FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-15997
FILENET CORPORATION
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 95-3757924
FILENET CORPORATION
3565 Harbor Boulevard
Costa Mesa, CA 92626
(714) 966-3400
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 the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common stock 14,997,327 as of August 8, 1996
<PAGE>
FILENET CORPORATION
Index
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
as of June 30, 1996 and December 31, 1995....................... 1
Consolidated Statements of Operations for the fiscal quarters
and six months ended June 30, 1996 and July 2, 1995............. 2
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and July 2, 1995.................................. 3
Notes to Consolidated Financial Statements...................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 11
Item 4. Submission of Matters to a Vote of Securities Holders........... 11
Item 5. Certain Considerations.......................................... 12
Item 6. Exhibits and Reports on Form 8-K................................ 15
SIGNATURE....................................................... 16
INDEX TO EXHIBITS............................................... 17
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
FILENET CORPORATION
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 26,860 $ 43,378
Short-term marketable securities................................ 26,129 28,782
------ ------
Total cash and short-term marketable securities............. 52,989 72,160
------ ------
Accounts receivable, net........................................ 65,385 53,501
Inventories..................................................... 7,426 6,620
Prepaid expenses and other...................................... 9,884 6,573
Deferred income taxes........................................... 3,735 3,735
----- -----
Total current assets................................................. 139,419 142,589
------- -------
Net property and equipment........................................... 26,664 25,796
Other assets:
Capitalized software, net....................................... 895 1,226
Long-term marketable securities................................. 16,998 18,395
Other........................................................... 1,928 1,676
----- -----
Total other assets................................................... 19,821 21,297
------ ------
Total assets......................................................... $185,904 $189,682
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 13,604 $ 16,073
Accrued liabilities:
Compensation................................................ 12,017 10,997
Income taxes payable........................................ 2,312 2,228
Unearned maintenance revenue................................ 7,842 5,761
Royalties................................................... 4,604 3,572
Other....................................................... 18,211 17,604
------ ------
Total current liabilities............................................ 58,590 56,235
------ ------
Deferred income taxes................................................ 2,346 2,289
Stockholders' equity:
Convertible preferred stock - $.001 par value; authorized,
39,000,000 shares; 35,232,029 issued and outstanding shares
and 1,531,536 common equivalent shares at the liquidation
preference at December 31, 1995............................. - 19,879
Common stock - $.01 par value; authorized, 100,000,000 shares;
issued and outstanding 15,091,088 and 13,254,222 shares at
June 30, 1996 and December 31, 1995, respectively........... 123,883 100,719
Retained earnings............................................... 1,211 10,518
Other........................................................... (126) 42
---- --
Total stockholders' equity........................................... 124,968 131,158
------- -------
Total liabilities and stockholders' equity........................... $185,904 $189,682
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FILENET CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Quarter Ended Six Months Ended
-------------------- ---------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenue:
Software revenue........................... $33,035 $28,183 $ 70,153 $ 51,757
Service revenue............................ 20,093 17,439 37,308 31,966
Hardware revenue........................... 11,869 10,499 24,280 20,819
------ ------ ------ ------
Total revenue................................... 64,997 56,121 131,741 104,542
------ ------ ------- -------
Costs and expenses:
Cost of software revenue................... 4,781 3,723 8,644 7,191
Cost of service revenue.................... 12,344 12,309 23,794 21,735
Cost of hardware revenue................... 7,378 7,410 15,597 13,414
Research and development................... 9,057 6,002 17,479 10,702
Selling, general and administrative........ 28,849 24,021 58,876 44,629
Merger, restructuring and write-off of
purchased in-process research and
development costs........................ - - 16,011 -
------ ------ ------ ------
Total costs and expenses........................ 62,409 53,465 140,401 97,671
------ ------ ------- ------
Operating income (loss) 2,588 2,656 (8,660) 6,871
Other income, net.......................... 763 698 1,594 1,325
--- --- ----- -----
Income (loss) before income taxes............... 3,351 3,354 (7,066) 8,196
Provision for income taxes...................... 838 2,023 2,241 3,716
--- ----- ----- -----
Net income (loss)............................... $ 2,513 $ 1,331 $(9,307) $ 4,480
======= ======= ======= =======
Net income (loss) per share..................... $ 0.15 $ 0.09 $ (0.62) $ 0.29
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding.............. 16,366 15,655 15,021 15,544
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FILENET CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 30, 1996 July 2, 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ (9,307) $ 4,480
Adjustments to reconcile net income (loss) to net cash
(used by) provided by operating activities:
Write-off of purchased in-process research and
development and associated acquisition costs................... 10,011 -
Depreciation and amortization................................... 5,628 5,010
Capitalized software amortization............................... 331 1,800
Provision for losses on accounts receivable..................... 108 505
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable........................................ (11,992) (841)
Inventories................................................ (806) (1,720)
Prepaid expenses........................................... (3,311) (2,228)
Accounts payable........................................... (2,469) (442)
Accrued liabilities:
Compensation........................................... 1,020 (160)
Income taxes payable................................... 84 1,934
Unearned maintenance revenue........................... 2,081 1,915
Royalties.............................................. 1,032 737
Other...................................................... 2,347 (2,266)
----- ------
Net cash (used by) provided by operating activities...................... (5,243) 8,724
------ -----
Cash flows from investing activities:
Proceeds from sale of equipment..................................... 2,887 83
Capital expenditures................................................ (9,327) (6,290)
Capitalized software................................................ - (1,600)
Payment for purchase of IFSL........................................ (11,711) -
Purchase of marketable securities................................... (15,214) (11,476)
Proceeds from maturity of marketable securities..................... 18,805 15,095
------ ------
Net cash used by investing activities.................................... (14,560) (4,188)
------- ------
Cash flows from financing activities:
Debt repayments, net................................................ - (163)
Proceeds from issuance of common stock.............................. 3,285 5,224
----- -----
Net cash provided by financing activities................................ 3,285 5,061
----- -----
Net increase (decrease) in cash and cash equivalents..................... (16,518) 9,597
Cash and cash equivalents, beginning of year............................. 43,378 24,950
------ ------
Cash and cash equivalents, end of period................................. $ 26,860 $ 34,547
======== ========
Supplemental cash flow information:
Interest paid....................................................... $ 217 $ 112
Income taxes paid................................................... $ 2,440 $ 2,141
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FILENET CORPORATION
Notes To Consolidated Financial Statements
1. In the opinion of the management of FileNet Corporation ("the Company"),
the accompanying unaudited consolidated financial statements reflect
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial position of the Company at June 30, 1996 and
the results of its operations for the fiscal quarters and six months ended
June 30, 1996 and July 2, 1995 and its cash flows for the six months ended
June 30, 1996 and July 2, 1995. Certain information and footnote
disclosures normally included in financial statements have been condensed
or omitted pursuant to rules and regulations of the Securities and Exchange
Commission ("SEC"), although the Company believes that the disclosures in
the consolidated financial statements are adequate to ensure the
information presented is not misleading. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
with the Form S-4 Registration Statement filed by the Company with the SEC
on January 17, 1996, as amended January 24, 1996, and with the Company's
Current Report on Form 8-K, dated March 1, 1996, and filed by the Company
with the SEC on March 13, 1996. The results of operations for the interim
periods are not necessarily indicative of the operating results for the
year.
2. Certain reclassifications have been made to the prior year's consolidated
financial statements to conform with the current year's presentation.
3. Net income per share for the quarter ended June 30, 1996 and for the
quarter and six months ended July 2, 1995 was computed using the weighted
average number of common and common equivalent shares outstanding during
the period. Common equivalent shares include convertible preferred stock
and stock options. Net loss per share for the six months ended June 30,
1996 was based upon the weighted average number of actual shares of common
stock outstanding.
4. On January 30, 1996, the Company purchased all of the outstanding shares of
International Financial Systems Ltd. ("IFSL"), a New York corporation , the
developer of a Computer Output to Laser Disk (COLD) software product for
archiving documents. Pursuant to the Stock Purchase Agreement, the IFSL
stockholders received $11.2 million in cash for all of their IFSL stock.
The acquisition was accounted for as a purchase, and the purchase price was
allocated to net assets of $1.7 million and in-process research and
development costs of $9.5 million. As a result of the acquisition, the
Company recorded a pre-tax charge of approximately $10.0 million for
acquisition costs and the write-off of purchased in-process research and
development costs.
5. On March 1, 1996, the Company acquired all the outstanding shares of
Saros Corporation ("Saros"), a Washington corporation (the "Saros
Acquisition"). The Saros Acquisition was consummated pursuant to an
Agreement and Plan of Merger (the "Saros Merger Agreement") dated January
17, 1996 by and among Saros, the Company, and FileNet Acquisition
Corporation ("Acquisition Corp."), a Washington corporation and
wholly-owned subsidiary of the Company. Pursuant to the Saros Merger
Agreement, Acquisition Corp. was merged with and into Saros, with Saros
surviving as a wholly-owned subsidiary of the Company. The Saros
stockholders received an aggregate of approximately 1,878,000 shares of the
Company's common stock and approximately 337,000 options to purchase
the Company's common stock in exchange for all of their Saros stock and
options.
4
<PAGE>
Approximately 188,000 of the total number of the Company's shares issued to
the Saros stockholders (the "Saros Escrow Shares") were placed in an escrow
account upon consummation of the Saros Acquisition. Pursuant to the escrow
agreement entered into by the Company, the stockholders' agent and the
escrow agent, the Company may recover from the escrow up to the entire
amount of Saros Escrow Shares in the event the Company incurs any loss,
expense, liability or other damages (collectively, "Damages") due to a
breach by Saros of any of its representations, warranties and covenants in
the Saros Merger Agreement in the event Damages exceed $1.0 million in the
aggregate. If no claim for Damages is made by the Company within one year
from the date of the Merger, the Saros Escrow Shares will be released from
escrow and distributed to the Saros stockholders.
The Saros Acquisition was accounted for as a pooling-of-interests for
financial reporting purposes. The pooling-of-interests method of accounting
is intended to present as a single interest two or more common
stockholders' interests which were previously independent; accordingly, the
historical financial statements for the periods prior to the acquisition
have been restated as though the companies had been combined. Fees and
expenses related to the Saros Acquisition and restructuring costs incurred
in connection with the consolidation of certain operations of Saros and
Watermark Software Inc. ("Watermark"), a Delaware corporation, were $6.0
million. The components of this charge include professional fees,
elimination of duplicate facilities, write-off of certain contractual
obligations and settlement costs, write-off of certain fixed assets
(including redundant hardware and software systems), transition and
severance payments to employees and other integration and restructuring
costs.
6. Subsequent to June 30, 1996, Watermark, formerly a wholly-owned subsidiary
of the Company, was merged into the Company.
7. Subsequent to June 30, 1996, the Company's Board of Directors authorized
the Company to repurchase up to 200,000 shares of its common stock. These
shares will be purchased from time to time at prevailing market prices,
through the open market or unsolicited negotiated transactions, depending
on market conditions. As of August 13, 1996, the Company had purchased
100,000 shares at an aggregate cost of $2,280,625.
8. In October 1994, Wang Laboratories, Inc. ("Wang") filed a complaint in the
United States District Court for the District of Massachusetts alleging
that the Company is infringing five patents held by Wang. On June 23, 1995,
Wang amended its complaint to include an additional related patent. On July
2, 1996, Wang filed a complaint in the same court alleging that Watermark
is infringing three of the same patents plead in the Company's initial
case. Based on the Company's analysis of these Wang patents and their
respective file histories, the Company believes that it has meritorious
defenses to Wang's claims; however, the ultimate outcome or any resulting
potential loss cannot be determined at this time. If it should be
determined that Wang's patents are valid and are infringed by any of the
Company's products, including Watermark products, the Company will,
depending on the product, redesign the infringing products or seek to
obtain a license to market the products.
The Company, in the normal course of business, is subject to various other
legal matters. While the results of litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of
these other matters will not have a materially adverse effect on the
Company's consolidated results of operations or financial condition.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FILENET CORPORATION
The following should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included in Part I--Item 1 of this
Quarterly Report, the audited consolidated financial statements, and notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, the Form S-4 Registration Statement
filed by the Company with the SEC on January 17, 1996, as amended January 24,
1996, and with the Company's Current Report on Form 8-K, dated March 1, 1996,
and filed by the Company with the SEC on March 13, 1996.
Results of Operations
Factors That May Affect Future Results. Future operating results will depend
upon many factors, including the demand for the Company's products, the level of
price competition, the length of the Company's sales cycle, seasonality of
individual customer buying patterns, the size and timing of individual
transactions, possible delays or deferrals of customer implementations, the
budget cycles of the Company's customers, the timing of new product
introductions and product enhancements by the Company and its competitors, the
mix of sales by products and distribution channels, the level of international
sales, acquisitions by competitors, changes in foreign currency exchange rates,
the ability of the Company to develop and market new products and control costs,
and general domestic and international economic and political conditions. As a
result of these factors, revenue and operating results for any quarter may
fluctuate significantly. Therefore, 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.
The Company's marketplace continues to be highly competitive. Other companies
offer lower priced products which in some applications compete with FileNet
products. Additionally, major computer suppliers and software companies offer
new competitive document-image, workflow and document management products. The
Company continues to experience competitive pricing pressures in all phases of
its operations and expects competition will continue to increase.
The market for the Company's products is characterized by rapid technological
developments, evolving industry standards, swift changes in customer
requirements and frequent new product introductions and enhancements. The
Company's continued success is dependent upon its ability to enhance its
existing products and to develop and introduce, in a timely manner, new products
incorporating technological advances which meet customer requirements. To the
extent one or more of the Company's competitors introduce products that more
fully address customer requirements, the Company's business could be adversely
affected.
The Company has entered into a number of significant co-marketing relationships
with companies such as Hewlett-Packard Company and Sun Microsystems, Inc. There
can be no assurance that these companies will not reduce or discontinue their
relationship with or support of the Company and its products. Disruption of
these relationships could have a material adverse effect on the Company's
business and operating results.
The Company derives approximately one-third of its total revenue from
international sales. Its international business is subject to certain risks
including varying technical standards, tariffs and trade barriers, political and
6
<PAGE>
economic instability, reduced protection for intellectual property rights in
certain countries, difficulties in staffing and maintaining foreign operations,
difficulties in managing foreign distributors, potentially adverse tax
consequences, foreign currency fluctuations, the burden of complying with a wide
variety of complex foreign laws, regulations and treaties and the possibility of
difficulties in collecting accounts receivable.
The Company acquired Watermark in August 1995 and Saros and IFSL in early 1996.
These acquisitions have presented and continue to present the Company with
numerous challenges, including the effective assimilation of the operations,
technologies and personnel. While the company believes it is taking the
appropriate steps to effectively integrate these operations, difficulties in
integrating these operations have had and could continue to have a negative
impact on the Company's overall financial results.
The Company believes that any of the above factors could have an adverse effect
on the Company's business and cause fluctuation in the Company's operating
results, perhaps substantially. In addition, in recent years the stock market in
general, and the market for shares of high technology stocks in particular, have
experienced extreme fluctuations which have often been unrelated to operating
performance. Such fluctuations could adversely affect the market price of
FileNet's common stock.
Revenue.
