Company believes the increasing need for customers to manage their
procurement and the proliferation of web applications has opened the door to a
large number of Internet start-ups with few successful implementations to date.
The Company believes that the principal competitive factors affecting its
market include product features such as adaptability, scalability,
implementation times, ability to integrate with third party products,
functionality, ease of use, product reputation, quality, performance, price,
customer service and support and effectiveness of sales and marketing efforts.
Although the Company believes that it currently competes favorably against
current and potential competitors, there can be no assurance that the Company
can maintain its competitive position against current and potential competitors,
especially those with greater financial, marketing, service, support, technical
and other resources than the Company.
SEASONALITY
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 when compared to the quarters ending in June, September and December.
The Company believes this pattern will continue, and accordingly anticipates
total revenue and net income in the quarter ending March 31, 2000 will be lower
than in the quarter ended December 31, 1999.
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EMPLOYEES
As of December 31, 1999, the Company employed 977 persons, including 346 in
sales and marketing, 217 in professional services, 247 in research and
development and 167 in general and administrative. Of the Company's employees
114 are located in Europe, 16 in the Pacific Rim, and the remainder in North
America. The Company's future success will depend in part on our continued
ability to attract, hire and retain qualified personnel. Competition for such
personnel is intense, and there can be no assurance that we will be able to
identify, attract and retain such personnel in the future. None of our employees
is represented by a labor union (other than statutory unions required by law in
certain European countries). We have not experienced any work stoppages and
consider our relations with our employees to be good.
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. The Company's support
center is located in three facilities totaling approximately 100,000 square feet
in Pleasanton, California. These facilities are leased to the Company through
the year 2000 and 2006. The Company also leases office space in Maryland, New
Jersey, Virginia, Colorado, Illinois, Georgia, Texas, the United Kingdom,
Germany, France, Spain, Italy, the Netherlands, Sweden, Singapore, Australia and
Japan. The Company believes that the existing facilities are adequate to meet
current needs and that suitable additional or alternative space will be
available in the future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A 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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the NASDAQ National Market(R)
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 National Market.
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HIGH LOW
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Fiscal 1999:
Fourth Quarter........................................... $49.44 $26.50
Third Quarter............................................ $28.38 $19.63
Second Quarter........................................... $26.88 $10.62
First Quarter............................................ $22.94 $13.13
Fiscal 1998:
Fourth Quarter........................................... $15.94 $ 7.56
Third Quarter............................................ $19.69 $ 8.13
Second Quarter........................................... $25.50 $15.50
First Quarter............................................ $22.50 $12.63
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On March 3, 2000 the closing sale price of the Company's Common Stock was
$63.156 per share. On that date, there were 143 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.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is qualified in its entirety by, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company and the Notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this Form
10-K. The consolidated balance sheet data and consolidated statements of income
data as of and for each of the five years in the period ended December 31, 1999
have been derived from the audited Consolidated Financial Statements of the
Company.
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YEAR ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Total revenue....................... $228,933 $157,420 $129,184 $80,635 $40,117
Non-recurring charges(2)............ -- 3,104 -- -- --
Goodwill and intangible
amortization(2).................. 4,072 446 -- -- --
Income from operations.............. 38,850 23,733 38,475 23,707 10,189
Net income.......................... 29,523 18,977 27,290 16,824 7,561
Basic net income per share(1)....... $ 1.02 $ 0.66 $ 0.99 $ 0.64 $ 0.32
Diluted net income per share(1)..... $ 0.95 $ 0.63 $ 0.89 $ 0.56 $ 0.27
Shares used in computing basic per
share amounts(1)................. 28,916 28,722 27,614 26,365 23,439
Shares used in computing diluted per
share amounts(1)................. 31,062 29,901 30,524 30,031 27,642
SUPPLEMENTAL DATA (UNAUDITED):
Net income before goodwill and
intangible amortization and non-
recurring charges (net of tax)... 32,267 21,249 27,290 16,824 7,561
Diluted net income per share before
goodwill and intangible
amortization and non-recurring
charges(1)....................... $ 1.04 $ 0.71 $ 0.89 $ 0.56 $ 0.27
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments.......... $172,418 $136,637 $133,833 $ 86,757 $56,186
Working capital.................... 177,813 136,813 138,102 87,718 60,767
Total assets....................... 287,487 213,500 181,616 119,434 74,733
Long-term obligations.............. 23 127 502 513 324
Total stockholders' equity......... $214,540 $160,704 $148,072 $ 92,497 $63,131
</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) For an explanation of non-recurring charges and goodwill and intangible
amortization, see Note 14 of Notes to Consolidated Financial Statements.
11
<PAGE> 12
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 SUMMARY BY QUARTER
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL YEAR
FIRST SECOND THIRD FOURTH 1999
--------- -------- ------------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenue................................... $42,399 $53,036 $60,864 $72,634 $228,933
Gross profit.................................... 33,808 42,457 49,093 59,570 184,928
Goodwill and intangible amortization(1)......... 748 713 1,149 1,462 4,072
Income from operations.......................... 3,681 8,096 11,628 15,446 38,850
Net income...................................... 3,196 6,224 8,574 11,529 29,523
Basic net income per share...................... $ 0.11 $ 0.22 $ 0.30 $ 0.39 $ 1.02
Diluted net income per share.................... $ 0.11 $ 0.21 $ 0.27 $ 0.36 $ 0.95
Shares used in computing basic per share
amounts....................................... 28,498 28,650 28,839 29,676 28,916
Shares used in computing diluted per share
amounts....................................... 30,047 30,252 31,608 32,340 31,062
SUPPLEMENTAL DATA (UNAUDITED):
Net income before goodwill and intangible
amortization and non-recurring charges (net of
tax).......................................... 3,697 6,702 9,344 12,523 32,267
Diluted net income per share before goodwill and
intangible amortization and non-recurring
charges....................................... $ 0.12 $ 0.22 $ 0.30 $ 0.39 $ 1.04
</TABLE>
<TABLE>
<CAPTION>
1998 SUMMARY BY QUARTER
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL YEAR
FIRST SECOND THIRD FOURTH 1998
--------- -------- ------------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenue................................... $30,599 $36,613 $40,117 $50,091 $157,420
Gross profit.................................... 24,328 30,634 33,478 41,309 129,749
Non-recurring charges(1)........................ -- -- -- 3,104 3,104
Goodwill and intangible amortization(1)......... -- -- -- 446 446
Income from operations.......................... 2,260 6,061 8,369 7,043 23,733
Net income...................................... 2,364 4,803 6,224 5,586 18,977
Basic net income per share...................... $ 0.08 $ 0.17 $ 0.22 $ 0.20 $ 0.66
Diluted net income per share.................... $ 0.08 $ 0.16 $ 0.21 $ 0.19 $ 0.63
Shares used in computing basic per share
amounts....................................... 28,776 29,035 28,688 28,387 28,722
Shares used in computing diluted per share
amounts....................................... 30,231 30,598 29,574 29,199 29,901
SUPPLEMENTAL DATA (UNAUDITED):
Net income before goodwill and intangible
amortization and non-recurring charges (net of
tax).......................................... 2,364 4,803 6,224 7,858 21,249
Diluted net income per share before goodwill and
intangible amortization and non-recurring
charges....................................... $ 0.08 $ 0.16 $ 0.21 $ 0.27 $ 0.71
</TABLE>
- ---------------
(1) For an explanation of non-recurring charges and goodwill and intangible
amortization, see Note 14 of Notes to Consolidated Financial Statements.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
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 statements. The Company's
actual results may differ materially from the results discussed herein. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Factors That May Affect Future Operating Results" on page 18 and
"Quantitative and Qualitative Disclosures about Market Risk" on page 23.
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,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Product................................................... 62% 64% 71%
Maintenance and service................................... 38% 36% 29%
--- --- ---
Total revenue..................................... 100% 100% 100%
COSTS AND EXPENSES:
Cost of product revenue................................... 3% 3% 3%
Cost of maintenance and service revenue................... 16% 15% 12%
Research and development.................................. 18% 21% 16%
Sales and marketing....................................... 39% 38% 33%
General and administrative................................ 5% 6% 6%
Non-recurring charges..................................... -- 2% --
Amortization of goodwill and other intangibles............ 2% -- --
--- --- ---
Total costs and expenses.......................... 83% 85% 70%
Income from operations...................................... 17% 15% 30%
Interest income and other, net.............................. 2% 4% 3%
--- --- ---
Income before provision for income taxes.................... 19% 19% 33%
Provision for income taxes.................................. 6% 7% 12%
--- --- ---
Net income.................................................. 13% 12% 21%
=== === ===
</TABLE>
REVENUE
Total revenue was $228.9 million, $157.4 million and $129.2 million in
1999, 1998 and 1997, respectively, representing increases of 45% from 1998 to
1999 and 22% from 1997 to 1998. The Company recognizes revenue in accordance
with Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition", as
amended. The Company derives revenue from the sale of software licenses,
post-contract support ("support") and other services. Support includes telephone
technical support, bug fixes and rights to upgrades on a when-and-if available
basis for a stated term of generally one year. Services range from installation,
training and basic consulting to software modification to meet specific customer
needs. In software arrangements that include rights to multiple software
products, specified upgrades, support and/or other services, the Company
allocates the total arrangement fee among each deliverable based on the relative
fair value of each of the deliverables determined based on objective evidence
which is specific to the Company.
13
<PAGE> 14
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, the fee is fixed or
determinable and collection is probable. If the fee due from the customer is not
fixed or determinable, revenue is recognized as payments become due from the
customer. If collection is not considered probable, revenue is recognized when
the fee is collected.
Revenue allocable to support is recognized on a straight-line basis over
the periods in which the support is provided.
Arrangements that include consulting services are evaluated to determine
whether those services are essential to the functionality of other elements of
the arrangement. When services are considered essential, revenue under the
arrangement is recognized using contract accounting. When services are not
considered essential, the revenue allocable to the software services is
recognized as the services are performed.
The Company distributes the majority of its products through its direct
sales organization, which is complemented by indirect sales channels, including
value-added resellers (VARs), system integrators (SIs) and independent software
vendors (ISVs). Billings derived through indirect channels accounted for
approximately 46% of the Company's total revenue in 1999 as compared to 48% in
1998 and 44% in 1997. The Company expects that billings derived through indirect
channels, while growing in absolute dollar amounts, will continue to fluctuate
as a percentage of total billings.
International sales accounted for 34% of total revenue in 1999, as compared
to 38% in 1998 and 37% in 1997. A majority of international sales are
denominated and collected in U.S. currency, however, the Company began
multi-currency invoicing of customers during the fourth quarter of 1999. The
majority of international sales were made in Europe, with lower amounts in
Canada, the Pacific Rim and Latin America. Currently the Company maintains sales
offices in the United Kingdom, Canada, Germany, France, Spain, Italy, the
Netherlands, Sweden, Singapore, Australia and Japan. In October 1998, the
Company set up Remedy Software International Limited (RSIL) in Ireland. From
this location, the Company ships its products to customers in Europe, the Middle
East and Africa. The Company also expects to increase the staffing levels of its
international based operations in 2000. Due to a substantial majority of the
Company's international sales through indirect channels, any material increase
in the Company's international sales as a percentage of total revenue may
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.
PRODUCT REVENUE. The Company currently derives substantially all of its
product revenue from licenses of the Action Request System and applications
which are built upon the AR System foundation. Revenue from product licenses was
$141.5 million, $101.1 million and $92.1 million in 1999, 1998 and 1997,
respectively. This represents increases of 40% from 1998 to 1999 and 10% from
1997 to 1998. The growth of revenue in absolute dollars is largely a result of
the Company's sales and marketing efforts and the increased acceptance of the
Company's Action Request System and Information Technology Service Management
adaptable applications in both U.S. and international markets. 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.
MAINTENANCE AND SERVICE REVENUE. The Company derives its maintenance and
service revenue from support, consulting and training services provided to
customers. Maintenance and service revenue was $87.5 million, $56.3 million and
$37.1 million in 1999, 1998 and 1997, respectively, representing increases of
55% from 1998 to 1999 and 52% from 1997 to 1998. The growth of maintenance and
service revenue in absolute dollars is primarily due to the renewal of
maintenance contracts after the initial one-year term and increased licensing
activity, which has resulted in increased revenue from ancillary sources such as
maintenance, support, training and consulting services. Although prior years'
licensing growth has resulted in increased revenue from maintenance and support,
training and consulting services, the Company expects that prior growth rates of
the Company's installed base and, consequently, in the Company's service
revenue, may not be sustainable in the future.
14
<PAGE> 15
COST AND EXPENSES
COST OF PRODUCT REVENUE. Costs of product revenue consist primarily of the
costs related to product media and duplication, manuals, packaging materials,
personnel, shipping expenses and royalties paid to third-party vendors. Cost of
product revenue was $6.9 million, $4.5 million and $3.3 million in 1999, 1998
and 1997, respectively, representing 5% of the related product revenue for 1999
and 4% for 1998 and 1997. The increase in cost of product revenue as a
percentage of product revenue to 5% in 1999 from 4% in 1998 and 1997, primarily
relates to fixed costs associated with the release of new products. The
increases in absolute dollar amount of cost of product revenue in each
successive year reflect the higher volumes of product shipped in each year. Cost
of product revenue does not include amortization of capitalized software
development costs as all development costs incurred in the research and
development of new software products and enhancements to existing software
products have been expensed as incurred. See Note 2 of Notes to Consolidated
Financial Statements.
COST OF MAINTENANCE AND SERVICE REVENUE. Costs of maintenance and service
revenue consist primarily of personnel related costs incurred in providing
telephone support, consulting services and training to customers. Cost of
maintenance and service revenue was $37.1 million, $23.2 million and $15.2
million in 1999, 1998 and 1997, respectively, representing 42% of the related
maintenance and service revenue for 1999 and 41% in 1998 and 1997. Cost of
maintenance and service revenue as a percentage of total revenue increased due
to the higher cost associated with supporting enterprise customers through
maintenance, training and consulting. Cost of maintenance and service revenue in
absolute dollars increased significantly, primarily due to costs from increased
personnel and third-party implementation providers, including Remedy Approved
Consultants (RACs), as the Company continues to invest in its customer support
and consulting organizations. The Company believes that cost of maintenance and
service revenue will increase in absolute dollar amounts in the future.
RESEARCH AND DEVELOPMENT. Research and development costs relate to the
personnel and equipment costs associated with maintaining and enhancing existing
product lines as well as developing new product lines to meet the expanding
range of customer requirements. Research and development expenses were $40.9
million, $33.7 million and $21.2 million, or 18%, 21% and 16% of total revenue
in 1999, 1998 and 1997, respectively. The decrease in research and development
expenses as a percentage of total revenue from 1998 to 1999 primarily relates to
a smaller increase in research and development employee headcount of 17% from
1998 to 1999, compared to a 28% increase from 1997 to 1998. Research and
development expenses as a percentage of total revenue increased from 1997 to
1998 primarily due to personnel costs associated with the 28% increase in
headcount. The increases in research and development expenses in absolute dollar
amounts in each successive year is primarily attributable to increased staffing,
outside contractors 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 absolute dollar
amounts in the future.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses for sales and marketing personnel, as well as
promotional expenses. Sales and marketing expenses were $88.8 million, $59.3
million and $42.6 million, or 39%, 38% and 33% of total revenue, in 1999, 1998
and 1997, respectively. The increases in sales and marketing expenses in both
absolute dollar amounts and as a percentage of total revenue were primarily due
to the Company increasing sales and marketing resources and marketing
activities, including trade shows and promotional activities, to further promote
the Company's new and existing products. The Company believes that sales and
marketing expenses will continue to increase in absolute dollar amounts in the
future as the Company plans to further promote the sales of its expanding
product lines.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of the salaries and related expenses for executive and finance
personnel, professional fees and other corporate expenses. General and
administrative expenses were $12.3 million, $9.4 million and $8.4 million in
1999, 1998 and 1997, respectively, or 5% of total revenue in 1999 and 6% of
total revenue in 1998 and 1997. General and administrative expenses as a
percentage of total revenue decreased to 5% in 1999 from 6% in 1997 and 1998
primarily due to a decrease in general and administrative employees as a
percentage of total employees and the
15
<PAGE> 16
leveraging of resources and technology. The increases in absolute dollar amounts
in each successive year 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
absolute dollar amounts in the future as the Company expands its staffing.
NON-RECURRING CHARGES. In October 1998, the Company acquired BayStone
Software, Inc., a privately held provider of a suite of customer support,
quality assurance and opportunity management and telesales automation
applications for rapidly growing businesses. A total of $3.1 million was
expensed in the Company's final fiscal quarter of 1998 related to the
acquisition. This was comprised of purchased in-process research and development
of $1.5 million and approximately $1.6 million in other merger related expenses,
including $1.1 million for subsequent personnel severance and outplacement
expenses and $0.5 million for other indirect costs of the acquisition. See Note
14 of Notes to Consolidated Financial Statements.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles relates to the purchase of BayStone Software, Inc. in
October 1998, the purchase of Pipestream Technologies, Inc. in July 1999 and the
purchase of Fortress Technologies, Inc. in September 1999. Goodwill and other
intangibles, which consist of $22.5 million of goodwill and $0.8 million of
acquired workforce valuation are being amortized on a straight-line basis over a
period of four years from the date of acquisition. Amortization expenses were
$4.1 million and $0.4 million in 1999 and 1998, respectively. Amortization
expense related to the three acquisitions is expected to be approximately $5.9
million, for each of the twelve-month periods ended December 31, 2000 and
December 31, 2001, respectively. See Notes 4 and 14 of Notes to Consolidated
Financial Statements.
INTEREST INCOME AND OTHER, NET. Interest income and other, net which
consists primarily of interest income earned on the Company's cash and short
term investments, was $5.0 million, $5.9 million and $4.2 million in 1999, 1998
and 1997, respectively. The decrease from 1998 to 1999 relates primarily to a
foreign exchange loss in 1999 of $0.5 million compared to a foreign exchange
gain of $0.3 million in 1998. The increase from 1997 to 1998 was primarily due
to larger short term investment balances maintained throughout 1998.
