<PAGE>
FILED PURSUANT TO RULE 424(b)(2)
REGISTRATION NO. 333-20973
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE +
+SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE +
+COMMISSION PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933, AS AMENDED. +
+A FINAL PROSPECTUS SUPPLEMENT AND PROSPECTUS WILL BE DELIVERED TO PURCHASERS +
+OF THESE SECURITIES. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE +
+PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN +
+OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN +
+WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO +
+REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued February 18, 1997)
(To Prospectus dated February 12, 1997)
$300,000,000
[LOGO OF ORACLE APPEARS HERE]
$150,000,000 % SENIOR NOTES DUE 2004
$150,000,000 % SENIOR NOTES DUE 2007
-----------
Interest payable February 15 and August 15
-----------
THE 2004 SENIOR NOTES WILL MATURE ON FEBRUARY , 2004 AND THE 2007 SENIOR NOTES
WILL MATURE ON FEBRUARY , 2007. THE SENIOR NOTES WILL NOT BE REDEEMABLE PRIOR TO
MATURITY AND WILL NOT BE SUBJECT TO ANY SINKING FUND. THE SENIOR NOTES WILL BE
REPRESENTED BY GLOBAL SECURITIES REGISTERED IN THE NAME OF THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITARY") OR ITS NOMINEE. INTERESTS IN SUCH GLOBAL SECURITIES
WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS
MAINTAINED BY THE DEPOSITARY AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN,
SENIOR NOTES IN DEFINITIVE FORM WILL NOT BE ISSUED. SEE "DESCRIPTION OF SENIOR
NOTES."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE OF 2004 SENIOR NOTES % AND ACCRUED INTEREST, IF ANY
PRICE OF 2007 SENIOR NOTES % AND ACCRUED INTEREST, IF ANY
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per 2004 Senior Note........................ % % %
Total....................................... $ $ $
Per 2007 Senior Note........................ % % %
Total....................................... $ $ $
</TABLE>
- -----
(1) Plus accrued interest, if any, from February , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Company estimated at $625,000.
-----------
The Senior Notes are offered, subject to prior sale, when, as and if accepted
by the Underwriters and subject to approval of certain legal matters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that delivery of the Senior Notes will be made on
or about February , 1997 through the book-entry facilities of the Depositary
against payment therefor in immediately available funds.
-----------
MORGAN STANLEY & CO.
Incorporated
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
February , 1997
<PAGE>
NO PERSON IS AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS OR ANY DEALER
TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN SO AUTHORIZED. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION TO ANY
PERSONS TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR ANY
SALE MADE HEREUNDER DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE ON WHICH SUCH
INFORMATION IS GIVEN.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company............................................................... S-3
Use of Proceeds........................................................... S-4
Capitalization............................................................ S-5
Selected Consolidated Financial Data...................................... S-6
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-8
Description of Senior Notes............................................... S-19
Underwriters.............................................................. S-20
Legal Matters............................................................. S-20
PROSPECTUS
Available Information..................................................... 2
Information Incorporated by Reference..................................... 3
The Company............................................................... 4
Use of Proceeds........................................................... 4
Consolidated Ratios of Earnings to Fixed Charges.......................... 5
Description of Debt Securities............................................ 6
Plan of Distribution...................................................... 16
Legal Matters............................................................. 16
Experts................................................................... 16
</TABLE>
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
THE COMPANY
Oracle is the world's leading independent supplier of software for
information management. In 1979, the Company introduced the first commercially
available relational database management system for the storing, manipulating
and sharing of information. The Company's primary information management
products can be categorized in three primary product families: Server
Technologies (distributed database servers, connectivity products and
gateways), Application Development and Business Intelligence Tools
(application design, application development, and data access tools) and
Client Server Business Applications (modules for finance and administration,
manufacturing, distribution and human resources). The Company's principal
product is a multimedia, relational database management system ("DBMS") that
runs on a broad range of computers, including massively parallel, clustered,
symmetrical multi-processing, minicomputers, workstations, personal computers
and laptop computers and over 85 different operating systems, primarily UNIX,
Digital, VAX, Windows NT and Netware. Oracle7 relational DBMS is a key
component of Oracle(R) Universal Server, a database server for relational
video, audio, text, messaging, spatial and other types of data. The Company's
Application Development and Business Intelligence Tools and Client Server
Business Applications also run on a broad range of operating systems including
UNIX, Windows and Windows NT. The Company also offers consulting, education,
support and systems integration services in support of its customers' use of
the Company's software products.
Since 1979, the Company has periodically released updated versions of the
Oracle relational DBMS containing performance and functionality enhancements
for distributed computing, on-line transaction processing and decision support
applications. In 1992, the Company introduced Version 7 of the Oracle
relational DBMS ("Oracle7"), which was developed to improve the product's
ability to support large numbers of users and higher rates of transaction
processing, to provide enhanced application development capabilities such as
DBMS server-enforced business rules for data integrity, and to permit multiple
computers running DBMSs of Oracle and other vendors to cooperatively share
data with other computers across a communications network.
In 1994, the Company introduced release 7.1 of Oracle7. This release
includes significant functional enhancements for managing data in a
distributed environment (especially where network communications are slow,
expensive or unreliable) with advanced capabilities for copying
("replicating") data between locations. Release 7.1 of Oracle7 also contains
features for processing large amounts of data in parallel using multiple
processors on a variety of computer hardware architectures, which enable
development of and access to the large databases typically found in data
warehouse applications used to support business decision-making.
In 1994, the Company acquired the Rdb relational DBMS (now known as "Oracle
Rdb") and associated software products from Digital Equipment Corporation
("DEC"). This product has many of the same attributes as the Oracle7
relational DBMS, but it operates only on hardware and operating systems
developed by DEC.
In 1995, the Company acquired the Express(R) family of on-line analytical
processing ("OLAP") software products from Information Resources Inc. ("IRI")
in order to enhance its existing data warehousing strategy. The Company
believes that the acquired products and services complement Oracle's existing
products for the development and maintenance of data warehouses. The acquired
products that have been incorporated into the Company's product line have been
renamed and are now called: the Oracle Express Server, Personal Express,
Oracle Express Analyzer, Oracle Financial Analyzer, and Oracle Sales Analyzer.
These OLAP products enable customers to manage and perform complex analyses on
business data.
In July 1995, the Company introduced Oracle7, Release 7.2, the second
maintenance release of Oracle7. This release includes improved performance,
scalability, and flexibility for data warehousing operations, significant
enhancements of application developer productivity and applications
reliability, security, and performance, with improved overall manageability of
the server. Release 7.2 features PL/SQL and the Oracle Programmatic
Interfaces, a family of advanced application development tools and 3GL
languages, and Oracle SQL*Net(R) Version 2.2, a family of networking products
that transparently integrate clients, servers, and gateways into a unified
information resource.
S-3
<PAGE>
In February 1996, the Company announced general availability of the latest
version of its primary product, Release 7.3 of Oracle7. This release enables
management and better integration of all enterprise data, including relational
data as well as video, audio, text, messaging and spatial information, and
facilitates easy integration of Oracle7-based information with the World Wide
Web. Release 7.3 of Oracle7 includes significant improvements in capability
and performance for complex queries.
The Company was incorporated on October 29, 1986 in connection with a
reincorporation of the Company's predecessor in Delaware, which was completed
on March 12, 1987. The Company's former primary operating subsidiary, Oracle
Corporation, a California corporation, was incorporated in June 1977. In May
1995, Oracle Corporation was merged into Oracle Systems Corporation, a
Delaware corporation, whose name was changed to Oracle Corporation. Unless the
context otherwise requires, the "Company" or "Oracle" refers to Oracle
Corporation, its predecessor and its subsidiaries. Oracle, Express and SQL*Net
are registered trademarks, and PL/SQL, Personal Express, Oracle Financial
Analyzer, Oracle Sales Analyzer, Oracle Express Analyzer and Oracle Express
Server are trademarks of the Company. This Prospectus also contains trademarks
of other companies that are used only for identification purposes.
USE OF PROCEEDS
The Company expects to use the net proceeds from the sale of the Senior
Notes offered hereby (estimated to be $ ) to increase working capital
and for other general corporate purposes including the repurchase, and the
repayment of $50 million of short-term debt incurred for the repurchase, of
the Company's Common Stock pursuant to the Company's stock repurchase program.
The short-term debt to be repaid has a maturity date of February 28, 1997 and
bears interest at 5.6175% per annum. In addition, the Company from time to
time considers acquisitions of complementary businesses, assets or
technologies, and although there are no current agreements or understandings
with respect to any such acquisition, the Company desires to be able to
respond to opportunities as they arise. Pending such uses, the Company will
invest the net proceeds in investment-grade, interest-bearing securities.
S-4
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of November 30, 1996, and as adjusted to give effect to the sale by
the Company of the Senior Notes offered hereby (as if such sale occurred on
such date).
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
---------------------
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Long-term debt:
% Senior Notes due 2004.............................. $ -- $ 150,000
% Senior Notes due 2007.............................. -- 150,000
Other long-term debt.................................... 964 964
---------- ----------
Total long-term debt................................... 964 300,964
---------- ----------
Stockholders' equity:
Preferred Stock, $0.01 par value; 1,000,000 shares au-
thorized;
no shares issued and outstanding....................... -- --
Common Stock, $0.01 par value, and additional paid-in
capital; 2,000,000,000 shares authorized; 657,911,904
shares issued and outstanding (1)...................... 553,891 553,891
Retained earnings....................................... 1,566,516 1,566,516
Accumulated foreign currency translation adjustments and
unrealized gain
on equity securities................................... 15,529 15,529
---------- ----------
Total stockholders' equity............................. 2,135,936 2,135,936
---------- ----------
Total capitalization.................................. $2,136,900 $2,436,900
========== ==========
</TABLE>
- --------
(1) Does not include approximately (a) 90,361,459 shares reserved for issuance
pursuant to the Company's stock option plans, under which options to
purchase approximately 41,278,684 shares were outstanding as of November
30, 1996, and (b) approximately 11,832,760 shares reserved for future
issuance under the Company's stock purchase plan. As adjusted Common Stock
does not reflect the effect of any repurchase of the Company's Common
Stock pursuant to the Company's stock repurchase program with the net
proceeds from the sale of the Senior Notes offered hereby. See "Use of
Proceeds."