Domestic revenues increased 6% in the second quarter and 21% for the first six
months of fiscal 1996 while international revenues increased 41% and 37% in the
second quarter and first six months of fiscal 1996, respectively, when compared
to the corresponding periods in fiscal 1995. International revenues constituted
approximately 34% and 28% of total revenues in the second quarters of fiscal
1996 and 1995, respectively, and 32% and 30% of total revenues in the first six
months of fiscal 1996 and 1995, respectively. Management expects that the
Company's international operations will continue to provide a significant
portion of total revenues. However, international revenues could be adversely
affected if the U.S. dollar strengthens against certain major international
currencies.
<TABLE>
<CAPTION>
(In Millions) ---- Second Quarter ---- ------ Six Months ------
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Software revenue $33.0 $28.2 17% $ 70.1 $51.7 36%
................................ ....................... ........................
Percentage of total revenue 51% 50% 53% 49%
................................ ....................... ........................
Service revenue 20.1 17.4 16% 37.3 32.0 17%
................................ ....................... ........................
Percentage of total revenue 31% 31% 28% 31%
................................ ....................... ........................
Hardware revenue 11.9 10.5 13% 24.3 20.8 17%
................................ ....................... ........................
Percentage of total revenue 18% 19% 19% 20%
................................ ....................... ........................
Total revenue $65.0 $56.1 16% $131.7 $104.5 26%
................................ ....................... ........................
</TABLE>
Software revenue growth in the second quarter of 1996 over the same period of
1995 was 17% and is due to an increase in the volume of product shipments from
the Company, Watermark and Saros product lines, additional revenue generated
through the Company's co-marketing arrangement with Hewlett-Packard Company, and
the addition of new products, reselling partners and direct sales force.
Service revenue increased by 16% for the quarter ended June 30, 1996 over the
same period of 1995. Service revenue consists of revenue from software and
hardware maintenance services provided to the Company's customer installed base
7
<PAGE>
and other revenue that includes professional services, training and supplies.
The increase was due to the growth of the Company's installed base, and the
recognition of $1.0 million of revenue from the sale of spare parts in
connection with the continued transition of hardware maintenance activities to
Hewlett Packard Company. The Company anticipates recognizing an additional $4
million this year from the sale of spare parts. Such sales are not expected to
continue into 1997.
Hardware revenue increased by 13% for the quarter ended June 30, 1996 over the
same period of 1995 primarily due to strong demand for the Company's OSAR
product line. However, hardware revenue as a percent of total revenue declined,
a trend which the Company expects will continue as it focuses on increasing its
higher margin software revenues.
For the six month period ended June 30, 1996, total revenue increased by 26% to
$131.7 million over the same period in 1995. Software and service revenue
increased by 36% and 17%, respectively, due to the reasons cited above. Hardware
revenue increased 17%, and as expected, decreased as a percent of total revenue
to 19% compared to 20% for the same period last year due to the reasons cited
above.
Cost of Revenue.
<TABLE>
<CAPTION>
(In Millions) ---- Second Quarter ---- ------ Six Months ------
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Cost of software revenue $ 4.8 $ 3.7 30% $ 8.6 $ 7.2 19%
...................................... .......................... .........................
As a percentage of software revenue 15% 13% 12% 14%
...................................... .......................... .........................
Cost of service revenue 12.3 12.3 0% 23.8 21.7 10%
...................................... .......................... .........................
As a percentage of service revenue 61% 71% 64% 68%
...................................... .......................... .........................
Cost of hardware revenue 7.4 7.4 0% 15.6 13.4 16%
...................................... .......................... .........................
As a percentage of hardware revenue 62% 70% 64% 64%
...................................... .......................... .........................
Total cost of revenue $24.5 $23.4 5% $48.0 $42.3 13%
...................................... .......................... .........................
As a percentage of total revenue 38% 42% 36% 40%
...................................... .......................... .........................
</TABLE>
The cost of software revenue includes royalties paid to third parties,
amortization of capitalized software and the cost of software distribution. The
2% increase in the cost of software revenue as a percentage of software revenue
for the quarter ended June 30, 1996 as compared to the same period of 1995 is
primarily attributable to increased sales of higher cost Saros software product
lines.
The cost of service revenue includes the cost attributable to maintenance and
professional services. The cost of service revenue as a percentage of service
revenue decreased by 10% in the second quarter of 1996 from the same period of
1995 due to lower professional services costs and favorable margins related to
the sale of spare parts cited above.
The cost of hardware revenue includes the Company's cost of OSAR manufacturing,
third-party purchased hardware and the cost of hardware integration personnel
and related benefits and facilities expenses. The cost of hardware revenue as a
percentage of hardware revenue for the second quarter of 1996 decreased to 62%
from 70% in the same period of 1995 primarily due to an increase in the number
of higher margin OSAR sales in the second quarter of 1996.
8
<PAGE>
For the six month period ended June 30, 1996, the decline in the cost of
software revenue as a percentage of software revenue to 12% from 14% for the
same period last year is primarily due to a reduction in software amortization
costs and a favorable mix of software product sales. The cost of service revenue
as a percentage of service revenue decreased to 64% for the first six months of
1996 compared to 68% for the same period in 1995 primarily due to the reasons
mentioned for the second quarter. The cost of hardware revenue as a percentage
of hardware revenue remained comparable for the first six months of 1996
compared to the same period in 1995.
Operating Expenses.
<TABLE>
<CAPTION>
(In Millions) ---- Second Quarter ---- ------ Six Months ------
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Research and development $ 9.1 $ 6.0 52% $17.5 $10.7 64%
...................................... .......................... .........................
As a percentage of total revenue 14% 11% 13% 10%
...................................... .......................... .........................
Selling, general and administrative $28.8 $24.0 20% $58.9 $44.6 32%
...................................... .......................... .........................
As a percentage of total revenue 44% 43% 45% 43%
...................................... .......................... .........................
</TABLE>
Research and Development. Research and development expenses increased by 52% in
the second quarter of 1996 due to the addition of development personnel and
related facilities, depreciation expenses associated with new development
activities and a reduction in capitalized software development costs. As a
percentage of total revenue, research and development costs increased to 14%
compared to 11% for the same period last year due to the reasons cited above and
Saros research and development expenses growing more rapidly than its
corresponding revenue.
For the six month period ended June 30, 1996, research and development expenses
increased by 64% over the same period of 1995 due to the reasons cited above. As
a percentage of total revenue, research and development costs increased to 13%
compared to 10% for the same period last year due to the reasons cited above.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 20% for the second quarter of 1996 compared to the same
period in 1995. The increase in 1996 was due to the addition of marketing and
sales support personnel and the costs associated with implementing a new
corporate business information system. As a percentage of total revenue,
selling, general and administrative expenses increased to 44% from 43% for the
same period last year primarily due to the reasons cited above and Saros
selling, general and administrative expenses growing more rapidly than its
corresponding revenue.
For the first six month period ended June 30, 1996, selling, general and
administrative expenses increased by 32% over the same period of 1995 for the
same reasons cited above. As a percentage of total revenue, selling, general and
administrative expenses increased to 45% compared to 43% for the same period
last year due to the reasons cited above.
Merger, Restructuring and Write-off of Purchased In-process Research and
Development Costs. Merger, restructuring and write-off of purchased in-process
research and development costs for the six months ended June 30, 1996 consist of
a $10.0 million charge for the write-off of purchased in-process research and
development and acquisition costs related to the IFSL purchase, and $6.0 million
for fees and expenses related to the Saros Acquisition and restructuring costs
in connection with the consolidation of certain operations of Saros and
Watermark.
9
<PAGE>
Interest and Other Income. Other income, net of other expenses, increased for
the second quarter and six months ended June 30, 1996 over the comparable
periods in 1995 to $763,000 and $1.6 million from $698,000 and $1.3 million,
respectively. The increase is primarily due to increased interest income on a
higher average balance of cash and marketable securities.
Effective Tax Rate. Non-deductible merger and other costs in the first quarter
of 1996 increased the estimated annual effective tax rate to 45% from 37%
previously estimated for 1996. The effect of the increased tax rate was recorded
in the first quarter. The effective rate for 1996 of 45% compares to 35% for
1995. The 1995 effective tax rate included the non-deductible merger costs for
the Watermark acquisition and preacquisition net operating losses incurred by
Watermark for which the Company did not receive a current year benefit.
Net Income. Net income for the second quarter ended June 30, 1996 increased by
89% over the same period in 1995 to $2.5 million or $0.15 per share compared to
net income of $1.3 million or $0.09 per share in 1995. For the first six months
ended June 30, 1996, net loss was $9.3 million or ($0.62) per share compared to
net income of $4.5 million or $0.29 per share in 1995. Before merger,
restructuring and write-off of purchased in-process research and development
costs of $16.0 million after tax, net income for the six months ended June 30,
1996 was $6.7 million or $0.41 per share on approximately 16.5 million weighted
average common and common equivalent shares, a 41% per share increase over 1995.
Liquidity and Capital Resources
As of June 30, 1996, combined cash, cash equivalents and short- and long-term
marketable securities decreased by $20.6 million to $70.0 million from the
fiscal year ended December 31, 1995, primarily as a result of the payment of
$11.2 million for IFSL and the use of $5.2 million in cash for operating
activities.
For the six months ended June 30, 1996, cash used by operating activities was
$5.2 million while cash used by investing activities totaled $14.6 million,
consisting of the purchase of IFSL of $11.7 million, capital expenditures of
$9.3 million, net proceeds from marketable securities in the amount of $3.6
million and the proceeds from sale of equipment of $2.9 million. Net cash
provided by financing activities was $3.3 million consisting primarily of
proceeds from the exercise of employee stock options.
The Company has an unsecured line of credit of $20 million available from a
commercial bank. This line of credit expires in April 1997 and is subject to the
maintenance of certain financial covenants. The Company also has several
borrowing arrangements with foreign banks which expire at various times
throughout 1996 pursuant to which the Company may borrow up to approximately $2
million. As of June 30, 1996, there were no borrowings against these credit
lines.
The Company anticipates that its present cash balances together with internally
generated funds and credit lines will be sufficient to meet its working capital
and capital expenditure needs throughout 1996.
- --------------------------------------------------------------------------------
This quarterly report on form 10-Q contains forward-looking statements that
involve risks and uncertainties, including those discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the "Notes to Consolidated Financial Statements" contained herein. The actual
results that the Company achieves may differ materially from any forward-looking
statements due to such risks and uncertainties.
- --------------------------------------------------------------------------------
10
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
In October 1994, Wang filed a complaint in the United States District Court
for the District of Massachusetts alleging that the Company is infringing
five patents held by Wang. On June 23, 1995, Wang amended its complaint to
include an additional related patent. On July 2, 1996, Wang filed a
complaint in the same court alleging that Watermark is infringing three of
the same patents plead in the Company's initial case. Based on the
Company's analysis of these Wang patents and their respective file
histories, the Company believes that it has meritorious defenses to Wang's
claims; however, the ultimate outcome or any resulting potential loss
cannot be determined at this time. If it should be determined that Wang's
patents are valid and are infringed by any of the Company's products
including Watermark products, the Company will, depending on the product,
redesign the infringing products or seek to obtain a license to market the
products. There can be no assurance that the Company will be able to obtain
such a license from Wang on acceptable terms.
The Company, in the normal course of business, is subject to various other
legal matters. While the results of litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of
these other matters will not have a materially adverse effect on the
Company's consolidated results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 1996 Annual Meeting of the Stockholders of the Company was held at
9:00 a.m. on May 8, 1996, in Costa Mesa, California.
(b) At the annual meeting, the following five individuals were elected to
the Company's Board of Directors, constituting all members of the Board
of Directors:
Nominee Affirmative Votes Votes Withheld
------- ----------------- --------------
Theodore J. Smith 12,691,092 159,085
J. Burgess Jamieson 12,690,982 159,195
Frederick K. Fluegel 12,690,882 159,295
John C. Savage 12,689,982 160,195
William P. Lyons 12,689,982 160,195
(c) The following additional proposals were considered at the Annual
Meeting and were approved according to the respective vote of
the stockholders.
1. Proposal to approve an amendment to the Restated Certificate of
Incorporation increasing the number of authorized shares of
Common Stock, $.01 par value per share, from 25,000,000 shares to
100,000,000 shares.
Votes for Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
9,315,642 3,386,250 79,311 68,974
--------- --------- ------ ------
11
<PAGE>
2. Proposal to approve an amendment to the 1995 Stock Option Plan
( the "1995 Plan") to (i) increase the number of shares of Common
Stock issuable under the 1995 Plan by an additional 650,000
shares and (ii) effect certain changes to the incentive stock
option provisions of the 1995 Plan.
Votes for Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
10,061,419 2,532,530 136,704 119,524
---------- --------- ------- -------
Item 5. Certain Considerations.
This report contains certain forward-looking statements that involve risks
and uncertainties including, but not limited to, those factors discussed
below, in Management's Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this report. All such factors should
be considered by investors in the Company.
RAPID TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT. The market for the
Company's products is characterized by rapid technological developments,
evolving industry standards, swift changes in customer requirements and
frequent new product introductions and enhancements. The Company's
continued success will be dependent upon its ability to continue to enhance
its existing products, develop and introduce in a timely manner new
products incorporating technological advances and respond to customer
requirements. To the extent one or more of the Company's competitors
introduce products that more fully address customer requirements, the
Company's business could be adversely affected. There can be no assurance
that the Company will be successful in developing and marketing
enhancements to its existing products or new products on a timely basis or
that any new or enhanced products will adequately address the changing
needs of the marketplace. If the Company is unable to develop and introduce
new products or enhancements to existing products in a timely manner in
response to changing market conditions or customer requirements, the
Company's business and operating results could be adversely affected. From
time to time, the Company or its competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten
the life cycles of the Company's existing products. There can be no
assurance that announcements of currently planned or other new products
will not cause customers to delay their purchasing decisions in
anticipation of such products, which could have a material adverse effect
on the Company's business and operating results.
UNCERTAINTY OF FUTURE OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS. Prior growth rates in the Company's revenue and
operating results should not necessarily be considered indicative of future
growth, or of future operating results. Future operating results will
depend upon many factors, including the demand for the Company's products,
the effectiveness of the Company's efforts to continue to integrate the
recent acquisitions and achieve the desired levels of product sales from
such acquisitions, the level of product and price competition, the length
of the Company's sales cycle, seasonality of individual customer buying
patterns, the size and timing of individual transactions, the delay or
deferral of customer implementations, the budget cycles of the Company's
customers, the timing of new product introductions and product enhancements
by the Company and its competitors, the mix of sales by products, services
and distribution channels, levels of international sales, acquisitions by
competitors, changes in foreign currency exchange rates, the ability of the
Company to develop and market new products and control costs, and general
domestic and international economic and political conditions. As a result
of these factors, revenues and operating results for any quarter are
subject to variation, and 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.
12
<PAGE>
COMPETITION. The imaging, workflow and document management markets are
highly competitive, and there are certain competitors of the Company with
substantially greater sales, marketing, development and financial
resources. The Company believes that the competitive factors affecting the
market for its products and services include vendor and product reputation;
product quality, performance and price; the availability of products on
multiple platforms; product scalability; product integration with other
enterprise applications; product functionality and features; product
ease-of use; and the quality of customer support services and training. The
relative importance of each of these factors depends upon the specific
customer involved. While the Company believes it competes favorably in each
of these areas, there can be no assurance that it will continue to do so.
Moreover, the Company's present or future competitors may be able to
develop products comparable or superior to those offered by the Company,
offer lower price products or adapt more quickly than the Company to new
technologies or evolving customer requirements. Competition is expected to
intensify. In order to be successful in the future, the Company must
respond to technological change, customer requirements and competitors
current products and innovations. There can be no assurance that it will be
able to continue to compete effectively in its market or that future
competition will not have a material adverse effect on its business,
operating results and financial condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS. The Company's success
depends in part on its ability to protect its proprietary rights to the
technologies used in its principal products. The Company relies on a
combination of copyrights, trademarks, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights.