PROVISION FOR INCOME TAXES. The effective tax rate for the year ended
December 31, 1999 was 33%. The effective tax rate for the years ended December
31, 1998 and 1997 was 36%. The effective tax rate differs from the federal
statutory rate due primarily to state income taxes, offset by tax-exempt
interest income and research and development tax credits. The decrease in the
effective tax rate in 1999 from 1998 and 1997 relates to a larger realization of
the research and development tax credit and lower state taxes. See Note 12 of
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities in 1999, 1998 and 1997 was $46.9
million, $29.1 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, partially offset by growth in deferred revenue balances.
During 1999, the Company began investing in forward and simple purchase
option contracts to hedge the risk associated with a newly implemented plan of
multi-currency invoicing. Cash used for simple purchase option contracts was
approximately $29,000 for the year ended December 31, 1999. The Company intends
to continue to use forward and simple purchase option contracts to minimize the
exposures to the United States Dollar (USD) value of foreign currency
denominated sales, and as non USD denominated international revenues increase,
the cash used to purchase these option contracts may increase. See Note 6 of
Notes to Consolidated Financial Statements.
Net cash used in investing activities in 1999, 1998 and 1997 was $70.7
million, $33.1 million and $24.4 million, respectively. The increase in the
Company's net cash used in investing activities for the years
16
<PAGE> 17
ended December 31, 1999 and 1998 is primarily due to net short-term investment
purchases, cash used to acquire businesses as well as property and equipment
expenditures.
Purchases of short-term investments exceeded maturities by $47.5 million,
$14.4 million and $16.3 million in 1999, 1998 and 1997, respectively.
Cash paid to acquire businesses in 1999 and 1998 amounted to $11.0 million
and $10.4 million, respectively. The $11.0 million in 1999 was comprised of $4.5
million to acquire Pipestream Technologies, Inc. and $6.5 million to acquire
Fortress Technologies, Inc. The $10.4 million in 1998 relates to the acquisition
of BayStone Software, Inc. See Note 14 of Notes to Consolidated Financial
Statements.
During 1999, the Company also made an equity investment of $2.0 million in
Managemark Software Inc., previously On-The-Go Software Inc., an independent
software vendor.
Cash used to purchase property and equipment, primarily for computer
workstations, capitalized internal use software, leasehold improvements and file
servers for the Company's growing employee base was $10.2 million, $8.3 million
and $8.2 million, in 1999, 1998 and 1997, respectively. The Company expects that
the rate of purchases of property and equipment will continue to increase as the
Company's employee base grows. The Company's principal commitments consist
primarily of leases on its facilities and its telephone system. See Note 5 of
Notes to Consolidated Financial Statements.
Net cash provided by financing activities in 1999 was $12.1 million
compared to $7.5 million used by financing activities in 1998 and $14.1 million
provided by financing activities in 1997. This comparative increase of $19.6
million from 1998 to 1999 is due to proceeds of $30.1 million from the issuance
of common stock under the employee stock purchase and stock option plans netted
with the repurchase of approximately 900,000 shares of common stock at a cost of
$17.3 million and capital lease principal payments of $0.7 million during 1999,
compared with proceeds of $6.6 million from the issuance of common stock under
the employee stock purchase and stock option plans netted with the repurchase of
approximately 1.1 million shares of common stock at a cost of $14.0 million and
capital lease payments of $0.2 million during 1998. The comparative decrease of
$21.6 million from 1997 to 1998 is primarily due to $7.8 million less cash
raised in 1998 from the issuance of common stock under the employee stock
purchase and stock option plans as well as the additional expenditure of $14.0
million to repurchase shares of common stock.
On August 5, 1998, the Board of Directors (Board) authorized management of
the Company to repurchase up to 3 million shares or approximately 10 percent of
the Company's outstanding shares of common stock over the next twelve months. On
August 5, 1999, the Board authorized the Company to continue the share
repurchase program for an additional six months through February 2000. The
Company has purchased the shares on the open market from time to time, depending
on market conditions. The repurchases have been funded by the Company's cash and
short-term investments. As of December 31, 1999, the Company had repurchased a
total of approximately 2 million shares of the Company's stock at an average
price of $15.62 for approximately $31.3 million.
At December 31, 1999, the Company had $47.3 million in cash and cash
equivalents, $125.1 million in short-term investments and $177.8 million of
working capital.
The Company believes that its current cash and short-term investment
balances and cash flow from operations will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months.
Although operating activities may provide cash in certain periods, to the extent
the Company experiences growth in the future, the Company anticipates that its
operating and investing activities may use cash. In addition, the Company may
utilize cash resources to fund acquisitions or investments in complementary
businesses, technologies or product lines. Consequently, significant future
growth may require the Company to obtain additional equity or debt financing.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activity",
which was subsequently amended by
17
<PAGE> 18
Statement No. 137 (SFAS 137), "Accounting for Derivative Instruments and Hedging
Activities: Deferral of Effective Date of SFAS 133" to require adoption of SFAS
133 in years beginning after June 15, 2000. The Statement requires the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be recorded at fair value through earnings. If the
derivative qualifies as a hedge, depending on the nature of the exposure being
hedged, changes in the fair value of derivatives are either offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or are recognized in other comprehensive income until the hedged cash
flow is recognized in earnings. The ineffective portion of a derivative's change
in fair value is recognized in earnings. The Statement permits early adoption as
of the beginning of any fiscal quarter. The Company adopted SFAS 133 during the
quarter ended September 30, 1999 and subsequently implemented a hedging program
related to multi-currency invoicing. The adoption of SFAS 133 did not have a
material effect on the Company's financial statements as of December 31, 1999.
See Note 6 of Notes to Consolidated Financial Statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain aspects of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company believes that its current revenue recognition principles
comply with SAB 101.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
POTENTIAL FLUCTUATIONS IN QUARTERLY 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 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 rate fluctuations and general
economic factors. The Company operates with no significant order backlog because
its software products typically are shipped or electronically downloaded over
the Web 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 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. 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. It is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
DEPENDENCE ON NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT
BUGS. The client/server and web-based 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. In 1999, the Company invested significant resources into the
research and development, sales and marketing of software applications. The
Company is continuing to invest heavily in these efforts in 2000. 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,
evolving industry standards and customer requirements, or that the Company will
not experience difficulties that could delay or
18
<PAGE> 19
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.
If the new products currently being developed by the Company do not achieve
market acceptance or are not released when expected, 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.
MANAGEMENT OF GROWTH; DEPENDENCE UPON KEY PERSONNEL. The Company has
recently experienced a period of significant growth that has placed a 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'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.
INTERNATIONAL OPERATIONS. International sales represented approximately 34%
of the Company's revenue in 1999. The Company currently has eleven international
wholly owned subsidiaries, which are primarily sales offices, and are located in
the United Kingdom, Canada, Germany, France, Spain, Italy, the Netherlands,
Sweden, Singapore, Australia and Japan. One of the Company's strategies is to
continue to expand its existing international operations and enter additional
international markets, which will require significant management attention and
financial resources. Traditionally, international operations are characterized
by higher operating expenses and lower operating margins. As a result, if
international revenues increase as a percentage of total revenue, operating
margins may be adversely affected. Costs associated with international expansion
include the establishment of additional foreign offices, the hiring of
additional personnel, the localization and marketing of its products for
particular foreign markets and the development of relationships with additional
international service providers. If international revenue is not adequate to
offset the expense of expanding foreign operations, the Company's business,
operating results or financial condition could be materially adversely affected.
The Company's international operations are subject to other risks inherent
in international business activities and generally include unexpected changes in
regulatory requirements, tariffs and other trade barriers, product acceptance in
foreign countries, longer accounts receivable payment cycles, difficulties in
managing international operations, potentially adverse tax consequences
including restrictions on the repatriation of earnings, the burdens of complying
with a wide variety of foreign laws and general economic conditions in such
countries. There can be no assurance that such factors will not have a material
adverse effect on the
19
<PAGE> 20
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 may 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.
PRODUCT CONCENTRATION. The Company currently derives the majority of its
revenue from licenses of the AR System, the applications Remedy provides, which
are built upon the AR System 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, specifically eCRM
and eBusiness Infrastructure Management 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. In 1999, the Company invested
significant resources into the research and development, sales and marketing of
new software applications. However, the Company believes that its success in
expanding its product line will depend largely on new products achieving market
acceptance and technological competitiveness.
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) and independent software vendors (ISVs). VARs,
SIs and ISVs accounted for approximately 46% of the Company's total revenue in
1999. If these marketing channels increase as a percentage of sales, the
Company's operating margins may be adversely affected due to the lower unit
prices that the Company receives when selling through indirect channels. There
can be no assurance that the Company will be able to attract VARs, SIs and ISVs
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 and ISVs are not exclusive and
in many cases may be terminated by either party without cause, and many of the
Company's VARs, SIs and ISVs carry competing product lines. Therefore, there can
be no assurance that any VAR, SI or ISV will continue to represent the Company's
products, and the inability to recruit, or the loss of important VARs, SIs or
ISVs could adversely affect the Company's results of operations.
The Company intends to rely on third-party implementation providers,
including integration consulting firms and Remedy Approved Consultants (RACs),
to assist with the implementation of its products in large enterprise customers
and in the training of personnel within such enterprises, in order to meet the
demand for implementation of the Company's product from large enterprise
customers. As it is the Company's strategy to increase its sales to enterprise
customers and to use third party service providers to service such customers,
the Company's operating margins may be lower as a result of the higher expenses
associated with engaging such third party service providers.
EURO CONVERSION. The Company is aware of the issues associated with the
changes in Europe aimed at forming a European Economic and Monetary Union (EMU).
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (the "Euro"). On that day, the Euro became a functional
legal currency within these countries and over the next three years, business in
the EMU member states will be conducted in both the existing national currency
and the Euro. As a result, companies operating in or conducting business in EMU
member states will need to ensure that their financial and other software
systems are capable of processing transactions and properly handling these
currencies, including the Euro. No later than July 1, 2002, the participating
countries will withdraw all bills and coins denominated in the legacy
currencies, so that the legacy currencies will no longer be legal tender for any
transactions, making the conversion to the Euro complete. The Company recognizes
that by January 1, 2002, all its customers in the participating countries in
Europe will need to have converted all the values in their databases to the
Euro, having previously reflected all values in the appropriate local
currencies. At this time, it is not possible to summarize the potential costs
associated with addressing any Euro conversion issues and there can be no
assurance that these issues and
20
<PAGE> 21
their related costs will not have a materially adverse effect on the Company's
business, operating results and financial position. However, based on progress
to date, the Company believes that the use of the Euro will not have a
significant impact on the manner in which it conducts its business. Accordingly,
conversion to the Euro is not expected to have a material effect on the
Company's financial position, results of operations or liquidity.
GENERAL ECONOMIC AND MARKET CONDITIONS. During recent years, segments of
the personal computer industry have experienced significant economic downturns
characterized by decreased product demand, production over-capacity, 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 patent, 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 two 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 can be expected to be a persistent problem. In selling its products, the
Company relies primarily on "shrink wrap" (out-of-the-box or off-the-shelf
sales) and "click wrap" (electronic sales transmitted via the internet) 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
infringe the proprietary rights of third parties. However, there can be no
assurance 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" (out-of-the-box or off-the-shelf sales) and "click
wrap" (electronic sales transmitted via the internet) 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.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. From time to time the Company
may acquire or invest in companies, technologies or products that complement the
Company's business or its product offerings. Any such acquisitions may result in
the use of cash, potentially dilutive issuances of equity securities, the
write-off of software development costs or other assets, incurrence of severance
liabilities, the amortization of expenses related to goodwill and other
intangible assets and/or the incurrence of debt, any of which could have a
21
<PAGE> 22
material adverse effect on the Company's business, financial condition, cash
flows and results of operations. Acquisitions involve numerous additional risks
including difficulties in the assimilation of operations, services, products and
personnel, the diversion of management's attention from other business concerns,
the disruption of the Company's business, and the entry into markets in which
the Company has little or no direct prior experience. In addition, potential
acquisition candidates targeted by the Company may not have audited financial
statements, detailed financial information or any degree of internal controls.
There can be no assurance that an audit subsequent to any successful completion
of an acquisition will not reveal matters of significance, including with
respect to revenues, expenses, liabilities, contingent or otherwise, and
intellectual property. There can be no assurance that the Company would be
successful in overcoming these or any other significant risks encountered and
the failure to do so could have a material adverse effect upon the Company's
business, operating results and financial condition.
RISKS ASSOCIATED WITH SELLING TO LARGE ENTERPRISE CUSTOMERS. The Company
has recently increased its efforts to sell its products to large enterprise
customers, and has devoted significant management and financial resources to
achieving this goal. If successful, large enterprise customers are expected to
deploy the Company's products in business critical operations which involve
significant capital and management commitments by such customers. Potential
large enterprise customers generally commit significant resources to an
evaluation of available enterprise software and require the Company to expend
substantial time, effort and money educating them about the value of the
Company's solutions. Sales of the Company's products to such customers require
an extensive sales effort throughout a customer's organization because decisions
to purchase such products generally involve the evaluation of the software by a
significant number of customer personnel in various functional and geographic
areas, each often having specific and conflicting requirements. A variety of
factors, including factors over which the Company has little or no control, may
cause potential large enterprise customers to favor a particular supplier or to
delay or forego a purchase. As a result of these or other factors, the sales
cycle for the Company's products is long, typically ranging between three and
nine months. As a result of the length of the sales cycle and the significant
selling expenses resulting from selling into the large enterprise, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
delay or failure to complete one or more large transactions to which the Company
has devoted significant resources could have a material adverse effect on the
Company's business, operating results or financial condition and could cause
significant variations in the Company's operating results from quarter to
quarter.
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 absolute dollar growth in revenue in recent years, there can be no
assurance that the prior growth rates are sustainable or indicative of future
operating results or 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 organization 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
may have lower gross margins than direct sales. In particular, the Company
intends to hire a significant number of additional sales personnel in 2000 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 sales organization from 100
to 157 in 1997, from 157 to 189 in 1998 and from 189 to 242 in 1999. In the
past, the Company has experienced difficulty in recruiting a sufficient number
of qualified 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 intends to invest significantly in its
business in order to maintain a competitive position and as a result, current
operating margins may not be sustainable in the future.
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<PAGE> 23
YEAR 2000. The "Year 2000 problem" relates to the potential for computer
systems to improperly recognize date sensitive information in the year 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail.
In 1999, the Company spent $0.7 million for its Year 2000 remediation which
included expenditures for consulting, equipment and internal personnel.
Subsequent to the rollover to the Year 2000, the Company is not aware of any
material Year 2000 operational issues or costs associated with its internal IT
systems and non-IT systems or its products and the Company does not expect to
experience any in the future. The Company may potentially experience
unanticipated post Year 2000 problems caused by undetected errors in both
technology utilized for IT systems and vendors with whom Remedy does business.
Year 2000 compliance teams will continually monitor suppliers of systems,
software and services for any subsequent post Year 2000 effects on the Company's
internal business processes. Any post 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. The Company's exposure to market risk for changes in
interest rates primarily relates to the Company's investment portfolio. As
stated in its policy, the Company is averse to principal loss and seeks to
preserve its invested funds by limiting issuer risk, default risk, liquidity
risk and interest rate risk. The Company limits issuer risk by placing its
investments with high credit quality issuers and, by policy, limiting the amount
of credit exposure to any one issuer. The Company mitigates default and
liquidity risks by investing in only high credit quality securities and by
positioning its portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer or guarantor. The portfolio includes
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity. The Company mitigates interest rate risk by only allowing
suitable investments to be made in taxable and non-taxable U.S. as well as
foreign instruments. The tables below present the carrying value, market value
and related weighted average interest rates for the Company's investment
portfolio as of December 31, 1999 and December 31, 1998. All investments in
aggregate have a weighted average remaining maturity of less than one year at
any given point in time.
<TABLE>
<CAPTION>
CARRYING MARKET AVERAGE
AS OF DECEMBER 31, 1999 VALUE VALUE INTEREST RATE
----------------------- -------- -------- -------------
<S> <C> <C> <C>
Investment Securities (in thousands):
Cash Equivalents -- fixed rate.................. $ 534 $ 534 5.19%
Short-term investments -- fixed rate............ 125,116 124,761 5.01%
-------- -------- ----
Total investment securities..................... 125,650 125,295 5.01%
Money market funds................................ 20,417 20,417 4.79%
-------- -------- ----
Total interest bearing instruments................ $146,067 $145,712 4.98%
-------- -------- ----
</TABLE>
<TABLE>
<CAPTION>
CARRYING MARKET AVERAGE
AS OF DECEMBER 31, 1998 VALUE VALUE INTEREST RATE
----------------------- -------- ------- -------------
<S> <C> <C> <C>
Investment Securities (in thousands):
Cash Equivalents -- fixed rate.................. $ 670 $ 673 3.38%
Short-term investments -- fixed rate............ 77,661 77,661 3.76%
------- ------- ----
Total investment securities..................... 78,331 78,334 3.76%
Money market funds................................ 19,967 20,451 3.90%
------- ------- ----
Total interest bearing instruments................ $98,298 $98,785 3.79%
------- ------- ----
</TABLE>
FOREIGN CURRENCY RISK. The Company transacts business in various foreign
currencies, primarily in Europe. As some revenues are denominated in currencies
other than U.S. dollars, the Company will be subject to the risks associated
with foreign exchange rate fluctuations. In addition, 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. As part of its overall strategy to manage the level of exposure to
23
<PAGE> 24
the risk of foreign currency exchange rate fluctuations, the Company hedges a
portion of its foreign currency exposures anticipated over the ensuing
twelve-month period. Beginning in October 1999, the Company began invoicing in
currencies other than U.S. dollars, and as a result, the Company has entered
into hedging activities in order to minimize the exposure of the United States
Dollar (USD) value of foreign currency denominated sales. In the future, more of
the Company's revenues may be denominated in currencies other than U.S. dollars
and, as a result, the Company's exposure in the future may fluctuate depending
upon the nature and success of the hedging activities. Accordingly, due to the
substantial volatility of foreign exchange rates, the Company's business,
operating results or financial condition could be materially adversely affected.
