<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 333-47117
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MOBIUS MANAGEMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 13-3078745
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
120 OLD POST ROAD
RYE, NEW YORK 10580
(914) 921-7200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
MITCHELL GROSS
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
120 OLD POST ROAD
RYE, NEW YORK 10580
(914) 921-7200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
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<S> <C>
KENNETH P. KOPELMAN, ESQ. MARK G. BORDEN, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL JEFFREY A. STEIN, ESQ.
919 THIRD AVENUE HALE AND DORR LLP
NEW YORK, NEW YORK 10022 60 STATE STREET
(212) 715-9100 BOSTON, MASSACHUSETTS 02109
(617) 526-6000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED APRIL 23, 1998
2,900,000 SHARES
[MOBIUS LOGO]
COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
------------------------
Of the 2,900,000 shares of Common Stock offered hereby, 2,500,000 shares are
being sold by the Company and 400,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Shares of Common Stock are being reserved for sale at the initial public
offering price to employees and friends of the Company. Such employees and
friends will purchase, in the aggregate, not more than 5% of the Common Stock
offered hereby. See "Underwriting".
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price per
share will be between $11.00 and $13.00. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "MOBI".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDERS
-------------- ------------ ----------- --------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting estimated expenses of $900,000 payable by the Company.
(3) The Selling Stockholders have granted the Underwriters an option for 30 days
to purchase up to an additional 435,000 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount and proceeds to Selling
Stockholders will be $ , $ , and $ , respectively.
See "Underwriting".
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the shares
will be ready for delivery in New York, New York, on or about , 1998,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
EDGAR DESCRIPTIONS
Graphic and Text appearing on inside front cover of the Prospectus:
This page contains a stylized rendering of a man sitting on a desk chair
looking at a computer monitor and typing on a computer keyboard. There is a
beam of light projecting from the man's eyes to the computer monitor which
contains an image of a document. The beam of light projects out of the back of
the computer monitor and onto a sphere. Under the computer monitor, there are
three vertically stacked disks. Above the man and the computer monitor, the
following textual heading is printed: "Electronic Document Warehouse." Below
the heading, the following text is printed: "Storage, retrieval and
presentation of diverse information in a heterogeneous computing environment."
Above the sphere, the following text is printed: "Software for the Electronic
Enterprise." In the upper right hand corner of the page, the Mobius Management
Systems, Inc. logo appears.
Graphic and Text Appearing on the gatefold of the inside front cover of the
Prospectus:
On the top center of the gatefold the following header text appears, "Electronic
Document Warehouse." On the right side of the gatefold, the following header
text appears, "Customer Service Representatives" which connects by a line
running down the right side of the page to a heading which contains the
following text "Internal Users." On the left side of the gatefold, the following
header text appears, "Customer Self-Service" which connects by a line running
down the left side of the page to a heading which contains the following text:
"Internal Users." The gatefold contains a stylized flow chart depicting the
Company's EDW products. The center of the gatefold contains a tri-level
building. On the first level of the building there are 7 images of documents
which are labelled: "correspondence," "checks," "policies," "statements,"
"photographs," "remittances," "reports" and "images." On the second level of the
building there is a sphere with the following text within it "VIEWDIRECT." To
the right of the gatefold, the "VIEWDIRECT" sphere connects by a dotted line to
a heading which contains the following text: "Network." The "Network" heading
connects by a dotted line to three other headings which contain the following
text, respectively, "DocumentDirect," "DocumentDirect Application Suite" and
"Docuanalyzer." Above the heading "DocumentDirect", there is a woman sitting in
front of a computer and computer monitor, which has an image of a document on
it. Above the heading "DocumentDirect Application Suite" there is a man holding
a document. An arrow extends from the man to a woman sitting in front of a
computer and a computer monitor which has an image of a document on it. To the
left of the gatefold, the "VIEWDIRECT" sphere connects by a dotted line to a
heading which contains the following text: "DocumentDirect for the Internet."
The "DocumentDirect for the Internet" heading connect by a dotted line to two
headings: "intranet" (toward the top of the page) and "internet" (toward the
bottom of the page). The "intranet" heading connects by a dotted line to a
heading which contains the following text: "Internet Browser." The Internet
heading connects by a dotted line to two headings which contain the following
text: "Internet Browser." Above each "Internet Browser" heading there is a man
looking into a computer monitor which has an image of a document on it. There is
a beam of light projecting from the man's eyes to the computer monitor. On the
left side of the bottom of the gatefold the following header text appears:
"Storage." Underneath the "Storage" header there are three bullet points which
contain the following text: (1) "Wide Range of Information Types," (2) "Scalable
from Desktop to Enterprise" and (3) "Device-Independent Storage." On the middle
of the bottom of the gatefold the following header text appears: "Retrieval."
Underneath the "Retrieval" header there are three bullet points which contain
the following text: (1) "Powerful Indexing For Easy Use," (2) "No Need to Know
Location or Format" and (3) "Direct Access to Disk, Tape, Optical." On the right
side of the bottom of the gatefold the following header text appears:
"Presentation." Underneath the "Presentation" header there are three bullet
points which contain the following text: (1) "Common Interface to Diverse
Documents," (2) "Flexible Viewing Options" and (3) "Self-Service Via Internet."
On the bottom left hand corner of the gatefold the following text appears:
"Mobius Management Systems, Inc." On the bottom right hand corner of the
gatefold the following text appears: "Electronic Document Warehouse."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
Except as otherwise indicated, all information contained in this Prospectus
assumes (i) no exercise of the Underwriters' over-allotment option, (ii) a
100-to-one stock split of all outstanding shares of Common Stock of the Company
prior to the closing of the offering and (iii) the conversion of the outstanding
shares of the Company's Series A Convertible Preferred Stock and Class A
Non-Voting Common Stock into an aggregate of 4,171,000 shares of Common Stock
effective on the closing of the offering. All references to the "Company" and
"Mobius" shall mean Mobius Management Systems, Inc. and its subsidiaries unless
the context otherwise requires. All references in this Prospectus to a fiscal
year are to the Company's fiscal year which ends on June 30 of that year. For
example, the 1997 fiscal year ended on June 30, 1997.
THE COMPANY
Mobius is a leading provider of enterprise software products designed to
optimize the storage, retrieval and presentation of large volumes of
transactional information. Major financial institutions, healthcare,
manufacturing, retail and telecommunications companies and government entities
use the Company's software products to facilitate customer service and other
mission-critical functions. These products can be used by a single department,
multiple departments or centrally by an entire enterprise. More than 1,200
customers, including 58 of the Fortune 100, have licensed Mobius products.
Organizations are faced with the need to store ever-increasing volumes of
information to meet operational, regulatory and legal requirements. These static
records of individual events and transactions rapidly accumulate and may result
in archives containing billions of individual records, which may increase by
millions of records each day. Furthermore, a single organization must often
manage static information in a wide variety of formats including text, images,
complex data streams and video or audio recordings.
Static information has traditionally been stored as paper or microfiche,
neither of which permits electronic archiving and rapid retrieval. Other
technologies, such as relational databases and data warehouses, do not
economically store and present large volumes of static information created in a
wide variety of formats. The multiple computing platforms and storage devices
used by enterprises further compound the difficulty of efficiently storing,
retrieving and presenting large volumes of information.
The Company's Electronic Document Warehouse ("EDW") products store and
integrate documents of different formats on a wide variety of computing
platforms and electronic storage devices and make these documents available to
the user through a common intuitive interface, including Internet browsers. The
Company's software is designed to utilize an organization's established
infrastructure, thus minimizing storage costs while meeting rapid retrieval
needs. Mobius software products store, retrieve and present computer and
non-computer generated documents, such as text, images, video or audio
recordings, customer statements, checks, external correspondence and remittance
forms. EDW products operate in heterogeneous environments, supporting a broad
range of hardware platforms and operating systems, including OS/390, Windows NT,
Windows 95, UNIX, OS/400, NetWare and others.
Mobius was founded in 1981 by current management to address a market need
for large-scale information storage and retrieval systems. The Company's
objective is to extend its market leadership by: continuing to develop
innovative storage, retrieval and presentation technologies; leveraging its blue
chip customer base; expanding direct and indirect sales channels; increasing its
focus on vertical markets; and further penetrating international markets.
The Company was incorporated in New York in 1981 and was reincorporated in
Delaware in 1997. Its executive offices are located at 120 Old Post Road, Rye,
New York 10580 and its telephone number is (914) 921-7200.
DocumentDirect, INFOPAC, TapeSaver, ViewDirect and WriteDirect are
registered trademarks of the Company in the United States. EnterpriseIndex,
Mobius, ServerTransparency, UniArc and Virtual Pocket are unregistered
trademarks of the Company. This Prospectus also contains other product names,
trade names and trademarks of the Company and other companies.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... 2,500,000 shares
Common Stock offered by the Selling Stockholders............ 400,000 shares
Common Stock to be outstanding after the offering(1)........ 17,580,000 shares
Nasdaq National Market symbol............................... "MOBI"
Use of Proceeds............................................. General corporate purposes,
including working capital,
product development, capital
expenditures and possible
acquisitions. See "Use of
Proceeds".
</TABLE>
- ---------------
(1) Based upon the number of shares of Common Stock outstanding on February 28,
1998. Excludes 2,493,500 shares of Common Stock issuable pursuant to the
exercise of options outstanding at February 28, 1998, at a weighted average
exercise price of $4.91 per share, of which options to purchase 454,465
shares were then exercisable. Also excludes an additional 1,536,500 shares
reserved for issuance under the Company's 1996 Stock Incentive Plan (the
"1996 Plan"), 1998 Employee Stock Purchase Plan (the "ESPP") and 1998
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). See
"Capitalization", "Management -- Benefit Plans" and Note 9 of Notes to
Consolidated Financial Statements.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues.................................... $13,104 $17,654 $22,405 $30,958 $41,327 $17,398 $23,071
Gross profit................................ 11,292 15,257 19,742 27,616 37,068 15,429 20,839
Income from operations...................... 537 990 1,678 5,048 4,843 1,528 3,488
License and other interest income........... 125 186 375 339 922 328 832
Income before income taxes and change in
accounting for income taxes............... 584 1,146 2,029 5,274 5,731 1,846 4,308
Accretion on Preferred Stock................ -- -- -- -- -- -- 102
Provision for income taxes.................. 244 507 880 2,657 3,348 1,043 2,355
Cumulative effect of change in accounting
for income taxes(1)....................... -- 194 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income available to common stock........ $ 340 $ 833 $ 1,149 $ 2,617 $ 2,383 $ 803 $ 1,851
======= ======= ======= ======= ======= ======= =======
Basic earnings per share(2)................. $ 0.02 $ 0.06 $ 0.08 $ 0.17 $ 0.17 $ 0.05 $ 0.17
Basic weighted average shares
outstanding(2)............................ 15,000 15,000 15,000 15,000 14,318 15,000 10,909
Diluted earnings per share(2)............... $ 0.02 $ 0.06 $ 0.08 $ 0.17 $ 0.15 $ 0.05 $ 0.12
Diluted weighted average shares
outstanding(2)............................ 15,000 15,000 15,000 15,000 15,882 15,355 15,785
Pro forma data (unaudited):
Pro forma basic earnings per share(3)....... $ 0.13 $ 0.12
Pro forma basic weighted average shares
outstanding(3)............................ 18,489 15,080
Pro forma diluted earnings per share(3)..... $ 0.12 $ 0.12
Pro forma diluted weighted average shares
outstanding (3)........................... 19,371 15,852
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
CONVERSION PRO FORMA
ACTUAL PRO FORMA(6) ADJUSTED(6)(7)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,182 $ 7,182 $34,182
Total software license installments(4)...................... 16,767 16,767 16,767
Total assets................................................ 34,347 34,347 61,347
Total deferred maintenance revenue(5)....................... 16,116 16,116 16,116
Convertible preferred stock................................. 12,000 -- --
Stockholders' equity (deficit).............................. (2,563) 9,437 36,437
</TABLE>
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(1) Represents cumulative effect of change in accounting for the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
(2) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares outstanding,
see Note 2 of Notes to Consolidated Financial Statements.
(3) For a description of the pro forma basic and pro forma diluted EPS
calculations and the pro forma basic and pro forma diluted weighted average
shares outstanding, see Note 14 of Notes to Consolidated Financial
Statements. The pro forma basic and diluted earnings per share giving effect
to the 2,500,000 shares in the offering would be $0.11 and $0.11 for the
year ended June 30, 1997 and $0.11 and $0.10 for the six months ended
December 31, 1997 based on the pro forma basic and diluted weighted average
shares outstanding of 20,989,000 and 21,871,000 for the year ended June 30,
1997, respectively, and 17,580,000 and 18,352,000 for the six months ended
December 31, 1997, respectively.
(4) Total software license installments include amounts classified as current
and long term. See Consolidated Financial Statements and Note 3 of Notes to
Consolidated Financial Statements.
(5) Total deferred maintenance revenue includes amounts classified as current
and long term. See Consolidated Financial Statements and Note 2 of Notes to
Consolidated Financial Statements.
(6) Gives effect to the conversion of all outstanding shares of the Company's
Series A Convertible Preferred Stock and Class A Non-Voting Common Stock
into Common Stock. See "Capitalization".
(7) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock
offered by the Company hereby, at an assumed initial public offering price
of $12.00 per share, after deducting the estimated underwriting discount and
offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization".
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information contained in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the Common Stock offered by this
Prospectus.
FLUCTUATIONS IN PERIOD TO PERIOD RESULTS; SEASONALITY; UNCERTAINTY OF FUTURE
OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results are expected to
fluctuate as a result of a variety of factors, including lengthy product sales
cycles, changes in the level of operating expenses, demand for the Company's
products, introductions of new products and product enhancements by the Company
or its competitors, changes in customer budgets, competitive conditions in the
industry and general domestic and international economic conditions.
The timing, size and nature of individual license transactions are
important factors in the Company's quarterly operating results. Many such
license transactions involve large dollar commitments by customers, and the
sales cycles for these transactions are often lengthy and unpredictable. There
can be no assurance that the Company will be successful in closing large license
transactions within the fiscal quarter in which they are budgeted, if at all.
The Company has often recognized a substantial portion of its revenues in
the last month of the quarter and often in the last week of that month. As a
result, license fees in any quarter are often substantially dependent on orders
booked and shipped in the last month or last week of that quarter. Accordingly,
delays in the closing of sales near the end of a quarter could cause quarterly
revenues and, to a greater degree, net income, to fall substantially short of
anticipated levels.
The Company's business has experienced and is expected to continue to
experience significant seasonality, with revenues typically peaking primarily in
its fourth fiscal quarter and to a lesser extent in its second fiscal quarter.
These fluctuations are caused primarily by customer purchasing patterns and the
Company's sales force incentive programs which recognize and reward sales
personnel on the basis of achievement of annual and other periodic performance
quotas, as well as by the factors described above.
The Company recognizes revenue in accordance with Statement of Position
("SOP") 91-1, "Software Revenue Recognition", issued by the American Institute
of Certified Public Accountants ("AICPA"). For transactions occurring on or
after July 1, 1998, the Company will be required to recognize revenue in
accordance with SOP 97-2, "Software Revenue Recognition", issued by the AICPA in
October 1997, which supersedes SOP 91-1. In general terms, SOP 97-2 recognizes
that sales of software products may consist of multiple elements, such as
additional software products, upgrades and enhancements, rights to exchange or
return software, post-contract customer support, or services, including elements
deliverable only on a when-and-if-available basis, and provides that a vendor's
fee must be allocated to the various elements of such sale based on
"vendor-specific objective evidence of fair values" allocable to each such
element. If sufficient vendor-specific objective evidence of fair values does
not exist, all revenue from the sale could be deferred until such sufficient
evidence exists, or until all elements have satisfied the requirements for
revenue recognition. SOP 97-2 is newly issued and has not yet been subject to
interpretation in practice or in applicable accounting guidelines. Although the
Company has reviewed, and is continuing to review, its license agreements in
light of its requirement to adopt SOP 97-2 and believes such adoption will not
have a material effect on its operations, there can be no assurance
6
<PAGE> 8
that the future application of, or subsequent interpretations of, SOP 97-2 will
not require the Company to defer the recognition of certain elements of revenue
or result in revenue patterns in periods subsequent to fiscal 1998 which are
materially different than historical periods. In addition, there can be no
assurance that any adjustments the Company makes to its license agreements or
other contractual arrangements to accommodate the requirements of SOP 97-2 would
not be negatively viewed by prospective customers and therefore have a material
adverse effect on the Company's sales efforts.
Due to all of the foregoing factors and other factors described below,
revenues for any period are subject to significant variation, and the Company
believes that period to period comparisons of its operating results are not
necessarily meaningful and such comparisons may not be reliable indicators of
future performance. Although the Company has been profitable in recent quarterly
periods, there can be no assurance that the Company will remain profitable on a
quarterly basis, if at all. It is also possible that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In either case, the price of the Company's Common Stock
would likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
TECHNOLOGICAL CHANGE
The market for the Company's software is characterized by a high degree of
technological change, frequent new product introductions, evolving industry
standards and changes in customer demands. The introduction of competitive
products embodying new technologies and the emergence of new industry standards
could render the Company's existing products obsolete and unmarketable. The
Company's future success will depend in part on its ability to enhance existing
products and to develop and introduce new products to meet diverse and evolving
customer requirements and keep pace with technological developments and emerging
industry standards such as new operating systems, hardware platforms, user
interfaces and storage media. The development of new products or enhanced
versions of existing products and services entails significant technical risks.
There can be no assurance that the Company will be successful in developing and
marketing product enhancements or new products that respond to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction, implementation and marketing of these products and enhancements,
or that any new products and product enhancements it may introduce will achieve
market acceptance. See "-- Risk of Product Defects", "-- Year 2000 Compliance",
"Business -- Industry Background", "-- The Mobius Solution", "-- Research and
Development" and "-- Competition".
PRODUCT CONCENTRATION
To date, a substantial portion of the Company's revenues has been
attributable to the licensing of its ViewDirect and DocumentDirect software and
the provision of related maintenance services. The Company currently expects
that the licensing of the ViewDirect and DocumentDirect software, and the
provision of related maintenance services, will account for a substantial
portion of its revenues for the foreseeable future. As a result, factors
adversely affecting the pricing of, or demand for, such products and services,
such as competition or technological change, could have a material adverse
effect on the Company's business, operating results and financial condition.
COMPETITION
The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. The Company's products are targeted
at a broad range of hardware and software environments, from PC to mid-range to
mainframe servers. The Company believes that the principal competitive factors
affecting its market include scalability, breadth of supported operating systems
7
<PAGE> 9
and document formats, ease of use, product reputation, quality, performance,
price, sales and marketing effort and customer service. The Company currently
encounters direct competition from a number of public and private companies
including Computer Associates International ("Computer Associates"), Computron
Software, Inc. ("Computron"), FileNet Corporation ("FileNet"), International
Business Machines Corp. ("IBM"), Eastman Kodak Co. ("Kodak"), New Dimension
Software Ltd. ("New Dimension") and RSD S.A. ("RSD"). Due to the relatively low
barriers to entry in the software market, the Company expects additional
competition from other established and emerging companies as the market for
storage, retrieval and presentation software continues to develop and expand.
Some of the Company's current and potential competitors are substantially larger
than the Company and have significantly greater financial, technical and
marketing resources, and a larger installed base of customers, than the Company.
Some of such competitors also have extensive direct and indirect channels of
distribution. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves with prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced gross margins and loss of market share,
any of which would have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Competition".
INTERNATIONAL SALES AND OPERATIONS
Revenues from customers outside of the United States represented 10.8% and
7.7% of the Company's total revenues in fiscal 1996 and fiscal 1997,
respectively, and 11.7% in the first six months of fiscal 1998. The Company
believes that its revenues and future operating results will depend in part on
its ability to increase sales in international markets. An important part of the
Company's strategy is to expand its direct and indirect sales efforts in
international markets. The Company's international subsidiaries have not been
profitable to date, and management expects achieving profitability will require
significant management attention and financial resources. There can be no
assurance that the Company will be able to maintain or increase international
market demand for the Company's products or hire additional qualified personnel
that will successfully be able to market the Company's products internationally.
The Company's international sales are subject to the general risks inherent in
doing business abroad, including unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs and difficulties of localizing products
for foreign countries, lack of acceptance of localized products in foreign
countries, longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences, restrictions on
the repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and economic instability. There can be no assurance that such
factors will not have a material adverse effect on the Company's future
international revenues and, consequently, on the Company's business, operating
results and financial condition.
An increase in the value of the U.S. dollar relative to foreign currencies
could make the Company's products more expensive, and, therefore, potentially
less competitive in those markets. Although the Company does not currently
engage in international currency hedging transactions, it is exploring the
possibility of doing so in the future. To the extent that the U.S. dollar
strengthens against foreign currencies in international markets in which the
Company maintains operations, the net assets of the Company that are denominated
in such foreign currencies will be devalued, resulting in a foreign currency
translation loss to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Business -- Strategy",
"-- Sales and Marketing" and Notes 1, 2 and 12 of Notes to Consolidated
Financial Statements.
8
<PAGE> 10
EXPANSION OF INDIRECT CHANNELS
As part of its growth strategy, the Company intends to increase its sales
through indirect channels such as marketing partnerships, joint-selling
opportunities and original equipment manufacturers. To date, sales through
indirect sales channels have been immaterial. The Company intends to invest
resources to develop these channels, which could adversely affect the Company's
operating results if the Company's efforts do not generate sufficient license
revenues. The Company's ability to achieve revenue growth in the future will be
affected by its success in expanding existing and establishing additional
relationships with strategic partners. In addition, if the Company is successful
in selling products through indirect channels, the Company's gross margins as a
percentage of revenue will be negatively affected due to the lower unit prices
that the Company expects to receive when selling through indirect channels. See
"Business -- Strategy".
EXTENDED PAYMENT RISK
Terms of sale are a competitive factor in the Company's markets. The
Company offers extended payment terms to some of its customers, generally three
years for its server products and five years for its client products. The
license revenue for such agreements is recorded at the time of sale as the
present value of the contract payments expected over the life of the agreement,
net of bundled maintenance fees. Interest income from these agreements is
recognized over the term of the financing based on the discount rate used by the
Company to determine present value. To date, the Company has experienced one bad
debt as a result of a customer's bankruptcy and has established reserves against
possible future bad debts. The Company expects to continue its financing
activities to compete effectively in its markets. Although management believes
that its installment contracts are enforceable and that ultimate collection is
probable, there can be no assurances that customers will not default under such
financing arrangements, or that any such default would not have a material
adverse effect on the Company's business, operating results and financial
condition. See Notes 2 and 3 of Notes to Consolidated Financial Statements.
PROTECTION OF INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its confidential and
proprietary intellectual property. The Company has no patents or patent
applications pending covering any aspect of its software products. The Company
relies primarily on a combination of confidentiality agreements, copyright,
trademark and trade secret laws and confidentiality procedures to protect its
proprietary rights. Trade secret and copyright laws afford only limited
protection to the Company. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to as great an extent as do the laws of the United
States. There can be no assurance that the Company's means of attempting to
protect its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar or competitive technology.
The Company's products are generally provided to customers in object code
format only. However, the Company generally enters into arrangements with its
customers pursuant to which the Company's source code will be released to the
customer upon the occurrence of certain events, such as the bankruptcy or
insolvency of the Company or certain material breaches by the Company of the
license agreement. In the event of any release of the source code pursuant to
these arrangements, the customer's license is generally limited to use of the
source code to maintain, support and configure the Company's software products.
Notwithstanding such provision, the delivery of source code to customers may
increase the likelihood of misappropriation or other misuse of the Company's
intellectual property.
The Company is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim infringement by the
9
<PAGE> 11
Company with respect to current or future products. The Company expects that
software product developers such as itself will increasingly be subject to
infringement claims as the number of products and competitors in the business
applications software market grows and the functionality of products in this
market overlap. Defense of any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business --
Intellectual Property, Proprietary Rights and Licenses".
DEPENDENCE ON LICENSED TECHNOLOGY
The Company relies on certain software and other information that it
licenses from third parties, including software that is used in the Company's
products to perform certain functions. Although the Company believes that there
are alternatives for these products, any significant interruption in the
availability of such third-party software could have a material adverse impact
on the Company's sales unless and until the Company can replace the
functionality provided by these products. In addition, the Company is to a
certain extent dependent upon such third parties' abilities to enhance their
current products, to develop new products on a timely and cost-effective basis
and to respond to emerging industry standards and other technological changes.
There can be no assurance that the Company would be able to replace the
functionality provided by the third party software currently offered in
conjunction with the Company's products in the event that such software becomes
obsolete or incompatible with future versions of the Company's products or is
otherwise not adequately maintained or updated. The absence of or any
significant delay in the replacement of that functionality could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Intellectual Property, Proprietary Rights and
Licenses".
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. However, it is possible that the limitation of liability
provisions contained in the Company's license agreements may not be effective
under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. The
Company does not maintain product liability insurance. A successful product
liability claim brought against the Company could have a material adverse effect
on the Company's business, operating results and financial condition.
RISK OF PRODUCT DEFECTS
Software products as complex as those offered by the Company frequently
contain defects, especially when first introduced or when new versions are
released. Although the Company conducts extensive product testing, the Company
has in the past discovered software defects in certain of its new products and
enhancements after their introduction. The Company could in the future lose, or
delay recognition of, revenues as a result of software errors or defects. The
Company believes that its customers and potential customers are highly sensitive
to defects in the Company's software. Although the Company's business has not
been materially adversely affected by any such errors to date, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of revenue or delay in
market acceptance, diversion of development resources, damage to the Company's
reputation, or increased service and warranty costs, any of which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Research and Development".
10
<PAGE> 12
YEAR 2000 COMPLIANCE
Many currently installed operating systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
need additional digits to distinguish 21st century dates from 20th century
dates. As a result, 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. Other than INFOPAC-RDS for VSE, for which the
Company expects to release a Year 2000 compliant version in the fourth quarter
of fiscal 1998 or the first quarter of fiscal 1999, the Company believes that
its products are Year 2000 compliant. There can be no assurance that the Company
will successfully release a Year 2000 compliant version of INFOPAC-RDS for VSE,
that its other products will not experience Year 2000 compliance difficulties,
or that third-party products that are not Year 2000 compliant will not have a
detrimental effect on the operation of the Company's products.
The Company believes that the purchasing patterns of customers and
potential customers may be significantly affected by Year 2000 issues. 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. Conversely, Year 2000 issues may cause other companies to
accelerate purchases, thereby causing an increase in short-term demand and a
consequent decrease in long-term demand for software products.
Additionally, Year 2000 compliance issues could cause a significant number
of companies, including current customers of the Company, to re-evaluate their
current systems' needs, and as a result, consider switching to other systems or
suppliers. This could have a material adverse effect on the Company's business,
operating results and financial condition.
MANAGEMENT OF GROWTH; DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY EMPLOYEES
The Company's ability to effectively manage its future growth, if any, will
require it to continue to improve its operational, financial and management
controls, accounting and reporting systems, and other internal processes. There
can be no assurance that the Company will be able to make such improvements in
an efficient or timely manner or that any such improvements will be sufficient
to manage its growth, if any. If the Company is unable to manage growth
effectively, the Company's business, operating results and financial condition
would likely be materially adversely affected.
The Company's success depends to a significant extent upon its senior
management, including Mitchell Gross, Chairman of the Board, Chief Executive
Officer and President, and Joseph J. Albracht, Executive Vice President, Chief
Operating Officer and Secretary, and certain other key employees of the Company,
many of whom have no experience in managing a public software company. The
Company has entered into employment agreements with, and is the beneficiary of,
$2 million key man life insurance policies on each of, Messrs. Gross and
Albracht. Notwithstanding such agreements and policies, the loss of the service
of either of these individuals, other members of senior management or other key
employees could have a material adverse effect on the Company. Furthermore, the
Company believes that its future success will also depend to a significant
extent upon its ability to attract, train and retain highly skilled technical,
management, sales and marketing personnel. Competition for such personnel is
intense, and the Company expects that such competition will continue for the
foreseeable future. The Company has from time to time experienced difficulty in
locating candidates with appropriate qualifications. There can be no assurance
that the Company will be successful in attracting or retaining such personnel;
the failure to attract or retain such personnel could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Sales and Marketing" and "Management".
11
<PAGE> 13
CONCENTRATION OF SHARE OWNERSHIP AND VOTING POWER
Based upon the number of shares of Common Stock that will be outstanding
upon the completion of this offering, Mitchell Gross, the Company's Chairman,
Chief Executive Officer and President, and Joseph J. Albracht, the Company's
Executive Vice President, Chief Operating Officer and Secretary, together will
beneficially own approximately 59.8% of the Company's outstanding Common Stock.
As a result, such individuals will be able to elect the Board of Directors and
will retain the voting power to approve all matters requiring approval by the
stockholders of the Company, regardless of the votes of other stockholders. In
addition, subject to certain limitations imposed by applicable law, Messrs.
Gross and Albracht will be able to, among other things, amend the Company's
Second Amended and Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") and the Amended and Restated By-Laws (the
"By-Laws") and effect or preclude fundamental corporate transactions involving
the Company, including the acceptance or rejection of any proposals relating to
a merger of the Company or an acquisition of the Company by another entity, in
each case without the approval of any of the Company's other stockholders. See
"Principal and Selling Stockholders" and "Description of Capital Stock".
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation requires that any
action required or permitted to be taken by the stockholders of the Company must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by any consent in writing, and the Company's By-Laws require
advance notice by a stockholder of a director nomination which such stockholder
desires to present at any annual or special meeting of stockholders. Pursuant to
the Restated Certificate of Incorporation, special meetings of stockholders may
be called only by the Chairman of the Board, the Chief Executive Officer, the
President, or the Executive Vice President, or the Secretary of the Company upon
the written request of two-thirds of the Board of Directors. The Restated
Certificate of Incorporation provides for a classified Board of Directors, and
members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least 67% of the shares of capital stock of
the Company entitled to vote. In addition, shares of the Company's Preferred
Stock may be issued in the future without further stockholder approval and upon
such terms and conditions, at a price and having such rights, privileges and
preferences, as the Board of Directors may determine. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of shares of Preferred Stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no present intent to issue any shares of Preferred Stock. The Company is
also subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which could have the effect of delaying or preventing a
change of control of the Company. The foregoing provisions, and other provisions
of the Restated Certificate of Incorporation, may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. In addition,
these provisions may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests. See "Description of Capital
Stock -- Delaware Law and Certain Provisions of the Company's Certificate of
Incorporation and By-Laws".
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering or that the market price
of the Common Stock will not decline below the initial public offering price,
which will be determined by negotiations among the Company and representatives
of the Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining
12
<PAGE> 14
the initial public offering price. Investors should be aware that market prices
for securities of software companies such as Mobius are highly volatile. The
market price of the Common Stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, the gain or loss
of significant contracts, announcements of technological developments or new
products by the Company and its competitors, changes in earnings estimates by
analysts, market conditions in the industry and general domestic and
international economic conditions. In addition, the stock market has experienced
volatility that has particularly affected the market prices of many companies'
stock and that often has been unrelated to the operating performance of such
companies. These market fluctuations may adversely affect the market price of
the Common Stock. See "-- Fluctuations in Period to Period Results; Seasonality;
Uncertainty of Future Operating Results".
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price of
the Common Stock or the future ability of the Company to raise capital through
an offering of its equity securities. Of the 17,580,000 shares of Common Stock
to be outstanding upon completion of the offering, the 2,900,000 shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless the shares are purchased by "affiliates" of the Company
within the meaning of Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting".
The remaining 14,680,000 shares of Common Stock held by existing
stockholders upon completion of the offering will be "restricted" securities as
that term is defined in Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act. The Company's directors, officers and existing stockholders
(holding all of such 14,680,000 shares) have agreed that they will not sell,
directly or indirectly, any Common Stock without the prior consent of the
representatives of the Underwriters for a period of 180 days from the date of
this Prospectus. Subject to the provisions of Rules 144, 144(k) and 701, all of
such shares will be eligible for sale upon the expiration of these lock-up
agreements. In addition, certain stockholders, representing approximately
14,600,000 shares of Common Stock, have the right, subject to certain
conditions, to include their shares in future registration statements relating
to the Company's securities and to cause the Company to register certain shares
of Common Stock owned by them. See "Shares Eligible for Future Sale" and
"Underwriting".
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Company's stock-based benefit plans. See
"Management -- Director Compensation" and "-- Benefit Plans". Such registration
statement is expected to become effective immediately upon filing, and shares
covered by that registration statement will thereupon be eligible for sale in
the public markets, subject to Rule 144 limitations applicable to affiliates.
See "Shares Eligible for Future Sale".
NO DIVIDENDS
The Company has never paid or declared a dividend on its Common Stock and
does not anticipate doing so for the foreseeable future. The Company's current
bank line prohibits payment of dividends without the bank's consent. See
"Dividend Policy".
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
The completion of this offering will provide significant benefits to the
current stockholders of the Company, including certain of its directors and
officers. The Company will not receive any of the net proceeds from the sale of
shares by the Selling Stockholders, which will be approximately $4.5 million in
the aggregate, assuming a public offering price of $12.00 per share. The
completion of
13
<PAGE> 15
this offering will also create a public market for the Common Stock and thereby
is likely to substantially increase the market value of the Common Stock held by
current stockholders in the Company. Upon the closing of this offering, assuming
a public offering price of $12.00 per share, (i) the difference between the
aggregate purchase price paid by all of the Company's current stockholders for
their shares and the aggregate market value of such shares will be approximately
$164 million; and (ii) the difference between the aggregate purchase price paid
by the Company's management stockholders for their shares and the aggregate
market value of such shares will be approximately $127 million.