There can be no assurance that the Company's existing or future copyrights,
trademarks, trade secrets or other intellectual property rights will be of
sufficient scope or strength to provide meaningful protection or commercial
advantage to the Company. FileNet has no software patents. Also, in selling
certain of its products, the Company relies on "shrink wrap" licenses that
are not signed by licensees and, therefore, 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 the same
extent as do the laws of the United States. There can be no assurance that
such factors would not have a material adverse effect on the Company's
business or operating results.
The Company may from time to time be notified that it is infringing certain
patent or intellectual property rights of others. Combinations of
technology acquired through past or future acquisitions and the Company's
technology will create new products and technology which may give rise to
claims of infringement. While no actions other than the ones discussed
below are currently pending against the Company for infringement of patent
or other proprietary rights of third parties, there can be no assurance
that third parties will not initiate infringement actions against the
Company in the future. Infringement actions can result in substantial cost
to and diversion of resources of the Company. If the Company were found to
infringe upon the rights of others, no assurance can be given that licenses
would be obtainable on acceptable terms or at all, that significant damages
for past infringement would not be assessed or that further litigation
relative to any such licenses or usage would not occur. The failure to
successfully defend any claims or obtain necessary licenses or other
rights, the ultimate disposition of any claims or the advent of litigation
arising out of any claims of infringement, could have a material adverse
effect on the Company's business, financial condition or results of
operations.
13
<PAGE>
In October 1994, Wang filed a complaint in the United States District Court
for the District of Massachusetts alleging that the Company is infringing
five patents held by Wang. On June 23, 1995, Wang amended its complaint to
include an additional related patent. On July 2, 1996, Wang filed a
complaint in the same court alleging that Watermark is infringing three of
the same patents plead in the Company's initial case. Based on the
Company's analysis of these Wang patents and their respective file
histories, the Company believes that it has meritorious defenses to Wang's
claims; however, the ultimate outcome or any resulting potential loss
cannot be determined at this time. If it should be determined that Wang's
patents are valid and are infringed by any of the Company's products
including Watermark products, the Company will, depending on the product,
redesign the infringing products or seek to obtain a license to market the
products. There can be no assurance that the Company will be able to obtain
such a license from Wang on acceptable terms.
DEPENDENCE ON CERTAIN RELATIONSHIPS. The Company has entered into a number
of co-marketing relationships with other companies such as Hewlett-Packard
Company and Sun Microsystems, Inc. There can be no assurance that these
companies will not reduce or discontinue their relationships with or
support of the Company and its products. Disruption of these relationships
could have a material adverse effect on the Company's business and
operating results.
DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL PERSONNEL. The Company's success
depends to a significant degree upon the continued contributions of its key
management, marketing, technical and operational personnel, including
members of senior management and technical personnel of acquired companies.
The Company has no agreements providing for the employment of any of its
key employees for any fixed term and the Company's key employees may
voluntarily terminate their employment with the Company at any time. The
loss of the services of one or more key employees, including key employees
of acquired companies, could have a material adverse effect on the
Company's operating results. The Company also believes its future success
will depend in large part upon its ability to attract and retain additional
highly skilled management, technical, marketing, product development and
operational personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel.
INTERNATIONAL SALES. In fiscal 1995, the Company derived approximately
one-third of its total revenues from international sales. International
business is subject to certain risks including varying technical standards,
tariffs and trade barriers, political and economic instability, reduced
protection for intellectual property rights in certain countries,
difficulties in staffing and maintaining foreign operations, difficulties
in managing foreign distributors, potentially adverse tax consequences,
currency exchange fluctuations, the burden of complying with a wide variety
of complex operations foreign laws, regulations and treaties and the
possibility of difficulties in collecting accounts receivable. There can be
no assurance that any of these factors will not have a material adverse
effect on the Company's business or operating results.
ACQUISITION-RELATED RISKS. The Company recently completed the acquisitions
of Watermark, Saros and IFSL. These recent acquisitions by the Company have
presented and will continue to present it with numerous challenges,
including difficulties in the assimilation of the operations, technologies
and products of the acquired companies and managing separate geographic
operations. The challenges have absorbed and may continue to absorb
significant management attention that would otherwise be available for the
ongoing development of the Company's business. If the Company's management
does not respond to these challenges effectively, the Company's results of
operations could be adversely affected. Moreover, there can be no assurance
that the anticipated benefits of the acquisitions will be realized. FileNet
14
<PAGE>
and the acquired companies could experience difficulties or delays in
integrating their respective technologies or developing and introducing new
products. In particular, FileNet's interest in Saros is in part based on
the Company's evaluation of the market potential for Saros' new products
including the recently announced @mezzanine and Saros Document Server for
Back Office which have yet to be proven in the marketplace, as well as
other products currently under development. Delays in or non-completion of
the development of these new products, or lack of market acceptance of such
products, could have an adverse impact on the Company's future results of
operations and result in a failure to realize anticipated benefits of the
acquisitions.
PRODUCT LIABILITY. The Company's license agreements with customers
typically contain provisions designed to limit their exposure to potential
product liability claims. However, it is possible that such limitation of
liability provisions may not be effective under the laws of certain
jurisdictions. Although the Company has not experienced any product
liability claims to date, the sale and support of products by them may
entail the risk of such claims, and there can be no assurance that the
Company will not be subject to such claims in the future. 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.
STOCK PRICE VOLATILITY. The Company believes that a variety of factors
could cause the price of its common stock to fluctuate, perhaps
substantially, including quarter to quarter variations in operating
results; announcements of developments related to its business;
fluctuations in its order levels; general conditions in the technology
sector or the worldwide economy; announcements of technological
innovations, new products or product enhancements by the Company or its
competitors; key management changes; changes in joint marketing and
development programs; developments relating to patents or other
intellectual property rights or disputes; and developments in the Company's
relationships with its customers, distributors and suppliers. In addition,
in recent years the stock market in general, and the market for shares of
high technology stocks in particular, has experienced extreme price
fluctuations which have often been unrelated to the operating performance
of affected companies. Such fluctuations could adversely affect the market
price of the Company's Common Stock.
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits
The list of exhibits contained in the accompanying Index to Exhibits is
herein incorporated by reference.
2. Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter of fiscal
1996.
15
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FILENET CORPORATION
By:/s/ Mark S. St. Clare
-----------------
Mark S. St. Clare,
Chief Financial Officer and Sr. Vice President, Finance
(Principal Financial Officer)
Date: November 13, 1996
16
<PAGE>
Index to Exhibits
Exhibit No. Description
- ---------- -----------------------------------------------------------------
4.1* Form of certificate evidencing Common Stock (filed as Exhibit 4.1
to the Form S-1, Registration No. 33-15004).
4.2* Rights Agreement, dated as of November 4, 1988 between
FileNet Corporation and the First National Bank of Boston, which
includes the form of Rights Certificate as Exhibit A and the
Summary of Rights to Purchase Common Shares as Exhibit B (filed
as Exhibit 4.2 to Form S-4 filed on January 26, 1996;
Registration No. 333-00676).
10.1* Amended and Restated Credit Agreement (Multicurrency) by
and among the Registrant and Bank of America National Trust and
Savings Association dated August 8, 1995, effective May 1, 1995
(filed as Exhibit 10.1 to Form 10-Q for the quarter ended July 2,
1995).
10.2* Substitution Agreement between the Registrant and AT&T
Technologies, Inc. dated October 23, 1984 (filed as Exhibit 10.9
to the Form S-1).
10.3* Sublicensing Agreement between the Registrant and AT&T
Technologies, Inc. dated October 23, 1984 (filed as Exhibit 10.9
to the Form S-1).
10.4 Business Alliance Program Agreement between the Registrant and
Oracle Corporation dated July 1, 1996, as amended by Amendment
One thereto.
10.5** Runtime Sublicense Addendum between the Registrant and Oracle
Corporation dated July 1, 1996, as amended by Amendment One
thereto.
10.6** Full Use and Deployment Sublicense Addendum between the
Registrant and Oracle Corporation dated July 1, 1996, as amended
by Amendment One thereto.
10.7* Lease between the Registrant and C. J. Segerstrom & Sons for the
headquarters of the Company, dated April 30, 1987 (filed as
Exhibit 10.19 to the Form S-1).
10.8* 1989 Stock Option Plan for Non-Employee Directors of FileNet
Corporation, as amended by the First Amendment, Second Amendment,
Third Amendment thereto (filed as Exhibit 10.9 to Form S-4 filed
on January 26, 1996; Registration No. 333-00676).
10.9* Amended and Restated 1995 Stock Option Plan of FileNet
Corporation as approved by stockholders at the Registrant's
Annual Meeting on May 8, 1996 (filed as Exhibit 99.1 to Form S-8
filed on July 29, 1996; Registration No. 333-09075).
10.10* Second Amended and Restated Stock Option Plan of FileNet
Corporation, together with the forms of Incentive Stock Option
Agreement and Non-Qualified Stock Option Agreements (filed as
Exhibits 4(a), 4(b) and 4(c), respectively, to the Registrant's
registration statement on Form S-8, Registration No. 33-48499),
and an Amendment thereto (filed as Exhibit 4(d) to the
Registrant's registration statement on Form S-8, Registration No.
33-69920), and the Second Amendment thereto (filed as Appendix A
to the Registrant's Proxy Statement for the Registrant's 1994
Annual Meeting of Stockholders, filed on April 29, 1994).
- ----------------------------------------
* Incorporated herein by reference.
** Certain information in this exhibit is subject to a request for confidential
treatment filed with the Securities and Exchange Commission.
17
<PAGE>
Exhibit No. Description
- ---------- ----------------------------------------------------------------
10.11* Agreement for the Purchase of IBM products dated December 20,
1991 (filed on May 5, 1992 with the Form 8 amending the Company's
Form 10-K for the fiscal year ended December 31, 1991).
10.12* Software License Agreement between the Registrant and Mentat,
Inc. dated December 11, 1991 (filed on May 5, 1992 with the Form
8 amending the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.13* Development and Initial Supply Agreement between the Registrant
and Quintar Company dated August 20, 1992 (filed as Exhibit 10.21
to Form 10-K for the year ended January 3, 1993).
10.14* Amendment dated December 22, 1992 to the Development and Initial
Supply Agreement between the Registrant and Quintar Company
dated August 20, 1992 (filed as Exhibit 10.22 to Form 10-K for
the year ended January 3, 1993).
10.15* Memorandum of Agreement effective June 30, 1994 between the
Registrant and Ing. C. Olivetti & C. S.p.A. (filed as Exhibit
10.24 to Form 10-Q for the quarter ended October 2, 1994).
10.16* Product License Agreement between the Registrant and Novell, Inc.
dated May 16, 1995 (filed as Exhibit 10.26 to Form 10-Q for the
quarter ended July 2, 1995).
10.17* Agreement and Plan of Merger between the Registrant and Watermark
Software Inc. dated July 18, 1995 (filed as Exhibit 10.27 to Form
10-Q for the quarter ended July 2, 1995).
10.18* Agreement and Plan of Merger between the Registrant and Saros
Corporation, as amended, dated January 17,1996 (filed as Exhibits
2.1, 2.2, 2.3, and 2.4 to Form 8-K on March 13, 1996).
10.19* Stock Purchase Agreement by and Among FileNet Corporation, IFS
Acquisition Corporation, Jawaid Khan and Juergen Goersch dated
January 17,1996 and Amendment 1 to Stock Purchase Agreement dated
January 30,1996 (filed as Exhibit 10.20 to form 10-K for the year
ended December 31, 1995).
27. Financial Data Schedule.
- ----------------------------------------
* Incorporated herein by reference.
18
ORACLE
BUSINESS ALLIANCE PROGRAM AGREEMENT
This Business Alliance Program Agreement (the "Agreement") is between Oracle
Corporation with its principal place of business at 500 Oracle Parkway, Redwood
City, California 94065 ("Oracle") and FileNet Corporation (legal name) with its
principal place of business at 3565 Harbor Boulevard, Costa Mesa, CA 92626 (the
"Alliance Member"). The terms of this Agreement shall apply to each Program
license granted and to all services provided by Oracle under this Agreement.
When completed and executed by both parties, an Order Form shall evidence the
Program licenses granted and the services that are to be provided.
1. DEFINITIONS
1.1 "Commencement Date" shall mean the date on which the Programs are
delivered by Oracle, or if no delivery is necessary, the Effective Date
set forth on the relevant Order Form.
1.2 "Designated System" shall mean the computer hardware and operating
system designated on the relevant Order Form or Sublicense report for
use in conjunction with a Sublicensed Program, Development License, or
Marketing Support License.
1.3 "Order Form" shall mean the document by which the Alliance Member
orders Program licenses, Sublicenses, and services, and which is
agreed to by the parties. The Order Form shall reference the Effective
Date of this Agreement.
1.4 "Price List" shall mean Oracle's standard commercial fee schedule that
is in effect when a Program license, Sublicense, or services are
ordered by the Alliance Member.
1.5 "Program" shall mean the computer software in object code form owned or
distributed by Oracle for which the Alliance Member is granted a
license or grants a Sublicense pursuant to this Agreement; the user
guides and manuals for use of the software ("Documentation"); and
Updates. "Limited Production Program" shall mean a Program not
specified on the Price List or which is designated as Limited
Production by Oracle.
1.6 "Sublicense Addenda" shall mean the addenda to this Agreement
specifying additional Sublicense terms and Sublicense rates and fees
for the various types of Sublicenses which may be granted by the
Alliance Member.
1.7 "Sublicense" shall mean a nonexclusive, nontransferable right granted
by or through the Alliance Member to an end user to use an object code
copy of the Programs with the Value-Added Package under authority of a
Sublicense Addendum. 'Sublicensee" shall mean a third party who is
granted a Sublicense of the Programs with the Value-Added Package for
such party's own internal data processing purposes and not for purposes
of any further distribution.
1.8 "Supported Program License" shall mean a Development License or
Marketing Support License for which the Alliance Member has ordered
Technical Support for the relevant time period. "Technical Support"
shall mean Program support provided under Oracle's policies in effect
on the date Technical Support is ordered.
1.9 "Update" shall mean a subsequent release of a Program which is
generally made available for Supported Program Licenses at no add
additional charge, other than media and handling charges. Update shall
not include any release, option or future product which Oracle
licenses separately.
1.10 "User," unless otherwise specified in the Order Form or Sublicense
report for a user type specified in the Price List in effect when the
Program is Sublicensed, shall mean a specific individual employed by
the Alliance Member or Sublicensee (as the case may be) who is
authorized by such party to use the Programs, regardless of whether the
individual is actively using the Programs at any given time.
1.11 "Value-Added Package" shall mean the hardware or software products or
services having added value which are developed, sold, and/or licensed
with the Programs to a Sublicensee by the Alliance Member. as provided
under the applicable Sublicense Addenda.
