FORM 10-Q
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, 1998
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
(Exact name of Registrant as specified in its charter)
Delaware 95-3757924
- ------------------------------ ----------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3565 Harbor Boulevard, Costa Mesa, CA 92626
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(714) 966-3400
- ----------------------------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
As of July 31, 1998, there were 31,520,271 shares of the Registrant's common
stock outstanding.
<PAGE>
FILENET CORPORATION
Index
Page
Number
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997...................... 3
Consolidated Statements of Operations
for the three and six month periods ended June 30,
1998 and 1997.................................................. 4
Consolidated Statements of Comprehensive Income
for the three and six month periods ended
June 30, 1998 and 1997......................................... 5
Consolidated Statements of Cash Flows
for the six month periods ended June 30, 1998 and 1997......... 6
Notes to Consolidated Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders............ 17
Item 6. Exhibits and Reports on Form 8-K............................... 17
SIGNATURE...................................................... 18
INDEX TO EXHIBITS.............................................. 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FILENET CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 50,101 $ 37,344
Short-term marketable securities........... 17,595 26,600
Accounts receivable, net................... 69,759 61,283
Inventories................................ 3,155 3,541
Prepaid expenses and other current assets.. 7,491 8,309
Deferred income taxes...................... 5,871 6,439
------------ -----------
Total current assets....................... 153,972 143,516
Property, net................................ 33,551 27,587
Long-term marketable securities.............. 13,886 7,826
Other assets................................. 1,042 941
------------ -----------
Total assets............................. $ 202,451 $ 179,870
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 16,192 $ 15,003
Accrued compensation....................... 17,362 14,845
Unearned maintenance revenue............... 14,474 8,848
Accrued royalties.......................... 2,092 2,743
Other accrued liabilities.................. 21,264 19,190
------------ -----------
Total current liabilities.................. 71,384 60,629
Deferred income taxes........................ 437 430
Stockholders' equity:
Preferred stock - $.10 par value; 7,000,000
shares authorized; none issued and outstanding
Common stock - $.01 par value; 200,000,000
shares authorized; 31,290,285 and 31,121,676
shares outstanding at June 30, 1998 and
December 31, 1997, respectively.......... 140,481 130,741
Retained earnings.......................... 9,507 2,348
Accumulated other comprehensive income..... (4,791) (4,146)
------------ -----------
145,197 128,943
Treasury stock, at cost; 1,098,000 and
820,000 shares at June 30, 1998 and
December 31, 1997, respectively.......... (14,567) (10,132)
------------ -----------
Total stockholders' equity................. 130,630 118,811
============ ===========
Total liabilities and stockholders' equity $ 202,451 $ 179,870
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Software................. $ 44,403 $ 31,075 $ 87,650 $ 53,157
Service.................. 29,467 23,256 52,938 41,493
Hardware................. 6,502 8,119 13,393 15,362
--------- --------- --------- ----------
Total revenue............ 80,372 62,450 153,981 110,012
--------- --------- --------- ----------
Costs and expenses:
Cost of software revenue.. 4,265 3,166 7,951 6,165
Cost of service revenue... 17,967 13,765 33,313 26,896
Cost of hardware revenue.. 3,238 4,838 6,598 10,167
Research and development.. 11,820 9,593 23,894 19,733
Selling, general and
administrative............ 37,585 31,021 74,152 60,787
Restructuring and other
costs..................... 6,000 6,000
---------- --------- --------- ----------
Total costs and expenses.. 74,875 68,383 145,908 129,748
---------- --------- --------- ----------
Operating income (loss)..... 5,497 (5,933) 8,073 (19,736)
Other income, net........... 1,031 580 2,010 1,301
---------- --------- --------- ----------
Income (loss) before income
taxes...................... 6,528 (5,353) 10,083 (18,435)
Provision (benefit) for income
taxes...................... 1,893 (1,499) 2,924 (5,161)
---------- --------- --------- ----------
Net income (loss)........... $ 4,635 $ (3,854) $ 7,159 $ (13,274)
========== ========= ========= ==========
Earnings (loss) per share:
Basic..................... $ 0.15 $ (0.13) $ 0.23 $ (0.44)
Diluted................... $ 0.14 $ (0.13) $ 0.21 $ (0.44)
Weighted average shares outstanding:
Basic..................... 30,801 30,390 30,501 30,240
Diluted................... 34,097 30,390 33,530 30,240