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price of Common Stock is expected to be
substantially higher than the net tangible book value per outstanding share of
Common Stock. Investors purchasing Common Stock in this offering will,
therefore, incur immediate dilution of $9.93 in net tangible book value per
share of Common Stock (based upon an assumed initial public offering price of
$12.00 per share and after deducting the estimated underwriting discount and
offering expenses payable by the Company) from the initial public offering price
and will incur additional dilution upon the exercise of outstanding stock
options. See "Dilution".
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company pursuant to this offering are estimated to
be $27,000,000, after deducting the estimated underwriting discount and offering
expenses payable by the Company. The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders".
The principal purposes of this offering are to increase the Company's
working capital and equity base, to create a public market for the Company's
Common Stock and to facilitate future access by the Company to the public
capital markets. The Company expects to use the net proceeds for general
corporate purposes, including working capital, product development and capital
expenditures. A portion of the net proceeds may also be used for the acquisition
of businesses, products and technologies that are complementary to those of the
Company. The Company may from time to time consider potential acquisitions,
although there are no commitments or understandings for any material
acquisitions, and no portion of the net proceeds has been allocated for any
specific acquisition. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The
Company's current loan agreement with a bank prohibits the payment of dividends
without the bank's consent. The Company currently intends to retain future
earnings to fund the development and growth of its business. Payment of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
condition, operating results, current and anticipated cash needs and plans for
expansion.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth, as of December 31, 1997, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the conversion of the outstanding Series A Convertible
Preferred Stock and Class A Non-Voting Common Stock into shares of Common Stock
and (iii) the pro forma capitalization of the Company, as adjusted to reflect
the sale of 2,500,000 shares of Common Stock offered hereby by the Company at an
assumed initial public offering price of $12.00 per share and after deducting
the estimated underwriting discount and offering expenses payable by the
Company. This table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------
CONVERSION PRO FORMA
ACTUAL PRO FORMA ADJUSTED
------ ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, less current portion............. $ 66 $ 66 $ 66
-------- ------- --------
Series A Convertible Preferred Stock, $.01 par value(1);
40,910 shares authorized; 40,910 shares outstanding
(actual); none authorized or outstanding (conversion pro
forma and pro forma adjusted)............................. 12,000 -- --
-------- ------- --------
Stockholders' equity: (1)
Preferred Stock, $.01 par value; 159,090 shares authorized
(actual); 1,000,000 shares authorized (conversion pro
forma and pro forma adjusted); none outstanding (actual,
conversion pro forma and pro forma adjusted)(2)........... -- -- --
Common Stock, $.0001 par value; 40,000,000 shares
authorized; 10,909,000 shares outstanding (actual);
15,080,000 shares outstanding (conversion pro forma)
and 17,580,000 shares outstanding (pro forma
adjusted)(3)........................................... 1 2 2
Class A Non-Voting Common Stock, $.0001 par value;
5,000,000 shares authorized (actual); none authorized
(conversion pro forma and pro forma adjusted); 80,000
shares outstanding (actual); none outstanding
(conversion pro forma and pro forma adjusted).......... -- -- --
Additional paid-in capital................................ -- 11,999 38,999
Retained earnings......................................... 9,487 9,487 9,487
Translation adjustment.................................... (51) (51) (51)
Treasury stock, at cost (4,091,000 shares)................ (12,000) (12,000) (12,000)
-------- ------- --------
Total stockholders' equity (deficit)................... (2,563) 9,437 36,437
-------- ------- --------
Total capitalization.............................. $ 9,503 $ 9,503 $ 36,503
======== ======= ========
</TABLE>
- ---------------
(1) See Notes 7 and 8 of Notes to Consolidated Financial Statements.
(2) At December 31, 1997, the Company had 200,000 shares of Preferred Stock
authorized, of which 40,910 shares have been designated Series A
Convertible Preferred Stock and 159,090 were undesignated. Upon the
completion of the offering, 1,000,000 shares of Preferred Stock will be
authorized, none of which will be outstanding.
(3) Excludes 1,786,000 shares of Common Stock issuable pursuant to the
exercise of options outstanding at December 31, 1997, at a weighted
average exercise price of $2.64 per share of Common Stock, of which
options to purchase 411,625 shares were exercisable as of February 28,
1998. Also excludes 720,000 shares of Common Stock issuable pursuant to
the exercise of options granted between January 1, 1998 and February
28, 1998 at a weighted average exercise price of $10.50 per share of
Common Stock, of which options to purchase 30,000 shares were
exercisable as of February 28, 1998. Also excludes an additional
1,536,500 shares reserved for issuance under the 1996 Plan, the ESPP
and the Directors' Plan. See "Management -- Benefit Plans" and Note 9
of Notes to Consolidated Financial Statements.
16
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1997, after giving effect to the conversion of the outstanding Series A
Convertible Preferred Stock and Class A Non-Voting Common Stock into Common
Stock, was approximately $9,437,000, or $0.63 per share of Common Stock. Pro
forma net tangible book value per share is equal to the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding after giving effect to the aforementioned conversions. After giving
effect to the sale by the Company of 2,500,000 shares of Common Stock offered
hereby (at an assumed initial public offering price of $12.00 per share and
after deducting the estimated underwriting discount and offering expenses) the
pro forma net tangible book value of the Company as of December 31, 1997 would
have been approximately $36,437,000, or $2.07 per share. This represents an
immediate increase in pro forma net tangible book value of $1.44 per share to
existing stockholders and an immediate dilution of $9.93 per share to new
investors purchasing shares in this offering. The following table illustrates
the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value as of December 31,
1997................................................... $0.63
Pro forma increase per share attributable to new
investors.............................................. 1.44
-----
Pro forma net tangible book value after offering............ 2.07
------
Pro forma net tangible book value dilution per share to new
investors................................................. $ 9.93
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, after giving effect to the conversion of the outstanding Series A
Convertible Preferred Stock and Class A Non-Voting Common Stock into Common
Stock, the differences between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average consideration paid per
share by the existing stockholders and by the new investors (assuming an initial
public offering price of $12.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)....... 15,080,000 85.8% $12,101,630 28.7% $ 0.80
New investors(1)........ 2,500,000 14.2 30,000,000 71.3 12.00
---------- ----- ----------- ----- ------
Total................. 17,580,000 100.0% $42,101,630 100.0% $ 2.39
========== ===== =========== ===== ======
</TABLE>
- ---------------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 14,680,000 or approximately 83.5% of
the total number of shares of Common Stock outstanding after this offering
(or 14,245,000 shares and approximately 81.0% if the Underwriters'
over-allotment option is exercised in full), and will increase the number of
shares held by new investors to 2,900,000 or approximately 16.5% of the
total number of shares of Common Stock outstanding after this offering (or
3,335,000 shares and approximately 18.9% if the Underwriters' over-allotment
option is exercised in full). See "Principal and Selling Stockholders".
As of February 28, 1998, there were options outstanding to purchase
2,493,500 shares of Common Stock under the 1996 Plan and the Directors' Plan at
a weighted average exercise price of $4.91 per share, of which options to
purchase 454,465 shares were then exercisable. To the extent any such options
are exercised, there will be further dilution to the new investors. An
additional 1,536,500 shares in the aggregate have been reserved for issuance
under the 1996 Plan, the ESPP and the Directors' Plan. See
"Management -- Benefit Plans".
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Consolidated Statement of Income Data" and "Consolidated Balance Sheet Data" as
of and for each of the years in the five-year period ended June 30, 1997 and as
of and for the six months ended December 31, 1997 are derived from the
consolidated financial statements of the Company, which statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements as of June 30, 1996 and 1997 and December 31,
1997, and for each of the years in the three-year period ended June 30, 1997 and
the six months ended December 31, 1997, and the report thereon, are included
elsewhere in this Prospectus. The interim consolidated financial data set forth
below for the six-month period ended December 31, 1996 has been derived from the
unaudited consolidated financial statements included elsewhere in this
Prospectus. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for the period. Operating results for the six-month period
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the entire fiscal year ending June 30, 1998. The data set forth
below should be read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA):
Revenues:
Software license revenues........................... $ 7,821 $10,604 $12,729 $18,769 $26,112 $10,239 $14,293
Maintenance and other revenues...................... 5,283 7,050 9,676 12,189 15,215 7,159 8,778
------- ------- ------- ------- ------- ------- -------
Total revenues.................................... 13,104 17,654 22,405 30,958 41,327 17,398 23,071
------- ------- ------- ------- ------- ------- -------
Costs of revenues:
Software license revenues........................... 534 841 614 626 1,336 528 678
Maintenance and other revenues...................... 1,278 1,556 2,049 2,716 2,923 1,441 1,554
------- ------- ------- ------- ------- ------- -------
Total costs of revenues........................... 1,812 2,397 2,663 3,342 4,259 1,969 2,232
------- ------- ------- ------- ------- ------- -------
Gross profit.......................................... 11,292 15,257 19,742 27,616 37,068 15,429 20,839
Operating expenses:
Sales and marketing................................. 8,030 9,687 12,523 15,136 21,971 9,180 10,797
Research and development............................ 1,665 2,669 3,478 4,600 5,904 2,810 3,550
General and administrative.......................... 1,060 1,911 2,063 2,832 4,350 1,911 3,004
------- ------- ------- ------- ------- ------- -------
Total operating expenses.......................... 10,755 14,267 18,064 22,568 32,225 13,901 17,351
------- ------- ------- ------- ------- ------- -------
Income from operations................................ 537 990 1,678 5,048 4,843 1,528 3,488
License and other interest income..................... 125 186 375 339 922 328 832
Interest expense...................................... (79) (61) (58) (41) (22) (11) (6)
Foreign currency transaction gains (losses)........... 1 31 34 (72) (12) 1 (6)
------- ------- ------- ------- ------- ------- -------
Income before income taxes and change in accounting
for income taxes.................................... 584 1,146 2,029 5,274 5,731 1,846 4,308
Provision for income taxes............................ 244 507 880 2,657 3,348 1,043 2,355
Accretion on Preferred Stock.......................... -- -- -- -- -- -- 102
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of change in
accounting for income taxes......................... 340 639 1,149 2,617 2,383 803 1,851
------- ------- ------- ------- ------- ------- -------
Cumulative effect of change in accounting for income
taxes(1)............................................ -- 194 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income available to common stock.................. $ 340 $ 833 $ 1,149 $ 2,617 $ 2,383 $ 803 $ 1,851
======= ======= ======= ======= ======= ======= =======
Basic earnings per share(2)........................... $ 0.02 $ 0.06 $ 0.08 $ 0.17 $ 0.17 $ 0.05 $ 0.17
Basic weighted average shares outstanding(2).......... 15,000 15,000 15,000 15,000 14,318 15,000 10,909
Diluted earnings per share(2)......................... $ 0.02 $ 0.06 $ 0.08 $ 0.17 $ 0.15 $ 0.05 $ 0.12
Diluted weighted average shares outstanding(2)........ 15,000 15,000 15,000 15,000 15,882 15,355 15,785
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA DATA (UNAUDITED):
Pro forma basic earnings per share(3)................. $ 0.13 $ 0.12
Pro forma basic weighted average shares
outstanding(3)...................................... 18,489 15,080
Pro forma diluted earnings per share(3)............... $ 0.12 $ 0.12
Pro forma diluted weighted average shares
outstanding(3)...................................... 19,371 15,852
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
JUNE 30, ------------------------------------
--------------------------------------------- CONVERSION PRO FORMA
1993 1994 1995 1996 1997 ACTUAL PRO FORMA(6) ADJUSTED(7)
---- ---- ---- ---- ---- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS):
Cash and cash equivalents....... $ 214 $3,166 $ 2,711 $ 4,447 $ 5,672 $ 7,182 $ 7,182 $34,182
Total software license
installments(4)............... 1,006 1,546 1,317 4,990 12,486 16,767 16,767 16,767
Total assets.................... 6,360 9,422 12,713 18,446 28,502 34,347 34,347 61,347
Total deferred maintenance
revenue(5).................... 3,039 3,845 5,317 7,154 11,155 16,116 16,116 16,116
Capital lease obligations, less
current portion............... 73 23 104 151 95 66 66 66
Convertible preferred stock..... -- -- -- -- 11,898 12,000 -- --
Stockholders' equity
(deficit)..................... 655 1,465 2,586 5,226 (4,344) (2,563) 9,437 36,437
</TABLE>
- ---------------
(1) Represents cumulative effect of change in accounting for the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
(2) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares outstanding,
see Note 2 of Notes to Consolidated Financial Statements.
(3) For a description of the pro forma basic and pro forma diluted EPS
calculations and the pro forma basic and pro forma diluted weighted average
shares outstanding, see Note 14 of Notes to Consolidated Financial
Statements. The pro forma basic and diluted earnings per share giving effect
to the 2,500,000 shares in the offering would be $0.11 and $0.11 for the
year ended June 30, 1997 and $0.11 and $0.10 for the six months ended
December 31, 1997 based on the pro forma basic and diluted weighted average
shares outstanding of 20,989,000 and 21,871,000 for the year ended June 30,
1997, respectively, and 17,580,000 and 18,352,000 for the six months ended
December 31, 1997, respectively.
(4) Total software license installments include amounts classified as current
and long term. See Consolidated Financial Statements and Note 3 of Notes to
Consolidated Financial Statements.
(5) Total deferred maintenance revenue includes amounts classified as current
and long term. See Consolidated Financial Statements and Note 2 of Notes to
Consolidated Financial Statements.
(6) Gives effect to the conversion of all outstanding shares of the Company's
Series A Convertible Preferred Stock and Class A Non-Voting Common Stock
into Common Stock. See "Capitalization".
(7) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock
offered by the Company hereby, at an assumed initial public offering price
of $12.00 per share, after deducting the estimated underwriting discount and
offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization".
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and the other financial
information included elsewhere in this Prospectus. The Company's revenues and
costs of operations are difficult to forecast and could differ materially from
those discussed in the forward-looking statements contained in this Prospectus
as a result of a number of factors, including, without limitation, those
discussed under "Risk Factors" above.
OVERVIEW
The Company is a leading provider of enterprise software products designed
to optimize the storage, retrieval and presentation of large volumes of
transactional information. Major financial services, healthcare, manufacturing,
retail and telecommunications companies and governmental entities use the
Company's products to facilitate customer service and other mission-critical
functions. Founded in 1981, the Company provided information storage, retrieval
and presentation products and support, as well as consulting services throughout
its first decade. In 1991, the Company decided to focus primarily on developing
and marketing software products and, as a result, sold its consulting services
business.
Mobius derives its revenues primarily from software license fees and
related annual maintenance fees. In fiscal 1997, 63.2% of the Company's total
revenues were generated by software license fees and 36.8% were generated by
maintenance and other fees. The Company's total revenues have increased over
each of the past five fiscal years, from $13.1 million in fiscal 1993 to $41.3
million in fiscal 1997.
Revenue from software license contracts is recognized upon shipment of the
software to the customer if no significant vendor obligations remain and
collection of the resulting receivable is probable. The Company offers
installment payment terms to some of its customers for the acquisition of
software licenses. The license revenue for such agreements is recorded as the
present value of contract payments, net of bundled maintenance fees. These
installment contracts give rise to the software license installments recorded on
the Company's balance sheet. License interest income represents the portion of
installment contracts allocated by the Company to interest, based on a discount
rate tied to relevant market indices.
Maintenance fees are calculated as a percentage of license fees and are
recognized ratably over the maintenance term, typically one year. Unearned
maintenance revenue from these transactions is reflected on the Company's
balance sheet as deferred maintenance revenue.
Licenses of the Company's ViewDirect and DocumentDirect products have
historically accounted for a majority of the Company's license revenues and for
a significant portion of the Company's total revenues, and the Company
anticipates that this trend will continue for the foreseeable future. In fiscal
1997, license fees for these products accounted for approximately 81.0% of
license revenues and approximately 51.0% of total revenues. The Company's
growing customer base has led to continued growth in maintenance fees. Aside
from the involvement of systems engineers during the sales cycle, Mobius does
not provide implementation services and has trained and certified a group of
independent professional services organizations to provide such services.
International revenues increased in absolute dollar terms in 1995 and 1996
representing 15.8% and 50.2% increases over the respective prior years while
1997 decreased 4.9% as compared to 1996. The Company intends to expand its
international sales activities as part of its business strategy. The majority of
Mobius' current international revenues are derived from the operations of five
wholly-owned subsidiaries. In addition, international revenues include sales
made directly by the Company or through agents located in the United States to
international customers. The Company
20
<PAGE> 22
receives a royalty that is a percent of agent and subsidiary sales of software
licenses and maintenance contracts to international customers. The Company's
subsidiaries conduct business in the currency of the country in which they
operate, exposing Mobius to currency fluctuations and currency transaction
losses or gains which are outside of Mobius' control. To date, all of these
subsidiaries have operated at a loss, which cannot be consolidated for United
States income tax purposes. Consequently, the Company's effective tax rate is
substantially higher than the statutory rate as no benefit has been provided for
the foreign losses. To the extent that Mobius is successful at bringing these
operations to profitability, the Company will have effective tax rates that are
below the statutory rates as a result of realizing the benefit of the tax loss
carryforwards currently being generated outside of the United States. See "Risk
Factors -- International Sales and Operations" and "Strategy -- Increase
Penetration of International Markets".
Capitalization of internally developed software costs is required once
technological feasibility is established. The period between achieving
technological feasibility, which the Company has defined as the establishment of
a working model, and the general availability of such software has been short
and, therefore, software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any software
development costs. The Company currently anticipates that such eligible amounts
will be insignificant for the foreseeable future. Software development costs are
included in research and development and are expensed as incurred. See Note 2 of
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statement of Income as a percentage of total revenues for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------- --------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license revenues................. 56.8% 60.6% 63.2% 58.9% 62.0%
Maintenance and other revenues............ 43.2 39.4 36.8 41.1 38.0
----- ----- ----- ----- -----
Total revenues......................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs of revenues:
Software license revenues................. 2.8 2.0 3.2 3.0 2.9
Maintenance and other revenues............ 9.1 8.8 7.1 8.3 6.8
----- ----- ----- ----- -----
Total costs of revenues................ 11.9 10.8 10.3 11.3 9.7
----- ----- ----- ----- -----
Gross profit................................ 88.1 89.2 89.7 88.7 90.3
Operating expenses:
Sales and marketing....................... 55.9 48.9 53.2 52.8 46.8
Research and development.................. 15.5 14.9 14.3 16.1 15.4
General and administrative................ 9.2 9.1 10.5 11.0 12.9
----- ----- ----- ----- -----
Total operating expenses............... 80.6 72.9 78.0 79.9 75.1
----- ----- ----- ----- -----
Income from operations...................... 7.5 16.3 11.7 8.8 15.2
License and other interest income........... 1.7 1.1 2.3 1.9 3.5
Interest expense............................ (0.3) (0.1) (0.1) (0.1) (0.0)
Foreign currency transaction gains
(losses).................................. 0.2 (0.2) 0.0 0.0 0.0
----- ----- ----- ----- -----
Income before income taxes.................. 9.1 17.1 13.9 10.6 18.7
Provision for income taxes.................. 3.9 8.6 8.1 6.0 10.2
Accretion on Preferred Stock................ -- -- -- -- 0.5
----- ----- ----- ----- -----
Net income available to common stock........ 5.2% 8.5% 5.8% 4.6% 8.0%
===== ===== ===== ===== =====
</TABLE>
21
<PAGE> 23
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER
31, 1997
REVENUES. Total revenues, consisting principally of software license
revenues and maintenance and other revenues, increased 32.6% from $17.4 million
in the first six months of fiscal 1997 to $23.1 million in the first six months
of fiscal 1998. Domestic revenues increased 29.0% from $15.8 million in the
first six months of fiscal 1997 to $20.4 million in the same period in fiscal
1998. International revenues increased 68.6% from $1.6 million in the first six
months of fiscal 1997 to $2.7 million in the same period in fiscal 1998.
Software license revenues increased 39.6% from $10.2 million in the first
six months of fiscal 1997 to $14.3 million in the comparable period of fiscal
1998. The increase was primarily attributable to increased sales of the
ViewDirect and DocumentDirect products and, to a lesser extent, the
INFOPAC-TapeSaver product.
Maintenance and other revenues increased 22.6% from $7.2 million for the
first six months of fiscal 1997 to $8.8 million in the first six months of
fiscal 1998. The increase was primarily attributable to the growth of the
installed base of customers with maintenance contracts, and, to a lesser extent,
increases in the fees charged by the Company. Other revenues for both periods
were not significant.
COSTS OF REVENUES. Costs of license revenues consist primarily of
royalties, amortization of purchased software and sublicense fees. The costs of
license revenues increased 28.4% from $0.5 million in the first six months of
fiscal 1997 to $0.7 million in the comparable period of fiscal 1998,
representing 5.2% and 4.7%, respectively, of license revenues in those periods.
The increase in the costs of license revenues was primarily related to increased
sales of the INFOPAC-TapeSaver and DocuAnalyzer products, which require the
Company to pay third party royalty fees.
Costs of maintenance and other revenues consist primarily of customer
support staff costs. The costs of maintenance revenues increased 7.8% from $1.4
million in the first six months of fiscal 1997 to $1.6 million in the first six
months of fiscal 1998, representing 20.1% and 17.7% of maintenance revenues,
respectively. The increase in the costs of maintenance and other revenues is
primarily attributable to increased staffing and personnel-related costs.
OPERATING EXPENSES. Sales and marketing expenses consist primarily of the
cost of personnel associated with the selling and marketing of the Company's
products, including salaries, commissions and travel and entertainment. Sales
and marketing expenses also include the cost of branch sales offices,
advertising, trade shows, marketing and promotional materials. Sales and
marketing expenses increased 17.6% from $9.2 million in the first six months of
fiscal 1997 to $10.8 million in the comparable period of fiscal 1998. This
increase was primarily attributable to increased commissions associated with
increased revenues and expenses for additional sales staff and personnel-
related costs.
Research and development expenses consist primarily of personnel costs
attributable to the development of new software products and the enhancement of
existing products. Research and development expenses increased 26.3% from $2.8
million in the first six months of fiscal 1997 to $3.6 million in the comparable
period of fiscal 1998. The increase is primarily attributable to increased
staffing and personnel-related costs. The Company believes that a significant
level of research and development expenses will be required to maintain its
competitive position in the future.
General and administrative expenses primarily consist of personnel costs
related to management, accounting, human resources, administration and
associated overhead costs, as well as fees for professional services. General
and administrative expenses increased 57.2% from $1.9 million in the first six
months of fiscal 1997 to $3.0 million in the comparable period of fiscal 1998.
The increase primarily reflects additional personnel-related costs as a result
of the Company's expanded operations. The Company expects general and
administrative expenses to increase in fiscal
22
<PAGE> 24
1998 as a result of the costs associated with the regulatory and communication
requirements applicable to public companies.
LICENSE AND OTHER INTEREST INCOME; INTEREST EXPENSE; FOREIGN CURRENCY
TRANSACTION GAINS (LOSSES). License and other interest income consists
primarily of the portion of license payments under installment contracts
allocated by the Company to interest based on a discount rate. License and other
interest income increased from $0.3 million in the first six months of fiscal
1997 to $0.8 million in the comparable period of fiscal 1998.
Interest expense consists primarily of costs associated with the Company's
capital lease obligations. Foreign currency transaction gains (losses) consists
of income or expenses associated with the valuation of the Company's non-dollar
denominated assets held by its foreign subsidiaries. Both interest expense and
foreign currency transaction gains (losses) were not material in the first six
months of each of fiscal years 1997 and 1998.
PROVISION FOR INCOME TAXES. The provision for income taxes was $1.0
million for the first six months of fiscal 1997 and $2.4 million for the
comparable period of fiscal 1998. The effective tax rates for these respective
periods were 56.5% and 54.7%. The difference between these rates and the
applicable statutory rates is primarily attributable to the unrecognized tax
benefit related to operating losses of the Company's foreign subsidiaries.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1996 COMPARED TO
YEAR ENDED JUNE 30, 1997
REVENUES. Total revenues increased 38.2% from $22.4 million in fiscal 1995
to $31.0 million in fiscal 1996 and increased 33.5% to $41.3 million in fiscal
1997. Domestic revenues increased 36.8% from $20.2 million in fiscal 1995 to
$27.6 million in fiscal 1996 and increased 38.2% to $38.2 million in fiscal
1997. International revenues increased 50.3% from $2.2 million in fiscal 1995 to
$3.3 million in fiscal 1996 and decreased 4.9% to $3.2 million in fiscal 1997.
The increase in total revenues is primarily attributable to increased licensing
of the Company's software products by new and current customers.
Software license revenues increased 47.5% from $12.7 million in fiscal 1995
to $18.8 million in fiscal 1996 and increased 39.1% to $26.1 million in fiscal
1997. The increases in software license revenues were primarily attributable to
increased license revenues from the Company's ViewDirect and DocumentDirect
products, and, to a lesser extent, the INFOPAC-TapeSaver product.
Maintenance and other revenues increased 26.0% from $9.7 million in fiscal
1995 to $12.2 million in fiscal 1996 and increased 24.8% to $15.2 million in
fiscal 1997. The increases in maintenance and other revenues during these years
were primarily attributable to the growth of the installed base of customers
with maintenance contracts, and, to a lesser extent, increases in the
maintenance fees charged by the Company. Other revenues for all periods were not
significant.
COSTS OF REVENUES. The costs of software license revenues remained
relatively constant at $0.6 million in fiscal 1995 and fiscal 1996, and
increased 113.4% to $1.3 million in fiscal 1997, representing 4.8%, 3.3% and
5.1%, respectively, of software license revenues in those years. The increase in
costs of software license revenue in fiscal 1997 was primarily due to increased
sales of the INFOPAC-TapeSaver and DocuAnalyzer products.
The costs of maintenance and other revenues increased 32.6% from $2.0
million in fiscal 1995 to $2.7 million in fiscal 1996 and increased 7.6% to $2.9
million in fiscal 1997, representing 21.2%, 22.3% and 19.2%, respectively, of
maintenance and other revenues in those years. The increases in costs of
maintenance and other revenues were primarily attributable to increased staffing
and personnel-related costs.
OPERATING EXPENSES. Sales and marketing expenses increased 20.9% from
$12.5 million in fiscal 1995 to $15.1 million in fiscal 1996 and increased 45.1%
to $22.0 million in fiscal 1997. The
23
<PAGE> 25
increases in sales and marketing expenses were primarily attributable to
increased commissions associated with increased revenues, the hiring of
additional sales personnel and increased personnel-related costs.
Research and development expenses increased 32.3% from $3.5 million in
fiscal 1995 to $4.6 million in fiscal 1996 and increased 28.3% to $5.9 million
in fiscal 1997, representing 15.5%, 14.9% and 14.3%, respectively, of total
revenues in those years. The increases in research and development expenses were
primarily attributable to increased staffing and personnel-related costs for
technical staff.
General and administrative expenses increased 37.3% from $2.1 million in
fiscal 1995 to $2.8 million in fiscal 1996 and increased 53.6% to $4.4 million
in fiscal 1997. The increases were generally attributable to increased
professional services fees and additional personnel costs.
LICENSE AND OTHER INTEREST INCOME; INTEREST EXPENSE; FOREIGN CURRENCY
TRANSACTION GAINS (LOSSES). License and other interest income decreased from
$0.4 million in fiscal 1995 to $0.3 million in fiscal 1996 and increased to $0.9
million in fiscal 1997. The decrease in license and other interest income from
fiscal 1995 to fiscal 1996 was primarily due to the reduction in the discount
rate used by the Company on installment contracts in 1996 and the completion of
payment obligations on higher rate contracts within fiscal 1996. The increase in
license and other interest income from fiscal 1996 to fiscal 1997 was primarily
due to increases in the number of installment contracts entered into by the
Company, and, to a lesser extent, increased earnings on higher cash balances
held by the Company during that year.
Interest expense decreased from $58,000 in fiscal 1995 to $41,000 in fiscal
1996 and decreased to $22,000 in fiscal 1997. The decreases were primarily due
to reductions in the principal balances associated with the Company's capital
leases.
Foreign currency transaction gains (losses) declined from a gain of $34,000
in fiscal 1995 to a loss of $72,000 in fiscal 1996 primarily due to unfavorable
fluctuations in the Company's functional currencies. The loss diminished to
$12,000 in fiscal 1997 primarily due to declining fluctuations in fiscal 1997 as
compared to fiscal 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes was $0.9
million in fiscal 1995, $2.7 million in fiscal 1996 and $3.3 million in fiscal
1997. The Company had effective tax rates of approximately 43.4%, 50.4% and
58.4% in fiscal years 1995, 1996 and 1997, respectively. The difference between
these rates and the applicable statutory rates is primarily attributable to the
unrecognized tax benefit related to operating losses of the Company's foreign
subsidiaries. The increase in the effective tax rate from fiscal 1995 to fiscal
1996 principally reflects the absence of federal research tax credits due to a
temporary change in the Internal Revenue Code in 1996 and an increase in the
provision for tax contingencies. The increase in the effective tax rate from
fiscal 1996 to fiscal 1997 principally reflects the impact of an increase in the
amount of operating losses of the Company's foreign subsidiaries. See Note 6 of
Notes to Consolidated Financial Statements.
24
<PAGE> 26
SELECTED QUARTERLY OPERATING RESULTS
The following tables present certain consolidated statement of income data
for the eight fiscal quarters in the period ended December 31, 1997. In
management's opinion, this unaudited information has been prepared on the same
basis as the audited Consolidated Financial Statements appearing elsewhere in
this Prospectus and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The results of operations for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
--------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
revenues............. $3,323 $ 7,662 $3,714 $ 6,525 $5,237 $10,636
Maintenance and other
revenues............. 3,203 3,168 3,522 3,637 4,087 3,969
------ ------- ------ ------- ------ -------
Total revenues....... 6,526 10,830 7,236 10,162 9,324 14,605
Costs of revenues:
Software license
revenues............. 102 303 308 220 276 532
Maintenance and other
revenues............. 690 797 639 802 751 731
------ ------- ------ ------- ------ -------
Total costs of
revenues........... 792 1,100 947 1,022 1,027 1,263
------ ------- ------ ------- ------ -------
Gross profit............. 5,734 9,730 6,289 9,140 8,297 13,342
Operating expenses:
Sales and marketing.... 3,697 4,849 3,616 5,564 5,255 7,536
Research and
development.......... 1,228 1,216 1,367 1,443 1,533 1,561
General and
administrative....... 649 983 722 1,189 1,136 1,303
------ ------- ------ ------- ------ -------
Total operating
expenses........... 5,574 7,048 5,705 8,196 7,924 10,400
------ ------- ------ ------- ------ -------
Income from operations... 160 2,682 584 944 373 2,942
License and other
interest income........ 64 164 140 188 223 371
Interest expense......... (6) (9) (7) (4) (4) (7)
Foreign currency
transaction gains
(losses)............... (54) 18 1 -- (8) (5)
------ ------- ------ ------- ------ -------
Income before income
taxes.................. 164 2,855 718 1,128 584 3,301
Provision for income
taxes.................. 86 1,434 351 692 354 1,951
Accretion on Preferred
Stock.................. -- -- -- -- -- --
------ ------- ------ ------- ------ -------
Net income available to
common stock........... $ 78 $ 1,421 $ 367 $ 436 $ 230 $ 1,350
====== ======= ====== ======= ====== =======
<CAPTION>
QUARTERS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ------------
<S> <C> <C>
Revenues:
Software license
revenues............. $5,697 $8,596
Maintenance and other
revenues............. 4,183 4,595
------ ------
Total revenues....... 9,880 13,191
Costs of revenues:
Software license
revenues............. 366 312
Maintenance and other
revenues............. 692 862
------ ------
Total costs of
revenues........... 1,058 1,174
------ ------
Gross profit............. 8,822 12,017
Operating expenses:
Sales and marketing.... 4,700 6,097
Research and
development.......... 1,681 1,869
General and
administrative....... 1,462 1,542
------ ------
Total operating
expenses........... 7,843 9,508
------ ------
Income from operations... 979 2,509
License and other
interest income........ 325 507
Interest expense......... (4) (2)
Foreign currency
transaction gains
(losses)............... (3) (3)
------ ------
Income before income
taxes.................. 1,297 3,011
Provision for income
taxes.................. 750 1,605
Accretion on Preferred
Stock.................. -- 102
------ ------
Net income available to
common stock........... $ 547 $1,304
====== ======
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
--------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES
Revenues:
Software license
revenues............. 50.9% 70.7% 51.3% 64.2% 56.2% 72.8%
Maintenance and other
revenues............. 49.1 29.3 48.7 35.8 43.8 27.2
----- ----- ----- ----- ----- -----
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0
Costs of revenues:
Software license
revenues............. 1.6 2.8 4.3 2.2 3.0 3.6
Maintenance and other
revenues............. 10.6 7.4 8.8 7.9 8.0 5.0
----- ----- ----- ----- ----- -----
Total costs of
revenues........... 12.2 10.2 13.1 10.1 11.0 8.6
----- ----- ----- ----- ----- -----
Gross profit............. 87.8 89.8 86.9 89.9 89.0 91.4
Operating expenses:
Sales and marketing.... 56.7 44.7 50.0 54.7 56.4 51.6
Research and
development.......... 18.8 11.2 18.8 14.2 16.4 10.7
General and
administrative....... 9.9 9.1 10.0 11.7 12.2 8.9
----- ----- ----- ----- ----- -----
Total operating
expenses........... 85.4 65.0 78.8 80.6 85.0 71.2
Income from operations... 2.4 24.8 8.1 9.3 4.0 20.2
License and other
interest income........ 1.0 1.5 1.9 1.8 2.4 2.5
Interest expense......... (0.1) (0.1) (0.1) 0.0 0.0 (0.1)
Foreign currency
transaction gains
(losses)............... (0.8) 0.2 0.0 0.0 (0.1) 0.0
----- ----- ----- ----- ----- -----
Income before income
taxes.................. 2.5 26.4 9.9 11.1 6.3 22.6
Provision for income
taxes.................. 1.3 13.3 4.8 6.8 3.8 13.4
----- ----- ----- ----- ----- -----
Accretion on Preferred
Stock.................. -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Net income available to
common stock........... 1.2% 13.1% 5.1% 4.3% 2.5% 9.2%
===== ===== ===== ===== ===== =====
<CAPTION>
QUARTERS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- ------------
<S> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES
Revenues:
Software license
revenues............. 57.7% 65.2%
Maintenance and other
revenues............. 42.3 34.8
----- -----
Total revenues....... 100.0 100.0
Costs of revenues:
Software license
revenues............. 3.7 2.4
Maintenance and other
revenues............. 7.0 6.5
----- -----
Total costs of
revenues........... 10.7 8.9
----- -----
Gross profit............. 89.3 91.1
Operating expenses:
Sales and marketing.... 47.6 46.2
Research and
development.......... 17.0 14.2
General and
administrative....... 14.8 11.8
----- -----
Total operating
expenses........... 79.4 72.2
Income from operations... 9.9 18.9
License and other
interest income........ 3.2 3.8
Interest expense......... 0.0 0.0
Foreign currency
transaction gains
(losses)............... 0.0 0.1
----- -----
Income before income
taxes.................. 13.1 22.8
Provision for income
taxes.................. 7.6 12.2
----- -----
Accretion on Preferred
Stock.................. -- 0.7
----- -----
Net income available to
common stock........... 5.5% 9.9%
===== =====
</TABLE>
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results are expected to
fluctuate as a result of a variety of factors, including lengthy product sales
cycles, changes in the level of operating expenses, demand for the Company's
products, introductions of new products and product enhancements by the Company
or its competitors, changes in customer budgets, competitive conditions in the
industry and general domestic and international economic conditions. The
Company's business has experienced and is expected to continue to experience
significant seasonality, with revenues typically peaking primarily in its fourth
fiscal quarter and to a lesser extent in its second fiscal quarter. These
fluctuations are caused primarily by customer purchasing patterns and the
Company's sales force incentive programs which recognize and reward sales
personnel on the basis of achievement of annual and other periodic performance
quotas, as well as the factors described above. The Company expects its
operating results for the third quarter of fiscal 1998 to be consistent with its
historical seasonality patterns. See "Risk Factors -- Fluctuations in Period to
Period Results; Seasonality; Uncertainty of Future Operating Results".