<PAGE>
2. LICENSES GRANTED
2.1 Development Licenses and Trial Licenses
A. Oracle grants to the Alliance Member a nonexclusive license to use
the Development Licenses the Alliance Member obtains under this
Agreement and applicable Sublicense Addenda, as follows:
1. to develop or prototype the Value-Added Package on the Designated
System or on a backup system if the Designated System is inoperative,
up to any applicable maximum number of designated Users or other such
limitation as may be applicable;
2. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package;
3. to provide training and technical support to employees and to
customers solely in conjunction with the Value-Added Package;
4. to use the Documentation provided with the Programs In support of
the Alliance Member's authorized use of the Programs: and
5. to copy the Programs for archival or backup purposes; no other
copies shall be made without Oracle's prior written consent. All
titles, trademarks, and copyright and restricted rights notices shall
be reproduced in such copies. All archival and backup copies of the
Programs are subject to the terms of this Agreement.
B. The Alliance Member may order temporary trial licenses ('Trial
Licenses") for its evaluation purposes only, and not for development
or prototype. purposes, for use during a period specified in the Order
Form. Each Order Form for Trial Licenses shall clearly state the trial
period and shall identify that the order is for a single Trial
License.
2.2 Marketing Support Licenses
Oracle grants to the Alliance Member a nonexclusive license to use
the Marketing Support Licenses the Alliance Member obtains under this
Agreement and applicable Sublicense Addenda, as follows:
A. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value- Added Package, up to any applicable
maximum number of designated Users or other such limitation as may be
applicable;
B. to develop customized prototypes of the Value- Added Package for
prospective Sublicensees on the Designated System if the Alliance
Member does not receive any fees related to the development of such
customized prototypes;
C. to use the Documentation provided with the Programs in support of
the Alliance Members authorized use of the Programs; and
D. to copy the Programs for archival or backup purposes; no other
copies shall be made without Oracle's prior written consent. All
titles, trademarks, and copyright and restricted rights notices shall
be reproduced in such copies. All archival and backup copies of the
Programs are subject to the terms of this Agreement.
2.3 Sublicensing
A. License to Sublicense Programs
As further set forth in the applicable Sublicense Addenda, Oracle
hereby grants the Alliance Member a nonexclusive, nontransferable
license to market and grant Sublicenses as set forth in such Sublicense
Addenda and at the rates and fees set forth in such Sublicense Addenda.
The Alliance Member shall only have the right to Sublicense Programs
pursuant to an effective Sublicense Addendum between the parties
hereto.
The Alliance Member shall Sublicense the Programs solely through a
written Sublicense agreement as provided under Section 2.3.B. Upon
Oracle's request, the Alliance Member shall provide Oracle with a copy
of the Alliance Member's standard Sublicense agreement.
B. Sublicense Agreement
Every Sublicense agreement shall include, at a minimum, contractual
provisions which:
1. Restrict use of the Programs to object code, subject to the
restrictions provided under the applicable Sublicense Addenda and
consistent with the Sublicense fees payable to Oracle;
2. Prohibit (a) transfer of the Programs except for temporary transfer
in the event of computer malfunction; (b) assignment, timesharing and
<PAGE>
rental of the Programs; and (c) title to the Programs from passing to
the Sublicensee or any other party:
3. Prohibit the reverse engineering, disassembly or decompilation of
the Programs and prohibit duplication of the Programs except for a
single backup or archival copy;
4. Disclaim, to the extent permitted by applicable law, Oracle's
liability for any damages, whether direct, indirect, incidental or
consequential, arising from the use of the Programs;
5. Require the Sublicensee at the termination of the Sublicense, to
discontinue use and destroy or return to the Alliance Member all
copies of the Programs and Documentation;
6. Prohibit publication of any results of benchmark tests run on the
Programs;
7. Require the Sublicensee to comply fully with all relevant export
laws and regulations of the United States to assure that neither the
Programs, nor any direct product thereof, are exported, directly or
indirectly, in violation of United States law; and
8. Specify Oracle as a third party beneficiary of the Sublicense
agreement to the extent permitted by applicable law.
C. Marketing/Sublicensing Practices
In marketing and Sublicensing the Programs, the Alliance Member
shall:
1. Not engage in any deceptive, misleading, illegal, or unethical
practices that may be detrimental to Oracle or to the Programs;
2. Not make any representations, warranties, or guarantees to
Sublicensees concerning the Programs that are inconsistent with or in
addition to those made in this Agreement or by Oracle; and
3. Comply with all applicable federal, state,. and: local laws and
regulations in performing its duties with respect to the Programs.
2.4 Acceptance of Programs
For each Program license for which delivery from Oracle is
required under this Agreement, the Alliance Member shall have a 15 day
Acceptance Period, beginning on the Commencement Date, in which to
evaluate the Program. During the Acceptance Period, the Alliance Member
may cancel the license by giving written notice to Oracle and returning
the Program in accordance with Section 6.6 below. Unless such
cancellation notice is given, the license will be deemed to have been
accepted by the Alliance Member at the end of the Acceptance Period.
2.5 Limitations on Use
The Alliance Member shall not use or duplicate the Programs
(including the Documentation) for any purpose other than as specified
in this. Agreement or make the Programs available to unauthorized third
parties. The Alliance Member shall not (a) use the Programs for its
internal data processing or for processing customer data; (b) rent,
electronically distribute, or timeshare the Programs or market the
Programs by interactive cable or remote processing services or
otherwise distribute the Programs other than as specified in this
Agreement; or .(c) cause or permit the reverse engineering,
disassembly, or decompilation of the Programs.
2.6 Title
Oracle shall retain all title, copyright, and other proprietary
rights in the Programs and any modifications or translations thereof.
The Alliance Member and its Sublicensees do not acquire any rights in
the Programs other than those specified in this Agreement.
2.7 Transfer of Programs
The Alliance Member may transfer a Development License or
Marketing Support License within its organization upon notice to
<PAGE>
Oracle; transfers are subject to the terms and fees specified in
Oracle's transfer policy in effect at the time of the transfer.
2.8 Use of Programs by Agents
The Alliance Member and each Sublicensee (as the case may be)
shall have the right to allow each such party's own third party agents
to use each such party's licensed Programs as licensed or Sublicensed
under this Agreement so long as the applicable party ensures that its
agents use the Programs in accordance with the terms of this Agreement
or the applicable Sublicense agreement.
2.9 Pre-Production Programs
As an accommodation to the Alliance Member, Oracle may supply the
Alliance Member with pre production releases of Programs (which may be
labeled "Alpha" or "Beta"). These products are not suitable for
production use.
3. TECHNICAL SERVICES
3.1 Technical Support Services
Oracle shall provide Technical Support services ordered by the
Alliance Member under Oracle's Technical Support policies in effect on
the date Technical Support is ordered, subject to the payment by the
Alliance Member of the applicable fees. Reinstatement of lapsed
Technical Support services is subject to Oracle's Technical Support
reinstatement fees in effect on the date Technical Support is
reordered. The Alliance Member may obtain Technical Support services
for Limited Production Programs and pre-production releases of Programs
on a time and materials basis.
3.2 Training Services
Oracle will provide training services agreed to by the parties
under the terms of this Agreement. For any on-site services requested
by the Alliance Member, the Alliance Member shall reimburse Oracle for
actual, reasonable travel and out-of-pocket expenses incurred.
4. FEES AND PAYMENTS
4.1 License Fees and Sublicense Fees
The Alliance Member may order Development Licenses or Marketing
Support Licenses at the standard Program license fees set forth in the
Price List or at the fees otherwise provided in a Sublicense Addendum.
For each Sublicense granted by the Alliance Member, the Alliance Member
agrees to pay Oracle a Sublicense fee as set forth in the applicable
Sublicense Addenda. The Alliance Member shall not be relieved of its
obligation to pay Sublicense fees owed to Oracle by the nonpayment of
such fees by the Sublicensee.
The Alliance Member is free to determine unilaterally its own
license fees to its Sublicensees. If the Alliance Member or a
Sublicensee upgrades the Programs to a larger computer, transfers the
Programs outside the United States and/or to another operating system,
or increases the licensed number of Users, the Alliance Member will pay
additional Sublicense fees to Oracle as provided under Oracle's
transfer policies and rates in effect at the time the Program is
upgraded or transferred.
4.2 Technical Support Fees
Technical Support services ordered by the Alliance Member for
Development Licenses and Marketing Support Licenses will be provided
under Oracle's Technical Support policies and rates in effect on the
date Technical Support is ordered.
4.3 General Payment Terms
Except as otherwise provided in a Sublicense Addendum, invoices
for payment of license fees shall be payable 30 days from the
Commencement Date. Technical Support fees for Sublicenses shall be
payable as specified in the applicable Sublicense Addendum. Technical
Support fees for Development Licenses and Marketing Support Licenses.
shall be payable annually in advance, net 30 days.. from the renewal
date; such fees will be those in effect at the beginning of the period
for which the fees are paid. Fees due by the Alliance Member shall not
be subject to set off for any claims against Oracle. All payments made
shall be in United States currency and shall be made without deductions
based on any taxes or withholdings, except where such deduction Is
based on gross income. Any amounts payable by. the Alliance Member
hereunder which remain unpaid after the due date shall be subject to a
late charge equal to 1.5% per month from the due date until such amount
is paid. The Alliance Member agrees to pay applicable media and
shipping charges. The Alliance Member shall issue a purchase order, or
alternative document acceptable to Oracle, on or before the Effective
Date of the applicable Order Form.
<PAGE>
4.4 Taxes
The fees listed in this Agreement do not include taxes; if Oracle
is required to pay sales, use, property, value-added, or other federal,
state or local taxes based on the licenses granted under this
Agreement, or the Sublicenses granted by the Alliance Member, then such
taxes shall be billed to and paid by the Alliance Member. This shall
not apply to taxes based on Oracle's income.
5. RECORDS
5.1 Records Inspection
The Alliance Member shall maintain adequate books and records in
connection with activity under this Agreement. Such records shall
include, without limitation, executed Sublicense agreements, the
information required in or related to the Sublicense reports required
under a Sublicense Addendum, the number of copies of Programs used or
Sublicensed by the Alliance Member, the computers on which the Programs
are installed, and the number of Users using the Programs. Oracle may
audit the relevant books and records of the Alliance Member to ensure
compliance with the terms of this Agreement upon reasonable notice to
the Alliance Member. Any such audit shall be conducted during regular
business hours at the Alliance Members offices and shall not interfere
unreasonably with the Alliance Member's business activities. If an
audit reveals that the Alliance Member has underpaid fees to Oracle,
the Alliance Member shall be invoiced for such underpaid fees based on
the Price List in effect at the time the audit is completed If the
underpaid fees exceed five percent (5%) of the applicable license fees
or Sublicense fees paid, then the Alliance Member shall pay Oracle's
reasonable costs of conducting the audit. Audits shall be made no more
than once annually.
5.2 Notice of Claim
The Alliance Member will notify the Oracle legal department
promptly in writing of: (a) any claim or proceeding involving the
Programs that comes to its attention; and (b) any material change in
the management or control of the Alliance Member.
6. TERM AND TERMINATION
6.1 Term
This Agreement shall become effective on the Effective Date and
shall be valid until the expiration or termination of all Sublicense
Addenda hereunder, unless terminated earlier as set forth herein. If
not otherwise specified on the Order Form, each Program license granted
under this Agreement shall remain in effect perpetually under the terms
of this Agreement unless the license or this Agreement is terminated as
provided in this Article S below. The term of each Sublicense Addendum
hereunder shall be as set forth in each such Addendum.
6.2 Termination by the Alliance Member
The Alliance Member may terminate any Program license, any
Sublicense Addenda, or this Agreement at any time; however, termination
shall not relieve the Alliance Members obligations specified in
Sections 6.5 and 6.6.
6.3 Termination by Oracle
Oracle may terminate any Program license, any Sublicense Addenda,
or this Agreement upon written notice if the Alliance Member breaches
this Agreement and fails to correct the breach within 30 days following
written notice specifying the breach.
6.4 Force Majeure
Neither party shall be liable to the other for failure or delay in
the performance of a required obligation if such failure or delay is
caused by strike, riot, fire, flood, natural disaster, or other similar
cause beyond such party's control, provided that such party gives
prompt written notice of such condition and resumes its performance as
soon as possible, and provided further that the other party may
terminate this Agreement if such condition continues for a period of
one hundred eighty (180) days.
6.5 Effect of Termination
Upon expiration or termination of a Sublicense Addendum or this
Agreement, all the Alliance Member's rights to market and Sublicense
the Programs as set forth in such Sublicense Addendum or this Agreement
shall cease.
The termination of this Agreement, a Sublicense Addendum, or any
license shall not limit either party from pursuing any other remedies
available to it, including injunctive relief, nor shall such
termination relieve the Alliance Members obligation to pay all fees
that have accrued or that the Alliance Member has agreed to pay under a
<PAGE>
Sublicense Addendum or any Order Form, other similar ordering document
under this Agreement, or that appear in a Sublicense report. The
parties' rights and obligations under Sections 2.5, 2.6, 2,7 and
Articles 4, 5, 6~7, and 8 shall survive termination of this Agreement.
6.6 Handling of Programs Upon Termination
If a license granted under this Agreement expires or otherwise
terminates, the Alliance Member shall: (a) cease using the applicable
Programs; and (b) certify to Oracle within one month after expiration
or termination that the Alliance Member has destroyed or has returned
to Oracle the Programs and all copies. This requirement applies to
copies in all forms; partial and complete, in all types of media and
computer memory, and whether or not modified or merged into other
materials. Before returning Programs to Oracle, the Alliance Member
shall acquire a Return Material Authorization ("RMA") number from
Oracle.
7. INDEMNITY, WARRANTIES, REMEDIES
7.1 Infringement Indemnity
Oracle will defend and indemnify the Alliance Member against a
claim that Programs infringe a copyright or patent, provided that: (a)
the Alliance Member notifies Oracle in writing within 30 days of the
claim; (b) Oracle has sole control of the defense and all related
settlement negotiations; and (c) the Alliance Member provides Oracle
with the assistance, information and authority necessary to perform
Oracle's obligations under this Section. Reasonable out-of-pocket
expenses incurred by the Alliance Member in. providing such assistance
will be reimbursed by Oracle.
Oracle shall have no liability for any claim of infringement based
on use of a superseded. or altered release of Programs if the
infringement would have been avoided by the use of a current unaltered
release of the Programs which Oracle provides to the Alliance Member.
In the event the Programs are held or are believed by Oracle to
infringe, Oracle shall have the option, at Its expense, to (a) modify
the Programs to be noninfringing; (b) obtain for the Alliance Member a
license to continue using the Programs; or (c) terminate the license
for the infringing Programs and refund the license fees paid for those
Programs, prorated over a five year term from the Commencement Date.
This Section 7.1 states Oracle's entire liability and the Alliance
Member's exclusive remedy for infringement.
7.2 Warranties and Disclaimers
A. Program Warranty
Oracle warrants for a period of one year from the Commencement
Date that each unmodified Program for which the Alliance Member has a
Supported Program License will perform the functions described in the
Documentation provided by Oracle when operated on the Designated
System.
B. Media Warranty
Oracle warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days from
the Commencement Date.
C. Services Warranty
Oracle warrants that its Technical Support and training services
will be performed consistent with generally accepted industry
standards- This warranty shall be valid for 90 days from performance
of service.
D. Disclaimers
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Oracle does not warrant that the Programs will run properly on all
Hardware, that the Programs will meet requirements of the Alliance
Member or the Sublicensees or operate in the combinations which may be
selected for use by the Alliance Member or the Sublicensees, that the
operation of the Programs will be uninterrupted or error free, or that
all Program errors will be corrected. Limited Production Programs,
Pre-Production Releases of Programs, and Computer- Based Training
Products are Distributed "As Is."
The Alliance Member shall not make any warranty on Oracle's
behalf.