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -----------------
1998 1997 1998 1997
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss)............... $ 4,635 $(3,854) $ 7,159 $(13,274)
----------- -------- -------- ---------
Other comprehensive income:
Foreign currency translation
adjustments, net of tax..... 1,064 (1,553) (652) (3,818)
Unrealized gains (losses) on
securities:
Unrealized holding gains
(losses)arising during period,
net of tax............... 7 42 12 (9)
Reclassification adjustment for
losses included in net income,
net of tax................ (5)
----------- -------- -------- --------
Total other comprehensive income
(loss)........................ 1,071 (1,511) (645) (3,827)
----------- --------- -------- --------
Comprehensive income (loss)..... $ 5,706 $ (5,365) $ 6,514 $(17,101)
=========== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FILENET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 7,159 $ (13,274)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.... 7,109 6,689
Provision for doubtful accounts.. 377
Deferred income taxes............ 575 (429)
Changes in operating assets and
liabilities:
Accounts receivable............ (9,325) 29,580
Inventories.................... 386 2,852
Prepaid expenses and other
current assets................. 764 145
Accounts payable............... 1,201 (7,457)
Accrued compensation........... 2,551 2,430
Unearned maintenance revenue... 6,665 1,921
Accrued royalties.............. (651) (1,647)
Other.......................... 881 (4,442)
Net cash provided by operating ------------------ -----------------
activities......................... 17,692 16,368
------------------ -----------------
Cash flows from investing activities:
Proceeds from sale of equipment...... 422 124
Capital expenditures................. (13,586) (6,930)
Purchases of marketable securities... (21,065) (16,215)
Proceeds from sales and maturities
of marketable securities........... 24,113 19,170
------------------ -----------------
Net cash used by investing activities (10,116) (3,851)
------------------ -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 9,740 1,497
Common stock repurchased............. (4,435)
------------------ -----------------
Net cash provided by financing
activities.......................... 5,305 1,497
------------------ -----------------
Effect of exchange rate changes on
cash and cash equivalents.......... (124) (2,535)
------------------ -----------------
Net increase in cash and cash
equivalents........................ 12,757 11,479
Cash and cash equivalents, beginning
of year............................ 37,344 28,530
================== =================
Cash and cash equivalents,
end of period...................... $ 50,101 $ 40,009
================== =================
Supplemental cash flow information:
Interest paid........................ $ 60 $ 160
Income taxes paid.................... $ 516 $ 2,461
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
FILENET CORPORATION
Notes To Consolidated Financial Statements
(Unaudited)
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, 1998 and the results of its operations, its
comprehensive income and its cash flows for the three and six month
periods ended June 30, 1998 and 1997. 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, 1997 and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
The results of operations for the interim periods are not necessarily
indicative of the operating results for the year.
2. In May 1998, the Company effected a two-for-one split of its common
stock. All references in the consolidated financial statements to
number of shares and per share amounts of the Company's common stock
have been restated to reflect the split.
3. Certain reclassifications have been made to the prior year's
consolidated financial statements to conform with the current year's
presentation.
4. The following table is a reconciliation of the earnings and share
amounts used in the calculation of basic earnings per share and diluted
earnings per share for the three and six month periods ended June 30,
1998.
<TABLE>
<CAPTION>
Per
Net Share
(In thousands, except per share Income Shares Amount
amounts) ----------- ----------- ----------
<S> <C> <C> <C>
Three months ended June 30, 1998
Basic earning per share............ $ 4,635 30,801 $ 0.15
Effect of dilutive stock options... 3,296
----------- -----------
Diluted earnings per share......... $ 4,635 34,097 $ 0.14
=========== ===========
Six months ended June 30, 1998
Basic earning per share............ $ 7,159 30,501 $ 0.23
Effect of dilutive stock options... 3,029
----------- -----------
Diluted earnings per share......... $ 7,159 33,530 $ 0.21
=========== ===========
</TABLE>
The weighted average number of shares outstanding during the three and
six month periods ended June 30, 1997 was 30,390,000 and 30,240,000,
respectively. Options to purchase shares of common stock were
outstanding during these periods but were not included in the
computation of diluted loss per share, as their effect was
antidilutive.
