SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission file number 0-18090
CAERE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2250509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Cooper Court, Los Gatos, California, 95030
(Address of principal executive offices)
(408) 395-7000
(Registrant's telephone number, including area code)
- ----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock.
Outstanding
Class March 31, 1998
Common Stock
$.001 par value 12,964,843
This is page 1 of 15 pages
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CAERE CORPORATION
INDEX
PART I. Financial Information
<CAPTION>
<S> <C> <C>
Page
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations -- Three Months
Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAERE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<CAPTION>
March 31, December 31,
1998 1997
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,675 $ 16,417
Short-term investments 45,065 33,156
Receivables 4,297 5,263
Inventories (Note B) 1,952 1,917
Deferred income taxes 3,241 3,241
Other current assets 939 990
----------- ----------
Total current assets 61,169 60,984
Property and equipment, net 4,384 4,781
Other assets 1,648 1,535
----------- ------------
Total assets $ 67,201 $ 67,300
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other payables $ 5,695 $ 6,091
Preferred stock, $.001 par value: authorized 2,000,000
shares; none issued or outstanding - -
Common stock, $.001 par value: authorized 30,000,000
shares; issued and outstanding 12,964,843 and 13,107,235
shares 13 13
Additional paid-in capital 55,681 57,629
Accumulated other comprehensive income 91 91
Retained earnings 5,721 3,476
----------- ------------
Total stockholders' equity 61,506 61,209
----------- ------------
Total liabilities and stockholders' equity $ 67,201 $ 67,300
=========== ============
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<TABLE>
CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Net revenues $15,659 $12,572
Cost of revenues 3,427 3,716
----- -----
12,232 8,856
------ -----
Operating expenses:
Research and development 2,947 2,002
Selling, general and administrative 7,058 6,312
In-process research and development -- 2,935
-------- -------
10,005 11,249
------ ------
Operating earnings (loss) 2,227 (2,393)
Interest income, net 587 562
------ ------
Earnings (loss) before income taxes 2,814 (1,831)
Income tax expense 569 110
------ ------
Net earnings (loss) $2,245 $(1,941)
====== ========
Basic earnings (loss) per share $0.17 $(0.15)
===== =======
Diluted earnings (loss) per share $0.17 $(0.15)
===== =======
Weighted average shares used in basic earnings (loss) per share
calculation 13,064 12,682
====== ======
Weighted average shares used in diluted earnings (loss) per share
calculation 13,561 12,682
====== ======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,245 $ (1,941)
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 718 787
In-process research and development -- 2,935
Amortization of capitalized software development costs 138 117
Tax benefit associated with exercise of stock options 30 --
Changes in operating assets and liabilities:
Receivables, net 966 (756)
Inventories (35) 343
Other current assets 51 (533)
Accrued expenses and other payables (396) (779)
----------- -------------
Net cash provided by operating activities 3,717 173
---------- ------------
Cash flows from investing activities:
Short-term investments, net (11,909) (8,231)
Capital expenditures (258) (738)
Capitalized software development costs (75) (408)
Other assets (239) 183
----------- ------------
Net cash used for investing activities (12,481) (9,194)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 353 504
Repurchase of stock (2,331) --
----------- -----------
Net cash provided by (used for) financing activities (1,978) 504
----------- -----------
Net change in cash and cash equivalents (10,742) (8,517)
Cash and cash equivalents at beginning of period 16,417 11,663
---------- ------------
Cash and cash equivalents at end of period $ 5,675 $ 3,146
========== ============
Supplemental disclosures:
Cash paid for income taxes $ 1,717 $ 709
========== ============
Common stock issued for business acquisition $ -- $ 3,105
========== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
CAERE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A) Basis of Presentation
The accompanying unaudited condensed consolidated balance sheets,
statements of earnings, and statements of cash flows reflect all adjustments
(consisting of only normal recurring adjustments) which are, in the opinion of
management, necessary to present the financial position of the Company as of
March 31, 1998, and its results of operations and cash flows for the periods
indicated.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions for Form 10-Q, and, therefore,
certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company filed audited financial statements
with the Securities and Exchange Commission which included all information and
footnotes necessary for a complete presentation of the Company's financial
position, results of operations and cash flows for the years ended December 31,
1997, 1996 and 1995, in its report on Form 10-K, as amended, for the year ended
December 31, 1997 (the "Form 10-K"). These condensed financial statements should
be read in conjunction with the financial statements contained in the Company's
Form 10-K. The results of operations for the interim period ended March 31,
1998, are not necessarily indicative of the results to be expected for the full
year.
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B) Inventories March 31, 1998 December 31, 1997
----------- -------------- -----------------
<S> <C> <C>
(In thousands)
A summary of inventories follows:
Raw materials $ 572 $ 738
Work in process 247 226
Finished goods 1,133 953
-------- --------
$1,952 $1,917
====== ======
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C) Earnings (Loss) Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 changes the
standards for computing earnings per share ("EPS") by replacing the presentation
of primary EPS with basic EPS for all periods presented. Basic EPS excludes
dilution and is computed by dividing net earnings available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Accounting Principles Board ("APB") Opinion No. 15. All prior period share and
per share amounts have been restated to comply with SFAS No. 128.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C> <C><C>
Net earnings (loss) $ 2,245,000 $ (1,941,000)
============= =============
Shares used to compute basic earnings (loss) per share
(weighted average common shares outstanding) 13,064,909 12,681,795
Dilutive common equivalent shares - stock options 496,370 --
-------------- -----------
Shares used to compute diluted earnings (loss) per share 13,561,279 12,681,795
=============== ===============
Basic earnings (loss) per share $ .17 $ (.15)
============== ==============
Diluted earnings (loss) per share $ .17 $ (.15)
============== ==============
</TABLE>
There were no reconciling items in the numerators between the basic
and diluted earnings per share computations. Options excluded from the
computation of earnings per share because their effect on earnings per share was
antidilutive, but which could dilute basic earnings per share in future periods,
were as follows: 8,491 options with a weighted average exercise price of $12.53
in 1998, and 246,717 options with a weighted average exercise price of $8.50 in
1997.
D) Business Acquisition
On March 31, 1997, the Company acquired Formonix, Inc. ("Formonix"),
a software developer located in Colorado. The total value of the acquisition was
approximately $3,188,000. The Company issued 550,000 shares of Common Stock in
exchange for all of the capital stock of Formonix. Using the closing price of
the Company's Common Stock on the closing date of the acquisition, the valuation
of the shares issued was approximately $3,105,000. Acquisition costs associated
with the transaction totaled approximately $83,000 and consisted mainly of
professional fees. The business combination was accounted for under the purchase
method of accounting. Accordingly, the consolidated financial statements of the
Company do not include Formonix until after the date of the acquisition.
Acquired technology was valued using a risk-adjusted cash flow model,
under which future expected cash flows were discounted taking into account risks
related to existing markets, the technology's life expectancy, future target
markets and potential changes thereto, and the competitive outlook for the
technology. The analysis resulted in an allocation of approximately $253,000 to
purchased software and the balance of approximately $2,935,000 to in-process
technology, which had not yet reached technological feasibility and had no
alternative future use, and accordingly, was charged to expense.
The following summarized, pro forma results of operations assume the
acquisition took place at the beginning of the period and excludes the
$2,935,000 charge for acquired in-process technology.
Three months ended
March 31, 1997
(In thousands, except per share amounts)
Net revenues $12,572
Net earnings 851
Diluted earnings per share $.06
E) Revenue Recognition
The Company's recognizes revenue in accordance with Statement of
Position ("SOP") No. 97-2, "Software Revenue Recognition," which supersedes SOP
No. 91-1. SOP No. 97-2 generally requires revenue earned on software
arrangements involving multiple elements such as software products, upgrades,
enhancements, post-contract customer support, installation, and training to be
allocated to each element based on the relative fair values of the elements. The
fair value of an element must be based on evidence that is specific to the
vendor. If a vendor does not have evidence of the fair value for all elements in
a multiple-element arrangement, all revenue from the arrangement is deferred
until such evidence exists or until all elements are delivered.
F) Comprehensive Income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No.
130"), was issued and established standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the disclosure but requires the
Company to display an amount representing total comprehensive income for the
period in its financial statements. The Company has not determined the manner in
which it will present the information required by SFAS No. 130 in its annual
financial statements for the year ending December 31, 1998. The Company's total
comprehensive income (loss) for all periods presented herein would not have
differed from those amounts reported as net earnings (loss) in the condensed
consolidated statements of operations.
<PAGE>
G) Segment Reporting
In June 1997, SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information" ("SFAS No. 131"), was issued and established standards
for the manner in which public companies report information about operating
segments in annual and interim financial statements issued to shareholders. The
Company has not yet determined the manner in which it will present the
information required by SFAS No. 131.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company notes that, except for the historical information contained
herein, the matters discussed below contain forward-looking statements subject
to risks and uncertainties that may cause the Company's actual results to differ
materially. These forward-looking statements are based on current expectations
and the Company assumes no obligation to update this information. Such risks and
uncertainties include, but are not limited to, various important competitive and
technological factors, such as pricing pressures; success of the "bundle and
upgrade" business model, including the maintenance of the Company's
relationships with scanner manufacturers, as well as customers opting to upgrade
to newer or more fully featured products; the timely completion of additional
product capabilities and software updates; changes in customer order patterns,
the maintenance of relationships with retail distributors and dealers;
manufacturing considerations, including the maintenance of margins in a
declining-price environment, as well as risk of inventory obsolescence due to
shifts in market demand and new product introductions; and other risk factors
listed from time to time in the Company's reports filed with the Securities and
Exchange Commission, including, but not limited to, the report on Form 10-K, as
amended, for the year ended December 31, 1997.
Results of Operations
The following chart summarizes net revenues, cost of revenues, and
gross margins for the Company's products categorized between hardware and
software. Software products consist of the OmniPage, WordScan, OmniForm,
PageKeeper, and Recognita lines of products. Hardware products consist of
transaction processing optical character recognition ("OCR") and bar code
products, and the M/Series line of production OCR products.