26
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations principally
through cash flows from operating activities and, to a lesser extent, bank
financings and capital leases. As of December 31, 1997, the Company had cash and
cash equivalents of $7.2 million, an increase of $1.5 million from the $5.7
million held at June 30, 1997.
Net cash provided by operating activities was $0.3 million, $2.7 million
and $2.5 million in fiscal 1995, 1996 and 1997, and $1.9 million in the first
six months of each of fiscal 1997 and 1998. The Company's cash position was
improved by diligent collection efforts, resulting in lower accounts receivable
per dollar of revenue, offset by the increase in software license installments.
Software license installments, which, in total, increased 150% from $5.0 million
in at the end of fiscal 1996 to $12.5 million at the end of fiscal 1997 and 34%
to $16.8 million at the six months ended December 31, 1997 represent payments
due from customers for license fees that are paid over the term of the
installment agreement. These payments are typically made over 3-5 year terms.
Since payments are made over multiple reporting periods, software license
installments will increase with the increase in license revenue if the
percentage of licenses sold on this basis remains relatively stable, as it has
over the past 3 years.
The Company's cash position has also benefited from increases in deferred
maintenance revenue, which has increased 56% from $7.2 million in fiscal 1996 to
$11.2 million in fiscal 1997 and 44% to $16.1 million for the six months ended
December 31, 1997. Deferred maintenance revenue represents the unrecognized
portion of maintenance billings and the unrecognized portion of maintenance
revenue unbundled from customer license agreements which are recognized ratably
over the term of the agreement, or the first year of the license agreement.
These increases are primarily due to increases in license fees, the increase in
the number of customers covered by maintenance agreements and, to a lesser
extent, increases in the fees charged to customers for maintenance.
Cash used in investing activities, consisting of capital expenditures for
the purchase of computer equipment and software used in product development and
customer support, was $0.4 million, $0.6 million and $1.0 million in fiscal
1995, 1996 and 1997 and $0.3 million in the first six months of each of fiscal
1997 and 1998.
Cash used in financing activities remained relatively consistent at $0.3
million in fiscal 1995, 1996 and 1997 and $28,000 and $26,000 for the first six
months of fiscal 1997 and 1998, respectively. The cash was used primarily for
the repayment of capital lease obligations and the retirement of notes payable.
In addition, in 1997, the Company raised $12.0 million in a private placement of
its Series A Convertible Preferred stock and repurchased $12.0 million of Common
Stock.
The Company currently has a $5.0 million line of credit for working capital
purposes secured by certain assets of the Company. The line of credit requires
the Company to maintain certain financial ratios and provides for certain
negative covenants by the Company including, among others, restrictions, subject
to the qualifications and limitations contained therein, on the Company's
ability to (i) dispose of a substantial part of its business or property; (ii)
change its business; (iii) materially change the Company's ownership or
management; (iv) merge or consolidate with any other business organization, or
acquire all or substantially all of the capital stock or property of another
person; (v) incur any indebtedness or encumbrances, other than indebtedness or
encumbrances specifically permitted by the line of credit; and (vi) make any
other distribution with respect to any capital stock of the Company. The line of
credit expires on October 20, 1998.
The Company believes that the net proceeds from the offering, combined with
its existing cash balances, its line of credit and cash flows expected from
future operations, will be sufficient to meet the Company's capital requirements
for at least 12 months.
27
<PAGE> 29
INFLATION
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have a significant impact in
the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition",
which supersedes SOP 91-1. The Company will adopt SOP 97-2 for software
transactions entered into beginning July 1, 1998. SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements, such as
additional software products, upgrades or enhancements, rights to exchange or
return software, postcontract customer support, or services, including elements
deliverable only on a when-and-if-available basis, to be allocated to the
various elements of such sale based on "vendor-specific objective evidence of
fair values" allocable to each such element. If sufficient vendor-specific
objective evidence of fair market values does not exist, revenue from the sale
could be deferred until such sufficient evidence exists, or until all elements
have satisfied the requirements for revenue recognition.
SOP 97-2 is newly issued and has not yet been subject to interpretation in
practice or in applicable accounting guidelines. Although the Company has
reviewed, and is continuing to review, its license agreements in light of its
requirement to adopt SOP 97-2 and believes such adoption will have a material
effect on its operations, there can be no assurance that the future application
of or subsequent interpretations to SOP 97-2 will not require the Company to
defer the recognition of certain elements of revenue or result in revenue
patterns in periods subsequent to fiscal 1998 which are materially different
than historical periods. In addition, there can be no assurance that any
adjustments the Company makes to its license agreements or other contractual
arrangements in order to accommodate the requirements of SOP 97-2 would not be
negatively viewed by prospective customers and therefore have a material adverse
effect on the Company's sales efforts.
On February 11, 1998, the AICPA issued an Exposure Draft of a Proposed
Statement of Position "Deferral of the Effective Date of Certain Purchase of SOP
97-2, Software Revenue Recognition, for Certain Transactions". The proposed SOP
defers for one year the application of what constitutes vendor-specific
objective evidence of the fair value of the delivered software element in
certain multiple-element arrangements that include service elements and that are
entered into by entities that never sell the software element separately. The
Company believes that the provisions of the Exposure Draft do not apply to the
Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosures about Segments of an
Enterprise and Related Information". Commencing in 1998, SFAS No. 130 will
require companies to report comprehensive income and SFAS No. 131 will require
companies to report segment performance as it is used internally to evaluate
segment performance.
28
<PAGE> 30
BUSINESS
Mobius is a leading provider of enterprise software products designed to
optimize the storage, retrieval and presentation of large volumes of
transactional information. Major financial services, healthcare, manufacturing,
retail and telecommunications companies and government entities use the
Company's software to facilitate customer service and other mission-critical
functions. Mobius' Electronic Document Warehouse ("EDW") products store and
integrate documents of different formats on a wide variety of computing
platforms and electronic storage devices, and make the documents available to
the user through a common intuitive interface, including Internet browsers.
These software products store, retrieve and present computer generated documents
and non-computer generated documents, such as text, images, video or audio
recordings, customer statements, checks, external correspondence and remittance
forms. These products can be used by a single department, multiple departments
or centrally by an entire enterprise. More than 1,200 customers, including 58 of
the Fortune 100, have licensed Mobius products.
INDUSTRY BACKGROUND
Organizations are faced with the need to store ever-increasing volumes of
information. For example, credit card companies store a record of each charge
transaction; brokerage firms store records of every trade; and telephone
companies store records of individual telephone calls. These static records are
transaction "snapshots" which organizations maintain to meet operational,
regulatory and legal requirements. Organizations may retain vast archives of
this static information for long periods of time and access these archives to
satisfy customer or other inquiries. Static information rapidly accumulates and
results in information archives containing billions of individual transaction
records, which often increase by millions of records each day.
The large volumes of static information that organizations maintain create
significant storage, retrieval and presentation challenges. Organizations need
to quickly and accurately retrieve such information to improve customer service,
meet legal requirements and reach more informed business decisions. For example,
customer service departments capable of routinely answering inquiries during a
single telephone call are more responsive and operate more efficiently and cost
effectively than those relying on manual access to information and follow-up
calls. Customers have become dependent upon organizations to accurately account
for transaction and other static information and increasingly demand rapid and
consistent access to their records, including self-service via the Internet.
Furthermore, organizations that quickly and inexpensively access customer data
can incorporate a broader universe of information into their operating decisions
to distinguish themselves from their competitors.
A single organization often creates static information in a wide variety of
formats, including text, images, complex data streams, video and audio
recordings. This proliferation of formats has increased the complexity of
information storage and retrieval. Organizations may maintain a number of
discrete, non-integrated systems, each of which provides access to a portion of
the organization's stored information. When the organization needs to access all
information about a particular customer or transaction, these disparate systems
make retrieval costly and time consuming. As a result, the Company believes
there is a need for an integrated system capable of storing, retrieving and
presenting all information relevant to a customer or transaction, regardless of
formats or storage sites. Moreover, organizations are seeking a comprehensive
solution that can accommodate rapidly evolving techology and is capable of
supporting multiple computing platforms and storage media.
Traditional approaches to the storage, retrieval and presentation of static
information inadequately address the challenges inherent in developing a fully
integrated, comprehensive information management system. Paper and microfiche
archives ensure the integrity of the information, but make retrieval and
presentation costly and slow. Relational databases, while effective for the
initial capture and short-term storage of operational data for business
applications, do not economically
29
<PAGE> 31
store and present large amounts of static information created in a wide variety
of formats. Point storage technologies, such as imaging and computer output to
laser disk, while sufficient to address departmental needs, are limited in their
ability to support a wide array of data types, and typically require additional
investments in information technology infrastructure and significant
customization. Data warehousing technologies, such as on-line analytical
processing and query and reporting tools, enable organizations to analyze
certain historical financial and operational data but are not designed to cost
effectively support complex information formats or high volume storage.
Consequently, the Company believes that traditional approaches to static
information management are inadequate in today's competitive business
environment.
THE MOBIUS SOLUTION
Mobius develops, licenses and supports software solutions that are designed
to optimize the enterprise-wide storage, retrieval and presentation of
transactional information. The Company's Electronic Document Warehouse products
store and integrate documents of different formats on a wide variety of
computing platforms and electronic storage devices, making them available to the
user through a common intuitive interface, including Internet browsers. The
Mobius solution offers the following advantages:
- STORAGE OPTIMIZATION. The Company's software is designed to manage the
storage of information across an organization's established
infrastructure, minimizing storage costs while meeting rapid retrieval
needs. For example, the software keeps the most frequently used
information on a fast access medium, such as an on-line direct access
storage device. Infrequently accessed data is automatically migrated to
less expensive storage devices, such as tape or optical disk, for
long-term retention, but remains available for direct access.
- EFFICIENT INFORMATION RETRIEVAL. Mobius' indexing technology provides
quick and easy access to the large volumes of information in EDW
archives. The archiving technology retrieves information without the user
knowing where the information resides in the enterprise, how or when it
was created, or the information's type and format, thereby substantially
enhancing information retrieval productivity. Users can automatically
link disparate documents into virtual folders extending across servers,
applications and formats, providing an easy-to-use path to quickly find
required documents.
- OPEN ARCHITECTURE. The Company's software supports a wide range of
computing platforms and, through its UniversalArchive storage format, a
variety of storage media. As a result, customers can leverage existing
investments in technology and reduce the risks of storage media
obsolescence. The software stores, retrieves and presents a wide range of
information formats including document types such as reports, formatted
statements and images, as well as raw transaction records and audio and
video files. Further, the Company's software is designed to accommodate
evolving formats. Developers can use the Company's application
programming interfaces ("APIs") to incorporate Mobius' products into
their existing application infrastructure.
- ENTERPRISE SCALABILITY. The Mobius solution supports the enterprise-wide
information storage, retrieval and presentation requirements of large
organizations. The Company's solution is scalable in that it is capable
of meeting the information storage needs of organizations regardless of
information volume and the number and type of formats. The system can
operate on PC, mid-range, mainframe or Internet servers. Due to its
enterprise scalability, Mobius software can support many thousands of
concurrent users and store tens of millions of transactions per day.
30
<PAGE> 32
- EASE OF INSTALLATION AND IMPLEMENTATION. The Company's software is a
packaged solution that is designed to be easily and quickly installed by
the customer. By using an organization's existing storage facilities and
computer capacity, Mobius' software minimizes the need for additional
capital expenditures and is easily implemented. In addition, the software
is easily adapted by both users and application developers to effectively
deploy applications tailored to their own business processes.
STRATEGY
The Company's objective is to be a leading provider of enterprise software
solutions that manage the storage, retrieval and presentation of large volumes
of transactional information created in a wide variety of formats. To achieve
this objective, the Company is pursuing the following strategies:
- MAINTAIN AND EXTEND TECHNOLOGICAL LEADERSHIP. Mobius has focused on
developing innovative storage, retrieval and presentation technologies.
As document formats proliferate, computing environments evolve,
Internet/intranet usage continues to grow and the storage and retrieval
demands of organizations escalate, the Company will strive to strengthen
its current market position by developing innovative technologies and new
products, features, functions and performance improvements.
- LEVERAGE INSTALLED BASE. More than 1,200 customers, including 58 of the
Fortune 100, have licensed the Company's products. Mobius plans to use
its blue chip customer base to expand existing relationships and further
extend its customer base. The Company's success in meeting the technology
challenges of sophisticated customers allows it to leverage its
experience into broader market penetration. The Company's sales
infrastructure is organized to expand penetration within existing
accounts at the divisional, departmental and enterprise-wide levels.
- EXPAND DISTRIBUTION CHANNELS. The Company's distribution strategy is to
develop multiple sales channels to reach a broad customer base. Mobius
expects to continue to expand both its field sales force and its
telesales force. In addition, the Company is focused on growing its
indirect sales channels by continuing to develop marketing partnerships
and joint-selling opportunities and by expanding distribution through
original equipment manufacturers ("OEMs").
- INCREASE FOCUS ON VERTICAL MARKETS. Mobius is pursuing a strategy
designed to increase its penetration of targeted vertical industries,
such as financial services and telecommunications. The Company is
developing application templates tailored toward specific industries, the
first two of which, for the banking and brokerage industries, were
recently introduced. In addition, to further enhance the effectiveness of
its selling efforts, the Company has built specialized sales teams
focused on selected vertical markets.
- INCREASE PENETRATION OF INTERNATIONAL MARKETS. Mobius began directly
selling its products in Europe in 1993. The Company has sales offices in
five European countries and one in Australia. In addition, the Company
has direct sales teams focusing on key areas of Canada, Mexico, South
America, Europe, Africa and Asia Pacific. The Company's global strategy
is to continue to expand its direct foreign operations as well as to
enter into joint ventures and other strategic alliances to provide a
sales and marketing presence for its products in key international
markets. Where appropriate, the Company has introduced national language
versions and double-byte character support in its products to meet the
needs of its international customers.
31
<PAGE> 33
CUSTOMERS
More than 1,200 customers in a wide range of industries have licensed the
Company's products, including approximately 1,000 customers who have licensed
one or more of the Company's EDW products. No single customer accounted for 10%
or more of revenues in fiscal years 1995, 1996 or 1997. The following is a list
of selected customers of the Company, segmented by industry concentration.
<TABLE>
<S> <C> <C>
BANKING FINANCIAL INSURANCE
ABN AMRO North America, Inc. Chicago Board of Trade Clearing American Family Life Insurance
The Chase Manhattan Bank Corp. Company
Lloyds Bank PLC Securities Industry Automation The Equitable Life Assurance
Mellon Bank, N.A. Corporation Society of the United States
National Westminster Bank PLC Oppenheimer Funds, Inc. John Hancock Mutual Life
NationsBank Corporation VISA International Service Insurance Company
Wells Fargo Bank, N.A. Association Provident Mutual Life Insurance
TELECOMMUNICATIONS The Vanguard Group Company
Ameritech Services, Inc. Zurich Kemper Investments, Inc. MANUFACTURING
BellSouth Telecommunications, Inc. HEALTH CARE SERVICES American Honda Motor Co. Inc.
Century Telephone Enterprises, Inc. Abbott Laboratories Caterpillar Inc.
Cincinnati Bell Inc. Baxter Healthcare Corporation Ford Motor Company
RETAIL BlueCross BlueShield of Illinois Nabisco Brands Company
CVS Corporation Eli Lilly and Company TRANSPORTATION
Land's End, Inc. Johns Hopkins University Medical Alamo Rent-A-Car, Inc.
Nordstrom, Inc. Center Budget Rent A Car Corporation
Safeway Inc. GOVERNMENT The Hertz Corporation
Wal-Mart Stores, Inc. Commonwealth of Massachusetts US Airways Group, Inc.
UTILITIES Social Security Administration
British Gas plc The United Kingdom Ministry of
Consolidated Natural Gas Defence
Company United States Postal Service
Occidental Petroleum Corporation
Pacific Gas and Electric Company
</TABLE>
CUSTOMER APPLICATIONS
The following case studies illustrate applications of the Company's
products. These examples are based upon information provided to the Company by
the customer. The benefits achieved by the following customers may not be
achieved by other customers.
CREDIT CARDS: One of the world's largest credit card processors was
storing nearly 12 million transactions per day on microfiche, generating about
700 sheets of microfiche per day. Copies of these sheets of microfiche were then
distributed to locations throughout the world. Microfiche was often not
available for at least five days following a transaction, and delays of up to
fifteen days between transaction and record availability were common. Using
Mobius' EDW software and a tape storage system to index, store and retrieve
transactions, data currently representing 30 million transactions per day is
available to users the next day.
TELECOMMUNICATIONS: A major telecommunications company was storing the
current and previous month's billing information for its 14 million customers on
line, then moving it to microfiche. Manual retrieval of information from
microfiche to satisfy a customer query could take up to two weeks. Further,
neither the on-line data nor the microfiche presented the information to the
customer service representative in the same format as the customer's bill. Using
Mobius' EDW software and dedicated tape silos, the company has virtually
eliminated microfiche for billing data for its local land-line customers. Each
month, 270 million pages of customer bills -- about half a terabyte -- are
archived to the system. Six thousand customer service representatives retrieve
and view the bills in the same format the customer sees in an average retrieval
time of under 45 seconds.
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<PAGE> 34
New uses for the archived data, such as fraud research and litigation-related
inquiries, continue to provide added benefits.
INSURANCE: One of the largest insurers in the U.S. chose Mobius' EDW
software to enhance its remittance processing operations by implementing an
on-line check image archive. Up to one million items, from three different
processing centers, are imaged and stored each day. The system has reduced the
time to research and resolve errors and has reduced the number of people needed
to support check processing operations. Customer service representatives have
timely access to check images to respond to inquiries and overpayments. Back
office personnel use images to research items and handle bank reconciliation.
Lookups that had taken 15 minutes per item using microfilm are now done in
seconds.
FINANCIAL SERVICES: A major brokerage firm uses mobius EDW products to
store annual statements and confirmations for 4.6 million customers. The
documents, originally created with Xerox DJDE, are being converted from an
existing computer-output-to-laser-disk system. All documents since 1992 that
have to be retained to meet either regulatory or service requirements will be
available to customer service representatives for desktop viewing.
SecuritiesDirect, an option of DocumentDirect Application Suite, facilitates
fast, easy navigation of the archive, letting the user apply Boolean logic to
locate documents that meet specified criteria. Documents can be instantaneously
printed or faxed to customers.
FINANCIAL SERVICES: A major financial services organization uses Mobius
EDW products to support its 401(k) services, comprising the management of $16
billion in assets and more than 350 plans. DocumentDirect for the Internet
provides 401(k) plan sponsors who subscribe to the service direct access to
information about their accounts over a private network. The system, operational
since mid-1997, currently has 200 internal users and over 40 plan sponsors
subscribed. Previously, reports were mailed and were available to the customer
three days after they were generated. Now, using Internet browsers, plan
managers can view their reports immediately.
TECHNOLOGY
The Company's technology is designed to optimize the performance of
mission-critical information storage, retrieval and presentation processes on a
variety of computing platforms, information formats and storage media. Mobius'
Electronic Document Warehouse solutions have the following key technological
attributes:
- ENTERPRISEINDEX. Mobius' EnterpriseIndex technology provides a
multi-level, multi-key index for maximum information access flexibility.
EnterpriseIndex allows EDW users to create virtual folders of disparate
documents. Documents can be associated across time, servers and formats
and presented to the user in a consistent viewing format.
- UNIVERSALARCHIVE. The Company's UniversalArchive storage format
(trademarked as UniArc) supports a wide range of storage media from
traditional disk drives to optical disk to robotically-controlled
magnetic tape. As information ages and is accessed less frequently,
migration utilities move the archive from direct access storage devices
("DASD") to less expensive tape or optical storage. Users view documents,
and applications access information, directly from tape or optical disk
devices, eliminating expensive recalls, reducing DASD use and providing
low cost, direct access to long-term, infrequently-accessed data. The
UniversalArchive facilitates the integration of new hardware as
technology enhancements occur, and reduces the risk of media obsolescence
by ensuring that as equipment ages, information can be migrated without
reprocessing.
- SERVERTRANSPARENCY. The Company's ServerTransparency architecture enables
the user to retrieve documents without knowing where they are located in
the heterogeneous computing environment. ServerTransparency alleviates
the need for the end user to keep track of the location of documents
across the supported platforms, which include OS/390, Windows NT,
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<PAGE> 35
Windows 95, UNIX, OS/400, NetWare and others. In addition, the Company's
archive replication facilities enable Mobius customers to position
archives throughout the computing complex so as to optimize information
retrieval.
- ASSOCIATED DATATYPE. The Company's software provides a way to build EDW
archives that contain application-specific data streams such as HTML,
Java, Adobe PDF, word processor and spreadsheet formats. These archives
can be associated with external software products that render and display
the archived objects. This capability enables implementation of both
Internet and "thick client" information retrieval and object processing
applications.
- VISUAL PARSER. The visual parser feature of ViewDirect for Networks
provides a powerful and easy-to-use graphical interface through which
customers visually define document identifiers and indexing information,
prescribe access privileges and validate the proper extraction of these
parameters from the data stream. Using these visually-defined parameters,
the Mobius software parses defined fields within the data stream to
extract and populate the ViewDirect for Networks' databases. The visual
parser facility reduces the expertise level needed to set up Mobius
software.
- LPFD VIEWING. Many organizations create and store large volumes of static
documents using printer definition languages. This laser printer
formatted data ("LPFD") contains variable data as well as all the
resources (shading, grids, logos, signatures, etc.) needed to print or
view a stylized document. The Company's software, in addition to
supporting traditional data streams, supports IBM AFP and Xerox
DJDE/Metacode LPFD formats. A Total Resource Management facility manages
the retention and caching of these resource objects throughout the
network to minimize network traffic and maximize the speed of rendering
complex data streams.
- FUNCTIONAL ISOLATION. The multi-dataset architecture of the Mobius
software makes it possible to isolate specific functions, such as
retrieval, viewing and data migration, thereby eliminating unnecessary
contention for computing resources and preventing performance
degradation, even during peak usage periods.
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<PAGE> 36
PRODUCTS
The following chart describes the Company's primary products and highlights
the key features of each:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
YEAR OF SUPPORTED
FIRST CURRENT OPERATING
PRODUCT SALE RELEASE SYSTEMS DESCRIPTION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDW SERVER PRODUCTS
ViewDirect for MVS 1983 6.1 OS/390 Information archiver and
ViewDirect for Networks 1995 3.1 Windows, OS/2, server
OS/400, UNIX, - Integrates information
Netware created in various formats
- Direct access to disk, tape
and optical disk
- Flexible indexing
- ---------------------------------------------------------------------------------------------------
EDW CLIENT PRODUCTS
DocumentDirect 1992 2.1 Windows, OS/2 Viewing client
- Common user interface to
diverse documents
- Easy navigation of the
archive
- Multiple viewing options
- Exports data to other
applications
DocumentDirect for the 1997 1.1 Windows Document viewing over
Internet Internet/intranets
- Access to archive via
Internet browsers
- Accommodates "thin client"
- Self-service access for
customers
DocumentDirect Application 1997 1.1 Windows, OS/2 Vertical industry application
Suite templates for document
viewing
- Options for banking and
brokerage
- Customizable user interface
- Integrates with external
applications
DocuAnalyzer(1) 1996 2.1 Windows, OS/2 Data mining client
- Loads text and character
data into tables for
analysis
- Drill down and graphical
analysis
- ---------------------------------------------------------------------------------------------------
OTHER PRODUCTS
INFOPAC-TapeSaver 1990 2.1 OS/390 Tape dataset consolidation
- Conserves tape resources
- Improves efficiency of
robotic tape devices
- Forecasts tape storage
requirements
INFOPAC-ABS 1990 1.4 OS/390 Automated balancing
- Ensures data integrity
across applications
- Confirms accuracy of Year
2000 conversions
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) This product is owned by Datawatch Corporation and licensed to Mobius
for resale to customers pursuant to a reseller agreement. The year of
first sale is the date Mobius first licensed the product to a customer.
35
<PAGE> 37
ELECTRONIC DOCUMENT WAREHOUSE
The software components of the EDW are shown in the figure below. The EDW
products consist of ViewDirect, the archiving engine and server; DocumentDirect,
the document viewing client; DocumentDirect for the Internet, the viewing
application which makes information available over the Internet and corporate
intranets; and DocuAnalyzer, the data mining client. The Company recently
introduced DocumentDirect Application Suite, a framework for vertical industry
document-centric applications.
[DIAGRAM]
[The diagram portrays a network configuration of the Company's EDW
products. The diagram shows icons representing the Company's ViewDirect for MVS
and ViewDirect for Networks server products connecting through a network with
the Company's DocumentDirect, DocumentDirect Application Suite, DocuAnalyzer and
DocumentDirect for the Internet client products. The diagram shows icons
representing users' Internet browsers connecting to DocumentDirect for the
Internet through an Internet or corporate intranet link. Icons representing
tape, optical disk and DASD storage media are shown residing on the server
products.]
SERVER PRODUCTS
VIEWDIRECT. ViewDirect is the archiving engine and server of the EDW. It
supports both host-based and client/server implementations, scaling from the
desktop to the department to the largest enterprise OS/390 server. It stores and
presents virtually any record of business transactions, including
computer-generated reports; print-formatted documents, such as customer
statements; scanned images; transparent or undefined transactions created in
other environments; and associated documents, created for display devices such
as generic Internet browsers. ViewDirect provides direct on-line access to
information stored on disk, tape or optical devices. It supports multi-user,
simultaneous random access to information stored on tape or optical devices
without recall to on-line magnetic disk. Flexible indexing facilitates efficient
information retrieval and enables the grouping of disparate documents.
ViewDirect automatically indexes, stores and manages the migration and
archiving of long-term retention documents. It is designed to assure data
integrity and control, providing facilities for backup, off-site storage and
archive duplexing. As a result, ViewDirect maintains the integrity of documents
and transactions as originals while significantly reducing the costs and
enhancing the service levels previously associated with older technologies such
as microfiche.
ViewDirect supports a wide range of operating environments: ViewDirect for
MVS runs on the largest OS/390 servers and ViewDirect for Networks supports
client/server implementations in a variety of distributed environments.
36
<PAGE> 38
CLIENT PRODUCTS
DOCUMENTDIRECT. DocumentDirect, a document viewing client of the EDW, is a
Windows-based full-function viewer. It provides a common dashboard through which
the user is able to access any type or number of documents stored in ViewDirect
archives on servers distributed across a heterogeneous computing complex.
DocumentDirect provides flexibility for the most demanding user in locating and
displaying documents. DocumentDirect has the ability to simultaneously display
documents of diverse formats and facilitates the annotation and reformatting of
document elements for viewing. DocumentDirect lets the user export documents in
whole or in part to other desktop applications such as spreadsheets, analytical
tools and word processors.
DOCUMENTDIRECT FOR THE INTERNET. DocumentDirect for the Internet is
designed for secure, self-service access to documents over the Internet and
corporate intranets. It is a common gateway interface ("CGI") application that
runs under Windows NT and manages all communications between the EDW and the
Internet/intranet server. DocumentDirect for the Internet makes all the
documents in EDW archives available for viewing via Internet browsers. It allows
users to leverage installed Internet infrastructure and reduce the costs and
administrative overhead associated with software distribution of "thick
clients".
DOCUMENTDIRECT APPLICATION SUITE. DocumentDirect Application Suite is a
document viewing client designed for users with well defined requirements for
document access. It comprises a framework for the development of application
templates tailored for vertical industry requirements. To date, the Company has
introduced versions of DocumentDirect Application Suite for the banking and
brokerage industries. The DocumentDirect Application Suite user can specify
Boolean logic operators to filter document selection lists, speeding access to
desired documents.
DOCUANALYZER. DocuAnalyzer is a Windows-based data-mining client that
makes the data in the EDW archive available for analysis without re-keying. It
simplifies the conversion of character data into a table format to facilitate
"drill-down", analysis, graphing and creation of new reports. Mobius licenses
DocuAnalyzer from a third party for resale.
OTHER PRODUCTS
Mobius also provides systems software products designed to optimize
resource utilization in the data center and to ensure the accuracy and integrity
of data across applications.
INFOPAC-TAPESAVER. INFOPAC-TapeSaver is an OS/390-based software product
that is designed to optimize the utilization of tape and tape devices. Following
user-defined rules, the product automatically consolidates datasets, eliminating
wasted space and freeing up tape cartridges. INFOPAC-TapeSaver improves the
efficiency of robotic tape devices by ensuring that every cartridge is filled to
its useful capacity and that high-activity datasets are available for automated
mounting.
INFOPAC-TapeSaver's forecasting facility allows data centers to proactively
manage their tape storage environment. For example, the data center can make
informed decisions on migrating datasets and acquiring new hardware.
INFOPAC-ABS. INFOPAC-ABS (Automated Balancing System) is an OS/390 data
integrity and quality control software tool. Data in computer systems,
databases, and end user applications originates from many sources. Due to the
large number of input sources, computer systems can and do become
unsynchronized. INFOPAC-ABS provides cross-application balancing of numerical
data resident in databases, files and reports to detect and assist in the
correction of out-of-balance situations. It eliminates slow and costly manual
balancing, speeding procedures such as item reconciliation and control-total
balancing. INFOPAC-ABS is used in Year 2000 conversions to audit applications,
verify the accuracy of output and load databases that include dates beyond 2000.
37
<PAGE> 39
PRODUCT AND MAINTENANCE PRICING
The Company's products are licensed under agreements requiring the payment
of fees. The amount of the license fee is based on various factors, including
the number of concurrent users, the functionality of the system, the number of
servers on which the product is installed, and the scope of the business usage.
Typically, the Company's server products are licensed for fifteen years and
client products are licensed for five years. The Company also provides financing
to some of its customers for the purchase of its software licenses; the term of
these financing agreements is typically three years for server products and five
years for client products.
The Company provides product updates and enhancements and customer support
services under annual maintenance agreements. Maintenance fees are calculated as
a percentage of license fees and are collected annually in advance. During
fiscal 1997, more than 95% of existing maintenance agreements for the Company's
primary EDW products were renewed.
During fiscal 1997 and the first six months of fiscal 1998, the average
amount of revenue recognized by the Company for domestic licenses to new
customers was approximately $168,000.
SALES AND MARKETING
The Company sells and markets its products primarily through a direct sales
force based in Chicago and additional sales offices in the Atlanta, Boston,
Dallas, Houston, Lawrenceville (New Jersey), Los Angeles, Madison, Minneapolis,
Rye (New York), St. Louis, Washington, D.C., London, Milan, Paris, Dusseldorf,
Melbourne and Stockholm metropolitan areas. The Company's sales and marketing
organization consisted of 156 employees as of December 31, 1997, of which 84
were direct sales representatives.
A portion of Mobius' direct sales force focuses on sales of products to
large organizations for enterprise-wide use. To support its direct sales
efforts, the Company conducts a number of marketing programs, which include
public relations, seminars, trade shows, product education and user group
conferences, speaking engagements and white papers. Mobius' telesales staff
markets the Company's products to smaller organizations and to departments of
large organizations. Mobius has undertaken a vertical marketing strategy
designed to target large customers in key vertical markets, such as financial
services and telecommunications companies, by emphasizing certain
industry-specific benefits afforded by the Company's products. In addition, the
Company has entered into distribution agreements with distributors in Canada,
Australia, Japan, Europe, South Africa and Latin America.
The Company's direct sales team includes both sales personnel and systems
engineers who conduct multiple presentations and demonstrations of the Company's
products at customer sites as part of the direct sales effort. Systems engineers
provide comprehensive on-site training and pre-sale customer support services.
The Company's sales cycles generally range from three to nine months, depending
on the product and the market segment.