7.3 Exclusive Remedies
For any breach of the warranties contained in Section 7.2 above,
<PAGE>
the Alliance Member's exclusive remedy, and Oracle's entire liability,
shall be:
A. For Programs
The correction of Program errors that cause breach of the
warranty, or if Oracle is unable to make the Program operate as
warranted, the Alliance Member shall be entitled to recover the fees
paid to Oracle for the Program license.
B. For Media
The replacement of defective media returned within 90 days of the
Commencement Date.
C. For Services
The reperformance of the services, or if Oracle is unable to
perform the services as warranted, the Alliance Member shall be
entitled to recover the fees paid to Oracle for the unsatisfactory
services.
7.4 Indemnification of Oracle
The Alliance Member agrees to enforce the terms of its Sublicense
agreements required by this Agreement and to notify Oracle of any known
breach of such terms. The Alliance Member will defend and indemnify
Oracle against:
A. All claims and damages to Oracle arising from any use by the
Alliance Member or its Sublicensees of any product not provided by
Oracle but used in combination with the Programs if such claim would
have been avoided by the exclusive use of the Programs;
B. All claims and damages to Oracle caused by the Alliance Members
failure to include the required contractual terms set forth in Section
2.3.8 hereof in each Sublicense agreement; and
C. All claims and damages to Oracle caused by Sublicensees' breach of
any of the applicable provisions required by Section 2.3 hereof.
7.5 Equitable Relief
The Alliance Member acknowledges that any breach of its obligations
with respect to proprietary rights of Oracle will cause Oracle
irreparable injury for which there are inadequate remedies at law and
that Oracle shall be entitled to equitable relief in addition to all
other remedies available to it.
8. GENERAL TEAMS AND CONDITIONS
8.1 Nondisclosure
Neither party shall, without first obtaining the written consent
of the other party disclose the terms and conditions of this Agreement,
except as may be required to implement and enforce the terms of this
Agreement, or as may be required by legal procedures or by law. No
other information exchanged between the parties shall be deemed
confidential unless the parties otherwise agree in writing. The
Alliance Member shall not disclose the results of benchmark tests or
other evaluation of the Programs to any third party without Oracle's
prior written approval.
8.2 Copyrights
The Programs are copyrighted by Oracle. The Alliance Member shall
retain all Oracle copyright notices on the Programs used by the
Alliance Member under its Development Licenses or Marketing Support
Licenses. The Alliance Member shall include the following on all copies
of the Programs in software Value-Added Packages incorporating the
Programs distributed by the Alliance Member:
A. A reproduction of Oracle's copyright notice; or
B. A copyright notice indicating that the copyright is vested in the
Alliance Member containing the following
1. A "c" in a circle and the word "copyright";
2. The Alliance Member's name;
3. The date of copyright; and
4. The words "All Rights Reserved."
Such notices shall be placed on the Documentation, the sign-on
screen for any software Value-Added Package incorporating the
Programs, and the diskette or tape labels. Notwithstanding any
copyright notice by the Alliance Member to the contrary, the copyright
to the Program included in any such application package shall remain
in Oracle. Other than as specified above, on any reproduction or
translation of any Programs, Documentation, or promotional material,
the Alliance Member agrees to reproduce Oracle's copyright notices
intact.
8.3 Trademarks
"Oracle" and any other trademarks and service marks adopted by
<PAGE>
Oracle to identify the Programs and other Oracle products and services
belong to Oracle; the Alliance Member will have no rights in such marks
except as expressly set forth herein and as specified in writing from
time to time. The Alliance Member's use of Oracle's trademarks shall be
under Oracle's trademark policies and procedures in effect from
time-to-time. The Alliance Member agrees not to use the trademark
"ORACLE," or any mark beginning with the tellers "Ora," or any other
mark likely to cause confusion with the trademark "ORACLE" as any
portion of the Alliance Member's tradename, trademark for the Alliance
Members Value-Added Package, or trademark for any other products of the
Alliance Member. The Alliance Member shall have the right to use the
trademark "ORACLE" and other Oracle trademarks solely to refer to
Oracle's Programs, products and services.
The Alliance Member agrees with respect to each registered
trademark of Oracle, to include in each advertisement, brochure, or
other such use of the trademark, the trademark symbol 'circle R" and
the following statement:
__ is a registered trademark of Oracle Corporation, Redwood City,
California
Unless otherwise notified in writing by Oracle, the Alliance
Member agrees, with respect to every other trademark of Oracle, to
include in each advertisement, brochure, or other such use of the
trademark, the symbol "TM' and the following statement:
__ is a trademark of Oracle Corporation,Redwood City,California
The Alliance Member shall not market the Oracle Programs in any
way which implies that the Oracle Programs are the proprietary product
of the Alliance Member or of any party other than Oracle. Oracle shall
not have any liability to the Alliance Member for any claims made by
third parties relating to the Alliance Member's use of Oracle's
trademarks.
8.4 Relationships between Parties
In all matters relating to this Agreement, the Alliance Member
will act as an independent contractor. The relationship between Oracle
and the Alliance Member is that of licensor/licensee. Neither party
will represent that it has any authority to assume or create any
obligation, express or implied, on behalf of the other party, nor to
represent the other party as agent, employee, franchisee, or in any
other capacity. Nothing in this Agreement shall be construed to limit
either party's right to independently develop or distribute software
which is functionally similar to the other party's product, so long as
proprietary information of the other party is not included in such
software.
8.5 Assignment
The Alliance Member may not assign or otherwise transfer any
rights under this Agreement without Oracle's prior written consent.
8.6 Notice
All notices, including notices of address change, required to be
sent hereunder shall be in writing and shall be deemed to have been
given when. deposited in first class mail to the first address listed
in the relevant Order Form (if to the Alliance Member) or to the Oracle
address on the Order Form (if to Oracle).
To expedite order processing, the Alliance Member agrees that
Oracle may treat documents faxed by the Alliance Member to Oracle as
original documents: nevertheless, either party may require the other to
exchange original signed documents.
8.7 Governing Law/Jurisdiction
This Agreement, and all manors arising out of or relating to this
Agreement, shall be governed by the substantive and procedural laws of
the State of California and shall be deemed to be executed in Redwood
City, California. The parties agree that any legal action or proceeding
relating to this Agreement shall be instituted in any state or federal
court in. San Francisco or San Mateo County, California. Oracle and the
Alliance Member agree to submit to the jurisdiction of, and agree that
venue is proper in, these courts in any such legal action or
proceeding.
8.8 Severability
In the event any provision of this Agreement is held to be invalid
or unenforceable, the remaining provisions of this Agreement will
remain in full force and effect.
8.9 Export
The Alliance Member agrees to comply fully with all relevant
<PAGE>
export laws and regulations of the United States ("Export Law') to
assure that neither the Programs, nor any direct product thereof, are
(a) exported, directly or indirectly, in violation of Export Laws: or
(b) are intended to be used for any purposes prohibited by the Export
Laws, including, without limitation, nuclear, chemical, or biological
weapons proliferation.
8.10 Limitation of Liability
In no event shall either party be liable for any indirect,
incidental, special or consequential damages, or damages for loss of
profits, revenue, data or use, Incurred by either party or any third
party, whether in an action in contract or tort, even if the other
party or any other person has been advised of the possibility of such
damages. Oracle's liability for damages hereunder shall in no event
exceed the amount of fees paid by the Alliance Member under this
Agreement, and If such damages result from the Alliance Member's use
of the Program or services, such liability shall be limited to fees
paid for the relevant Program or services giving rise to the
liability, prorated over a five-year term from the Commencement Pate
of the applicable license or the date of performance of the applicable
services.
The provisions of this Agreement allocate the risks between Oracle
and the Alliance Member. Oracle's pricing reflects this allocation of
risk and the limitation of liability specified herein.
8.11 Federal Government Sublicenses
If the Alliance Member grants a Sublicense to the United States
government, the Programs shall be provided with "Restricted Rights"and
the Alliance Member will place a legend, in addition to applicable
copyright notices, on the documentation, and on the tape or diskette
label, substantially similar to the following:
RESTRICTED RIGHTS LEGEND
"Use, duplication or disclosure by the Government is subject to
restrictions as set forth in subparagraph (c)(1)(ii) of the Department
of Defense Regulations Supplement ("DFARS") 252.227-7013, Rights in
Technical Data and Computer Software (October 1988) and Federal
Acquisition Regulation ("FAR") 52.227-14, Rights in Data-General,
including Alternate III (June 1987), as applicable. Oracle
Corporation, 500 Oracle Parkway, Redwood City, OA 94065."
8.12 Waiver
The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent
default or breach. Except for actions for non-payment or breach of
Oracle's proprietary rights in the Programs, no action, regardless of
form, arising out of this Agreement may be brought by either party more
than one year after the cause of action has accrued.
8.13 Entire Agreement
This Agreement constitutes the complete agreement between the
parties and supersedes all prior or contemporaneous agreements or
representations, written or oral, concerning the subject matter of this
Agreement. This: Agreement may not be modified or amended except in a
writing signed by a duly authorized representative of each party; no
other act, document, usage or custom shall be deemed to amend or modify
this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be an original. and all of which
shall constitute together but one and the same document.
It is expressly agreed that the terms of this Agreement and any
Order Form shall supersede the terms in any Alliance Member purchase
order or other ordering document. This Agreement shall also supersede
the terms of any shrinkwrap or break-the-seal license agreement
included in any package for Oracle-furnished software, except terms
contained in such license agreement that grant specific use rights for
the Programs.
<PAGE>
The Effective Date of this Agreement shall be July 1, 1996
Executed by FiIeNet Corporation: Executed by Oracle Corporation:
Authorized Signature:/s/W. J. Kreidler Authorized Signature:/s/Lloyd Alexander
Name: W. J. Kreidler Name: Lloyd Alexander
Title: V P. Operations Title: Manager - Western Region
Channels Sales Support
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 508-7000
Oracle is a registered trademark of Oracle Corporation.
1-95
<PAGE>
AMENDMENT ONE
to the
BUSINESS ALLIANCE PROGRAM AGREEMENT
between
FILENET CORPORATION
and
ORACLE CORPORATION
This document ("Amendment One") shall serve to amend the Business Alliance
Program Agreement between FileNet Corporation (the "Alliance Member") and Oracle
Corporation ("Oracle") dated July 1, 1996 (the "Agreement").
The Agreement is hereby amended as follows:
1. Replace Section 1.10 with the following:
"1.10 "User," unless otherwise specified in the Order Form or
Sublicense report for a user type specified in the Price List in effect
when the Program is Sublicensed, shall mean a specific individual (i)
who is employed by the Alliance Member or Sublicensee (as the case may
be) and authorized by such party to use the Programs, or (ii) who is a
third party agent acting on behalf of the Alliance Member or
Sublicensee (as the case may be) and authorized by such party to use
the Programs, regardless of whether the individual in (i) or (ii) above
is actively using the Programs at any given time. In addition, the
Alliance Member shall have the right to allow third parties ("Third
Party Users") to use the Programs solely in furtherance of the Alliance
Member's or a Sublicensee's business interests, for the purposes of
facilitating such Third Party Users' usage of and access to the
Alliance Member's Application Program. The Third Party Users shall only
be licensed to use the Programs running with the Alliance Member's
Application Program. The Alliance Member's Application Program used
with the Programs shall not allow such Third Party Users to use the
Programs outside of the functionality of such Application Program. All
use of the Programs by Third Party Users shall be subject to the
applicable User limitations for the applicable Programs. The Alliance
Member shall ensure that the Users and Third Party Users authorized by
this Section use the Programs in accordance with the terms of this
Agreement. The Alliance Member shall indemnify Oracle for any claims,
damages, costs, expenses or losses arising from the use of the Programs
by any such User or Third Party User.
2. Add the following to the end of Section 1.11:
"For the purposes of this Agreement, "Application Program(s)" shall
mean the Alliance Member's value-added application software, as
described in the Application Package Attachment to the Runtime
Sublicense Addendum, with which the Runtime Programs are to be coupled.
"Application Package(s)" shall mean the Runtime Programs coupled with
the Application Programs. For purposes of this Agreement, the
Application Program shall be regarded as the Alliance Member's
Value-Added Package."
3. In line 3 of Section l.7, replace "end user" with "Sublicensee".
<PAGE>
4. In line 6 of Section 1.7, insert the following after "third party":
"or Alliance Member internal User, as further set forth in the
applicable Sublicense Addenda,"
5. In Section 2.3.B.2, insert the following at the beginning of such
Section:
"Except as other wise set forth herein,"
6. In Section 2.3.B.6, insert the following after "Programs":
"Publication" shall mean any release of the benchmark information into
the public domain."
7. Delete Section 2.3.B.8 in its entirety.
8. Replace the second sentence of Section 2.5 with the following:
"The Alliance Member shall not (a) use the Programs for its internal
data processing or for processing customer data; (b) rent,
electronically distribute the Programs or market the Programs by
interactive cable or remote processing services or otherwise distribute
the Programs other than as specified in this Agreement, except the
Alliance Member shall have the right to electronically distribute
Updates of the Programs; or (c) cause or permit the reverse
engineering, disassembly, or decompilation of the Programs. The
Alliance Member may timeshare the Programs only upon Oracle's prior
written consent, which consent shall not be unreasonably withheld, and
upon the negotiation of appropriate business terms by the parties.
Oracle and the Alliance Member agree to negotiate in good faith any
such agreement on the terms of any timesharing arrangement. For the
purposes of this Section, "timesharing" shall not be deemed to include
the activities of the Alliance Member or any Sublicensee under Section
1.10."
9. In line 3 of Section 4.3, replace "30 days" with "45 days".
10. Delete the sixth sentence of 4.3.
11. In Section 5.2, delete clause (b) and replace it with the following:
"(b) any consolidation, merger or sale of substantially all of the
assets of the Alliance Member or any dissolution or other fundamental
change in business identity with respect to the Alliance Member"
12. In Section 6.3, insert the following after "any Program license":
"granted to the Alliance Member by Oracle"
13. In Section 6.3, replace "30 days" with "60 days"
14. In Section 6.5, delete the first paragraph and replace it with the
following:
"Upon expiration or termination of a Sublicense Addendum or this
Agreement, all the Alliance Member's rights to market, Sublicense, and
use the Programs as set forth in such Sublicense Addendum or this
Agreement shall cease; provided, however, that, notwithstanding Section
6.6 clause (a) below, unless the termination is for material default by
<PAGE>
the Alliance Member, the Alliance Member may continue using the release
of the Development Licenses then in the Alliance Member's possession on
the Designated System's for which Development Licenses were granted,
solely for the purpose of continuing technical support for Sublicenses
granted prior to termination, provided that the Alliance Member
continuously maintains Technical Support services for such Development
Licenses. Such continued use of the Programs shall be subject to all
the provisions of this Agreement and any applicable Sublicense
Addendum. Each Sublicense of the Alliance Member effective at the time
of expiration or termination of this Agreement shall survive such
expiration or termination and shall continue in full force and effect
until each such Sublicense expires or terminates pursuant to the
Sublicense agreement relating to such Sublicense; provided, however,
that the Alliance Member shall immediately terminate a Sublicense upon
the failure of the Sublicensee to cure a breach of or default under the
Sublicense agreement within thirty (30) days after notification to the
Sublicensee by the Alliance Member or Oracle of the Sublicensee's
failure to comply with its duties and obligations under the applicable
Sublicense agreement."