See Note 6 of Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Form
10-K. See Part IV, Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The officers of the Company and their ages as of March 3, 2000 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lawrence L. Garlick.................. 50 Chairman of the Board and Chief Executive
Officer
Richard P. Allocco................... 45 Vice President and General Manager of Worldwide
Customer Services
Joe Davis............................ 41 Vice President and General Manager of Customer
Relationship Management Products
Michael L. Dionne.................... 50 Senior Vice President, Worldwide Sales
Ron J. Fior.......................... 42 Vice President, Finance & Operations, Chief
Financial Officer
Matthew R. Miller.................... 36 Vice President and General Manager of Core
Products
Gary Oliver.......................... 37 Vice President and General Manager of eBusiness
Infrastructure Products
</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 at 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. While
at Xerox, Mr. Garlick helped create the industry's first commercial internetwork
routers, directory services and gateways to IBM mainframe applications for Xerox
workstations. Mr. Garlick holds B.S.E.E. and M.S.E.E. degrees in computer
engineering from Stanford 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 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. Davis joined the Company in April 1999 as Vice President and General
Manager of Customer Relationship Management Products. From January 1999 through
April 1999, Mr. Davis was employed by CrossPoint Ventures where he held the
position of executive in residence. Prior to joining CrossPoint, Mr. Davis was
employed by Lotus (a wholly owned subsidiary of IBM) from January 1994 to
January 1999 where he was the General Manager of Lotus' Silicon Valley site and
was responsible for the development and marketing of several product lines.
Prior to Lotus, Mr. Davis managed the service and marketing teams for Everex
Systems in Fremont, CA. Mr. Davis holds a M.B.A. degree from Stanford and B.S.
and M.S. degrees in applied mechanics from the University of California, San
Diego.
Mr. Dionne joined the Company in March 1998 as Senior Vice President
Worldwide Sales. From May 1983 to March 1997, Mr. Dionne was employed as Senior
Vice President and General Manager, Service and Support at Apple Computer, Inc.
(Apple), 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. Fior joined the Company in September 1998 as Vice President Finance and
Operations, Chief Financial Officer. From September 1985 to February 1998, Mr.
Fior was employed as Senior Vice President
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<PAGE> 26
and Chief Financial Officer by the education publishing unit of The Thomson
Corporation, an information and publishing company where he managed numerous
strategic and tactical acquisitions. Mr. Fior worked for over 7 years at Ernst &
Young, a professional services firm, in New York and Canada, and he holds a
Bachelor of Commerce degree from the University of Saskatchewan, Canada.
Mr. Miller joined the Company in July 1996 as Vice President and General
Manager of Core Products. From April 1993 to July 1996, Mr. Miller was employed
as Vice President of Marketing at Gupta Corporation (now Centura Software), a
provider of client/server tools and databases. From June 1989 to May 1992, he
was employed by Oracle Corporation, a database software provider, 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.
Mr. Oliver joined the Company in April 1999 as Vice President and General
Manager of eBusiness Infrastructure Products. Mr. Oliver brings a broad base of
IT Service Management expertise to Remedy from several previous positions. From
June 1996 to March 1999, Mr. Oliver was employed by Visa International where he
held several senior roles, most recently as Senior Vice President, Employee
Productivity Division, responsible for the internal technology environment.
Before joining Visa, Mr. Oliver spent the previous 11 years with IBM in roles
ranging from sales management to managing the worldwide marketing and sales of
IBM's data management products and solutions. Mr. Oliver holds a B.A. degree in
economics from UCLA.
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 26, 2000 is incorporated herein by reference.
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 26, 2000 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 26, 2000 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 26, 2000 is incorporated herein by
reference.
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<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements are filed as part of this
report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
- - Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 31
- - Consolidated Statements of Income for each of the three
years in the period ended December 31, 1999............... 32
- - Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31,
1999...................................................... 33
- - Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1999......... 34
- - Notes to Consolidated Financial Statements................ 35
</TABLE>
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule is submitted
herewith:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
- - Schedule II: Valuation and Qualifying Accounts and
Reserves.................................................. 49
</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 Consolidated Financial Statements or Notes thereto.
3. EXHIBITS.
See Item 14(c).
(b) REPORTS ON FORM 8-K
1. None
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<S> <C>
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.
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<S> <C>
10.6* Lease Agreement by and between the Registrant and Charleston
Properties (Charleston), dated March 11, 1994, regarding the
space located at 1500 Salado Drive.
10.7* Lease 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.
10.8* Lease 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.
10.9* Form of Action Request System Shrink Wrap License Agreement.
10.10* Form of Value Added Reseller Agreement.
10.11**** Amended and Restated Business Loan Agreement by and between
the Registrant and SVB, dated June 15, 1997.
10.12**** Amended and Restated Promissory Note by and between the
Registrant and SVB, dated June 15, 1997
10.13**** Lease Agreement by and between the Registrant and Greiner,
Inc. Pacific, dated March 29, 1996, regarding the space
located at 5890 Stoneridge Drive.
10.14**** Lease Agreement by and between the Registrant and Viacom
International Inc., dated March 17, 1997, regarding the
space located at 5924 Stoneridge Drive.
10.15***** Business Loan Agreement by and between the Registrant and
Silicon Valley Bank (SVB), dated July 20, 1998.
10.16 First Amendment to Lease Agreement for use of Real Property
by and between the Registrant and Sun, dated June 23, 1994,
regarding the space located at 1505 Salado Drive.
10.17 Second Amendment to Lease Agreement for use of Real Property
by and between the Registrant and Sun, dated September 30,
1996, regarding the space located at 1505 Salado Drive.
10.18 Third Amendment to Lease Agreement for use of Real Property
by and between the Registrant and Sun, dated June 30, 1999,
regarding the space located at 1505 Salado Drive.
10.19 Lease Agreement by and between the Registrant and LSI Logic
Europe, Limited, dated August 20, 1999, regarding the first
floor leased space located at Greenwood House, 5 London
Road, Bracknell, Berkshire.
10.20 Lease Agreement by and between the Registrant and LSI Logic
Europe, Limited, dated August 20, 1999, regarding the ground
floor and other leased space located at Greenwood House, 5
London Road, Bracknell, Berkshire.
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 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
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
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.
28
<PAGE> 29
**** Incorporated by reference from the Exhibits to Remedy Corporation's Form
10-K Annual Report for the year ended December 31, 1997.
***** Incorporated by reference from the Exhibits to Remedy Corporation's Form
10-K Annual Report for the year ended December 31, 1998.
Remedy, Remedy Corporation and design, Action Request System, AR System, ARWeb,
Flashboards, Distributed Server Option, Remedy Help Desk, Remedy Asset
Management, Remedy Change Management, Remedy Service Level Agreements, Remedy
Approved Consultant, Remedy Purchasing@Work, Remedy Strategic Service Suite,
Remedy Web, Multi-Processing Server Option, Full Text Search Option, Remedy Help
Desk Express, BayStone, Remedy Quality Management, Remedy Year 2000 Compliance
Manager, Remedy Customer Support and Remedy Leads Management 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.
29
<PAGE> 30
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Remedy Corporation
We have audited the accompanying consolidated balance sheets of Remedy
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 20, 2000
30
<PAGE> 31
REMEDY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 47,302 $ 58,976
Short-term investments.................................... 125,116 77,661
Accounts receivable, net of allowance for doubtful
accounts of $1,499 and $2,392, respectively............ 64,105 42,278
Prepaid expenses and other current assets................. 7,383 6,036
Deferred tax asset........................................ 6,831 4,531
-------- --------
Total current assets.............................. 250,737 189,482
Property and equipment, net................................. 14,945 12,636
Other non-current assets.................................... 2,996 --
Goodwill and other intangible assets, net................... 18,809 11,382
-------- --------
$287,487 $213,500
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,861 $ 1,852
Accrued compensation and related liabilities.............. 15,432 7,799
Income taxes payable...................................... 1,341 3,564
Other accrued liabilities................................. 15,395 9,929
Deferred revenue.......................................... 38,828 28,955
Current portion of obligations under capital leases....... 67 570
-------- --------
Total current liabilities......................... 72,924 52,669
Noncurrent portion of obligations under capital leases...... 23 127
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.00005 per share; authorized
20,000,000 shares; issued and outstanding: none........ -- --
Common stock, par value $.00005 per share; authorized:
240,000,000 shares; issued and outstanding: 30,064,817
and 28,487,769 shares, respectively.................... 2 --
Additional paid-in capital................................ 141,544 99,952
Treasury stock (2,002,300 and 1,117,500 shares,
respectively).......................................... (31,267) (13,977)
Notes receivable from stockholders........................ (45) (45)
Accumulated other comprehensive income.................... 9 --
Retained earnings......................................... 104,297 74,774
-------- --------
Total stockholders' equity........................ 214,540 160,704
-------- --------
$287,487 $213,500
======== ========
</TABLE>
See accompanying notes.
31
<PAGE> 32
REMEDY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue:
Product.................................................. $141,451 $101,132 $ 92,133
Maintenance and service.................................. 87,482 56,288 37,051
-------- -------- --------
Total revenue.................................... 228,933 157,420 129,184
-------- -------- --------
Costs and expenses:
Cost of product revenue.................................. 6,869 4,475 3,300
Cost of maintenance and service revenue.................. 37,136 23,196 15,176
Research and development................................. 40,948 33,734 21,214
Sales and marketing...................................... 88,787 59,295 42,608
General and administrative............................... 12,271 9,437 8,411
Non-recurring charges.................................... -- 3,104 --
Amortization of goodwill and other intangibles........... 4,072 446 --
-------- -------- --------
Total costs and expenses......................... 190,083 133,687 90,709
-------- -------- --------
Income from operations..................................... 38,850 23,733 38,475
Interest income and other, net............................. 4,961 5,918 4,169
-------- -------- --------
Income before provision for income taxes................... 43,811 29,651 42,644
Provision for income taxes................................. 14,288 10,674 15,354
-------- -------- --------
Net income................................................. $ 29,523 $ 18,977 $ 27,290
======== ======== ========
Net income per share:
Basic.................................................... $ 1.02 $ 0.66 $ 0.99
======== ======== ========
Diluted.................................................. $ 0.95 $ 0.63 $ 0.89
======== ======== ========
Shares used in computing per share amounts:
Basic.................................................... 28,916 28,722 27,614
======== ======== ========
Diluted.................................................. 31,062 29,901 30,524
======== ======== ========
</TABLE>
See accompanying notes.
32
<PAGE> 33
REMEDY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE OTHER
--------------- PAID-IN TREASURY FROM DEFERRED COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL STOCK STOCKHOLDERS COMPENSATION INCOME EARNINGS
------ ------ ---------- -------- ------------ ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... 26,894 $-- $ 64,305 $ -- $(60) $(255) $ -- $ 28,507
Issuance of common stock upon
exercise of options and
purchases under the employee
stock purchase plan............ 1,725 -- 14,383 -- -- -- -- --
Tax benefit from employee stock
transactions................... -- -- 13,709 -- -- -- -- --
Amortization of deferred
compensation................... -- -- -- -- -- 180 -- --
Repayment of note receivable..... -- -- -- -- 13 -- -- --
Net income....................... -- -- -- -- -- -- -- 27,290
------ -- -------- -------- ---- ----- ---- --------
Balance at December 31, 1997..... 28,619 -- 92,397 -- (47) (75) -- 55,797
Issuance of common stock upon
exercise of options and
purchases under the employee
stock purchase plan............ 986 -- 6,594 -- -- -- -- --
Tax benefit from employee stock
transactions................... -- -- 961 -- -- -- -- --
Amortization of deferred
compensation................... -- -- -- -- -- 75 -- --
Repayment of note receivable..... -- -- -- -- 2 -- -- --
Treasury stock purchased......... (1,117) -- -- (13,977) -- -- -- --
Net income....................... -- -- -- -- -- -- -- 18,977
------ -- -------- -------- ---- ----- ---- --------
Balance at December 31, 1998..... 28,488 -- 99,952 (13,977) (45) -- -- 74,774
Issuance of common stock upon
exercise of options and
purchases under the employee
stock purchase plan............ 2,463 2 30,064 -- -- -- -- --
Tax benefit from employee stock
transactions................... -- -- 11,528 -- -- -- -- --
Unrealized hedging gains......... -- -- -- -- -- -- 23 --
Translation adjustment........... -- -- -- -- -- -- (14) --
Treasury stock purchased......... (886) -- -- (17,290) -- -- -- --
Net income....................... -- -- -- -- -- -- -- 29,523
------ -- -------- -------- ---- ----- ---- --------
Balance at December 31, 1999..... 30,065 $2 $141,544 $(31,267) $(45) $ -- $ 9 $104,297
====== == ======== ======== ==== ===== ==== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1996..... $ 92,497
Issuance of common stock upon
exercise of options and
purchases under the employee
stock purchase plan............ 14,383
Tax benefit from employee stock
transactions................... 13,709
Amortization of deferred
compensation................... 180
Repayment of note receivable..... 13
Net income....................... 27,290
--------
Balance at December 31, 1997..... 148,072
Issuance of common stock upon
exercise of options and
purchases under the employee
stock purchase plan............ 6,594
Tax benefit from employee stock
transactions................... 961
Amortization of deferred
compensation................... 75
Repayment of note receivable..... 2
Treasury stock purchased......... (13,977)
Net income....................... 18,977
--------
Balance at December 31, 1998..... 160,704
Issuance of common stock upon
exercise of options and
purchases under the employee
stock purchase plan............ 30,066
Tax benefit from employee stock
transactions................... 11,528
Unrealized hedging gains......... 23
Translation adjustment........... (14)
Treasury stock purchased......... (17,290)
Net income....................... 29,523
--------
Balance at December 31, 1999..... $214,540
========
</TABLE>
See accompanying notes.
33
<PAGE> 34
REMEDY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 29,523 $ 18,977 $ 27,290
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 7,844 6,117 3,371
Amortization of goodwill and other intangibles............ 4,072 446 --
Amortization of deferred compensation..................... -- 75 193
Changes in assets and liabilities:
Accounts receivable....................................... (21,827) (9,432) (7,339)
Prepaid expenses and other current assets................. (1,367) (3,113) (1,521)
Deferred tax asset........................................ (2,300) (1,430) (1,066)
Accounts payable.......................................... 9 622 (409)
Accrued compensation and related liabilities.............. 7,589 2,280 (1,117)
Income taxes payable...................................... 9,305 3,720 12,678
Other accrued liabilities................................. 5,219 1,266 489
Other non-current assets.................................. (996) -- --
Deferred revenue.......................................... 9,873 9,531 8,556
--------- --------- ---------
Net cash provided by operating activities.......... 46,944 29,059 41,125
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments......................... (291,582) (185,858) (161,734)
Maturities of short-term investments........................ 244,127 171,462 145,456
Cash paid for businesses acquired, net of assumed cash
balances.................................................. (11,028) (10,427) --
Other non-current assets.................................... (2,000) -- --
Capital expenditures........................................ (10,218) (8,281) (8,160)
--------- --------- ---------
Net cash used in investing activities.............. (70,701) (33,104) (24,438)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations.......... (693) (165) (272)
Proceeds from issuance of common stock...................... 30,066 6,595 14,383
Purchase of treasury stock.................................. (17,290) (13,977) --
--------- --------- ---------
Net cash provided by (used in) financing
activities....................................... 12,083 (7,547) 14,111
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ (11,674) (11,592) 30,798
Cash and cash equivalents at beginning of year.............. 58,976 70,568 39,770
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 47,302 $ 58,976 $ 70,568
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid during the year............................. $ 30 $ 132 $ 57
Income taxes paid during the year......................... $ 7,443 $ 8,242 $ 3,586
Supplemental schedule of noncash financing activities:
Equipment acquired under capital lease arrangements....... $ 86 $ 76 $ 392
</TABLE>
See accompanying notes.
34
<PAGE> 35
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
THE COMPANY. Remedy Corporation (the "Company") develops, markets and
supports rapidly deployable and highly adaptable software products and solutions
that simplify service-intensive business processes. Remedy offers adaptable
applications for eBusiness Infrastructure Management and Customer Relationship
Management (eCRM). The Company was incorporated in Delaware on November 20,
1990. The Company has wholly owned subsidiaries in the United Kingdom, Canada,
Germany, France, Spain, Italy, the Netherlands, Sweden, Singapore, Australia and
Japan. 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.
FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's
foreign subsidiaries is the local currency. Gains and losses resulting from the
translation of the foreign subsidiaries' financial statements are reported as a
separate component of stockholders' equity.
REVENUE RECOGNITION. The Company recognizes revenue in accordance with
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition", as
amended. The Company derives revenue from the sale of software licenses,
post-contract support ("support") and other services. Support includes telephone
technical support, bug fixes and rights to upgrades on a when-and-if available
basis for a stated term of generally one year. Services range from installation,
training and basic consulting to software modification to meet specific customer
needs. In software arrangements that include rights to multiple software
products, specified upgrades, support and/or other services, the Company
allocates the total arrangement fee among each deliverable based on the relative
fair value of each of the deliverables determined based on objective evidence
which is specific to the Company.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, the fee is fixed or
determinable and collection is probable. If the fee due from the customer is not
fixed or determinable, revenue is recognized as payments become due from the
customer. If collection is not considered probable, revenue is recognized when
the fee is collected.
Revenue allocable to support is recognized on a straight-line basis over
the periods in which the support is provided.
Arrangements that include consulting services are evaluated to determine
whether those services are essential to the functionality of other elements of
the arrangement. When services are considered essential, revenue under the
arrangement is recognized using contract accounting. When services are not
considered essential, the revenue allocable to the software services is
recognized as 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 accounts
for its cash and investments in accordance with Statement of Financial
Accounting Standards No. 95 (SFAS 95) "Statement of Cash Flows" and Statement of
Financial Accounting Standards No. 115 (SFAS 115) "Accounting for Certain
Investments in Debt and Equity Securities". 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
35
<PAGE> 36
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
other liquid investments are classified as short-term investments. Short-term
investments consist of municipal bonds, auction market preferred stock,
corporate bonds, floating rate securities and government securities.