The Company has strategic relationships with a number of organizations that
it believes enhance its worldwide sales, marketing and support activities. These
relationships provide marketing and sales opportunities for the Company's direct
sales team, expand the distribution of its products and broaden its product
offerings through product bundling. The Company is actively seeking strategic
partners with products that are complementary and provide additional
functionality to the Company's products in targeted industries to further
enhance the Company's vertical marketing program.
Mobius began directly selling its products in Europe in 1993, and has since
opened international sales offices in five European countries and one office in
Australia. In addition, the Company has direct sales teams focusing on key areas
of Canada, Mexico, South America, Europe, Africa and
38
<PAGE> 40
Asia Pacific. The Company believes that an important part of its overall growth
strategy is to expand its foreign operations and enter into joint ventures and
other strategic alliances to provide a worldwide sales and marketing presence
for its products.
At the annual Mobius users group conference, Mobius meets with customers to
determine their needs, ascertain their direction and mold the Company's products
to fit the marketplace. At the conference, customers have the opportunity to
work directly with Mobius personnel to explore new product capabilities.
CUSTOMER SATISFACTION
Mobius provides twenty-four hour, seven-day-a-week support services for all
of the Company's products through its United States and European support centers
(based in New York and the United Kingdom, respectively). Complex diagnostics
and product correction are provided exclusively through the United States
support center. First-line support services for customers outside North America
and the United Kingdom are typically provided by the Company's subsidiaries. In
addition, Mobius has trained and certified five professional service
organizations -- independent companies located across Europe and North
America -- to provide customers with post-sale assistance with Mobius' products
and on-site implementation services, if necessary. As of December 31, 1997, the
Company had 32 employees in its customer satisfaction department.
RESEARCH AND DEVELOPMENT
The Company intends to continue to make substantial investments in research
and development to maintain and enhance its product lines. The Company spent
$3.5 million, $4.6 million and $5.7 million on research and development in
fiscal years 1995, 1996 and 1997, respectively. The Company believes that its
future success will, in large part, depend on its ability to maintain and
improve current products and develop new products that meet the emerging needs
of the marketplace. Mobius research and development focuses on designing and
developing reliable and easy-to-use products. As of December 31, 1997, the
Company's research and development organization consisted of 58 full-time
employees.
To capitalize on market opportunities and to be responsive to customer
demands, the Mobius product development cycle targets shipment of new products
and enhancements to the marketplace within approximately six months from the
date resources are allocated to a project. Larger projects are typically
disaggregated to provide specific deliverables within a six-month maximum
period. The Company divides its development team into groups delineated by
product functionality and employs advanced Rapid Application Development ("RAD")
tools to facilitate short development cycles for functional enhancements while
maintaining product reliability.
COMPETITION
The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. The Company's products are targeted
at a broad range of hardware and software environments from PCs to mid-range to
mainframe servers. The Company currently encounters direct competition from a
number of public and private companies including Computer Associates, Computron,
FileNet, IBM, Kodak, New Dimension and RSD. Some of these competitors have
longer operating histories, significantly greater financial, technical,
marketing and other resources, significantly greater name recognition and a
larger installed base of customers than the Company. In the future, it is
possible that new competitors or alliances among competitors may emerge and
enter into the Company's market. See "Risk Factors -- Competition".
The Company believes that the principal competitive factors affecting its
market include product features such as scalability, breadth of supported
operating systems and document formats, ease of use, product reputation,
quality, performance, price, sales and marketing effort and customer
39
<PAGE> 41
service. Although the Company believes that it currently competes favorably with
respect to such factors, there can be no assurance that the Company can maintain
its competitive position against current and potential competitors, especially
those with greater financial, marketing, service, support, technical and other
resources than the Company.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
The Company regards certain features of its internal operations, software
and documentation as confidential and proprietary, and relies on a combination
of confidentiality agreements, contractual rights, copyright, trademark and
trade secret laws and other measures to protect its intellectual property. The
Company has no patents, and existing trade secret and copyright laws afford only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. The Company believes that, because of the rapid rate of
technological change in the computer software industry, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent product enhancements
and the timeliness and quality of support services.
Typically, the Company's server products are licensed for fifteen years and
its client products are licensed for five years. The Company generally licenses
its products solely for the customer's internal operations and only on
designated computers. In certain circumstances, the Company makes available
enterprise-wide licenses.
In addition, the Company relies on certain software and other information
that it licenses from third parties, including software that is used in the
Company's products to perform certain functions. See Risk Factors -- "Dependence
on Licensed Technology".
The Company's products are generally provided to customers in object code
format only. However, the Company generally enters into arrangements with its
customers pursuant to which the Company's source code will be released to the
customer upon the occurrence of certain events, such as the bankruptcy or
insolvency of the Company, or certain material breaches by the Company of the
license agreement. In the event of any release of the source code pursuant to
these arrangements, the customer's license is generally limited to use of the
source code to maintain, support and configure the Company's software products.
The provision of source code may increase the likelihood of misappropriation or
other misuse of the Company's intellectual property. See "Risk
Factors -- Protection of Intellectual Property".
EMPLOYEES
As of December 31, 1997, Mobius employed 282 people. None of the Company's
employees is represented by a labor union or is subject to a collective
bargaining agreement. The Company has experienced no work stoppages and believes
its relationship with its employees is good. The Company believes that its
future success will depend to a significant extent upon its ability to attract,
train and retain highly skilled technical, management, sales and marketing
personnel. There can be no assurance that the Company will be successful in
attracting or retaining such personnel, and the failure to attract or retain
such personnel could have a material adverse effect on the Company's business,
operating results and financial condition.
FACILITIES
The Company is headquartered in Rye, New York, where it leases an aggregate
of approximately 43,700 square feet of space. Administrative, marketing, product
development and customer support and service operations are located in the Rye
space, and sales operations are based in Chicago. The Company leases an
aggregate of approximately 43,559 additional square feet of space in the
Atlanta, Boston, Chicago, Dallas, Houston, Lawrenceville (New Jersey), Los
Angeles, Madison, Minneapolis, New Rochelle (New York), St. Louis, Washington,
D.C., London, Paris,
40
<PAGE> 42
Milan, Dusseldorf and Stockholm metropolitan areas. The annualized lease
payments on the Rye Facility are currently $965,688 and the annualized lease
payments on the additional 43,559 square feet of space currently range from
$9.87 to $232.08 per square foot. The Company believes that these facilities are
adequate to meet its current needs and that suitable additional space will be
available as needed to accommodate physical expansions of corporate operations
and for additional sales and service field offices.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not a party to any legal proceedings, the adverse outcome of which, individually
or in the aggregate, would have a material adverse effect on the Company's
business, operating results and financial condition.
41
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mitchell Gross............................ 48 Chairman of the Board of Directors, Chief Executive
Officer and President
Joseph J. Albracht........................ 48 Executive Vice President, Chief Operating Officer,
Secretary and Director
E. Kevin Dahill........................... 50 Vice President, Finance, Chief Financial Officer
and Treasurer
Anne Ashley............................... 55 Vice President, Customer Satisfaction
Scott Gellis.............................. 42 Vice President, Technical Services
Karry Kleeman............................. 35 Vice President, Sales
Robert Lawrence........................... 45 Vice President, Product Engineering
Mario Pelleschi........................... 40 Vice President, Sales (Europe, Middle East and
Africa)
Abby Pinard............................... 55 Vice President, Corporate Marketing
Joseph Tinnerello......................... 41 Vice President, Business Development
Peter J. Barris(1)(2)..................... 46 Director
Edward F. Glassmeyer(1)(2)................ 56 Director
Kenneth P. Kopelman(1).................... 47 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
MITCHELL GROSS co-founded Mobius and has served as President and a Director
since 1981 and as Chairman of the Board and Chief Executive Officer since 1996.
Prior to co-founding the Company, Mr. Gross was a Senior Consultant at American
Management Systems, Inc. ("AMS"), a consulting and software products
organization, from 1978 to 1981. Mr. Gross was an officer in the U.S. Navy,
serving on nuclear submarines, from 1971 to 1976. He holds an M.B.A. in Finance
from The Wharton School, University of Pennsylvania and a B.S. in Mechanical
Engineering from Columbia University School of Engineering and Applied Science.
JOSEPH J. ALBRACHT co-founded Mobius and has served as Executive Vice
President, Secretary and a Director since 1981, Treasurer from 1981 to 1996 and
Chief Operating Officer since 1996. Prior to co-founding the Company, Mr.
Albracht was a principal at AMS from 1978 to 1981, and held various positions at
Warner-Lambert Co. and RCA Corporation from 1973 to 1977. He holds an M.B.A. and
a B.S. in Operations Research from Pennsylvania State University.
E. KEVIN DAHILL joined Mobius in December, 1996 as Vice President, Finance,
Chief Financial Officer and Treasurer. From 1991 to 1996, Mr. Dahill was
employed by Electronic Information Services, Inc. ("EIS"), a publicly-held
corporation engaged in the supply of systems and software in the outbound call
center market where he served in various capacities including as President from
1995 to 1996, Chief Operating Officer from 1994 to 1996 and Senior Vice
President, Finance and Chief Financial Officer from 1991 to 1994. Mr. Dahill
also served as a member of the EIS Board of Directors from 1992 to 1996. He
holds an M.S. in Management from the Massachusetts Institute
42
<PAGE> 44
of Technology, Sloan School of Management, an M.S. in Mechanical Engineering
from the Georgia Institute of Technology and a B.S. in Mechanical Engineering
from the University of Notre Dame.
ANNE ASHLEY joined Mobius in 1995 as Director of Customer Satisfaction and
has served as Vice President, Customer Satisfaction since August 1997. Prior to
joining the Company, Ms. Ashley worked from 1987 to 1995 for Syncsort, Inc.
where she was responsible for support and service and pre-sales technical
support for MVS products. Ms. Ashley holds a B.S. in Electrical Engineering from
the University of Michigan.
SCOTT GELLIS joined Mobius in 1994 as Director of Technical Services and
has served as Vice President, Technical Services since January, 1998. From 1992
to 1994, Mr. Gellis was Vice President of Data Switch Corporation. During 1992,
Mr. Gellis was employed by Microcom, Inc. as Director of Research and
Development. From 1988 to 1992, he was Vice President, Product Development for
Coordination Technology, Inc. Mr. Gellis holds a B.S. in Computer Sciences from
Union College.
KARRY KLEEMAN joined Mobius in 1990 and has served as Vice President, Sales
since 1997. From 1995 to 1997, he served as the Company's National Sales Manager
and from 1992 to 1995 as a Regional Manager. From 1988 to 1990, Mr. Kleeman was
a sales representative for MUST Software Inc., a subsidiary of French based
Thomson-CSF. Mr. Kleeman holds a B.A. in Marketing from Elmhurst College.
ROBERT LAWRENCE joined Mobius in 1985 and has served as Vice President,
Product Engineering since 1992. Prior to joining the Company, he was a senior
developer with Time Sharing Resources, Inc. developing custom decision support
applications for Fortune 500 clients from 1977 to 1983. In 1983 Mr. Lawrence
joined On-Line Software International, Inc. as a consultant and later as a
software developer. Mr. Lawrence graduated from the University of Massachusetts
in 1974 where he earned the Hasbrook award given each year to the outstanding
physics major.
MARIO PELLESCHI joined Mobius in 1998 as Vice President, Sales (Europe,
Middle East and Africa). Prior to joining the Company, Mr. Pelleschi was
employed by Computer Associates from 1981 to 1997, initially as a Branch
Manager, and as Managing Director of various subsidiaries as follows:
Switzerland, 1981-1985; Brazil, 1985-1987; Germany, 1987-1995; and France,
1995-1997. Mr. Pelleschi holds a Swiss Federal degree in Electronic Engineering.
ABBY PINARD joined Mobius in 1996 as Vice President, Corporate Marketing.
From 1987 to 1996, she served as Vice President of Marketing for Thomson
Software Products, a subsidiary of French-based Thomson-CSF where she was
responsible for corporate and product marketing of a multi-platform suite of
decision support, application development and data warehousing tools. Ms. Pinard
holds a B.S. degree, cum laude, in Mathematics from Brooklyn College.
JOSEPH TINNERELLO joined Mobius in 1990 and has served as Vice President,
Business Development since 1998 and as Vice President, Sales from 1995 to 1997.
Following a personal leave of absence, Mr. Tinnerello left the Company from
October 1, 1997 through January 14, 1998. From 1988 to 1989, he was a Regional
Manager with Legent Software, prior to its acquisition by Computer Associates.
PETER J. BARRIS has served as a director of the Company since 1997. Since
1992, Mr. Barris has served as a partner of New Enterprise Associates, a venture
capital firm, and as a General Partner since 1993. Mr. Barris serves on the
boards of a number of privately-held information technology companies. He holds
a B.S degree in Electrical Engineering from Northwestern University and an
M.B.A. from the Tuck School at Dartmouth College.
43
<PAGE> 45
EDWARD F. GLASSMEYER has served as a director of the Company since 1997.
Since 1978, Mr. Glassmeyer has served as a general partner of Oak Investment
Partners, a venture capital firm, that he co-founded in that year. Mr.
Glassmeyer is a director of Aavid Thermal Technologies, Inc., and is a director
of several privately-held companies in which one of the Oak investment
partnerships is an investor. Mr. Glassmeyer holds a B.A. from Princeton
University and an M.B.A. from the Tuck School at Dartmouth College.
KENNETH P. KOPELMAN, a member of the New York City law firm of Kramer,
Levin, Naftalis & Frankel ("Kramer Levin") since 1984, has served as a Director
of the Company since 1997. He also serves as a Director of Liz Claiborne, Inc.,
a publicly-held apparel company. He attended Cornell University, The London
School of Economics and received his J.D. from the Columbia University School of
Law, and has practiced corporate and securities law for over 20 years. Kramer
Levin has served as legal counsel to the Company since its founding in 1981.
The Company's Board of Directors is divided into three classes. Messrs.
Glassmeyer and Kopelman serve in the class whose term expires in 1999; Messrs.
Albracht and Barris serve in the class whose term expires in 2000; and Mr. Gross
serves in the class whose term expires in 2001. Upon the expiration of the term
of a class of directors, directors within such class will be elected for a
three-year term at the annual meeting of stockholders in the year in which such
term expires. Directors will hold office until the expiration of their term and
until that director's successor has been elected and qualified.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors and until their successors have been duly elected and qualified. There
are no family relationships among any of the executive officers or directors of
the Company.
BOARD COMMITTEES
The Company's Board of Directors has recently appointed an Audit Committee
and a Compensation Committee. The Audit Committee is responsible for nominating
the Company's independent accountants for approval by the Board of Directors;
reviewing the scope, results and costs of the audit with the Company's
independent accountants; and reviewing the financial statements and accounting
and control practices of the Company. The Compensation Committee is responsible
for recommending compensation and benefits for the executive officers of the
Company to the Board of Directors and for administering the Company's 1996 Plan
and the Company's 1998 Executive Compensation Plan. The entire Board of
Directors fulfilled the functions of these committees during fiscal 1997.
DIRECTOR COMPENSATION
The Company reimburses non-employee directors for expenses incurred in
attending Board meetings. Kramer Levin is paid Mr. Kopelman's standard rates for
all time Mr. Kopelman devotes to the preparation for and attendance at Board
Meetings. No additional compensation is paid to directors for attending Board or
committee meetings. In addition, pursuant to the Directors' Plan each of Messrs.
Barris, Glassmeyer and Kopelman have been granted immediately exercisable
options to purchase 10,000 shares of Common Stock at an exercise price of $11.00
per share. See "-- Benefit Plans".
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the fiscal
year ended June 30, 1997 by (i) the Company's Chief Executive Officer and (ii)
the five most highly compensated other executive
44
<PAGE> 46
officers who received annual compensation in fiscal 1997 in excess of $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-------------------------------------
OTHER ANNUAL LONG TERM
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) OTHER(3) UNDERLYING OPTIONS
--------------------------- ------ ----- --------------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Mitchell Gross............... $200,000 $150,151 -- $62,349 --
Chairman of the Board,
Chief Executive Officer &
President
Joseph J. Albracht........... 200,000 150,366 -- 46,134 --
Executive Vice President,
Chief Operating Officer &
Secretary
E. Kevin Dahill(4)........... 87,579 25,397 -- -- 270,000
Vice President, Finance,
Chief Financial Officer &
Treasurer
Karry Kleeman................ 288,046 10,324 232,782 -- 170,000
Vice President, Sales
Robert Lawrence.............. 156,910 32,509 -- -- 360,000
Vice President, Product
Engineering
Joseph Tinnerello............ 288,836 75,366 145,180 -- 80,000(5)
Vice President, Business
Development
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total of annual salary and bonuses for the Named
Executive Officer for such year.
(2) Consists of sales commissions.
(3) Includes premiums on insurance added to compensation. Also includes the
grossed up amount to cover taxes.
(4) Mr. Dahill joined Mobius in December, 1996 and the amounts presented are for
the seven month period ended June 30, 1997.
(5) Mr. Tinnerello was granted options to purchase 720,000 shares during fiscal
1997. Options to purchase 640,000 of these shares lapsed when Mr.
Tinnerello's employment with the Company terminated in October, 1997. Mr.
Tinnerello rejoined the Company in January, 1998. See "-- Agreements with
Employees".
45
<PAGE> 47
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options granted
during the fiscal year ended June 30, 1997 by the Company to the following the
Named Executive Officers.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(2)
OPTIONS IN FISCAL PRICE --------------------------
NAME GRANTED 1997(1) PER SHARE EXPIRATION DATE 5% 10%
---- ---------- ---------- --------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
E. Kevin Dahill........... 270,000 13.2% $1.25 December 2, 2006 $549,752 $ 875,388
Robert Lawrence........... 360,000 17.6 1.25 November 6, 2006 733,003 1,167,184
Karry Kleeman(3).......... 170,000 8.3 1.25 November 6, 2006 346,140 551,170
Joseph Tinnerello(3)(4)... 80,000 3.9 1.25 November 6, 2006 162,889 259,374
</TABLE>
- ---------------
(1) In fiscal 1997, the Company granted employees options to purchase an
aggregate of 2,045,500 shares of Common Stock.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are mandated
by rules of the Commission and do not represent the Company's estimate or
projection of the Company's future Common Stock prices. These amounts
represent certain assumed rates of appreciation in the value of the
Company's Common Stock from the fair value on the date of the grant. Actual
gains, if any, will depend on stock market conditions. The amounts reflected
in the table may not necessarily be achieved.
(3) Subsequent to June 30, 1997, the Company granted options to purchase shares
of Common Stock to the following Named Executive Officers: Mr. Kleeman,
170,000 shares at an exercise price of $5.28 per share; and Mr. Tinnerello,
100,000 shares at an exercise price of $6.94 per share and 180,000 shares at
an exercise price of $9.86 per share.
(4) Mr. Tinnerello was granted options to purchase 720,000 shares during fiscal
1997 (35% of total options granted to employees in fiscal 1997). Options to
purchase 640,000 shares lapsed when Mr. Tinnerello's employment with the
Company terminated in October, 1997. Mr. Tinnerello rejoined the Company in
January, 1998. See "-- Agreements with Employees".
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<PAGE> 48
YEAR-END OPTION TABLE
The following table sets forth certain information concerning the number
and value of unexercised stock options held by each of the Named Executive
Officers as of June 30, 1997. No stock options were exercisable during fiscal
1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISABLE IN-THE-MONEY OPTIONS
NAME OPTIONS AT JUNE 30, 1997(1) AT JUNE 30, 1997(2)
---- --------------------------- --------------------
<S> <C> <C>
E. Kevin Dahill.......................... 270,000 $ 861,300
Robert Lawrence.......................... 360,000 1,148,400
Karry Kleeman............................ 170,000 542,300
Joseph Tinnerello(3)(4).................. 80,000 255,500
</TABLE>
- ---------------
(1) Does not include options to purchase Common Stock granted to Named Executive
Officers after June 30, 1997.
(2) There was no public trading market for the Common Stock as of June 30, 1997.
Accordingly, as permitted by the rules of the Commission, these values have
been calculated on the basis of the fair market value of the Common Stock as
of June 30, 1997 ($4.44), as determined by the Company, less the applicable
exercise price.
(3) Mr. Tinnerello was granted options to purchase 720,000 shares during fiscal
1997. Options to purchase 640,000 shares lapsed when Mr. Tinnerello's
employment with the Company terminated in October, 1997. Mr. Tinnerello
rejoined the Company in January, 1998. See "-- Agreements with Employees".
(4) On December 30, 1997, Mr. Tinnerello exercised options to purchase 80,000
shares at an exercise price of $1.25 per share. The aggregate value realized
upon such exercise, calculated on the basis of the fair value of the Common
Stock on the date of exercise ($9.44), was $655,200.
AGREEMENTS WITH EMPLOYEES
In February, 1998, the Company entered into employment agreements with each
of Messrs. Gross and Albracht providing for the employment of Mr. Gross as
Chairman of the Board, Chief Executive Officer and President of the Company and
Mr. Albracht as Executive Vice President and Chief Operating Officer of the
Company. Each employment agreement provides for a three-year term ending on the
third anniversary of the consummation of the offering (the "Termination Date").
The agreements each provide for an annual base salary of not less than $200,000
as well as an annual bonus based upon the performance of the Company in an
amount determined by the Board of Directors of the Company or an appropriate
committee thereof in its respective sole discretion. Each agreement also
prohibits the executive from using the confidential information of the Company
for a period of three years following the termination of his employment (two
years if he is terminated other than for cause (as defined therein)) and
contains a non-competition covenant pursuant to which the executive is
prohibited from competing with the Company during his employment by the Company
and for two years thereafter (one year in the event the executive is terminated
other than for cause). The agreements further provide that in the event that
employment is terminated by the Company without cause (as defined therein) or by
the executive for good reason (as defined therein), the executive is entitled to
receive (i) his accrued but unpaid base salary and bonus through the Termination
Date; (ii) coverages substantially identical to those provided immediately prior
to the termination for twelve months following the Termination Date; and (iii)
an aggregate amount, payable in equal semi-monthly installments over a one-year
period following the Termination Date, equal to the aggregate of what his base
salary would have been for said period plus his maximum bonus for such period,
but not less than his highest annual bonus during the preceding five years. In
the event of the death or disability of the executive, the Company will continue
to make base salary payments to the executive or his estate for twelve months
following such death or disability.
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<PAGE> 49
Following a personal leave, on September 30, 1997, the Company and Mr.
Joseph Tinnerello, presently the Company's Vice President, Business Development,
entered into a severance agreement pursuant to which Mr. Tinnerello left the
employment of the Company on October 1, 1997 and agreed to certain
non-competition and non-solicitation restrictions in consideration for (i) the
acceleration of 80,000 options to purchase shares of Common Stock of the Company
previously granted to him and (ii) the grant of 100,000 new options to purchase
shares of Common Stock at an exercise price equal to the fair market value of
the shares at the time of the grant. As a result of such termination and
pursuant to the terms of the 1996 Plan, Mr. Tinnerello forfeited 640,000 options
to purchase shares of Common Stock that were previously granted to him in
November, 1996. On December 26, 1997, Mr. Tinnerello agreed to return to the
Company effective January 15, 1998. On December 28, 1997, the Company agreed to
advance $160,000 to Mr. Tinnerello against certain future commissions. Such
monies (net of applicable taxes) were used by Mr. Tinnerello to exercise options
to purchase 80,000 shares of Common Stock. On January 15, 1998 the Company
granted Mr. Tinnerello options to purchase 180,000 shares of Common Stock in
accordance with, and on terms similar to, its standard hiring practices.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Company's Board of
Directors are Messrs. Barris and Glassmeyer. There are no compensation committee
interlocks which are required to be disclosed by the rules promulgated by the
Commission under the Securities Act. No member of the Compensation Committee of
the Company serves as a member of the board of directors or compensation
committee of any other entity that has one or more executive officers serving as
a member of the Company's Board of Directors or Compensation Committee.
BENEFIT PLANS
401(K) PLAN
In fiscal 1995, the Company established a 401(k) retirement savings plan
(the "401(k) Plan"). The 401(k) Plan provides that each participant may
contribute from 1% to 20% of his or her pre-tax salary (up to a statutorily
prescribed annual limit, $10,000 for 1998) to the 401(k) Plan, although the
percentage elected by certain highly compensated participants may be required to
be lower. All amounts contributed to the 401(k) Plan by employee participants
and earnings on these contributions are fully vested at all times. Employee
participants may elect to invest their contributions in various established
funds, which include fixed income, growth and equity funds. The Company, at the
discretion of the Board of Directors, may match employee contributions. No
matching contributions were made in 1995, 1996 or 1997.
1996 STOCK INCENTIVE PLAN
The Board of Directors and stockholders of the Company have approved and
adopted the 1996 Plan, the terms of which are summarized below.
General. The 1996 Plan provides for the issuance of a total of up to
3,480,000 authorized and unissued shares of Common Stock, treasury shares and/or
shares acquired by the Company for purposes of the 1996 Plan. In addition, as of
any January 1 beginning with January 1, 1999, the Board of Directors, in its
discretion, may increase such share limit by a number that is no more than 3% of
the total number of shares of Common Stock issued and outstanding as of the date
of such increase.
Awards under the 1996 Plan may be made in the form of (i) incentive stock
options, (ii) nonqualified stock options (incentive and nonqualified stock
options are collectively referred to as "options"), (iii) stock appreciation
rights, (iv) restricted stock, (v) restricted stock units, and (vi) other types
of stock-based awards. Awards may be made to such directors, officers and key
employees of the Company and its subsidiaries (including prospective employees
who become
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<PAGE> 50
employees), and to such consultants to the Company and its subsidiaries, as the
Compensation Committee shall in its discretion select (collectively, "key
persons").
Administration. The 1996 Plan is administered by the Compensation
Committee. The Compensation Committee is authorized to construe, interpret and
implement the provisions of the 1996 Plan, to select the persons to whom awards
will be granted, to determine the terms and provisions of such awards and to
amend outstanding awards. The determinations of the Compensation Committee are
made in its sole discretion and are binding and conclusive.
Grants under the 1996 Plan. Unless the Compensation Committee determines
otherwise, an option grant will become exercisable as to 20% of the shares
subject thereto on the first anniversary of the date of grant and the remainder
will vest ratably over the subsequent 16 quarters. The purchase price per share
payable upon the exercise of an option will be established by the Compensation
Committee.
As of February 28, 1998 the Company had granted 2,463,500 options under the
1996 Plan. These grants were made to 141 employees of the Company (representing
49% of its total employees) at exercise prices, except as described in the
following paragraph, equal to the fair market value of the Company's Common
Stock at the time of each such grant, including options to purchase 270,000,
340,000, 360,000, and 360,000 (net of 640,000 options which have lapsed) shares
to the following named Executive Officers, respectively: E. Kevin Dahill; Karry
Kleeman; Robert Lawrence; and Joseph Tinnerello.
In January, 1998, the Company granted 350,000 options under the 1996 Plan
at an exercise price of $9.86 per share, including 180,000 options to Mr.
Tinnerello. Based on events occurring after the grant of these options, the
Company subsequently determined that these options were granted at exercise
prices below the fair market value of $11.00 per share. As a result, and
assuming that all such options vest in accordance with their terms, the Company
expects to incur a compensation related expense of approximately $107,000 per
year over the next three years and of approximately $38,000 per year for each of
the two years thereafter.
Other features of the 1996 Plan. Awards granted under the 1996 Plan and
shares acquired pursuant thereto are subject to a number of rights and
restrictions, including provisions relating to the termination of employment or
service of the grantee.
The Board of Directors may, without stockholder approval, suspend,
discontinue, revise or amend the 1996 Plan at any time, or from time to time;
provided, however, that stockholder approval shall be obtained for any amendment
for which such approval is required by Section 422 of the Internal Revenue Code
of 1986, as amended, (the "Code") or by other provisions of applicable law.
Unless sooner terminated by the Board of Directors, the provisions of the 1996
Plan relating to the grant of incentive stock options shall terminate on the
tenth anniversary of the adoption of the 1996 Plan by the Board of Directors.
All awards made under the 1996 Plan prior to its termination shall remain in
effect until they are satisfied or terminated.
The vesting of awards granted under the 1996 Plan will accelerate in the
event of a change in control, as defined in the 1996 Plan unless otherwise
provided in the individual option agreements.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors and stockholders of the Company have approved and
adopted the ESPP. The purpose of the ESPP is to provide eligible employees who
wish to acquire Common Stock of the Company the opportunity to purchase shares
from the Company with accumulated payroll deductions. The ESPP is intended to
constitute an "employee stock purchase plan" under section 423 of the Code.
49
<PAGE> 51
The ESPP provides for the issuance of an aggregate of up to 300,000
authorized and unissued shares of Common Stock, treasury shares and/or shares
acquired by the Company for the purposes of the ESPP.
The ESPP may be administered by the Board of Directors or by a committee of
the Board of Directors comprised of not less than two directors.
Any employee who has been employed at least six months by the Company, or
by any subsidiary which adopts the ESPP with the consent of the Company, and who
is employed more than twenty hours per week for more than five months per
calendar year is eligible to participate in the ESPP.
As of February 28, 1998, there were approximately 232 employees eligible to
participate in the ESPP.
In the event of a merger or consolidation of the Company with or into any
other corporation or entity, payroll deductions will cease and all amounts
previously deducted from participants' pay will be refunded immediately prior to
the consummation of the action.
The Board of Directors may suspend, discontinue, revise or amend the ESPP
at any time and in any respect; provided, however, that stockholder approval
will be obtained to the extent necessary to comply with section 423 of the Code
and other applicable law.
1998 EXECUTIVE INCENTIVE PLAN
The Board of Directors and stockholders of the Company have approved and
adopted the Mobius Management Systems, Inc. Executive Incentive Plan (the
"Incentive Plan"). The Incentive Plan is administered by the Compensation
Committee of the Board. Participation in the Incentive Plan is limited to those
executives and key employees who, in the judgment of the Compensation Committee,
are in a position to have a significant impact on the performance of the
Company.
Awards under the Incentive Plan are based upon the extent to which
performance goals established by the Compensation Committee for a designated
performance period are satisfied. Performance goals are related to criteria
which include net earnings, operating income, earnings per share, cash flow,
absolute and/or relative return on equity or assets, pre-tax profits, earning
growth, revenue growth, comparison to peer companies, any combination of the
foregoing or any other criteria as the Compensation Committee deems appropriate.
The Compensation Committee may provide that the bonuses payable to participants
will vary based upon different levels of achievement of the applicable goals.
The Incentive Plan also provides for grants of discretionary bonuses.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Board of Directors and stockholders of the Company have approved and
adopted the Directors' Plan. The purpose of the Directors' Plan is to provide an
incentive to the Company's non-employee directors to serve on the Board of
Directors and to maintain and enhance the Company's long-term performance.
The Directors' Plan provides for the issuance of a total of 250,000
authorized and unissued shares of Common Stock, treasury shares and/or shares
acquired by the Company for purposes of the Directors' Plan.
The Directors' Plan provides for initial grants (i.e. upon adoption of the
Directors' Plan or upon a non-employee director's initial election to the Board
of Directors) of non-qualified stock options to purchase 10,000 shares of Common
Stock. At each annual meeting thereafter, each non-employee director will
receive an option to purchase 10,000 shares. Each option granted under the
Directors' Plan will have a term of ten years and will become exercisable upon
grant. The exercise price of
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<PAGE> 52
each option granted under the Directors' Plan will equal the fair market value
of a share of Common Stock on the date of grant.
The Board of Directors may amend the Directors' Plan at any time or from
time to time; provided, that no amendment may impair any material rights or
increase any material obligations under any outstanding option without the
non-employee directors' consent. Stockholder approval of any amendment shall be
obtained to the extent necessary to comply with any applicable law, rule or
regulation.
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<PAGE> 53
CERTAIN TRANSACTIONS
Since 1981 the Company has engaged, and plans to continue to engage, Kramer
Levin to provide legal counsel to the Company. Mr. Kopelman, a member of the
Company's Board of Directors, is also a member of Kramer Levin. The Company
believes that fees charged by Kramer Levin are at rates and on terms no less
favorable to the Company than could have been obtained from unaffiliated third
parties.
Since November, 1996, the Company has granted options to purchase shares of
Common Stock to certain of its employees, including its Executive Officers. The
Company believes that the exercise prices for all such grants (other than
certain grants made in January, 1998) have not been less than the fair market
values of the shares at the time of their respective grants. See
"Management -- Benefit Plans".
On May 12, 1997, the Company issued 40,910 shares of Series A Convertible
Preferred Stock for an aggregate consideration of $12,000,130 pursuant to a
Stock Purchase Agreement by and among the Company, Mitchell Gross, Joseph J.
Albracht, Oak Investment Partners VI, Limited Partnership, Oak VI Affiliates
Fund, Limited Partnership, NEA Ventures 1997, NEA President's Fund L.P., New
Enterprise Associates VII L.P., New Venture Partners III L.P. and Glynn Ventures
III, L.P. Mr. Peter Barris, a member of Mobius' Board of Directors, is
affiliated with NEA Ventures 1997, NEA President's Fund L.P. and New Enterprise
Associates VII L.P. and Mr. Edward Glassmeyer, a member of Mobius' Board of
Directors, is affiliated with the aforementioned Oak entities. Simultaneously
therewith and as a condition thereof, the Company repurchased 2,045,500 shares
of Common Stock from Mr. Gross, the Company's Chairman of the Board, Chief
Executive Officer and President and 2,045,500 shares of Common Stock from Mr.
Albracht, the Company's Executive Vice President, Chief Operating Officer,
Secretary and a member of the Board of Directors, for an aggregate purchase
price of $12,000,130.
From time to time the Company has advanced salaries and/or commissions to
its employees. In particular, in December, 1997 the Company advanced against
certain commissions $160,000 to Mr. Joseph Tinnerello, the Company's Vice
President, Business Development. See "Management -- Agreements with Employees".