S-5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated income statement data of the Company for each of
the five years in the period ended May 31, 1996, except for the ratio of
earnings to fixed charges, and the selected consolidated balance sheet data as
of May 31, 1994, 1995 and 1996, have been derived from the Company's
consolidated financial statements which statements have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference herein. The income statement data for the six months
ended November 30, 1995 and 1996, and the balance sheet data as of November
30, 1996, are derived from unaudited consolidated financial statements. In the
opinion of management, the unaudited information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for such periods. The results of operations for
such periods are not necessarily indicative of the results which may be
expected for any other interim period or for the full year. The selected
consolidated financial data should be read in conjunction with the
consolidated financial statements and notes thereto on the Company's Form 10-K
incorporated by reference into this Prospectus Supplement.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEARS ENDED MAY 31, ENDED NOVEMBER 30,
-------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Licenses and other..... $ 709,227 $ 895,711 $1,163,808 $1,673,731 $2,296,572 $ 868,668 $1,085,985
Services............... 469,269 607,057 837,339 1,293,147 1,926,728 870,319 1,277,708
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues........ 1,178,496 1,502,768 2,001,147 2,966,878 4,223,300 1,738,987 2,363,693
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing.... 566,431 646,027 749,796 1,103,345 1,549,231 635,673 814,538
Cost of services....... 281,562 346,633 499,213 779,012 1,096,013 486,931 713,590
Research and develop-
ment.................. 110,641 146,420 197,086 260,597 389,093 177,713 252,509
General and administra-
tive.................. 106,199 122,709 135,099 174,203 233,141 108,936 139,993
Provision for settle-
ment of litigation.... -- 24,000 -- -- -- -- --
Acquired in-process re-
search and
development........... -- -- -- -- 50,931 50,931 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating ex-
penses............... 1,064,833 1,285,789 1,581,194 2,317,157 3,318,409 1,460,184 1,920,630
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income....... 113,663 216,979 419,953 649,721 904,891 278,803 443,063
Other income (expense),
net................... (17,533) 1,062 3,510 9,261 14,619 10,082 13,605
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before provision
for income taxes and
cumulative effect of
change in accounting
principle............. 96,130 218,041 423,463 658,982 919,510 288,885 456,668
Provision for income
taxes................. 34,620 76,315 139,743 217,464 316,231 98,221 164,401
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumula-
tive effect of change
in accounting princi-
ple................... 61,510 141,726 283,720 441,518 603,279 190,664 292,267
Cumulative effect of
change in accounting
principle............. -- (43,470) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............ $ 61,510 $ 98,256 $ 283,720 $ 441,518 $ 603,279 $ 190,664 $ 292,267
========== ========== ========== ========== ========== ========== ==========
Earnings per share(1):
Income before cumula-
tive effect of change
in accounting princi-
ple................... $ .10 $ .22 $ .43 $ .66 $ .90 $ .28 $ .43
Cumulative effect of
change in accounting
principle............. -- (.07) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............ $ .10 $ .15 $ .43 $ .66 $ .90 $ .28 $ .43
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges(2) 3.0x 6.0x 11.1x 13.9x 14.9x 14.3x
========== ========== ========== ========== ========== ==========
</TABLE>
S-6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
-------------------------------- ------------
1994 1995 1996 1996
---------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and cash
investments.................... $ 464,758 $ 585,818 $ 840,908 $ 878,672
Working capital................. 393,511 562,045 829,501 1,029,588
Total assets.................... 1,594,984 2,424,517 3,357,243 3,460,895
Short-term debt................. 551 6,221 4,377 11,020
Current maturities of long-term
debt........................... 6,347 3,378 1,246 1,065
Long-term debt, net of current
maturities..................... 82,845 81,721 897 964
Stockholders' equity............ 740,553 1,211,358 1,870,449 2,135,936
</TABLE>
- --------
(1) Adjusted to reflect (i) a two-for-one stock split in the first quarter of
fiscal 1990, (ii) a two-for-one stock split (effected in the form of a
stock dividend) in the second quarter of fiscal 1994, (iii) a three-for-
two stock split (effected in the form of a stock dividend) in the third
quarter of fiscal 1995 and (iv) a three-for-two stock split (effected in
the form of a stock dividend) in the fourth quarter of fiscal 1996.
(2) The consolidated ratios of earnings to fixed charges were computed by
dividing earnings by the fixed charges. For computation of such ratios of
earnings to fixed charges, earnings consist of net income, to which has
been added fixed charges, income taxes of the Company and its subsidiaries
and the cumulative effect of the change in accounting principle of
$43,470,000 in fiscal 1993. Fixed charges consist of consolidated interest
and debt expense and one-third of consolidated rent expense, which
approximates the interest factor.
S-7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In addition to historical information contained herein, this Prospectus
Supplement contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, that involve risks and
uncertainties. The Company's actual results could differ materially from those
reflected in the forward-looking statements contained herein. Factors that
could cause such a difference include, but are not limited to, those discussed
below under "--Factors That May Affect Future Results." Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date of this Prospectus Supplement. The
Company undertakes no obligation to publicly release the results of any
revision to these forward-looking statements. Readers should carefully review
the risk factors described in other documents the Company has filed with the
Securities and Exchange Commission, including its Annual Report on Form 10-K
for the fiscal year ended May 31, 1996 and Quarterly Reports on Form 10-Q for
the fiscal quarters ended August 31, 1996 and November 30, 1996.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995 AND 1996
Total revenues increased 36% in both the second quarter and first half of
fiscal 1997 as compared to the corresponding periods in fiscal 1996. Domestic
revenues increased 54% and 49% in the second quarter and first half of fiscal
1997, respectively, while international revenues increased 23% and 27% in the
second quarter and first half of fiscal 1997, respectively, as compared to the
corresponding periods in fiscal 1996. International revenues were unfavorably
affected in the second quarter and first half of fiscal 1997 when compared to
the corresponding periods of the prior year as a result of the strengthening
of the U.S. dollar against certain major international currencies.
International revenues expressed in local currency increased in the second
quarter and first half of fiscal 1997 by approximately 27% and 31%,
respectively, from the corresponding periods of fiscal 1996. International
revenues constituted approximately 54% and 60% of total revenues in the second
quarters of fiscal 1997 and 1996, respectively, and 55% and 59% of total
revenues in the first half of fiscal 1997 and 1996, respectively. Management
expects that the Company's international operations will continue to provide a
significant portion of total revenues. However, international revenues will be
adversely affected if the U.S. dollar strengthens against certain major
international currencies.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- -----------------------------
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1996 CHANGE 1995 1996 CHANGE 1995
---------- ------ -------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Licenses and other..... $ 624,137 24% $502,948 $1,085,985 25% $ 868,668
Percentage of revenues. 47.6% 52.0% 45.9% 50.0%
Services............... $ 687,236 48% $464,236 $1,277,708 47% $ 870,319
Percentage of revenues. 52.4% 48.0% 54.1% 50.0%
Total revenues......... $1,311,373 36% $967,184 $2,363,693 36% $1,738,987
</TABLE>
Licenses and Other Revenues. License revenues represent fees earned for
granting customers licenses to use the Company's software products. License
revenues also include revenues from the Company's systems integration
business, documentation revenues and other miscellaneous revenues. License
revenue growth rates were 24% and 39% in the second quarters of fiscal 1997
and 1996, respectively, and 25% and 32% in the first half of fiscal 1997 and
1996, respectively. The Company's license revenues continue to benefit from an
overall increase in market demand for database and related products and
increased market acceptance of the Company's relational DBMS and applications
products. The Company believes that the lower license revenue growth rate
experienced in the second quarter and first half of fiscal 1997 was due
primarily to continued weakness in the performance of certain of its
international subsidiaries, most notably in Europe.
S-8
<PAGE>
Service Revenues. Support, consulting and education services revenues in the
second quarter and first half of fiscal 1997 each increased from the
corresponding periods of fiscal 1996. The Company's support revenues continued
to constitute the largest portion of service revenues in the second quarter
and first half of fiscal 1997. Support revenues grew 50% and 48% in the second
quarter and first half of fiscal 1997 when compared to the corresponding
periods in fiscal 1996. This growth reflects the continued increase in the
installed base of the Company's products under support contracts as well as an
increase in the number of customers electing higher support service offerings.
Consulting and education services grew 46% in both the second quarter and
first half of fiscal 1997 when compared to the corresponding periods in fiscal
1996. The Company continued to expand its services to assist customers in the
use and implementation of applications based on the Company's products.
OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing..... $454,688 27% $356,650 $814,538 28% $635,673
Percentage of revenues.. 34.7% 36.9% 34.5% 36.6%
Cost of services........ $377,483 48% $255,422 $713,590 47% $486,931
Percentage of revenues . 28.8% 26.4% 30.2% 28.0%
Research and development
(1).................... $135,300 45% $ 93,272 $252,509 42% $177,713
Percentage of revenues.. 10.3% 9.6% 10.7% 10.2%
General and
administrative......... $ 69,714 22% $ 57,228 $139,993 29% $108,936
Percentage of revenues . 5.3% 5.9% 5.9% 6.3%
Acquired in-process
research and
development ........... $ -- -- $ -- $ -- * $ 50,931
Percentage of revenues . -- -- -- 2.9%
</TABLE>
- --------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 0.6% and 1.3% of
total revenues during the second quarters of fiscal 1997 and 1996,
respectively, and 0.7% and 1.5% of total revenues in the first half of
fiscal 1997 and 1996, respectively.
International expenses were favorably affected in the second quarter and
first half of fiscal 1997 when compared to the corresponding periods in the
prior year due to the strengthening of the U.S. dollar against certain major
international currencies.
Sales and Marketing Expenses. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its
own sales force. However, the Company also continues to market its products
through indirect channels in order to increase market share while reducing
distribution costs. As a percentage of total revenues, sales and marketing
expenses decreased in the second quarter and first half of fiscal 1997 when
compared to the corresponding periods of fiscal 1996 due primarily to
increased revenue levels. To a lesser extent, the decrease in the first half
of fiscal 1997 was also due to revisions made in the first quarter of fiscal
1997 to certain prior fiscal year compensation-related accruals that resulted
from changes in the amounts of estimated liabilities based on actual payments
made. Included in sales and marketing expenses is the amortization of
capitalized software development costs (see below).
Cost of Services. The cost of providing services consists largely of
consulting, education, and support personnel expenses. As a percentage of
service revenues, cost of services was 55% of revenues in the second quarters
of both fiscal 1997 and 1996, and 56% in the first half of both fiscal 1997
and 1996.
Research and Development Expenses. Research and development expenses for the
second quarters of both fiscal 1997 and 1996 would have been 11% of total
revenues without the capitalization of software development costs in
accordance with Statement of Financial Accounting Standards No. 86. Before
considering the impact of software capitalization, research and development
expenses increased 35% from the second quarter of fiscal 1996
S-9
<PAGE>
and 33% from the first half of fiscal 1996 to the corresponding periods of
fiscal 1997 (45% and 42% after the adjustment for software capitalization). A
portion of this increase was due to research and development staff hired in
connection with the acquisition of the on-line analytical processing business
of Information Resources, Inc. The Company capitalized approximately
$7,383,000 and $12,764,000 during the second quarters of fiscal 1997 and 1996,
respectively, and $16,891,000 and $25,350,000 in the corresponding six month
periods. Amortization of capitalized software development costs is charged to
sales and marketing expenses and totaled $7,521,000 and $12,975,000 in the
second quarters of fiscal 1997 and 1996, respectively, and $17,139,000 and
$25,907,000 in the corresponding six month periods. The Company believes that
research and development expenditures are essential to maintaining its
competitive position and expects these costs to continue to constitute a
significant percentage of revenues.
General and Administrative Expenses. General and administrative expenses as
a percentage of revenues decreased in the second quarter and first half of
fiscal 1997 as compared to the corresponding periods in fiscal 1996, primarily
because of higher revenue levels.
Acquired In-Process Research and Development. Based on the results of a
third-party appraisal, the Company recorded a special charge of $50,931,000 in
the first quarter of fiscal 1996 to expense in-process research and
development costs related to the acquisition of the on-line analytical
processing business of Information Resources, Inc.