Management determines the appropriate classification of investment
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. At December 31, 1999, 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. As of December 31, 1999 and 1998, the difference between the fair value
and the amortized cost of available-for-sale securities was insignificant;
therefore, no unrealized gains or losses were recorded 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, 1999, 1998 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, 1999 and 1998, the Company's available-for-sale securities
consisted of the following:
<TABLE>
<CAPTION>
DESCRIPTION 1999 1998
----------- -------- -------
<S> <C> <C>
Municipal Bonds......................................... $ 60,653 $14,724
Auction rate securities................................. 22,949 46,471
Corporate bonds/Floating rate securities................ 32,514 16,466
Government securities................................... 9,000 --
CDs/Marketable securities............................... 534 670
-------- -------
$125,650 $78,331
======== =======
</TABLE>
As of December 31, 1999, $0.5 million and $125.1 million of the above
securities were classified as cash equivalents and short-term investments,
respectively. As of December 31, 1998, $0.7 million and $77.6 million of the
above securities were classified as cash equivalents and short-term investments,
respectively. As of December 31, 1999 and 1998, the weighted average remaining
maturity of the investments did not exceed one year.
LONG-LIVED ASSETS. In accordance with Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets to be Disposed of", the Company identifies and records impairment losses,
as circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No such events have occurred with respect to the
Company's long-lived assets, which consist primarily of goodwill, acquired
intangible assets, computer equipment, purchased software, furniture and
leasehold improvements.
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 (VARs), system integrators (SIs), independent
software vendors (ISVs) and original equipment manufacturers. The Company
performs on-going 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 the majority of its
revenue from the licensing of products in its AR System, applications built upon
the AR System foundation and fees from related services. These products and
services are expected to account for the majority of the Company's revenue for
the
36
<PAGE> 37
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (SFAS 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, 1999,
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, 1999, 1998 and 1997 was $10.7 million, $8.2 million and $4.0
million, respectively.
STOCK-BASED COMPENSATION. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS
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 No. 25 (APB 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 10 contains a summary of the pro-forma effects to reported net
income and net income per share for 1999, 1998 and 1997 as if the Company had
elected to recognize compensation expense based on the fair value of the options
granted as prescribed by SFAS 123.
EARNINGS PER SHARE. In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 (SFAS 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 is computed using the weighted-average number of
common shares outstanding. 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 and
are calculated by using the treasury stock method.
37
<PAGE> 38
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
NUMERATOR:
Net Income.......................................... $29,523 $18,977 $27,290
======= ======= =======
DENOMINATOR:
Denominator for basic earnings per
share-weighted-average shares.................... 28,916 28,722 27,614
Effect of dilutive securities:
Employee stock options........................... 2,146 1,179 2,910
------- ------- -------
Denominator for diluted earnings per share-weighted-
average shares and dilutive securities........... 31,062 29,901 30,524
======= ======= =======
Basic earnings per share............................ $ 1.02 $ 0.66 $ 0.99
======= ======= =======
Diluted earnings per share.......................... $ 0.95 $ 0.63 $ 0.89
======= ======= =======
</TABLE>
RECENT PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards
Board issued Statement No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activity", which was subsequently amended by Statement
No. 137 (SFAS 137), "Accounting for Derivative Instruments and Hedging
Activities: Deferral of Effective Date of FASB 133" to require adoption of SFAS
133 in years beginning after June 15, 2000. The Statement requires the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be recorded at fair value through earnings. If the
derivative qualifies as a hedge, depending on the nature of the exposure being
hedged, changes in the fair value of derivatives are either offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or are recognized in other comprehensive income until the hedged cash
flow is recognized in earnings. The ineffective portion of a derivative's change
in fair value is recognized in earnings. The Statement permits early adoption as
of the beginning of any fiscal quarter. The Company adopted SFAS 133 during the
quarter ended September 30, 1999 and subsequently implemented a hedging program
related to multi-currency invoicing. The adoption of SFAS 133 did not have a
material effect on the Company's financial statements as of December 31, 1999.
(See Note 6)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain aspects of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company believes that its current revenue recognition principles
comply with SAB 101.
38
<PAGE> 39
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment................................ $ 25,437 $ 20,327
Furniture and fixtures................................. 2,444 1,530
Purchased software..................................... 5,340 1,838
Leasehold Improvements................................. 2,612 1,985
-------- --------
35,833 25,680
Less: accumulated depreciation......................... (20,888) (13,044)
-------- --------
$ 14,945 $ 12,636
======== ========
</TABLE>
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets (See Note 14) consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................................. $22,529 $11,828
Less: accumulated amortization......................... (4,438) (446)
------- -------
Goodwill, net.......................................... 18,091 11,382
------- -------
Acquired Workforce....................................... 798 --
Less: accumulated amortization......................... (80) --
------- -------
Acquired Workforce, net................................ 718 --
------- -------
Total Goodwill and other intangible assets,
net.......................................... $18,809 $11,382
======= =======
</TABLE>
5. COMMITMENTS
LEASE COMMITMENTS. 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 totaling $1.5
million and $1.6 million with associated accumulated amortization of $1.3
million and $1.1 million at December 31,
39
<PAGE> 40
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1999 and 1998, respectively. Approximate annual minimum rental
commitments/future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
2000...................................................... $ 8,643 $71
2001...................................................... 6,413 24
2002...................................................... 5,071 --
2003...................................................... 3,506 --
2004...................................................... 3,431 --
Thereafter................................................ 2,610 --
------- ---
Total minimum lease payments.............................. $29,674 95
=======
Less amount representing interest......................... (5)
---
Present value of future minimum lease payments............ 90
Less current portion...................................... (67)
---
Noncurrent obligations under capital leases............... $23
===
</TABLE>
Total rent expense for the years ended December 31, 1999, 1998 and 1997 was
$7.8 million, $4.9 million and $4.2 million, respectively.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments principally to minimize
the exposures to the United States Dollar (USD) value of foreign currency
denominated sales. The Company began pricing its products in multiple currencies
during the fourth quarter of 1999, and in preparation, foreign exchange forward
and simple purchase option contracts were entered beginning in the quarter ended
September 30, 1999 to hedge the risk that the USD value of the foreign currency
denominated sales may be adversely affected by changes in foreign currency
exchange rates. As part of its overall strategy to manage the level of exposure
to the risk of foreign currency exchange rate fluctuations, the Company hedges a
portion of its foreign currency exposures anticipated over the ensuing
twelve-month period. At December 31, 1999, the Company had hedged transactions
via Pound Sterling and Euro denominated cash flow hedges, using forwards and
simple purchase option contracts that generally have maturities of six months or
less.
The Company records these foreign exchange contracts at fair value in its
consolidated balance sheet and the related gains or losses on these contracts
are reflected, net of the related tax effect in stockholders' equity as a
component of other comprehensive income. These gains and losses are reclassified
into earnings in the period in which the sales being hedged are recognized as
revenue. However, if any of these contracts were considered to be ineffective in
offsetting the change in the forecasted cash flows relating to the sales being
hedged, any changes in fair value relating to the ineffective portion of these
contracts would be immediately recognized in earnings.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. The Company also formally
assesses, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in cash flows of hedged items. Changes in the time value of
option contracts are excluded from this effectiveness assessment and recorded
directly in earnings. During the year ended December 31, 1999 a total charge of
$18,000, representing the change in option time values, was recorded in
earnings.
40
<PAGE> 41
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1999, the Company included the fair value of simple
purchase option contracts of $34,000 and the fair value of forward contracts of
$108,000 in other current assets in its consolidated balance sheet.
At December 31, 1999, the Company had $23,000 of other comprehensive income
related to future revenue transactions and the balance is expected to be
recognized into earnings within the next twelve months. A gain of $76,000 was
reclassed into earnings from other comprehensive income for the year ended
December 31, 1999 upon recognition of the related revenue.
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK. As of December 31, 1999, the Company has been authorized
to issue up to 20,000,000 shares of preferred stock by the Board of Directors.
COMMON STOCK. As of December 31, 1999, the Company has been authorized to
issue up to 240,000,000 shares of common stock by the Board of Directors. 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 was amortized over the vesting
period of the individual options, generally four years. Compensation expense
recognized in 1998 and 1997 was $75,000 and $180,000, respectively. The entire
deferred compensation balance was fully amortized as of December 31, 1998, and
accordingly no compensation expense was recorded for the year ended December 31,
1999.
8. STOCK OPTION EXCHANGE
On February 4, 1998, the Compensation Committee of the Board of Directors
approved the exchange of certain outstanding stock options under the Company's
1995 Stock Option/Stock Issuance Plan with exercise prices ranging from $17.92
to $53.75. Each employee who elected prior to February 2, 1998 to participate in
the exchange program received a new option with an exercise price of $16.75 per
share (the fair market value on February 4, 1998). Each new option that replaces
an option outstanding for at least 12 months shall vest in equal monthly
installments over the period remaining under the original option plus an
additional 12 months, not to exceed 48 months. Each new option that replaces an
option outstanding for less than 12 months shall vest 25% at the end of 12
months from the grant date of February 4, 1998 and 1/48 per month thereafter.
Approximately, 3.2 million stock options were exchanged pursuant to this
program. The Board of Directors of the Company were not eligible to participate
in this program.
9. SHARE REPURCHASE
On August 5, 1998, the Board of Directors (Board) authorized management of
the Company to repurchase up to 3 million shares or approximately 10 percent of
the Company's outstanding shares of common stock over the next twelve months. On
August 5, 1999, the Board authorized the Company to continue the share
repurchase program for an additional six months through February 2000. The
Company has purchased the shares on the open market from time to time, depending
on market conditions. The repurchases have been funded by the Company's cash and
short-term investments. As of December 31, 1999, the Company had repurchased a
total of approximately 2 million shares of the Company's stock at an average
price of $15.62 for approximately $31.3 million.
10. 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
41
<PAGE> 42
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
1999.
1995 STOCK OPTION/STOCK ISSUANCE PLAN. In January 1995, the 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, 15,718,426
shares of common stock, plus an additional number of shares equal to the lesser
of 4,000,000 shares or 6% of the number of shares of Common Stock and Common
Stock equivalents outstanding on the first day of each of 1999 and 2000 are
authorized for issuance.
Under the 1995 Plan, options to purchase common stock may be granted and
common stock may be granted at prices not less than 85% of the fair market value
at the date of grant/issuance. Options issued to new employees 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. Options issued to existing employees typically vest in equal monthly
installments over 4 years.
1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. During 1995, the Company
adopted the 1995 Non-Employee Directors Stock Option Plan (the Directors Plan),
and reserved 412,500 shares for issuance, plus an additional 37,500 shares on
the first day of 1999 and 2000. Under the Directors Plan, each non-employee
member of the Board is automatically granted an option to purchase 20,000 shares
of the Company's stock upon initial appointment or election to the Board, and
10,000 shares of the Company's stock upon reelection to the Board. An additional
5,000 shares are granted to each non-employee director serving on a Board
committee, up to a maximum of 10,000 shares each year for committee assignments.
Stock options to non-employee directors are granted at no less than 100% of the
Fair Market Value on the grant date. Stock options granted upon reelection to
the Board vest in 48 equal monthly installments.
42
<PAGE> 43
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, options to purchase 2,784,893 shares were vested and
9,776,220 shares were reserved for issuance on exercise of stock options. A
summary of the Company's stock options activity for the three years ended
December 31, 1999 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------
OPTIONS WEIGHTED-
AVAILABLE AVERAGE
FOR NUMBER EXERCISE
GRANT OF SHARES PRICE PER SHARE PRICE
--------- --------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
Additional shares reserved................... 3,106 -- -- --
Options granted.............................. (7,450) 7,450 $ 8.75 - $22.13 $15.49
Options exercised............................ -- (579) $ 0.03 - $19.19 $ 3.37
Options canceled or expired.................. 4,892 (4,892) $ 0.04 - $53.75 $31.20
------ ------ --------------- ------
Balance at December 31, 1998................. 1,607 8,276 $ 0.01 - $42.50 $14.17
Additional shares reserved................... 1,790 -- -- --
Options granted.............................. (3,312) 3,312 $13.88 - $47.38 $20.36
Options exercised............................ -- (1,897) $10.63 - $50.06 $12.63
Options canceled or expired.................. 1,584 (1,584) $ 6.33 - $40.00 $15.80
------ ------ --------------- ------
Balance at December 31, 1999................. 1,669 8,107 $ 0.13 - $47.38 $16.74
====== ======
</TABLE>
The options outstanding at December 31, 1999 have been segregated into
ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE OPTIONS AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE CURRENTLY EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.13 - $11.06 1,774,941 6.97 $ 7.79 950,041 $ 5.85
$11.21 - $14.13 1,623,720 9.07 $13.82 282,220 $13.50
$14.17 - $17.06 1,962,999 8.12 $16.61 818,227 $16.62
$17.37 - $22.06 1,633,662 8.34 $19.19 595,787 $18.67
$22.13 - $47.38 1,111,727 9.41 $31.94 138,618 $36.06
--------- ---- ------ --------- ------
$ 0.13 - $47.38 8,107,049 8.28 $16.74 2,784,893 $14.04
========= =========
</TABLE>
1995 EMPLOYEE STOCK PURCHASE PLAN. In January 1995, the Board and
stockholders adopted the Employee Stock Purchase Plan (the Purchase Plan) and
reserved 1,200,000 shares for issuance. In May 1998 and May 1999, the Board and
stockholders approved amendments to increase by 920,593 and 1,359,269,
respectively, the number of shares issuable under the Purchase Plan. 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 1999, shares totaling 566,649 were issued under the Purchase Plan
at an average price of $10.37 per share.
43
<PAGE> 44
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING FOR STOCK OPTIONS AND STOCK PURCHASE RIGHTS. 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,
as the exercise price of the Company's employee stock options has been equal to
the market price of the underlying stock on the date of grant, no compensation
expense has been recognized.
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.
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 and stock purchase rights issued
subsequent to December 31, 1994 under the fair value method of SFAS 123. The
fair value for the options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------- -------------
<S> <C> <C> <C>
Volatility factor....... 81% 65% 65%
Risk-free interest
rate.................. 4.79% - 6.50% 4.18% - 7.06% 4.18% - 7.06%
Dividend yield.......... 0% 0% 0%
3 - 4 months
Expected term........... beyond 4 - 5 years 4 - 5 years
vest date
</TABLE>
The weighted-average fair values of options granted in 1999, 1998 and 1997
were $10.55, $8.33 and $23.63, respectively.
The fair value of the employee's purchase right was also estimated using
the Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Volatility factor............. 81% 65% 65%
Risk-free interest rate....... 4.95% - 5.66% 4.38% - 6.19% 4.38% - 6.19%
Dividend yield................ 0% 0% 0%
Expected term................. 6 months 6 months 6 months
</TABLE>
The weighted-average fair values for purchase rights issued under the
employee stock purchase plan for 1999, 1998 and 1997 were $8.16, $6.19 and
$6.54, respectively.
44
<PAGE> 45
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 historical and pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income
As reported................................. $29,523 $18,977 $27,290
Pro Forma................................... $ 8,322 $ 2,586 $12,318
Net income per share
As reported
Basic.................................... $ 1.02 $ 0.66 $ 0.99
Diluted.................................. $ 0.95 $ 0.63 $ 0.89
Pro Forma
Basic.................................... $ 0.29 $ 0.09 $ 0.45
Diluted.................................. $ 0.29 $ 0.09 $ 0.42
</TABLE>
The effects of applying SFAS 123 for recognizing compensation expense and
providing pro forma disclosures in 1999, 1998 and 1997 are not likely to be
representative of the effect on reported net income in future years.
11. STOCKHOLDER RIGHTS PLAN
In July 1997, the Company's Board of Directors (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 1/10 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 if a person or group
announces a tender offer, the consummation of which would result in ownership by
a person or group of 20 percent or more of the Company's common stock. The
non-taxable dividend distribution was made on August 29, 1997, payable to
Stockholders of record on that date. The Rights will expire on July 24, 2007.
45
<PAGE> 46
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current..................................... $ 3,512 $ 8,746 $ 2,169
Deferred.................................... (1,927) (1,730) (475)
------- ------- -------
1,585 7,016 1,694
State:
Current..................................... 124 1,263 128
Deferred.................................... (373) 300 (591)
------- ------- -------
(249) 1,563 (463)
Foreign:
Current..................................... 1,424 1,133 414
Income tax benefits attributable to employee
stock plan activity allocated to
stockholders' equity........................ 11,528 962 13,709
------- ------- -------
Provision for income taxes.................... $14,288 $10,674 $15,354
======= ======= =======
</TABLE>
Pre-tax income from foreign operations was $4.5 million, $4.6 million and
$1.0 million for 1999, 1998 and 1997, respectively.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at federal statutory rate................. $15,334 $10,378 $14,926
State tax, net of federal benefit............. 943 1,305 1,780
Research and development credit............... (1,605) (563) (372)
Tax exempt interest income.................... (1,119) (1,137) (761)
Other......................................... 735 691 (219)
------- ------- -------
Provision for income taxes.................... $14,288 $10,674 $15,354
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets as of December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Reserves and accruals not yet deductible for tax........... $6,847 $4,049
Deferred revenue........................................... 699 729
Unremitted foreign earnings................................ (723) (514)
Other...................................................... 8 267
------ ------
Total deferred tax assets........................ $6,831 $4,531
====== ======
</TABLE>
46
<PAGE> 47
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. 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.