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<PAGE> 54
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1998 and as adjusted
to reflect the sale of the shares offered hereby by (i) each person who is known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director and Named Executive Officer of the Company,
(iii) all directors and executive officers of the Company as a group, and (iv)
each Selling Stockholder. Unless otherwise indicated below, to the knowledge of
the Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED
5% STOCKHOLDERS, NAMED PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)(2)
EXECUTIVE OFFICERS, DIRECTORS ------------------------- OFFERED -------------------------
AND SELLING STOCKHOLDERS NUMBER PERCENTAGE FOR SALE(2) NUMBER PERCENTAGE
- ----------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mitchell Gross(3)....................... 6,204,500 41.1% 200,000 6,004,500 34.2%
Joseph J. Albracht(4)................... 4,704,500 31.2 200,000 4,504,500 25.6
Oak Investment Partners VI, Limited
Partnership(5)........................ 2,045,500 13.6 -- 2,045,500 11.6
New Enterprise Associates VII L.P.(6)... 1,943,200 12.9 -- 1,943,200 11.1
E. Kevin Dahill(7)...................... 67,500 * -- 67,500 *
Karry Kleeman(8)........................ 42,500 * -- 42,500 *
Robert Lawrence(9)...................... 90,000 * -- 90,000 *
Joseph Tinnerello(10)................... 180,000 1.2 -- 180,000 1.0
Peter J. Barris(11)..................... 1,953,200 12.9 -- 1,953,200 11.1
Edward F. Glassmeyer(12)................ 2,055,500 13.6 -- 2,055,500 11.7
Kenneth P. Kopelman(13)................. 10,000 * -- 10,000 *
All Executive Officers and Directors as
a group (13 persons)(3)(11)(12)(14)... 15,325,200 99.3% 400,000 15,005,200 83.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes generally voting power and/or investment power
with respect to securities. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of February 28, 1998
("Currently Exercisable Options") are deemed outstanding for computing the
percentage beneficially owned by the person holding such options but are
not deemed outstanding for computing the percentage beneficially owned by
any other person.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes 4,100,000 shares of Common Stock held by HARMIT, LP, of which
Mitchell Gross and Harriet Gross, the spouse of Mr. Gross, are general
partners. Mr. Gross's address is c/o the Company at 120 Old Post Road, Rye,
New York 10580.
(4) Mr. Albracht's address is c/o the Company at 120 Old Post Road, Rye, New
York 10580.
(5) Includes 46,600 shares of Common Stock held by Oak VI Affiliates Fund,
Limited Partnership. The address of such stockholders is 1 Gorham Island,
Westport, Connecticut 06880.
(6) Includes 1,700 shares of Common Stock held by NEA Ventures 1997, 27,300
shares held by NEA President's Fund L.P. and 102,300 shares held by New
Venture Partners III L.P. The address of such stockholders is 1911 Freedom
Drive, Reston, Virginia 20190.
(7) Represents 67,500 shares issuable pursuant to Currently Exercisable
Options.
(8) Represents 42,500 shares issuable pursuant to Currently Exercisable
Options.
(9) Represents 90,000 shares issuable pursuant to Currently Exercisable
Options.
(10) Includes 100,000 shares issuable pursuant to Currently Exercisable Options.
(11) Includes 1,811,900 shares of Common Stock held by New Enterprise Associates
VII L.P., 1,700 shares held by NEA Ventures 1997, 27,300 shares held by NEA
President's Fund L.P. and 102,300 shares held by New Venture Partners III
L.P. Mr. Barris disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest therein arising from his affiliation
with such entities. Also includes 10,000 shares issuable pursuant to
Currently Exercisable Options.
(12) Includes 1,998,900 shares of Common Stock held by Oak Investment Partners
VI, Limited Partnership and 46,600 shares held by Oak VI Affiliates Fund,
Limited Partnership. Mr. Glassmeyer disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein arising from
his affiliation with such entities. Also includes 10,000 shares issuable
pursuant to Currently Exercisable Options.
(13) Includes 10,000 shares issuable pursuant to Currently Exercisable Options.
(14) Includes 347,500 shares issuable pursuant to Currently Exercisable Options.
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<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
Effective upon the filing of the Restated Certificate of Incorporation and
the conversion of the Series A Convertible Preferred Stock and Class A
Non-Voting Common Stock upon the closing of the offering, the authorized capital
stock of the Company will consist of 40,000,000 shares of Common Stock, $.0001
par value per share, and 1,000,000 shares of Preferred stock, $.01 par value per
share (the "Preferred Stock"), which may be issued in one or more series.
COMMON STOCK
As of February 28, 1998 there were 10,909,000 shares of Common Stock
outstanding and held of record by three stockholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
shares of Common Stock offered by the Company hereby and the conversion of the
outstanding Series A Convertible Preferred Stock and Class A Non-Voting Common
Stock into shares of Common Stock upon consummation of the offering, there will
be 17,580,000 shares of Common Stock outstanding upon the closing of the
offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election (other than those directors, if any, who are to be elected
by the holders of any series of preferred stock, if any). Holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor, subject to
any preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of the Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future. Upon the closing of this offering, there will be no shares of Preferred
Stock outstanding.
PREFERRED STOCK
The Board of Directors is authorized, without further stockholder approval,
subject to certain limitations prescribed by law, to issue from time to time up
to an aggregate of 1,000,000 shares of Preferred Stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares of Preferred Stock constituting
any series or designations of such series of Preferred Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock. See "Risk
Factors -- Anti-Takeover Provisions".
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. In
general, Section 203 of the
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<PAGE> 56
Delaware Law prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. The existence of this provision would be
expected to have an anti-takeover effect, including attempts that might result
in a premium over the market price for the shares of Common Stock held by
stockholders.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management". In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of 67% of the shares of capital
stock of the corporation entitled to vote. Under the Company's By-Laws, any
vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director, and may be filled by the stockholders only if the Board has
not filled such vacancy. The classification of the Board of Directors and the
limitations on the removal of directors and filling of vacancies could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of the Company.
The Restated Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company at an
annual meeting or special meeting of stockholders may only be taken if it is
properly brought before such meeting and may not be taken by written action in
lieu of a meeting. The Restated Certificate of Incorporation further provides
that special meeting of the stockholders may only be called by the Chairman of
the Board of Directors, the Chief Executive Officer, the President or the
Executive Vice President of the Company, or by the Secretary upon the written
request of two-thirds of the Board of Directors. Under the By-Laws, in order for
any matter to be considered "properly brought" before a meeting, a stockholder
must comply with certain requirements regarding advance notice to the Company.
The foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholders' actions which are favored by the holders of a
majority of the outstanding voting securities of the Company. These provisions
may also discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders' meeting, and not by written consent.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the American Stock
Transfer and Trust Company, New York, New York.
55
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have an aggregate of
17,580,000 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options to
purchase Common Stock. Of these Shares, the 2,900,000 shares sold in this
offering are freely tradeable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), except that any
shares held by "affiliates" of the Company, as that term is defined in Rule 144
("Rule 144") under the Securities Act ("Affiliates"), may generally only be sold
in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 14,680,000 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated), including an affiliate of the
Company, who has beneficially owned Restricted Shares for at least one year is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately 175,800 shares immediately after this offering) or
(ii) the average weekly trading volume in the Common Stock in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of such sale is filed. In addition, under Rule 144(k), a person who
is not an affiliate of the Company and has not been an affiliate of the Company
for at least three months prior to the sale and who has beneficially owned
Restricted Shares for at least two years may resell such shares without
compliance with the foregoing requirements. In meeting the one-and two-year
holding periods described above, a holder of Restricted Shares can include the
holding periods of a prior owner who was not an affiliate. See "Risk
Factors -- Shares Eligible for Future Sale; Registration Rights".
Rule 701 under the Securities Act provides that the shares of Common Stock
acquired upon the exercise of currently outstanding options may be resold by
persons, other than affiliates of the Company, beginning 90 days after the date
of the Company's initial public offering, subject only to the manner of sale
provisions of Rule 144, and by affiliates of the Company under Rule 144 without
compliance with its one-year minimum holding period, subject to certain
limitations.
OPTIONS
Upon completion of this offering, it is anticipated that options to
purchase a total of 2,493,500 shares of Common Stock will be outstanding. As of
February 28, 1998, an additional approximately 1,536,500 shares of Common Stock
were available for future issuance under the Company's 1996 Plan, 1998 ESPP and
the 1998 Directors' Plan. See "Management -- Benefit Plans".
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Company's stock-based benefit plans. See
"Management -- Director Compensation" and "-- Benefit Plans". Such registration
statement is expected to become effective immediately upon filing, and shares
covered by that registration statement will thereupon be eligible for sale in
the public markets, subject to Rule 144 limitations applicable to affiliates.
See "Risk Factors -- Shares Eligible for Future Sale; Registration Rights".
LOCK-UP AGREEMENTS
Certain stockholders, who upon the closing of this offering will hold in
the aggregate approximately 14,680,000 shares of Common Stock and options to
purchase additional 1,624,000 shares of Common Stock, have agreed, pursuant to
the Lock-Up Agreements, that they will not, without the prior written consent of
the representatives of the Underwriters, directly or indirectly offer to sell,
sell, or otherwise dispose of any shares of Common Stock beneficially owned by
them for a period
56
<PAGE> 58
of 180 days after the date of this Prospectus, subject to certain exceptions.
Subject to the provisions of Rules 144, 144(k) and 701, all of such shares will
be eligible for sale upon the expiration of these lock-up agreements.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus will
be passed upon for the Company and the Selling Stockholders by Kramer, Levin,
Naftalis & Frankel, New York, New York. Mr. Kopelman, a partner at Kramer Levin,
is a director of the Company and owns options to purchase 10,000 shares of
Common Stock that were granted to him pursuant to the Directors' Plan. Certain
legal matters will be passed upon for the Underwriters by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements and schedule of the Company as of
June 30, 1996, 1997 and as of December 31, 1997 and for each of the years in the
three-year period ended June 30, 1997, and the six months ended December 31,
1997 have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments and
exhibits thereto, the "Registration Statement") under the Securities Act with
respect to the offer and sale of shares of Common Stock pursuant to this
Prospectus. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement.
For further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
regarding the contents of any agreement or other document filed as an exhibit to
the Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Registration Statement, including the exhibits and schedules thereto,
may also be inspected, without charge, and copied at prescribed rates at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois, and 7 World Trade Center, Suite 1300, New York, New York. This
material may also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
57
<PAGE> 59
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and
December 31, 1997......................................... F-3
Consolidated Statements of Income for the Years Ended June
30, 1995, 1996 and 1997, and for the Six Month Periods
Ended December 31, 1996 (Unaudited) and 1997.............. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1995, 1996, and 1997, and for the Six
Month Period Ended December 31, 1997...................... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1996, and 1997, and for the Six Month
Periods Ended December 31, 1996 (Unaudited) and 1997...... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mobius Management Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Mobius
Management Systems, Inc. and subsidiaries as of June 30, 1996 and 1997 and
December 31, 1997 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1997 and the six month period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobius
Management Systems, Inc. and subsidiaries as of June 30, 1996 and 1997 and
December 31, 1997 and the results of their operations and their cash flows for
each of the years in the three-year period ended June 30, 1997 and the six month
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
February 23, 1998
Stamford, CT
F-2
<PAGE> 61
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
JUNE 30, 1997
------------------ DECEMBER 31, (UNAUDITED-
1996 1997 1997 NOTE 1)
------- -------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 4,447 $ 5,672 $ 7,182 $ 7,182
Accounts receivable, net of allowance for
doubtful accounts of $423, $308, $611 and
$611 respectively............................ 7,328 7,793 6,238 6,238
Software license installments, current
portion...................................... 1,614 4,615 5,158 5,158
Other current assets........................... 251 474 1,655 1,655
------- -------- -------- -------
Total current assets.................... 13,640 18,554 20,233 20,233
Software license installments, non-current
portion, net of allowance for doubtful accounts
of $0, $413, $577 and $577 respectively........ 3,376 7,871 11,609 11,609
Property and equipment, net...................... 1,356 1,990 2,007 2,007
Other assets..................................... 74 87 498 498
------- -------- -------- -------
Total assets............................ $18,446 $ 28,502 $ 34,347 $34,347
======= ======== ======== =======
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......... $ 4,479 $ 6,593 $ 4,689 $ 4,689
Deferred maintenance revenue................... 6,494 7,494 10,669 10,669
Deferred income taxes.......................... 286 1,551 1,593 1,593
Other liabilities.............................. 322 134 59 59
------- -------- -------- -------
Total current liabilities............... 11,581 15,772 17,010 17,010
------- -------- -------- -------
Deferred maintenance revenue, non-current
portion........................................ 660 3,661 5,447 5,447
Deferred income taxes............................ 828 1,420 2,387 2,387
Capital lease obligations, less current
portion........................................ 151 95 66 66
Convertible preferred stock, $.01 par value;
40,910 shares outstanding...................... -- 11,898 12,000 --
Stockholders' equity (deficit):
Common stock $.0001 par value; authorized
40,000,000 shares; issued 16,727,200,
15,000,000, 15,000,000 and 19,171,000 (Pro
Forma), shares, respectively; outstanding
15,000,000, 10,909,000, 10,909,000 and
15,080,000 (Pro Forma) shares,
respectively................................. 2 1 1 2
Additional paid-in capital..................... 77 -- -- 11,999
Retained earnings.............................. 5,306 7,636 9,487 9,487
Cumulative foreign currency translation
adjustment................................... (28) 19 (51) (51)
Treasury stock, at cost, 1,727,200, 4,091,000,
4,091,000 and 4,091,000 shares,
respectively................................. (131) (12,000) (12,000) (12,000)
------- -------- -------- -------
Total stockholders' equity (deficit).... 5,226 (4,344) (2,563) 9,437
------- -------- -------- -------
Total liabilities, preferred stock and
stockholders' equity........................... $18,446 $ 28,502 $ 34,347 $34,347
======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 62
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------- ---------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license revenues............. $12,729 $18,769 $26,112 $10,239 $14,293
Maintenance and other revenues........ 9,676 12,189 15,215 7,159 8,778
------- ------- ------- ------- -------
Total revenues..................... 22,405 30,958 41,327 17,398 23,071
------- ------- ------- ------- -------
Costs of revenues:
Software license revenues............. 614 626 1,336 528 678
Maintenance and other revenues........ 2,049 2,716 2,923 1,441 1,554
------- ------- ------- ------- -------
Total costs of revenues............ 2,663 3,342 4,259 1,969 2,232
------- ------- ------- ------- -------
Gross profit............................ 19,742 27,616 37,068 15,429 20,839
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................... 12,523 15,136 21,971 9,180 10,797
Research and development.............. 3,478 4,600 5,904 2,810 3,550
General and administrative............ 2,063 2,832 4,350 1,911 3,004
------- ------- ------- ------- -------
Total operating expenses........... 18,064 22,568 32,225 13,901 17,351
------- ------- ------- ------- -------
Income from operations.................. 1,678 5,048 4,843 1,528 3,488
License and other interest
income................................ 375 339 922 328 832
Interest expense........................ (58) (41) (22) (11) (6)
Foreign currency transaction gains
(losses).............................. 34 (72) (12) 1 (6)
------- ------- ------- ------- -------
Income before income taxes.............. 2,029 5,274 5,731 1,846 4,308
Provision for income taxes.............. 880 2,657 3,348 1,043 2,355
Accretion on Preferred Stock............ -- -- -- -- 102
------- ------- ------- ------- -------
Net income available to common stock.... $ 1,149 $ 2,617 $ 2,383 $ 803 $ 1,851
======= ======= ======= ======= =======
Basic earnings per share................ $ 0.08 $ 0.17 $ 0.17 $ 0.05 $ 0.17
Basic weighted average shares
outstanding........................... 15,000 15,000 14,318 15,000 10,909
Diluted earnings per share.............. $ 0.08 $ 0.17 $ 0.15 $ 0.05 $ 0.12
Diluted weighted average shares
outstanding........................... 15,000 15,000 15,882 15,355 15,785
Pro forma data (unaudited):
Pro forma basic earnings per share.... $ 0.13 $ 0.12
Pro forma basic weighted average
shares outstanding................. 18,489 15,080
Pro forma diluted earnings per
share.............................. $ 0.12 $ 0.12
Pro forma diluted weighted average
shares outstanding................. 19,371 15,852
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
-------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
----------- ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995................................ 16,727,200 $2 $ 77 $2,689 $(51)
Net income.............................................. -- -- -- 2,617 --
Unrealized translation gain............................. -- -- -- -- 23
----------- -- ---- ------ ----
Balance at June 30, 1996................................ 16,727,200 2 77 5,306 (28)
Net income.............................................. -- -- -- 2,383 --
Unrealized translation gain............................. -- -- -- -- 47
Retirement of treasury stock............................ (1,727,200) (1) (77) (53) --
Share repurchase in connection with issuance of
preferred stock....................................... (4,091,000) -- -- -- --
----------- -- ---- ------ ----
Balance at June 30, 1997................................ 10,909,000 1 -- 7,636 19
Net Income.............................................. -- -- -- 1,851 --
Unrealized translation loss............................. -- -- -- -- (70)
----------- -- ---- ------ ----
Balance at December 31, 1997............................ 10,909,000 $1 $ -- $9,487 $(51)
=========== == ==== ====== ====
<CAPTION>
TREASURY STOCK TOTAL
---------------------- STOCKHOLDERS'
SHARES AMOUNT EQUITY (DEFICIT)
----------- -------- ----------------
<S> <C> <C> <C>
Balance at June 30, 1995................................ 1,727,200 $ (131) $ 2,586
Net income.............................................. -- -- 2,617
Unrealized translation gain............................. -- -- 23
----------- -------- --------
Balance at June 30, 1996................................ 1,727,200 (131) 5,226
Net income.............................................. -- -- 2,383
Unrealized translation gain............................. -- -- 47
Retirement of treasury stock............................ (1,727,200) 131 --
Share repurchase in connection with issuance of
preferred stock....................................... 4,091,000 (12,000) (12,000)
----------- -------- --------
Balance at June 30, 1997................................ 4,091,000 (12,000) (4,344)
Net Income.............................................. -- -- 1,851
Unrealized translation loss............................. -- -- (70)
----------- -------- --------
Balance at December 31, 1997............................ 4,091,000 $(12,000) $ (2,563)
=========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
---------------------------- ---------------------
1995 1996 1997 1996 1997
------- ------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 1,149 $ 2,617 $ 2,383 $ 803 $ 1,851
------- ------- -------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Deferred income taxes............... 139 700 1,857 372 1,009
Depreciation and amortization....... 416 381 406 220 305
Accretion of Preferred Stock........ -- -- -- -- 102
Change in operating assets and
liabilities:
Accounts receivable, net......... (3,434) (56) (465) (537) 1,555
Software license installments.... 229 (3,673) (7,497) (1,803) (4,281)
Other assets..................... (59) (21) (235) (635) (1,592)
Accounts payable and accrued
expenses....................... 333 1,059 2,112 (322) (1,904)
Other liabilities................ 37 (179) (94) 99 (78)
Deferred maintenance revenue..... 1,472 1,837 4,002 3,722 4,961
------- ------- -------- ------- -------
Total adjustments........... (867) 48 86 1,116 77
------- ------- -------- ------- -------
Net cash provided by
operating activities...... 282 2,665 2,469 1,919 1,928
------- ------- -------- ------- -------
Cash flows used in investing
activities:
Capital expenditures................ (434) (628) (1,039) (348) (322)
------- ------- -------- ------- -------
Cash flows from financing activities:
Cash received from sale of preferred
stock, net of issuance costs..... -- -- 11,898 -- --
Cash payment for repurchase of
common stock..................... -- -- (12,000) -- --
Payments on capital lease
obligations...................... (185) (55) (150) (28) (26)
Payments on notes payable........... (89) (269) -- -- --
------- ------- -------- ------- -------
Net cash used by financing
activities................ (274) (324) (252) (28) (26)
------- ------- -------- ------- -------
Effect of exchange rate changes on
cash and cash equivalents........... (29) 23 47 153 (70)
------- ------- -------- ------- -------
Net change in cash and cash
equivalents......................... (455) 1,736 1,225 1,696 1,510
Cash and cash equivalents at beginning
of period........................... 3,166 2,711 4,447 4,447 5,672
------- ------- -------- ------- -------
Cash and cash equivalents at end of
period.............................. $ 2,711 $ 4,447 $ 5,672 $ 6,143 $ 7,182
======= ======= ======== ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest......................... $ 58 $ 41 $ 22 $ 11 $ 6
Income taxes..................... 612 1,779 1,544 948 1,756
Capital lease obligations
incurred......................... 464 219 -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 65
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION
Mobius Management Systems, Inc., together with its wholly-owned
subsidiaries (the "Company"), is a provider of enterprise software products
designed to optimize the storage, retrieval and presentation of large volumes of
transactional information.
The Company was incorporated in the State of New York in 1981 and in 1997
the Company was reincorporated in the State of Delaware. In March 1993, the
Company established its first wholly-owned subsidiary, Mobius U.K., in
Basingstoke, England and subsequently relocated to Shepperton, England. The
purpose of this subsidiary is to provide direct sales within the U.K. In fiscal
1995, the Company established wholly-owned subsidiaries in Nogent sur Marne,
France, Dusseldorf, Germany, and Assago, Italy, and in fiscal 1998, the Company
established an additional wholly-owned subsidiary in Upplands Vasby, Sweden, to
broaden the reach of its direct sales force in Europe.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Company and its subsidiaries are consolidated for financial statement
purposes after the elimination of all significant intercompany transactions.
PRO FORMA BALANCE SHEET
In connection with the proposed closing of an initial public offering of
the Company's Common Stock, all of the outstanding shares of the Convertible
Preferred Stock will convert into newly issued shares of Common Stock (see note
8). The Pro Forma Balance Sheet at December 31, 1997 reflects the conversion of
$12,000,000 of Convertible Preferred Stock into Common Stock ($1,000 credit to
Common Stock and $11,999,000 credit to Additional paid-in capital) and the
issuance of 80,000 shares of Common Stock upon conversion of 80,000 shares of
Class A Non-Voting Common Stock.
REVENUE RECOGNITION
Revenue from software license contracts includes license fees related to
long-term licenses, typically 5 or 15 years, and fees for term license
contracts, which are generally 3 to 5 years. Such license revenue and
maintenance and service revenue are recognized in accordance with Statement of
Position 91-1 Software Revenue Recognition.
Revenue from executed software license contracts is recognized upon
delivery of the software to the customer if no significant vendor obligations
remain and collection of the resulting receivable is probable. Software license
revenue includes the present value of future payments under non-cancelable
license arrangements which provide for payment in installments generally over
periods from 3 to 5 years. A portion of the discount is recognized as interest
income over the term of the arrangement.
Revenue on maintenance contracts is recognized on a straight-line basis
over the term of the maintenance contract, generally twelve months, except for
maintenance on term license contracts, which extends to the contract term. The
unearned portion of maintenance revenue is classified as deferred maintenance
revenue.
When the software license contract includes maintenance, the Company
unbundles maintenance revenue from the initial license fee and recognizes it
ratably over the maintenance period,
F-7
<PAGE> 66
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
starting from the inception of the software license agreement. The unearned
portion of such maintenance revenue is classified as deferred maintenance
revenue with amounts extending beyond one-year reported as non-current.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86 (SFAS No. 86) requires
the capitalization of certain software development costs once technological
feasibility is established. The capitalized costs are then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenues to total projected product revenues, whichever is greater.
The Company determines technological feasibility based on the working model
method. The period between establishment of a working model and the general
availability of its software has historically been short and, accordingly,
software development costs qualifying for capitalization have been
insignificant. As a result, the Company has expensed all software development
costs.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed on a
straight-line basis over the estimated life of the related asset, ranging from
five to seven years. Assets acquired under capital leases are depreciated on a
straight-line basis over the shorter of the asset's life or the respective
lease.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS
No. 109 requires using the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred tax assets are recognized for deductible
temporary differences, net operating loss carryforwards, and tax credit
carryforwards if it is more likely than not that the tax benefits will be
realized. A valuation allowance is established if it is not more likely than not
that a deferred tax asset will be realized.
FOREIGN CURRENCY TRANSLATION
Balance sheet accounts of the Company's foreign subsidiaries are translated
into U.S. dollars at exchange rates in effect at the balance sheet date.
Revenues, costs and expenses are translated into U.S. dollars at average rates
for the year. Gains or losses that result from translation are shown as a
separate component of stockholders' equity. Net gains and losses resulting from
foreign exchange transactions are included in the determination of net income.
CASH EQUIVALENTS
The Company considers investments with maturities at the date of purchase
of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of substantially all of the trade accounts
receivables and software license installments. The
F-8
<PAGE> 67
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company sells its products to a large number of customers in diversified
industries across many domestic and international geographies.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107) defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties. The fair value of the Company's
cash and cash equivalents, accounts receivable, software license installments
and accounts payable and accrued expenses and deferred maintenance amounts
approximates their carrying value.
EARNINGS PER SHARE
Effective December 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128
stipulates that the calculation of earnings per share (EPS) be shown for all
historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period. The computation of Diluted EPS
is similar to the computation of Basic EPS except that it gives effect to all
potentially dilutive instruments that were outstanding during the period. Such
dilutive instruments include stock options, the conversion of Series A
Convertible Preferred Stock, and the conversion of the Class A Non-Voting Common
Stock.
The following is a reconciliation of the numerators and denominators for
the basic and diluted EPS calculations (in thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
---------------------------------------
YEAR ENDED JUNE 30, 1997 1996
--------------------------------------- ---------------------------------------
NET INCOME SHARES PER SHARE NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income.................... $2,383 $803
====== ====
Weighted average shares
outstanding.................. 14,318 15,000
Basic EPS..................... $0.17 $0.05
===== =====
Diluted EPS:
Net income.................... $2,383 $803
====== ====
Dilutive effect of convertible
securities................... 682
Dilutive effect of stock
options...................... 882 355
------ ------
Diluted EPS................... 15,882 $0.15 15,355 $0.05
====== ===== ====== =====
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
---------------------------------------
1997
---------------------------------------
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Net income.................... $1,851
======
Weighted average shares
outstanding.................. 10,909
Basic EPS..................... $0.17
=====
Diluted EPS:
Net income.................... $1,851
======
Dilutive effect of convertible
securities................... 4,104
Dilutive effect of stock
options...................... 772
------
Diluted EPS................... 15,785 $0.12
====== =====
</TABLE>
F-9
<PAGE> 68
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK BASED COMPENSATION
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", and elected to continue to apply the provisions of Accounting
Principles Board (APB) Opinion No. 25 in determining measurement of compensation
expense and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair value-based method, as defined in SFAS No. 123, had been applied. As
such, compensation expense is generally recorded on the date of grant only if
the current fair market value of the underlying stock exceeded the exercise
price.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
During the third quarter of 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The adoption of
SFAS 121 had no effect on the Company's financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition",
which supersedes SOP 91-1. The Company will adopt SOP 97-2 for software
transactions entered into beginning July 1, 1998. SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements, such as
additional software products, upgrades or enhancements, rights to exchange or
return software, postcontract customer support, or services, including elements
deliverable only on a when-and-if-available basis, to be allocated to the
various elements of such sale based on "vendor-specific objective evidence of
fair values" allocable to each such element. If sufficient vendor-specific
objective evidence of fair market values does not exist, revenue from the sale
could be deferred until such sufficient evidence exists, or until all elements
have satisfied the requirements for revenue recognition.
SOP 97-2 is newly issued and has not yet been subject to interpretation in
practice or in applicable accounting guidelines. Although the Company has
reviewed, and is continuing to review, its license agreements in light of its
requirement to adopt SOP 97-2 and believes such adoption will not have a
material effect on its operations, there can be no assurance that the future
application of or subsequent interpretations to SOP 97-2 will not require the
Company to defer the recognition of certain elements of revenue or result in
revenue patterns in periods subsequent to fiscal 1998 which are materially
different than historical periods. In addition, there can be no assurance that
any adjustments the Company makes to its license agreements or other contractual
arrangements in order to accommodate the requirements of SOP 97-2 would not be
negatively viewed by prospective customers and therefore have a material adverse
effect on the Company's sales efforts.
On February 11, 1998, the AICPA issued an Exposure Draft of a Proposed
Statement of Position "Deferral of the Effective Date of Certain Purchase of SOP
97-2, Software Revenue Recognition, for Certain Transactions". The proposed SOP
defers for one year the application of what constitutes vendor-specific
objective evidence of the fair value of the delivered software element in
certain multiple-element arrangements that include service elements and that are
entered into by entities that never sell the software element separately. The
Company believes that the provisions of the Exposure Draft do not apply to the
Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosures about Segments of an
Enterprise and Related Information". Commencing in 1998, SFAS No. 130 will
require companies to report comprehensive
F-10
<PAGE> 69
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income and SFAS No. 131 will require companies to report segment performance as
it is used internally to evaluate segment performance. These statements merely
provide for additional disclosure requirements.
INTERIM RESULTS
The financial statements for the six-month period ended December 31, 1996
are unaudited, but include all adjustments (consisting only of normal recurring
adjustments) that management considers necessary for a fair presentation of the
Company's operating results and cash flows for such period. Results for interim
periods are not necessarily indicative of results for the entire year or for
future periods.
(3) SOFTWARE LICENSE INSTALLMENTS
The Company offers extended payment terms to some of its customers. For
software license contracts of 15 years, the related financing period is
generally 5 years. For software installment contracts of 3 to 5 years, the
payments are generally spread ratably over the term. Software license
installments are discounted at a market rate of interest at the date the
software license contract revenue is recognized. At June 30, 1996 and 1997 and
at December 31, 1997 the effective weighted average discount rate used for
software license installments was 8.25%, 7.59% and 7.51%, respectively.
Associated interest income is earned using the interest method over the term of
the license contract.
The present values of software license installments to be received after
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Six months ended June 30, 1998.............................. $ 1,998
Year ended June 30, 1999.................................... 6,442
Year ended June 30, 2000.................................... 5,347
Year ended June 30, 2001.................................... 3,871
Year ended June 30, 2002.................................... 2,370
-------
Total minimum payments to be received....................... 20,028
Less unearned interest income............................... (2,684)
Less allowance for doubtful accounts........................ (577)
-------
Present value of software license installments, net......... 16,767
Less current portion, net................................... (5,158)
-------
Non-current portion, net.................................... $11,609
=======
</TABLE>
F-11
<PAGE> 70
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Furniture, fixtures and office equipment......... $ 860 $ 700 $ 868
Computer equipment............................... 1,789 2,985 3,140
Leasehold improvements........................... 311 315 314
------- ------- -------
2,960 4,000 4,322
Less accumulated depreciation and amortization... (1,604) (2,010) (2,315)
------- ------- -------
Property and equipment, net...................... $ 1,356 $ 1,990 $ 2,007
======= ======= =======
</TABLE>
Depreciation and amortization expense on property and equipment, including
capital leases, was $416,000, $381,000 and $406,000 for the twelve months ended
June 30, 1995, 1996 and 1997, respectively, and $220,000 (unaudited) and
$305,000 for the six-month periods ended December 31, 1996 and December 31,
1997, respectively. The net book value of equipment under capital leases
included in property and equipment at June 30, 1996 and 1997 and December 31,
1997 was $278,000, $175,000 and $159,000, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
<S> <C> <C> <C>
Accounts payable................................... $ 615 $1,002 $1,054
Compensation and related benefits.................. 2,924 4,196 1,334
Royalty payable.................................... 351 680 1,097
Other.............................................. 589 715 1,204
------ ------ ------
$4,479 $6,593 $4,689
====== ====== ======
</TABLE>
(6) INCOME TAXES
Income before provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------- ---------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic income....................... $2,612 $6,072 $ 7,923 $2,554 $ 5,569
Foreign losses........................ (583) (798) (2,192) (708) (1,261)
------ ------ ------- ------ -------
$2,029 $5,274 $ 5,731 $1,846 $ 4,308
====== ====== ======= ====== =======
</TABLE>
F-12
<PAGE> 71
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision for income taxes for the years ended June
30, 1995, 1996 and 1997 and the six-month periods ended December 31, 1996
(unaudited) and December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------------------------------------
1995 1996 1997
-------------------------- --------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal.............. $450 $160 $610 $1,577 $573 $2,150 $1,200 $1,521 $2,721
State................ 195 (21) 174 336 127 463 276 336 612
Foreign.............. 96 -- 96 44 -- 44 15 -- 15
---- ---- ---- ------ ---- ------ ------ ------ ------
$741 $139 $880 $1,957 $700 $2,657 $1,491 $1,857 $3,348
==== ==== ==== ====== ==== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1997
----------------------------- ------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Federal......................... $534 $305 $ 839 $1,126 $ 827 $1,953
State........................... 129 67 196 208 182 390
Foreign......................... 8 -- 8 12 -- 12
---- ---- ------ ------ ------ ------
$671 $372 $1,043 $1,346 $1,009 $2,355
==== ==== ====== ====== ====== ======
</TABLE>
The following table reconciles the Federal statutory corporate rate to the
effective income tax rate for the years ended June 30, 1995, 1996 and 1997 and
the six-month periods ended December 31, 1996 (unaudited) and 1997:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------
1995 1996 1997 1996 1997
---- ---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory corporate rate.......... 34% 34% 34% 34% 34%
State income taxes, net of Federal
benefit................................. 6 6 6 6 6
Losses of foreign subsidiaries............ 10 6 14 14 13
Research credit........................... (5) -- (1) -- --
Other..................................... (2) 4 5 3 2
-- -- -- -- --
43% 50% 58% 57% 55%
== == == == ==
</TABLE>
F-13
<PAGE> 72
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------- DECEMBER 31,
1996 1997 1997
------ ------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts.............. $ 163 $ 216 $ 325
Foreign net operating loss carryforwards........ 708 1,677 2,172
------ ------- -------
871 1,893 2,497
Valuation allowance............................... (708) (1,677) (2,172)
------ ------- -------
Net deferred tax assets......................... 163 216 325
Deferred tax liabilities:
Software license installments................... 1,277 3,111 4,196
Depreciation.................................... -- 76 109
------ ------- -------
Net deferred tax liability...................... $1,114 $ 2,971 $ 3,980
====== ======= =======
</TABLE>
The valuation allowance increased by $380,000, $328,000 and $969,000 for
the years ended June 30, 1995, 1996 and 1997 and $495,000 for the six months
ended December 31, 1997 primarily due to uncertainty of realization of net
operating losses incurred by certain foreign subsidiaries. The Company will
reduce the valuation allowance when it is concluded that it is more likely than
not that these deferred tax assets will be realized.