15. In clause (c) of Section 7.1, insert the following before "assistance":
"reasonable"
16. The first sentence of the third paragraph of Section 7.1 of the
Agreement shall be deleted and replaced with the following:
"In the event the Programs are held or are believed by Oracle to
infringe, Oracle shall have the option, at its expense, to: (a) modify
the Programs to be noninfringing; or (b) obtain for the Alliance Member
a license to continue using the Programs. If Oracle determines that it
is not commercially reasonable to perform either of the above options,
then Oracle may terminate the license for the infringing Programs and
refund the license fees paid for those Programs."
17. Replace clause (c) of Section 7.4 with the following:
"(c) All damages to Oracle caused by a Sublicensee's material breach of
any of the applicable provisions required by Section 2.3 hereof,
provided that such breach was caused solely by the failure of the
Alliance Member to enforce known material breaches within a reasonable
time after such breach becomes known to the Alliance Member. If the
Alliance Member causes such Sublicensee to cure such breach within a
reasonable time, then the Alliance Member shall be relieved of its
indemnification obligations hereunder."
18. Replace Section 7.5 with the following:
"Each party acknowledges that any breach of its obligations with
respect to proprietary rights of the other party will cause such other
party irreparable injury for which there are inadequate remedies at law
and that such other party shall be entitled to equitable relief in
addition to all other remedies available to it.
19. Section 8.1 of the Agreement shall be deleted in its entirety and
replaced with the following:
"By virtue of this Agreement, the parties may have access to
information that is confidential to one another ("Confidential
Information"). Confidential Information shall be limited to the
<PAGE>
Programs, the terms and conditions of this Agreement, and all
information clearly marked as confidential.
A party's Confidential Information shall not include information which:
(a) is or becomes a part of the public domain through no act or
omission of the other party; or (b) was in the other party's lawful
possession prior to the disclosure and had not been obtained by the
other party either directly or indirectly from the disclosing party; or
(c) is lawfully disclosed to the other party by a third party without
restriction on disclosure; (d) is independently developed by the other
party; or (e) is disclosed under operation of law. The Alliance Member
shall have the right to disclose the results of benchmark tests to a
prospective Sublicensee which is not a competitor of Oracle for use for
evaluation purposes only if the prospective Sublicensee has executed a
nondisclosure agreement with the Alliance Member governing the
benchmark test results under terms equivalent to those set forth in
this Section. Otherwise, results of benchmark tests run by the Alliance
Member may not be disclosed unless Oracle consents to such disclosure
in writing. The Alliance Member shall have the right to disclose
benchmark information which solely concerns its applications programs.
The parties agree, both during the term of this Agreement and for a
period of two (2) years after termination of this Agreement and of all
licenses granted hereunder, to hold each other's Confidential
Information in confidence. The parties agree not to make each other's
Confidential Information available in any form to any third party or to
use each other's Confidential Information for any purposes other than
the implementation of this Agreement. Each party agrees to take all
reasonable steps to ensure that Confidential Information is not
disclosed or distributed by its employees or agents in violation of the
provisions of this Agreement."
20. Replace the body of Section 8.5 with the following:
"Neither party shall assign or otherwise transfer any rights under this
Agreement without the other party's prior written consent."
21. Delete the second and third sentences of Section 8.7.
Other than the addition of the foregoing, the Agreement remains
unchanged and in full force and effect.
The Effective Date of this Amendment One is July 1, 1996.
FILENET CORPORATION ORACLE CORPORATION
By: /s/ W. J. Kreidler By: /s/ Lloyd Alexander
Name: W. J. Kreidler Name: Lloyd Alexander
Title: V P. Operations Title: Manager - Western Region
Channels Sales Support
<PAGE>
EXHIBIT A
COMMISSION REQUEST FORM
Company Name:
Address:
City: State: Zip:
Contact Name/Title: Phone Number:
Type of Business Organization:
Annual Revenue $: # of Employees:
Existing Software:
Proposed Software Solution:
Hardware Platform/Operating System:
Oracle Programs:
Projected Order Date:
Projected Dollar amount of Order:
Amount of Commission requested:
Alliance Member direct marketing efforts:
Additional Information:
Any Commission payable under this Commission Request Form shall be specific to
the license of Programs as specified above to the end user set forth above. The
amount of Commission specified above shall not be applicable to any other
Program licenses by Oracle.
The Effective Date of this Commission Request Form shall be
Executed by the Alliance Member: Executed by Oracle Corporation:
Authorized Signature: Authorized Signature:
Name: Name:
Title: Title:
ORACLE
RUNTIME SUBLICENSE ADDENDUM
This document (the "Addendum") is between Oracle Corporation ("Oracle") and
FileNet Corporation (the "Alliance Member') and shall be governed by the terms
of the Business Alliance Program Agreement between the Alliance Member and
Oracle effective July 1, 1996 (the "Agreement") and the terms set forth below.
1.SUBLICENSES
1.1 Sublicense Programs and Terms
The Alliance Member may only Sublicense Runtime Programs for which
the Alliance Member has previously acquired a Supported Development
License for the applicable Designated System. Notwithstanding any other
provision of this Agreement, the Alliance Member shall have no right to
Sublicense Programs designated as Oracle Applications Programs, Oracle
Express Programs, Limited Production Programs, or other Programs
specified by Oracle from time-to-time without the prior written consent
of Oracle.
The Alliance Member shall have the right to market and grant
Sublicenses of Runtime Programs under the conditions set forth in the
Agreement and under the following restrictions:
A. Sublicense Runtime Programs with the Application Program in the
Application Package for use on Designated Systems to Sublicensees.
Each copy of the Runtime Programs distributed shall be for the
Sublicensee's own internal use in the Territory only on a single
Designated System limited to a maximum number of Users; and
B. Make and deliver to the Sublicensee a single copy of the Runtime
Programs in the Application Package for each Sublicense granted.
The Alliance Member shall use all practical means available, both
contractual and technical, to control the restricted use of each
Runtime Program Sublicense. If a Sublicensee uses the Runtime Program
beyond the limited functionality described in Section 1.2 hereof, the
Alliance Member or Distributor shall immediately notify the Sublicensee
of such unauthorized use and if the Sublicensee fails to discontinue
such unauthorized use following notification either terminate the
Sublicense or forward to Oracle one hundred percent (100%) of the
applicable Full Use standard Program license fees in effect at the time
the payment is made to Oracle together with a written request by the
Sublicensee for a Full Use Program license from Oracle. Oracle must
approve, in writing, the Sublicensee's request before continued use of
the Programs by the Sublicensee shall be deemed authorized.
1.2 Runtime Programs
For the purposes of this Addendum, "Runtime Program(s)" shall mean
Programs which shall be limited to use solely for the purpose of
running the Alliance Member's Application Program, and may not be used
to create or alter tables or reports except as necessary for operating
the Alliance Member's Application Program. "Full Use Programs" shall
mean unaltered versions of the Programs with all functions intact.
1.3 Value-Added Package
For the purposes of this Addendum, "Application Program(s)" shall
mean the Alliance Members value added application software, described
in the attached Application Package Attachment with which the Runtime
Programs are to be coupled. "Application Package(s)" shall mean the
Runtime Programs coupled with the Application Programs. For purposes of
the Agreement, the Application Program shall be regarded as the
Alliance Member's Value-Added Package.
1.4 Trial Sublicenses
The Alliance Member and its Distributors shall be entitled to
grant, at no charge, up to a maximum combined total of ten (10)
temporary Trial Sublicenses of the Application Package at any one time.
Such Sublicenses shall be for evaluation purposes only and shall be for
a period not to exceed thirty (30) days. The Alliance Member shall pay
Oracle Sublicense fees for any Trial Sublicenses in excess of thirty
(30) days. Each such Trial Sublicense shall be Sublicensed under a
Sublicense agreement which provides for such trial use.
<PAGE>
1.5 Distributors
Oracle grants the Alliance Member the right to appoint third
parties ("Distributors") to market and Sublicense the Runtime Programs
in the Territory, under the terms of the Agreement and this Addendum.
However, Distributors shall have no right to make copies of the
Programs for Sublicensing and shall obtain all such Programs from the
Alliance Member. Each Distributor shall execute a written agreement
with the Alliance Member binding the Distributor to provisions
substantially similar to those contained in Sections 2.3, 2.5, 2.6,
5.1, 5.2.6.1, 6.3, 6.4, 6.5, 7.2.D, 7.5,8.1, 8.2, 8.3, &5, 8.7, 8.9,
and 8.11 of the Agreement and to those contained in Sections 1 (except
1.5), 3, 4, 5, and 8 of this Addendum. Each obligation of the Alliance
Member under such provisions shall also be applicable to each
Distributor. Each Distributor agreement shall also contain any other
provisions necessary for the Alliance Member to satisfy its commitments
under the Agreement. The Alliance Member shall notify Oracle promptly
in writing of the appointment of each such Distributor.
In addition, the Alliance Member shall keep executed Distributor
agreements and records .of the Distributor information required under
the Alliance Member's Sublicense reports, and shall allow Oracle to
inspect such information as specified under the Agreement. The Alliance
Member will defend and indemnify Oracle against all damages to Oracle
caused by (i) the Distributors' failure to include the required
contractual terms set forth in Section 2.3.B of the Agreement in each
Sublicense agreement, and (ii) the Distributors' breach of any of the
applicable provisions required in its Distributor agreement.
1.6 Documentation
The Alliance Member shall be responsible for providing
documentation for Sublicensees. The Alliance Member shall have the
right to incorporate portions of the Documentation into the Alliance
Members documentation, subject to the provisions of Section 8.2 of the
Agreement.
2. SUBLICENSE FEES
2.1 Sublicense Fees and Rate
Application Package, the Alliance Member agrees to pay Oracle a
Sublicense fee equal to forty percent (40%) of the applicable license
fee for each such Program, as specified in the applicable Price List
and Alliance Member Price List supplement to such Price List in effect
at the time the applicable Programs are Sublicensed.
As further specified in Section 6 of this Addendum, Sublicense
fees shall be due and payable within twenty (20) days of the last day
of each month. The Alliance Member shall not be relieved of its
obligation to pay Sublicense fees owed to Oracle by the nonpayment of
such fees by the Sublicensee.
On or after each anniversary during the Term of this Addendum,
Oracle may amend the Sublicense fee percentage rate set forth above
based on Oracle's then-current standard Sublicense fee percentage rate
schedule and the actual amount of Sublicense fees received by Oracle
hereunder.
2.2 Price List for Sublicenses
Notwithstanding any other provision of the Agreement, the
applicable Price List for determining Sublicense fees shall be the
standard Price List in effect at the time the Application Package is
Sublicensed.
Notwithstanding any other provision of this Agreement, if the
Alliance Member issues a written Sublicense quote and such quote is
accepted by the applicable Sublicensee, for a period of ninety (90)
days after the date of submission of the quote to the Sublicensee, the
Sublicense fee applicable to the Programs identified in the quote shall
be based on the Price List in effect on such date.
2.3 Users
The Sublicense fees for a Program shall be based and priced on the
applicable User Level for the maximum number of Users for such Program,
as specified in the Price List. The Alliance Member shall have the
right to Sublicense Programs on any User basis specified in the Price
List in effect at the time the applicable Program is Sublicensed.
3. TERM
This Addendum shall become effective on the Effective Date of this
Addendum and shall be valid for three (3) years (the "Term") from the
Effective Date, unless terminated as provided in the Agreement. Any
<PAGE>
renewal of this Addendum shall be subject to renegotiation of terms and
fees.
Unless the expiration or termination is for default by the
Alliance Member, the Alliance Member may continue using the release of
the Programs then in the Alliance Member's possession on the Designated
Systems for which Development Licenses were granted, solely for the
purpose of continuing technical support for Sublicense granted prior to
termination. Such continued use of the Programs shall be subject to all
the provisions of this Agreement, including, without limitation,
payment of the Technical Support Fees specified herein.
4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Programs in the United States only (the 'Territory").
5. TECHNICAL SUPPORT
5.1 Technical Support for Sublicensees
A. Installation
The Alliance Member or its Distributors will be responsible for
any assistance needed to install the Application Package at Sublicensee
sites.
B. Sublicensing Support
The Alliance Member is responsible for providing all technical
support, training and consultations to its Sub licensees and
Distributors. In consideration of the payments specified in Section
5.2, the Alliance Member shall have the right to use the Oracle
Technical Support services acquired for its Supported Development
Licenses to provide technical support services to its Sublicensees as
further set forth in the Agreement. The Alliance Member shall
continuously maintain Oracle Technical Support services for the
Development Licenses during the period during which the Alliance Member
provides technical support services to any Sublicensees. Any questions
from the Alliance Members Sublicensees or Distributors will be referred
by Oracle to the Alliance Member,
5.2 Technical Support Fees
For Technical Support services for Sublicensees, each year the
Alliance Member agrees to pay Oracle annual Technical Support Fees for
each Runtime Program Sublicensed under this Addendum, a previous
Alliance Member Addendum, or previous distribution agreement between
the parties hereto where the Sublicensee received technical support
services for such Runtime Program during the applicable support period.
Annual Technical Support Fees for a Program shall be equal to the
applicable Technical Support percentage rate for the highest Technical
Support services level selected by the Alliance Member for Technical
Support services for any Development License used under this Addendum
of the cumulative Sublicense fees accrued to Oracle for such supported
Program.
Upon December 31 of each year, the Alliance Member shall provide
Oracle a report setting forth all of the Alliance Members' Sublicenses
and those Sublicensed Programs which were supported by the Alliance
Member during the calendar year. The report shall also include the
applicable Technical Support Fees due and payable to Oracle for such
calendar year. The Alliance Member shall provide Oracle with payment of
all Technical Support Fees for such calendar year required under the
applicable December 31 report with such report in the form of a check
made out in the amount of such fees. All Technical Support Fees paid to
Oracle are noncancelable and nonrefundable.
6. SUBLICENSE REPORTS
Within twenty (20) days of the last day of each month, the
Alliance Member shall send Oracle a report detailing for that month:
A. For each Sublicensed Application Package shipped during the prior
month, Sublicensee name, address, make/model and operating system of
the Designated System, date of shipment, Runtime Programs shipped,
maximum number of licensed Users, whether the Sublicense is a Trial
Sublicense, and total Sublicense fees and Technical Support Fees due
to Oracle;
B. For each Application Program licensed to end-users to be used with
previously installed software licensed by Oracle in conjunction with
the Application Program, Sublicensee name, address, make/model and
operating system of the computer, and date of installation; and
C.The Distributor agreements executed during the prior month, including
names and addresses of the Distributors.
The Alliance Member shall require its Distributors to report this
<PAGE>
information to the Alliance Member on a monthly basis and will include
it in the report for the month in which the Alliance Member received
the information. The Alliance Member shall provide Oracle with payment
of all fees required under the monthly report with such report in the
form of a check made out in the amount of such fees.
7. ADDITIONAL LICENSES
During the Term, the Alliance Member may order production release
versions of Oracle off-the-shelf Programs available as production
release as of the Effective Date of this Addendum and listed on the
Price List in effect as of such date. The license fee for Development
Licenses shall be equal to Oracle's standard list license fees in
effect when an order is placed. The Alliance Member shall have the
right to order Programs for use as Marketing Support Licenses at no
further charge to the Alliance Member. The Alliance Member may obtain
Technical Support services from Oracle for such Programs under Oracle's
applicable Technical Support fees and policies in effect when such
services are ordered.
The Effective Date of this Addendum shall be July 1, 1996.