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -------------------------
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Other income (expense)..... $6,275 123% $2,814 $13,605 35% $10,082
Percentage of revenues .... 0.5% 0.3% 0.6% 0.6%
</TABLE>
Changes in non-operating expenses primarily reflect fluctuations in interest
income and expense related to changes in cash and debt balances and interest
rates. They also reflect foreign exchange and other miscellaneous income and
expense items. Additionally, the Company realized a gain of approximately $3.1
million during the first three months of fiscal 1996 related to the sale of
certain investment securities.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Provision for income
taxes.................. $100,967 43% $70,525 $164,401 67% $98,221
Percentage of revenues . 7.7% 7.3% 7.0% 5.6%
</TABLE>
The Company's estimated effective tax rate for the first half of fiscal 1997
was 36% as compared to a 34% tax rate in the corresponding period of fiscal
1996.
NET INCOME AND EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net income.............. $179,496 31% $136,901 $292,267 53% $190,664
Percentage of revenues . 13.7% 14.2% 12.4% 11.0%
Earnings per share...... $ 0.27 35% $ 0.20 $ 0.43 54% $ 0.28
</TABLE>
S-10
<PAGE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
In fiscal 1996, 1995, and 1994, the Company continued to improve its
operating margins (prior to the effect of the fiscal 1996 adjustment for
acquired in-process research and development) over the corresponding prior
year periods due to increases in revenue growth, coupled with lower research
and development and general and administrative expenses as a percentage of
revenues. The Company's revenue growth rate was 42%, 48% and 33% in fiscal
1996, 1995, and 1994, respectively. Sales and marketing expenses continued to
represent the largest category of operating expenses, constituting 37% of
revenues in fiscal years 1996, 1995 and 1994. Cost of services as a percentage
of total revenues increased to 26% in fiscal 1996 and 1995 from 25% in fiscal
1994. The Company's investment in research and development decreased to 10% of
revenues in fiscal 1996 and 1995 from 12% of revenues in fiscal 1994, prior to
the impact of capitalized software development costs. General and
administrative expenses as a percentage of revenues decreased to 6% in fiscal
1996 and 1995 from 7% in fiscal 1994. Overall, operating income as a
percentage of revenues was 21% (23% prior to the adjustment for acquired in-
process research and development), 22%, and 21% in fiscal 1996, 1995 and 1994,
respectively.
Domestic revenues increased 47% and 52% in fiscal 1996 and 1995,
respectively, while international revenues increased 39% and 46% in fiscal
1996 and 1995, respectively. International revenues were negatively affected
in fiscal 1996 and positively affected in fiscal 1995 when compared to the
corresponding prior year periods due to changes in the value of the U.S.
dollar against certain major international currencies. International revenues
expressed in local currency increased by approximately 41% and 34% in fiscal
1996 and 1995 respectively. Revenues from international customers were
approximately 57%, 58%, and 59% of revenues in fiscal 1996, 1995, and 1994,
respectively.
Quarterly revenues reflect distinct seasonality. This seasonality, combined
with uneven changes in sales and marketing expenses, created marked
fluctuations in quarterly results of operations. Similar fluctuations may be
expected in the future, although they will be somewhat mitigated as service
revenues increase as a percentage of total revenues.
REVENUES
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR 1996 CHANGE YEAR 1995 CHANGE YEAR 1994
---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Licenses and other.......... $2,296,572 37% $1,673,731 44% $1,163,808
Percentage of revenues...... 54.4% 56.4% 58.2%
Services.................... $1,926,728 49% $1,293,147 54% $ 837,339
Percentage of revenues...... 45.6% 43.6% 41.8%
Total revenues.............. $4,223,300 42% $2,966,878 48% $2,001,147
</TABLE>
Licenses and Other Revenues. During the past three fiscal years, the
Company's customer and product base has broadened as the Company has increased
both the number of channels that it uses to market its products, as well as
the number of computers and operating systems on which its relational DBMS
operates, and as additional software products have been acquired or
introduced. License revenues for software used on computers utilizing the UNIX
operating system decreased to 70% of license revenues in fiscal 1996 from 73%
in fiscal 1995 and 71% in fiscal 1994. License revenues for use on desktop
computers increased from 17% in both fiscal 1994 and 1995 to 19% in fiscal
1996. License revenues from software for use on computers utilizing other
proprietary operating systems, including DEC, IBM, and other proprietary
vendors were 11%, 10% and 12% in fiscal 1996, 1995, and 1994, respectively.
Excluding the systems integration business, which continues to represent an
increasingly smaller percentage of total revenues, license and other revenues
increased 39% and 45% in fiscal 1996 and 1995, respectively. The Company
believes that the year over year growth rates were due primarily to an overall
increase in market demand for database and related products and increased
market acceptance of the Company's relational DBMS and applications products
and the addition of revenues generated from the acquisition of the Rdb and
repository businesses of Digital Equipment Corporation and the on-line
analytical processing business of Information Resources, Inc. The lower
license and other growth rate experienced in fiscal 1996 was due primarily to
a negative currency impact in fiscal 1996 combined with a positive currency
impact in fiscal 1995.
S-11
<PAGE>
Services Revenues. Support, consulting and education services revenues each
increased in fiscal 1996 and 1995 over the corresponding prior year levels.
The Company's support revenues continued to constitute the largest portion of
services revenues and grew 55% and 53% in fiscal 1996 and 1995, respectively.
This growth reflects the continued increase in the installed base of the
Company's products under support contracts and support revenues associated
with the acquisition of the Rdb and repository businesses of Digital Equipment
Corporation and the on-line analytical processing business of Information
Resources, Inc. acquired in 1994 and 1995, respectively. Consulting and
education services grew 44% and 56% in fiscal 1996 and 1995, respectively, as
the Company continued to expand its services to assist customers in the use
and implementation of applications based on the Company's products.
OPERATING EXPENSES
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL YEAR
YEAR 1996 CHANGE YEAR 1995 CHANGE 1994
---------- ------ ---------- ------ -----------
<S> <C> <C> <C> <C> <C>
Sales and marketing.......... $1,549,231 40% $1,103,345 47% $749,796
Percentage of revenues....... 36.7% 37.2% 37.5%
Cost of services............. $1,096,013 41% $ 779,012 56% $499,213
Percentage of revenues....... 26.0% 26.3% 24.9%
Research and development (1). $ 389,093 49% $ 260,597 32% $197,086
Percentage of revenues....... 9.2% 8.8% 9.8%
General and administrative... $ 233,141 34% $ 174,203 29% $135,099
Percentage of revenues....... 5.5% 5.9% 6.8%
Acquired in-process research
and development............. $ 50,931 * -- -- --
Percentage of revenues....... 1.2% -- --
</TABLE>
- --------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 1.1%, 1.6%, and
1.9% of total revenues during fiscal 1996, 1995, and 1994, respectively.
Similar to the trend in international revenues, the Company's international
expense growth rates were positively affected in fiscal 1996 and negatively
affected in fiscal 1995 when compared to the corresponding prior year period
due to changes in the value of the U.S. dollar against certain major
international currencies.
Sales and Marketing Expenses. As a percentage of total revenues, sales and
marketing expenses decreased in both fiscal 1996 and 1995 when compared to the
corresponding prior years, primarily as a result of higher revenue levels. The
decrease in fiscal 1996 was also due in part to revisions made in the first
quarter of fiscal 1996 to certain prior fiscal year compensation-related
accruals based on actual payments made. Included in sales and marketing
expenses is the amortization of capitalized software development costs (see
below) which was essentially unchanged between years and, thus, contributed to
the decrease in sales and marketing expenses as a percentage of revenues.
Cost of Services. As a percentage of services revenues, cost of services
were 57% in fiscal 1996, having decreased from 60% in both fiscal 1995 and
fiscal 1994. The Company's service margins have been positively affected
versus the prior year periods due primarily to higher margins in the
consulting area and a higher percentage of support revenues which have higher
margins than consulting and education revenues.
Research and Development Expenses. Research and development expenses would
have been 10% of total revenues in fiscal 1996 and 1995, and 12% of total
revenues in fiscal 1994, without the capitalization of software development
costs in accordance with Statement of Financial Accounting Standards No. 86.
Before considering the impact of software capitalization, research and
development expenses increased 42% in fiscal 1996 versus a 31% increase in
fiscal 1995. A portion of this increase was due to research and development
staff hired in connection with the acquisition of the Rdb and repository
businesses of Digital Equipment Corporation and the
S-12
<PAGE>
on-line analytical processing business of Information Resources, Inc. The
Company capitalized $48,031,000, $48,187,000, and $38,067,000, of computer
software development costs in fiscal 1996, 1995, and 1994, respectively, which
represented 11% of total expenditures for research and development in fiscal
1996 and 16% in fiscal 1995 and 1994. Amortization of capitalized software
development costs totaled $48,815,000, $48,662,000, and $39,318,000, in fiscal
1996, 1995, and 1994, respectively.
General and Administrative Expenses. General and administrative expenses as
a percentage of revenues decreased in both fiscal 1996 and 1995 as compared to
their corresponding prior year periods, primarily because of higher revenue
levels.
Acquired In-Process Research and Development. Based on the results of a
third-party appraisal, the Company recorded a special charge of $50,931,000 in
the first quarter of fiscal 1996 to expense in-process research and
development costs related to the acquisition of the on-line analytical
processing business of Information Resources, Inc.
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1996 CHANGE 1995 CHANGE 1994
----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Other income (expense)........ $14,619 58% $9,261 164% $3,510
Percentage of revenues........ 0.3% 0.3% 0.2%
</TABLE>
Changes in other income and non-operating expenses primarily reflect
fluctuations in interest income and expense related to changes in cash and
debt balances and interest rates, as well as foreign exchange and other
miscellaneous items. Additionally, the Company realized a gain of
approximately $3.1 million and $1.8 million during the first quarter of fiscal
1996 and 1995, respectively, related to the sale of certain marketable
securities.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1996 CHANGE 1995 CHANGE 1994
----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Provision for income taxes.... $316,231 45% $217,464 56% $139,743
Percentage of revenues........ 7.5% 7.3% 7.0%
</TABLE>
The Company's effective tax rates have historically differed from the
federal statutory rate primarily because of tax credits, certain Foreign Sales
Corporation income that is not taxed, state taxes, foreign income taxes
provided at rates greater than the federal statutory rate, as well as foreign
losses that could not be utilized. The effective tax rate was 34.4% in fiscal
1996 and 33% in fiscal 1995 and 1994.
NET INCOME AND EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1996 CHANGE 1995 CHANGE 1994
----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Net income.................... $603,279 37% $441,518 56% $283,720
Percentage of revenues........ 14.3% 14.9% 14.2%
Earnings per share:........... $ 0.90 36% $ 0.66 56% $ 0.43
</TABLE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves
numerous risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
Management of Growth. The Company has a history of rapid growth. The
Company's future operating results will depend on management's ability to
manage growth, continuously hire and retain significant numbers of qualified
employees, forecast revenues and control expenses. An unexpected decline in
the growth rate of revenues without a corresponding and timely slowdown in
expense growth could have a material adverse effect on the Company's business,
results of operations or financial condition.
S-13
<PAGE>
Competitive Environment. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, applications, development tools or decision support products.
Certain of these vendors have significantly more financial and technical
resources than the Company. If new competitive products are introduced into
one or more of the Company's various markets, the Company's business could be
adversely affected. In addition, new distribution methods (e.g. electronic
channels) and opportunities presented by the Internet have removed many of the
barriers to entry historically faced by small and start-up companies in the
software industry. The Company expects to face increasing competition from
such companies in the various markets in which it competes.