<TABLE>
Business Line Analysis
<CAPTION>
-------------- --------------- --------------- ------------- --------------- ----------------
Three Months Ending: March 31, 1998 March 31, 1997
Software Hardware Software Hardware
Products Products Combined Products Products Combined
<S> <C> <C> <C> <C> <C> <C>
Net revenues $13,743 $1,916 $15,659 $10,865 $1,707 $12,572
Cost of revenues 2,430 997 3,427 2,777 939 3,716
----- --- ----- ----- --- -----
11,313 919 12,232 $8,088 $768 $8,856
Gross margin % 82.3% 48.0% 78.1% 74.4% 45.0% 70.4%
-------------- --------------- --------------- ------------- --------------- ----------------
</TABLE>
Net revenues for software products increased 26% during the first
quarter of 1998 to $13,743,000 from $10,865,000 in 1997, due primarily to
continued strength in upgrade revenues of OmniPage Pro 8.0 and to increased
royalties related to the bundled OCR and document management products. Revenues
from Windows versions of OmniPage Pro increased 25% over the first quarter of
1997. During the first quarter of 1998, the Company began shipping OmniPage Pro
8.0 for the Macintosh platform and OmniForm 3.0 for Windows95. On a sequential
basis, software product revenues were up 2% in the first quarter of 1998, from
$13,445,000 during the fourth quarter of 1997. OmniForm product revenues
increased 33% in the first quarter of 1998 compared to the first quarter of
1997, primarily due to the introduction of OmniForm 3.0.
The marketplace for OCR software has been changing rapidly as a result
of significant declines in scanner prices. To gain greater leverage in this
expanding market the Company reduced the price of its OmniPage Pro upgrade
products to $99 from $129 in April 1998. It is expected that the reduced price
will generate sufficient increases in consumer demand to provide for continuing
increases in quarterly software revenues. However, there can be no assurance
that volume increases will result or will be adequate to increase revenues or
that more consumers will purchase the software at the lower price point.
Net revenues for hardware products increased 12% to $1,916,000 in the
first quarter of 1998, compared to $1,707,000 during the same period in 1997.
The primary reason for this improvement was increased shipments of transaction
processing OCR products. It is common in this line of business for the Company
to receive large, one-time orders for products periodically. This ordering
pattern has historically resulted in significant fluctuations in quarterly
hardware revenues. This trend is expected to continue.
International sales increased 6% in the first quarter of 1998 compared
to the first quarter of 1997, and accounted for approximately 33% of total sales
in 1998, compared to 39% in 1997. The increase in international sales was
primarily attributable to increased sales of upgrades of OmniPage Pro 8.0 for
Windows, which started to ship during the fourth quarter of 1997. On a year to
year comparison, the decrease in foreign sales in the first quarter as a
percentage of total sales is primarily attributable to increased total revenues
between the two periods.
Gross Margins
Gross margins for software products improved from 74.4% in the first
quarter of 1997 to 82.3% in the first quarter of 1998. The primary reason for
the increase is increased royalty revenues between the two periods. Also
contributing to the improvement in margins was the increase in overall software
and hardware volume during the quarter, allowing fixed manufacturing costs to be
spread over a higher level of production.
There will be downward pressure on gross margins for software products in
the future as a result of the Company's decision to reduce the price of its
OmniPage Pro upgrade products. This decrease will be somewhat offset by
anticipated volume increases that are expected to lead to improved economies of
scale. However, there can be no assurance that production volumes will rise
sufficiently or that the Company will be successful in securing more favorable
pricing from key suppliers.
Gross margins for hardware products increased to 48.0% in the first
quarter of 1998 from 45.0% in the same period of 1997, due primarily to higher
unit sales and revenues of transaction processing OCR products, which typically
carry higher gross margins than other hardware products. Also contributing to
the improved margin on hardware products was the fixed nature of a majority of
the Company's hardware manufacturing overhead. As hardware product volumes
increase, the level of manufacturing overhead does not increase in the same
proportion.
The primary factor affecting gross margins in the future is likely to
be shifts in product mix between fully priced retail software, bundled software,
and upgrade products, as well as overall shifts in product mix between software
and hardware products. The microcomputer software market has been subject to
rapid changes, including significant price competition, which can be expected to
continue. Future technology or market changes may cause certain products to
become obsolete rapidly, necessitating increased inventory write-offs or
reserves and a corresponding decrease in gross margins.
Operating Expenses
Research and development (R&D) expense increased 47% to $2,947,000 in
the first quarter of 1998, from $2,002,000 during the same period of 1997. The
increase in spending relates primarily to additional staffing associated with
ongoing software development projects and the recognition of development
expenses related to Formonix that were formerly treated as royalty expense. As a
percentage of revenue, R&D expense increased to 19% of revenue in the first
quarter of 1998, compared to 16% in the first quarter of 1997. This increase is
attributable to the Company's commitment to developing new and improved products
on a more timely and frequent basis.
The Company is committed to providing continuing enhancements to
current products, as well as developing new technologies for the future. This
commitment will result in the Company's continuing to invest heavily in R&D
during 1998. In accordance with Statement of Financial Accounting Standards No.
86, the Company capitalized $75,000 of software development costs during the
first quarter of 1998, compared to $155,000 in the same period of 1997. In
addition to this capitalization of internal R&D expenses, in connection with the
Company's acquisition of Formonix in March 1997, the Company also capitalized
approximately $253,000 of the acquisition cost during the first quarter of 1997.
The costs capitalized related to the portion of the Formonix acquisition
valuation which was allocated to existing products acquired. Amortization of
capitalized software development costs was $138,000 in the first quarter of
1998, versus $117,000 for the comparable period in 1997.
Selling, general and administrative (S,G&A) expenses increased 12% in
the first quarter of 1998 to $7,058,000, from $6,312,000 during the same period
of 1997. The primary factor for the increase was sales and support expenses
associated with the Company's growing customer base resulting from the
high-volume business generated by the "bundle and upgrade" model. As a
percentage of revenue, S,G&A expense decreased to 45% of revenue in the first
quarter of 1998, from 50% during the same period in 1997. This decrease is
primarily attributable to higher net revenues between the comparable periods.
The Company is attempting to control the level of S,G&A expenditures while it
invests heavily in vital R&D projects. Nonetheless, the Company believes that
S,G&A expense may increase in dollar terms in 1998 as necessary efforts to
expand sales and marketing activities continue in the OCR, forms, and desktop
document management areas.
During the first quarter of 1997, a $2,935,000 one-time charge for
in-process research and development was taken related to the Company's
acquisition of Formonix in March 1997. This charge related to the portion of
Formonix acquisition valuation represented by the present value of estimated
cash flows expected to be generated by Formonix-related technology which, at the
acquisition date, had not yet reached the point of technological feasibility and
did not have an alternative future use.
Interest Income
Interest income was $587,000 in the first quarter of 1998 compared to
$562,000 in the same period of 1997. The increase in interest income was
attributable to an increase in total cash and short-term investment balances
between the comparable periods.
Income Taxes
The Company's effective income tax rate in 1998 is expected to be
between 20% and 25%, which is less than statutory rates, primarily due to the
use of the Company's foreign sales corporation and increased utilization of net
operating loss carryforwards assumed in its 1994 acquisition of Calera
Recognition Systems, Inc. ("Calera"). In the first quarter of 1998, the
effective income tax rate was 20%, due primarily to the use of the Company's
foreign sales corporation and to the expected utilization of the Calera net
operating loss carryforwards in the 1998 fiscal year.
Net Earnings and Earnings Per Share
Net earnings for the first quarter of 1998 were $2,245,000, compared to
net loss of $1,941,000 during the same period in 1997. Diluted earnings per
share were $.17 in the first quarter of 1998, versus a loss per share of $.15 in
the comparable period of 1997. The first quarter 1997 loss resulted from the
$2,935,000 one-time in-process research and development charge related to the
Formonix acquisition. Excluding this one-time charge, diluted earnings for the
first quarter of 1997 would have been $994,000, or $.08 per share, using
12,931,000 weighted average shares outstanding.
Certain Trends
The Company's future operating results may be affected by various
uncertain trends and factors which are beyond the Company's control. These
include, but are not limited to, adverse changes in general economic conditions,
rising costs, or the occasional unavailability of needed components. The
industry is characterized by rapid changes in the technologies affecting optical
character recognition, forms technology, and document management technology. The
industry has also become increasingly competitive, and, accordingly, the
Company's results may also be adversely affected by the actions of existing or
future competitors, including the development of new technologies, the
introduction of new products, and the reduction of prices by such competitors to
gain or retain market share.
Bundled products incorporating OmniPage and WordScan began shipping in
significant quantities in the fourth quarter of 1994. Because of the lower
per-unit revenue to the Company that results from the combined sale of a bundled
product plus an upgrade, compared to the retail sale of a fully featured version
of the software, the success of the "bundle and upgrade" program depends on
increasing unit sales of upgrades for its success. There can be no assurance
that Caere's transition to the "bundle and upgrade" business model will be
successful and provide sufficient increase in unit volume in the future to
offset reduced per-unit revenue. In addition, customers using the bundled
product may defer or forego purchase of the Company's more fully featured
versions of OmniPage and WordScan products if they find that the bundled
products satisfy their recognition needs.
A significant portion of the Company's net revenues is attributable to
sales through the distribution channel. The Company's future operating results
are dependent to a certain extent on its ability to maintain its existing
relationships with such distributors. There can be no assurance that the Company
will be able to maintain such relationships.
The Company's future earnings and stock price could be subject to
significant volatility, particularly on a quarterly basis. The Company's
revenues and earnings are unpredictable until the end of each quarter due to the
Company's shipment patterns. As is common in the software industry, the
Company's experience has been that a disproportionately large percentage of
shipments has occurred in the third month of each fiscal quarter, and shipments
tend to be concentrated in the latter half of that month. Because the Company's
backlog early in a quarter is not generally large enough to assure that it will
meet its revenue targets for any particular quarter, quarterly results are
difficult to predict until the end of the quarter. A shortfall in shipments at
the end of any particular quarter may cause the results for that quarter to fall
significantly short of anticipated levels. Due to analysts' expectations of
continued growth, any such shortfall in earnings could have a very significant
adverse effect on the trading price of the Company's common stock in any given
period.
As a result of the foregoing factors and other factors which may arise
in the future, the market price of the Company's common stock may be subject to
significant fluctuations over a short period of time. These fluctuations may be
due to factors specific to the Company, to changes in analysts' earnings
estimates, or to factors affecting the computer industry or the securities
markets in general.
Liquidity and Capital Resources
Caere's financial position remains strong at March 31, 1998. Working
capital increased one percent to $55,474,000, from $54,893,000 at December 31,
1997. The Company has no long-term debt. The Company's cash and short-term
investments totaled $50,740,000 at March 31, 1998. The Company believes that
current cash balances and internally generated funds will be sufficient to meet
its cash requirements through 1998.