The expiration of net operating loss carryforwards varies by foreign
jurisdiction; some begin to expire in fiscal 2000 and others extend
indefinitely.
(7) COMMON STOCK
COMMON STOCK
The Company has authorized 40,000,000 shares of Common Stock with a $.0001
par value. This includes 1,727,200 shares of Common Stock that were retired
during 1997, having previously been held in treasury stock.
On May 12, 1997, as part of the Preferred Stock Agreement (see note 8) the
Company repurchased 4,091,000 shares of Common Stock, $.0001 par value, from its
founders for $12,000,130. Such amount is being held in treasury stock at
December 31, 1997.
CLASS A NON-VOTING COMMON STOCK
The Company has authorized 5,000,000 shares of Class A Non-Voting Common
Stock with a $.0001 par value. As of December 31, 1997, 80,000 shares have been
issued and are outstanding and 1,786,000 shares have been reserved for issuance
to officers, employees or directors of, or consultants to the Company in
connection with the Company's stock incentive plan. Upon the completion of the
offering, all shares of the Class A Non-Voting Common Stock will be converted to
Common Stock.
STOCK SPLIT
The Board of Directors authorized a 100-to-one stock split of the Company's
common stock which was approved by the stockholders on February 19, 1998. All
common share and per share amounts have been retroactively adjusted in the
accompanying consolidated financial statements to reflect the stock split.
F-14
<PAGE> 73
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) PREFERRED STOCK
The Company has authorized 200,000 shares of Preferred Stock with a par
value of $.01. Before any shares are issued, the Board of Directors shall fix
the specific provisions of the shares including the designation of series,
voting rights, dividend features, redemption and liquidation provision and other
features.
On May 12, 1997, the Company entered into a Stock Purchase Agreement (the
"Agreement") whereby certain investors purchased 40,910 shares of the Preferred
Stock that the Board of Directors designated as Series A Convertible Preferred
Stock ("Convertible Preferred Stock") for $12,000,130.
On or after May 8, 2002, each holder of Convertible Preferred Stock can at
their option, request redemption of their Convertible Preferred Stock at a price
equal to the original issuance price per share plus any accrued dividends on
such Convertible Preferred Stock. In addition, Preferred Stockholders are
entitled to receive dividends and other distributions equivalent to those
declared or paid on Common Stock as if all Convertible Preferred Stock had been
converted into Common Stock. At December 31, 1997, no dividends have been
declared on the Convertible Preferred Stock.
Each share of Convertible Preferred Stock is convertible at the option of
the holder and is mandatorily converted into Common Stock upon the following:
(i) a sale of substantially all of the assets of the Company at an aggregate
purchase price of not less than $100,000,000 up until the first anniversary of
the Agreement, $125,000,000 from the first anniversary of the Agreement to the
second anniversary of the Agreement and $150,000,000 thereafter, (ii) a merger
of the Company with or into another Company in which the Stockholders receive
aggregate consideration having value of not less than $100,000,000 up until the
first anniversary of the Agreement, $125,000,000 from the first anniversary of
the Agreement to the second anniversary of the Agreement and $150,000,000
thereafter, (iii) a designated public offering which results in aggregate net
proceeds of not less than $20,000,000 to the Corporation at an offering price
per share of not less than $5.87, and (iv) a private sale of substantially all
of the Common Stock of the Company at a price per share of not less than $5.87
up until the first anniversary of the Agreement, $7.33 from the first
anniversary of the Agreement to the second anniversary of the Agreement and
$8.80 thereafter. Such Convertible Preferred Stock is convertible into 4,091,000
shares of the Company's Common Stock and will so convert upon consummation of
the offering.
(9) STOCK INCENTIVE PLAN
In November 1996, the Company adopted a stock incentive plan (the "Plan")
pursuant to which the Company's Board of Directors may grant stock options to
officers, employees, directors and consultants. The Plan authorizes grants of
options to purchase up to 3,480,000 shares of authorized but unissued Common
Stock. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant as determined by the Company's Board of
Directors. Stock options generally vest as to 20% of the shares subject thereto
on the first anniversary of the date of grant and the remainder vest ratably
over the subsequent 16 quarters.
F-15
<PAGE> 74
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity during the periods indicated was as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at June 30, 1996............................... -- --
Granted.............................................. 2,045,500 $1.25
Exercised............................................ -- --
Forfeited............................................ -- --
Expired.............................................. -- --
--------- -----
Balance at June 30, 1997............................... 2,045,500 1.25
Granted.............................................. 485,500 6.36
Exercised............................................ (80,000) 1.25
Forfeited............................................ (665,000) 1.25
Expired.............................................. -- --
--------- -----
Balance at December 31, 1997........................... 1,786,000 $2.64
========= =====
</TABLE>
At June 30, 1997 and December 31, 1997, the range of exercise price was
$1.25 and $1.25 - $6.94, respectively. At June 30, 1997 and December 31, 1997,
the weighted average remaining contractual life of outstanding options was 8.92
and 9.13 years, respectively.
At June 30, 1997 and December 31, 1997, the number of options exercisable
was 0 and 360,100, respectively, and the weighted average exercise price of the
exercisable options was $0.00 and $2.83, respectively.
At December 31, 1997, there were 1,134,000 shares available for grant under
the plan. In January and February 1998, the Company granted a total of 720,000
options, with exercise prices from $9.86 to $11.00 per share.
The Company applies APB Opinion No. 25 in measuring compensation expense
for options issued under the Plan. Had the Company determined compensation cost
based on the fair value on the grant date for its stock options under SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the amounts indicated below.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
1997 1997
---------- ----------------
<S> <C> <C>
Net income and earnings per share as would be
reported under SFAS No. 123:
Net income................................... $2,317 $1,758
Basic earnings per share..................... $ 0.16 $ 0.16
Diluted earnings per share................... $ 0.15 $ 0.11
</TABLE>
The per share weighted average fair value of stock options granted during
the year ended June 30, 1997 and the six months ended December 31, 1997 was
$0.80 and $4.31 on the date of grant using the modified Black Scholes option
pricing model, excluding volatility assumption, with the following weighted
average assumptions: expected dividend yield of 0.0%, risk free interest rate of
6.5%, and an expected life of 7 years.
(10) EMPLOYEE SAVINGS PLAN
In fiscal 1995, the Company established a savings plan that qualifies under
Section 401(k) of the Internal Revenue Code. Under the plan, participating U.S.
employees may defer up to 20% of
F-16
<PAGE> 75
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
their pre-tax compensation, but not more than Internal Revenue Code limitations.
The Company, at the discretion of the Board of Directors, may match the employee
contributions. No matching contributions were made in the years ended June 30,
1995, 1996 and 1997 or for the six months ended December 31, 1997.
(11) LEASE COMMITMENTS
The Company has operating leases for its office facilities which expire on
various dates through fiscal 2008 and provide for escalation and additional
payments relating to operating expenses. The Company leases some of its computer
and office equipment under capital leases expiring on various dates through
fiscal 2000.
The following is a schedule of future minimum lease payments for capital
and operating leases as of December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
Six months Ended June 30, 1998....................... $ 33 $ 744
Year Ended June 30, 1999............................. 65 1,690
Year Ended June 30, 2000............................. 37 1,580
Year Ended June 30, 2001............................. -- 1,525
Year Ended June 30, 2002............................. -- 1,258
Year Ended June 30, 2003............................. -- 1,154
Thereafter........................................... -- 5,264
---- -------
Total minimum lease payments......................... 135 $13,215
=======
Less interest component.............................. (12)
----
Present value of minimum lease payments.............. 123
Less current portion................................. (57)
----
Non-current portion.................................. $ 66
====
</TABLE>
Rental expense for all operating leases was approximately $520,000,
$873,000 and $1,046,000 for the years ended June 30, 1995, 1996 and 1997,
respectively, and $498,000 (unaudited) and $697,000 for the six months ended
December 31, 1996 and 1997, respectively.
F-17
<PAGE> 76
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) GEOGRAPHIC AREA INFORMATION AND FOREIGN OPERATIONS
<TABLE>
<CAPTION>
UNITED
STATES(a) FOREIGN(b) ELIMINATIONS TOTAL
------------- ---------- ------------ -------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Revenue:
From unaffiliated customers(c)................ $21,209 1,196 -- $22,405
Between geographic areas(d)................... 455 579 (1,024) --
------- ------- ------- -------
Total Revenue................................... $21,664 1,775 (1,024) $22,405
======= ======= ======= =======
Net income...................................... $ 1,733 (584) -- $ 1,149
Identifiable assets............................. $13,850 1,080 (2,218) $12,712
YEAR ENDED JUNE 30, 1996:
Revenue:
From unaffiliated customers(c)................ $28,348 2,610 -- $30,958
Between geographic areas(d)................... 899 -- (899) --
------- ------- ------- -------
Total Revenue................................... $29,247 2,610 (899) $30,958
======= ======= ======= =======
Net income...................................... $ 3,417 (800) -- $ 2,617
Identifiable assets............................. $19,169 2,695 (3,418) $18,446
YEAR ENDED JUNE 30, 1997:
Revenue:
From unaffiliated customers(c)................ $38,716 2,611 -- $41,327
Between geographic areas(d)................... 942 -- (942) --
------- ------- ------- -------
Total Revenue................................... $39,658 2,611 (942) $41,327
======= ======= ======= =======
Net income...................................... $ 4,600 (2,217) -- $ 2,383
Identifiable assets............................. $31,434 3,628 (6,560) $28,502
SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED):
Revenue:
From unaffiliated customers(c)................ $16,086 1,312 -- $17,398
Between geographic areas(d)................... 449 -- (449) --
------- ------- ------- -------
Total Revenue................................... $16,535 1,312 (449) $17,398
======= ======= ======= =======
Net income...................................... $ 1,511 (708) -- $ 803
Identifiable assets............................. $24,227 3,913 (4,895) $23,245
SIX MONTHS ENDED DECEMBER 31, 1997:
Revenue:
From unaffiliated customers(c)................ $21,407 1,664 -- $23,071
Between geographic areas(d)................... 586 -- (586) --
------- ------- ------- -------
Total Revenue................................... $21,993 1,664 (586) $23,071
======= ======= ======= =======
Net income...................................... $ 3,133 (1,282) -- $ 1,851
Identifiable assets............................. $38,238 4,747 (8,638) $34,347
</TABLE>
- ---------------
(a) Includes international sales through agents located in the United States.
(b) The Company operates wholly owned subsidiaries in the United Kingdom, Italy,
Germany, France and Sweden.
(c) Includes royalties paid to the Company and to its subsidiaries by agents.
Royalties from agents are a percentage of the license and maintenance fees
paid by customers to such agents.
F-18
<PAGE> 77
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Represents royalties from foreign subsidiaries. Royalties from foreign
subsidiaries are a percentage of the license and maintenance fees paid by
customers to such foreign subsidiaries.
(13) COMMITMENTS AND CONTINGENCIES
REVOLVING LINE OF CREDIT
The Company has available as of December 31, 1997 with Silicon Valley Bank
a revolving line of credit of $5,000,000 for working capital purposes, bearing
interest at the prime rate. At December 31, 1997 there were no borrowings on the
line and the agreement expires on October 20, 1998. The line of credit is
secured by certain assets of the Company.
The agreement contains certain financial restrictions and covenants which,
among other things, includes provisions for maintaining a minimum amount of
cash, net worth and profitability.
LETTER OF CREDIT
At December 31, 1997, the Company has established a letter of credit for
$500,000 under the above line of credit with Silicon Valley Bank in connection
with the lease on its corporate office.
F-19
<PAGE> 78
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) PRO FORMA EARNINGS PER SHARE (UNAUDITED)
Pro forma basic earnings per share is calculated by dividing income
available to common stockholders by the pro forma weighted average number of
common shares outstanding for the period. Pro forma diluted earnings per share
is calculated by dividing income available to common stockholders by the pro
forma weighted average number of common shares and potential common shares
outstanding for the period. Both the pro forma basic and diluted weighted
average shares include the conversion of the Series A Convertible Preferred
Stock and the Class A Non-Voting Common Stock into Common Stock. The following
is a reconciliation of the numerators and denominators for the pro forma basic
and pro forma diluted EPS calculation (in thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1997
------------------------------------- -------------------------------------
NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ------ ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Pro forma basic EPS: Net
income.................... $2,383 $1,851
====== ======
Weighted average shares
outstanding............... 14,318 10,909
Common shares expected to be
issued for conversion of
Preferred Stock........... 4,091 4,091
Common shares expected to be
issued for conversion of
Class A Non-Voting Common
Stock..................... 80 80
------ ------
Pro forma basic EPS......... 18,489 $0.13 15,080 $0.12
===== =====
Pro forma diluted EPS.......
Net income................ $2,383 $1,851
====== ======
Dilutive effect of stock
options................. 882 772
------ ------
Pro forma diluted EPS....... 19,371 $0.12 15,852 $0.12
====== ===== ====== =====
</TABLE>
If the assumed conversion of the Series A Convertible Preferred Stock and
the Class A Non-Voting Common Stock into Common Stock had occurred as of
December 31, 1997, total stockholder's equity would have increased to
$9,437,000.
F-20
<PAGE> 79
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co., NationsBanc Montgomery Securities LLC and BancAmerica Robertson Stephens
are acting as representatives, has severally agreed to purchase from the Company
and the Selling Stockholders, the respective number of shares of Common Stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co. .......................................
NationsBanc Montgomery Securities LLC.......................
BancAmerica Robertson Stephens..............................
---------
Total............................................. 2,900,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the initial public offering price and other selling terms
may from time to time be varied by the representatives.
The Selling Stockholders have granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 435,000 additional shares of Common Stock to cover over-allotments,
if any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
2,900,000 shares of Common Stock offered.
The Company, its directors and officers, and certain of its stockholders
have agreed that, subject to certain exceptions, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of the Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or of any other
securities of the Company (other than, in the case of the Company, pursuant to
stock incentive plans existing on the date of this Prospectus) which are
substantially similar to the shares of Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the shares of
Common Stock without the prior written consent of the representatives, except
for the shares of Common Stock offered in connection with the offering.
Prior to the offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects for the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered hereby.
U-1
<PAGE> 80
At the request of the Company, the Underwriters have reserved shares of the
Common Stock offered hereby for sale at the initial public offering price, to
employees and friends of the Company. Such employees and friends will purchase,
in the aggregate, not more than 5% of the Common Stock offered hereby of which
approximately 3% are expected to be purchased by employees. The number of shares
available to the general public will be reduced to the extent that such person
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriters to the general public on the same terms as the other
shares offered by this Prospectus.
In connection with the offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions created by the Underwriters involve the sale by the Underwriters
of a greater number of shares of Common Stock than they are required to purchase
from the Company in the offering. The Underwriters also may impose a penalty
bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in the offering for their
account may be reclaimed by the syndicate if such shares of Common Stock are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market. These transactions may be effected on the Nasdaq National
Market, in the over-the-counter market or otherwise, and these activities, if
commenced, may be discontinued at any time.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "MOBI".
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
U-2
<PAGE> 81
==========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 15
Dividend Policy.......................... 15
Capitalization........................... 16
Dilution................................. 17
Selected Consolidated Financial Data..... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Business................................. 29
Management............................... 42
Certain Transactions..................... 52
Principal and Selling Stockholders....... 53
Description of Capital Stock............. 54
Shares Eligible For Future Sale.......... 56
Legal Matters............................ 57
Experts.................................. 57
Additional Information................... 57
Index to Consolidated Financial
Statements............................. F-1
Underwriting............................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
==========================================================
==========================================================
2,900,000 SHARES
MOBIUS MANAGEMENT
SYSTEMS, INC.
COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
----------------------
[MOBIUS LOGO]
----------------------
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
BANCAMERICA ROBERTSON
STEPHENS
REPRESENTATIVES OF THE UNDERWRITERS
==========================================================
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 12,790
NASD filing fee............................................. 4,836
Nasdaq National Market fee.................................. 95,000
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 200,000
Blue Sky fees and expenses (including legal fees)........... 10,000
Transfer agent and registrar fees and expenses.............. 7,500
Miscellaneous............................................... 94,874
--------
Total............................................. $900,000
========
</TABLE>
The Registrant will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article EIGHTH of the Registrant's Second Amended and Restated Certificate
of Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall to the fullest extent permitted by Delaware
law, as in effect from time to time, indemnify each director or officer of the
Registrant or of any of its wholly-owned subsidiaries who was or is a party or
is threatened to be made a party to any litigation or other legal proceeding, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Registrant or of any of its subsidiaries (provided that such
person's actions subject to such proceeding were taken in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Registrant, and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful) against all
expense, liability and loss (including, but not limited to, attorneys' fees,
judgments, fines, excise taxes or penalties with respect to any employee benefit
plan or otherwise, and amounts paid or to be paid in settlement) incurred or
suffered by such director or officer in connection with such proceeding;
provided, however, that, except for proceedings to recover claims made by a
director or officer against the Registrant pursuant to such Article NINTH, the
Registrant shall not be obligated to indemnify a director or officer in
connection with a proceeding not authorized by the Board of Directors of the
Registrant and initiated by such director or officer against (i) the Registrant
or any of its subsidiaries, (ii) any person who is or was a director, officer,
employee or agent of the Registrant or any of its subsidiaries and/or (iii) any
person or entity which is or was controlled, controlled by, or under common
control with the Registrant or has or had business relations with the Registrant
or any of its subsidiaries.
The right to indemnification conferred by such Article NINTH includes the
right to be paid by the Registrant the expenses incurred in connection with the
defense or investigation of any such
II-1
<PAGE> 83
proceeding in advance of its final disposition; provided, however, that if and
to the extent that Delaware law so requires, the payment of such expense in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Registrant of an undertaking, by or on behalf of such director
or officer or former director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer or former director
or officer is not entitled to be indemnified by the Registrant.
Article NINTH of the Registrant's Restated Certificate of incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made by a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify the Company, directors, officers and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
The Company has obtained directors and officers liability insurance for the
benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has granted the following options (and shares issued upon the exercise
thereof) to employees and non-employee directors and Series A Convertible
Preferred Stock to certain investors that were not registered under the
Securities Act:
Since November 1, 1996, the Company has granted options under the 1996 Plan
to purchase an aggregate of 2,438,000 shares of Common Stock at various exercise
prices ranging from $1.25 to $11.00 per share to certain employees of the
Registrant, including 270,000, 340,000, 360,000 and 360,000 (net of 640,000
having lapsed) options for each of the following Named Executive Officers,
respectively: E. Kevin Dahill, Karry Kleeman, Robert Lawrence and Joseph
Tinnerello. These options were granted pursuant to option agreements subject to
certain vesting requirements (other than a September 30, 1997 grant to Mr.
Tinnerello to purchase 100,000 shares of Common Stock, all of which were
exercisable immediately upon the grant). The Company believes that such
issuances were made based upon the exemption from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"), contained in
Section 3(b) of the Securities Act because the subject securities issued
pursuant to a compensatory benefit plan pursuant to Rule 701 under the
Securities Act. Restrictive legends were placed in the agreements relating to
the right to purchase such shares.
On May 12, 1997, pursuant to a Stock Purchase Agreement, the Company issued
an aggregate of 40,910 shares of the Company's Series A Convertible Preferred
Stock, $.01 par value (the
II-2
<PAGE> 84
"Series A Preferred Stock") for an aggregate purchase price of $12,000,130 to
Oak Investment Partners VI, L.P., Oak VI Affiliates Fund, L.P., NEA Ventures
1997, NEA President's Fund L.P., New Enterprise Associates VII, New Venture
Partners III L.P. and Glynn Ventures III, L.P. Upon consummation of this
offering, each of such shares will convert into 100 shares of Common Stock. The
Company believes that such issuance was made based upon the exemption from the
registration requirements of the Securities Act contained in Section 4(2) of the
Securities Act because the subject securities were sold to a limited group of
persons, each of whom was believed to have been a sophisticated investor.
Restrictive legends were placed on the stock certificates evidencing such shares
of Series A Preferred Stock.
On December 30, 1997, the Company issued 80,000 shares of Class A
Non-Voting Common Stock to Mr. Tinnerello upon the exercise of certain vested
options (granted in November, 1996). Upon consummation of this offering, such
shares automatically convert into shares of Common Stock on a one to one basis.
The Company believes that such issuance was made based upon the exemption for
the registration requirements of the Securities Act contained in Section 3(b) of
the Securities Act because the subject securities were issued pursuant to a
compensatory benefit plan pursuant to Rule 701 under the Securities Act.
Restrictive legends were placed on the stock certificates evidencing such shares
of Class A Non-Voting Stock.
On February 25, 1998, the Company's stockholders approved the Company's
Directors' Plan. Effective upon such approval, each of Messrs. Barris,
Glassmeyer and Kopelman, non-employee members of the Company's Board of
Directors, were granted immediately exercisable options to purchase 10,000
shares at an exercise price of $11.00 per share. The Company believes that such
issuance was made based upon the exemption from the registration requirements of
the Securities Act contained in Section 3(b) of the Securities Act because the
subject securities were issued pursuant to a compensatory benefit plan pursuant
to Rule 701 under the Securities Act. Restrictive legends were placed in the
agreements relating to the right to purchase such shares.
II-3
<PAGE> 85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement.
3.1** -- Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.2** -- Form of Restated By-Laws of the Registrant.
4.1** -- Specimen certificate representing the Common Stock.
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel.
10.1** -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan.
10.2** -- Amendment No. 1 to Mobius Management Systems, Inc. 1996
Stock Incentive Plan.
10.3** -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase
Plan.
10.4** -- Mobius Management Systems, Inc. 1998 Non-Employee Director
Stock Option Plan.
10.5** -- Mobius Management System, Inc. 1998 Executive Incentive
Plan.
10.6** -- Form of Grantee Option Agreement.
10.7** -- Lease dated December 4, 1997 by and between Old Boston Post
Road Associates LLC and the Registrant.
10.8** -- Lease dated February 14, 1983 by and between American
National Bank and Trust Company of Chicago and the
Registrant.
10.9** -- Stock Purchase Agreement dated as of May 12, 1997 by and
among the Registrant and the other parties listed on the
signature pages thereto.
10.10** -- Stockholders' Agreement dated as of May 12, 1997 by and
among the Registrant and the other parties listed on the
signature pages thereto.
10.11** -- Registration Rights Agreement dated May 12, 1997 by and
among the Registrant and the other parties listed on the
signature pages thereto.
10.12** -- Employment Agreement between the Registrant and Mitchell
Gross, dated February 26, 1998.
10.13** -- Employment Agreement between the Registrant and Joseph
Albracht, dated February 26, 1998.
10.14** -- Severance Agreement dated as of September 30, 1997 between
the Registrant and Joseph Tinnerello.
10.15** -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.16** -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello.
10.17** -- Stockholder Agreement, dated as of December 30, 1997 between
the Registrant and Joseph Tinnerello.
10.18** -- Loan and Security Agreement dated as of October 21, 1997
between Silicon Valley Bank and the Registrant.
10.19+ -- Software Assets Purchase Agreement dated as of December 10,
1990 among the Registrant, Compucept of Nevada and Software
Assist Corporation.
10.20+ -- OEM Agreement between the Registrant and CDP Communications,
Inc. dated as of October 15, 1993.
10.21+ -- Source Code License and Amendment to OEM Agreement between
the Registrant and CDP Communications Inc. dated as of
August 12, 1997.
10.22**+ -- Amendment #1 to License and Amendment to OEM Agreement
between the Registrant and CDP Communications, Inc. dated
November 21, 1997.
21.1** -- Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (included in
Exhibit 5.1).
24.1** -- Power of Attorney.
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
+ Confidential treatment has been requested as to certain portions of this
Exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
II-4
<PAGE> 86
(b) Financial Statement Schedule for each of the three years in the period
ended June 30, 1996:
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and
Reserves II-7
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to provisions described in Item 14 above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the
II-5
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 22, 1998.
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ JOSEPH J. ALBRACHT
------------------------------------
Joseph J. Albracht
Executive Vice President, Chief
Operating
Officer and Secretary
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
---------- -------- ----
<C> <S> <C>
* Chairman of the Board, Chief April 22, 1998
- --------------------------------------------------- Executive Officer, President
Mitchell Gross (Principal Executive Officer) and
Director
/s/ JOSEPH J. ALBRACHT Executive Vice President, Chief April 22, 1998
- --------------------------------------------------- Operating Officer, Secretary and
Joseph J. Albracht Director
* Vice President, Finance, Chief April 22, 1998
- --------------------------------------------------- Financial Officer and Treasurer
E. Kevin Dahill (Principal Financial and
Accounting Officer)
* Director April 22, 1998
- ---------------------------------------------------
Peter J. Barris
* Director April 22, 1998
- ---------------------------------------------------
Edward F. Glassmeyer
* Director April 22, 1998
- ---------------------------------------------------
Kenneth P. Kopelman
*
/s/ JOSEPH J. ALBRACHT
- ---------------------------------------------------
Joseph J. Albracht
Attorney in Fact
</TABLE>
II-6
<PAGE> 88
SCHEDULE II
MOBIUS MANAGEMENT SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGES BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995:
Deductions from asset account:
Allowance for doubtful accounts... 80 126 -- (126) 80
Year ended June 30, 1996:
Deductions from asset account:
Allowance for doubtful accounts... 80 575 -- (232) 423
Year ended June 30, 1997:
Deductions from asset account:
Allowance for doubtful accounts... 423 817 -- (519) 721
</TABLE>
II-7
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- ----------
<C> <C> <S> <C>
1.1** -- Form of Underwriting Agreement..............................
3.1** -- Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.............................
3.2** -- Form of Restated By-Laws of the Registrant..................
4.1** -- Specimen certificate representing the Common Stock..........
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel................
10.1** -- Mobius Management Systems, Inc. 1996 Stock Incentive
Plan........................................................
10.2** -- Amendment No. 1 to Mobius Management Systems, Inc. 1996
Stock Incentive Plan........................................
10.3** -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase
Plan........................................................
10.4** -- Mobius Management Systems, Inc. 1998 Non-Employee Director
Stock Option Plan...........................................
10.5** -- Mobius Management System, Inc. 1998 Executive Incentive
Plan........................................................
10.6** -- Form of Grantee Option Agreement............................
10.7** -- Lease dated December 4, 1997 by and between Old Boston Post
Road Associates LLC and the Registrant......................
10.8** -- Lease dated February 14, 1983 by and between American
National Bank and Trust Company of Chicago and the
Registrant..................................................
10.9** -- Stock Purchase Agreement dated as of May 12, 1997 by and
among the Registrant and the other parties listed on the
signature pages thereto.....................................
10.10** -- Stockholders' Agreement dated as of May 12, 1997 by and
among the Registrant and the other parties listed on the
signature pages thereto.....................................
10.11** -- Registration Rights Agreement dated May 12, 1997 by and
among the Registrant and the other parties listed on the
signature pages thereto.....................................
10.12** -- Employment Agreement between the Registrant and Mitchell
Gross, dated February 26, 1998..............................
10.13** -- Employment Agreement between the Registrant and Joseph
Albracht, dated February 26, 1998...........................
10.14** -- Severance Agreement dated as of September 30, 1997 between
the Registrant and Joseph Tinnerello........................
10.15** -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello............................
10.16** -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello............................
10.17** -- Stockholder Agreement, dated as of December 30, 1997 between
the Registrant and Joseph Tinnerello........................
10.18** -- Loan and Security Agreement dated as of October 21, 1997
between Silicon Valley Bank and the Registrant..............
10.19+ -- Software Assets Purchase Agreement dated as of December 10,
1990 among the Registrant, Compucept of Nevada and Software
Assist Corporation..........................................
10.20+ -- OEM Agreement between the Registrant and CDP Communications,
Inc. dated as of October 15, 1993...........................
10.21+ -- Source Code License and Amendment to OEM Agreement between
the Registrant and CDP Communications Inc. dated as of
August 12, 1997.............................................
10.22**+ -- Amendment #1 to License and Amendment to OEM Agreement
between the Registrant and CDP Communications, Inc. dated
November 21, 1997...........................................
21.1** -- Subsidiaries of the Registrant..............................
23.1 -- Consent of KPMG Peat Marwick LLP............................
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (included in
Exhibit 5.1)................................................
24.1** -- Power of Attorney...........................................
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
+ Confidential treatment has been requested as to certain portions of this
Exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 5.1
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
April 22, 1998
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Mobius Management Systems, Inc.
Registration Statement on Form S-1
(File No. 333-47117)
Ladies and Gentlemen:
We have acted as counsel to Mobius Management Systems, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of
the above-captioned Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the initial public offering of (i) 2,500,000 shares of common stock,
par value $0.0001 per share of the Company (the "Common Stock"), to be sold by
the Company and 400,000 shares of Common Stock to be sold by certain
stockholders of the Company (the "Selling Stockholders") (such 2,900,000 shares,
the "Firm Shares") and (ii) up to 435,000 shares of Common Stock (the
"Additional Shares") to be sold by the Selling Stockholders upon an exercise of
an option granted by the Selling Stockholders to Goldman, Sachs & Company,
NationsBanc Montgomery Securities LLC and BancAmerica Robertson Stephens, as
representatives of the certain underwriters (the "Representatives"), to cover
over-allotments of the Shares, pursuant to an underwriting agreement to be
entered into by and among the Company, the Selling Stockholders and the
Representatives (the "Underwriting Agreement"). The Firm Shares and the
Additional Shares are collectively referred to herein as the "Shares."
As such counsel, we have examined such corporate records,
certificates and other documents and such questions of law as we have considered
necessary or appropriate for the purposes of this opinion.
In rendering this opinion, we have (a) assumed (i) the
genuineness of all signatures on all documents examined by us, (ii) the
authenticity of all documents submitted to us as originals, and (iii) the
conformity to original documents of all documents submitted to us as photostatic
or conformed copies and the authenticity of the originals of such copies; and
(b) relied on (i) certificates of public officials and (ii) as
<PAGE> 2
to matters of fact, statements and certificates of officers of the Company.
We are attorneys admitted to the Bar of the State of New York,
and we express no opinion as to the laws of any other jurisdiction other than
the laws of the United States of America and the General Corporation Law of the
State of Delaware.
Based upon the foregoing, we are of the opinion that (a) the
Shares being offered by the Company have been validly authorized and, when
issued and sold in accordance with the terms set forth in the Underwriting
Agreement, will be validly issued, fully-paid and non-assessable shares of
Common Stock of the Company; and (b) the Shares being offered by the Selling
Stockholders have been duly and validly authorized and issued and are fully paid
and non-assessable.
Kenneth P. Kopelman, a director of the Company, is a member of
our firm and owns options to purchase 10,000 shares of Common Stock.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus forming a part of the Registration Statement. In
giving such consent we do not thereby concede that we are within the category of
person whose consent is required under Section 7 of the Securities Act or the
rules and regulations promulgated thereunder.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
<PAGE> 1
Exhibit 10.19
CONFIDENTIAL TREATMENT REQUESTED
SOFTWARE ASSETS PURCHASE AGREEMENT
dated as of December 10, 1990
among MOBIUS MANAGEMENT SYSTEMS, INC.,
COMPUCEPT OF NEVADA,
and
SOFTWARE ASSIST CORPORATION
<PAGE> 2
TABLE OF CONTENTS
1. Definitions............................................................1
2. Sale and Purchase of the Assets........................................4
3. Delivery of the Software Product; Acceptance..........................20
3.1 Release 0.5 Progress Reports and
Periodic Deliverables.................................................20
3.2 Release 0.5 Acceptance Test.....................................21
3.3 Correction of Release 0.5 Noncompliances........................23
3.4 Release 1.0 Progress Reports and
Periodic Deliverables.................................................25
3.5 Release 1.0 Acceptance Test.....................................26
3.6 Correction of Release 1.0 Noncompliances........................28
3.7 Beta Testing....................................................29
3.8 Acceptance Test Liability.......................................29
4. Consideration.........................................................30
5. Indemnification and Setoff............................................34
6. Cooperation; Consulting...............................................37
7. Transfer of Files and Sales Materials.................................39
8. Representations, Warranties,
Covenants and Agreements..............................................39
(a) Of the Sellers to Mobius........................................39
(b) Of Mobius to Sellers............................................41
9. Proprietary Information...............................................44
10. Noncompetition........................................................46
11. Miscellaneous.........................................................48
<PAGE> 3
SCHEDULE A
SCHEDULE B
EXHIBIT 1
<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
SOFTWARE ASSETS PURCHASE AGREEMENT
AGREEMENT made as of the 10th day of December, 1990 among MOBIUS
MANAGEMENT SYSTEMS, INC. ("Mobius"), a New York corporation with offices at One
Ramada Plaza, 10th Floor, New Rochelle, New York 10801, COMPUCEPT OF NEVADA
("Compucept"), a Nevada corporation with offices at 930 Tahoe Boulevard, Call
Box 14-223, Incline, Nevada 89450, Software Assist Corporation ("SAC"), a
Delaware corporation with offices at 1072 Saratoga-Sunnyvale Rd., Suite 376,
San Jose, California 95129 (Compucept and SAC hereinafter sometimes individually
referred to as "Seller" and collectively referred to as the "Sellers").