Pricing. Intense competition in the various markets in which the Company
competes may put pressure on the Company to reduce prices on certain products,
particularly in the enterprise and departmental database marketplace where
certain vendors offer deep discounts in an effort to recapture or gain
marketshare. In addition, the bundling of software products for promotional
purposes or as a long-term pricing strategy by certain of the Company's
competitors could have the effect over time of significantly reducing the
prices that the Company can charge for its products. Shifts toward the use of
operating systems on which the Company experiences relatively greater price
competition could result in lower average license prices and thereby reduced
license revenues for the Company. Any such price reductions and resulting
lower license revenues could adversely affect the Company's results of
operations and financial condition if the Company cannot offset these price
reductions with a corresponding increase in sales volumes.
Industry Growth and Economic Conditions. The strength and profitability of
the Company's business depends on the overall demand for computer software and
growth in the computer industry. Because the Company's sales are primarily to
major corporate, government, education and other business customers, the
Company's business also partly depends on general economic and business
conditions. A softening of demand for computer software, caused by a weakening
of the economy or otherwise, may result in decreased revenues or declining
revenue growth rates for the Company.
New Products. The markets for the Company's products are characterized by
rapid technological advances in hardware and software development, evolving
standards in computer hardware and software technology, and frequent new
product introductions and enhancements. Product introductions and short
product life cycles necessitate high levels of expenditure for research and
development. To maintain its competitive position, the Company must enhance
and improve existing products and continue to introduce new products and new
versions of existing products that keep pace with technological developments,
satisfy increasingly sophisticated customer requirements and achieve market
acceptance. The Company's inability to port to or run on new or increasingly
popular operating systems, or the Company's failure to successfully position
and/or price its products, could have a material adverse effect on the
Company's operating results.
Significant undetected errors or delays in new products or new versions of a
product may affect market acceptance of the Company's products and adversely
affect operating results. If the Company were to experience delays in the
commercialization and introduction of new or enhanced products, if customers
were to experience significant problems with the implementation and
installation of products or if customers were dissatisfied with product
functionality or performance, the Company's business and operating results
could be materially adversely affected.
There can be no assurance that the Company's new products will achieve
significant market acceptance or will generate significant revenue. Additional
products that the Company plans to market in the future are in various stages
of development. Some of these products, such as network computer and on-line
analytical processing (OLAP) products, are in business areas that are new to
the Company's product development and sales and product marketing personnel.
See "--New Business Areas."
Uneven Patterns of Quarterly Operating Results. The Company's revenues in
general, and its license revenues in particular, are relatively difficult to
forecast and vary from quarter to quarter due to various factors, including
(i) the relatively long sales cycles for the Company's products, (ii) the size
and timing of individual
S-14
<PAGE>
license transactions, (iii) the timing of the introduction of new products or
product enhancements by the Company or its competitors, (iv) the potential for
delay or deferral of customer implementations of the Company's software, (v)
changes in customer budgets, and (vi) seasonality of technology purchases and
other general economic conditions. Accordingly, the Company's quarterly
results are difficult to predict until the end of the quarter, and delays in
product delivery or closing of sales near the end of a quarter can cause
quarterly revenues and net income to fall significantly short of anticipated
levels.
The Company's license revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter. Because the Company's operating
expenses are based on anticipated revenue levels and because a high percentage
of the Company's expenses are relatively fixed, a delay in the recognition of
revenue from even a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
cause net income to fall significantly short of anticipated levels.
Alternate Distribution Channels. The Company historically has relied heavily
on its direct sales force. However, the Company is moving increasingly toward
indirect, electronic and other alternate distribution channels to meet
competitive demands. There can be no assurances that the Company will be
successful in shifting to these alternate distribution channels. If the
Company is not successful, the Company may lose significant sales
opportunities.
Uncertainty of Emerging Areas. The impact on the Company of emerging areas
such as the Internet, on-line services and electronic commerce is uncertain.
There can be no assurances that the Company will be able to provide a product
offering that will satisfy new customer demands in these areas. In addition,
standards for network protocols, as well as other industry adopted and de
facto standards for the Internet, are evolving rapidly. There can be no
assurances that standards chosen by the Company will position its products to
compete effectively for business opportunities as they arise on the Internet
and other emerging areas.
New Business Areas. The Company has in recent years diversified into a
number of new business areas including Internet, on-line services, electronic
commerce, interactive media applications and data warehousing. It also has
begun to develop hardware reference specifications and to promote the use of
network computers. These areas are new to the Company's product development
and sales and marketing personnel. There is no assurance that the Company will
compete effectively or will generate significant revenues in these new areas.
The Company's success with its current network computer products and network
computers generally is difficult to predict because network computers
represent a method of computing that is new to the entire computer industry.
The successful introduction of network computers to the market will depend in
large measure on the commitment by hardware vendors to manufacture, promote
and distribute network computers. There can be no assurance that sufficient
numbers of hardware vendors will undertake this commitment, that the market
will accept network computers or that they will generate significant revenues
to the Company. See "--New Products."
Hiring and Retention of Employees. The Company's continued growth and
success depends to a significant extent on the continued service of senior
management and other key employees and the hiring of new qualified employees.
Competition for highly-skilled business, product development, technical and
other personnel is intense, particularly in the strong economic cycle
currently prevailing for high technology companies. There can be no assurances
that the Company will be successful in continuously recruiting new personnel
and in retaining existing personnel. None of the Company's employees is
subject to a long-term employment or a noncompetition agreement. The loss of
one or more key employees or the Company's inability to attract additional
qualified employees or retain other employees could have a material adverse
effect on the continued growth of the Company. In addition, the Company may
experience increased compensation costs in order to compete for skilled
employees.
International Sales. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the risks
attendant thereto, including the general economic conditions in each country,
the overlap of different tax structures, the difficulty of managing an
organization spread over various countries, changes in regulatory
requirements, compliance with a variety of foreign laws and regulations, and
longer payment cycles in certain countries. Other risks associated with
international operations include import and export licensing requirements,
trade restrictions and changes in tariff rates.
S-15
<PAGE>
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Changes in the value of major foreign currencies
relative to the value of the U.S. dollar therefore could adversely affect
future revenues and operating results. Foreign currency transaction gains and
losses are primarily related to sublicense fee agreements between the Company
and selling distributors and subsidiaries. These gains and losses are charged
against earnings in the period incurred.
The Company has reduced its transaction and translation gains and losses
associated with converting foreign currencies into U.S. dollars by using
forward foreign exchange contracts to hedge transaction and translation
exposures in major currencies. Such contracts meet the criteria established in
FASB 52 for hedge accounting treatment. The Company finds it impractical to
hedge all foreign currencies in which it conducts business. As a result, the
Company will continue to experience foreign currency gains and losses.
Risks Associated with Future Acquisitions. As part of its business strategy,
the Company has acquired, effective January 1, 1997, Datalogix International,
Inc. ("Datalogix") and as a result of such acquisition the Company will incur
a charge to earnings of approximately $40 million in the third quarter of
fiscal 1997. The Company expects to make acquisitions of, or significant
investments in, businesses that offer complementary products, services and
technologies. The current Datalogix acquisition and any future acquisitions or
investments will be accompanied by the risks commonly encountered in
acquisitions of businesses. Such risks include, among other things, the
difficulty of assimilating the operations and personnel of the acquired
businesses, the potential disruption of the Company's ongoing business, the
inability of management to maximize the financial and strategic position of
the Company, the maintenance of uniform standards, controls, procedures and
policies and the impairment of relationships with employees and clients as a
result of any integration of new management personnel. These factors could
have a material adverse effect on the Company's business, results of
operations or financial condition. The Company has paid cash to acquire
Datalogix and expects that the consideration paid for future acquisitions, if
any, could be in the form of cash, stock, rights to purchase stock or a
combination thereof.
Relative Product Profitability. Certain of the Company's revenues are
derived from products which, as a percentage of revenues, currently require a
higher level of development, distribution and support expenditures compared to
certain of its other core products. To the extent that revenues generated from
such products become a greater percentage of the Company's total revenues, the
Company's operating margins may be adversely affected, unless the expenses
associated with such products decline as a percentage of revenues.
Enforcement of the Company's Intellectual Property Rights. Despite the
Company's efforts to protect its intellectual property rights, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology or
other information that the Company regards as proprietary. In addition, the
laws of certain countries do not protect the Company's proprietary rights to
the same extent as do the laws of the United States. Accordingly, there can be
no assurance that the Company will be able to protect its proprietary
technology against unauthorized third party copying or use, which could
adversely affect the Company's competitive position.
The Company from time to time receives notices from third parties claiming
infringement by the Company's products of third party patent and other
intellectual property rights. The Company expects that software products will
increasingly be subject to such claims as the number of products and
competitors in the Company's industry segments grows and the functionality of
products overlap. Regardless of its merit, any such claim could be time-
consuming, result in costly litigation and require the Company to enter into
royalty and licensing agreements which may not be offered or available on
terms acceptable to the Company. If a successful claim is made against the
Company and the Company fails to develop or license a substitute technology,
the Company's business and operating results could be materially adversely
affected.
S-16
<PAGE>
Long-term Investment Cycle. Developing and localizing software is expensive
and the investment in product development often involves a long payback cycle.
The Company's plans for its fiscal year ended May 31, 1997 include significant
investments in software research and development and related product
opportunities from which significant revenues are not anticipated for several
years.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31 SIX MONTHS ENDED
----------------------------------------- --------------------------
NOV. 30, NOV. 30,
1996 CHANGE 1995 CHANGE 1994 1996 CHANGE 1995
-------- ------ -------- ------ -------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Working capital......... $829,501 48% $562,045 43% $393,511 $1,029,588 62% $634,990
Cash, cash equivalents
and cash investments... $840,908 51% $585,818 26% $464,758 $ 891,587 59% $562,088
Cash provided by operat-
ing activities ........ $889,157 56% $568,684 28% $443,451 $ 248,743 2% $242,797
Cash used for investing
activities............. $551,448 11% $495,769 84% $269,888 $ 374,996 62% $231,806
Cash used for financing
activities............. $ 88,291 451% $ 16,034 (69%) $ 51,305 $ 33,526 * $(11,007)
</TABLE>
- --------
* Not meaningful
Working capital increased in both fiscal 1996 and 1995 and the first half of
fiscal 1997 over the corresponding prior year periods, due primarily to
increased cash flow from operations, which resulted in higher cash levels.
The Company generated higher positive cash flows from operations in both
fiscal 1996 and 1995, due primarily to improved profitability and strong cash
collections. The Company generated higher positive cash flows from operations
in the first half of fiscal 1997 over fiscal 1996, due primarily to improved
profitability, which was partially offset by larger cash payments for income
taxes and payments of other accrued liabilities.
Cash used for investing activities increased in fiscal 1996 as compared to
the corresponding prior year period due primarily to higher capital
expenditures. Additionally, in fiscal 1996, the Company completed the
acquisition of the on-line analytical processing business of Information
Resources, Inc., including all related software products for $100 million in
cash on July 27, 1995. Cash used for investing activities increased in fiscal
1995 over 1994 due in part to the acquisition of the Rdb database and
repository businesses of Digital Equipment Corporation for $108 million in
cash. The Company expects to continue to invest in capital assets and
capitalized software development activities to support its growth.