Caere generated cash from operating activities of $3,687,000 during the
three months ended March 31, 1998. Uses of cash included $11,909,000 to purchase
additional short-term investments and $2,331,000 to repurchase 200,000 shares of
the Company's common stock, in addition to $258,000 for investments in capital
equipment. During the first quarter of 1997, the Company generated cash from
operating activities of $173,000. Uses of cash during that period included
$8,231,000 to purchase short-term investments and $738,000 for capital equipment
acquisitions.
The Company offers credit terms to qualifying customers and also sells
on a prepaid, credit card and cash-on-delivery basis. With respect to credit
sales, the Company attempts to control its bad debt exposure through monitoring
of customers' creditworthiness and, where practicable, through participation in
credit associations that provide credit rating information about its customers.
The Company has also purchased credit insurance for certain key accounts to
reduce the potential for catastrophic losses.
"Year 2000" Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than two years, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance. In
the Company's standard license agreements, the Company warrants to licensees
that its software routines and programs are Year 2000 compliant (i.e. that they
accurately process date-related data within any century and between two or more
centuries). Although the Company believes its software products are Year 2000
compliant, there can be no assurance that the Company's software products
contain all necessary software routines and programs necessary for the accurate
calculation, display, storage and manipulation of data involving dates. If any
of the Company's licensees experience Year 2000 problems, such licensee could
assert claims for damages against the Company. Any such litigation could result
in substantial costs and diversion of the Company's resources even if ultimately
decided in favor of the Company. In addition, many companies are expending
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by the Company. The
occurrence of any of the foregoing could have a material adverse effect on the
Company's business, financial condition, and results of operations.
In addition, certain of the Company's internal computer systems are not
"Year 2000" compliant. These systems will be upgraded within the next twelve
months to become compliant. Management has not yet determined the cost related
to achieving "Year 2000" compliance for its internal computer systems.
There also can be no assurance that the Company's suppliers, vendors or
other enterprises with which the Company interacts are or will be "Year 2000"
compliant. Failure of third-party enterprises with which the Company interacts
to achieve "Year 2000" compliance could have a material adverse effect on the
Company's business, financial condition and results of operations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6.
Exhibits and Reports on Form 8-K
(a) Exhibits
* Exhibit 10.12 - Software License Agreement, between the
Company and Hewlett-Packard Company, dated January 15, 1998.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period covered by this report.
* Confidential treatment is being sought for portions of this exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAERE CORPORATION
Date: May 8, 1998
/S/ Blanche M. Sutter
Blanche M. Sutter, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,675
<SECURITIES> 45,065
<RECEIVABLES> 4,297
<ALLOWANCES> 2,097
<INVENTORY> 1,952
<CURRENT-ASSETS> 61,169
<PP&E> 16,237
<DEPRECIATION> 11,853
<TOTAL-ASSETS> 67,201
<CURRENT-LIABILITIES> 5,695
<BONDS> 0
0
0
<COMMON> 55,785
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 67,201
<SALES> 15,659
<TOTAL-REVENUES> 15,659
<CGS> 3,427
<TOTAL-COSTS> 10,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 587
<INCOME-PRETAX> 2,814
<INCOME-TAX> 569
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</TABLE>
***Text Omitted and Filed Separately
confidential Treatment Requested
Under 17 C.F.R. ss.ss. 200.80(b)(4),
200.83 and 240.24b-2
SOFTWARE LICENSE AGREEMENT
This Software License Agreement (the "Agreement") is entered into this 15th day
of January, 1998 (the "Effective Date") between CAERE CORPORATION, a Delaware
corporation ("Caere"), located at 100 Cooper Court, Los Gatos, California 95032,
and HEWLETT-PACKARD COMPANY, a California corporation ("HP"), located at 3000
Hanover Street, Palo Alto, California 94304.
RECITALS
Whereas, Caere develops and distributes certain software programs and HP
distributes a range of products; and
Whereas, the parties have agreed upon the terms under which Caere will license
certain software products to HP for distribution with certain HP products; and
Whereas, the parties entered into the Caere Software License Agreement between
Caere and HP dated August 27, 1996, as amended, as well as the Recognita
Software License Manufacturing and Distribution Agreement between Recognita and
HP dated November 1, 1995, as amended (the "Current Agreements") and the parties
wish to supercede and replace such Current Agreements with this Agreement.
Now, therefore, in consideration of the mutual covenants and agreements set
forth herein, the parties agree as follows:
1. DEFINITIONS
1.1 "Program(s)" means the object code versions of the Caere software
programs as set forth in Exhibit A, and Error Corrections and Enhancements
provided to HP by Caere under the terms of this Agreement.
1.2 "Documentation" means Caere's standard user information and
on-line help information for the Programs as further described in Exhibit B.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
1.3 "Enhancement" means any Caere released enhancement, modification,
update, new version or new release of a Program, other than Error Corrections,
which may be developed by or for Caere, in Caere's discretion. Subject to
Section 2.1, Enhancements shall [...***...] Caere customer nor shall it
include an additional Configuration of a Program as set forth on Exhibit A.
Enhancements shall be acceptance tested as set forth in Section 4.1 and, upon
acceptance by HP, shall be considered "Programs". Notwithstanding the
foregoing, an Enhancement shall not include the following if they are not
provided to any other OEM: (a)[...***...]; or (b)[...***...].
1.4 "End User" means a third party who acquires a Program from HP or
HP's channels of distribution as bundled with HP Products for its own internal
use rather than distribution and resale and who is granted a license to the
programs pursuant to the terms of the Standard Software License.
1.5 "Error Corrections" means all bug fixes or error corrections
for the Programs.
1.6 "Major Application" means the two top selling word-processing
applications and top two office suites determined every six (6) months beginning
on February 15, 1998 from sales reports available to both HP and Caere from an
industry recognized independent third party research firm.
1.7 "Object Code" means any machine executable code derived in whole
from the Program.
1.8 "OEM" means an original equipment manufacturer that bundles a
Program with such OEM's branded hardware scanning device.
1.9 "HP Products" mean (a) any hardware device manufactured by or for
HP and distributed under the HP brand name and (b) the HP developed software
currently known as [...***...] (or named as another product) and [...***...]
1.10 "Specifications" means the respective specifications for each
Program as set forth on Exhibit B.
1.11 "Standard Software License" shall mean Caere's then current
Software License Agreement pursuant to which it licenses programs to end users.
1.12 "Subsidiary" means any corporation, firm, partnership or other
entity which is directly or indirectly owned by HP, where "owned" means
possession of at least fifty percent (50%) of the equity (or for any particular
jurisdiction, such maximum percentage allowed to be owned by a foreign
corporation) having the power to vote on or direct the affairs of the entity and
any person, firm or partnership or other entity actually controlled by HP.
2. EVOLUTION AND NEW PROGRAMS
2.1 Caere agrees to provide HP with [...***...] during the term of this
Agreement. Caere agrees that in providing HP with [...***...], in order to
maintain [...***...], HP shall be [...***...]. However, there may be some
[...***...] shall be no later than any [...***...].
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Nothing in this Agreement shall be construed as to provide HP with any
rights to [...***...]. However, in the event that Caere desires to [...***...],
Caere shall notify HP in writing of such intent [...***...]. Such notice shall
include [...***...]. HP may, [...***...] accordance with the terms of this
Agreement by providing Caere with notice of its [...***...] of HP's receipt of
Caere's notice [...***...]. Failure to respond within [...***...] will be deemed
an election [...***...]. [...***...].
2.2 Caere shall notify HP in writing ninety days prior to the
commercial release of an Enhancement. Upon request by HP, Caere shall provide HP
with a beta version and final version of any Enhancement when such versions are
available solely for the purpose of HP internal testing and evaluation
Enhancements.
3. COMPATIBILITY
3.1 During the term of this Agreement, Caere shall maintain compatibility
between the Programs listed below and (a) their respective operating systems and
(b) Major Applications. Caere shall achieve compatibility within a commercially
reasonable time following the general commercial release of a revision to such
operating systems and/or a Major Application:
Programs Operating Systems
[...***...] Win 95, NT 4.0
[...***...] Win 95, NT 4.0
[...***...] Win 95, NT 4.0
OmniPage Limited Edition [...***...] Win 3.1 & 95, NT 4.0
OmniPage Lite Win 3.1 & 95, NT 4.0
OmniPage Pro 8.0 [...***...] Win 95, NT 4.0
Recognita [...***...] Win 3.1 & 95, NT 4.0
Recognita Select 2.0A Win 3.1 & 95, NT 4.0
3.2 During the term of this Agreement, HP may request that the Programs
are made compatible with future releases and versions of the HP Products.
[...***...]. However, if [...***...] to the [...***...] would be [...***...] and
if [...***...], Caere [...***...] in [...***...] within [...***...] after
[...***...] the terms for [...***...] the [...***...] for such [...***...]
including any [...***...] as agreed between the parties for [...***...],
[...***...] and [...***...]. If the parties reach agreement on the foregoing, HP
shall make available to Caere any [...***...] for Caere to [...***...] and
[...***...] such [...***...].
3.3 HP shall provide to Caere, at no cost, a reasonable number of units
[...***...] of each HP Product with which Programs will be bundled. Such units
shall only be used by Caere for support and training development and testing
purposes. HP shall deliver such units upon Caere's written request, provided
that the requested units have been published on [...***...] at the time of
Caere's request. In the event that such units have not been published on the
[...***...] at the time of Caere's request, HP shall deliver the units promptly
after they are published on the [...***...].