14. BUSINESS COMBINATIONS
In September 1999 and July 1999, the Company acquired Fortress
Technologies, Inc. (Fortress), a privately held enterprise asset management
process consulting firm, and Pipestream Technologies, Inc. (Pipestream), a
privately held provider of sales force automation solutions, respectively. The
combined purchase price for the two acquisitions was approximately $11.5
million, which consisted of $11.0 million cash, $0.4 million of relocation
expenses and $0.1 million assumption of net liabilities. Approximately $10.7
million of the purchase price was allocated to goodwill and approximately $0.8
million was allocated to acquired workforce. The acquired workforce valuation
was recorded representing the cost to locate, hire and train qualified
replacement employees. All intangibles are being amortized on a straight-line
basis over a period of four years from the date of acquisition. A total of $1.2
million has been amortized as of December 31, 1999. Total costs related to the
Fortress and Pipestream acquisitions are expected to be approximately $13.1
million, which consists of the combined purchase prices of $11.5 million
accounted for in the third quarter of 1999 as well as employee related costs of
approximately $1.6 million, comprised of retention bonuses and forgivable loans
that will be expensed over the appropriate service period. The acquisitions were
accounted for under the purchase method and accordingly, their operating results
have been included in the Company's consolidated financial statements since the
date of acquisition. Pro forma results of operations have not been presented
since the effect of these acquisitions was not material to the Company's
consolidated financial position or results of operations.
In October 1998, the Company acquired BayStone Software, Inc. (BayStone), a
privately held provider of a suite of customer support, quality assurance and
opportunity management and telesales automation applications for rapidly growing
businesses. The purchase price for BayStone approximated $13.3 million, which
consisted of $10.4 million cash and $2.9 million assumption of net liabilities
and other direct costs. The aggregate purchase price was allocated to the fair
value of the assets acquired. In connection with this acquisition, a total of
$3.1 million was expensed in the Company's final fiscal quarter of 1998. This
was comprised of purchased in-process research and development of $1.5 million
and approximately $1.6 million in other merger related expenses, including $1.1
million for subsequent personnel severance and outplacement expenses and $0.5
million for other indirect costs of the acquisition. Purchased in-process
research and development of $1.5 million was recorded representing the present
value of the estimated after-tax cash flows expected to be generated by the
purchased technology, which, at the acquisition date, had not yet reached
technological feasibility. The amount allocated to goodwill ($11.9 million) is
being amortized on a straight-line basis over a period of four years from the
date of the acquisition. A total of $3.4 million has been amortized as of
December 31, 1999. Pro forma results of operations have not been presented since
the effect of this acquisition was not material to the Company's consolidated
financial position or results of operations.
15. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standard
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 establishes new
rules for the reporting and display of comprehensive income and its components.
Comprehensive income is defined as the change in equity of a
47
<PAGE> 48
REMEDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
company during a period from transactions and other events and circumstances
excluding transactions resulting from investments by owners and distributions to
owners and is to include unrealized gains and losses that have historically been
excluded from net income and reflected instead in equity. The Company has not
had any such material transactions or events during the periods presented and
accordingly comprehensive income is not materially different from net income as
reported in the consolidated financial statements.
16. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 superseded Statement No. 14 (SFAS
14), "Financial Reporting for Segments of a Business Enterprise." SFAS 131
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company operates solely in one segment, the development and marketing of
rapidly deployable and highly adaptable, software products and solutions that
simplify service-intensive business processes, and, therefore, as of December
31, 1999, Statement 131 does not have an impact. However, as the Company expands
its product line and increases its international operations, SFAS 131 may affect
the Company's disclosure in the future.
No customer accounted for more than 10% of revenue in 1999, 1998, or 1997.
Net revenue from international customers accounted for 34%, 38% and 37% of total
net revenue in 1999, 1998 and 1997, respectively. The majority of export sales
were made to Canada and Europe. Effective October 1, 1998, the Company began
shipping its product from Remedy Software International Limited (RSIL) in
Ireland to its customers in Europe, the Middle East and Africa.
The following table presents revenue by geographic area:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Domestic operations...................... $150,995 $ 97,924 $ 81,386
International operations................. 77,938 59,496 47,798
-------- -------- --------
Consolidated............................. $228,933 $157,420 $129,184
======== ======== ========
</TABLE>
17. SUBSEQUENT EVENTS (UNAUDITED)
In February 2000, the Company entered into an agreement to purchase certain
assets of Ostream Software Inc. (Ostream), a privately held software company
specializing in the development and marketing of business process automation
solutions that are companion to Remedy products. Under the terms of the
agreement, Remedy will pay approximately $2.8 million cash in exchange for a
development team, an associated product and certain liabilities. The acquisition
will be accounted for as a purchase for accounting purposes, and no material
one-time charges are expected. The acquisition is not expected to have a
material effect on the Company's financial position or results of operations.
In February 2000, the Company entered into an agreement to purchase Axtive
Software Corporation (Axtive), a privately held provider of web personalization
software. Under the terms of the agreement, Remedy will pay approximately $7.5
million cash in exchange for substantially all the assets and certain
liabilities of Axtive. The acquisition will be accounted for as a purchase for
accounting purposes, and no material one-time charges are expected. The
acquisition is not expected to have a material effect on the Company's financial
position or results of operations.
48
<PAGE> 49
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, 1997...... $1,248 $1,076 $0 $ 350(1) $1,974
Year Ended December 31, 1998...... $1,974 $ 526 $0 $ 108(1) $2,392
Year Ended December 31, 1999...... $2,392 $ 156 $0 $1,049(1) $1,499
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
49
<PAGE> 50
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 28th day of
March, 2000.
REMEDY CORPORATION
By: /s/ LAWRENCE L. GARLICK
------------------------------------
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
---- ----- ----
<S> <C> <C>
/s/ LAWRENCE L. GARLICK Chairman of the Board and March 28, 2000
- -------------------------------------------------------- Chief Executive Officer
Lawrence L. Garlick (Principal Executive Officer)
/s/ RON J. FIOR Vice President, March 28, 2000
- -------------------------------------------------------- Finance and Operations,
Ron J. Fior Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ HARVEY C. JONES, JR. Director March 28, 2000
- --------------------------------------------------------
Harvey C. Jones, Jr.
/s/ SHERI ANDERSON Director March 28, 2000
- --------------------------------------------------------
Sheri Anderson
/s/ JOHN F. SHOCH Director March 28, 2000
- --------------------------------------------------------
John F. Shoch
/s/ DAVID A. MAHLER Director March 28, 2000
- --------------------------------------------------------
David A. Mahler
/s/ JAMES R. SWARTZ Director March 28, 2000
- --------------------------------------------------------
James R. Swartz
</TABLE>
50
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<S> <C>
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* Lease Agreement by and between the Registrant and Charleston
Properties (Charleston), dated March 11, 1994, regarding the
space located at 1500 Salado Drive.
10.7* Lease 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.
10.8* Lease 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.
10.9* Form of Action Request System Shrink Wrap License Agreement.
10.10* Form of Value Added Reseller Agreement.
10.11**** Amended and Restated Business Loan Agreement by and between
the Registrant and SVB, dated June 15, 1997.
10.12**** Amended and Restated Promissory Note by and between the
Registrant and SVB, dated June 15, 1997
10.13**** Lease Agreement by and between the Registrant and Greiner,
Inc. Pacific, dated March 29, 1996, regarding the space
located at 5890 Stoneridge Drive.
10.14**** Lease Agreement by and between the Registrant and Viacom
International Inc., dated March 17, 1997, regarding the
space located at 5924 Stoneridge Drive.
10.15***** Business Loan Agreement by and between the Registrant and
Silicon Valley Bank (SVB), dated July 20, 1998.
10.16 First Amendment to Lease Agreement for use of Real Property
by and between the Registrant and Sun, dated June 23, 1994,
regarding the space located at 1505 Salado Drive.
10.17 Second Amendment to Lease Agreement for use of Real Property
by and between the Registrant and Sun, dated September 30,
1996, regarding the space located at 1505 Salado Drive.
10.18 Third Amendment to Lease Agreement for use of Real Property
by and between the Registrant and Sun, dated June 30, 1999,
regarding the space located at 1505 Salado Drive.
10.19 Lease Agreement by and between the Registrant and LSI Logic
Europe, Limited, dated August 20, 1999, regarding the first
floor leased space located at Greenwood House, 5 London
Road, Bracknell, Berkshire.
10.20 Lease Agreement by and between the Registrant and LSI Logic
Europe, Limited, dated August 20, 1999, regarding the ground
floor and other leased space located at Greenwood House, 5
London Road, Bracknell, Berkshire.
</TABLE>
51
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------
<S> <C>
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 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
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
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.
**** Incorporated by reference from the Exhibits to Remedy Corporation's Form
10-K Annual Report for the year ended December 31, 1997.
***** Incorporated by reference from the Exhibits to Remedy Corporation's Form
10-K Annual Report for the year ended December 31, 1998.
Remedy, Remedy Corporation and design, Action Request System, AR System, ARWeb,
Flashboards, Distributed Server Option, Remedy Help Desk, Remedy Asset
Management, Remedy Change Management, Remedy Service Level Agreements, Remedy
Approved Consultant, Remedy Purchasing@Work, Remedy Strategic Service Suite,
Remedy Web, Multi-Processing Server Option, Full Text Search Option, Remedy Help
Desk Express, BayStone, Remedy Quality Management, Remedy Year 2000 Compliance
Manager, Remedy Customer Support and Remedy Leads Management 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.
52
<PAGE> 1
Exhibit 10.16
FIRST AMENDMENT TO LICENSE AGREEMENT
This First Amendment to License Agreement is made and entered into as of the
23rd day of June, 1994, by and between Sun Microsystems, Inc. ("Sun") and Remedy
Corporation ("Licensee").
WHEREAS, Sun and Licensee entered into that certain License Agreement dated
March 11, 1994 (the "License") for the use and occupancy of the premises located
at 1505 Salado Drive, Mt. View, CA (hereinafter "the Premises"), and
WHEREAS, Sun and Licensee desire to amend the License Agreement as hereinafter
provided.
NOW THEREFORE, in consideration of the mutual promises and covenants herein
stated, the parties hereto agree as follows:
1. Paragraph 5 is hereby deleted in its entirety and replaced with the
following: Sun shall provide Licensee with an improvement allowance of up
to $100,000.00 for modifications to the construction of the Premises
required for the conduct of Licensee's business. These improvements may
include: 1) necessary changes or upgrades to the dock and loading area of
the building; 2) improvements to any form of wiring within any wall; 3)
carpet and paint; 4) non-bearing wall movement; and 5) and other interior
modifications required for the conduct of Licensee's business. Any
improvements or modifications made, which are reimbursable by Sun, must be
completed by February 28, 1995, or within six (6) months from the date that
Sun vacates the Premises, whichever is later; and request for reimbursement
thereof from Licensee must be made on, or before, March 31, 1995. Payment
shall be made within thirty (30) days after receipt by Sun of an invoice
for actual costs incurred in making such modifications and proof of payment
by Licensee to contractors. No modifications, improvements or alterations
may be made or commenced until Licensee has submitted to Sun a set of
construction documents. Licensee understands that no modifications,
improvements or alterations may be made to the Premises without the consent
of the Lessor, and that Sun must submit all plans and specifications for
such modifications, improvements or alterations to Lessor. Sun will use
reasonable efforts to obtain Lessor's consent. Should Lessor request
removal of any of Licensee's alterations or improvements upon the
expiration of the License Term, such restoration shall be done at
Licensee's sole cost and expense prior to the License expiration date of
June 30, 1996.
Except as set forth in this First Amendment to License Agreement, all of the
terms and provisions of the License Agreement shall apply and shall remain
unmodified and in full force and effect.
IN WITNESS WHEREOF, this First Amendment to License has been executed as of the
day and year first above written.
SUN MICROSYSTEMS, INC. REMEDY CORPORATION
By: /s/ Agent of Sun Microsystems By: /s/ Lawrence L. Garlick
------------------------------ -----------------------------
Its: Its:
---------------------------- ----------------------------
Date: 6/23/94 Date: 6/15/94
------------------------------ -----------------------------
<PAGE> 1
EXHIBIT 10.17
SECOND AMENDMENT TO LICENSE AGREEMENT
1505 SALADO DRIVE LICENSE
This Second Amendment to License Agreement is made and entered into as of
the 30th day of September, 1996, by and between Sun Microsystems, Inc. a
Delaware corporation ("Sun") and Remedy Corporation, a Delaware corporation
("Licensee").
WHEREAS, Sun is the Lessee under that certain Lease Agreement (the
"Lease") dated September 1, 1987, with John Arrillaga, Trustee of the John
Arrillaga Separate Trust dated July 20, 1977, and Richard T. Peery, Trustee of
the Richard T. Peery Separate Property Trust dated July 20, 1977 (collectively
"Lessor") for the real property located at 1505 Salado Drive, Mountain View,
California (the "Premises"), and
WHEREAS, Sun and Licensee entered into a License Agreement dated
March 11, 1994 (the "License"), as modified by the First Amendment to License
dated June 23, 1994, permitting Licensee's to use and occupy said Premises, and
WHEREAS, Sun and Licensee entered into a license agreement, dated March 11,
1994, (the "1500 Salado License") whereby Sun was permitted to use and occupy
that certain real property located at 1500 Salado Drive, Mountain View, CA.,
then being leased to Licensee as the lessee, and
WHEREAS, Sun and Licensee desire to amend the License Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein stated, the parties hereto agree as follows:
1.(a) The License Term shall be extended for the period commencing July 1,
1996 and ending June 30, 1999 (the "First Extended Term"), subject to the
Independent Termination Option, as hereinafter defined. Licensee shall have the
option (the "Independent Termination Option") to terminate this License by
delivering written notice thereof to Sun at any time during the period
commencing with the sixth (6th) month of the First Extended Term and expiring
at the end of the fifty fourth (54th) month of the term of this License, as the
same may be further extended hereunder. In the event Licensee exercises its
Independent Termination Option in a timely manner, this License shall
terminate six (6) months after delivery of written notice thereof to Sun, with
no termination payment to be paid by Licensee, and all rent due hereunder shall
be prorated to the termination date.
1
<PAGE> 2
1.(b) In the event Sun exercises its right to terminate the 1500 Salado
License during the First Extended Term, Licensee may either (i) terminate this
License Agreement, effective on and as of the date the 1500 Salado License is
terminated, or (ii) convert this License Agreement to a sublease for the
Premises for the First Extended Term, in which case the rent under such
sublease shall be ninety five percent (95%) of the then fair market rental
value of the Premises.
2.(a) Provided that it has not exercised its, Independent Termination
Option, Licensee may further extend the First Extended Term for an additional
two (2) years (the "Second Extended Term"), by delivering written notice
thereof to Sun at least six (6) months prior to expiration of the First
Extended Term.
2.(b) In the event Sun exercises its right to terminate the 1500 Salado
License during the Second Extended Term, Licensee may either (i) terminate this
License Agreement, effective on and as of the date the 1500 Salado License is
terminated, or (ii) convert this License Agreement to a sublease for the
Premises for the Second Extended Term, in which case the rent under such
sublease shall be ninety five percent (95%) of the then fair market rental
value of the Premises.
3. Unless and until Licensee exercises its Independent Termination
Option, Licensee shall have a right of first refusal (the "Right of First
Refusal") to sublease the Premises from Sun during the remaining term of the
Lease. Sun shall give Licensee written notice of any proposed sublease of the
Premises by Sun to any third party and all material terms thereof. Licensee
shall have the right to sublease the Premises upon the same terms and
conditions as set forth in Sun's written notice to Licensee by delivering
written notice of its election to sublease the Premises to Sun within fifteen
(15) days of delivery by Sun of Sun's written notice to Licensee. In the event
Licensee shall fail to deliver written notice to Sun of Licensee's exercise of
its Right of First Refusal hereunder within said fifteen (15) day period,
Licensee shall be deemed to have waived all rights hereunder and the Right of
First Refusal shall terminate. In the event Licensee shall timely exercise its
Right of First Refusal in the manner provided herein, Licensee and Sun shall
thereafter promptly enter into a sublease agreement upon all of the material
terms set forth in Sun's written notice to Licensee, subject, however, to any
required approval from Lessor under the terms of the Lease. The term
"sublease" as used herein shall also include any assignment of the Lease
proposed by Sun.
The foregoing notwithstanding, no Right of First Refusal shall arise in the
event of an intended sublease or assignment of the License to an affiliate of
Licensee or a successor in
2
<PAGE> 3
interest by reason of any merger or consolidation with, or acquisition of, any
entity succeeding to all or substantially all of the assets of Licensee.
4. Paragraph 3 of the License Agreement is hereby deleted in its entirety
and replaced with the following:
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
7/1/96 -- 6/30/97 $14,602.00 per month
7/1/97 -- 6/30/98 $15,019.20 per month
7/1/98 -- 6/30/99 $15,436.40 per month
7/1/99 -- 6/30/00 $15,853.60 per month
7/1/00 -- 6/30/01 $16,270.80 per month
</TABLE>
In the event Licensee elects to convert this License Agreement to a
sublease as provided in paragraph 1.(b) or 2.(b) above, Licensee shall pay to
Sun base rent for the Premises determined as provided in paragraph 1.(b) or
2.(b) above, and Paragraph 10 of this Second Amendment. Base Rent shall be
payable, in advance, on the first day of each month of the Term, prorated for
the portion of any partial month during the term of such sublease. During the
term of this License, as extended, Sun shall not agree to modify or terminate
the Lease without the prior written consent of Licensee, which shall not be
unreasonably withheld. In the event Sun is in default under the Lease, Licensee
shall have the right, but not the obligation, to cure Sun's default and to keep
the Lease in full force and effect. Sun shall be liable to Licensee for the
actual and reasonable direct cost and expenses incurred by Licensee in curing
Sun's default.
5. Paragraph 4 of the License Agreement has been satisfied and is hereby
deleted.
6. Paragraph 6 of the License Agreement is hereby deleted and replaced
with the following:
Licensee shall have no obligation under the Lease to Lessor and shall not
be required to pay or reimburse Sun for any base rent or additional rent
due thereunder, except as provided in Paragraph 3 of the License Agreement,
as modified by this Second Amendment. Licensee shall arrange for utility
services to be provided to Licensee in its name and shall pay, when due,
all costs of utilities consumed at the Premises during the First Extended
Term and the Second Extended Term, as the
3
<PAGE> 4
case may be. As used herein, "utilities" shall mean natural gas,
electricity, water, sewer and garbage and refuse collection. For those
operating expenses for which Licensee has agreed to reimburse Sun pursuant
to Paragraph 3 of the License Agreement, as modified by this Second
Amendment, Licensee shall pay to Sun the amounts due within thirty (30)
days after Sun has forwarded to Licensee written statements from the
Lessor setting out the amounts then due and payable with respect thereto.