7
<PAGE>
5. In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires enterprises to report
comprehensive income and its components in general-purpose financial
statements. SFAS No. 130 is effective for the Company beginning January
1, 1998. Accordingly, the Company has prepared Statements of
Comprehensive Income for the three and six month periods ended June 30,
1998 and 1997 (restatement of prior year financial statements is
required by SFAS No. 130). Accumulated other comprehensive income as of
June 30, 1998 is comprised of the following:
<TABLE>
<CAPTION>
Accumulated
Unrealized Gain Other
Foreign on Marketable Comprehensive
(In thousands) Currency Items Securities Income
-------------- -------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ (4,121) $ (25) $ (4,146)
Current period changes (652) 7 (645)
-------------- -------------- ------------
Balance, June 30, 1998 $ (4,773) $ (18) $ (4,791)
============== ============== ============
</TABLE>
6. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information"; which is effective for the
year ending December 31, 1998. The Company has not yet determined the
impact, if any, of adopting this standard on its financial statements.
7. 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 (the
FileNET Case). 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, formerly a wholly owned
subsidiary that was merged into the Company, is infringing three of
the same patents asserted in the initial complaint (the Watermark
Case). On October 9, 1996, Wang withdrew its claim in the FileNET Case
that one of the patents it initially asserted is infringed by the
Company's products that were commercialized before the initial
complaint was filed. Wang reserved the right to assert that patent
against the Company's products commercialized after that date in a
separate lawsuit.
In March 1997, Eastman Kodak Company (Kodak) purchased the Wang imaging
business unit that has responsibility for this litigation. The patents
in the suit have been transferred to a Kodak subsidiary, Kodak Limited
of England, which, in turn, has exclusively licensed them to another
Kodak subsidiary, Eastman Software, Inc. in the United States
(Eastman). On July 30, 1997, the court permitted Eastman and Kodak
Limited of England to be substituted in the litigation in place of
Wang.
FileNET has moved for summary judgement on noninfringement as to each
of the five patents in the suit, and for summary judgment of invalidity
as to one of the patents. Eastman moved for summary judgment as to
FileNET's unenforceability defense on one of the patents. A trial date
has not been set.
If it should be determined that the patents at issue in the litigation
are valid and are infringed by any of the Company's products the
Company will, depending on the product, redesign the infringing
product or seek to obtain a license to market the product. There can
be no assurance that the Company will be able to obtain such a license
on acceptable terms. Based on the Company's analysis of these Eastman
patents and their respective file histories, the Company believes that
it has meritorious defenses to Eastman's claims; however, the ultimate
outcome or any resulting potential loss cannot be determined at this
time.
On December 20, 1996, plaintiff Michael I.Goldman (the Plaintiff) filed
a class action complaint against the Company and certain of its
officers and directors in the Superior Court of California, County of
8
<PAGE>
Orange (the State Action). The action was purportedly filed on behalf
of a class of purchasers of the Company's common stock during the
period October 19, 1995 through July 2, 1996. The Plaintiff alleges
that the Company and other defendants violated Cal. Corp. Code ss.ss.
25400 and 25500, Cal. Civ. Code ss.ss. 1709-1710 and Cal. Bus. & Prof.
Code ss.ss. 17200 et seq. in connection with various public statements
made by the Company and certain of its officers and directors during
the putative class period. The complaint seeks unspecified
compensatory and punitive damages, interest, payment of attorney's
fees and costs, and equitable or injunctive relief.
On April 1, 1997, the Plaintiff filed another class action complaint
against the Company and certain of its officers and directors in the
United States District Court for the Central District of California
(the Federal Action). The action purportedly was filed on behalf of the
same class of purchasers of the Company's common stock as the State
Action. The allegations contained in the Federal Action are very
similar to the allegations contained in the State Action, except that
the Federal Action asserts claims under Sections 10(b) and 20(a) of the
Securities Exchange Act and Rule 10b-5. The complaint seeks unspecified
compensatory damages, interest, attorneys' fees, expert witness fees,
costs and equitable or injunctive relief. On July 2, 1997, the court
granted plaintiff's motion to be appointed "lead plaintiff" under the
Private Securities Litigation Reform Act.
In the Federal Action, defendants have filed a motion to dismiss the
complaint in its entirety. Plaintiff has filed a motion to stay the
Federal Action, in light of the parallel State Action. The court is
scheduled to hear both of these motions during August 1998.