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
4. ACCEPTANCE
4.1 Caere shall deliver a complete copy of the Program(s) or,
Enhancements as the case may be, to HP in accordance with the Milestones set
forth in Exhibit C or, as applicable, the Project Schedules outlined in Exhibit
B, for acceptance testing. A "complete copy" as used in this Agreement shall
include a copy of the Program in object code, Documentation (or equivalent) for
the Program in at least manuscript form, and any Documentation regarding the
Program which HP reasonably requests to accomplish its evaluation. HP shall have
[...***...] from the date on which Caere delivers the Program to HP to
determine that the Program substantially conforms to the Product Specifications
set forth on Exhibit B. Within such period, HP shall provide Caere with either a
written acceptance of the Program or a written statement of any errors to be
corrected. The Program will be deemed to have been accepted by HP if Caere does
not receive such written acceptance or statement of errors within such
[...***...]. In the event that HP delivers a statement of errors in
accordance with this Section, Caere shall have [...***...] from receipt of such
statement of errors to correct any errors and redeliver the Program to HP. In
the event Caere redelivers a corrected Program in accordance with this section
HP shall have [...***...] to test such corrected Program to determine that the
corrected Program substantially conforms to the Product Specifications set forth
on Exhibit B. At the end of such [...***...] testing period, HP shall either
provide Caere with a written acceptance of the redelivered Program or a detailed
written statement of errors. Such redelivered version shall be deemed accepted
by HP if Caere does not receive written acceptance or a statement of errors
within such [...***...] period. In the event that a written statement of errors
is delivered to Caere for the Program, Caere shall have [...***...] from receipt
of such statement of errors to correct such errors. This process of testing and
redelivering the Program as set forth herein shall continue until the earlier of
[...***...] or until HP accepts such redelivered Program. If HP has not accepted
the Program within such timeframe, the parties shall meet to discuss a course of
action, provided, however, that HP may elect at such time to terminate this
Agreement as to the unaccepted Program. In the event that HP terminates the
Agreement as set forth herein as to a Program, the parties shall meet to discuss
in good faith any corresponding [...***...] as a result of such termination.
Termination as to a Program hereunder shall be effective [...***...] following
receipt of written notice to Caere of such termination. Failure to [...***...]
shall not be grounds for termination of any Program or the Agreement.
Distribution of a Program shall be deemed to be acceptance of such Program.
4.2 In the event that HP accepts an Enhancement then it shall be added
to this Agreement. At its discretion, HP shall have the right to refuse to add
any Enhancement to this Agreement even if it satisfies the technical
requirements in this Agreement. In the event HP rejects an enhanced or modified
Program, HP shall be entitled to continue to distribute the previous versions of
that Program.
5. RIGHTS GRANTED
5.1 Caere hereby grants to HP and HP's Subsidiaries a non-exclusive,
non-transferable, worldwide license to:
a. use, reproduce, have reproduced and distribute OmniPage
Limited Edition, [...***...] and Recognita Select through
all channels of distribution to End Users provided that
such Programs are bundled with an HP hardware Product;
b. use, reproduce, have reproduced and distribute the [...***...]
engine and/or the Recognita [...***...] engine through all
channels of distribution to End Users provided that (i) such
Programs are incorporated into HP software products that
[...***...]and (ii) the HP software products are bundled with an
HP Product or are [...***...]. Per Section (i) above, HP and
Caere shall use all efforts to agree [...***...] as to the
[...***...];
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
c. use, reproduce, have reproduced and distribute the [...***...]
and OmniPage Limited Edition [...***...] through all channels of
distribution to End Users [...***...];
d. use, reproduce, have reproduced and distribute the current
version of OmniPage Pro through all channels of distribution
to End Users provided that either (i) this Program is
incorporated into the HP Product known as [...***...] and
the Program is designed such that it [...***...] either
a [...***...] or a [...***...] unless it is [...***...] or
(II) this Program is incorporated onto a [...***...] as set forth
in Addendum 1 to Exhibit G;
e. until [...***...], use, reproduce, have reproduced and distribute
Omni Page Lite through all channels of distribution to End Users
provided that this Program is [...***...] for distribution by HP
bundled with HP Products.
Notwithstanding the incorporation and bundling restrictions set forth
above, HP may deliver Error Corrections to End Users on a stand-alone basis.
5.2 Documentation. Caere hereby grants to HP and HP's subsidiaries a
non-exclusive, non-transferable, worldwide, fully paid up license to use,
reproduce, have reproduced, translate, create derivative works and distribute
through all channels of distribution the Documentation in conjunction with the
distribution of Programs bundled with HP Products. HP shall provide any modified
Documentation to Caere for review for approval prior to its distribution.
5.3 No title or ownership in the Program(s) is transferred to HP.
Nothing in this Agreement shall be construed to preclude HP from independently
developing, acquiring or marketing computer software packages which may perform
the same or similar functions as those software packages provided by Caere in
this Agreement provided, however, that for a period of [...***...] the
[...***...]. Notwithstanding the foregoing, the [...***...]. In addition,
[...***...]. "Competitive" as used herein shall mean any software that is
marketed primarily as either an OCR or document management solution. This
Agreement shall not preclude Caere from entering into a similar agreement with
third parties for distribution of the Programs. Notwithstanding the above, Caere
hereby grants its consent to HP for the term of this Agreement to allow HP to
bundle and distribute Adobe Acrobat along with OmniPage Limited Edition in the
HP ScanJet 6100C, shipped by [...***...] provided that [...***...].
6. MANUFACTURING AND MARKETING
6.1 Caere shall deliver a gold master of the Program(s) and an electronic
copy of the Documentation to HP in accordance with the Milestones set forth in
Exhibit C, or, as applicable, the Project Schedules as outlined in Exhibit B.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
6.2 HP will perform all manufacturing, reproduction and distribution of
the Programs at [...***...]. [...***...] determined by generally accepted
accounting principles.
6.3 HP agrees to perform the Marketing Guidelines set forth on Exhibit G.
7. PAYMENT
7.1 HP agrees to pay to Caere [...***...] (the "Payment") during the term
of this Agreement regardless of the number of Programs, if any, distributed by
HP. Such payment shall be due and payable as follows: [...***...] on [...***...]
(the "Payment Date") and [...***...] on each ninety (90) day anniversary of the
Payment Date until HP shall have paid the Payment. In the event that HP elects
to renew the Agreement for [...***...] as set forth in Section 12, HP shall pay
to Caere and additional [...***...] payable as follows: [...***...]. Upon the
mutual execution of this Agreement, no part of the [...***...] paid to Caere on
or about November 15, 1997, in accordance with the Current Agreements shall be
refundable to HP. Royalties called for in this Section are separate from and in
addition to any payments made by HP to Caere under the Current Agreements.
Payments under this section, once made, are non-refundable.
7.2 [...***...] shall pay to [...***...] for each [...***...] or its
successors or derivatives or [...***...] distributed with [...***...] that
purchases [...***...]. Such payments shall be made [...***...] within
[...***...] of the end of each [...***...] during the term of this Agreement.
7.3 Caere shall be solely responsible for taxes on royalties paid to
Caere by HP under this Agreement.
7.4 Within twenty (20) days of the end of each calendar quarter during
the term of this Agreement, HP shall deliver to Caere a statement showing in
reasonable detail (a) the number of Programs reproduced and the number of
Programs distributed in such quarter and (b) the number of [...***...] (as that
term is defined in Addendum 1 to Exhibit G) distributed in such quarter. Such
quarterly statements shall be [...***...].
7.5 HP shall have the right to inspect Caere's records in order to verify
Caere's payments made in accordance with section 7.2 of this Agreement. Any such
inspection will be conducted only by independent public accountants during
regular business hours at Caere's offices in a manner that does not unreasonably
interfere with Caere's business activities. Such inspection shall be at HP's
cost and expense; provided, however, if the audit reveals overdue payments in
excess of [...***...] of the payments owed to date, Caere shall pay the cost of
such audit(s). Caere shall also immediately pay any overdue payments revealed by
such audit(s) plus interest at the rate of the lesser of one and one half
percent (1 1/2%) per month or the maximum then permitted by applicable law,
from the due date until paid. Except as set forth above, such audits may be
conducted no more than once in any twelve (12) month period. In the event that
HP wishes to inspect such books and records, Caere will make all relevant
records available. In no event may HP commence an inspection of any statement
later than two (2) years from the date of such statement.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
7.6 Caere [...***...] that the royalties paid by HP hereunder are
[...***...] of Programs licensed from Caere hereunder with the [...***...] and
in the [...***...] as licensed to HP. Caere agrees to [...***...] as described
in the preceding sentence, commencing effectively on the date it [...***...].
8. PRODUCT MAINTENANCE AND SUPPORT
8.1 Support by Caere.
8.1.1 Support to HP. Caere shall provide the following support
services for the Program to HP, [...***...], during the term of this Agreement:
8.1.1.1 telephone support during normal Caere business
hours. Support will be available in the following languages: English, German,
French, Spanish, and Italian. Support calls from End Users directed to Caere
from HP are not included in this provision. Such calls will be treated as calls
directly from End Users in accordance with Section 8.2, below;
8.1.1.2 maintenance by a reasonable number of qualified
personnel to provide timely and knowledgeable maintenance and support;
8.1.1.3 investigation and correction of suspected errors
in the Programs in accordance with the schedule set forth in Section 8.3, below;
8.1.1.4 promptly inform HP of any problems discovered
or suspected with HP Products;
8.1.1.5 provide Error Corrections and instructions for
implementation to HP during the term of this Agreement and for one year
following the termination of this Agreement; and
8.1.1.6 designate a technical support contact
knowledgeable about the Programs and the HP Products. Such support contact may
be changed by Caere upon written notice to HP.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
8.1.2 Support to End Users. Caere will provide support to
end-users of Programs as set forth in Caere's then current retail Support
Program ("Standard Program") which program may be modified by Caere at its
discretion to ensure that it shall [...***...]. The End User telephone support
shall be available to End Users in the following languages: English, German,
French, Spanish, and Italian. Caere shall not be responsible for End User
support for the [...***...] but will directly provide HP with support as defined
in 8.1.1 above.
8.2 Defects. Caere agrees to use commercially reasonable efforts to
investigate and correct suspected defects in the Programs in accordance with the
schedule below provided that such suspected defects are reported to Caere by HP
in writing and that such suspected defects are reproducible by Caere.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
-------------- ---------------- ------------------------------ ----------------- -----------------
Workaround Fix
Level Classification Description (calendar days) (calendar days)
-------------- ---------------- ------------------------------ ----------------- -----------------
-------------- ---------------- ------------------------------ ----------------- -----------------
1 Critical Loss of Data [...***...] [...***...]
or Functionality
-------------- ---------------- ------------------------------ ----------------- -----------------
-------------- ---------------- ------------------------------ ----------------- -----------------
2 Severe Severe limitation on [...***...] [...***...]
functionality or usability
-------------- ---------------- ------------------------------ ----------------- -----------------
-------------- ---------------- ------------------------------ ----------------- -----------------
3 Medium Usability is compromised, [...***...] [...***...]
but no severely. Essential
portions of the Programs can
still be used
-------------- ---------------- ------------------------------ ----------------- -----------------
-------------- ---------------- ------------------------------ ----------------- -----------------
4 Low End User can circumvent [...***...] [...***...]
problem. Slight usability
inconvenience.
