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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 of (I.R.S. Employer Identification No.)
of incorporation or organization)
3565 Harbor Boulevard, Costa Mesa, California 92626
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (714) 966-3400
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange which registered
Common stock, $0.01 par value Nasdaq
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark whether the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
Based on the closing sale price of March 22, 1999, the aggregate market value of
the 31,623,336 shares of voting stock of the Registrant held by nonaffiliates of
the Registrant on such date was $243,183,454. For purposes of such calculation,
only executive officers, board members and beneficial owners of more than 10% of
the Company's outstanding common stock are deemed to be affiliates.
The number of shares outstanding of the Registrant's common stock was 31,934,143
at March 22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its 1999 Annual Meeting
are incorporated by reference into Part III as set forth herein. Portions of
Registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1998 are incorporated by reference into Parts II, III and IV as set forth
herein.
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Index to Exhibits
Exhibit
No. Description
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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).
4.3* Amendment One dated July 31, 1998 and Amendment Two dated November 9,
1998 to Rights Agreements between FileNET Corporation and BANKBOSTON
N.A. formerly known as The First National Bank of Boston (filed as
Exhibit 4.3 to Form 10-Q for the quarter ended September 30, 1998).
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).
10.3.1* Runtime Sublicense Addendum between the Registrant and Oracle
Corporation dated July 1, 1996; as amended by Amendments Two through
Six thereto (filed as Exhibit 10.3.1 to Form 10-Q for the quarter
ended September 30, 1998).
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 (filed as
Exhibit 99.1 to Form S-8 filed on November 9, 1998; Registration
No. 333-66997).
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* Incorporated herein by reference
16
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Exhibit
No. Description
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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 Amendment 2 dated December 18, 1998 to the Product License Agreement
between the Registrant and Novell, Inc. dated May 16, 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* Amended and Restated FileNET Corporation 1998 Employee Stock Purchase
Plan (filed as Exhibit 99.15 to Form S-8, filed on November 9, 1998;
Registration No. 333-66997).
10.22* FileNET Corporation International Employee Stock Purchase Plan. (filed
as Exhibit 99.16 to Form S-8, filed on November 9, 1998; Registration
No. 333-66997).
13.1 Market for the Registrant's Common Stock and Related Stockholder Matters
incorporated by reference to page 48 of the 1998 Annual Report.
13.2 Management's Discussion and Analysis of Financial Condition and Results
of Operations incorporated by reference to pages 16 through 26 of the
1998 Annual Report.
13.3 Financial Statements incorporated by reference to pages 27 through 46 of
the 1998 Annual Report.
13.4 Certain Relationships and Related Transactions incorporated by reference
to page 44 of the 1998 Annual Report.
21.1 List of subsidiaries of Registrant (filed as FileNET Corporation
Subsidiary Information).
23.1 Consent of Deloitte & Touche LLP (filed as Independent Auditors'
Consent).
27 Financial Data Schedule.
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* Incorporated herein by reference
17
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Signatures
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
Date: March 30, 1999 By: /s/ Lee D. Roberts
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Lee D. Roberts
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 30, 1999 By: /s/ Lee D. Roberts
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Lee D. Roberts
President and Chief Executive Officer
(Principal Executive Officer)
Director
Date: March 30, 1999 By: /s/ Mark S. St. Clare
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Mark S. St. Clare
Chief Financial Officer and
Sr. Vice President, Finance
(Principal Financial Officer)
Date: March 30, 1999 By: /s/ Brian A. Colbeck
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Brian A. Colbeck
Controller and
Chief Accounting Officer
Date: March 30, 1999 By: /s/ Theodore J. Smith
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Theodore J. Smith
Chairman of the Board
Date: March 30, 1999 By: /s/ L. George Klaus
------- ------------------------------------
L. George Klaus
Director
Date: March 30, 1999 By: /s/ William P. Lyons
------- ------------------------------------
William P. Lyons
Director
Date: March 30, 1999 By: /s/ John C. Savage
------- ------------------------------------
John C. Savage
Director
Date: March 30, 1999 By: /s/ Roger S. Siboni
------- ------------------------------------
Roger S. Siboni
Director
Date: March 30, 1999 By: /s/ Carolyn M. Ticknor
------- -------------------------------------
Carolyn M. Ticknor
Director
18
Novell Confidential
AMENDMENT 2
TO
PRODUCT LICENSE AGREEMENT
Amendment 2 Effective Date: December 18, 1998
This Amendment ("Amendment 2") amends and supplements the Product
License Agreement, effective May 16, 1995, between Novell, Inc. and FileNet
Corporation (the "Agreement"), as amended by Amendment 1 to the Agreement,
effective June 27, 1996 ("Amendment 1"). In the event of a conflict between the
Agreement and this Amendment 2, the provisions of this Amendment 2 shall
control. Except as expressly amended and supplemented by this Amendment 2, the
terms and conditions of the Agreement will remain in effect unchanged.
1. CONSIDERATION. Novell shall pay FileNet One Million ($1,000,000) Dollars
within ten (10) days of the Amendment 2.Effective Date and receipt of
invoice from FileNet.
2. Section 1 of the Agreement is hereby modified as follows. The licenses
granted to Novell with respect to Visual WorkFlo are hereby terminated.