Licensee shall be liable for, and pay when due, all additional rent and
costs due under the Lease for the Premises with respect to taxes,
insurance, security maintenance, building repair and maintenance
(including, but not limited to, janitorial services) and landscaping.
7. Paragraph 9 of the License Agreement is hereby deleted.
8. Upon expiration of the term of this License, Licensee shall
return the Premises to Sun, broom clean, and in good condition and repair,
normal wear and tear excepted. Licensee shall also undertake and complete any
reasonable tenant improvements and restoration of the Premises required by
Lessor pursuant to the Lease, but only in the event and to the extent such
tenant improvements were made by Licensee. In the event that Lessor requires
that the Premises be restored to its original condition, Licensee may
participate in negotiations with Sun and Lessor in an effort to minimize such
restoration, and Sun shall cooperate with Licensee in that regard.
9. Paragraph 1, of the First Amendment to License Agreement has
been satisfied and is hereby deleted.
10. For purposes of any adjustment of rent pursuant to Paragraphs
1 and 2, above, "fair market rental value" shall be determined as follows
(provided however, in no event shall the amount so determined be less than the
base rent determined pursuant to the Lease);
10.1 In the event that base rent for the Premises is to be
payable pursuant to Paragraphs 1 and 2, above, the parties shall meet and
confer upon request by either party in an attempt to reach agreement within a
fifteen (15) day period upon such fair market rental value. In the event the
parties agree upon such rent within such fifteen (15) day period, the parties
shall execute a written memorandum documenting such agreement and the new
rental schedule. In the event, that the parties fail to reach such agreement
within such fifteen (15) day period, then the fair mar-
4
<PAGE> 5
ket rental value shall be determined in the manner set forth in paragraph 9.2
hereof. Fair market rental value shall be determined with reference to
comparable space, with tenants with similar credit and for similar size
premises within the same market area, taking into account all relevant factors
affecting the determination of rent, including the term of the License or
sublease as the case may be, as may be extended, and the location and all
amenities of the buildings, but excluding the value of all tenant improvements
installed in the Premises by Licensee. The determination of fair market rental
value shall include any rental adjustments prevalent in the market at the time.
10.2 If the parties are unable to agree upon the fair market rent for
the Premises as provided in Paragraph 9.1 above, each party shall, upon
expiration of the fifteen (15) day period set forth in Paragraph 9.1, promptly
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 values for comparable properties in the same market area. Such
appraisers shall each determine the fair market monthly rent for the Premises
taking into account all relevant factors set forth in Paragraph 9.1 above. Such
appraisers shall, within forty-five (45) days after their appointment, complete
their appraisals and submit their appraisal reports to the parties. If the fair
market monthly rent for the Premises established in the two appraisals varies
by ten percent (10%) or less of the higher rental, the average of the two
appraisals shall be multiplied by ninety-five percent (95%) and the resulting
product shall be the base rent for the Premises. If the 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, similarly qualified and
experienced. This third appraiser shall, within forty-five (45) days after his
appointment, determine by appraisal the monthly fair market rental value for
the Premises, taking into account the same factors referred to above, and
submit his appraisal report to the parties. The monthly fair market rental
value 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 ninety-five percent
(95%). The resulting product shall be the base rent for the Premises. If either
party fails to appoint an appraiser, or if one of the appointed appraisers
fails to perform his duties, the appraisal submitted by the performing
appraiser shall control. If the two appraisers appointed by the parties are
unable to agree upon a third
5
<PAGE> 6
appraiser within the required period, application shall be made within ten (10)
days thereafter by either party to the AIREA, which shall appoint a member of
said institute to serve as appraiser. Each party shall bear the cost of the
appraiser it appoints and the cost of the third appraiser, if any, shall be
shared equally by the parties.
11. Paragraph 12 of the License Agreement is hereby deleted in its entirety.
12. So long as Licensee occupies the Premises Licensee shall, at its costs and
expense, keep and maintain the Premises, and every part thereof, in a high
standard of maintenance and repair and in good and sanitary condition in the
manner set out in the Building Maintenance Specifications, attached hereto as
Exhibit A, but in no event in a condition less than that required under the
terms of the Lease.
13. Except as set forth in this Second Amendment to License Agreement, all of
the terms and provisions of the License Agreement shall apply and shall remain
unmodified and in full force and effect.
IN WITNESS WHEREOF, this Second Amendment to License Agreement has been
executed as of the day and year first above written.
"SUN" "LICENSEE"
SUN MICROSYSTEMS, INC. REMEDY CORPORATION
A Delaware corporation A Delaware corporation
By: /s/ Agent of Sun Microsystems By: /s/ Lawrence L. Garlick
------------------------------ -----------------------------
Its: Project Manager Its: Chairman and CEO
----------------------------- -----------------------------
Date: 9/30/96 Date: September 25, 1996
---------------------------- ----------------------------
<PAGE> 7
EXHIBIT A: BUILDING MAINTENANCE SPECIFICATIONS
1. All work will comply with Local, State and Federal Building Codes and
regulations. Work will meet or exceed generally accepted industry
standards, including but not limited to:
o American Society of Heating Refrigeration and Air Conditioning
Engineers (ASHRAE)
o Preventative maintenance will include but, not limited to:
Monthly, quarterly, semi-annual and annual inspections and
maintenance of the following types of equipment in accordance to
MFG, recommendations:
<TABLE>
<S> <C>
1. Roof top units (monthly, quarterly, semi-annual)
2. Split systems including
air handler and
condensing units (same as above)
3. Pumps (semi-annual)
4. VFD (semi-annual)
5. Air compressors (monthly, quarterly, semi-annual)
6. Ducting systems including VAV,
ductwork, insulation and
registers (continual)
7. Semi-annual filter change-out (semi-annual)
</TABLE>
o American Society of Mechanical Engineers (ASME)
o Preventative maintenance will include but, not limited to:
Monthly, quarterly, semi-annual and annual inspections and
maintenance of the following types of equipment in accordance to
MFG, recommendations:
<TABLE>
<S> <C>
1. Water heaters (semi-annual)
2. Back flow preventors (annual)
3. Restroom type fixtures (continual)
4. Water coolers (monthly)
5. Drains and P-traps (continual)
</TABLE>
o National Electrical Code (NEC)
o Preventative maintenance will include but, not limited to:
Monthly, quarterly, semi-annual and inspections and maintenance
of the following types of equipment in accordance to MFG,
recommendations:
<TABLE>
<S> <C>
1. Main service and distribution
systems (semi-annual)
2. Shunt trips and GFI (bi-annual)
3. Infrared system analysis (annual)
</TABLE>
o National Fire Protection Association (NFPA)
o Preventative maintenance will include but, not limited to:
Monthly, quarterly, semi-annual and annual inspections and
maintenance of the following types of equipment in accordance to
MFG, recommendations:
<TABLE>
<S> <C>
1. Fire system panel, pull stations
and detectors (semi-annual)
2. Horn strobes (semi-annual)
3. Flow and tamper testing (monthly)
4. Riser inspection and testing (monthly and 5 yr)
5. Fire extinguisher (monthly and annually)
</TABLE>
o William-Steiger Occupational Safety and Health Act (OSHA)
o Maintain compliance with all OSHA standards (29 CFR 1910)
1
<PAGE> 8
In addition:
o Parking Lot
1. Lighting maintenance (Monthly)
2. Surface and painting (Bi-annually)
3. Grating and drainage (Seasonal)
o Roof
1. Integrity (continual)
2. Gutter cleaning and drainage (annual)
o Elevators
1. Maintenance and inspection (monthly)
2. Load testing (5 year)
3. State inspection (annual)
o Finishes
1. Door and door hardware (continual)
2. Walls and structural joists (continual)
3. Floor finishes and underlayment (continual)
4. Ceiling grid, fixtures and tiles (continual)
Confidential Information for Johnson Controls internal use only. Unauthorized
use without expressed written consent is strictly prohibited.
<PAGE> 1
EXHIBIT 10.18
THIRD AMENDMENT TO LICENSE AGREEMENT
1505 SALADO DRIVE LICENSE
This Third Amendment to License Agreement is made and entered into as of
the 30th day of June, 1999 by and between Sun Microsystems, Inc., a Delaware
corporation ("Sun") and Remedy Corporation, a Delaware corporation ("Licensee"
or "Remedy").
WHEREAS, Sun is the Lessee under that certain Lease Agreement (the "Lease")
dated September 1, 1987, with John Arrillaga, Trustee of the John Artillaga
Separate Trust dated July 20, 1977, and Richard T. Perry, Trustee of the
Richard T. Perry Separate Property Trust dated July 20, 1977 (collectively
"Lessor") for the real property located at 1505 Salado Drive, Mountain View,
California (the "Premises"), and
WHEREAS, Sun and Licensee entered into a License Agreement dated March 11,
1994 (the "1505 Salado License"), as modified by the First Amendment to License
dated June 23, 1994, and as modified by the Second Amendment to License dated
September 30, 1996, permitting Licensee to use and occupy the Premises, and
WHEREAS, Sun and Licensee entered into a License Agreement dated March 11,
1994, as modified by the First Amendment to License dated September 30, 1996
(the "1500 Salado License") whereby Sun was permitted to use and occupy that
certain real property located at 1500 Salado Drive, Mountain View, California,
then being leased to the Licensee as the lessee, and
WHEREAS, Sun and Licensee desire to amend the 1505 License Agreement, and
terminate the 1500 Salado License Agreement, as hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein stated, the parties hereto agree as follows:
1. The 1505 Salado License Agreement Term shall be extended for the
period commencing July 1, 1999 and ending June 30, 2001 (the "Second Extended
Term").
2. Paragraph 4 of the Second Amendment to the 1505 Salado Drive License
Agreement is hereby deleted in its entirety and replaced with the following:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
July 1, 1999 - June 30, 2000 $ 96,854.40 Base Rent per Month (NNN)
$ 7,723.45 Commission Rent per Month (NNN)
-----------
$104,577.85 Total Rent per Month (NNN)
July 1, 2000 - June 30, 2001 $ 99,403.20 Base Rent Per Month (NNN)
$ 7,723.45 Commission Rent per Month (NNN)
-----------
$107,126.65 Total Rent per Month (NNN)
</TABLE>
The Base Rent equals the rent paid by Sun per its Lease. The Commission
Rent is to reimburse Sun for the amortized commission Sun shall pay the Brokers,
per paragraph 4 below. Remedy shall pay to Sun the Total Rent per Month, payable
in advance, on the first day of each month of the Second Extended Term. During
the term of this License, as extended, Sun shall not modify or terminate the
Lease without the prior written consent of Licensee, which shall not be
unreasonably withheld. In the event Sun is in default under the Lease, Licensee
shall have the right, but not the obligation, to cure Sun's default and to keep
the Lease in full force and effect. Sun shall be liable to
<PAGE> 2
Licensee for the actual and reasonable direct costs and expenses incurred by
Licensee in curing Sun's default.
3. Upon expiration of the term of this License, Licensee shall return the
Premises to Sun, broom clean, and in good condition and repair, normal wear and
tear excepted. Licensee shall also undertake and complete any restoration of the
Premises required by the Lessor pursuant to the Lease to the extent such
restoration is required as a result of alterations made by Remedy to the
Premises or as a result of the alterations made by Sun per the drawings dated
March 14, 1989. Except as specified above, Remedy shall not be responsible for
any restoration. Remedy shall be responsible for any repair or maintenance
obligations for the Premises as required by the Lease at the expiration or
earlier termination of the Secured Extended Term. In the event that Lessor
requires that the Premises be restored, Licensee may participate in negotiations
with Sun and Lessor in an effort to minimize such restoration, and Sun shall
cooperate with Licensee in that regard.
4. Sun shall pay Cushman Realty a commission of $2.00 per RSF ($101,952),
and Sun shall pay Jones Lang LaSalle a commission of $1.35 per RSF ($68,817.60),
effective upon full execution of this Third Amendment to License Agreement, but
no earlier than July 1, 1999.
5. Within fifteen (15) days of the full execution of this Third
Amendment, Remedy shall pay to Sun the sum of $104,577.85 as security for
performance of Remedy's obligations hereunder. Such sum shall be returned to
Remedy within fifteen (15) days after the expiration or early termination of
this License Agreement.
6. Remedy shall have a right to assign this License in the event of a
sale of substantially all of the assets of Remedy, providing that the new
entity has a net worth equal to or greater than Remedy as of the date of this
License Agreement.
7. Except as set forth in this Third Amendment to License Agreement, all
of the terms and provisions of the License Agreement shall apply and shall
remain unmodified and in full force and effect.
IN WITNESS WHEREOF, this Third Amendment to License Agreement has been
executed as of the day and year first above written.
"SUN" "LICENSEE"
SUN MICROSYSTEMS, INC. REMEDY CORPORATION
a Delaware corporation a Delaware corporation
By: /s/ Carey Wong By: /s/ Ronald J. Fior
--------------------------------- ---------------------------------
Its: Director, REW Western Region Its: VP/CFO
-------------------------------- --------------------------------
Date: 8/30/99 Date: July 30, 1999
------------------------------- -------------------------------
<PAGE> 1
EXHIBIT 10.19
DATED 20th August 1999
LSI LOGIC EUROPE LIMITED
to
REMEDY UK LIMITED
with
REMEDY CORPORATION
as Surety
---------------------------
UNDERLEASE
relating to part
first floor Greenwood House
London Road Bracknell
---------------------------
[CANNINGS CONNOLLY SOLICITORS LETTERHEAD]
Hillgate House 26 Old Bailey London EC4M 7HQ
Tel 0171-329 9000 Fax 0171-329-5000
<PAGE> 2
THIS UNDERLEASE is made the 20th day of August 1999 BETWEEN LSI LOGIC EUROPE
LIMITED (Company No. 1633351) whose registered office is at Greenwood House
London Road Bracknell Berkshire RG12 2UB ("the Landlord" which expression shall
where the context so admits include the person for the time being entitled to
the reversion immediately expectant on the expiry of the term hereby created) of
the first part REMEDY UK LIMITED (Company No. 3207994) whose registered office
is at 100 New Bridge Street London EC4V 6JA ("the Tenant" which expression shall
where the context so admits include its successors in title and assigns) of the
second part and REMEDY CORPORATION a company incorporated according to the laws
of Delaware whose principal place of business is at 1505 Salado Drive Mountain
View California CA-94043 and whose address for service in England and Wales is
c/o Baker McKenzie (Ref PWS) 100 New Bridge Street London EC4V 6JA ("the
Surety") of the third part
WHEREAS:
(1) By a Lease ("the Lease") dated 13th January 1997 and made between Scottish
Amicable Life Assurance Limited ("the Superior Landlord" which expression
shall where the context so admits include its successors in title and
assigns)(1) and the Landlord (2) ALL THAT piece or parcel of land together
with the building thereon known as Greenwood House London Road Bracknell
Berkshire which is for identification purposes only shown edged red on the
plan annexed to the Lease ("the Premises") were demised to the Landlord for
a term of twenty-five years from 25th December 1996
(2) The Premises remain vested in the Landlord for the unexpired residue of the
said term created by the Lease subject to the rents and covenants and
conditions on the part of the tenant reserved by and contained in the Lease
NOW THIS DEED WITNESSETH as follows:-
1 In consideration of the rents covenants and conditions hereinafter
reserved and contained and on the part of the Tenant to be paid observed
and performed the Landlord HEREBY DEMISES unto the Tenant ALL THOSE
premises described in the First Schedule hereto ("the Demised Premises")
TOGETHER WITH the rights set out in the Second Schedule hereto in common
with the Superior Landlord, the Landlord and any persons respectively
authorized thereby
<PAGE> 3
and any other person having the like rights EXCEPT AND RESERVED unto the
Superior Landlord the Landlord and all persons authorised thereby and
anyone otherwise entitled thereto the rights set out in the Third Schedule
hereto TO HOLD the same unto the Tenant for a term of three years from and
including 13th January 2000 (thus expiring on 12th January 2003) SUBJECT
TO the matters referred to in the Fourth Schedule hereto YIELDING AND
PAYING therefor during the said term:
1.1 The yearly rent of FOUR HUNDRED AND NINETEEN THOUSAND ONE HUNDRED AND
THIRTY-TWO POUNDS (L419,132) (subject to review in accordance with Clause
3 of the Lease as applied herein) by equal quarterly payments in advance
on the usual quarter days the first of such payments or a proportionate
part thereof in respect of the period commencing on 13th January 2000 and
ending on 24th March 2000 to be made on 13th January 2000
1.2 By way of further and additional yearly rent within fourteen days of
demand an amount equivalent to twenty-two decimal point seven two (22.72%)
of the yearly rents reserved by Clauses 2.2 and 2.3 of the Lease payable
at the same time as the said yearly rents reserved by the Lease are
payable
1.3 By way of further and additional rent the yearly rent of FORTY-SEVEN
THOUSAND NINE HUNDRED POUNDS (L47,900) by way of service charge by equal
quarterly payments in advance on the usual quarter days the first of such
payments or proportionate part thereof in respect of the period commencing
on the date of this Underlease and ending on the day preceding the quarter
day next following to made on the date of this Underlease.
1.4 By way of further and additional rent interest at the yearly rate of Four
pounds per centum per annum above the base rate for the time being of
Barclays Bank Plc upon all rents hereinbefore reserved and other payments
due to the Landlord under the provisions of this Underlease not paid
within seven days from and including the date upon which the same ought to
have been paid with effect from the date or dates upon which the same
become payable until the date on which payment thereof is received by the
Landlord (as well as before any judgment) such interest to be payable on
demand.