In the State Action, defendants moved to stay the action, in light of
the parallel Federal Action. The trial court granted the motion to stay
the action as to discovery on September 8, 1997. Defendants also
demurred and moved to strike the complaint. The trial court overruled
the demurrer and denied the motion to strike on October 21, 1997. On
January 14, 1998, the court entered an order dismissing with prejudice
two of plaintiff's three causes of action: the claims under Cal. Civ.
Code ss.ss. 1709-1710 and Cal. Bus. & Prof. Code ss.ss. 17200 et seq.
On January 30, 1998, the trial court in the State Action granted the
Plaintiff's motion to certify a class composed of persons who bought
FileNET stock in California only between October 19, 1995 and July 2,
1996. This ruling is subject to revision based on the decisions to be
rendered by the California Supreme Court in Diamond Multimedia Systems,
et al. v. Superior Court (Pass) and StorMedia, Inc., et al. v. Superior
Court (Werczberger). The trial court also denied the Plaintiff's motion
to lift the discovery stay.
The Company believes that all of the allegations contained in the
complaints filed in the State and Federal Actions are without merit and
intends to defend the actions vigorously.
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 material adverse effect
on the Company's consolidated results of operations or financial
condition.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included in Part I--Item 1 and Factors
That May Affect Future Results in this item of this Quarterly Report, and with
the audited 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, 1997.
Results of Operations
Revenue
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- -----------------------
1998 1997 Change 1998 1997 Change
--------- ------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Software revenue
Domestic $ 26.7 $ 23.3 15% $ 56.2 $ 36.4 54%
International 17.7 7.8 127% 31.4 16.7 88%
------- ------- ------- -------
Total software revenue $ 44.4 31.1 43% $ 87.6 $ 53.1 65%
------- ------- ------- -------
Percentage of total
revenue 55% 50% 57% 48%
Service revenue
Domestic $ 23.2 $ 17.7 31% $ 41.0 $ 31.9 29%
International 6.3 5.5 15% 12.0 9.6 25%
-------- ------- ------- -------
Total service revenue $ 29.5 $ 23.2 27% $ 53.0 $ 41.5 28%
-------- ------- ------- -------
Percentage of total
revenue 37% 37% 34% 38%
Hardware revenue
Domestic $ 4.6 $ 6.0 (23%) $ 9.6 $ 11.1 (14%)
International 1.9 2.2 (14%) 3.8 4.3 (12%)
-------- ------- ------- -------
Total hardware $ 6.5 $ 8.2 (21%) $ 13.4 $ 15.4 (13%)
revenue -------- ------- ------- -------
Percentage of total
revenue 8% 13% 9% 14%
Total revenue
Domestic $ 54.5 $ 47.0 16% $106.8 $ 79.4 35%
International 25.9 15.5 67% 47.2 30.6 54%
-------- ------- ------- --------
Total revenue $ 80.4 $ 62.5 29% $154.0 $110.0 40%
======== ======= ======= ========
</TABLE>
Software revenue from the licensing of the Company's software products increased
43% and 65% for the three and six month periods, respectively, ended June 30,
1998 over the comparable periods of 1997. The increases were primarily
attributable to an increase in the volume of product shipments, including the
Company's Panagon product line that was released during the first quarter of
1998. The magnitude of the increase in year to date revenue over 1997 is
partially attributable to weakness in orders during the first quarter of 1997
and is not necessarily indicative of future revenue growth.
Service revenue consists of revenue from software maintenance services,
professional services, training, repairs and supplies. Service revenue increased
27% and 28% for the three and six month periods, respectively, ended June 30,
1998 over the comparable periods of 1997. The increases were attributable to
increased maintenance revenue due to the growth of the Company's installed base
and to increased demand for the Company's professional service offerings.
Hardware revenue is generated primarily from the sale of 12-inch optical storage
and retrieval libraries (OSARs) and third-party hardware. Hardware revenue
decreased by 21% and 13% for the three and six month periods, respectively,
ended June 30, 1998 from the comparable periods of 1997 primarily due to
decreases in new orders experienced both domestically and internationally and
10
<PAGE>
the Company's focus on increasing its higher margin software revenues. The
Company expects hardware revenue to continue to decline in both absolute dollars
and as a percentage of total revenues as it continues to transition its business
toward software-related revenue.
International revenues constituted approximately 32% and 25% of total revenues
in the three month periods ended June 30, 1998 and 1997, respectively. For the
six month periods ended June 30, 1998 and 1997, international revenues
constituted approximately 31% and 28% of total revenues, respectively. The
increases in the proportion of international revenues is attributable to the
higher level of growth experienced internationally. A portion of this growth is
attributable to weakness in international orders during the first quarter of
1997 and is not necessarily indicative of future international revenue growth.