-------------- ---------------- ------------------------------ ----------------- -----------------
</TABLE>
"Loss of Data" shall mean an instance where a file being processed for the
Program conversion cannot be saved or is corrupted to the point that it is not
accessible. "Loss of functionality" shall mean an instance in which an
essential portion of the Program is unusable or inaccessible.
Notwithstanding the foregoing, "defects" as used above shall not include
an error or problem caused by incompatibility with a subsequent model of an HP
Product or revisions to the underlying computer operating system or Major
Application. Such errors or problems, if any, shall be deemed Compatibility
issues under Section 3.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
8.3 Caere shall provide product training for HP's field engineers,
systems engineers, support personnel and factory marketing personnel at an HP
site on a mutually agreeable date. Caere shall, upon request, repeat the
training for new HP personnel. Such training shall be sufficient to enable the
students to fully support the Program. Caere shall provide such additional
training, as reasonably necessary to inform HP personnel of new Programs and
Enhancements. [...***...].
8.4 HP shall use its commercially reasonable efforts to provide quality
assurance to assist CAERE in developing the Programs in order to ensure
compatibility between the Programs and the HP Products.
9. CONFIDENTIAL INFORMATION
9.1 Each party receiving confidential information ("Recipient") under
this Agreement from the other party ("Discloser") shall protect the disclosed
confidential information for a period of [...***...] from the date of
disclosure, by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorized use, dissemination or publication of
the confidential information as the Recipient uses to protect its own
confidential information of a like nature. Recipient shall restrict disclosure
to those employee's with a need to know.
Recipient obligations shall only extend to confidential information that is
either marked as confidential at the time of disclosure or is unmarked (e.g.
orally disclosed) but treated as confidential at the time of disclosure, and is
designated as confidential in a written memorandum sent to the Recipient within
thirty days of the disclosure, summarizing the confidential information
sufficiently for identification.
This Agreement imposes no obligation upon a Recipient with respect to
confidential information that: (a) was in Recipient's possession before receipt
from Discloser; (b) is or becomes a matter of public knowledge through no fault
of the Recipient; (c) is rightfully received by the Recipient from a third party
without a duty of confidentiality; (d) is disclosed by the Discloser to a third
party without a duty of confidentiality on the third party; (e) is independently
developed by the Recipient; (f) is disclosed under operation of law; or (g) is
disclosed by the Recipient with the Discloser's prior written approval.
10. WARRANTY AND INDEMNIFICATION
10.1 Caere warrants it has full power and authority to grant HP the rights
granted herein and that the software Programs referred to herein will operate
substantially in accordance with their Specifications and Documentation for the
term of this Agreement. End User claims regarding defects in the Programs will
be processed by Caere in accordance with their Standard Software License. This
warranty does not extend to media. HP will be responsible for any defects in
media unless such media is provided by Caere.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
10.2 Caere warrants that Caere is not aware of any facts upon which a
claim of intellectual property infringement regarding the Programs could be
based. Caere will defend any claims, suit, or proceeding brought against HP
insofar as it is based on: (a) a claim that any Program, or Documentation,
furnished by Caere under this Agreement infringes any patent, copyright, Trade
Secret, trade mark or other intellectual property right, in a country listed on
Exhibit E attached hereto ("Indemnified Countries"), or (b) a claim that the
Programs do not conform to their specifications, documentation or promotional
literature. Caere's obligations hereunder are conditioned upon Caere receiving
notice promptly in writing of such claims, and given authority, information and
assistance (at Caere's expense) to handle the defense of any suit or proceeding.
Caere agrees to pay all damages and costs awarded in a final judgment against HP
based on such claims. In case any Program or Documentation or any part thereof
is in such suit held to constitute an infringement and its use is enjoined, or
in Caere's opinion may be found to infringe, Caere shall, at its own expense and
at its option, either (1) procure for HP the right to continue use or, (2)
replace the same with a noninfringing Program and Documentation of equivalent
function and performance, or (3) modify them so they become noninfringing
without detracting from function or performance or, if the foregoing options are
not possible in Caere's opinion, (4) terminate this Agreement as to any
infringing Programs. In the event of termination under option 4 above, HP and
Caere may elect to renegotiate this agreement for the remaining Programs. Caere
shall have no liability for any infringement of patents, copyrights, trademarks
or other intellectual property rights resulting from compliance with HP's
designs or specifications; from modification of said products or from use of the
said products with products not supplied by Caere. The foregoing states the
entire liability of Caere for infringement of intellectual property rights by
Programs or Documentation.
10.3 Caere warrants that the Programs provided to HP under this Agreement
are year 2000 compliant. Year 2000 compliant, for the purposes of this
Agreement, shall mean that the Programs will perform without error, loss of data
or loss of functionality arising from any failure to process, calculate, compare
or sequence date data accurately. Additionally, such Programs will not cause any
associated products or systems in which they may be used to fail in any of the
ways described above. Nothing in this section shall be construed to limit any
rights or remedies provided elsewhere in this Agreement with respect to matters
other than Year 2000 performance, except that the period of the Year 2000
warranty provided for in this section shall extend through January 1, 2001.
Notwithstanding the foregoing, nothing herein shall be construed as extending
the term of this Agreement.
10.4 EXCEPT AS EXPRESSLY PROVIDED HEREIN, CAERE MAKES NO OTHER
WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING THE SOFTWARE, AND CAERE
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY, NON-INFRINGEMENT
OF THIRD PARTY RIGHTS, OR FITNESS FOR ANY PARTICULAR PURPOSE.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
11. HP'S INDEMNITY
11.1 HP warrants that as of the Effective Date, HP is not aware of any
facts upon which a claim of intellectual property infringement regarding the HP
Products could be based. HP will defend any claims, suit, or proceeding brought
against Caere insofar as it is based on a claim that any HP Product furnished by
HP under this Agreement infringes any intellectual property right in an
Indemnified Country; provided that HP is notified promptly in writing of such
claim, and given authority, information and assistance (at HP's expense) to
handle the defense of any suit or proceeding. HP agrees to pay all damages and
costs awarded in a final judgment against Caere based on such claims. HP shall
have no liability for any infringement of patents, copyrights, trademarks or
other intellectual property rights resulting from compliance with Caere's
designs or specifications; from modification of said products or from use of the
said products with products not supplied by HP. The foregoing states the entire
liability of HP for infringement of intellectual property rights by HP Products.
12. TERM AND TERMINATION
12.1 This Agreement shall be effective on the Effective Date and shall
continue in effect until February 15, 2000 provided, however, that HP may elect
to renew this Agreement for an additional [...***...] by providing Caere with
written notice of such election no later than [...***...] and paying to Caere
the additional royalties set forth in Section 7.1. In addition, HP may elect to
terminate this Agreement in the instances below. Termination by HP in accordance
with this Section shall release HP of any payment obligations due to Caere under
Section 7 that are due to Caere following the date of termination.
A. Upon ten (10) days written notice to Caere, in the event that
Caere materially fails to deliver the Programs in accordance with
the Milestones set forth on Exhibit C;
B. In the event that [...***...]. Notwithstanding the foregoing, the
parties specifically agree that [...***...]. In the event that HP
elects to terminate this Agreement as set forth herein, such
termination shall be effective [...***...] from the date of such
written notice. HP's failure to elect to terminate the Agreement
in accordance with this subsection within thirty (30) days of the
[...***...] will be deemed a waiver of the termination right.
C. [...***...]. The parties agree that in no event shall
[...***...]. Termination hereunder shall be effective ninety (90)
days following HP's written notice to terminate the Agreement in
accordance with this subsection. HP's failure to terminate the
Agreement in accordance with this subsection within ninety (90)
days of [...***...] shall be deemed a waiver of such termination
right.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
In the event that HP terminates this Agreement in accordance with this
section 12.1, HP may continue to distribute its inventory of Programs for the
remainder of the quarter in which such date of termination occurs for Programs
that are reproduced and scheduled to ship with HP Products as of the date of
termination. Nothing herein is construed as extending the term of this
Agreement.
12.2 The non-breaching party may terminate this Agreement by notice if
the other party breaches any provision of this Agreement and if such breach is
not cured within thirty (30) days of notice from the non-breaching party
advising of such breach.
12.3 All obligations concerning confidentiality, Section 8.1.1.5,
indemnities, limitations of liability and all end user licenses shall survive
termination of this Agreement. Except for termination by Caere for cause or
termination by HP in accordance with Section 12.1, HP may continue to distribute
its inventory of Programs for [...***...] following the date of termination or
expiration of this Agreement [...***...] as of the date of termination or
expiration, provided that HP does not ship greater than [...***...] of the
previous quarter's shipments. HP shall not have any Program return rights upon
expiration or termination of this Agreement.
13. LIMITATION OF LIABILITY
13.1 EXCEPT TO THE EXTENT OF THE INDEMNIFICATION OR CONFIDENTIALITY
PROVISIONS ABOVE, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL OR SPECIAL DAMAGES (INCLUDING LOSS OF PROFITS) WHETHER BASED ON
CONTRACT, TORT, OR ANY OTHER LEGAL THEORY.
14. MISCELLANEOUS PROVISIONS
14.1 HP agrees not to export or re-export the software or any copy or
adaptation in violation of the U.S. Export Administration regulations or other
applicable regulation.
14.2 Caere and HP are strictly independent contractors and shall so
represent themselves to third parties. Neither party has the right to bind the
other in any manner whatsoever and nothing in this Agreement shall be
interpreted to make either party the agent or legal representative of the other
or to make the parties joint venturers.
14.3 Subject to Section 7.1, HP shall have the authority to market or not
market the Programs as it deems appropriate. Nothing in this Agreement shall
be construed or interpreted as placing a "best efforts" standard upon HP with
respect to the marketing of any of the Programs.
14.4 All notices required under this Agreement shall be in writing and
shall be considered given upon personal delivery, forty-eight (48) hours after
sending by air courier, or seventy-two (72) hours after deposit in the United
States Mail, certified mail return receipt requested or equivalent, addressed to
the appropriate Account Manager set forth in Exhibit F.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
14.5 This Agreement shall be governed by and construed under the laws of
the State of California, excluding its conflicts of law principles. Any suit
hereunder shall be brought in the federal or state courts in Santa Clara County,
California and both parties submit to the jurisdiction thereof. The parties
hereby waive any constitutional, statutory, or common law right of trial by
jury.