2
<PAGE> 4
1.5 Upon the production of a valid value added tax invoice addressed to
Tenant value added tax on any of the foregoing
2.1 Save as mentioned herein this Underlease shall be subject to the
covenants on the part of the Tenant exactly similar to those covenants
on the part of the tenant contained in the Lease (with the exception
of those relating to payment of rent) it being the intention of the
parties hereto that this Underlease shall be on the basis that the
covenants of the tenant within the Lease are deemed to be repeated
herein in full insofar as they relate to the Demised Premises and are
consistent with a subletting of part and the Tenant enters into
exactly similar covenants as those on the part of the tenant contained
in the Lease BUT so that the following variations to the said
covenants shall apply to this Underlease:
2.1.1 the covenants on the part of the Tenant contained in this Underlease
by virtue of the above will be covenants by the Tenant with the
Landlord and reference within the said covenants to "the Landlord" and
"the Tenant" shall be to the Landlord herein and the Tenant
respectively but so that where:
2.1.1.1 the consent of the Landlord is required to the doing of any act or the
carrying out of any works or for any other reason or
2.1.1.2 works have to be carried out or anything has to be done to the
satisfaction or to the approval of the Landlord or
2.1.1.3 the Landlord is entitled to enter on to the Demised Premises for any
reason or reserves to itself the right to enter on to the Demised
Premises
then reference to "the Landlord" in all such cases shall mean the
Landlord and the Superior Landlord and each of them and where any
consent or approval may not be unreasonably withheld under the Lease
then the same qualification shall apply to any consent or approval
required under this Underlease
2.1.2 Clauses 4.1(a) and (b) 4.3(a)(v) and (vi) 5.2 5.3 7.1 7.2(i) and 9 of
the Lease shall not apply or have effect within this Underlease
2.1.3 the following Clauses of the Lease shall be varied for the purposes of
this Underlease as follows:-
Clause 1.1 "Rent" shall mean the sum of the rents reserved by
Clauses 1.1.2 and 1.3 of this Underlease
3
<PAGE> 5
Clause 3 "Existing Rent" shall mean the yearly rent of FOUR
HUNDRED AND NINETEEN THOUSAND ONE HUNDRED AND
THIRTY-TWO POUNDS (L419,132) "Review Date" shall mean
25th December 2001 and "Demised Premises" shall mean
the Demised Premises as defined in this Underlease
Clause 4.3(a)(iv) the words "both" and "and the outside" shall be deleted
Clause 4.8(d)(i)&(ii) the words "without the consent of the Landlord such
consent not to be unreasonably withheld or delayed"
shall be deleted
Clause 5.4 the words "underleases (however inferior) surrenders"
shall be deleted
2.1.4 references in Clause 7.2 and 7.3 to insurances or policies effected by
the Landlord or risks or perils insured against by the Landlord or
against which the Landlord shall have maintained insurance shall in
all cases be references to insurances or policies effected by the
Superior Landlord or risks or perils insured against by the Superior
Landlord
2.2 The following covenants shall have effect as covenants on the part of
the Tenant herein:
2.3.1 to keep perform and observe the covenants terms and conditions on the
part of the tenant contained in the Lease so far as the same relate to
the Demised Premises with the exception of the covenants referred to
in Clause 2.1.2 of this Underlease as varied by Clauses 2.1.3 and
2.1.4 of this Underlease and to keep the Landlord indemnified against
all costs liabilities expenses and damages which result to the
Landlord arising out of or in connection with the Tenant's failure to
so keep observe and perform the said covenants terms and conditions
2.3.2 to comply with such regulations made in accordance with the principles
of good estate management as may be made from time to time by the
Landlord and notified to the Tenant relating to the Premises and/or
the car parking spaces and access thereto PROVIDED THAT nothing
hereunder shall entitle the Landlord
4
<PAGE> 6
to do anything which would amount to a derogation of grant or interfere
with the Tenant's right of quiet enjoyment hereunder
3. The Tenant HEREBY COVENANTS with the Landlord that it will:
3.1 pay the rents as hereinbefore reserved on the days and in the manner
aforesaid without any deduction or exercising any rights of set off (except
as required by law) and if so required by the Landlord pay the rent first
hereinbefore reserved by bankers' standing order or credit transfer to
such bank and account in the United Kingdom as the Landlord shall from time
to time nominate
3.2 not underlet or share possession or occupation of the whole or any part of
the Demised Premises
4. The Landlord HEREBY COVENANTS with the Tenant that:
4.1 subject to the payment by the Tenant of the rents hereinbefore reserved and
provided that the Tenant has complied with all the covenants and conditions
herein contained and on the part of the Tenant to be observed the Tenant
shall and may peaceably hold and enjoy the Demised Premises during the term
hereby created without any interruption by the Landlord or any person
lawfully claiming through under or in trust for it or by title paramount.
4.2 The Landlord will if so requested by the Tenant use all reasonable
endeavours to enforce the covenants entered into by the Superior Landlord
in the Lease
4.3 the Landlord shall observe and perform the covenants in the Lease save in
so far as they are the responsibility of the Tenant pursuant to this
Underlease
4.4 Subject to an indemnity for costs from the Tenant at the request and cost
of the Tenant to use reasonable endeavours to obtain from the Superior
Landlord all licenses which are necessary to enable the Landlord to grant
any license to the Tenant under this Underlease for which the Landlord's
consent under this Underlease is not to be unreasonably withheld or
delayed.
4.5 throughout the term to provide the services listed in the Fifth Schedule in
a proper and efficient manner and (where appropriate) using good and
suitable materials PROVIDED THAT the Landlord shall not be liable to the
Tenant for any breach of its obligations in this Clause 4.5 where the
breach was caused by
5
<PAGE> 7
something beyond the Landlord's control (provided the Landlord uses
reasonable endeavours to remedy the breach as soon as is reasonably
practicable)
5. The parties hereto hereby agree and declare that this Underlease is
made subject to exactly similar provisos agreements and provisions
(herein between the Landlord and the Tenant) as are contained in
Clause 7.3 and Clause 8 of the Lease as if the same were herein
repeated in full.
6.1 The Surety covenants with the Landlord named in this Underlease
throughout the Term and any extension by statute of the tenancy
created by this Underlease and (without the need for any express
assignment) with all of its successors in title:
6.1.1 if the Tenant does not pay the rents reserved by this Underlease or
any other sum due under this Underlease on the date on which it is due
to pay to the Landlord on demand the rents or other sum and the
expression "other sum" includes (without limitation) any sum that the
Tenant is ordered to pay in any proceedings arising out of this
Underlease or agreed to pay by way of settlement of those proceedings
6.1.2 if the Tenant is in breach of any provision of this Underlease to
remedy that breach on demand and to indemnify and keep indemnified the
Landlord against all losses costs and expenses suffered by the
Landlord as a result (directly or indirectly) of that breach
6.1.3 in addition to the obligations set out in clauses 6.1.1 and 6.1.2 of
this Underlease is disclaimed by the Tenant's trustee in bankruptcy or
liquidator;
6.1.3.1 to pay to the Landlord on demand an amount equal to the rents and
other sums of a recurring nature that would have been payable under
this Underlease for the period beginning on the date of disclaimer and
ending on the earliest of:
6.1.3.1.1 the date upon which the Demised Premises are re-let
6.1.3.1.2 three months from the date of disclaimer
6.1.3.2 if requested by the Landlord within ninety days of disclaimer to take
from the Landlord an Underlease of the Demised Premises from the date
of disclaimer for the residue of the Term at the rents payable at the
time of disclaimer and upon the same terms as those contained in this
Underlease with all provisions of a
6
<PAGE> 8
periodical nature expressed to apply on the actual dates that would
have applied if this Underlease had not been disclaimed
6.1.3.3 to pay the reasonable and proper costs of the Landlord incurred in
relation to the disclaimer and where appropriate the grant of the
lease to the Surety
6.2 The obligations of the Surety set out in Clause 6.1 will continue to
apply even if:
6.2.1 the Landlord grants any time or indulgence to the Tenant or fails to
enforce payment of the rents or other sums or the performance of the
terms of this Underlease
6.2.2 the Landlord refuses to accept the rents tendered when the Landlord
was entitled (or would after the service of a notice under the Law
of Property Act 1925 Section 146 be entitled) to re-enter the Demised
Premises
6.2.3 the terms of this Underlease are varied
6.2.4 the Tenant surrenders part of the Demised Premises and where this
happens the liability of the Surety under this Underlease continues
for the part of the Demised Premises not surrendered after making any
necessary apportionments under the Law of Property Act 1926 Section
140
6.2.5 the Surety would have been released by any other event
7. Having been authorized to do so by an Order of the Mayor's and City of
London Court Case number MY 971275 made on 20th August 1999 under the
provisions of Section 38(4) of the Landlord and Tenant Act 1954 (as
amended by the Law of Property Act 1969) the parties hereto agree that
the provisions of Sections 24 to 28 (inclusive) of that Act shall be
excluded in relation to the tenancy hereby created
8. This Underlease shall be governed by and construed in accordance with
English law and each party agreed to submit to the exclusive
jurisdiction of the English courts as regards any claim or matter
arising under this Underlease
9. The parties certify that there is no agreement for lease to which
this Underlease gives effect
IN WITNESS whereof the parties hereto have duly executed this Underlease as a
deed the day and year first before written
7
<PAGE> 9
THE FIRST SCHEDULE
("the Demised Premises")
ALL THOSE premises comprising part first floor of the Premises and shown for the
purposes of identification only edged red on the plan annexed to this Underlease
and comprising:
1. the paint paper and other decorative finishes applied to the interior of
the external walls and columns of the Premises but not any other part of
the external walls and columns
2. the floor finishes but nothing below them
3. the ceiling finishes and any suspended ceilings but nothing above the
ceiling finishes
4. any non-load-bearing internal walls wholly within the Demised Premises
5. the inner half of the internal non-load-bearing walls dividing the Demised
Premises from other parts of the Premises
6. the doors and door frames and internal window fittings
7. all additions and improvements
8. all fittings installed by the Landlord and/or the Superior Landlord
9. all fixtures (whether or not fixed to the property at the commencement of
the term) except any installed by the Tenant that can be removed without
defacing the Demised Premises
10. any Conduits (as defined in the Lease) wholly in the Demised Premises that
exclusively serve the Demised Premises
THE SECOND SCHEDULE
(Rights Granted)
1. The rights granted by paragraph 1 of Schedule 1 to the Lease
2. The right to use the passenger lift and the stairways shown hatched blue
on the plan annexed to this Underlease between the ground and first floors
of the
8
<PAGE> 10
premises only for proper purposes in connection with the use of the
Demised Premises.
3. The right to use the toilets situated on the first floor of the Premises.
4. The right to use sixty (60) car parking spaces within the curtilage of the
Premises for the purposes of parking private motor cars only belonging to
personnel working at or visiting the Demised Premises such car parking
spaces to be in the positions designated from time to time in writing by
the Landlord.
5. The right to display the Tenant's name and logo on an external sign in the
landscaped area at the front of the premises in such position and of such
size and design as the Landlord shall previously approve in writing (such
approval not to be unreasonably withheld or delayed) and to display its
name on any directory board maintained by the Landlord in the main
entrance area in the Premises.
6. The right of support and shelter from the Premises as enjoyed at the date
of this Underlease.
7. For so long as the Tenant is also the tenant of part of the ground floor
of the Premises demised by an underlease of even date herewith the right
to install and retain data and voice cabling connecting the Demised
Premises to such first floor premises within the existing riser ducts in
the Premises the Tenant making good any damage caused in the exercise of
this right.
THE THIRD SCHEDULE
(Rights Excepted and Reserved)
1. The matters referred to in Schedule 2 to the Lease.
2. The right to the transmission of utilities from and to the remainder of the
Premises through the Conduits (as defined aforesaid) that are now or may
during the term be on the Demised Premises.
3. The right for Landlord at all reasonable times upon reasonable prior notice
to enter the Demised Premises with or without workmen plant and materials
for the purposes of complying with its obligations contained in the Lease
or for carrying out alterations or to have access for any purpose to the
switch room
9
<PAGE> 11
risers or other parts of the Demised Premises or for the purposes set out
in Clause 4.9 of the Lease (as the same has effect in this Underlease)
4. The right to erect scaffolding for altering refurbishing re-fitting
repairing or cleaning the Premises provided that such scaffolding shall not
restrict access to or the use and enjoyment of the Demised Premises by the
Tenant
5. The right to alter refurbish re-fit and repair the Premises even if this
affects the light and air coming to the Demised Premises or temporarily
causes nuisance damage annoyance or inconvenience to the Tenant by noise
dust vibration or otherwise provided this does not materially affect the
Tenant's ability to use the Demised Premises for any purpose permitted by
this Underlease
6. The right in an emergency to pass through the Demised Premises in
accordance with any regulations or requirements of any competent authority
7. The right of support and protection from time to time enjoyed by other
parts of the Premises
THE FOURTH SCHEDULE
(Matters to which the Demised is subject)
The matters referred to in Schedule 3 to the Lease
THE FIFTH SCHEDULE
(Services)
1. Repairing the exterior and structure of the Premises including roofs
foundations load-bearing walls and columns external walls cladding floors
ceilings windows (excluding internal window fixings) and all other
structural parts (but excluding the finishes applied to the internal walls
ceilings and floors in the Demised Premises)
2. Repairing the outer half of all non-load-bearing walls that separate the
Demised Premises from other parts of the Premises
10
<PAGE> 12
3. Maintaining repairing cleaning decorating and lighting all parts of the
Premises over which the Tenant is granted rights in this Underlease
including the car park to a reasonable standard
4. Maintaining cleaning overhauling and serving all plant and service
conducting media in the Premises including the lifts
5. Cleaning the exterior of all windows and window frames of the Demised
Premises on a monthly basis
6. Providing air conditioning and heating to the Demised Premises to such
temperatures between the hours of 9:00 a.m. and 5:30 p.m. on normal working
days and between such dates as the Landlord may reasonably decide and
(subject to the Tenant meeting the proper costs of the same) at such other
times as may be requested by the Tenant
7. Maintaining repairing cleaning decorating and lighting the toilets on the
first floor of the Premises to a reasonable standard and to supply hot and
cold water and washing and toilet needs in the same
8. Providing and maintaining fire protection and fire fighting equipment in
the Premises (excluding the Demised Premises)
9. Keeping all landscaped areas tidy
10. Providing such security arrangements in the Premises as Landlord considers
adequate
11. Providing a reception desk in the entrance hall in the Premises that is
staffed during normal business hours
SIGNED as a deed by LSI LOGIC )
EUROPE LIMITED acting by a )
Director and its Secretary or )
two Directors )
Director Agent of LSI Logic Europe Limited
Secretary A.D. Brown
11
<PAGE> 1
EXHIBIT 10.20
Dated 20th August 1999
LSI LOGIC EUROPE LIMITED
to
REMEDY UK LIMITED
with
REMEDY CORPORATION
as Surety
----------------------------------
UNDERLEASE
relating to part ground and part
first floors Greenwood House
London Road Bracknell
----------------------------------
[LOGO OF CANNINGS CONNOLLY SOLICITORS]
Hillgate House 26 Old Bailey London EC4M 7HQ
Tel 0171-329 9000 Fax 0171-329-5000
<PAGE> 2
THIS UNDERLEASE is made on the 20th day of August, 1999
BETWEEN LSI LOGIC EUROPE LIMITED (Company No. 1633351) whose registered office
is at Greenwood House London Road Bracknell Berkshire RG12 2UB ("the Landlord"
which expression shall where the context so admits include the person for the
time being entitled to the reversion immediately expectant on the expiry of the
term hereby created) of the first part REMEDY UK LIMITED (Company No. 3207994)
whose registered office is at 100 New Bridge Street London EC4V 6JA ("the
Tenant" which expression shall where the context so admits include its
successors in title and assigns) of the second part and REMEDY CORPORATION a
company incorporated according to the laws of Delaware whose principal place of
business is at 1505 Salado Drive, Mountain View, California CA-94043 and whose
address for service in England and Wales is c/o Baker McKenzie (Ref PWS) 100
New Bridge Street London EC4V 6JA ("the Surety") or the third part
WHEREAS:
(1) By a Lease ("the Lease") dated 13th January 1997 and made between Scottish
Amicable Life Assurance Limited ("the Superior Landlord" which expression
shall where the context so admits include its successors in title and
assigns) (1) and the Landlord (2) ALL THAT piece or parcel of land together
with the building thereon known as Greenwood House London Road Bracknell
Berkshire which is for identification purposes only shown edged red on the
plan annexed to the Lease ("the Premises") were demised to the Landlord for
a term of twenty-five years from 25th December 1996
(2) The Premises remain vested in the Landlord for the unexpired residue of
the said term created by the Lease subject to the rents and covenants and
conditions on the part of the tenant reserved by and contained in the
Lease.