Management expects that the Company's international operations will continue to
account for a significant portion of total revenues. However, the current
economic crisis in the Asia-Pacific region could adversely affect international
revenues. In addition, international revenues could be adversely affected if the
U.S. dollar strengthens against international currencies.
Cost of Revenue
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ----------------------
1998 1997 Change 1998 1997 Change
------ ------ ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Cost of software revenue $ 4.3 $ 3.2 34% $ 8.0 $ 6.2 29%
Percentage of software
revenue 10% 10% 9% 12%
Cost of service revenue $18.0 $13.8 30% $33.3 $26.9 24%
Percentage of service
revenue 61% 59% 63% 65%
Cost of hardware revenue $ 3.2 $ 4.8 (33%) $ 6.6 $10.1 (35%)
Percentage of hardware
revenue 49% 59% 49% 66%
Total cost of revenue $25.5 $21.8 17% $47.9 $43.2 11%
Percentage of total
revenue 32% 35% 31% 39%
</TABLE>
The cost of software revenue includes royalties paid to third parties and the
cost of software distribution. The cost of software revenue as a percentage of
software revenue for the six months ended June 30, 1998 decreased to 9% from 12%
for the comparable period in 1997. The decrease is primarily attributable to the
low revenue levels in the first quarter of 1997 without a corresponding decrease
in fixed distribution costs. Also contributing to the decrease was the fact that
software localization costs which were classified as cost of revenue in 1997
have been classified as research and development in 1998.
The cost of service revenue includes software support and professional services
personnel, supplies, and the cost of third-party hardware maintenance. The cost
of service revenue as a percentage of service revenue for the three month period
ended June 30, 1998 increased to 61% from 59% in the comparable period of 1997.
The increase is attributable to the higher proportion of lower margin
professional services in the service revenue mix. The cost of service revenue
for the six month period ended June 30, 1998 decreased to 63% from 65% for the
comparable period of 1997. This decrease is attributable to improved
international margins from those experienced in the first quarter of 1997.
The cost of hardware revenue includes the cost of manufacturing OSARs;
third-party purchased hardware and the cost of hardware integration personnel.
The cost of hardware revenue as a percentage of hardware revenue for the three
month period ended June 30, 1998 decreased to 49% from 59% for the comparable
period of 1997. For the six month period ended June 30, 1998, cost of hardware
revenue decreased to 49% from 66% for the comparable period of 1997. These
decreases were due to improved product mix and a reduction in fixed
manufacturing costs.
11
<PAGE>
Operating Expenses
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ---------------------------
1998 1997 Change 1998 1997 Change
------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in millions)
Research and
development $ 11.8 $ 9.6 23% $ 23.9 $ 19.7 21%
Percentage of total 15% 15% 16% 18%
revenue
Selling, general and
administrative $ 37.6 $ 31.0 21% $ 74.1 $ 60.8 22%
Percentage of total 47% 50% 48% 55%
revenue
</TABLE>
Research and development expenses increased 23% and 21% for the three and six
month periods ended June 30, 1998, respectively, compared to the comparable
periods of 1997. The increases were due to a general increase in salaries and
recruiting costs necessitated by the intense competitive environment for
software engineers; increase in cost of contract developers; and the inclusion
of software localization costs in research and development in 1998. As a
percentage of total revenue, research and development expenses decreased to 16%
for the six month period ended June 30, 1998 from 18% for the comparable period
of 1997. This decrease is primarily attributable to the effects of the lower
revenue levels in the first quarter of 1997.
The Company expects that competition for qualified technical personnel will
remain intense for the foreseeable future and may result in higher levels of
compensation expense for the Company. The Company believes that research and
development expenditures, including compensation of technical personnel, are
essential to maintaining its competitive position and expects these costs to
continue to constitute a significant percentage of revenues.
Selling, general and administrative expenses increased 21% and 22% for the three
and six month periods ended June 30, 1998, respectively, compared to the
comparable periods of 1997. This increase was primarily due to overall increases
in salaries, higher sales incentive compensation due to increased revenues, and
increased marketing program costs. As a percentage of total revenue, selling,
general and administrative expenses decreased to 48% for the six months ended
June 30, 1998 from 55% for the comparable period of 1997 primarily due to the
lower revenue levels in the first quarter of 1997.