The Company's Board of Directors has approved the repurchase of up to 37
million shares of Common Stock on the open market to reduce the dilutive
effect of the Company's stock plans. Pursuant to this repurchase program, the
Company purchased 2,552,500 shares of the Company's Common Stock for
approximately $109,876,000 during the first half of fiscal 1997, 4,478,134
shares of the Company's Common Stock for approximately $113,087,000 in fiscal
1996, 4,201,875 shares of the Company's common stock for approximately
$75,859,000 in fiscal 1995, 6,221,250 shares of the Company's Common Stock for
approximately $81,157,000 in fiscal 1994, and 7,215,750 shares of the
Company's Common Stock for approximately $43,626,000 in fiscal 1993. The
Company used cash flow from operations to repurchase the Company's Common
Stock, and to invest in working capital and other assets to support its
growth.
In December 1996, the Company entered into a seven year master lease
facility which provides for the construction or purchase of up to $150 million
of property and improvements to be leased to the Company. The Company's
obligation to make lease payments generally will begin as property is
constructed or purchased. The Company's obligations under the lease facility
currently are collateralized by U.S. treasury securities. The Company has the
discretion to substitute other collateral for the treasury securities. The
Company may, at its option, purchase the leased properties during the term of
the lease at approximately the amount expended by the lessor to construct or
purchase such properties. In the event that the Company does not exercise its
purchase option, the Company has agreed to guarantee that the properties will
have a specified residual value which will be determined at the lease
inception date for each property.
S-17
<PAGE>
In December 1991, the Company entered into an $80 million subordinated note
purchase agreement with Nippon Steel Corporation ("NSC") which was terminated
on March 1, 1996 upon the redemption in full of the subordinated note by the
Company. In connection with this agreement, the Company also entered into a
strategic relationship with NSC to target major customers and industries in
Japan; this relationship continues even though the subordinated note was
redeemed. NSC has committed to purchase from the Company an ownership position
of up to twenty-five percent of Oracle Corporation Japan, an indirect wholly
owned subsidiary of the Company, if shares in Oracle Corporation Japan are
sold to the public as a part of an initial public offering. The per share
price of the stock would be the same as the price of the stock offered in the
initial public offering. NSC has agreed not to acquire shares of Oracle
Corporation Japan beyond the twenty-five percent interest and has agreed not
to acquire any shares of the Company, subject to certain exceptions.
At November 30, 1996, the Company had outstanding debt of $13,049,000
primarily in the form of other notes payable and capital leases. Subsequent to
November 30, 1996, the Company incurred $50 million of short-term debt which
was used to repurchase the Company's Common Stock pursuant to the Company's
stock repurchase program. See "Use of Proceeds."
The Company anticipates that current cash balances, anticipated cash flows
from operations, and the proceeds of the sale of the Senior Notes offered by
this Prospectus Supplement will be sufficient to meet its working capital and
capital expenditure needs at least through the next twelve months.
S-18
<PAGE>
DESCRIPTION OF SENIOR NOTES
The following description of the particular terms of the Senior Notes
offered hereby (referred to in the Prospectus as the "Offered Debt
Securities") supplements, and to the extent inconsistent therewith replaces,
the description of the general terms and provisions of the Debt Securities set
forth in the Prospectus, to which description reference is hereby made. The
following summary of the Senior Notes is qualified in its entirety by
reference to the Indenture referred to in the Prospectus. Capitalized terms
not otherwise defined herein or in the accompanying Prospectus have the
meanings given to them in the Indenture.
GENERAL
The 2004 Senior Notes and the 2007 Senior Notes offered hereby each
constitute a series of debt securities under the Indenture, limited, with
respect to each series, to $150 million aggregate principal amount. The
2004 Senior Notes will mature on February , 2004 and the 2007 Senior Notes
will mature on February , 2007. The Senior Notes will bear interest at the
rate shown in their respective title from February , 1997, or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semiannually on February 15 and August 15 of each year, commencing
August 15, 1997, to the persons in whose names the Senior Notes (or any
predecessor Senior Notes) are registered at the close of business on the
February 1 or August 1, as the case may be, next preceding such Interest
Payment Date.
The Senior Notes will be unsecured general obligations of the Company that
will rank on a parity with all other unsecured and unsubordinated indebtedness
of the Company from time to time outstanding.
The defeasance and covenant defeasance provisions of the Indenture described
under the caption "Description of Debt Securities--Defeasance and Covenant
Defeasance" in the accompanying Prospectus will apply to the Senior Notes.
The covenant provisions of the Indenture described under the caption
"Description of Debt Securities -- Certain Covenants of the Company" in the
accompanying Prospectus will apply to the Senior Notes.
The Senior Notes do not provide for any sinking fund and are not redeemable
prior to maturity.
BOOK-ENTRY SYSTEM
The 2004 Senior Notes and the 2007 Senior Notes will each be represented by
one or more Global Notes (collectively, the "Global Note") registered in the
name of a nominee of The Depository Trust Company, as Depositary. The
provisions set forth under "Description of Debt Securities--Book-Entry System"
in the accompanying Prospectus will be applicable to the Senior Notes.
S-19
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amount of Senior Notes set forth opposite their
respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
OF 2004 SENIOR OF 2007 SENIOR
NAME NOTES NOTES
---- ---------------- ----------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated......... $ $
Goldman, Sachs & Co.......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................
------------ ------------
Total................................... $150,000,000 $150,000,000
============ ============
</TABLE>
The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the Notes is subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the
Senior Notes if any are taken.
The Underwriters initially propose to offer part of the Senior Notes
directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a
concession not in excess of % of the principal amount of the 2004 Senior
Notes and % of the 2007 Senior Notes, respectively. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of % of the
principal amount of the 2004 Senior Notes and % of the 2007 Senior Notes,
respectively, to certain other dealers. After the initial offering of the
Senior Notes, the offering price and other selling terms may from time to time
be varied by the Underwriters.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Company does not intend to apply for listing of the Senior Notes on a
national securities exchange, but has been advised by the Underwriters that
they presently intend to make a market in the Senior Notes, as permitted by
applicable laws and regulations. The Underwriters are not obligated, however,
to make a market in the Senior Notes and any such market-making may be
discontinued at any time at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Senior Notes.
From time to time, certain of the Underwriters or their affiliates have
provided, and may continue to provide, investment banking services to the
Company.
LEGAL MATTERS
Certain legal matters in connection with the offering of the Senior Notes
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
S-20
<PAGE>
PROSPECTUS
[LOGO OF ORACLE APPEARS HERE]
DEBT SECURITIES
----------------
Oracle Corporation ("Oracle" or the "Company") from time to time may offer
its debt securities consisting of senior debentures, notes, bonds and/or other
evidences of indebtedness in one or more series ("Debt Securities") with an
aggregate initial public offering price of up to $350,000,000 or the
equivalent thereof in one or more foreign currencies or composite currencies,
including European Currency Units ("ECU"). The Debt Securities may be offered
in separate series in amounts, at prices, and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The Debt Securities may be sold for U.S. Dollars, one or more foreign
currencies or amounts determined by reference to an index and the principal of
and any interest on the Debt Securities may likewise be payable in U.S.
Dollars, one or more foreign currencies or amounts determined by reference to
an index.
The Debt Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Company. See "Description of Debt Securities."
The specific terms of the Debt Securities in respect of which this
Prospectus is being delivered (the "Offered Debt Securities"), including where
applicable the specific designation, aggregate principal amount, currency,
denomination, maturity, premium, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the Company
or the holder or for sinking fund payments, and the initial public offering
price will be set forth in an accompanying Prospectus Supplement. See
"Description of Debt Securities."
The Debt Securities may be sold through underwriting syndicates led by one
or more managing underwriters or through one or more underwriters acting
alone. The Debt Securities also may be sold directly by the Company or through
agents designated from time to time. If any underwriters or agents are
involved in the sale of the Debt Securities, their names, the principal amount
of Debt Securities to be purchased by them and any applicable fee, commission
or discount arrangements with them will be set forth in a Prospectus
Supplement. See "Plan of Distribution."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
This Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement.
February 12, 1997
<PAGE>
IN CONNECTION WITH THE OFFERING OF CERTAIN DEBT SECURITIES, THE UNDERWRITERS
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF SUCH DEBT SECURITIES OR OTHER SECURITIES OF THE COMPANY AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
Oracle is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and its public reference facilities in New York, New York and Chicago,
Illinois, at prescribed rates. In addition, the Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
The Common Stock of the Company is quoted on the Nasdaq National Market.
Reports, proxy statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Debt Securities. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Debt Securities, reference is hereby made to the Registration
Statement. The Registration Statement and the exhibits thereto may be
inspected, without charge, at the offices Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies may be obtained from the Commission
at prescribed rates.
2
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission (File No. 0-14376)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1996, as filed with the Commission on July 25, 1996, as amended by
its Form 10-K/A filed with the Commission on August 9, 1996; and
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
August 31 and November 30, 1996 filed with the Commission on October 15,
1996 and January 10, 1997, respectively.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Debt Securities shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement or this Prospectus to the extent
that a statement contained herein, in a Prospectus Supplement or in any other
document subsequently filed with the Commission which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement or
this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon the written
or oral request of such person, a copy of any or all of the documents which
are incorporated herein by reference, other than exhibits to such information
(unless such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to the Company, 500 Oracle Parkway,
Redwood City, California 94065, Attention: Investor Relations (telephone
number: (415) 506-4073).
3
<PAGE>
THE COMPANY
Oracle is the world's leading independent supplier of software for
information management. In 1979, the Company introduced the first commercially
available relational database management system for the storing, manipulating
and sharing of information. The Company's primary information management
products can be categorized in three primary product families: Server
Technologies (distributed database servers, connectivity products and
gateways), Application Development and Business Intelligence Tools
(application design, application development, and data access tools) and
Client Server Business Applications (modules for finance and administration,
manufacturing, distribution and human resources). The Company's principal
product is a multimedia, relational database management system ("DBMS") that
runs on a broad range of computers, including massively parallel, clustered,
symmetrical multi-processing, minicomputers, workstations, personal computers
and laptop computers and over 85 different operating systems, primarily UNIX,
Digital, VAX, Windows NT and Netware. Oracle7 relational DBMS is a key
component of Oracle(R) Universal Server, a database server for relational,
video, audio, text, messaging, spatial and other types of data. The Company's
Application Development and Business Intelligence Tools and Client Server
Business Applications also run on a broad range of operating systems including
UNIX, Windows and Windows NT. The Company also offers consulting, education,
support and systems integration services in support of its customers' use of
the Company's software products.
Oracle was incorporated on October 29, 1986 in connection with a
reincorporation of the Company's predecessor in Delaware, which was completed
on March 12, 1987. The Company's former primary operating subsidiary, Oracle
Corporation, a California corporation, was incorporated in June 1977. In May
1995, Oracle Corporation was merged into Oracle Systems Corporation, a
Delaware corporation, whose name was changed to Oracle Corporation. Unless the
context otherwise requires, the "Company" or "Oracle" refers to Oracle
Corporation, its predecessor and its subsidiaries. Oracle is a registered
trademark of the Company. This Prospectus also contains trademarks of other
companies that are used only for identification purposes. The principal
executive offices of the Company are located at 500 Oracle Parkway, Redwood
City, California 94065. The Company's telephone number is (415) 506-7000.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Debt Securities
to increase working capital and for other general corporate purposes,
including the repurchase of the Company's Common Stock pursuant to the
Company's stock repurchase program.