NOW THIS DEED WITNESSETH as follows:
1. In consideration of the rents covenants and conditions hereinafter reserved
and contained and on the part of the Tenant to be paid observed and
performed the Landlord HEREBY DEMISES unto the Tenant ALL THOSE premises
described in the First Schedule hereto ("the Demised Premises") TOGETHER
WITH the rights set out in the Second Schedule hereto in common with the
Superior Landlord the Landlord and any persons respectively authorised
thereby and any
<PAGE> 3
other person having the like rights EXCEPT AND RESERVED unto the Superior
Landlord the Landlord and all persons authorised thereby and anyone
otherwise entitled thereto the rights set out in the Third Schedule hereto
TO HOLD the same unto the Tenant for a term of years from and including 1st
August 1999 to and including 12th January 2003
SUBJECT TO the matters referred to in the Fourth Schedule hereto YIELDING
AND PAYING therefor during the said term:
1.1 The yearly rent of FOUR HUNDRED AND FOURTEEN THOUSAND FOUR HUNDRED AND
EIGHTY-FOUR POUNDS (L414,484) (subject to review in accordance with Clause
3 of the Lease as applied herein) by equal quarterly payments in advance on
the usual quarter days the first of such payments or a proportionate part
thereof in respect of the period commencing on 20th November 1999 and
ending on 24th December 1999 to be made on 20th November 1999
1.2 By way of further and additional yearly rent within fourteen days of demand
an amount equivalent to twenty-two decimal point four seven (22.47%) of the
yearly rents reserved by Clauses 2.2 and 2.3 of the Lease payable at the
same time as the said yearly rents reserved by the Lease are payable
1.3 By way of further and additional rent the yearly rent of FORTY-SEVEN
THOUSAND THREE HUNDRED AND SEVENTY POUNDS (L47,370) by way of service
charge by equal quarterly payments in advance on the usual quarter days the
first of such payments or proportionate part thereof in respect of the
period commencing on the date of this Underlease and ending on the day
preceding the quarter day next following to made on the date of this
Underlease
1.4 By way of further and additional rent interest at the yearly rate of Four
pounds per centum per annum above the base rate for the time being of
Barclays Bank Plc upon all rents hereinbefore reserved and other payments
due to the Landlord under the provisions of this Underlease not paid within
seven days from and including the date upon which the same ought to have
been paid with effect from the date or dates upon which the same become
payable until the date on which payment
2
<PAGE> 4
thereof is received by the Landlord (as well after as before any
judgment) such interest to be payable on demand
1.5 Upon the production of a valid value added tax invoice addressed to
Tenant value added tax on any of the foregoing
2.1 Save as mentioned herein this Underlease shall be subject to the
covenants on the part of the Tenant exactly similar to those covenants
on the part of the tenant contained in the Lease (with the exception
of those relating to payment of rent) it being the intention of the
parties hereto that this Underlease shall be on the basis that the
covenants of the tenant within the Lease are deemed to be repeated
herein in full insofar as they related to the Demised Premises and are
consistent with a subletting of part and the Tenant enters into
exactly similar covenants as those on the part of the tenant contained
in the Lease BUT so that the following variations to the said
covenants shall apply in this Underlease:
2.1.1 the covenants on the part of the Tenant contained in this Underlease
by virtue of the above will be covenants by the Tenant with the
Landlord and reference within the said covenants to "the Landlord" and
"the Tenant" shall be to the Landlord herein and the Tenant
respectively but so that where:
2.1.1.1 the consent of the Landlord is required to the doing of any act or the
carrying out of any works or for any other reason or
2.1.1.2 works have to be carried out or anything has to be done to the
satisfaction or to the approval of the Landlord or
2.1.1.3 the Landlord is entitled to enter on to the Demised Premises for any
reason or reserves to itself the right to enter on to the Demised
Premises
then reference to "the Landlord" in all such cases shall mean the
Landlord and the Superior Landlord and each of them and where any
consent or approval may not be unreasonably withheld under the Lease
then the same qualification shall apply to any consent or approval
required under this Underlease
2.1.2 Clauses 4.1(a) and (b) 4.3(a)(v) and (vi 5.2 5.3 7.1 7.2(i) and 9 of
the Lease shall not apply or have effect within this Underlease
2.1.3 the following Clauses of the Lease shall be varied for the purposes of
this Underlease as follows:-
3
<PAGE> 5
Clause 1.1 "Rent" shall mean the sum of the rents reserved by
Clauses 1.1.1.2 and 1.3 of this Underlease
Clause 3 "Existing Rent" shall mean the yearly rent of FOUR
HUNDRED AND FOURTEEN THOUSAND FOUR HUNDRED AND
EIGHTY-FOUR POUNDS (L414,484 ). "Review
Date" shall mean 25th December 2001 and "Demised
Premises" shall mean the Demised Premises as defined in
this Underlease.
Clause 4.3(a)(iv) the words "both" and "and the outside" shall be deleted
Clause 4.3(a) the following shall be added at the end of Clause
4(3)(a): "PROVIDED THAT nothing in the foregoing
provisions shall oblige the Tenant to put or keep the
Demised Premises into a better state or condition than
as at the date hereof as evidenced by the Schedule of
Condition dated 16th July 1999 prepared by Vail
Williams a copy of which has been initialled on behalf
of the parties"
Clause 4.8(d)(i)&(ii) the words "without the consent of the Landlord such
consent not to be unreasonably withheld or delayed"
shall be deleted
Clause 5.4 the words "underlease (however inferior) surrenders"
shall be deleted
2.1.4 references in Clause 7.2 and 7.3 to insurances or policies effected by
the Landlord or risks or perils insured against by the Landlord or
against which the Landlord shall have maintained insurance shall in
all cases be references to insurances or policies effected by the
Superior Landlord or risks or perils insured against the by Superior
Landlord
2.2 The following covenants shall have effect as covenants on the part of
the Tenant herein:
2.3.1 to keep perform and observe the covenants terms and conditions on the
part of the tenant contained in the Lease so far as the same relate
to the Demised Premises
4
<PAGE> 6
with the exception of the covenants referred to in Clause 2.1.2 of this
Underlease and as varied by Clauses 2.1.3 and 2.1.4 of this Underlease and
to keep the Landlord indemnified against all costs liabilities expenses
and damages which result to the Landlord arising out of or in connection
with the Tenant's failure to so keep observe and perform the said
covenants terms and conditions
2.3.2 to comply with such regulations made in accordance with the principles of
good estate management as may be made from time to time by the Landlord
and notified to the Tenant relating to the Premises and/or the car parking
spaces and access thereto PROVIDED THAT nothing hereunder shall entitle
the Landlord to do anything which would amount to a derogation of grant or
interfere with the Tenant's right of quiet enjoyment hereunder
3. The Tenant HEREBY COVENANTS with the Landlord that it will:
3.1 pay the rents as hereinbefore reserved on the days and in the manner
aforesaid without any deduction or exercising any rights of set off
(except as required by law) and if so required by the Landlord pay the
rent first hereinbefore reserved by bankers' standing order or credit
transfer to such bank and account in the United Kingdom as the Landlord
shall from time to time nominate
3.2 not to underlet or share possession or occupation of the whole or any
part of the Demised Premises
4. The Landlord HEREBY COVENANTS with the Tenant that:
4.1 subject to the payment by the Tenant of the rents hereinbefore reserved
and provided that the Tenant has complied with all the covenants and
conditions herein contained and on the part of the Tenant to be observed
the Tenant shall and may peaceably hold and enjoy the Demised Premises
during the term hereby created without any interruptions by the Landlord
or any person lawfully claiming through under or in trust for it or by
title paramount
4.2 The Landlord will if so requested by the Tenant use all reasonable
endeavours to enforce the covenants entered into by the Superior Landlord
in the Lease
4.3 the Landlord shall observe and perform the covenants in the Lease save in
so far as they are the responsibility of the Tenant pursuant to this
Underlease
5
<PAGE> 7
4.4 Subject to an indemnity for costs from the Tenant at the request and
cost of the Tenant to use reasonable endeavours to obtain from the
Superior Landlord all licences which are necessary to enable the
Landlord to grant any licence to the Tenant under this Underlease for
which the Landlord's consent under this Underlease is not to be
unreasonably withheld or delayed
4.5 throughout the term to provide the services listed in the Fifth
Schedule in a proper and efficient manner and (where appropriate)
using good and suitable materials PROVIDED THAT the Landlord shall not
be liable to the Tenant for any breach of its obligations in this
Clause 4.5 where the breach was caused by something beyond the
Landlord's control (provided the Landlord uses reasonable endeavours
to remedy the breach as soon as is reasonably practicable)
5. The parties hereto hereby agree and declare that this Underlease is
made subject to exactly similar provisos agreements and provisions
(herein between the Landlord and the Tenant) as are contained in
Clause 7.3 and Clause 8 of the Lease as if the same were herein
repeated in full
6.1 The Surety covenants with the Landlord named in this Underlease
throughout the Term and any extension by statute of the tenancy
created by this Underlease and (without the need for any express
assignment) with all of its successors in title:
6.1.1 if the Tenant does not pay the rents reserved by this Underlease or
any other sum due under this Underlease on the date on which it is due
to pay to the Landlord on demand the rents or other sum and the
expression "other sum" includes (without limitation) any sum that the
Tenant is ordered to pay in any proceedings arising out of this
Underlease or agreed to pay by way of settlement of those proceedings
6.1.2 if the Tenant is in breach of any provision of this Underlease to
remedy that breach on demand and to indemnify and keep indemnified the
Landlord against all losses costs and expenses suffered by the
Landlord as a result (directly or indirectly) of that breach
6.1.3. in addition to the obligations set out in clauses 6.1.1 and 6.1.2 of
this Underlease is disclaimed by the Tenant's trustee in bankruptcy or
liquidator:
6
<PAGE> 8
6.1.3.1 to pay to the Landlord on demand an amount equal to the rents and
other sums of a recurring nature that would have been payable
under this Underlease for the period beginning on the date of
disclaimer and ending on the earliest of:
6.1.3.1.1 the date upon which the Demised Premises are re-let
6.1.3.1.2 three months from the date of disclaimer
6.1.3.2 if requested by the Landlord within ninety days of disclaimer to
take from the Landlord an Underlease of the Demised Premises from
the date of disclaimer for the residue of the Term at the rents
payable at the time if disclaimer and upon the same terms as
those contained in this Underlease with all provisions of a
periodical nature expressed to apply on the actual dates that
would have applied if this Underlease had not been disclaimed
6.1.3.3 to pay the reasonable and proper costs of the Landlord incurred
in relation to the disclaimer and where appropriate the grant of
the lease to the Surety
6.2 The obligations of the Surety set out in Clause 6.1 will
continue to apply even if:
6.2.1 the Landlord grants any time or indulgence to the Tenant or fails
to enforce payment of the rents or other sum or the performance
of the terms of this Underlease
6.2.2 the Landlord refuses to accept the rents tendered when the
Landlord was entitled (or would after the service of a notice
under the Law of Property Act 1925 Section 146 be entitled) to
re-enter the Demised Premises
6.2.3 the terms of this Underlease are varied
6.2.4 the Tenant surrenders part of the Demised Premises and where this
happens the liability of the Surety under this Underlease
continues for the part of the Demised Premises not surrendered
after making any necessary apportionments under the Law of
Property Act 1926 Section 140
6.2.5 the Surety would have been released by any other event
7. Having been authorised to do so by an Order of the Mayor's and
City of London Court Case Number M7970560 made on 6th August 1999
under the provisions of Section 38(4) of the Landlord and Tenant
Act 1954 (as amended by the Law of Property Act 1969) the parties
hereto agree that the
7
<PAGE> 9
provisions of Sections 24 to 28 (inclusive) of that Act shall be excluded
in relation to the tenancy hereby created
8. This Underlease shall be governed by and construed in accordance with
English law and each party agreed to submit to the exclusive jurisdiction
of the English courts as regards any claim or matter arising under this
Underlease
9. The parties certify that there is no agreement for lease to which this
Underlease gives effect
IN WITNESS whereof the parties hereto have duly executed this Underlease as a
deed of the day and year first before written.
THE FIRST SCHEDULE
("the Demised Premises")
ALL THOSE premises comprising part ground and part first floor of the Premises
and shown for the purposes of identification only edged red on the plan annexed
to this Underlease and comprising:-
1. the paint paper and other decorative finishes applied to the interior of
the external walls and columns of the Premises but not any other part of
the external walls and columns
2. the floor finishes but nothing below them
3. the ceiling finishes and any suspended ceilings but nothing above the
ceiling finishes
4. any non-load-bearing internal walls wholly within the Demised Premises
5. the inner half of the internal non-load-bearing walls dividing the Demised
Premises from other parts of the Premises
6. the doors and door frames and internal window fittings
7. all additions and improvements
8. all fittings installed by the Landlord and/or the Superior Landlord
8
<PAGE> 10
9. all fixtures (whether or not fixed to the property at the commencement of
the term) except any installed by the Tenant that can be removed without
defacing the Demised Premises
10. any Conduits (as defined in the Lease) wholly in the Demised Premises
that exclusively serve the Demised Premises
THE SECOND SCHEDULE
(Rights Granted)
1. The right granted by paragraph 1 of Schedule 1 to the Lease
2. The right to use the stairway shown hatched blue on the plan annexed to
this Underlease between the ground and first floors of the premises only
for proper purposes in connection with the use of the Demised Premises
3. The right to use the toilets situated on the ground and first floors of
the Premises
4. The right to use sixty (60) car parking spaces within the curtilage of
the Premises for the purposes of parking private motor cars only
belonging to personnel working at or visiting the Demised Premises such
car parking spaces to be in the positions designated from time to time in
writing by the Landlord
5. The right to display the Tenant's name and logo on an external sign in
the landscaped area at the front of the premises in such position and of
such size and design as the Landlord shall previously approve in writing
(such approval not to be unreasonably withheld or delayed) and to display
its name on any directory board maintained by the Landlord in the main
entrance area in the Premises.
6. The right of support and shelter from the Premises as enjoyed at the date
of this Underlease
7. For so long as the Tenant is also the tenant of part of the first floor
of the Premises demised by an underlease of even date herewith the right
to instal and retain data and voice cabling connecting the Demised
Premises to such first floor premises within the existing riser ducts in
the Premises the Tenant making good any damage caused in the exercise of
this right
9
<PAGE> 11
THE THIRD SCHEDULE
(Rights Excepted and Reserved)
1. The matters referred in Schedule 2 to the Lease
2. The right to the transmission of utilities from and to the remainder of the
Premises through the Conduits (as defined aforesaid) that are now or may
during the term be on the Demised Premises
3. The right for the Landlord at all reasonable times upon reasonable prior
notice to enter the Demised Premises with or without workmen plant and
materials for the purposes of complying with its obligations contained in
the Lease or for carrying out alterations or to have access for any purpose
to the switch room risers or other parts of the Demised Premises or for the
purposes set out in Clause 4.9 of the Lease (as the same has effect in this
Underlease)
4. The right to erect scaffolding for altering refurbishing re-fitting
repairing or cleaning the Premises provided that such scaffolding shall not
restrict access to or the use and enjoyment of the Demised Premises by the
Tenant
5. The right to alter refurbish re-fit and repair the Premises even if this
affects the light and air coming to the Demised Premises or temporarily
causes nuisance damage annoyance or inconvenience to the Tenant by noise
dust vibration or otherwise provided this does not materially affect the
Tenant's ability to use the Demised Premises for any purpose permitted by
this Underlease
6. The right in an emergency to pass through the Demised Premises in
accordance with any regulations or requirements of any competent authority
7. The right of support and protection from time to time enjoyed by other
parts of the Premises
THE FOURTH SCHEDULE
(Matters to which the Demised is subject)
The matters referred to in Schedule 3 to the Lease
10
<PAGE> 12
THE FIFTH SCHEDULE
(SERVICES)
1. Repairing the exterior and structure of the Premises including roofs
foundations load-bearing walls and columns external walls cladding floors
ceilings windows (excluding internal window fixings) and all other
structural parts (but excluding the finishes applied to the internal walls
ceiling and floors in the Demised Premises)
2. Repairing the outer half of all non-load-bearing walls that separate the
Demised Premises from the other parts of the Premises
3. Maintaining repairing cleaning decorating and lighting all parts of the
Premises over which the Tenant is granted rights in this Underlease
including the car park to a reasonable standard
4. Maintaining cleaning overhauling and servicing all plant and service
conducting media in the Premises including the lifts
5. Cleaning the exterior of all windows and window frames of the Demised
Premises on a monthly basis
6. Providing air conditioning and heating to the Demised Premises to such
temperatures between the hours of 9:00 a.m. and 5:30 p.m. on normal working
days and between such dates as the Landlord may reasonably decide and
(subject to the Tenant meeting the proper costs of the same) at such other
times as may be requested by the Tenant
7. Maintaining repairing cleaning decorating and lighting the toilets on the
first floor of the Premises to a reasonable standard and to supply hot and
cold water and washing and toilet needs in the same
8. Providing and maintaining fire protection and fire fighting equipment in
the Premises (excluding the Demised Premises)
9. Keeping all landscaped areas tidy
10. Providing such security arrangements in the Premises as Landlord considers
adequate
11
<PAGE> 13
11. Providing a reception desk in the entrance hall in the Premises that is
staffed during normal business hours.
SIGNED as a deed by LSI LOGIC )
EUROPE LIMITED acting by a )
Director and its Secretary or )
two Directors )
Director /s/ Agent of LSI Logic
Europe Limited
--------------------------
Secretary /s/ A.D. Brown
--------------------------
12
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
REMEDY GMBH
REMEDY CANADA, LTD.
REMEDY KK, LTD.
REMEDY PTE, LTD.
REMEDY PTY., LTD.
REMEDY INTERNATIONAL, LTD.
REMEDY SOFTWARE IRELAND, LTD.
REMBAY ACQUISITION CORPORATION
REMEDY ACQUISITION CORPORATION
REMEDY CAYMAN, LTD.
REMEDY SARL
REMEDY SRL
REMEDY SOFTWARE SOLUTIONS BV
REMEDY SPAIN S.L.
REMEDY SOFTWARE AB
REMEDY UK, LTD.
REMEDY HK, LTD.
REMEDY FSC, LTD., A BARBADOS CORPORATION
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 File Nos. 33-90378, 33-91560, 333-29191, 333-4148 and 333-56931)
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 20, 2000 with respect to the
consolidated financial statements and schedule of Remedy Corporation included in
the Annual Report on Form 10-K for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements included in the Company's annual report and
is qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 47,302
<SECURITIES> 125,116
<RECEIVABLES> 65,604
<ALLOWANCES> 1,499
<INVENTORY> 0
<CURRENT-ASSETS> 250,737
<PP&E> 35,833
<DEPRECIATION> 20,888
<TOTAL-ASSETS> 287,487
<CURRENT-LIABILITIES> 72,924
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 214,538
<TOTAL-LIABILITY-AND-EQUITY> 287,487
<SALES> 141,451
<TOTAL-REVENUES> 228,933
<CGS> 6,869
<TOTAL-COSTS> 44,005
<OTHER-EXPENSES> 40,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 43,811
<INCOME-TAX> 14,288
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,523
<EPS-BASIC> 1.02
<EPS-DILUTED> 0.95
</TABLE>