14.6 Caere agrees not to publicize or disclose to any third party
without the consent of HP the terms of this Agreement, provided, however, that
Caere may, without HP's consent, disclose the existence and general purpose of
the Agreement as well as the duration of the Agreement. Both parties agree to
provide the other party with a courtesy copy of any press release regarding this
Agreement ten (10) days prior to the scheduled release of such announcement.
14.7 The headings of Sections of this Agreement are for reference only
and are not to be construed in any way as terms.
14.8 Neither party may assign this Agreement in whole or in part
without the other party's prior written consent which consent shall not be
unreasonably withheld; provided, however, that subject to section 12.1 either
party may assign this Agreement and its right and obligations hereunder to a
third party in connection with a merger, consolidation, or sale of all, or
substantially all of its assets without the other parties prior written consent.
14.9 A party's failure to exercise any of its rights hereunder shall not
constitute or be deemed a waiver or forfeiture of any such rights.
14.10 This document represents the entire agreement between the parties
as to the matters set forth and integrates all prior discussions or
understandings between them to specifically include, but not be limited to, the
Current Agreements; provided, however, that the April 29, 1997 letter agreement
between HP and Caere regarding HP's provision of OmniPage Limited Edition
[...***...] as bundled with the OfficeJet 500 to [...***...] (the [...***...]
Letter") (copy attached as Exhibit H) shall survive termination of the Current
Agreements and be in effect for the duration of this Agreement. Royalties for
the OmniPage Limited Edition [...***...] copies provided under the [...***...]
letter shall be included in the royalty payments under this Agreement.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
14.11 The invalidity or unenforceability of any term of this Agreement
shall not in any way affect the remaining terms which shall remain in full force
and effect and the parties will negotiate in good faith a substitute provision
which most nearly effects the parties intent in entering into this Agreement.
Agreed:
CAERE CORPORATION HEWLETT-PACKARD COMPANY
By: /s/ Blanche M. Sutter By: /s/ Rodney L. Wilson
Typed Name: Blanche M. Sutter Typed Name: Rod Wilson
Title: CFO, Executive VP Title: Marketing Manager
<PAGE>
EXHIBIT A
PROGRAMS
1. The Programs provided by Caere under this Agreement are as follows subject
to the Configuration restrictions set forth below:
1. OmniPage Lite - [...***...] Inc. for distribution by HP with HP
Products.
2. OmniPage Limited Edition [...***...] and any greater version of
OmniPage Limited Edition provided in accordance with Section 1.3(a).
3. The Caere OCR engine currently known as [...***...] with [...***...].
This Program, when incorporated into the HP Product known as
[...***...] may be referred to in this Agreement as the [...***...]
OCR Engine.
4. The Recognita OCR engine currently known as [...***...] This Program,
when incorporated into the HP Product known as [...***...], may be
referred to in this Agreement as the [...***...] OCR Engine.
5. The Caere document management program currently under development
known as [...***...].
6. The Caere document management program currently under development
known as [...***...].
7. A [...***...] version of OmniPage Pro as incorporated into [...***...]
or on a [...***...].
8. Recognita Select 2.0A
Configurations
The royalty payments set forth in Section 7 include, at no additional cost,
[...***...] Program Configurations for each Program.
A "Configuration" shall mean any special version of a Program that requires
that a new set of masters be created. For example, a Configuration would
include, but not be limited to, inclusion of a special driver, modifications,
other than translation, to a Program as a result of the addition of a new
language version, or floppy disk fulfillment. A Configuration would not include
Enhancements or Error Corrections. Translations of Programs for additional
Western European languages other than those listed in the Specifications
("Translations") may be requested as set forth below. Fees for Translations
[...***...]. Additional language localizations outside of Western European
languages may be available from CAERE on mutually agreeable terms.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Configurations in addition to those provided above for the Programs and
Translations may be requested by HP and, subject to Caere's acceptance of the
request which shall not be unreasonably withheld, shall be available to HP for a
non-refundable NRE of [...***...] or [...***...] due within [...***...] of
Caere's written acceptance of such request. Delivery dates for such additional
Configurations or Translations shall be as mutually agreed upon by the parties.
Additional Configurations or Translations shall be acceptance tested in
accordance with Section 4.1 and shall be considered "Programs" under this
Agreement following acceptance by HP.
As of the Effective Date of this Agreement, HP has requested the following
Translations, as provided for above, for the [...***...] Program for the NREs
outlined below:
Translation NRE
[...***...] [...***...]
"Estimate" NREs are provided for informational purposes only and are
subject to change based upon Caere's actual cost for such Translations.
Delivery dates for the above Translations are provided for in the Project
Schedule outlined in the Document Management Specifications on Exhibit B.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Caere shall deliver to HP gold master diskettes or CD-ROMs of the Programs
in accordance with the Milestones set forth on Exhibit C, or, as applicable,
with the Project Schedules as outlined on Exhibit B, sufficient to allow HP to
manufacture the Programs in the following specified languages and platforms:
<TABLE>
<CAPTION>
Programs UI Languages OCR Language OS
<S> <C> <C> <C> <C>
1. OmniPage Lite N/A U.S. English, Brazilian Portuguese, Win 3.1 & 95
U.K. English, Danish, Dutch, Finnish,
French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
2. OmniPage Limited Edition English, French, Italian, U.S. English, Brazilian Portuguese, Win 3.1 &
[...***...] German, Spanish, Brazilian U.K. English, Danish, Dutch, Finnish, 95, NT 4.0
Portuguese, Dutch French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
3. [...***...] Engine N/A English, French, Italian, German, Win 95, NT
Spanish, Brazilian Portuguese, Dutch 4.0
4. [...***...] English, French, Italian, N/A Win 95, NT
German, Spanish 4.0
5. [...***...] English, French, Italian, U.S. English, Brazilian Portuguese, Win 95, NT
German, Spanish U.K. English, Danish, Dutch, Finnish, 4.0
French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
6. OmniPage Pro 8.0 English U.S. English, Brazilian Portuguese, Win 95, NT
[...***...] U.K. English, Danish, Dutch, Finnish, 4.0
French, German, Italian, Norwegian,
Portuguese, Spanish, Swedish
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
<TABLE>
<CAPTION>
Programs OCR Language OS
<S> <C> <C> <C>
7. Recognita Select 2.0A Albanian, Croatian, Czech, Danish, Dutch Win 3.1 & 95,
Esperanto, Finnish NT 4.0
French, German, Greek, Hungarian
Icelandic, Italian
Norwegian, Polish
Portuguese, Romanian
Slovak, Spanish, Swedish, Sloven, Turkish
8. Recognita [...***...] Albanian, Croatian, Czech, Danish, Dutch, Win 3.1 & 95,
Esperanto, Finnish, French, German, Greek, NT 4.0
Hungarian, Icelandic, Italian, Norwegian,
Polish, Portuguese, Romanian, Slovak,
Spanish, Swedish, Sloven, Turkish
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT B
PROGRAM SPECIFICATIONS AND DOCUMENTATION
- --------------------------------------------------------------------------------
OmniPage Limited Edition
for Windows
Specification
- --------------------------------------------------------------------------------
Introduction
- --------------------------------------------------------------------------------
The HP project names are as follows
[...***...]
The stand-alone OCR package is referred to herein as "OmniPage Limited
Edition [...***...] (OPLE[...***...]) until Caere proposes another product
or project name.
[...***...]
1. PC OCR Specification Requirements:
2. OCR Engine Requirements:
[...***...]
One version of OPLE [...***...] will include the [...***...] OCR engine,
which is used in WordScan Plus 4.0/4.01, but without the Language
Analyst. The [...***...] OCR engine replaces the Deimos (WordScan
3.0/3.1) OCR engine used in OmniPage Limited Edition [...***...].
3. HP ScanJet Scanner Requirements:
[...***...]
4. Other HP Multifunction Peripheral Requirements:
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
5. OCR Upgrade Path Requirements:
[...***...]
6. [...***...] Alliance Desktop Requirements:
[...***...]
7. HP [...***...] Software Requirements:
[...***...]
8. [...***...] Software Requirements:
[...***...]
9. OCRAware Requirements:
[...***...]
10. Import File Format Requirements:
[...***...]
11. Export File Format Requirements:
[...***...]
12. Operating System Requirements:
Compatible with the following operating systems:
Windows 3.1
Windows for Workgroups 3.11
Windows '95
Windows NT 3.51
Windows NT 4.0 with Win '95 shell (if available)
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
13. Documentation Requirements
Separate hardcopy manual (similar to OmniPage Limited Edition [...***...])
with explanations of OCR package/user flows, customer support
information, and troubleshooting. HP will consider an OPLE [...***...]
card in place of a separate manual. If HP requests an OPLE [...***...]
card, HP will a review of the content outline for the card before
final approval. Final approval of a card will be a mutual decision
by Caere and HP, such approval not to be unreasonably withheld.
ReadMe file, software license agreement, and online help that functions
without material errors on Windows 3.1, Windows 3.11, Windows `95,
Windows NT 3.51, and Windows NT 4.0. Drop dead dates for all
documentation (hardcopy and online) will be provided in the overall
project schedule.
All documentation will be localized in the languages specified in the
Languages and Platform table set forth above.
HP has the option to receive the OCR manual, license agreement and any
other Caere-provided documentation in an appropriate PC file format
(e.g., RTF, Adobe Acrobat) so that they can be included in
HP-developed documentation (i.e. a CD-ROM).
As they become known to Caere, Caere will provide a summary of any OCR
performance issues that should be addressed for HP customers in
HP-developed documentation.
14. Installation Requirements
Caere will provide an on-line license agreement for both CD-ROM and
magnetic products.
Caere will provide access to OCR installer, so that HP [...***...] can
install the OCR software as part of its installation, but using OCR
software's installer and a single-media installation from CD-ROM.
Caere will provide a version of the Installer that can be called from
the [...***...] installer, install from CD-ROM, and return control to
our installer on completion (i.e. No restart windows after install).
Caere will provide a version of the Installer that can be [...***...]
install from CD-ROM or floppy disks, and [...***...] (i.e. No restart
windows after install).
15. Defect Fixes Requirements
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
16. Testing Requirements
a. Test Pages
[...***...]
Test page composition will include the following:
[...***...]
b. Test Installation
[...***...]
c. Test minimum systems w/OCRAware configurations
[...***...]
d. Test Scanner Configurations
[...***...]
f. Test Target Systems/Configurations
Test with the following system:
[...***...]