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
1. Definitions.
"Assets" shall mean the Software Product, the User's Guide (defined
below), the System Documentation (defined below), all trade secrets, proprietary
information, copyrights, trademarks and patents (if any), sales and marketing
literature and information and materials (including customer lists), and all
documentation (including user manuals, source code, object code and other
related technical documentation and materials) in
1
<PAGE> 5
connection therewith, and all work completed to date or in progress on updated
versions of any of the above (hereinafter collectively the "Work In Progress").
"Noncompliance" shall mean performance which does not comply in all
substantial respects with the Software Product's specifications set forth in the
User's Guide or the System Documentation.
"Release 0.5 Software Acceptance Date" shall have the meaning set forth in
Section 3.2 of this Agreement.
"Release 1.0 Software Acceptance Date" shall have the meaning set forth in
Section 3.5 of this Agreement.
"Shared Code" shall mean the portions of the Software Product programs
which are set forth on Schedule A hereto. The Sellers may add to the list of
Shared Code on Schedule A any additional portions of the Software Product
programs which are generic, provided that Mobius shall have given its prior
written consent to each such addition. Once any portion of the Software Product
programs has been deemed Shared Code pursuant to and in accordance with this
Agreement, it shall not thereafter be deemed not to be Shared Code. No portion
of the Software Product programs shall be eligible to be added as Shared Code
after the Release 1.0 Acceptance Date.
2
<PAGE> 6
"Software Product" shall mean: (1) the computer software programs in
object and source code form which shall perform in accordance with the
specifications set forth in the User's Guide and the System Documentation, (2)
the System Documentation, and (3) the User's Guide. The Software Product will be
divided into Release 0.5 and Release 1.0.
"Software Product License Revenue" shall mean all revenues (or the
monetary equivalent of any non-monetary compensation) received by Mobius from
the Software Product licenses.
"Software Product Maintenance Revenue" shall mean the maintenance fees,
support revenue and revenue with respect to licenses for updates or future
releases of the Software Product received by Mobius with respect to the Software
Product, specified in each Software Product maintenance agreement or other
agreement, as applicable, which are received by Mobius.
"System Documentation" shall mean all documentation and materials which
are necessary for a reasonably talented and experienced development systems
programmer to maintain, enhance and otherwise support the software contained in
the Software Product.
"TapeSaver Development Costs" shall mean Mobius' out of pocket expenses
for third party service bureau connect time charges, communication costs, CPU
time charges, and any other
3
<PAGE> 7
expenses agreed to in writing among Mobius and the Sellers. Notwithstanding
anything to the contrary in this Agreement, Mobius shall have no obligation or
liability with respect to any TapeSaver Development Costs, the average of which
per month during any two consecutive months exceeds * ("Excess TapeSaver
Development Costs").
"User's Guide" shall mean the operator and user manuals, training
materials, guides, listings, specifications, and other materials, for use in
conjunction with the computer software programs in object and source code form
contained in the Software Product, attached hereto as Exhibit 1, and as they may
be modified by the mutual written agreement of Mobius and the Sellers.
2. Sale and Purchase of Assets.
(a) Subject to Section 2(b) below, and based upon
representations and warranties herein contained, and the other terms and
provisions hereof, the Sellers hereby sell, transfer and assign to Mobius, all
of the Sellers' right, title and interest in and to the Assets, and Mobius
hereby purchases and accepts the transfer and assignment thereof from the
Sellers.
(b) In addition, based upon representations and warranties
herein contained, and the other terms and provisions
- -------- * The Redacted Material Has Been Filed Separately With the Commission.
4
<PAGE> 8
hereof, the Sellers hereby sell, transfer and assign to Mobius, subject to
Section 2(c) below, a one-half undivided interest in all rights and title to the
Shared Code and to all copyrights and all other intellectual property rights in
the Shared Code, and Mobius hereby purchases and accepts the transfer and
assignment thereof from the Sellers.
(c) Without affecting any rights of Mobius or Sellers contained in
this Agreement (or any of their assignees of this Agreement in full in
accordance with Section 11 below), the Shared Code "Owners" (as defined below)
will share equal and undivided ownership of all rights, title and interest
("Partial Ownership") to all copyrights and all other intellectual property
rights in the Shared Code, which are recognized under the U.S. Copyright Act of
1976 (as it may be amended) and other intellectual property laws of the United
States and similar laws in effect in any other jurisdiction, as further provided
in this Section 2(c), as if each such Owner were a joint inventor and author of
the Shared Code. In addition, without affecting any obligations of Sellers and
Mobius (and any of their assignees of this Agreement in full in accordance with
Section 11 below), each such Owner shall have, for so long as the Owner retains
Partial Ownership of the Shared Code (and thereafter in accordance with the
express provisions of Section 2(c)(xiii) below) the obligations set forth in
this Section 2(c). For purposes of this Section 2(c), "Owners" means Sellers and
Mobius, and any direct
5
<PAGE> 9
or indirect assignee or other legal successor in interest to any of them of a
partial interest in all of Mobius' or Sellers' rights and title in each of the
copyrights and all other intellectual property in the Shared Code.
Notwithstanding anything in this Section 2(c) to the contrary, the terms of this
Section 2(c) shall be subject, in all respects, to the other provisions of this
Agreement, including, without limitation, Sections 5, 8, 9 and 10 of this
Agreement and neither the Sellers nor any third party shall have any title,
rights, or interest in the Software Product including all modifications thereto
(excluding the Shared Code) or any copyright or other intellectual property
therein which shall be exclusively and solely owned by Mobius.
(i) Commercial Use by an Owner. Any Owner ("Transacting
Owner") shall have the right to modify, have modified, create
of, have created derivative works of, reproduce, have reproduced, use, display
publicly in object code (machine readable) format only and distribute the Shared
Code (collectively, "Commercial Rights") and to authorize third parties to
exercise Commercial Rights with respect to the Shared Code in accordance with
the following paragraph, subject to Sellers' obligations not to compete as set
forth in Section 10 below. Except with respect to the Software Product
(excluding the Shared Code) and any modifications thereto, all of which shall be
exclusively owned by Mobius, title to modifications or
6
<PAGE> 10
derivative works prepared by or for any such Transacting Owner and all
copyrights and other intellectual property therein will be owned by, and all
rights of title ownership will reside solely and exclusively in, such
Transacting Owner;
(ii) Licensing. Any Owner ("Licensing Owner") shall have the
right to grant nonexclusive licenses and to authorize sublicenses of Commercial
Rights (as defined in paragraph "(i)" above) with respect to the Shared Code,
and to grant exclusive licenses of any nature and scope with respect to any
derivative work of the Shared Code except with respect to the Software Product
(excluding the Shared Code) and any modifications thereto, all of which shall be
exclusively owned by Mobius, for any commercial purpose, subject to Sellers'
obligations not to compete as set forth in Section 10 below. The Licensing Owner
shall have the right to grant such licenses on terms and conditions determined
in the sole discretion of the Licensing Owner, subject to Sellers' obligations
not to compete as set forth in Section 10 below;
(iii) Owner Intellectual Property Claims Against Third
Parties.
(A) Right to Bring Claims. Any Owner ("Claimant Owner")
shall have the right, but not the obligation, to prosecute and otherwise bring
claims against past, present or future infringers of the Shared Code (e.g.
persons or entities
7
<PAGE> 11
which are not themselves Owners and which are not authorized by an Owner to
exercise Commercial Rights (as defined in paragraph "(i)" above). The Claimant
Owner shall notify in writing all other Owners of which the Claimant Owner has
received notice in accordance with paragraph "(ix)" below within sixty (60) days
after a claim is alleged in writing against an infringer or potential infringer
(e.g. by written notice to the infringer or the filing of suit for
infringement). The other Owners and each of them agree to provide nonmonetary
assistance and information reasonably requested by a Claimant Owner in
connection with any such potential infringement and the prosecution or
settlement of any claim or alleged claim of infringement of the Shared Code by a
third party, provided that the Owner, of whom such assistance or information is
requested, reasonably believes the claim to be a bona fide claim. Any other
Owner or Owners during the period of the infringement ("Additional Claimant
Owners") shall have a right to join in the claim under either of the following
circumstances: (x) upon written notice to the original Claimant Owner within
sixty (60) days after the Additional Claimant Owner is notified in writing by
the original Claimant Owner that the claim is alleged against the infringer or
potential infringer, or (y) upon being named involuntarily as a party in any
proceeding for the claim.
(B) Prosecution and Defense. Any such Additional
Claimant Owner shall have the right to participate,
8
<PAGE> 12
through legal counsel, in the prosecution and/or settlement of the claim and
defense of any counterclaims. The original Claimant Owner shall have the right
to control the prosecution and/or settlement of the claim and the defense of any
counterclaim; except that, an Additional Claimant Owner may elect, upon written
notice to all other Claimant Owners of which such Additional Claimant Owner has
received notice in accordance with paragraph "(ix)" below, to retain any rights
of control otherwise provided by law over such Additional Claimant Owner's
representation and other matters related to any counterclaims and crossclaims
which are either (x) made against such Additional Claimant Owner but which are
not made against the original Claimant Owner, or (y) the subject of a separate
or severable proceeding.
(C) Rights to Proceeds. The original Claimant Owner and
Additional Claimant Owners, if any, will share in the proceeds of any claim as
set forth below.
(X) Actual Damages Awarded. Actual damages awarded
to Claimant Owners in any proceeding for the claim will be allocated among
Claimant Owners corresponding to actual damages suffered by each Claimant Owner,
according to proof in the proceeding, less any deductions ordered in the
proceeding.
9
<PAGE> 13
(Y) Other Proceeds. All other damages and
compensation awarded to, and all other proceeds (including settlement proceeds)
resulting from the claim awarded to, or otherwise received by, Claimant Owners
will be allocated among Claimant Owners first, as compensation to each Claimant
Owner for reasonable and documented legal costs and expenses (including
reasonable attorneys' fees) payable on a current basis, which are incurred by
the individual Claimant Owner in connection with the claim (but excluding any
damages payable by a Claimant Owner and any such costs and expenses attributable
to any separate legal proceeding or the defense of any counterclaims which are
not made against all Claimant Owners) and second, to the extent of any remaining
balance, among Claimant Owners on a pro rata basis according to the number of
Claimant Owners. To the extent that such other damages and compensation awarded
to, and other proceeds received by, Claimant Owners is insufficient to
compensate them fully for legal costs and expenses, as described above, such
awards and other proceeds will be allocated among Claimant Owners on a
percentage basis according to such costs and expenses (payable on a current
basis) which they each incur individually as a fraction of aggregate costs and
expenses which they incur collectively.
(D) Liabilities. Each Claimant Owner shall bear all
damages awarded against such Claimant Owner as ordered in any proceeding for the
claim, without right of contribution by any other Claimant Owner, except with
respect to
10
<PAGE> 14
any cost for which Sellers are obligated to indemnify Mobius under this
Agreement;
(iv) Third Party Intellectual Property Claims Against
Owners. The Owners and each of them shall cooperate and lend nonmonetary
assistance, as reasonably requested by any of them ("Defendant Owner"), in
connection with any claim or related proceeding that the exercise of Commercial
Rights (as defined in paragraph "(i)" above) or with respect to the Shared Code,
whether or not incorporated in a derivative work thereof, infringes the
intellectual property rights of the claimant; except that, there shall be no
such obligation of cooperation or assistance to another Owner if the other Owner
is also the party asserting the claim. Subject to paragraph "(iii)" above and
except with respect to any cost for which Sellers are obligated to indemnify
Mobius under this Agreement, any Defendant Owner alone shall bear all costs and
expenses incurred by such Defendant Owner in connection with any such claim or
related proceeding. Without affecting any right or obligation of indemnification
among Sellers and Mobius provided elsewhere in this Agreement, promptly upon
receipt of any such claim, which the Defendant Owner reasonably believes is
likely to result in a judicial or other binding legal determination that the
Shared Code, or the exercise of Commercial Rights with respect thereto, in and
of itself, infringes a non-Owner's intellectual property, the Defendant Owner
shall notify promptly in writing all other
11
<PAGE> 15
Owners, of which the Defendant Owner has received notice in accordance with
paragraph "(ix)" below, of the claim. Any Owner shall have the right to
participate in any proceeding which may result in a binding determination that
the copyright in and to the Shared Code, in and of itself, is not valid or is
not enforceable, subject to the notice requirements of paragraph "(iii)" above;
(v) Registrations. Any Owner ("Registering Owner") shall
have the right to make, consistent with such Registering Owner's Partial
Ownership, filings and to seek registrations and other recordations of copyright
and other intellectual property rights in and to the Shared Code granted or
permitted by the laws of the United States and/or any other jurisdiction;
provided that, the Registering Owner shall notify any other Owners, of which
such Registering Owner has received notice in accordance with paragraph "(ix)"
below, in writing at least sixty (60) days in advance of the filing or
application for registration or recordation. Except as expressly agreed
otherwise in writing by any other Owner with respect to such other Owner's
copyright and other intellectual property title ownership, the Registering Owner
shall use diligent efforts to ensure that the collective and individual
ownership of copyright and other intellectual property title in the Shared Code
by all Owners, of which the Registering Owner has received notice in accordance
with paragraph "(ix)" below, are accurately reflected
12
<PAGE> 16
in the filing, registration or other recordation and applications therefor. Any
such filing, registration, other recordation or application therefor shall be
accompanied by a reproduction of the provisions of this Section 2(c) or
substantially similar provisions, as and to the extent permitted by applicable
law;
(vi) Proprietary Notices.
(A) Copyright Notices. Any Owner ("Noticing
Owner") which reproduces the Shared Code, in whole or in part, shall have the
right, as well as the obligation, to affix and apply to the Shared Code (whether
or not incorporated in a derivative work of the Shared Code), and all
reproductions thereof, and all packaging and documentation therefor, and to
require such Noticing Owner's licensees to so affix and apply, copyright notices
in the following form: "(c)[1991 or, if a derivative work, the year of
authorship] [name of Owner]. All rights reserved."
(B) Government Restricted Rights Legends. To the
extent that the Noticing Owner reasonably believes that the Shared Code may be
authorized for use by the U.S. Government in any jurisdictions, to the extent
consistent with any license to exercise Commercial Rights granted directly by
the Noticing Owner to the U.S. Government, the Noticing Owner shall also affix
and apply restricted rights legends, and shall use reasonable efforts to ensure
that the Noticing Owner's
13
<PAGE> 17
licensees do so, as permitted by and in any form prescribed by, any U.S.
Government statute or regulation.
(C) Other Proprietary Notices. In addition, any
such Noticing Owner shall have the right to affix and apply other proprietary
rights notices and legends consistent with this Section 2(c).
(D) Response to Inquiries. Any such Noticing Owner
shall use diligent efforts to respond, to the best of such Noticing Owner's
knowledge and in a reasonable manner, to any inquiry by a third party (including
without limitation any governmental entity) regarding copyright and any other
intellectual property ownership in the Shared Code;
(vii) Trademarks. Any Owner ("Trademarking Owner") shall
have the right to adopt, affix and apply to the Shared Code and any derivative
work thereof and documentation and packaging therefor, and to use in connection
with the promotion and marketing of the Shared Code and derivative works
thereof, trademarks and tradenames proprietary to such Trademarking Owner.
However, such Trademarking Owner shall not use trademarks or tradenames
proprietary to any other Owner, of which such Trademarking Owner is aware, or
which are confusingly similar to any trademarks or tradenames of any other Owner
of which such Trademarking Owner is aware, without the other Owner's prior
written consent. This paragraph is subject to Mobius' exclusive
14
<PAGE> 18
rights of ownership of the TapeSaver trademark and this Section 2(c) shall in no
way be interpreted as granting any right or interest in such trademark or any
other trademark or tradename included in the Assets to any third party;
(viii) Assignment Rights. Without affecting any right of
assignment of this Agreement provided among Sellers and Mobius elsewhere herein,
any Owner ("Assigning Owner") shall have the right to sell and assign to third
parties all or any part of such Assigning Owner's partial title ownership in
each of the copyrights and other intellectual property rights in the Shared
Code, subject to the following paragraph;
(ix) Assignment Obligations. In connection with any sale
and assignment of Partial Ownership by an Assigning Owner (as defined in the
preceding paragraph) to a third party ("Additional Owner") of such Assigning
Owner's ownership of title to each of the copyrights and other intellectual
property in the Shared Code (other than ownership in a derivative work) (i.e.
other than a mere grant of Commercial Rights), such Assigning Owner, other than
Mobius or Mobius' assignees if such assignment is in connection with an
assignment of this Agreement in full in accordance with Section 11 below, shall
obtain such Additional Owner's execution of a written agreement containing the
provisions of this Section 2(c) or substantially similar provisions and
including the Additional Owner's express written consent to be legally bound by
such provisions. In addition, the
15
<PAGE> 19
Assigning Owner shall use diligent efforts to cause such agreement to be legally
binding upon the Additional Owner for the benefit of all owners (including
future Additional Owners) of the Shared Code. Without limiting the foregoing,
any sale or assignment or other succession in ownership to title to each of the
copyrights or other intellectual property in the Shared Code other than Mobius
or Mobius' assignees if such assignment is in connection with an assignment of
this Agreement in full in accordance with Section 11 below shall be subject to
the obligations set forth in this Section 2(c). Any assignment or other transfer
or attempted transfer inconsistent with this paragraph may be voided by any
Owner effective upon thirty (30) days written notice to the purported Additional
Owner, describing the inconsistency in reasonable detail, unless the purported
Additional Owner executes and delivers to the Owner giving such notice, during
such notice period, the agreement described in this paragraph above;
(x) Warranty Disclaimers and New Versions. Subject to
Sellers' obligations under this Agreement, including, without limitation,
Sellers' Software Product maintenance obligations under Section 6 below to
Mobius and Mobius' assignees of this Agreement in full in accordance with
Section 11 below, in no event will Sellers, Mobius or any other Owners be
obligated to provide to any Additional Owners, as defined in paragraph "(ix)"
above, any bug fixes, error corrections, updates, upgrades,
16
<PAGE> 20
enhancements or other new versions of the Shared Code (except as the Owner to be
charged may otherwise agree in a signed writing). Except as provided to Mobius
(and any assignee of all of Mobius' rights and obligations under this Agreement
in accordance with Section 11 below) herein, SELLERS MAKE AND ADDITIONAL OWNERS
RECEIVE NO WARRANTIES WITH RESPECT TO THE SHARED CODE, EXPRESS, IMPLIED,
STATUTORY OR IN ANY COMMUNICATION AMONG SELLERS, MOBIUS AND ANY ADDITIONAL
OWNER; AND SELLERS HEREBY EXPRESSLY DISCLAIM TO ALL ADDITIONAL OWNERS THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Except as may otherwise expressly be agreed in a writing signed by Sellers or
with respect to any assignee of all of Mobius' rights and obligations under this
Agreement in accordance with Section 11 below, THE SHARED CODE IS CONVEYED TO
ADDITIONAL OWNERS "AS IS."
(xi) Encumbrances. Any Owner ("Encumbering Owner") shall
have the right to file or authorize filing with the United States Copyright
Office, any Office of the Secretary of State or other governmental agency of any
State of the United States, or any governmental agency of any other
jurisdiction, notices, financing statements, instruments and documents of
assignment, pledge or mortgage of the Shared Code as collateral, and similar
recordations of a security or similar interest, only with respect to the
Encumbering Owner's Partial Ownership of the copyrights and other intellectual
property in the Shared Code. However, the Encumbering Owner shall ensure that
any such filing
17
<PAGE> 21
shall be accompanied, for the benefit of all Owners, by a reproduction of the
provisions of this Section 2(c) or substantially similar provisions, to the
extent permitted by applicable law.
(xii) Accounting for Profits. Any Owner ("Compensated
Owner") shall have the sole and exclusive right and benefit of any compensation
and all consideration obtained by such Compensated Owner in connection with such
Compensated Owner's exercise of Commercial Rights (as defined in paragraph "(i)"
above, and assignment (in whole or in part) of such Owner's copyright and other
intellectual property title ownership in the Shared Code. Such Compensated Owner
shall have no obligation to account for, or to share with, any other Owner or
Owners, any such compensation or other consideration. All other Owners agree to
assign (including without limitation the execution of documents of assignment)
to the Compensated Owner, as reasonably requested by the Compensated Owner, all
such compensation or consideration obtained by the Compensated Owner in
connection with such exercise of Commercial Rights by the Compensated Owner.
Notwithstanding the foregoing, the provisions of this paragraph shall be, with
respect to Sellers and Mobius, subject to the payment provisions of Section 4
below.
(xiii) Confidentiality. Notwithstanding anything to the
contrary provided in this Section 2(c), the Additional Owners and each of them,
other than an assignee of this Agreement from Mobius in accordance with Section
11 below,
18
<PAGE> 22
("Receiving Owner") agrees not to permit the disclosure of the Shared Code in
source code (human readable) format or any information received from another
Owner ("Communicating Owner"), the delivery of which is required in connection
with the performance of the Communicating Owner's obligations under this Section
2(c), which is delivered in tangible form and conspicuously marked
"confidential" or with a similar designation, unless (A) the information is
known to the Receiving Owner at the time of initial delivery by the
Communicating Owner and is not subject to a prior obligation of confidentiality,
(B) the information or the source code, as the case may be, enters the public
domain not as a result of any action or inaction by the Receiving Owner, (C) the
source code is required to be submitted to a governmental agency in connection
with a recordation of copyright or other intellectual property or a related
property right, and then only to the extent of the minimum submission required,
(D) the information is independently developed by the Receiving Owner without
reference to information delivered by the Communicating Owner or (E) the
information is approved by the Communicating Owner in writing for disclosure to
third parties (but then only to the extent of such approval). Notwithstanding
the foregoing, the Receiving Owner may reproduce and use such information and
source code as necessary in order to make commercial use of the Shared Code in a
manner reasonably calculated to protect all Owners' individual and collective
proprietary rights in the information and the Shared Code. The
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<PAGE> 23
obligations set forth in this paragraph shall survive transfer of the Receiving
Owner's entire Partial Ownership of the Shared Code for a period of five (5)
years after the date of such transfer.
(xvi) Further Assurances. The Owners agree to execute
all reasonable documents and to cooperate fully, as requested by any of them in
writing, in order to give force and effect to the Shared Code ownership rights
and obligations provided in this Section 2(c).
(d) The Sellers agree that: (i) under no circumstances
whatsoever does Mobius assume, with respect to third parties, any liability,
responsibility for, or obligation with respect to the Assets relating to Release
0.5 or any other matter or proceeding arising out of or relating thereto
occurring prior to the Release 0.5 Software Acceptance Date and (ii) under no
circumstances whatsoever does Mobius assume, with respect to third parties, any
liability, responsibility for, or obligation with respect to the Assets relating
to Release 1.0 or any other matter or proceeding arising out of or relating
thereto occurring prior to the Release 1.0 Software Acceptance Date.
3. Delivery of the Software Product; Acceptance.
3.1 Release 0.5 Progress Reports and Periodic Deliverables.
During the period commencing on the date hereof and ending on the Release 0.5
Software Acceptance Date, the Sellers shall deliver to Mobius not less
frequently than every 45
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<PAGE> 24
days (i) a current draft of the User's Guide as revised in accordance with
Mobius' prior written consent, (ii) a current draft of the System Documentation
as revised in accordance with Mobius' prior written consent, and (iii) a
progress report signed by an authorized officer of each of the Sellers
(collectively, the "Periodic Deliverables"). Each progress report shall describe
the status of the Sellers' progress on Release 0.5, the progress expected to be
made in the next succeeding 45 day period, an anticipated date for delivery of
Release 0.5 to Mobius, proposed changes to the Shared Code list on Schedule A
and proposed changes to the Software Product which have been discovered or
created in the past 45 days. The proposed changes to the Software Product and
the Shared Code list are subject to the mutual written approval of the parties.
Upon request by an authorized officer of Mobius, Mobius shall have the right to
conduct a review of the progress of the Sellers in complying with this
Agreement; any such review may include, but need not be limited to, interviews
with any or all of the personnel of either Seller assigned to the activities
related to the Software Product and any such interview may be conducted at the
location where such personnel are assigned to work with reasonable notice and
during normal business hours.
3.2 Release 0.5 Acceptance Test. The Sellers will prepare and
deliver to Mobius, for quality assurance and acceptance testing, no later than
45 days from the date hereof,
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Release 0.5 and all related documentation, at a mutually agreed upon time during
work hours. Within 30 days of the Sellers' delivery to Mobius of Release 0.5
(the "Noncompliance Notice Period"), Mobius shall determine in its sole
discretion whether Release 0.5 has any Noncompliances and, also within such 30
day period, send the Sellers written notice of any Noncompliances (a "Release
0.5 Noncompliance Notice") or of acceptance of Release 0.5 (the "Release 0.5
Acceptance Certificate"). The Release 0.5 Software Acceptance Date shall be the
earliest to occur of: (i) the shipment (or other transmission) by Mobius of any
copy of the Software Product, to the extent it consists of executable software
code (regardless of stage of development), to any third party without the
written consent of Sellers, except: (1) the party acting as escrow agent
pursuant to Section 8(a)(vii) of this Agreement, (2) the third party service
bureau used by Mobius for acceptance testing of the Software Product and (3) if
such shipment is for the purpose of development and testing of the Software
Product by Sellers, (ii) the expiration of the Noncompliance Notice Period
without notice from Mobius, or (iii) Mobius' delivery to the Sellers of the
Release 0.5 Acceptance Certificate, whether or not pursuant to this paragraph
3.2 or paragraph 3.3 below.
If the Sellers fail to deliver Release 0.5 and all related
documentation to Mobius for quality assurance and acceptance testing by no later
than 45 days from the date hereof,
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<PAGE> 26
Mobius, at its option, may, in addition to any other remedy provided under this
Agreement or by law, suspend all payments to the Sellers. Unless Mobius shall
have terminated this Agreement in the interim, Mobius shall upon the Sellers'
delivery to Mobius, for quality assurance and acceptance testing, of Release 0.5
and all related documentation, pay promptly to the Sellers all payments which
were suspended pending such delivery, provided, that in no event shall Mobius
have any liability or obligation to pay to the Sellers any such suspended
payments which exceed the sum of those payments due from Mobius hereunder during
the period commencing on the date hereof and ending seventy-five (75) days
later. The Sellers agree and acknowledge that Mobius' suspension of payments (if
in accordance with and pursuant to this Agreement) shall not in any way excuse
the Sellers from any of their obligations or liabilities under this Agreement.
3.3 Correction of Release 0.5 Noncompliances. Within 30 days
of Mobius giving a Release 0.5 Noncompliance Notice, the Sellers shall correct
all material Noncompliances in Release 0.5 and make all necessary changes to the
User's Guide and System Documentation and deliver to Mobius all such corrections
and changes. Mobius shall cooperate with the Sellers to the extent reasonable
and practicable in making such corrections. Within 30 days of such delivery,
Mobius shall determine in its sole discretion whether the corrected Release 0.5
has any
23
<PAGE> 27
Noncompliances and send the Sellers a Release 0.5 Noncompliance Notice or the
Release 0.5 Acceptance Certificate. Any failure by Mobius to respond within such
period shall be deemed acceptance. In the event Mobius notifies the Sellers of a
Noncompliance in the corrected Release 0.5, the parties shall repeat the testing
and Noncompliance correction procedures described in Sections 3.2 and 3.3 hereof
until Mobius provides the Sellers with the Release 0.5 Acceptance Certificate or
Release 0.5 is deemed accepted pursuant to the provisions of this Agreement.
Notwithstanding the foregoing, if by September 30, 1991 Release 0.5 is not
accepted or deemed accepted, the parties shall submit the existing dispute or
controversy, concerning Sellers' failure to deliver Release 0.5 free of
Noncompliances, to arbitration in accordance with Section 11(i) of this
Agreement.
Unless Release 0.5 is accepted (or deemed accepted) prior thereto,
if the Sellers fail to correct all material Noncompliances in Release 0.5
within 75 days of the date hereof, Mobius, at its option, may, in addition to
any other remedy provided under this Agreement or by law, suspend all payments
to the Sellers. Unless Mobius shall have terminated this Agreement in the
interim, upon Mobius' determination in its sole discretion that the Sellers have
delivered to Mobius a corrected Release 0.5 and all related documentation which
have no material Noncompliances, Mobius shall pay promptly to the Sellers all
payments which were suspended pending the correction of such
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<PAGE> 28
Noncompliances, provided however, that in no event shall Mobius have any
liability or obligation to pay to the Sellers any such suspended payments which
exceed the amounts specified in Section 4(e). The Sellers agree and acknowledge
that Mobius' suspension of payments (if in accordance with and pursuant to this
Agreement) shall not in any way excuse the Sellers from any of their obligations
or liabilities under this Agreement.
3.4 Release 1.0 Progress Reports and Periodic Deliverables.
During the period commencing on the delivery date of Release 0.5 and ending on
the Release 1.0 Software Acceptance Date, the Sellers shall deliver to Mobius
not less frequently than every 45 days (i) a current draft of the User's Guide
as revised in accordance with Mobius' prior written consent, (ii) a current
draft of the System Documentation as revised in accordance with Mobius' prior
written consent, and (iii) a progress report signed by an authorized officer of
each of the Sellers (collectively, the "Periodic Deliverables"). Each progress
report shall describe the status of the Sellers' progress on Release 1.0, the
progress expected to be made in the next succeeding 45 day period, an
anticipated date for delivery of Release 1.0 to Mobius, proposed changes to the
Shared Code list on Schedule A and proposed changes to the Software Product
which have been discovered or created in the past 45 days. The proposed changes
to the Software Product and the Shared Code list are subject to the mutual
written approval of the parties. Upon
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<PAGE> 29
request by an authorized officer of Mobius, Mobius shall have the right to
conduct a review of the progress of the Sellers in complying with this
Agreement; any such review may include, but need not be limited to, interviews
with any or all of the personnel of either Seller assigned to the activities
related to the Software Product and any such interview may be conducted at the
location where such personnel are assigned to work with reasonable notice and
during normal business hours.
3.5 Release 1.0 Acceptance Test. The Sellers will prepare and
deliver to Mobius, for quality assurance and acceptance testing, no later than
April 15, 1991, Release 1.0 and all related documentation, at a mutually agreed
upon time during work hours. Within 30 days of the Sellers' delivery to Mobius
of Release 1.0 (the "Noncompliance Notice Period"), Mobius shall determine in
its sole discretion whether Release 1.0 has any Noncompliances and, also
within such 30 day period, send the Sellers written notice of any Noncompliances
(a "Release 1.0 Noncompliance Notice") or of acceptance of Release 1.0 (the
"Release 1.0 Acceptance Certificate"). The Release 1.0 Software Acceptance Date
shall be the earliest to occur of: (i) the shipment (or other transmission) by
Mobius of any copy of the Software Product, to the extent it consists of
executable software code (regardless of stage of development) to any third
party, without the written consent of the Sellers, except: (1) the party acting
as escrow agent pursuant to Section
26
<PAGE> 30
8(a)(vii) of this Agreement, (2) the third party service bureau used by Mobius
for acceptance testing of the Software Product and (3) if such shipment is for
the purpose of development and testing of the Software Product by Sellers, (ii)
the expiration of the Noncompliance Notice Period without notice from Mobius, or
(iii) Mobius' delivery to the Sellers of the Release 1.0 Acceptance Certificate,
whether or not pursuant to this paragraph 3.5 or paragraph 3.6 below.
If the Sellers fail to deliver Release 1.0 and all related
documentation to Mobius for quality assurance and acceptance testing by no later
than April 15, 1991, Mobius, at its option, may, in addition to any other remedy
provided under this Agreement or by law, suspend all payments to the Sellers.
Unless Mobius shall have terminated this Agreement in the interim, Mobius shall
upon the Sellers' delivery to Mobius, for quality assurance and acceptance
testing, of Release 1.0 and all related documentation, pay promptly to the
Sellers all payments which were suspended pending such delivery, provided, that
in no event shall Mobius have any liability or obligation to pay to the Sellers
any such suspended payments which exceed the sum of those payments due from
Mobius hereunder during the period commencing on the date hereof and ending on
May 15, 1991. The Sellers agree and acknowledge that Mobius' suspension of
payments (if in accordance with and pursuant to this Agreement) shall not in any
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<PAGE> 31
way excuse the Sellers from any of their obligations or liabilities under this
Agreement.
3.6 Correction of Release 1.0 Noncompliances. Within 30 days
of Mobius giving a Release 1.0 Noncompliance Notice, the Sellers shall correct
all material Noncompliances in the Software Product and make all necessary
changes to the User's Guide and System Documentation and deliver to Mobius all
such corrections and changes. Mobius shall cooperate with the Sellers to the
extent reasonable and practicable in making such corrections. Within 30 days of
such delivery, Mobius shall determine in its sole discretion whether the
corrected Release 1.0 has any Noncompliances and send the Sellers a Release 1.0
Noncompliance Notice or the Release 1.0 Acceptance Certificate. Any failure by
Mobius to respond within such period shall be deemed acceptance. In the event
Mobius notifies the Sellers of a Noncompliance in the corrected Release 1.0, the
parties shall repeat the testing and Noncompliance correction procedures
described in Sections 3.5 and 3.6 hereof until Mobius provides the Sellers with
the Release 1.0 Acceptance Certificate or Release 1.0 is deemed accepted
pursuant to the provisions of this Agreement.
Unless Release 1.0 is accepted (or deemed accepted) prior thereto,
if the Sellers fail to correct all material Noncompliances in Release 1.0
within 30 days of April 15, 1991, Mobius, at its option, may, in addition to any
other remedy provided under this Agreement or by law, suspend all payments to
28
<PAGE> 32
the Sellers. Unless Mobius shall have terminated this Agreement in the interim,
upon Mobius' determination in its sole discretion that the Sellers have
delivered to Mobius a corrected Release 1.0 and all related documentation which
have no material Noncompliances, Mobius shall pay promptly to the Sellers all
payments which were suspended pending the correction of such Noncompliances.
The Sellers agree and acknowledge that Mobius' suspension of payments (if in
accordance with and pursuant to this Agreement) shall not in any way excuse the
Sellers from any of their obligations or liabilities under this Agreement.