Executed by FileNet Corporation: Executed by Oracle Corporation:
Authorized Signature:/s/W. J. Kreidler Authorized Signature:/s/Lloyd Alexander
Name: W. J. Kreidler Name: Lloyd Alexander
Title: V P. Operations Title: Manager - Western Region
Channels Sales Support
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
8-95
<PAGE>
APPLICATION PACKAGE ATTACHMENT
Name of Application Program and Application Package which the Alliance Member
will be Sublicensing under the Agreement (may not contain the trademarks
"Oracle" or "Ora" or any portion thereof):
Description of Application Package:
Modules:
Functions and Objectives:
<PAGE>
AMENDMENT ONE
to the
RUNTIME SUBLICENSE ADDENDUM
to the
BUSINESS ALLIANCE PROGRAM AGREEMENT
between
FILENET CORPORATION
and
ORACLE CORPORATION
This Amendment One shall serve to amend the Runtime Sublicense Addendum dated
July 1' 1996 (the "Addendum") to the Business Alliance Program Agreement
between FileNet Corporation (the "Alliance Member") and Oracle Corporation
("Oracle") dated July 1, 1996 (the "Agreement").
The Addendum is amended as follows:
1. Insert the following at the end of the first paragraph of Section 1.1:
"Notwithstanding any provision to the contrary in the Agreement, during
the Term of this Addendum, provided the annual revenue received by the
Alliance Member for Sublicenses to the Alliance Member constitutes less
than fifty percent (50%) of the Alliance Member's total annual revenue
for Runtime Sublicenses, the Alliance Member may acquire Runtime
Programs for its own internal use as a Sublicensee under all terms and
discount rates of this Agreement.
2. Delete Section 1.4 and replace it with the following:
"1.4 Trial Sublicenses
The Alliance Member shall be entitled to grant, at no charge, up to
____*______ temporary Trial Sublicenses of the Programs at any one
time. Such Sublicenses shall be for evaluation purposes only and shall
be for a period not to exceed ____*_____ days. The Alliance Member
shall pay Oracle Sublicense fees for any Trial Sublicenses in excess of
____*_____ days or for any Trial Sublicenses for which the Alliance
Member is compensated. Each such Trial Sublicense shall be Sublicensed
under a Sublicense agreement which provides for such trial use or under
an Oracle Trial License Agreement, as the applicable Oracle Agreement."
3. In Section 2.1, delete the first sentence and replace it with the
following:
"For each copy of the Programs Sublicensed by the Alliance Member or
its Distributor in the Application Package, the Alliance Member agrees
to pay Oracle a Sublicense fee equal to _______*________ percent __*__
of the applicable license fee for each RDBMS Program and ____*____
percent __*__ of the applicable license fee for any other Program, as
specified in the applicable Price List and Alliance Member
* Confidential portion has been filed separately with the Securities and
Exchange Commission.
<PAGE>
Price List supplement to such Price List in effect at the time the
applicable Programs are Sublicensed."
4. In line 5 of Section 2.2, insert the following after "Sublicensed":
", except that, until January 1, 1997, the applicable Price List for
determining shall be the standard Sublicense fees of only the Oracle7
RDBMS Program only Oracle Reseller U.S. Price List in effect as of July
1, 1995."
5. After the first paragraph of Section 2.2 insert the following new
paragraph:
"All Sublicense fees for Sublicenses installed outside the United
States shall be based on the license fees for the Programs as set forth
on the applicable Global Price List."
6. Insert the following at the end of Section 2.3:
"Unless otherwise agreed to by the parties in writing, the term "User"
shall include "Named Users" and/or "Concurrent Devices/Concurrent
Accesses". Unless otherwise agreed to by the parties in writing, a
"Named User" is defined as an individual authorized by Sublicensee to
use the Programs, regardless of whether the individual is actively
using the Programs at any given time and "Concurrent Devices/Concurrent
Accesses" are defined as the maximum number of input devices accessing
the Programs at any given point in time. (If multiplexing software or
hardware (e.g., a TP monitor) is used, this number must be measured at
the multiplexing front end.) "Multiplexing" includes but is not limited
to any utility of function which allows Users to access the database in
a sequential fashion."
7. In Section 3, replace "three (3) years" with "four (4) years".
8. Delete the body of Section 4 in its entirety and insert the following:
"4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Programs in the Application Package in all countries
worldwide (the "Territory"), subject to the terms of this Section.
Oracle may from time to time deny the Alliance Member the right to
Sublicense in certain countries in the Territory in order to protect
Oracle's interests if, in the reasonable opinion of Oracle's counsel,
such countries (i) do not provide adequate protection for Oracle's
proprietary rights through copyright, trade secret, patent, or other
laws; or (ii) have laws or regulations or the government has committed
acts which in the opinion of Oracle's counsel, are injurious to
Oracle's interests in the Programs.
The Alliance Member acknowledges that the Programs are subject to
export controls imposed on Oracle and the Alliance Member by the U.S.
<PAGE>
Export Administration Act, United States Departments of Commerce,
Treasury, and State regulations and directives, and other United States
law ("Export laws"). The Alliance Member certifies that neither the
Programs nor any direct product thereof are (i) exported, directly or
indirectly, in violation of Export laws; or (ii) are intended to be
used for any purposes prohibited by the Export laws, including, without
limitation, nuclear, chemical, or biological weapons proliferation.
Furthermore, the Alliance Member shall not transfer the Programs
outside of the territory for which the Alliance Member has Sublicense
fights under this Agreement.
The Alliance Member warrants that neither it nor its Distributors
will grant Sublicenses in or ship any Programs to a country until it
(or the Distributor) has completed all necessary government formalities
in such country and upon reasonable request by Oracle, the Alliance
Member (or its Distributor) provides evidence of completion of such
formalities to Oracle. The Alliance Member will indemnify Oracle for
any losses, costs, liability, and damages incurred by Oracle as a
result of a failure by the Alliance Member or its Distributors to
comply with the necessary government requirements in any country. The
obligations under this Section shall survive the expiration or
termination of this Addendum. Upon Oracle's reasonable request, the
Alliance Member shall make records available to Oracle to allow to
confirm the Alliance Member's compliance with this Section."
8. Replace the last sentence of the first paragraph of Section 5.2 with
the following:
"For supported Programs Sublicensed on or prior to ____*_____
days from the Effective Date of the Agreement, annual Technical Support
Fees shall be equal to ________*________ percent __*__of the cumulative
Sublicense fees accrued to Oracle for such supported Program. For
supported Programs Sublicensed after ____*_____ days from the Effective
Date of the Agreement, annual Technical Support Fees shall be equal to
____*_____ percent __*__ of the cumulative Sublicense fees accrued to
Oracle for such supported Program."
9. Delete the first sentence of Section 6 and insert the following:
"Within forty-five (45) days of the last day of each quarterly period
ending March 31, June 30, September 30, December 31 (each such period,
a "Quarter"), the Alliance Member shall send to Oracle payment and a
report detailing for that Quarter:"
Also, in Sections 2.1, 5, and 6, delete the word "month" and insert the
word "Quarter" and delete the word "monthly" and insert the word
"Quarterly" in each instance in which such words occur.
10. Delete the second sentence of Section 7 and insert the following:
"The license fee for Development Licenses shall be equal to Oracle's
standard list license fee in effect when an order is placed.
Notwithstanding the above, the Alliance Member shall be granted a
discount on each Development License ordered of ______*______ percent
* Confidential portion has been filed separately with the Securities and
Exchange Commission.
<PAGE>
__*__off Oracle's standard list license fees in effect when an order is
placed."
11. Add the following new Section after Section 7:
"9. COMMISSIONS
During the Term of this Addendum, Oracle agrees to pay the
Alliance Member a fee ("Commission")equal to no more than __*__ percent
__*__of the net license fees Oracle receives from Programs licensed by
Oracle to end-users in the United States, as a direct result of the
Alliance Member's marketing efforts. Unless otherwise mutually agreed
to in writing by the Alliance Member and Oracle, Commissions shall only
be paid provided that: A. Oracle obtains from the end-user an Oracle
Software License and Services Agreement, or other terms to govern the
applicable software license as agreed to in writing by Oracle and the
end-user; B. The Alliance Member provides to Oracle a completed
Commission Request Form which is accepted in writing by Oracle at least
five (5) days prior to the date of license of the applicable Programs,
and the end-user pays Oracle all required license fees; C. The Alliance
Member's marketing efforts precede the license grant from Oracle; and
D. The net license fees represent new revenue to Oracle.
The Alliance Member's Commission shall be calculated on fees for
perpetual software licenses only. The Alliance Member shall not earn a
Commission based on Technical Support fees or fees for other services
or products provided to the end-user by Oracle. Oracle reserves the
fight to withhold payment of the Commissions due to non-collectability
of revenues from the end-user or if the Alliance Member employs
marketing practices not approved by Oracle. Commissions shall be paid
for Program licenses installed in the United States only. If one or
more other Alliance Members seek to obtain Commission for a Program
license for which the Alliance Member is seeking Commission, Oracle
shall reasonably reduce or adjust the Commission rate specified above
to apportion payment of commissions between all Alliance Members which
in Oracle's reasonable judgment are entitled to payment of commissions.
A copy of the Commission Request Form is attached hereto as Exhibit A."
Other than the modifications set forth above, the terms and conditions
of the Addendum and the Agreement remain unchanged, and in full force
and effect.
* Confidential portion has been filed separately with the Securities and
Exchange Commission.
<PAGE>
The Effective Date of this Amendment One is July 1, 1996.
FILENET CORPORATION ORACLE CORPORATION
By: /s/ W. J. Kreidler By: /s/ Lloyd Alexander
Name: W. J. Kreidler Name: Lloyd Alexander
Title:V P. Operations Title: Manager - Western Region
Channels Sales Support
<PAGE>
EXHIBIT A
CONIMISSION REQUEST FORM
Company Name:
Address:
City: State: Zip:
Contact Name/Title: Phone Number:
Type of Business Organization:
Annual Revenue $: # of Employees:
Existing Software:
Proposed Software Solution:
Hardware Platform/Operating System:
Oracle Programs:
Projected Order Date:
Projected Dollar amount of Order:
Amount of Commission requested:
Alliance Member direct marketing efforts:
Additional Information:
Any Commission payable under this Commission Request Form shall be specific to
the license of Programs as specified above to the end user set forth above. The
amount of Commission specified above shall not be applicable to any other
Program licenses by Oracle.
The Effective Date of this Commission Request Form shall be
Executed by the Alliance Member: Executed by Oracle Corporation:
Authorized Signature: Authorized Signature:
Name: Name:
Title: Title:
ORACLE
FULL USE AND DEPLOYMENT SUBLICENSE ADDENDUM
This document (the "Addendum") is between Oracle Corporation ("Oracle") and
FileNet Corporation (the "Alliance Member") and shall be governed by the terms
of the Business Alliance Program Agreement between the Alliance Member and
Oracle effective July 1, 1996 (the "Agreement") and the terms set forth below.
1. PROGRAM DISTRIBUTION
1.1 Sublicense of Programs and Terms
The Alliance Member shall have the right to market and grant
Sublicenses of Full Use Programs or Deployment Programs which are
available in production release and listed on Oracle's Price List in
effect at the time the Programs are ordered from Oracle to Sublicense
to a Sublicensee; provided, however, the Alliance Member shall have no
right to Sublicense any Programs designated as Oracle Applications
Programs, Oracle Express Programs, Limited Production Programs, or
other Programs specified by Oracle from time-to-time without the prior
written consent of Oracle. The Alliance Member shall have the right to
market and grant Sublicenses of Full Use or Deployment Programs for use
on Designated Systems in conjunction with the Integrated System to
Sublicensees. Each copy of the Full Use or Deployment Programs
distributed shall be for the Sublicensee's own internal use in the
Territory only on a single Designated System limited to a maximum
number of Users.
To acquire Programs for Sublicensing to Sublicensees, the Alliance
Member shall order such Programs from Oracle. Each order shall specify
the applicable Programs, maximum number of Users, computer/operating
system configuration, fees, shipping location, and any other
information required by Oracle for processing the order. Orders for
Trial Sublicenses shall be clearly marked on the face of the Order
Form.
1.2 Distribution under Oracle Agreement
In addition to the Sublicense rights specified in Section 2.3.A of
the Agreement and notwithstanding the terms of such Section and Section
3.2.B of the Agreement, the Alliance Member shall have the right to
market and grant Sublicenses of Full Use Programs and Deployment
Programs in conjunction with the Integrated System to Sublicensees
under a standard Oracle Software License and Services Agreement in lieu
of Sublicensing the Programs under a written Sublicense agreement.
The Alliance Member may submit orders for Sublicenses to Oracle
for its acceptance. With each such order, the Alliance Member
shall submit a standard Oracle Software License and
Services Agreement executed by the applicable Sublicensee, or shall
reference on such order that the Programs will be licensed to the
Sublicensee subject to an existing license agreement effective between
the Sublicensee and Oracle (the "Oracle Agreement"). In addition, as
part of the Oracle Agreement, the Alliance Member shall obtain the
Sublicensee's written agreement that the ordered Programs and services
are subject to the terms and conditions of the Oracle Agreement.
If the Sublicensee is a federal agency, the Alliance Member shall
submit with each such order a written document executed by an
authorized Sublicensee contracting officer which contains the following
provision: "This is an open market order placed pursuant to terms
identical to the terms and conditions of Oracle's General Services
Administration (GSA) Schedule A Contract for Oracle Programs current as
of the order date, with the exception of the maximum order limitations,
discounts, maintenance, training units and other discounts specific to
the applicable Oracle GSA Schedule. No other pre-printed or reference
terms and conditions shall apply." This written document shall be
deemed the applicable Oracle Agreement.
For orders which include only shrinkwrapped Oracle Programs, the
Oracle Agreement may consist of a written obligation by the Sublicensee
<PAGE>
to use the Programs under the terms of the shrinkwrap license
agreement.
The Alliance Member shall indemnify Oracle for any claims,
damages, or losses arising from failure to obtain any Oracle Agreement.
If the order specifies that the Programs are to be delivered to
the Alliance Member, the Alliance Member shall have the right to
re-deliver the Programs with their original packaging to the applicable
Sublicensee.
1.3 Full Use and Deployment Programs
For the purposes of this Addendum, "Full Use Programs" shall mean
unaltered versions of the Programs with all functions intact.
"Deployment Programs" shall mean Programs which are limited to use
solely for the purpose of running applications, and may not be used to
create or alter tables or reports except as necessary for operating the
applications.
1.4 Value-Added Package
For the purposes of this Addendum, "Integrated System" shall mean
the hardware and software products having Value-Added which are
developed, sold, and/or licensed with the Programs to a Sublicensee by
the Alliance Member to satisfy such Sublicensee's internal business
requirements and objectives. For purposes of the Agreement, the
Integrated System will be regarded as the Alliance Member's Value-Added
Package which is described in the attached Value-Added Attachment. The
Integrated System shall be regarded as "Value-Added" if the following
materials are provided as part of the Integrated System by the Alliance
Member: (a) non-Oracle developed software; (b) customized programming
or customized consulting; and (c) other computer products or
components.
1.5 Trial Sublicenses
The Alliance Member shall be entitled to grant, at no charge, up
to ten (10) temporary Trial Sublicenses of the Programs at any one
time. Such Sublicenses shall be for evaluation purposes only and shall
be for a period not to exceed thirty (30) days. The Alliance Member
shall pay Oracle Sublicense fees for any Trial Sublicenses in excess of
thirty (30) days. Each such Trial Sublicense shall be Sublicensed under
a Sublicense agreement which provides for such trial use or under an
Oracle Trial License Agreement, as the applicable Oracle Agreement.