17. PC OCR Deliverables (From Caere to HP)
The following is required from Caere:
Copy of Caere's test plan
Description of test script coverage i.e. what each test script is testing
Each software release to HP will include the following documents:
[...***...]
Test Script status report containing the following information:
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
18. PC OCR Schedule
Within the following schedule, "ScanJets" refers to the [...***...].
Specification - COMPLETE
TWAIN data source available
for TWAIN data source for [...***...] - COMPLETE
for TWAIN data source for [...***...] - COMPLETE
First Alpha available (no critical install defects for all supported OS;
can run application and review UI and features)
for [...***...] - COMPLETE
for [...***...] - COMPLETE
Alpha complete/First Beta (functional complete; all features in and
testable; user interface and features frozen; no critical bugs
during main user flow (e.g. scan, OCR, save to file, open file with
target application); robust enough to do training and demoing.
for ScanJets (EFIGS + Port.-Dutch, Nordic) - COMPLETE
for OfficeJet (English) - COMPLETE
for [...***...] (English) for beta site testing - installer
requirements met - COMPLETE
English + International Beta Complete/ Gamma (Release Candidate) available
for HP to test (all Caere testing complete; feedback from Caere beta
sites reported to HP; all bugs resolved)
for ScanJets (Port.-Dutch, Nordic) - COMPLETE
for ScanJets (E) - COMPLETE
for ScanJets (FIGS) - COMPLETE
for OfficeJet for US English; Other international languages TBD -
COMPLETE
for [...***...] - COMPLETE
English + International Gamma Complete / Release to Manufacturing
(acceptance criteria handshake with HP)
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
for ScanJets (English) - COMPLETE
for ScanJets (FIGS + Port.-Dutch, Nordic) - COMPLETE
for OfficeJet for US English; Other international languages TBD -
COMPLETE
for [...***...] - COMPLETE
Caere receives forecasts and orders
for ScanJets - COMPLETE
for OfficeJet - COMPLETE
for [...***...]- COMPLETE
English and international products available in quantity to ship to
distribution centers
for ScanJets - COMPLETE
for OfficeJet (English); Other international languages TBD -
COMPLETE
for [...***...] - COMPLETE
Product available for inclusion on HP Flite II CD-ROM:
for U.S. English version - COMPLETE
All other language versions TBD
Distribution Centers receive English and international products
for ScanJets - COMPLETE
for OfficeJet (English); Other international languages TBD -
COMPLETE
for [...***...] - COMPLETE
Products available at distribution centers, ready for orders
for ScanJets - COMPLETE
for OfficeJet (English); Other international languages TBD -
COMPLETE
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
- ---------------------------------------------------------------------------
Document Management
for Windows
Specification
- --------------------------------------------------------------------------------
Introduction
- --------------------------------------------------------------------------------
Unless otherwise noted, the document management software will
support the [...***...].
The HP project name [...***...].
[...***...]
- --------------------------------------------------------------------------------
1. PC Document Management Software Requirements
- --------------------------------------------------------------------------------
2. Upgrade Path Requirements
[...***...]
3. Connectivity Requirements
4. HP Software Connectivity
The document management software will work with HP scanning software,
including the following functions:
[...***...]
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
5. TWAIN
The document management software will be Twain 1.6 compliant
[...***...] and TWAIN 1.7 compliant[...***...]. It will run
successfully with the HP TWAIN 1.6 or 1.7 compliant data source.
The document management software will offer the user the following
choices of bit depths and colors:
[...***...]
6. HP Button Manager
[...***...]
7. Faxing Requirements
[...***...]
8. Email Requirements
[...***...]
9. OCR-Dependant Link Requirements [...***...]
[...***...]
[...***...]
10. Annotation and Keyword Requirements
[...***...]
11. Document Storage Requirements
[...***...]
12. Document Retrieval Requirements
[...***...]
13. Printing Requirements
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
14. Export File Format Requirements (for Supported Application Links)
[...***...]
15. Import File Format Requirements
[...***...]
16. Hardware and Operating System Requirements
17. Hardware Platforms
[...***...]
18. Operating System Requirements
The document management software will be a 32 bit application that
is compatible with the following operating systems/file systems:
[...***...]
19. Minimum Systems Configurations
[...***...]
20. Target System Configurations
[...***...]
21. Localization Requirements
[...***...]
[...***...]
22. Electronic Documentation Requirements
[...***...]
23. Installation Requirements
[...***...]
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
24. Defect Fixes Requirements
Include any fixes/changes that have been released in the OEM and
off-the-shelf version of the document management software.
If the document management software is based on a current shipping OEM
or retail version that HP is already shipping, the Vendor will
address mutually agreed upon customer problems found by HP and
vendor since previous versions of the document management
software have been released.
If the document management software is based on a current shipping OEM
or retail version, the Vendor will review and fix all Serious and
Critical defects not fixed in the current version of the document
management software.
25. Testing Requirements
The Vendor will test the document management software (English and
localized versions) on both minimum and target system configurations in all
localized OS languages as specified by HP in this specification.
26. Test Pages
a. Test pages size and orientation:
[...***...]
multi-column 8 1/2 x 11 pages (both landscape and portrait
orientation)
[...***...]
27. Test Installation
[...***...]
28. Test Scanner Configurations
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
29. Test Target Systems/Configurations
In addition to the minimum and target configurations described earlier,
the document management software Vendor will test with the following
hardware (hardware obtained by document managed software Vendor):
[...***...]
30. Deliverables (From Vendor to HP)
The following is required from the Vendor:
Copy of Vendor's test plan
Description of test script coverage i.e. what each test script is
testing
[...***...]
[...***...]
31. Document Management Software Specification Schedule:
[...***...]
32. Schedule
Project Schedules Definitions
[...***...]
[...***...]
[...***...]
[...***...]
33. Appendix A -- Acceptance Criteria
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Requirements and Interface Specification
For Caere [...***...] OCR Engine Integration into HP
Solutions
Last Update: 19 December 1997
Version 1.4
[...***...]
- --------------------------------------------------------------------------------
Scope
- --------------------------------------------------------------------------------
Identification
This document specifies HP's requirements that Caere [...***...] OCR engine must
meet in order to be [...***...] into HP scanning solutions.
Document Overview
This document briefly describes the context of how OCR is to be [...***...] into
the HP scanning solution, and it lists the requirements placed on the Caere
[...***...] OCR engine.
Caere [...***...] OCR Engine Integration Overview
Caere will provide HP with the [...***...] OCR engine executable, plus any other
necessary libraries and data files in order to support the [...***...] engine
[...***...] into the HP scanning solution. HP is responsible for providing a
piece of source code and documentation to enable Caere to integrate the
[...***...] OCR engine into the HP scanning solution. The [...***...] OCR engine
remains a [...***...].
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Caere Accord OCR Engine and Associated File
Specifically, the OCR engine and associated files that HP will have the rights
to license and utilize within their scanning solutions are:
[...***...]
[...***...]
[...***...]
[...***...]
Caere [...***...] OCR Engine Requirements
This section defines the minimum features and functionality that the Caere
[...***...] OCR engine must provide in order for it to be usable by HP scanning
solutions.
System Compatibility
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Image Input
The Accord engine must accept images [...***...]. These images will have the
following characteristics:
[...***...]
Image Processing
[...***...]
Zoning
[...***...]
Progress Monitor and Timeouts
[...***...]
Recognition Output
[...***...]
Error Messages and Windows
[...***...]
[...***...]
Pop-Up Verifiers
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Dictionaries and Languages
- --------------------------------------------------------------------------------
[...***...]
- --------------------------------------------------------------------------------
Testing and Qualification
HP will verify the Caere OCR toolkits and [...***...] OCR engine executables and
associated files submitted to be shipped with the HP scanning solutions. Caere
has primary responsibility for testing to ensure that the code and OCR engine
delivered to HP is fully functional and as defect-free as possible.
[...***...]
Performance, Memory and Disk Space
[...***...]
Accuracy and Speed
[...***...]
Reliability
The [...***...] must not crash, get stuck in an infinite loop or show other
critical or serious defects. Such defects must be fixed prior to being shipped
as a part of the HP scanning solution.
Hardware Requirements
Standard 486, Pentium and Pentium Pro PCs...............Must
Operating System Requirements
Windows NT 4.0, 5.0*....................................Must
Windows 95..............................................Must
Windows '98*............................................Must
* Support for these operating systems is required as Windows 98 and Windows NT
5.0 are released from Microsoft to manufacturing. Best efforts for development
and testing will be made on beta versions of these operating systems as mutually
agreed upon between HP and Caere.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
<TABLE>
EXHIBIT C
DELIVERY MILESTONES
<CAPTION>
Program Alpha 1 Beta 1 RC 1 Gold Acceptance
------- ------- ------ ---- ---------------
<S> <C> <C> <C> <C> <C> <C>
[...***...] [...***...] [...***...] [...***...] [...***...]
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT D
STANDARD SUPPORT PROGRAM
Caere Support Program Overview
U.S. & Canada
Caere is committed to providing customers with high quality, timely technical
support, with options to meet a wide range of customer needs. Beginning October
1, 1995, Caere will introduce a `Pay For Support' plan for customers using
current Caere Office products including OmniPage, OmniPage Direct, OmniPage Pro,
OmniScan, OmniForm, PageKeeper, WordScan and WordScan Plus, while maintaining a
variety of free support services. `Pay For Support' will give you the option of
speaking to a Technical Support Representative, while our free support options
such as BBS, Internet Web Page, and Automated Fax System give you access to the
most up-to-date technical facts available on Caere products. Caere retains the
right, in its sole discretion, and at any time without notice, to add, delete or
modify any of the support programs described herein.
Free Support
In addition to one (1) free technical support credit good for one (1) technical
support incident, Caere offers other alternatives to finding the solution to
your question.
Fax Response Service: (408) 354-8471 This service is available 24 hours a day.
It allows users to call and request information via automated fax. The
system contains two types of documents; marketing literature, and support
documentation. The support documentation is a compilation of the most commonly
asked questions regarding Caere products.
Download Service (BBS): (408) 395-1631 This service is available 24 hours a
day. It allows users to download the latest patches and interim releases of
Caere products. (8 bits, no parity, 1 stop bit)
Internet Home Page: www.caere.com This service is available 24 hours a day.
The support section contains a list of all known issues regarding Caere products
and also provides answers to common questions about Caere products.
Training Video
A training video is currently available for OmniPage Pro. The video can be
purchased for $19.95 + S&H by calling (800) 535-7226
Phone Support
(408 ) 395-8319 In order to use the support phone line, you will need technical
support credits. All Caere products ship with one (1) technical support credit.