Provision for Income Taxes - The Company's combined federal, state and foreign
annual effective tax rate for the six months ended June 30, 1998 was 29%
(expense) compared to 28% (benefit) for the comparable period in 1997. The
increase in the rate is attributable to a decrease in taxable income generated
in lower tax jurisdictions outside of North America.
Foreign Currency Fluctuations and Inflation - The Company's performance can be
affected by changes in foreign currency values relative to the U.S. dollar in
relation to the Company's revenue and operating expenses. The impact to net
income from foreign exchange transactions and hedging activities is immaterial
for all periods reported. As of June 30, 1998, the Company had forward exchange
contracts outstanding totaling approximately $8 million in 12 currencies. All of
these contracts mature in three months.
Other comprehensive income for the six months ended June 30, 1998 reflects a
$652,000 increase in the unrealized loss due to foreign currency translation.
This increase was primarily attributable to unrealized losses associated with
the weakening of the Irish currency against the U.S. dollar during the period.
Management believes that inflation has not had a significant impact on the
prices of the Company's products, the cost of its materials, or its operating
results for the three and six month periods ended June 30, 1998 and 1997.
Other Financial Instruments - The Company enters into forward foreign exchange
contracts as a hedge against effects of fluctuating currency exchange rates on
monetary assets and liabilities denominated in currencies other than the
functional currency of the relevant entity. The Company is exposed to market
12
<PAGE>
risk on the forward exchange contracts as a result of changes in foreign
exchange rates; however, the market risk should be offset by changes in the
valuation of the underlying exposures. Gains and losses on these contracts,
which equal the difference between the forward contract rate and the prevailing
market spot rate at the time of valuation, are recognized in the consolidated
statement of operations. The counterparties to these instruments are major
financial institutions. The Company uses commercial rating agencies to evaluate
the credit quality of the counterparties, and the Company does not anticipate a
loss resulting from any credit risk of these institutions.
Liquidity and Capital Resources
At June 30, 1998, combined cash, cash equivalents and short- and long-term
marketable securities totaled $81.6 million, an increase of $9.8 million from
the end of 1997. Cash provided by operating activities during the six months
ended June 30, 1998 totaled $17.7 million and resulted primarily from net
income; an increase in accounts payable associated with higher capital
expenditures; an increase in accrued compensation related to sales commissions;
an increase in unearned maintenance revenue related to growth in the Company's
installed base; and additions to net income for depreciation and amortization
expense. These operating cash inflows were offset by an increase in accounts
receivable. Cash used by investing activities totaled $10.1 million and was a
result of sales and maturities of marketable securities offset by capital
expenditures. Cash provided by financing activities totaled $5.3 million and was
a result of proceeds received from the exercise of employee stock options and
purchases under the employee stock purchase plan offset by the repurchase of
139,000 shares of the Company's common stock.
Accounts receivable increased to $69.8 million at June 30, 1998 from $61.3
million at December 31, 1997. Days sales outstanding increased to 77 days as of
June 30, 1998 from 72 days as of December 31, 1997 primarily due to delays in
collections by resellers from their customers. Current liabilities increased to
$71.4 million at June 30, 1998 from $60.6 million at December 31, 1997. The
increase is primarily a result of increases in deferred maintenance revenue and
accrued incentive compensation.
The Company has a $20 million unsecured line of credit with a commercial bank.
This line of credit expires in May 1999 and is subject to the maintenance of
certain financial covenants. The Company also has several borrowing arrangements
with foreign banks that expire at various times during 1998 under which the
Company may borrow approximately $2 million. As of June 30, 1998, there were no
borrowings outstanding against any of the Company's credit lines.
During the first quarter of 1998, the Company repurchased $4.4 million of its
common stock, thereby completing its previously announced $10 million stock
repurchase program.
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 for at least the next twelve months.
Other Matters
Year 2000 - The Company is assessing the internal readiness of its computer
systems for handling the year 2000. The Company expects to implement
successfully the systems and programming changes necessary to address year 2000
issues with respect to its internal systems and does not believe that the cost
of such actions will have a material adverse effect on its financial condition
or results of operations. Although the Company is not aware of any material
operational issue or costs associated with preparing its internal systems for
the year 2000, there can be no assurance that there will not be a delay in, or
increased costs associated with, the implementation of the necessary systems and
changes to address the year 2000 issues, and the Company's inability to
implement such systems and changes could have an adverse effect on future
results of operations.