4
<PAGE>
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of the Company for each of the fiscal years ended May 31, 1992 through
1996 and for the six months ended November 30, 1996.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED MAY 31, ENDED
------------------------------------------------------------------------ NOVEMBER 30,
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
3.0x 6.0x 11.1x 13.9x 14.9x 14.3x
</TABLE>
The consolidated ratios of earnings to fixed charges were computed by
dividing earnings by the fixed charges. For computation of such ratios of
earnings to fixed charges, earnings consist of net income, to which has been
added fixed charges, income taxes of the Company and its subsidiaries and the
cumulative effect of the change in accounting principle of $43,470,000 in
fiscal 1993. Fixed charges consist of consolidated interest and debt expense
and one-third of consolidated rent expense, which approximates the interest
factor.
A substantial portion of the Company assets are held by the Company's
foreign subsidiaries. The rights of the Company's creditors, including the
holders of the Debt Securities, to participate in the assets of any subsidiary
upon the latter's liquidation or reorganization will be subject to the claims
of the subsidiary's creditors, which will take priority except to the extent
that the Company may itself be a creditor with recognized claims against the
subsidiary.
5
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Company may offer under this Prospectus Debt Securities with an
aggregate initial offering price of up to $350,000,000 (or the equivalent in
foreign currency or currency units). The Debt Securities may be offered
independently or together in any combination, as so specified in the
applicable Prospectus Supplement.
The following statements with respect to the Debt Securities are summaries
of, and subject to, the detailed provisions of an indenture (the "Indenture")
to be entered into by the Company and State Street Bank and Trust Company of
California, N.A., as trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement. The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Indenture, including the definitions therein of certain terms. Wherever
particular Sections or defined terms of the Indenture are referred to herein
or in a Prospectus Supplement, such Sections or defined terms are incorporated
herein or therein by reference. Section and Article references used herein are
references to the Indenture.
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series of Debt Securities offered by any
Prospectus Supplement or Prospectus Supplements will be described in such
Prospectus Supplement or Prospectus Supplements relating to such series.
GENERAL
The Indenture will not limit the aggregate amount of Debt Securities which
may be issued thereunder and Debt Securities may be issued thereunder from
time to time in separate series up to the aggregate amount from time to time
authorized by the Company for each series. The Debt Securities will be senior
unsecured obligations of the Company.
The applicable Prospectus Supplement or Prospectus Supplements will describe
the following terms of the series of Debt Securities ("Offered Debt
Securities") in respect of which this Prospectus is being delivered: (a) the
title of the Offered Debt Securities; (b) any limit on the aggregate principal
amount of the Offered Debt Securities; (c) the Person to whom any interest on
an Offered Debt Security shall be payable, if other than the person in whose
name that Offered Debt Security is registered on the Regular Record Date; (d)
the date or dates on which the principal of the Offered Debt Securities will
be payable; (e) the rate or rates at which the Offered Debt Securities will
bear interest, if any, or the method by which such rate or rates are
determined, the date or dates from which such interest will accrue, the
Interest Payment Dates on which any such interest on the Offered Debt
Securities will be payable and the Regular Record Date for any interest
payable on any Interest Payment Date, and the basis upon which interest will
be calculated if other than that of a 360-day year of twelve 30-day months;
(f) the place or places where the principal of and any premium and interest on
the Offered Debt Securities will be payable; (g) the period or periods within
which, the price or prices at which, and the terms and conditions upon which
the Offered Debt Securities may be redeemed, in whole or in part, at the
option of the Company; (h) the obligation of the Company, if any, to redeem or
repurchase the Offered Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of the Holders and the period or periods
within which, the price or prices at which and the terms and conditions upon
which such Offered Debt Securities shall be redeemed or purchased, in whole or
in part, pursuant to such obligation, and any provisions for the remarketing
of such Offered Debt Securities; (i) the denominations in which any Offered
Debt Securities will be issuable, if other than denominations of $1,000 and
any integral multiple thereof; (j) the currency, currencies or currency units
in which payment of principal of and any premium and interest on any Offered
Debt Securities shall be payable if other than United States dollars; (k) any
index, formula or other method used to determine the amount of payments of
principal of and any premium and interest on the Offered Debt Securities; (l)
if the principal of or any premium or interest on any Offered Debt Securities
is to be payable, at the election of the Company or the Holders, in one or
more currencies or currency units other than that or those in which such
Offered Debt Securities are stated to be payable, the currency, currencies or
currency units in which payment of the principal of and any premium and
interest on such Offered Debt Securities shall be payable, and the periods
within which and the terms and conditions upon which such election is to be
made; (m) if other than the principal
6
<PAGE>
amount thereof, the portion of the principal amount of the Offered Debt
Securities which will be payable upon declaration of the acceleration of the
Maturity thereof; (n) the terms and conditions, if any, upon which any Offered
Debt Securities may be converted into other securities or property; (o) the
non-applicability, or variation, of the provisions described under "Certain
Covenants of the Company;" (p) the applicability of any provisions described
under "Defeasance and Covenant Defeasance;" (q) whether any of the Offered
Debt Securities are to be issuable in permanent global form and, if so, the
Depositary or Depositaries for such Global Security and the terms and
conditions, if any, upon which interests in such Offered Debt Securities in
global form may be exchanged, in whole or in part, for the individual Offered
Debt Securities represented thereby; (r) the Security Registrar, if other than
the Trustee, and the entity who will be the Paying Agent; (s) any Events of
Default, with respect to the Offered Debt Securities of such series, if not
otherwise set forth under "Events of Default;" and (t) any other terms of the
Offered Debt Securities not inconsistent with the provisions of the Indenture.
(Section 301).
Debt Securities may be issued as Original Issue Discount Securities to be
sold at a substantial discount from their principal amount. United States
Federal income tax consequences and other special considerations applicable to
any such Original Issue Discount Securities will be described in the
Prospectus Supplement relating thereto.
If any of the Debt Securities are sold for any foreign currency or currency
unit or if principal of, premium, if any, or interest, if any, on any of the
Debt Securities is payable in any foreign currency or currency unit, the
restrictions, elections, tax consequences, specific terms and other
information with respect to such Debt Securities and such foreign currency or
currency unit will be specified in the Prospectus Supplement relating thereto.
EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal, premium, if any, and interest, if any, on the Debt Securities
will be payable, and the exchange of and the transfer of Debt Securities will
be registrable, at the office or agency of the Company maintained for such
purpose and at any other office or agency maintained for such purpose.
(Sections 305 and 1002). Unless otherwise indicated in the applicable
Prospectus Supplement, the Debt Securities will be issued in denominations of
$1,000 or integral multiples thereof. (Section 302). No service charge will be
made for any registration of transfer or exchange of Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith. (Section 305).
All moneys paid by the Company to a Paying Agent for the payment of
principal, premium, if any, or interest, if any, on any Debt Security which
remain unclaimed for two years after such principal, premium, or interest has
become due and payable may be repaid to the Company, and thereafter the Holder
of such Debt Security may look only to the Company for payment thereof.
(Section 1003).
In the event of any redemption, the Company shall not be required to (i)
issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of Debt Securities of that series to be
redeemed and ending at the close of business on the day of such mailing or
(ii) register the transfer of or exchange any Debt Security, or portion
thereof, called for redemption, except the unredeemed portion of any Debt
Security being redeemed in part. (Section 305).
BOOK-ENTRY SYSTEM
The provisions set forth below in this section headed "Book-Entry System"
will apply to the Debt Securities of any series if the Prospectus Supplement
relating to such series so indicates.
The Debt Securities of such series will be represented by one or more global
securities (collectively, a "Global Security") registered in the name of a
depositary (the "Depositary") or a nominee of the Depositary identified in the
Prospectus Supplement relating to such series. Except as set forth below, a
Global Security may be transferred, in whole and not in part, only to the
Depositary or another nominee of the Depositary.
7
<PAGE>
Upon the issuance of a Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts
of the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with the Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters, dealers or agents. Ownership of beneficial interests in a Global
Security will be limited to participants or persons that may hold interests
through participants. Ownership of interests in such Global Security will be
shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depositary (with respect to participants'
interests) and such participants (with respect to the owners of beneficial
interests in such Global Security). The laws of some jurisdictions may require
that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer beneficial interests in a Global Security.
So long as the Depositary, or its nominee, is the registered holder and
owner of such Global Security, the Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the related Debt
Securities for all purposes of such Debt Securities and for all purposes under
the Indenture. (Section 308). Except as set forth below or as otherwise
provided in the applicable Prospectus Supplement, owners of beneficial
interests in a Global Security will not be entitled to have the Debt
Securities represented by such Global Security registered in their names, will
not receive or be entitled to receive physical delivery of Debt Securities in
definitive form and will not be considered to be the owners or holders of any
Debt Securities under the Indenture or such Global Security. (Sections 305 and
308). Accordingly, each person owning a beneficial interest in a Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder of Debt
Securities under the Indenture or such Global Security. The Company
understands that under existing industry practice, in the event the Company
requests any action of Holders of Debt Securities or an owner of a beneficial
interest in a Global Security desires to take any action that the Depositary,
as the Holder of such Global Security is entitled to take, the Depositary
would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions
of beneficial owners owning through them.
The Depositary has advised the Company as follows: The Depositary is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Securities Exchange Act of 1934, as amended. The
Depositary was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives)
own the Depositary. Access to the Depositary's book-entry system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The Depositary agrees with and represents to its
participants that it will administer its book-entry system in accordance with
its rules and by-laws and requirements of law.
Payment of principal of and premium, if any, and interest, if any, on Debt
Securities represented by a Global Security will be made to the Depositary or
its nominee, as the case may be, as the registered owner and Holder of such
Global Security. (Section 307).
The Company expects that the Depositary, upon receipt of any payment of
principal, premium, if any, or interest, if any, in respect of a Global
Security, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records of the
Depositary. The Company expects that payments by participants to owners of
beneficial interests in a Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants. Neither the Company nor the
8
<PAGE>
Trustee nor any agent of the Company or the Trustee will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests or for any other aspect of the
relationship between the Depositary and its participants or the relationship
between such participants and the owners of beneficial interests in such
Global Security owning through such participants.
Unless and until it is exchanged in whole or in part for Debt Securities in
definitive form, a Global Security may not be transferred except as a whole by
the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities represented by a Global Security will be exchangeable for Debt
Securities in definitive form of like tenor as such Global Security in
denominations of $1,000 and in any greater amount that is an integral multiple
thereof if (a) the Depositary notifies the Company and the Trustee that it is
unwilling or unable to continue as Depositary for such Global Security or if
at any time the Depositary ceases to be a clearing agency registered under the
Exchange Act and a successor Depositary is not appointed by the Company within
90 days, (b) the Company in its sole discretion determines not to have all of
the Debt Securities represented by a Global Security and notifies the Trustee
thereof or (c) there shall have occurred and be continuing an Event of Default
or an event which, with the giving of notice or lapse of time, or both, would
constitute an Event of Default with respect to the Debt Securities. (Section
305). Any Debt Security that is exchangeable pursuant to the preceding
sentence is exchangeable for Debt Securities registered in such names as the
Depositary shall instruct the Trustee. It is expected that such instructions
may be based upon directions received by the Depositary from its participants
with respect to ownership of beneficial interests in such Global Security.
Subject to the foregoing, a Global Security is not exchangeable, except for a
Global Security or Global Securities of the same aggregate denominations to be
registered in the name of the Depositary or its nominee.