OmniPage Pro and WordScan Plus ship with two (2) support credits. The technician
answering the call will not use your credit if the issue which you are calling
about is a known or documented problem with the software that does not have a
fix. After you have used your free credit, you will have the option of buying
additional credits as follows:
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
1 credit US$25
5 credits US$100
10 credits US$175
Callers must have their serial number available when calling for support. Phone
support is available Monday, Tuesday, Thursday and Friday from 6:00AM - 5:00PM
Pacific Standard Time and Wednesday from 7:00 AM to 2:00 PM Pacific Standard
Time.
Support Contract
Exclusively available for companies with volume purchase agreements of
[...***...].
Caere Support Program Overview
Countries Other than the U.S. or Canada
Caere is committed to providing customers with high quality, timely technical
support, with options to meet a wide range of customer needs. Calling our
European Support Center(s) allows you to speak to a Technical Support
Representative, while our alternative support options such as BBS, Internet Web
Page, and Automated Fax System give you access to the most up-to-date technical
facts available on Caere products. Caere retains the right, in its sole
discretion, and at any time without notice, to add, delete or modify any of the
support programs described herein.
Fax Response Service: (408) 354-8471 This service is available 24 hours a day.
It allows users to call and request information via automated fax. The system
contains two types of documents; marketing literature, and support
documentation. The support documentation is a compilation of the most commonly
asked questions regarding Caere products.
Download Service (BBS): (408) 395-1631 This service is available 24 hours a day.
It allows users to download the latest patches and interim releases of Caere
products. (8 bits, no parity, 1 stop bit) Local numbers may be available -
Please refer to list appearing under Phone Support section.
Internet Home Page: www.caere.com This service is available 24 hours a day. The
support section contains a list of all known issues regarding Caere products and
also provides answers to common questions about Caere products.
Phone Support
Phone support can be gained by calling the following numbers. Please note that
phone numbers are subject to change without notice and that Caere reserves the
right, in its sole discretion at any time without notice, to modify the phone
support program to a "pay for support" format.
- ------------------------------------------------------------------
Benelux Countries Phone: (49) (0) 180-523-5282
Austria, Switzerland, Fax: (49) (0) 180-523-5312
Netherlands, Germany
- ------------------------------------------------------------------
Callers must have their serial number available when calling for support.
*CONFIDENTIAL TREATMENT REQUESTED
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Support Contract
Exclusively available for companies with volume purchase agreements of
[...***...].
Representatives of HP and CAERE shall meet once per quarter during the term of
this Agreement to review and discuss issues relating to End User support.
*CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT E
INDEMNIFIED COUNTRIES
Australia
New Zealand
Singapore
Malaysia
Japan
Taiwan
South Korea
USA
Canada
Switzerland
Norway
Hungary
Russia
Turkey
Poland
Czech Republic
South Africa
Israel
Mexico
Brazil
and the European Community, which includes the following countries:
The Netherlands
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Portugal
Spain
Sweden
United Kingdom
*CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT F
ACCOUNT MANAGERS
Caere HP
[...***...]
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT G
MARKETING GUIDELINES
The parties agree that [...***...] where bundled with HP Products and Program
upgrades to End Users to include the following:
1. [...***...]. Caere will provide such information [...***...].
[...***...]. HP shall [...***...] in the event [...***...] is not available.
2. HP shall bundle [...***...], is bundled. Bundling of [...***...]
shall be performed in accordance with the guidelines set forth on Addendum 1 to
this exhibit, provided, however, that the parties [...***...]. The content of
[...***...] shall not [...***...] when integrated on [...***...].
3. [...***...] of the HP Products. [...***...] shall be the
default in the event that [...***...]. For HP Products [...***...].
4. [...***...], HP will [...***...] for HP Products with which a Program
is bundled [...***...]. This requirement will only apply for [...***...] in
accordance with HP's standard procedures. Caere shall provide [...***...].
5. HP will [...***...] when referencing the Programs.
6. HP shall [...***...] and shall [...***...].
*CONFIDENTIAL TREATMENT REQUESTED
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ADDENDUM 1 TO
EXHIBIT G
[...***...]
1. Description - [...***...]
2. Manufacture - HP may elect either of the following options regarding
manufacture of the [...***...]:
a. [...***...]
b. Upon [...***...] days written notice to Caere, HP may elect to order
the [...***...] from Caere in accordance with Section 7 of this
Addendum. In the event that HP elects to order [...***...] from Caere
as set forth herein, HP shall pay to Caere[...***...], such payment
due and payable to Caere within [...***...] of the end of each
calendar month during the term of this Agreement. [...***...] as used
herein shall have the meaning ascribed to it in Section 6.2 of the
Agreement.
3. Delivery - CAERE shall deliver a copy of the final version of the CD to HP
for quality control testing no later than [...***...] prior to the release
to manufacturing date of an HP Product. Prior to such delivery to HP,
CAERE will test the CD to ensure that the CD, when executed on the HP
Products, substantially conforms to the CD's specifications as set forth
in the documentation accompanying the CD. HP shall have [...***...] from
the date on which CAERE delivers the CD to HP to determine that the CD
substantially conforms to the specifications contained in the documentation
accompanying the CD. Within such period, HP shall provide CAERE with either
a written acceptance of the CD or a written statement of any errors to be
corrected. The CD will be deemed to have been accepted by HP if CAERE does
not receive such written acceptance or statement of errors within such
[...***...]period. In the event that HP delivers a statement of errors in
accordance with this Section, CAERE shall use its commercially reasonable
efforts to correct any errors and redeliver the CD to HP. In the event
CAERE redelivers a corrected CD in accordance with this section HP shall
have [...***...] to test such corrected CD to determine that the corrected
CD substantially conforms to the specifications set forth in the CD's
accompanying documentation. At the end of such [...***...] testing period,
HP shall either provide CAERE with a written acceptance of the redelivered
CD or a detailed written statement of errors. Such redelivered version
shall be deemed accepted by HP if CAERE does not receive written acceptance
or a statement of errors within such [...***...]. In the event that a
written statement of errors is delivered to CAERE for the CD following such
redelivery, CAERE shall continue to use its commercially reasonable efforts
to correct such errors. This process of testing and redelivering the CD as
set forth herein shall continue until the earlier of [...***...] or until
HP accepts such redelivered CD. If HP has not accepted the CD within such
timeframe, HP may ship HP Products without bundling the CD; provided,
however, that HP and CAERE shall continue to work together to correct any
errors in the CD and HP shall bundle the CD with HP Products as set forth
in this Addendum when any such errors have been corrected.
*CONFIDENTIAL TREATMENT REQUESTED
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4. Languages - The CD shall be available in the following languages:
English
International English
French
Italian
German
Spanish
5. Schedule - Except as set forth herein, HP will begin the process of
bundling the [...***...] with HP Products immediately following the
Effective Date, however HP need not bundle the [...***...] with the
LaserJet Companion. Notwithstanding the foregoing, for any newly
introduced HP Product, HP shall bundle the [...***...] with such new HP
Product as soon as commercially possible but in no event later than sixty
(60) days following the first commercial shipment of such new HP Product.
6. Availability - CAERE may, in its discretion, cease making the [...***...]
available for distribution upon [...***...] days prior written notice to
HP.
7. Ordering -
a. Concurrent with HP's notice of its intent to order [...***...] from
Caere, HP will provide CAERE with a written fixed, non-binding
forecast of the number of HP Products with which HP intends to bundle
[...***...] that HP plans to distribute in the six (6) month period
following the date of such notice. HP will continue to provide three
(3) month written rolling forecasts within twenty (20) days of the end
of each month for as long as HP elects to order [...***...] from
Caere. Forecasts called for in this section shall be broken down by
languages. In addition, HP shall provide to CAERE within twenty (20)
days of the end of each calendar quarter during the term of this
Agreement, a written statement indicating the number of [...***...]
manufactured and distributed by HP. Such report shall be broken down
by HP Division and Language version.
b. CD orders shall be initiated by a written or electronic order
(collectively "Order") issued to CAERE by HP and each Order shall be
for a minimum of 1000 copies of the CD. Orders placed by HP shall have
a minimum lead time of three weeks to the shipment date after receipt
of the Order by CAERE. Each Order shall specify the date on which the
CD must be shipped by CAERE. HP may schedule regular intervals for
shipment by an appropriate Order setting forth the intervals. An Order
shall be deemed to have been placed as of the date of receipt of the
Order by CAERE. Once an Order has been placed with CAERE, such Order
may not be canceled by HP. HP shall have no CD return rights during
the term of this Agreement or upon termination of this Agreement. This
Agreement shall govern and control in the event that any HP purchase
order contains different or conflicting terms from those contained in
the Agreement. HP shall specify the method of shipment for Orders. If
CAERE ships any CD Order by a method other than as specified by HP,
CAERE shall pay any resulting increase in the cost of freight. Title
and risk of loss shall be with HP upon Caere's delivery to a common
carrier. CAERE shall be liable for any loss or damage due to Caere's
failure to properly preserve or handle CD Orders. All shipments shall
[...***...] HP may utilize drop shipment options to any designation
specified by HP. Each shipment to HP shall include a packing list
which contains at least:
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
1. CAERE Company name;
2. The Order number;
3. CD name;
4. HP designated Product number;
5. The quantity of CDs shipped; and
6. The date of shipment.
c. The part number of the package shall include an HP part number in
both bar code format (bar code 3 of 9) and human readable format
with the CD name, HP part number, language and date of manufacture
below the bar code. Packages shipped bulk shall not be aggregated
into individual cartons weighing over 35 pounds. The Master carton
shall have a label stating CD name, HP part number, language version,
quantity and date of manufacture.
d. In no event shall HP be prohibited from shipping HP Products due to
the inability of CAERE to fill Orders.
8. Support - CAERE shall provide support for the CD directly to End Users in
accordance with the documentation accompanying the CD. CAERE will provide
support to HP for the CD in accordance with Section 8.1.1 of this
Agreement.
9. Marketing - For those [...***...]purchased from Caere and those
[...***...] manufactured by HP that contain only Caere software, such CD
shall contain marketing messaging similar to CAERE ads and data sheets
that CAERE uses to market its other OCR products. Such marketing messaging
will be designed to tout the benefits of optical character recognition to
End Users.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT H
[...***...]
*CONFIDENTIAL TREATMENT REQUESTED