Environmental Matters - The Company is not aware of any issues related to
environmental matters that have, or are expected to, materially affect its
business.
13
<PAGE>
Factors That May Affect Future Results
The Company's business, financial condition and operating results can be
impacted by a number of factors, including but not limited to those set forth
below and elsewhere in this report, any one of which could cause the Company's
actual results to differ materially from recent results or from the Company's
anticipated future results.
Rapid Technological Change; Product Development - The market for the Company's
products is characterized by rapid technological developments, evolving industry
standards, 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, including without limitation
enhancements to certain specified Company software products to achieve year 2000
compliance. The Company could experience difficulties or delays in developing
and introducing new products or integrating some or all of the technologies and
products from acquisitions with the technologies and products from the Company.
Delays in or non-completion of the development of newly integrated 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 the
anticipated benefits of the acquisitions. 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 including without limitation
enhancements to certain existing software products to achieve year 2000
compliance, 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 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 various products it has developed or acquired through
acquisition of others and to achieve the desired levels of sales from such
product integration, 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 are not
predictable with any significant degree of accuracy.
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. Moreover, such factors could cause the
Company's operating results in a given quarter to be below the expectations of
public market analysts and investors. In either case, the price of the Company's
common stock could be materially adversely affected.
Competition - The document imaging, workflow, computer output to laser disk and
document management software 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
14
<PAGE>
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 that 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.
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, formerly a wholly-owned subsidiary that was
merged into the Company, is infringing three of the same patents asserted in the
initial complaint. On October 9, 1996, Wang withdrew its claim that one of the
patents it initially asserted is infringed by the Company's products that were
commercialized before the initial complaint was filed. Wang reserved the right
to assert that patent against the Company's products commercialized after that
date in a separate lawsuit. 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.
In March 1997, Eastman Kodak Company ("Kodak") purchased the Wang imaging
business unit that has responsibility for this litigation. The patents in the
suit have been transferred to a Kodak subsidiary, Kodak Limited of England,
which in turn has exclusively licensed them to another Kodak subsidiary, Eastman
Software, Inc. in the United States. On July 30, 1997, the Court permitted
Eastman Software, Inc. and Kodak Limited of England to be substituted in the
litigation in place of Wang. The Company cannot predict what impact, if any,
this will have on the litigation.
15
<PAGE>
If it should be determined that the patents at issue in the litigation 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 on acceptable
terms.
Dependence On Certain Relationships - The Company has entered into a number of
co-marketing relationships with other companies such as Microsoft Corporation,
Compaq Computer Corporation, SAP AG, 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.
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. In general, the
Company does not utilize employment agreements for its key employees. The loss
of the services of one or more key employees 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, particularly
engineers and other technical personnel, is intense, and pay scales in the
Company's industry are increasing. There can be no assurance that the Company
will be successful in attracting and retaining such personnel.
International Sales - Historically, the Company has 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.
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 trading 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 trading price of the Company's common stock.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Notes to Consolidated Financial Statements.
Item 4. Subimission of Matters to a Vote of Security Holders
(a) The 1998 Annual Meeting of Stockholders of the Company was held at
9:00 a.m. on May 15, 1998, in Costa Mesa, California.
(b) At the meeting the following four individuals were elected to the Company's
Board of Directors, constituting all members of the Board of Directors:
Nominee Affirmative Votes Votes Withheld
-------------------- ---------------------------------------------
William P. Lyons 12,881,792 339,686
--------------------- ------------------ -------------------------
Lee D. Roberts 12,888,774 332,704
--------------------- ------------------ -------------------------
John C. Savage 12,888,639 332,839
--------------------- ------------------ -------------------------
Theodore J. Smith 12,882,733 338,745
--------------------- ------------------ -------------------------
(c) The Company's stockholders were asked to approve a series of amendments to
the Company's 1995 Stock Option Plan (the "1995 Plan") to increase the
number of shares of Common Stock issuable under the 1995 plan by an
additional 600,000 shares and to revise certain provisions of the Automatic
Option Grant Program. This proposal was approved in accordance with the
following vote of stockholders:
Broker
Votes For Votes Against Abstentions Non-Votes
---------------- ---------------- -------------- --------------
9,205,803 3,918,774 96,901 0
(d) The Company's stockholders were asked to approve the implementation of the
1998 Employee Stock Purchase Plan as the successor to the Company's
existing 1988 Employee Qualified Stock Purchase Plan. This proposal was
approved in accordance with the following vote of stockholders:
Broker
Votes For Votes Against Abstentions Non-Votes
---------------- ---------------- -------------- --------------
12,711,169 418,392 91,917 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The list of exhibits contained in the accompanying Index to
Exhibits is herein incorporated by reference.