CERTAIN COVENANTS OF THE COMPANY
Except as set forth below or as otherwise provided in the applicable
Prospectus Supplement with respect to any series of Debt Securities, the
Company is not restricted by the Indenture from incurring, assuming or
becoming liable for any type of debt or other obligations, from paying
dividends or making distributions on its capital stock or purchasing or
redeeming its capital stock. With respect to the limitations in the Indenture
on liens and sale and lease-back transactions described below, none of the
Company's consolidated assets is currently subject to the restrictions of such
limitations, either because such assets are not Principal Properties of the
Company or any Restricted Subsidiary or are within the exceptions contained in
such covenants, or because none of the Company's Subsidiaries is currently a
Restricted Subsidiary. The Indenture does not require the maintenance of any
financial ratios or specified levels of net worth or liquidity. In addition,
the Indenture does not contain any provision that would require the Company to
repurchase or redeem or otherwise modify the terms of any of its Debt
Securities upon a change in control or other events involving the Company
which may adversely affect the creditworthiness of the Debt Securities.
Unless otherwise indicated in the applicable Prospectus Supplement, certain
covenants contained in the Indenture which are summarized below will be
applicable (unless waived or amended) to the series of Debt Securities to
which such Prospectus Supplement relates so long as any of the Debt Securities
of such series are outstanding.
Limitations on Liens. The Company covenants that it will not issue, incur,
create, assume or guarantee, and will not permit any Restricted Subsidiary to
issue, incur, create, assume or guarantee, any debt for borrowed money secured
by a mortgage, security interest, pledge, lien, charge or other encumbrance
("mortgages") upon any Principal Property of the Company or any Restricted
Subsidiary or upon any shares of stock or indebtedness of any Restricted
Subsidiary (whether such Principal Property, shares or indebtedness are now
existing or owed or hereafter created or acquired) without in any such case
effectively providing concurrently with the issuance,
9
<PAGE>
incurrence, creation, assumption or guaranty of any such secured debt, or the
grant of a mortgage with respect to any such debt, that the Debt Securities
(together with, if the Company shall so determine, any other indebtedness of
or guarantee by the Company or such Restricted Subsidiary ranking equally with
the Debt Securities) shall be secured equally and ratably with (or, at the
option of the Company, prior to) such secured debt. The foregoing restriction,
however, will not apply to: (a) mortgages on property, shares of stock or
indebtedness or other assets of any corporation existing at the time such
corporation becomes a Restricted Subsidiary, provided that such mortgages or
liens are not incurred in anticipation of such corporation becoming a
Restricted Subsidiary; (b) mortgages on property, shares of stock or
indebtedness existing at the time of acquisition thereof by the Company or a
Restricted Subsidiary (which may include property previously leased by the
Company and leasehold interests thereon, provided that the lease terminates
prior to or upon the acquisition) or mortgages thereon to secure the payment
of all or any part of the purchase price thereof, or mortgages on property,
shares of stock or indebtedness to secure any indebtedness for borrowed money
incurred prior to, at the time of, or within 270 days after, the latest of the
acquisition thereof, or, in the case of property, the completion of
construction, the completion of improvements or the commencement of
substantial commercial operation of such property for the purpose of financing
all or any part of the purchase price thereof, such construction or the making
of such improvements; (c) mortgages to secure indebtedness owing to the
Company or to a Restricted Subsidiary; (d) mortgages existing at the date of
the initial issuance of the Debt Securities of such series; (e) mortgages on
property of a corporation existing at the time such corporation is merged into
or consolidated with the Company or a Restricted Subsidiary or at the time of
a sale, lease or other disposition of the properties of a corporation as an
entirety or substantially as an entirety to the Company or a Restricted
Subsidiary, provided that such mortgage was not incurred in anticipation of
such merger or consolidation or sale, lease or other disposition; (f)
mortgages in favor of the United States of America or any State, territory or
possession thereof (or the District of Columbia), or any department, agency,
instrumentality or political subdivision of the United States of America or
any State, territory or possession thereof (or the District of Columbia), to
secure partial, progress, advance or other payments pursuant to any contract
or statute or to secure any indebtedness incurred for the purpose of financing
all or any part of the purchase price or the cost of constructing or improving
the property subject to such mortgages; (g) mortgages created in connection
with a project financed with, and created to secure, a Nonrecourse Obligation;
or (h) extensions, renewals or replacements of any mortgage referred to in the
foregoing clauses (a) through (g) without increase of the principal of the
indebtedness secured thereby; provided, however, that any mortgages permitted
by any of the foregoing clauses (a) through (g) shall not extend to or cover
any property of the Company or such Restricted Subsidiary, as the case may be,
other than the property specified in such clauses and improvements thereto.
(Section 1008).
Notwithstanding the restrictions outlined in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur,
create, assume or guarantee debt secured by a mortgage which would otherwise
be subject to such restrictions, without equally and ratably securing the Debt
Securities, provided that after giving effect thereto, the aggregate amount of
all debt so secured by mortgages (not including mortgages permitted under
clauses (a) through (h) above) does not exceed the greater of $300,000,000 or
10% of the Consolidated Net Tangible Assets of the Company. (Section 1008).
Limitations on Sale and Lease-Back Transactions. The Company covenants that
it will not, nor will it permit any Restricted Subsidiary to, enter into any
Sale and Lease-Back Transaction with respect to any Principal Property, other
than any such transaction involving a lease for a term of not more than three
years or any such transaction between the Company and a Restricted Subsidiary
or between Restricted Subsidiaries, unless: (a) the Company or such Restricted
Subsidiary would be entitled to incur indebtedness secured by a mortgage on
the Principal Property involved in such transaction at least equal in amount
to the Attributable Debt with respect to such Sale and Lease-Back transaction,
without equally and ratably securing the Debt Securities, pursuant to the
limitation in the Indenture on mortgages; or (b) the Company shall apply an
amount equal to the greater of the net proceeds of such sale or the
Attributable Debt with respect to such Sale and Lease-Back transaction within
180 days of such sale to either (or a combination of) the retirement (other
than any mandatory retirement, mandatory prepayment or sinking fund payment or
by payment at maturity) of indebtedness for borrowed money of the Company or a
Restricted Subsidiary that matures more than twelve months after the creation
of such indebtedness or the purchase, construction or development of other
comparable property. (Section 1009).
10
<PAGE>
Notwithstanding the restrictions outlined in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to enter into Sale and
Lease-Back Transactions which would otherwise be subject to such restrictions,
without applying the net proceeds of such transactions in the manner set forth
in clause (b) above, provided that after giving effect thereto, the aggregate
amount of such Sale and Lease-Back Transactions, together with the aggregate
amount of all debt secured by mortgages not permitted by clauses (a) through
(h) under the limitation in the Indenture on mortgages, does not exceed the
greater of $300,000,000 or 10% of the Consolidated Net Tangible Assets of the
Company.
Certain Definitions Applicable to Covenants. The term "Attributable Debt"
when used in connection with a Sale and Lease-Back Transaction involving a
Principal Property shall mean, at the time of determination, the lesser of:
(a) the fair value of such property (as determined in good faith by the Board
of Directors of the Company); or (b) the present value of the total net amount
of rent required to be paid under such lease during the remaining term thereof
(including any renewal term or period for which such lease has been extended),
discounted at the rate of interest set forth or implicit in the terms of such
lease or, if not practicable to determine such rate, the weighted average
interest rate per annum borne by the Debt Securities of each series
outstanding pursuant to the Indenture compounded semi-annually in either case
as determined by the principal accounting or financial officer of the Company.
For purposes of the foregoing definition, rent shall not include amounts
required to be paid by the lessee, whether or not designated as rent or
additional rent, on account of or contingent upon maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges. In the case of
any lease which is terminable by the lessee upon the payment of a penalty,
such net amount shall be the lesser of the net amount determined assuming
termination upon the first date such lease may be terminated (in which case
the net amount shall also include the amount of the penalty, but no rent shall
be considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated) or the net amount determined assuming
no such termination.
The term "Consolidated Net Assets" shall mean, as of any particular time,
the aggregate amount of assets (less applicable reserves) at the end of the
most recently completed fiscal quarter after deducting therefrom all current
liabilities, except for (a) notes and loans payable, (b) current maturities of
long-term debt and (c) current maturities of obligations under capital leases,
all as set forth on the most recent quarter-end consolidated balance sheet of
the Company and its consolidated subsidiaries and computed in accordance with
generally accepted accounting principles.
The term "Consolidated Net Tangible Assets" shall mean, as of any particular
time, the aggregate amount of assets (less applicable reserves) at the end of
the most recently completed fiscal quarter after deducting therefrom: (a) all
current liabilities, except for (1) notes and loans payable, (2) current
maturities of long-term debt and (3) current maturities of obligations under
capital leases; and (b) certain intangible assets, to the extent included in
such aggregate amount of assets, all as set forth on the most recent quarter-
end consolidated balance sheet of the Company and its consolidated
subsidiaries and computed in accordance with generally accepted accounting
principles.
The term "Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a project
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such
indebtedness or obligation has no recourse to the Company or any Restricted
Subsidiary or any assets of the Company or any Restricted Subsidiary other
than the assets which were acquired with the proceeds of such transaction or
the project financed with the proceeds of such transaction (and the proceeds
thereof).
The term "Principal Property" shall mean the land, land improvements,
buildings and fixtures (to the extent they constitute real property interests)
(including any leasehold interest therein) constituting the principal
corporate office, any manufacturing plant or any manufacturing facility
(whether now owned or hereafter acquired) which: (a) is owned by the Company
or any Subsidiary; (b) is located within any of the present 50 States of the
United States of America (or the District of Columbia); (c) has not been
determined in good faith by the Board of Directors of the Company not to be
materially important to the total business conducted by the Company and its
Subsidiaries taken as a whole; and (d) has a book value on the date as of
which the
11
<PAGE>
determination is being made in excess of 0.75% of Consolidated Net Assets of
the Company as most recently determined on or prior to such date.
The term "Restricted Subsidiary" shall mean any Subsidiary which owns any
Principal Property; provided, however, that the term "Restricted Subsidiary"
shall not include (a) any Subsidiary which is principally engaged in leasing
or in financing receivables, or which is principally engaged in financing the
Company's operations outside the United States of America; (b) any Subsidiary
less than 80% of the voting stock of which is owned, directly or indirectly,
by the Company or by one or more other Subsidiaries, or by the Company and one
or more other Subsidiaries if the common stock of such Subsidiary is traded on
any national securities exchange or quoted on the Nasdaq National Market or in
the over-the-counter market; or (c) Oracle Corporation Japan, a Japanese
corporation.
The term "Sale and Lease-Back Transaction" shall mean any arrangement with
any Person providing for the leasing to the Company or any Restricted
Subsidiary of any Principal Property which property has been or is to be sold
or transferred by the Company or such Restricted Subsidiary to such Person.