1.6 No Distributors
The Alliance Member's right to market and grant Sublicenses of
Full Use Programs or Deployment Programs hereunder shall be limited to
the Alliance Member only. The Alliance Member shall not appoint any
third party to distribute the Programs without Oracle's prior written
consent.
1.7 Documentation
Oracle shall deliver one copy of the applicable Documentation with
each order of Programs for Sublicensing to Sublicensees.
2. SUBLICENSE FEES
2.1 Sublicense Fees and Rate
For each copy of the Programs Sublicensed by the Alliance Member,
the Alliance Member agrees to pay Oracle a Sublicense fee equal to
sixty percent (60%) of the applicable license fee for each such
Program, as specified in the applicable Price List and Alliance Member
Price List supplement to such Price List in effect at the time the
applicable Programs are Sublicensed to a Sublicensee. The Sublicense
fee shall be calculated effective on the date of the Sublicense, which
shall be the date the Programs are shipped by Oracle or the effective
date of the order to Oracle for such Programs, if no shipment is
required.
Fees for Sublicense of Programs shall be due and payable on the
date that Oracle ships the applicable Programs and shall be deemed
overdue if not paid within thirty-one (31) days of the due date. The
Alliance Member shall not be relieved of its obligation to pay
Sublicense fees owed to Oracle by the nonpayment of such fees by the
Sublicensee.
2.2 Price List
As set forth in the Agreement, the applicable Price List for
determining Sublicense fees shall be the standard Price List in effect
at the time the Program is Sublicensed to a Sublicensee. However,
pricing for any federal agency, pursuant to terms and conditions
identical to the terms and conditions of Oracle's GSA Schedule A
Contract for Oracle Programs current as of the order date, shall be
<PAGE>
based on Oracle's published GSA Price List.
Notwithstanding any other provision of this Agreement, if the
Alliance Member issues a written Sublicense quote and such quote is
accepted by the applicable Sublicensee, for a period of ninety (90)
days after the date of submission of the quote to the Sublicensee, the
fee applicable to the Programs identified in the quote shall be based
on the Price List in effect on such date.
2.3 Users
The fees for Sublicense of a Program shall be based and priced on
the applicable User Level for the maximum number of Users for such
Program, as specified in the Price List. The Alliance Member shall have
the right to Sublicense on any User basis specified in the Price List
in effect at the time the applicable Program is Sublicensed to a
Sublicensee.
3. TERM
This Addendum shall become effective on the Effective Date of this
Addendum and shall be valid for one (1) year (the "Term'), unless
terminated as provided in the Agreement. Any renewal of this Addendum
shall be subject to renegotiation of terms and fees.
4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Full Use Programs or Deployment Programs in the United
States only (the "Territory").
5. TECHNICAL SUPPORT
5.1 Technical Support for Sublicensees
A Sublicensee may acquire Technical Support services for Full Use
Programs or Deployment Programs Sublicensed under this Addendum from
Oracle at Oracle's standard rates and fee in effect at the time such
Technical Support services are ordered under an Oracle Technical
Support Services Agreement or Oracle Agreement, as applicable.
5.2 Technical Support Fee
Oracle agrees that the Alliance Member shall have the right to
offer Oracle annual Technical Support services to Sublicensees in the
United States that are currently acquiring Full Use Programs or
Deployment Programs. The Alliance Member shall only offer Oracle
Technical Support services with respect to the initial first year of
Technical Support for a Sublicensed Program. The Alliance Member shall
only offer Oracle annual Technical Support services to a Sublicensee
provided that:
A. Oracle receives from the Sublicensee an executed, standard Oracle
Technical Support Services Agreement, Oracle Agreement, or other terms
to govern the Technical Support services as agreed to in writing by
Oracle and the Sublicensee;
B.The Full-Use or Deployment Programs are currently Sublicensed by the
Alliance Member;
C. The Alliance Member pays Oracle its required Sublicense fee for the
applicable Sublicensed Programs as provided under the Agreement, and
the Alliance Member pays Oracle the applicable Technical Support
services fees as set forth herein in advance;
D.The Alliance Members Sublicense of the Full Use Programs or
Deployment Programs coincides with the agreement to provide Technical
Support Services for such Programs; and
E. The net Technical Support services fees represent new Technical
Support revenue to Oracle.
The Technical Support services fees payable by Alliance Member as
provided above shall be Oracle's standard rates for such services as
provided under the Price List in effect at the time the Technical
Support services are ordered, discounted by ten percent (10%).
6. SUBLICENSE REPORTS
With each order for Programs for Sublicense to a Sublicensee, the
Alliance Member shall send Oracle a report detailing for each
Sublicensed Full Use Program or Deployment Program: Sublicensee name,
address, make/model and operating system of the Designated System, Full
Use or Deployment Programs, maximum number of licensed Users, whether
the Sublicense is a Trial Sublicense, total Program fees and Technical
Support Fees due to Oracle, and specific descriptions of the Integrated
System and Value-Added.
7. ADDITIONAL LICENSES
During the Term, the Alliance Member may order production release
versions of Oracle off-the-shelf Programs available as production
<PAGE>
release as of the Effective Date of this Addendum and listed on the
Price List in effect as of such date. The license fee for Development
Licenses shall be equal to Oracle's standard list license fees in
effect when an order is placed. The Alliance Member shall have the
right to order Programs for use as Marketing Support Licenses at no
further charge to the Alliance Member. The Alliance Member may obtain
Technical Support services from Oracle for such Programs under Oracle's
applicable Technical Support fees and policies in effect when such
services are ordered.
The Effective Date of this Addendum shall be July 1, 1996.
Executed by the FileNet Corporation: Executed by Oracle Corporation
Authorized Signature:/s/ W. J. Kreidler Authorized Signature:/s/ Lloyd Alexander
Name: Name:
Title: Title:
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
8-95
<PAGE>
VALUE-ADDED ATTACHMENT
Description of Integrated System:
Hardware components:
Software products other than Programs:
Services to be provided by the Alliance Member:
<PAGE>
AMENDMENT ONE
to the
FULL USE AND DEPLOYMENT SUBLICENSE ADDENDUM
BUSINESS
to the
ALLIANCE PROGRAM AGREEMENT
between
FILENET CORPORATION
and
ORACLE CORPORATION
This Amendment One shall serve to amend the Full Use Sublicense and Deployment
Sublicense Addendum dated July 1, 1996 (the "Addendum") to the Business Alliance
Program Agreement between FileNet Corporation (the "Alliance Member") and Oracle
Corporation ("Oracle") dated July 1 , 1996 (the "Agreement").
The Addendum is amended as follows:
1. Insert the following at the end of the first paragraph of Section 1.1:
"Notwithstanding any provision to the contrary in the Agreement, during
the Term of this Addendum, provided the annual revenue received by the
Alliance Member for Sublicenses to the Alliance Member constitutes less
than __*___ percent of the Alliance Member's total annual revenue for
Full Use and Deployment Program Sublicenses, the Alliance Member may
acquire Full Use and Deployment Programs for its own internal use as a
Sublicensee under all terms and discount rates of this Agreement.
2. Delete Section 1.5 and replace it with the following:
"1.5 Trial Sublicenses
The Alliance Member shall be entitled to grant, at no charge, up to
______*_________ temporary Trial Sublicenses of the Programs at any one
time. Such Sublicenses shall be for evaluation purposes only and shall
be for a period not to exceed ______*_______ days. The Alliance Member
shall pay Oracle Sublicense fees for any Trial Sublicenses in excess of
______*______ days or for any Trial Sublicenses for which the Alliance
Member is compensated. Each such Trial Sublicense shall be Sublicensed
under a Sublicense agreement which provides for such trial use or under
an Oracle Trial License Agreement, as the applicable Oracle Agreement."
3. Delete the body of Section 1.6 in its entirety and insert the following:
"1.6 Distributors
Oracle grants the Alliance Member the right to appoint third panics
("Distributors") to market and Sublicense the Full Use or Deployment
Programs in the Territory, under the terms of the Agreement and this
Addendum. However, Distributors shall have no right to make copies of
* Confidential portion has been filed separately with the Securities and
Exchange Commission.
<PAGE>
the Programs for Sublicensing and shall obtain all such Programs from
the Alliance Member. Each Distributor shall execute a written agreement
with the Alliance Member binding the Distributor to provisions
substantially similar to those contained in Sections 2.3, 2.5, 2.6,
5.1, 5.2, 6.1, 6.3, 6.4, 6.5, 7.2.A.1, 7.5, 8.1, 8.2, 8.3, 8.5, 8.7,
8.9, and 8.11 of the Agreement and to those contained in Sections 1
(except 1.6), 3, 4, 5, and 6 of this Addendum. Each obligation of the
Alliance Member under such provisions shall also be applicable to each
Distributor. Each Distributor agreement shall also contain any other
provisions necessary for the Alliance Member to satisfy its commitments
under the Agreement. The Alliance Member shall notify Oracle promptly
in writing of the appointment of each such Distributor.
In addition, the Alliance Member shall keep executed Distributor
agreements and records of the Distributor information required under
the Alliance Member's Sublicense reports, and shall allow Oracle to
inspect such information as specified under the Agreement. The Alliance
Member will defend and indemnify Oracle against all damages to Oracle
caused by (i) the Distributors' failure to include the required
contractual terms set forth in Section 2.3.B of the Agreement in each
Sublicense agreement, and (ii) the Distributors' breach of any of the
applicable provisions required by in its Distributor agreement."
4. Add the following new paragraphs to the end of Section 1.7:
"During the Term of this Addendum, the Alliance Member may order Oracle
documentation for the Programs for resale to its Sublicensees at
Oracle's standard fees in effect when each order is placed less the
Discount Percentage corresponding to the List Price of Documentation
for a single order.
List Price of Documentation Discount Percentage
(Single Order)
$0 $499 10%
$500 - $1,499 20%
$1,500- and over 30%
5. At the end of Section 2.1, insert the following:
"Within thirty (30) days after the second and each further anniversary
during the Term of this Addendum, Oracle and the Alliance Member shall
re-negotiate the Sublicense fee percentage rate set forth above based
on the actual amount of cumulative Sublicense fees received by Oracle
hereunder. If the parties have not agreed in writing on the Sublicense
fee percentage rate for the next annual period, the Alliance Member's
right to Sublicense Programs shall cease until the parties hereto
mutually agree in writing on a new Sublicense fee rate percentage for
Sublicenses of Programs.
6. At the end of the first paragraph of Section 2.2 insert the following:
<PAGE>
"All Sublicense fees for Sublicenses installed outside the United
States shall be based on the license fees for the Programs as set forth
on the applicable Oracle Global Price List in effect at the time such
Programs are Sublicensed."
7. Insert the following at the end of Section 2.3:
"Unless otherwise agreed to by the parties in writing, the term "User"
shall include "Named Users" and/or "Concurrent Devices/Concurrent
Accesses". Unless otherwise agreed to by the parties in writing, a
"Named User" is defined as an individual authorized by Sublicensee to
use the Programs, regardless of whether the individual is actively
using the Programs at any given time and "Concurrent Devices/Concurrent
Accesses" are defined as the maximum number of input devices accessing
the Programs at any given point in time. (If multiplexing software or
hardware (e.g., a TP monitor) is used, this number must be measured at
the multiplexing front end.) "Multiplexing" includes but is not limited
to any utility of function which allows Users to access the database in
a sequential fashion."
8. Delete the first sentence of Section 3 and insert the following:
"This Addendum shall become effective on the Effective Date of this
Addendum. and shall be valid for four (4) years from such Effective
Date (the "Term"), unless earlier terminated as provided in the
Agreement."
9. Delete the body of Section 4 in its entirety and insert the following:
"4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Programs in the Application Package in all countries
worldwide, (the "Territory"), subject to the terms of this Section.
Oracle may from time to time deny the Alliance Member the right to
Sublicense in certain countries in the Territory in order to protect
Oracle's interests if, in the reasonable opinion of Oracle's counsel,
such countries (i) do not provide adequate protection for Oracle's
proprietary rights through copyright, trade secret, patent, or other
laws; or (ii) have laws or regulations or the government has committed
acts which in the opinion of Oracle's counsel, are injurious to
Oracle's interests in the Programs.
The Alliance Member acknowledges that the Programs are subject to
export controls imposed on Oracle and the Alliance Member by the U.S.
Export Administration Act, United States Departments of Commerce,
Treasury, and State regulations and directives, and other United States
law ("Export laws"). The Alliance Member certifies that neither the
Programs nor any direct product thereof are (i) exported, directly or
indirectly, in violation of Export laws; or (ii) are intended to be
used for any purposes prohibited by the Export laws, including, without
limitation, nuclear, chemical, or biological weapons proliferation.
<PAGE>
Furthermore, the Alliance Member shall not transfer the Programs
outside of the territory for which the Alliance Member has Sublicense
rights under this Agreement.
The Alliance Member warrants that neither it nor its Distributors
will grant Sublicenses in or ship any Programs to a country until it
(or the Distributor) has completed all necessary government formalities
in such country and upon reasonable request by Oracle, the Alliance
Member (or its Distributor) provides evidence of completion of such
formalities to Oracle. The Alliance Member will indemnify Oracle for
any losses, costs, liability, and damages incurred by Oracle as a
result of a failure by the Alliance Member or its Distributors to
comply with the necessary government requirements in any country. The
obligations under this Section shall survive the expiration or
termination of this Addendum. Upon Oracle's reasonable request, the
Alliance Member shall make records available to Oracle to allow to
confirm the Alliance Member's compliance with this Section."
10. Insert the following at the end of Section 5.1:
"The Alliance Member may order local country Technical Support services
for Programs licensed outside of the United 5tates from Oracle's local
country subsidiary under such subsidiary's local Technical Support fees
and policies in effect at the time such services are ordered."
11. Delete the second sentence of Section 7 and insert the following:
"The license fee for Development Licenses shall be equal to Oracle's
standard list license fee in effect when an order is placed.
Notwithstanding the above, the Alliance Member shall be granted a
discount on each Development License ordered of ______*_______ percent
__*__off Oracle's standard list license fees in effect when an order is
placed."
Other than the modifications set forth above, the and the Agreement remain
unchanged, and in full terms and conditions of the Addendum force and effect.
The Effective Date of this Amendment One is July 1, 1996
FILENET CORPORATION ORACLE CORPORATION
By: /s/ W. J. Kreidler By: /s/ Lloyd Alexander
Name: W. J. Kreidler Name: Lloyd Alexander
Title: V P. Operations Title: Manager - Western Region
Channels Sales Support
* Confidential portion has been filed separately with the Securities and
Exchange Commission.
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<S> <C>
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<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 26,860
<SECURITIES> 26,129
<RECEIVABLES> 65,385
<ALLOWANCES> 0
<INVENTORY> 7,426
<CURRENT-ASSETS> 139,419
<PP&E> 74,892
<DEPRECIATION> 48,228
<TOTAL-ASSETS> 185,904
<CURRENT-LIABILITIES> 58,590
<BONDS> 0
0
0
<COMMON> 123,883
<OTHER-SE> (126)
<TOTAL-LIABILITY-AND-EQUITY> 124,968
<SALES> 131,741
<TOTAL-REVENUES> 131,741
<CGS> 24,241
<TOTAL-COSTS> 48,035
<OTHER-EXPENSES> 92,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,066)
<INCOME-TAX> (2,241)
<INCOME-CONTINUING> (9,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,307)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
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