(b) No reports on Form 8-K were filed during the second quarter of 1998.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FILENET CORPORATION
August 14, 1998 By:_________________________________________________________
Date Mark S. St. Clare, Chief Financial Officer and
Sr. Vice President, Finance (Principal Financial Officer)
18
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
....................... ........................................................
3.1* Restated Certificate of Incorporation, as amended (filed as Exhibit
3.1 to Form S-4 filed on January 26, 1996; Registration No. 333-00676)
3.1.1* Certificate of Amendment of Restated Certificate of Incorporation
(filed as Exhibit 3.1.1 to Form S-4 filed on January 26, 1996,
Registration No. 333-00676).
3.2* Bylaws (filed as Exhibit 3.2 of the Registrant's registration
statement on Form S-1, Registration No. 33-15004 (the "Form S-1")).
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* Second Amended and Restated Credit Agreement (Multicurrency) by and
among the Registrant and Bank of America National Trust and Savings
Association dated June 25, 1997, effective June 1,1997 (filed as
Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 1997).
10.2* Business Alliance Program Agreement between the Registrant and Oracle
Corporation dated July 1, 1996, as amended by Amendment One thereto
(filed as Exhibit 10.4 to Form 10-QA for the quarter ended June 30,
1996).
10.3* Runtime Sublicense Addendum between the Registrant and Oracle
Corporation dated July 1, 1996; as amended by Amendment One thereto
(filed as Exhibit 10.4 to Form 10-QA for the quarter ended June 30,
1996).
10.4* Full Use and Deployment Sublicense Addendum between the Registrant and
Oracle Corporation dated July 1, 1996, as amended by Amendment One
thereto (filed as Exhibit 10.4 to Form 10-QA for the quarter ended
June 30, 1996).
10.5* 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).
10.6* Third Amendment to the Lease between the Registrant and C.J.
Segerstrom & Sons dated April 30, 1987, for additional facilities at
the headquarters of the Company, dated October 1, 1992 (filed as
Exhibit 10.7 to Form 10-K filed on April 4, 1997).
10.7* Fifth Amendment to the Lease between the Registrant and C.J.
Segerstrom & Sons dated April 30, 1987, for the extension of the
term of the lease, dated March 28, 1997 (filed as exhibit 10.8 to
Form 10-Q for the quarter ended March 31, 1997).
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 15,
1998. (filed as Appendix A to the Registrant's Proxy Statement for the
Registrant's 1998 Annual Meeting of Stockholders, filed on April 6,
1998).
- --------------------------------------------
* Incorporated herein by reference
19
<PAGE>
Exhibit No. Description
....................... ........................................................
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).
10.11* Non-Statutory Stock Option Agreement (with Notice of Grant of Stock
Option and Special Addendum) between Registrant and Mr. Lee Roberts
(filed as exhibit 99.17 to Form S-8 on August 20, 1997).
10.12* Non-Statutory Stock Option Agreement (with Notice of Grant of Stock
Option and Special Addendum) between Registrant and Mr. Ron Ercanbrack
(filed as exhibit 99.19 to Form S-8 on August 20, 1997).
10.13* 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).
10.14* Amendment #A1011-941003-01 dated September 30, 1994, to the Agreement
for the Purchase of IBM products dated December 20, 1991 (filed as
Exhibit 10.12 to form 10-K for the fiscal year ended December 31,
1996).
10.15* 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).
10.16* 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).
10.17* 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).
10.18* 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).
10.19* 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).
10.20* 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 10.2 to form 10-K for the year ended December
31, 1995).
10.21 1998 Employee Stock Purchase Plan as approved by stockholders at the
Registrant's Annual Meeting on May 15, 1998. (filed as Appendix B to
the Registrant's Proxy Statement for the Registrant's 1998 Annual
Meeting of Stockholders, filed on April 6, 1998).
27 Financial Data Schedule.
- ---------------------------------------------
* Incorporated herein by reference
20
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