Commencing on the Amendment 2 Effective Date, the licenses granted to
Novell with respect to Ensemble Lite are converted to fully-paid-up and
royalty-free licenses and shall be limited to use with Novell's GroupWise
5.5x product and prior versions that include Ensemble Lite as of the
Amendment 2 Effective Date. Novell shall have no obligation to pay
Royalties or minimum Royalties in connection with the licensing of Ensemble
Lite as set forth herein.
3. Sections II, III, IV, V and VIII of the Agreement are hereby deleted.
4. Section VI.A of the Agreement is hereby deleted and replaced with the
following provision:
Beginning upon the date of shipment of Ensemble to a customer of
Novell for revenue (the "Ensemble Effective Date") and until such time
as Novell has paid an additional two million dollars ($2,000,000) in
Ensemble Royalties to FileNet, Novell shall pay FileNet an initial
Royalty of five percent (5%) of Novell's standalone Ensemble suggested
list price for standalone Ensemble and two percent (2%) of Novell's
standalone Ensemble suggested list price for bundled Ensemble, or
fifty percent (50%) of the minimum per copy Royalty amounts set forth
in Exhibit E, whichever is higher. Thereafter, Novell shall pay
FileNet a Royalty of ten percent (10%) of Novell's standalone Ensemble
suggested list price for standalone Ensemble and four percent (4%) of
Novell's standalone Ensemble suggested list price for bundled
Ensemble, or the minimum per copy Royalty amounts set forth in Exhibit
E, whichever is higher. In the case of products sold as upgrades (i.e.
customers purchasing (i) a new version of standalone Ensemble for
which they own a previous version of such product, or (ii) in the case
of bundles, a Novell product which contains a new version of Ensemble
for which they own a previous version of such Novell product), the
Royalty shall be reduced to twenty percent (20%) of the Royalty
applicable to Ensemble as set forth in Exhibit E.
5. Sections VI.B and VII of the Agreement shall be applicable only to
Ensemble. The last sentence of Section VII.A of the Agreement is hereby
deleted.
6. Section XVIII of the Agreement is hereby modified as follows. The last
sentence of Section XVIII.B of the Agreement is deleted. The last sentence
of Section XVIII.C of the Agreement is deleted. Section XVIII.E of the
Agreement is deleted and replaced with the following:
E. Without Cause. This Agreement may be terminated by either party
without cause or penalty at any time after November 24, 1999 upon 90
days prior written notice.
7. Section XIX of the Agreement is hereby deleted and replaced in its entirety
with the following:
XIX. EFFECT OF TERMINATION. Upon termination of this Agreement, Novell
shall remove the standalone and bundled Ensemble Products from its
price lists. Termination of this Agreement shall not affect the
licenses granted to Novell prior to termination. Upon termination of
this Agreement, FileNet agrees to promptly make available and deliver
at no additional charge a fully-paid-up, perpetual license to the
source code for Ensemble for maintenance purposes only.
8. Section 4 of Amendment 1 is hereby deleted.
9. The parties acknowledge and agree that the rights and obligations under
Section XI of the Agreement shall survive termination or expiration of the
Agreement for a period of ninety (90) days.
10. Ensemble Lite Source Code and Technical Assistance. Upon FileNet's receipt
of the payment specified in Section 1 of this Amendment 2, FileNet agrees
to promptly make available and deliver at no additional charge a
fully-paid-up, perpetual license to the source code for Ensemble Lite for
maintenance purposes only. Upon delivery of such source code for Ensemble
Lite to Novell, FileNet's obligations under Section XI of the Agreement
shall terminate in connection with all Ensemble Products other than
Ensemble.
11. General Release. Upon receipt of the payment specified in Section 1 of this
Amendment 2 to FileNet by Novell of the invoice from FileNet dated December
18, 1998, the Amendment 2 Effective Date, and for other good and valuable
consideration, each of Novell and FileNet releases and forever discharges,
and by these presents does for itself and its successors and assigns,
remise, release, and forever discharge the other party, its respective
predecessors and successors and present and former officers, directors,
employees, and agents and their respective heirs, administrators,
executors, successors, and assigns (hereinafter collectively referred to as
"Releasees") of and from all manner of actions, causes of action, suits,
debts, covenants, contracts, controversies, damages, judgments, claims, and
demands whatsoever in law or in equity, whether or not well founded in fact
or in law and whether or not presently known to Novell and/or FileNet,
which against each of the Releasees or any of them it ever had, or has as
of the Amendment 2 Effective Date, including without limitation any claims
arising out of or related to oral or written discussions, commitments or
agreements between Novell and FileNet in connection with the Agreement,
Amendment 1, and this Amendment 2, thereto except for the mutually
acknowledged continuing obligations under the aforementioned Agreement,
Amendment 1, and this Amendment 2.
12. SIGNATURES. When executed by both parties, this Amendment 2 shall become
effective on the Amendment 2 Effective Date.
Novell, Inc. FileNet Corporation
Signature: /s/ Signature: /s/
______________________________ ____________________________
Name: Christopher Stone Name: Mary K. Carringotn
______________________________ ____________________________
Title: Senior Vice President Title: Senior Vice President
General Counsel
______________________________ ____________________________
Date: December 20, 1998 Date: December 17, 1998