The term "Subsidiary" shall mean any corporation of which at least 66 2/3%
of the outstanding voting stock of such corporation is at the time owned,
directly or indirectly, by the Company or by one or more other Subsidiaries,
or by the Company and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock which ordinarily has voting power for
the election of directors, whether at all times or only so long as no senior
class of stock has such voting power by reason of any contingency.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that, if such provision is made applicable to the
Debt Securities of any series pursuant to the provisions of the Indenture, the
Company may elect (i) to defease and be discharged from any and all
obligations in respect of such Debt Securities except for certain obligations
to register the transfer or exchange of such Debt Securities, to replace
temporary, destroyed, stolen, lost or mutilated Debt Securities, to maintain
paying agencies and to hold monies for payment in trust ("defeasance") or (ii)
(A) to omit to comply with certain restrictive covenants in Sections 1005
through 1009 (including the covenants referred to above under "Certain
Covenants of the Company") and (B) to deem the occurrence of any event
referred to in clauses (d) (with respect to Sections 1005 through 1009
inclusive) and (g) under "Events of Default" below not to be or result in an
Event of Default if, in each case with respect to the Outstanding Debt
Securities of such series as provided in Section 1303 on or after the date the
conditions set forth in Section 1304 are satisfied ("covenant defeasance"), in
either case upon the deposit with the Trustee (or other qualifying trustee),
in trust, of money and/or U.S. Government Obligations, which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of and
any premium and interest on the Debt Securities of such series on the
respective Stated Maturities and any mandatory sinking fund payments or
analogous payments on the days payable, in accordance with the terms of the
Indenture and the Debt Securities of such series. Such a trust may only be
established if, among other things, the Company has delivered to the Trustee
an Opinion of Counsel to the effect that the Holders of the Outstanding Debt
Securities of such series will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit, defeasance or covenant
defeasance and will be subject to Federal income tax on the same amount, and
in the same manner and at the same times as would have been the case if such
deposit, defeasance or covenant defeasance had not occurred. Such opinion, in
the case of defeasance under clause (i) above, must refer to and be based upon
a ruling of the Internal Revenue Service or a change in applicable Federal
income tax laws occurring after the date of the Indenture. The Prospectus
Supplement relating to a series may further describe the provisions, if any,
permitting such defeasance or covenant defeasance with respect to the Debt
Securities of a particular series. (Article Thirteen).
12
<PAGE>
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to Debt Securities of any series (unless such event
is specifically inapplicable to a particular series as described in the
Prospectus Supplement relating thereto): (a) failure to pay any interest on
any Debt Security of that series when due, continued for 30 days; (b) failure
to pay principal of or any premium on any Debt Security of that series when
due; (c) failure to deposit any sinking fund payment, when due, in respect of
any Debt Security of that series; (d) failure to perform any other covenant of
the Company in the Indenture (other than a covenant included in the Indenture
solely for the benefit of a series of Debt Securities other than that series),
continued for 90 days after written notice as provided in the Indenture; (e)
(i) failure to make any payment at maturity, including any applicable grace
period, in respect of indebtedness, which term as used in the Indenture means
obligations (other than non-recourse obligations or the Debt Securities of
such series) of the Company for borrowed money or evidenced by bonds,
debentures, notes or similar instruments ("Indebtedness") in an amount in
excess of $25,000,000 and continuance of such failure or (ii) a default with
respect to any Indebtedness, which default results in the acceleration of
Indebtedness in an amount in excess of $25,000,000 without such Indebtedness
having been discharged or such acceleration having been cured, waived,
rescinded or annulled, in the case of (i) or (ii) above, for a period of 30
days after written notice thereof to the Company by the Trustee or to the
Company and the Trustee by the holders of not less than 15% in principal
amount of Debt Securities of such series; provided, however, that if any such
failure, default or acceleration referred to in (i) or (ii) above shall cease
or be cured, waived, rescinded or annulled, then the Event of Default by
reason thereof shall be deemed likewise to have been cured; (f) certain events
in bankruptcy, insolvency or reorganization involving the Company; and (g) any
other Event of Default provided with respect to Debt Securities of that
series. (Section 501).
Subject to the provisions of the Indenture relating to the duties of the
Trustee during default to act with the required standard of care, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Sections 601,
603). Subject to such provisions for the indemnification of the Trustee, the
Holders of a majority in principal amount of the Outstanding Debt Securities
of any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Debt Securities of that series. (Section 512).
The Indenture provides that the Company will deliver to the Trustee, within
120 days after the end of each fiscal year, a brief certificate from the
principal executive, financial or accounting officer of the Company as to his
or her knowledge of the Company's compliance (without regard to any period of
grace or requirement of notice) with all conditions and covenants of the
Indenture. (Section 1004).
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding occurs and is continuing, either the Trustee or the Holders
of at least 25% in principal amount of the Outstanding Debt Securities of that
series by notice as provided in the Indenture may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Debt Securities of that series to be due and
payable immediately. (Section 502). At any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree for payment of money has been obtained by the
Trustee, the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series may, under certain circumstances, rescind and annul
such acceleration. (Section 502).
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default and unless the Holders of at
least 25% in principal amount of the Outstanding Debt Securities of that
series shall have made written request, and offered reasonable indemnity, to
the Trustee to institute such proceeding as trustee, and the Trustee shall not
have received from the Holders of a
13
<PAGE>
majority in principal amount of the Outstanding Debt Securities of that series
a direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. (Section 507). However, such limitations
generally do not apply to a suit instituted by a Holder of a Debt Security for
the enforcement of payment of the principal of or interest on such Debt
Security on or after the respective due dates expressed in such Debt Security.
(Section 508).
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of each series affected by
such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each Outstanding Debt
Security affected thereby, (a) change the Stated Maturity of the principal of,
or any installment of principal of or interest on, any Debt Security, (b)
reduce the principal amount of, rate of interest on or any premium payable
upon the redemption of any Debt Security, (c) reduce the amount of principal
of an Original Issue Discount Security payable upon acceleration of the
Maturity thereof, (d) change the Place of Payment where, or the coin or
currency in which, any Debt Security or any premium or interest thereon is
payable, (e) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security after the Stated Maturity or
Redemption Date, (f) reduce the percentage in principal amount of Outstanding
Debt Securities of any series, the consent of whose Holders is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults, or (g)
modify any of the provisions set forth in this paragraph except to increase
any such percentage or to provide that certain other provisions of the
Indenture may not be modified or waived without the consent of the Holder of
each Outstanding Debt Security affected thereby. (Section 902).
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of each series may, on behalf of the Holders of
all the Debt Securities of that series, waive, insofar as that series is
concerned, compliance by the Company with certain restrictive provisions of
the Indenture. (Section 1011). The Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of each series may, on
behalf of all Holders of Debt Securities of that series, waive any past
default under the Indenture with respect to Debt Securities of that series,
except a default (a) in the payment of principal of or any premium or interest
on any Debt Security of such series or (b) in respect of a covenant or
provision of the Indenture which cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security of such series
affected. (Section 513).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be Outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon acceleration of the Maturity thereof, (ii) the principal amount of a Debt
Security denominated in other than U.S. dollars shall be the U.S. dollar
equivalent, determined on the date of original issuance of such Debt Security,
of the principal amount of such Debt Security (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the date of original
issuance of such Debt Security of the amount of such Debt Security determined
as provided in (i) above) and (iii) Debt Securities owned by the Company or
any Affiliate of the Company shall be disregarded and deemed not to be
Outstanding. (Section 101).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Outstanding
Debt Securities under the Indenture, may consolidate with or merge into, or
transfer or lease its assets substantially as an entirety to, any Person which
is a corporation, partnership or trust organized and validly existing under
the laws of any domestic jurisdiction, provided that any successor Person
expressly assumes the Company's obligations on the Debt
14
<PAGE>
Securities and under the Indenture and that, after giving effect to the
transaction, no Event of Default, and no event which, after notice or lapse of
time, or both, would become an Event of Default, shall have occurred and be
continuing, and that certain other conditions are met. (Section 801).
NOTICES
Except as otherwise provided in the Indenture, notices to Holders of Debt
Securities will be given by mail to the addresses of such Holders as they
appear in the Debt Security Register. (Section 106).
TITLE
Prior to due presentment of a Debt Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Debt Security is registered as the owner of such
Debt Security for the purpose of receiving payment of principal of and any
premium and any interest (other than Defaulted Interest or as otherwise
provided in the applicable Prospectus Supplement) on such Debt Security and
for all other purposes whatsoever, whether or not such Debt Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary. (Section 308).
REPLACEMENT OF DEBT SECURITIES
Any mutilated Debt Security will be replaced by the Company at the expense
of the Holder upon surrender of such Debt Security to the Trustee. Debt
Securities that become destroyed, stolen or lost will be replaced by the
Company at the expense of the Holder upon delivery to the Trustee of the Debt
Security or evidence of the destruction, loss or theft thereof satisfactory to
the Company and the Trustee. In the case of a destroyed, lost or stolen Debt
Security, an indemnity satisfactory to the Trustee and the Company may be
required at the expense of the Holder of such Debt Security before a
replacement Debt Security will be issued. (Section 306).
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of California. (Section 112).
REGARDING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize for its own account on certain property received
in respect of any such claim as security or otherwise. (Section 613). The
Trustee will be permitted to engage in certain other transactions; however, if
it acquires any conflicting interest and there is a default under the Debt
Securities of any series for which the Trustee serves as trustee, the Trustee
must eliminate such conflict or resign. (Section 608).
The Trustee under the Indenture will be the State Street Bank and Trust
Company of California, N.A. The First National Bank of Boston ("Bank of
Boston"), an affiliate of the Trustee, currently is the Company's Transfer
Agent and Registrar for the Company's Common Stock and is the Rights Agent
with respect to the Company's Preferred Share Purchase Rights. Bank of Boston
also provides certain banking and financial services to the Company in the
ordinary course of business and may provide such services in the future.
15
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Debt Securities (i) to one or more underwriters or
dealers for public offering and sale by them and (ii) to investors directly or
through agents. The distribution of the Debt Securities may be effected from
time to time in one or more transactions at a fixed price or prices (which may
be changed from time to time), at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Each Prospectus Supplement will describe the method of the
distribution of the Debt Securities offered thereby.
In connection with the sale of the Debt Securities, underwriters, dealers or
agents may receive compensation from the Company or from purchasers of the
Debt Securities for whom they may act as agents, in the form of discounts,
concessions or commissions. The underwriters, dealers or agents which
participate in the distribution of the Debt Securities may be deemed to be
underwriters under the Securities Act of 1933 and any discounts or commissions
received by them and any profit on the resale of the Debt Securities received
by them may be deemed to be underwriting discounts and commissions thereunder.
Any such underwriter, dealer or agent will be identified and any such
compensation received from the Company will be described in the Prospectus
Supplement. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Under agreements that may be entered into with the Company, underwriters,
dealers and agents may be entitled to indemnification by the Company against
certain civil liabilities, including liabilities under the Securities Act of
1933, or to contribution with respect to payments which the underwriters,
dealers or agents may be required to make in respect thereof.
The Company may grant underwriters who participate in the distribution of
Debt Securities an option to purchase additional Debt Securities to cover
over-allotments, if any.
All Debt Securities will be new issues of securities with no established
trading market. Any underwriters to whom Debt Securities are sold by the
Company for public offering and sale may make a market in such securities, but
such underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for any such Debt Securities.
Certain of the underwriters, dealer or agents and their associates may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
LEGAL MATTERS
Certain legal matters relating to the validity of the Debt Securities will
be passed upon for the Company by Venture Law Group, A Professional
Corporation, Menlo Park, California. As of December 31, 1996, certain
attorneys of Venture Law Group beneficially owned approximately 51,000 shares
of the Company's Common Stock.
EXPERTS
The consolidated financial statements and schedule included in the Company's
Form 10-K for the year ended May 31, 1996 have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
16
<PAGE>
[LOGO APPEARS HERE]