3.7 Beta Testing. Concurrently with Mobius' acceptance
testing, the Sellers shall conduct beta testing of Release 0.5 and Release 1.0
in two beta test locations. Beta testing will be performed at sites selected by
the Sellers; provided that each such beta test site licensee is subject to a
license agreement and nondisclosure agreement which Mobius and the Sellers shall
mutually agree are acceptable in form and substance. Furthermore, any beta test
site license or confidentiality agreement to which Mobius is not a party is
hereby assigned to Mobius and Mobius accepts such assignment, subject to Section
2(d) hereof. Prior to Release 1.0 Acceptance, Mobius shall provide, upon the
Sellers' request, two Software Product CPU licenses, for which license fees and
Sellers' associated Royalties shall be waived.
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<PAGE> 33
3.8 Acceptance Test Liability. Notwithstanding any obligation
by Sellers to indemnify Mobius due to a breach of the warranties set forth in
Section 8(a) at item "(vi)", Mobius shall indemnify and hold harmless Sellers
from and against, and shall reimburse each of them on demand for, any and all
liability, damage, loss, reasonable cost and expense, including without
limitation, the fees and disbursements of counsel (collectively "Losses),
incurred in connection with, relating to or arising out of, any claim, action,
suit, proceeding, demand or assessment (collectively "claims") relating to
Software Product acceptance testing conducted by or for Mobius, which is
directly attributable to some action or inaction by Mobius during such testing
(e.g., Mobius' failure to back up data) and which is not directly attributable
to some action or inaction by Sellers during such testing; provided that Sellers
promptly notify Mobius in writing of any Claim for which indemnification is
sought, allows Mobius to select counsel (which counsel shall be reasonably
acceptable to Sellers) and control settlement of the Claim; and further
provided, however, that Sellers may control any settlement and/or litigation in
which they intervene at their own cost; and further provided that Mobius shall
have no obligations or liability under this Section 3.8 for Claims asserted
later than January 1, 1994.
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<PAGE> 34
4. Consideration.
In consideration for entering into this transaction, Mobius shall
pay to the Sellers the following amounts, which shall in no event exceed
payments aggregating * :
(a) Contemporaneously with the execution of this Agreement,
Mobius shall deliver to each of the Sellers cash or a bank check payable to the
order of each Seller, as applicable, in the amount of * . Mobius shall pay by a
company check or cash to each of the Sellers an additional * on December 31,
1990 and thereafter on the last day of each month for the next eleven months,
and such eleven payments shall total * to each Seller. If any of the foregoing
payment dates is not a business day, Mobius shall make payment on the next
succeeding business day.
(b) Within thirty days following the end of each calendar
quarter (March 31, June 30, September 30, and December 31), Mobius shall pay to
each of the Sellers a royalty as follows: (i) in the event Mobius licenses the
Software Product to an end user, * of the Software Product License Revenue and *
of the Software Product Maintenance Revenue actually received by Mobius during
such calendar quarter; (ii) in the event Mobius licenses the Software Product
through an agent
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
31
<PAGE> 35
(excluding employees of Mobius), * of the Software Product License Revenue and *
of the Software Product Maintenance Revenue actually received by Mobius during
such calendar quarter; provided that, in the event that the Software Product is
licensed for use on more than one CPU pursuant to a single license agreement
(whether or not at a single "site"), the royalties payable to Sellers hereunder
shall be payable as follows: (x) with respect to the first CPU covered by the
license, Sellers shall be entitled to receive a royalty equal to * of the
Software Product License Revenue relating to such first CPU, unless the royalty
so calculated would result in a royalty of less than * , in which case the
royalty so owed shall be * ; (y) with respect to all other CPU's covered by such
license, Sellers shall be entitled to receive royalties calculated by
multiplying the royalty payable pursuant to (x) above times * .
(c) If a Software Product license or maintenance agreement is
cancelled or rescinded or the Software Product license or maintenance fees are
to be refunded to the Software Product licensee, and the Software Product
license requires that upon such rescission or cancellation that all copies of
the Software Product object code be returned or that the Software Product
licensee certify in writing that it has destroyed all such materials, Mobius'
payment obligations under paragraph (b)
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
32
<PAGE> 36
above shall be reduced by the amount of any royalty which would otherwise be
payable with respect to the refunded Software Product license or maintenance
fees. Mobius hereby covenants that all licenses of the Software Product shall
contain the covenant described in the preceding sentence. Sellers agree that the
form of license provision attached hereto as Schedule B contains a covenant
meeting the requirement of the preceding sentence. Notwithstanding anything in
this Agreement to the contrary, in the event Mobius has already paid the Sellers
a royalty with respect to such refunded fees, and such royalties either equal or
exceed * , the Sellers shall forthwith return to Mobius such royalty payments.
Notwithstanding anything in this Agreement to the contrary, Mobius shall have no
obligation to pay a royalty with respect to any Software Product license or
maintenance fee which is refunded.
(d) The * limit on the aggregate amount payable pursuant to
this Section 4 shall be calculated as follows. All payments made by Mobius
pursuant to paragraph (a) or (b) above shall be added to all TapeSaver
Development Costs which have been incurred. When the foregoing sum reaches * ,
Mobius shall have no further payment obligations under this Section 4.
(e) Notwithstanding anything to the contrary in Section 3.5,
3.6 or 4 of this Agreement, if the Sellers have not
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
33
<PAGE> 37
materially breached this Agreement (or if any such breach has not been cured
within 30 days of Mobius's notice to Sellers), other than by the failure of the
Release 1.0 Software Acceptance Date to occur, and if the Release 0.5 Software
Acceptance Date has occurred, then Mobius shall: (i) continue making installment
payments pursuant to Section 4(a) hereof until at least * is paid and (ii) pay
royalties pursuant to Section 4(b) hereof until * is paid; provided that, Mobius
shall have the right to reduce the payments in clauses (i) and (ii) of this
paragraph by the amount of all TapeSaver Development Costs and Excess TapeSaver
Development Costs and the foregoing shall in no way restrict any other Mobius
right of setoff; provided further, that Mobius' payment obligations under this
Agreement shall be limited to the sums mentioned in this paragraph until the
Release 1.0 Software Acceptance Date shall occur.
5. Indemnification and Setoff. (a) Subject to Section 5(b) below,
Compucept and SAC (the "Indemnifying Parties") shall indemnify and hold harmless
(which indemnification and hold harmless liability shall be joint and several or
merely several, depending on whether the applicable representation, warranty,
covenant or agreement giving rise to the indemnification and hold harmless
obligation was made or entered into by Sellers jointly and severally or merely
- --------
* The Redacted Material Has Been Separately Filed With the Commission.
34
<PAGE> 38
severally) Mobius and its affiliated companies, and all of their shareholders,
officers, directors, employees and agents (collectively, the "Indemnified
Parties"), from and against, and shall reimburse each of them on demand for, any
and all liability, damage, loss, reasonable cost and expense, including without
limitation, the fees and disbursements of counsel (collectively, "Losses"),
incurred in connection with, relating to or arising out of, any claim, action,
suit, proceeding, demand or assessment (collectively, "Claims") relating to (i)
the breach or alleged breach of any representation, warranty, covenant or
agreement made by Compucept or SAC in this Agreement or in any document,
certificate or instrument delivered by or on behalf of Compucept or SAC pursuant
hereto or in connection herewith, provided, however, that with respect to any
existing patent of which Sellers have no knowledge, Sellers' indemnity shall be
limited to one half of the losses relating to the infringement of such patent,
or (ii) Excess TapeSaver Development Costs; provided, that Mobius promptly
notifies Compucept or SAC in writing of any Claim for which indemnification is
sought, allows Compucept and SAC to select counsel (which counsel shall be
reasonably acceptable to Mobius) and control settlement of the Claim, provided,
however, that any settlement for which Mobius will not be fully indemnified
hereunder or that in any way limits or restricts its ability to use, license,
lease or sell the Assets or any part thereof is subject to the prior approval of
Mobius, and further provided, however, that Mobius may control
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<PAGE> 39
any settlement and/or litigation in which it intervenes at its own cost.
(b) Except for Losses or Claims arising from or related to a
knowing or intentional violation of this Agreement or Excess TapeSaver
Development Costs, any other indemnification hereunder shall be limited to (i)
Claims asserted no later than January 1, 1994, except for Losses relating to a
violation of a third party copyright which shall be limited to Claims arising no
later than January 1, 1996, and (ii) Losses, that in the aggregate do not exceed
all moneys paid to the Sellers hereunder; provided, however, that Mobius shall
have the right to set off and deduct from monies payable in the future by Mobius
to Sellers any such indemnification liability that exceeds amounts actually paid
by Mobius to Sellers at the time the liability is finally determined. The
foregoing shall in no way limit the Sellers' obligations to provide immediate
cash refunds pursuant to Section 4(c) hereof.
(c) Notwithstanding anything contained herein, Mobius shall
have the right to withhold and set off any amounts due to the Sellers under
Section 4 hereof against any Losses suffered by Mobius for which it is entitled
to seek indemnification hereunder. In the event that Mobius asserts a right to
setoff, it shall deposit the amount withheld as a setoff in a segregated account
and shall notify the Sellers in writing of its intent to setoff and the basis
therefor. If, within thirty (30)
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<PAGE> 40
calendar days of the date of such notice the Sellers have not responded in
writing to the setoff, then Mobius shall have the right to commence arbitration
proceedings in accordance with the provisions of this Agreement. If both of
Sellers have not responded within 45 days of such notice as aforesaid, Mobius
shall irrebuttably be entitled to such amount if any as not contested by either
Compucept or SAC in such response. Any objection raised in such response to a
setoff shall be resolved by arbitration in accordance with the provisions of
this Agreement.
6. Cooperation; Consulting. (a) Mobius agrees to reasonably
cooperate with the Sellers in the development and maintenance of the Software
Product. Notwithstanding the foregoing, in no event shall Mobius become subject
to any of the Sellers' obligations under this Agreement.
(b) The Sellers agree to use their commercially reasonable
efforts to assist Mobius in effecting the efficient transfer to, and assumption
by, Mobius of its rights and duties hereunder, as well as in reasonably
assisting Mobius in obtaining, and from time to time reasonably enforcing at
Mobius' expense (subject to the indemnification provisions hereof), contract,
trade secret, proprietary information, trademark, copyright, patent,
nondisclosure and all other rights and protections relating to the Assets in any
and all countries, and, to that end, to execute all documents reasonably
requested by
37
<PAGE> 41
Mobius to be executed by the Sellers in applying for, obtaining and enforcing
such rights and protections.
(c) The Sellers will provide reasonable consulting and support
services to Mobius, including five (5) full person-days of on-site support at
such location or locations within the continental United States as Mobius may
request, and will make available to Mobius such of the appropriate personnel and
facilities of the Sellers as may be reasonably necessary or useful for the
orderly transfer of the Assets and to provide such support. Additional
reasonable consulting and support shall be provided, without additional
consideration, including such reasonable classroom training, at a location
chosen by the Sellers, and ongoing telephone support (of employees of Mobius) in
connection with the Software Product as may be requested by Mobius during a
period commencing on the date hereof and ending on April 1, 1992.
(d) The Sellers will, until April 1, 1992, use their diligent
efforts to maintain the Software Product so that the Software Product performs
substantially in accordance with the specifications set forth in the User's
Guide and the System Documentation.
(e) The Sellers agree that, except as provided in this
Agreement with respect to Shared Code, all inventions, discoveries and
improvements specifically relating to the
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<PAGE> 42
Software Product made by either Compucept or SAC or under either of their
direction pursuant to this Agreement and prior to the expiration of Sellers'
maintenance obligations under this Agreement ("Software Product Related
Inventions") shall be the sole and complete property of Mobius, and that any
patent or copyright, trade secret, trademark or other right relating to any
Software Product Related Inventions shall belong exclusively to Mobius.
(f) Mobius shall, subject to its reasonable business judgment,
assist Sellers by providing access to and use of computer facilities appropriate
to the development needs called for pursuant to this Agreement, and shall use
reasonable efforts to cooperate with Sellers in development and maintenance
until April 1, 1992 of the Software Product; provided, however, that the actual
development and maintenance until April 1, 1992 of the Software Product shall be
the responsibility of Sellers; and further provided, however, that nothing in
this Section shall be interpreted to obligate Mobius to incur any expenses other
than TapeSaver Development Costs or obligate Mobius to pay any Excess Tapesaver
Development Costs.
7. Transfer of Files and Sales Materials. The Sellers will transfer
to Mobius contemporaneously with the execution hereof all of Sellers' (a) files
and computer-stored information on prospective customers of the Software Product
and
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<PAGE> 43
(b) sales literature, including brochures, manuals, mechanicals, and proposed or
existing advertising copy.
8. Representations, Warranties, Covenants and Agreements. (a) Of the
Sellers to Mobius. The representations and warranties of the Sellers contained
in subsections (i) - (iv) hereunder shall be several and not joint. The
representations and warranties of the Sellers contained in subsections (v) - (x)
hereunder shall be joint and several. Subject in all respects to the foregoing,
Sellers represent to Mobius as follows: (i) Compucept is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Nevada and SAC is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware; (ii) each of Compucept
and SAC has full corporate power, authority and legal right to execute, deliver,
perform and observe the provisions of this Agreement, and of all other
documents, agreements and instruments executed in connection herewith, or
relating hereto, and to carry out the transactions contemplated hereby and
thereby; (iii) (1) the execution, delivery and performance by each of Compucept
and SAC of this Agreement have been duly authorized by all necessary corporate
action, (2) the execution and delivery of this Agreement by each of Compucept
and SAC do not and will not require any registration with, consent or approval
of, notice to, or any action by, any person, (3) except as provided herein, the
performance of this
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<PAGE> 44
Agreement by each of Compucept and SAC does not and will not require any
registration with, consent or approval of, notice to, or any action by any
person, and (4) this Agreement constitutes the legal, valid and binding
obligation of each of Compucept and SAC enforceable in accordance with its
terms, except as such enforceability may be limited by principles of equity or
by bankruptcy, insolvency, reorganization or similar laws; (iv) the Sellers have
good, valid and marketable title to all of the Assets, free and clear of any
security interests or other encumbrances whatsoever, and free of any claims with
respect thereto; (v) none of the Assets, the use or distribution of the Assets
by Mobius, or the use of the Software Product, in accordance with the User's
Guide or the System Documentation, by any customers to whom Mobius may license
the Assets or any portion thereof in the future (to the extent the infringement
does not arise as a result of an alteration made by Mobius or by a third party
for Mobius), infringes upon any third party's trademark or copyright, or any
such person's trade secrets, proprietary information, nondisclosure,
non-compete or contract rights, or to the best of Sellers' knowledge infringes
upon any third party's United States patents currently in existence (the Sellers
will fully cooperate with and assist Mobius in the defense of any infringement
claim concerning future patents) and each of Compucept and SAC has no notice of
any third-party that has asserted or threatened against either Compucept or SAC
any claim of such infringement; (vi) the Software Product will operate
substantially as set forth in the
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<PAGE> 45
User's Guide and the System Documentation free from significant programming
errors; (vii) the source code, other than the Shared Code source code, delivered
to Mobius upon the acceptance of Release 0.5 and Release 1.0 is the only master
and/or backup or escrow copy thereof, and no other copies exist, except for: (1)
an escrow copy of each retained by an escrow agent appointed by Mobius, for
reference in case of future disputes, (2) one copy kept by the Sellers, for the
exclusive purpose of performing their maintenance obligations under this
Agreement and which shall be immediately delivered to Mobius upon the Sellers'
discharge of such obligations and (3) backup copies for the sole purpose to be
used in disaster recovery; (viii) neither SAC nor Compucept has granted any
distribution, agency, sub-licensing or similar rights to any person or entity
regarding the Assets; (ix) prior to the execution and delivery of this Agreement
the Sellers are the sole owners of the Assets and upon the execution and
delivery of this Agreement Mobius shall, except with respect to the Shared Code,
become the sole owner of the Assets; and (x) neither SAC nor Compucept has
utilized a broker or finder in connection with this transaction. The Sellers
each agree and acknowledge that their representations and warranties under this
Agreement shall survive the execution and delivery of this Agreement and Mobius'
acceptance of Release 0.5 and Release 1.0.
(b) Of Mobius to Sellers. Mobius hereby represents, covenants
and warrants that (i) Mobius is a corpo-
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<PAGE> 46
ration duly incorporated, validly existing and in good standing under the laws
of the State of New York; (ii) Mobius has all power, authority and legal right
to execute, deliver, perform and observe the provisions of this Agreement, and
of all other documents and agreements executed in connection herewith, and to
carry out the transactions contemplated hereby and thereby; (iii) (1) the
execution, delivery and performance by Mobius of this Agreement have been duly
authorized by all necessary corporate action, (2) the execution and delivery of
this Agreement by Mobius do not and will not require any registration with,
consent or approval of, notice to, or any action by, any person, (3) except as
provided herein, the performance of this Agreement by Mobius does not and will
not require any registration with, consent or approval of, notice to, or any
action by any person, and (4) this Agreement constitutes the legal, valid and
binding obligation of Mobius enforceable against Mobius in accordance with its
terms, except as such enforceability may be limited by equitable principles or
by bankruptcy, insolvency, reorganization or similar laws; (iv) Mobius will use
commercially reasonable efforts to develop enhancements for the Software
Product, as it would for any of its other software products, at least until
April 1, 1996, (v) Mobius will use commercially reasonable efforts to market the
Software Product, at least until April 1, 1996, as it normally would for any of
its other software products, and (vi) Mobius will not develop or acquire a
software product that is functionally competitive with the Software
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<PAGE> 47
Product, unless such development or acquisition occurs (A) after the later of
(I) April 1, 1996, or (II) the Sellers having been paid the maximum amount
payable under Section 4 hereof, or (B) pursuant to a merger or the acquisition
of all or substantially all of the stock or the operating assets of an existing
entity, in which event the entity surviving the transaction shall agree in
writing not to actively market such competing software during the time period
set forth in subsection (vi)(A), above.
EXCEPT FOR THE EXPRESS REPRESENTATION AND WARRANTIES BY THE PARTIES HEREIN, THE
WARRANTIES AND REPRESENTATIONS STATED WITHIN THIS AGREEMENT ARE EXCLUSIVE, AND
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
9. Proprietary Information. (a) Sellers severally and not jointly
represent, warrant and covenant to Mobius: (i) that, except for the disclosure
to Goal Systems International of the TapeSaver Product Overview Diskette,
neither of them has disclosed to any person or entity any confidential,
proprietary, trade secret or otherwise valuable information relating to the
Software Product, except to a party who has executed and delivered to the
Sellers a confidentiality and non-disclosure agreement, (ii) that except for
Shared Code in the manner as permitted for Additional Owners of the Shared Code
pursuant to and in accordance with Section 2(c)(xiii) above, neither of them
will, during the term of this Agreement and at least until April 1, 1996, take
any actions that would, directly or indirectly, cause a loss of the secrecy of
the Software Product and will
44
<PAGE> 48
treat any and all such information with at least the same degree of care as
Sellers treat their own confidential and proprietary information and (iii) that
except for Shared Code in the manner as permitted for Additional Owners of the
Shared Code pursuant to and in accordance with Section 2(c)(xiii) above, neither
of them will, during the term of this Agreement and at least until April 1,
1996, disclose to any person or entity any confidential or proprietary
information relating to the Software Product without Mobius' prior specific
written consent.
(b) Each party severally agrees that it will not, during or
after the term of this Agreement, permit the duplication or disclosure of any
confidential and proprietary information ("Confidential and Proprietary
Information") of the other emanating from the other's business in any form to
any person unless such duplication, use or disclosure is specifically authorized
by the other party in writing, except as required by law or any order of a court
or regulatory agency of competent jurisdiction. "Confidential and Proprietary
Information" is not meant to include any information which, at the time of
disclosure, (i) was in the receiving party's possession at the time of
disclosure as shown by the receiving party's files and records (as such files
and records existed prior to the time of disclosure), provided that such
information is not related to the Software Product or subject to a
confidentiality obligation under any other agreement between Mobius and either
or both of the Sellers; (ii) before or after it has been disclosed to the
45
<PAGE> 49
receiving party, it is or was part of the public knowledge or literature, but
not as a result of any action or inaction of the receiving party; or (iii) is or
was approved for release by written authorization of the disclosing party.
10. Noncompetition. Subject, in all cases relating to this Section
10 of this Agreement, to Section 2(b) of this Agreement, each of Compucept and
SAC acknowledges that the Assets being sold to and developed for Mobius hereby
include items of a special, unique, extraordinary and intellectual character,
the value of which would be significantly reduced or destroyed if either
Compucept or SAC were to compete with the business of Mobius, as it relates to
the Assets, in the markets served by the Assets. Compucept and SAC each
therefore severally covenants and agrees that, (1) until April 1, 1992 they will
not, directly or indirectly, solicit for employment or assist anyone else to
employ any person who is then or at any time during the preceding year was in
Mobius' employ and (2) until April 1, 1995 they will not, directly or indirectly
(whether by or through the actions of their officers or directors outside the
scope of their corporate offices or otherwise):
(a) attempt, in any manner, to solicit from any client (such
term as used throughout this Agreement having the meaning ascribed
to it below) of Mobius, business of the type performed by Mobius, as
it relates to the Assets, or to persuade any client of Mobius to
cease to do business or to reduce the amount of busi-
46
<PAGE> 50
ness which any client has customarily done or contemplates doing
with Mobius, as it relates to the Assets, whether or not the
relationship between Mobius and such client was originally
established in whole or in part through Compucept or SAC; or
(b) except as required under Section 6(d), offer or render any
Software Product maintenance services to any Software Product
client; or
(c) to the extent that any such activity is of the type and
character competitive with the business of Mobius, as it relates to
the Assets, conduct business within the United States, Canada or
Europe or control, manage, operate, or otherwise participate or
engage in business as, or own any interest in, or be connected in
any manner with, directly or indirectly, within the United States,
Canada or Europe, any Entity (as defined below), whether as a
partner, shareholder, joint venturer, finder, broker, trustee, or in
any other manner whatsoever; provided, however, that nothing
contained in this clause shall be deemed to prohibit Compucept or
SAC from owning less than 2% of the shares of a publicly held
corporation engaged in any such business.
As used in this Section 10, the term (i) "Entity" shall mean an individual,
proprietorship, partnership, corporation, joint
47
<PAGE> 51
venture, trust or any other form of business entity, engaged in business, within
any part of the United States, Canada or Europe, in which Mobius or its agents
then market or license any version of the Software Product; (ii) "client" shall
mean and include (A) anyone who is then a client or customer of Mobius, and (B)
any prospective client or customer known to Compucept or SAC, or such Entity to
whom Mobius had made a Software Product presentation (or similar offering of
services) within the one year period immediately preceding the contact by
Compucept or SAC or such Entity; and (iii) "Mobius" shall mean Mobius Management
Systems, Inc. and any Entity controlling, controlled by or under common control
with Mobius Management Systems, Inc.
Notwithstanding anything else contained in this Agreement to the
contrary, no officer, director or principal of either of the Sellers shall have
any personal liability for monetary damages for any breach of this Agreement,
and Mobius' recourse for monetary damages from any such breach shall be limited
to the assets (including the unpaid royalties owing from time to time under this
Agreement) of Sellers.
11. Miscellaneous.
(a) Unless otherwise expressly provided for in this Agreement,
all instances in this Agreement where reference is made to the requirement that
a party's consent be obtained shall be deemed to include the obligation on the
part of the
48
<PAGE> 52
party whose consent is sought that such consent not unreasonably be withheld.
(b) This Agreement shall be governed by the internal laws of
the State of New York applicable to contracts to be performed wholly therein,
without reference to principles of conflict of laws.
(c) Notwithstanding anything to the contrary in this
Agreement, all notices described in this Agreement shall be in writing and shall
be deemed to have been duly given at the earlier of receipt or five days after
having been mailed by first class, certified mail, return receipt requested,
postage prepaid, to the parties at their respective addresses set forth
hereinabove or such other addresses of which the parties may give notice in
accordance herewith. All notices to any Seller shall be sent to the other as
well.
A copy of all notices to any of the parties shall be delivered
simultaneously to respective counsel, as follows:
To Mobius: Kenneth P. Kopelman, Esq.
Kramer, Levin, Nessen, Kamin
& Frankel
919 Third Avenue
New York, NY 10022
To Compucept: Allen L. Morgan, Esq.
Wilson, Sonsini, Goodrich
and Rosati
2 Palo Alto Square
Suite 900
Palo Alto, CA 94306
To SAC: Deborah E. Robbins, Esq.
General Counsel Associates
49
<PAGE> 53
Fair Oaks Business Park
592 Weddell Drive
Suite 8
Sunnyvale, CA 94089
(d) This Agreement and the Schedules hereto, which shall for
all purposes be deemed a part hereof, set forth the entire understanding of the
parties with respect to the subject matter hereof, and supersede all prior oral
or written agreements and communications. No provision of this Agreement may be
waived or amended to modify the rights or obligations of any party to this
Agreement without the written consent of such party.
(e) No failure to exercise, and no delay in the exercise of
any rights, power or remedy by either party and no course of dealing between
them shall constitute a waiver of, or preclude any other further exercise of,
any right, power or remedy. All of the rights of the parties hereunder are
cumulative and may be exercised concurrently and separately, and the exercise of
any right does not exclude the exercise of any other right.
(f) In the event that any of the provisions of this Agreement
shall be held to be invalid, prohibited or unenforceable for any reason or if
any such provision shall be held to be invalid, prohibited or unenforceable for
any reason unless narrowed by construction, then this Agreement shall be
construed as if such invalid, prohibited or unenforceable provision was not a
part of this Agreement, or if capable of a
50
<PAGE> 54
narrow construction that it has been more narrowly drawn so as not to be
invalid, prohibited or unenforceable. Notwithstanding the foregoing, if any
court construes any of the provisions of this Agreement to be unenforceable
because of the duration of such provision or the area covered thereby, such
court shall have the power to reduce the duration or area of such provision and,
in its reduced form, such provisions shall then be enforceable and shall be
enforced. In the event that any of the provisions contained in this Agreement
should be determined to be invalid, prohibited or unenforceable, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
(g) This Agreement may be executed in counterparts, each of
which when so executed and delivered shall be an original hereof, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one counterpart hereof.
(h) The indemnification obligations provided for in Section 5
hereof and the provisions of Sections 9 and 10 hereof shall survive the
expiration or termination of this Agreement.
(i) Mobius shall cause to be kept books and records relating
to amounts received for the sale, lease, license and/or maintenance of the
Software Product, which books and records shall be made available to Compucept
or SAC or their
51
<PAGE> 55
agent at Mobius' offices during Mobius' normal business hours, upon the Sellers'
reasonable request, and the Sellers may at their own expense make copies of such
records relating to the Software Product.
(j) The parties hereto shall use commercially reasonable
efforts to resolve any controversy or dispute respecting this Agreement. If
within thirty (30) days of the date of the relevant notice or such other date as
such controversy may arise, no resolution of the dispute has been reached, any
party hereto may demand that such controversy be resolved in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Such arbitration shall take place in Chicago, before a mutually
acceptable arbitrator (or if the parties cannot agree upon a single arbitrator
then by a panel of three (3) arbitrators, one of whom shall be selected by each
of Mobius and the Sellers and the third of whom shall be selected by the two
arbitrators so selected), who shall have the power to order specific performance
and the decision of the arbitrator(s) shall be final, binding and unappealable.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof, and each of the parties hereto hereby consents to
the jurisdiction of the state and federal courts sitting in New York City for
such purpose, and agrees that service of process on it
52
<PAGE> 56
in any such action may be made by mailing or delivering the same in accordance
with the notice provisions hereof.
(k) None of the Sellers or Mobius shall assign this Agreement,
in whole or in part, or delegate, in whole or in part, any of their duties under
this Agreement, except upon the prior written consent of the Sellers (in the
case of Mobius) or Mobius (in the case of the Sellers); provided, however, that
Mobius shall be entitled to sell or assign its rights and delegate its
obligations under this Agreement in connection with and as a part of the sale of
all or substantially all of the assets or stock of the portion of its business
that primarily consists of the development, marketing, licensing and maintenance
of software products (which shall not be deemed to include Mobius's software
consulting business). All of the terms, conditions and provisions of this
Agreement shall be binding upon and inure to the benefit of the permitted
successors and permitted assigns of each of the parties hereto.
(l) The Sellers and Mobius each agrees and acknowledges that
money damages alone will not adequately compensate (i) Mobius for breach of any
of Compucept's or SAC's covenants and agreements in this Agreement or (ii)
Compucept or SAC for breach of any of Mobius' covenants and agreements in this
Agreement, and each agrees that in the case of any breach or threatened breach
of any such covenant or agreement, in addition to all other remedies available
to Mobius, Compucept or SAC at
53
<PAGE> 57
law, in equity or otherwise, Mobius, Compucept and SAC shall be entitled to
injunctive relief, compelling specific performance of, or other compliance with,
the terms of this Agreement.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, EXCEPT
WITH RESPECT TO OBLIGATIONS OF CONFIDENTIALITY, INTELLECTUAL PROPERTY
INFRINGEMENT INDEMNIFICATION, SELLERS' OBLIGATIONS AND LIABILITY UNDER SECTION
10 OF THIS AGREEMENT, SELLERS SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF
REVENUES AND LOSS OF PROFITS, AS A RESULT OF THE PERFORMANCE (OR FAILURE OF
PERFORMANCE) OF THE SOFTWARE PRODUCT. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT
TO THE CONTRARY, MOBIUS SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF
REVENUES AND LOSS OF PROFITS. IN ADDITION, WITHOUT LIMITING THE FOREGOING, IN NO
EVENT WILL SELLERS BE LIABLE TO MOBIUS FOR ANY DAMAGES WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, DIRECT AND INDIRECT DAMAGES) RESULTING FROM ANY CONTRACTUAL
OBLIGATION FOR THE DELIVERY OR LICENSING OF RELEASE 0.5 AND RELEASE 1.0,
RESPECTIVELY BY MOBIUS TO ANY THIRD PARTIES, WHICH OBLIGATION IS ENTERED INTO
PRIOR TO ACCEPTANCE BY MOBIUS OF RELEASE O.5 AND RELEASE 1.0, RESPECTIVELY IN
ACCORDANCE WITH SECTIONS 3.2 AND 3.3 AND SECTIONS 3.4 AND 3.5, RESPECTIVELY.
(m) Each of the Sellers hereby agrees to cooperate with Mobius
and to execute and deliver such further instruments and documents as Mobius
shall request to effect the transactions contemplated hereby.
54
<PAGE> 58
IN WITNESS WHEREOF the parties have executed this Agreement as of
the date first written above.
MOBIUS MANAGEMENT SYSTEMS, INC.
By:/s/ Mitchell Gross
--------------------
Name: Mitchell Gross
Title: President
COMPUCEPT OF NEVADA
By:/s/ John F. Lema
------------------
Name: John F. Lema
Title: President
SOFTWARE ASSIST CORPORATION
By:/s/ D. Scott Meyers
---------------------
Name: D. Scott Meyers
Title: President
55
<PAGE> 59
SCHEDULE A
TapeSaver Shared Code List
The following CSECTS, and associated macros, are Compucept of Nevada Shared
Code:
ALLOC (dynamic allocation interface)
BLDSTMTS ( * )
CARDSCAN (control processing of input cards)
CNVVALUE ( * )
CVTDATA ( * )
ERRORMSG (process messages and associated error options)
EVALCOND (evaluate conditional expressions)
EXTSORT ( * )
FILTER (apply IF statements to data)
FMTVALUE ( * )
FRECHAIN ( * )
IFCARD (process IF cards into internal data structures)
PATCCARD ( * )
PRINT (print * report * )
RECOVERY (establish and perform abend recovery)
REPTCNTL ( * )
SEARCH (find/add data in memory)
SENDMSG (route text to selected output destinations)
SKELETON ( * )
SORT (sort internal data as requested by caller)
SYMSUBST ( * )
TESTTYPE ( * )
TOKENIZE (separate text into tokens)
TRACE (issue trace messages)
VARSRVCS ( * )
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 60
Schedule A
TapeSaver Shared Code List
The Software Assist Shared Code is shown below:
CLISTS:
TSMEXPAT - Maintenance - *
TSMNWPAT - Maintenance - *
TSMPATCH - Maintenance - *
TSMPATCM - Maintenance - *
TSMSTATS - Maintenance - *
TSMSUB - Maintenance - *
TSTBCHGR - Table Maint - *
TSTBCLOS - Table Maint - *
TSTBDELR - Table Maint - *
TSTBDISP - Table Maint - *
TSTBOPEN - Table Maint - *
TSTBREXI - Table Maint - *
TSTBSCAN - Table Maint - *
TSTBVCLR - Table Maint - *
TSUALLOC - Gen'l Purpose - *
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 61
Schedule A
TapeSaver Shared Code List
TSUCLNDS - Gen'l Purpose - *
TSUDELDS - Gen'l Purpose - *
TSUMEMBR - Gen'l Purpose - *
TSUPARSE - Gen'l Purpose - *
TSUPDISP - Gen'l Purpose - *
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 62
SCHEDULE B
MOBIUS STANDARD LICENSE AGREEMENT
TERMINATION PROVISION
11. TERMINATION
If a party to this Agreement petitions for reorganization under the bankruptcy
laws of any jurisdiction, is adjudicated bankrupt or commits any material breach
of this Agreement and fails to remedy such breach within 30 days after written
notice by the other party of such breach such other party may, without further
notice, terminate this Agreement. (I) Upon such termination of this Agreement by
Licensee, Licensee must return to Mobius at Licensee's own expense all copies,
materials, documentation, reproductions and modifications of the software held
by Licensee, purge all machine readable media relating to such software and
certify to Mobius in writing that the foregoing duties have been performed.
Licensee's obligations of Payment (Paragraph 3), Non-Disclosure (Paragraph 6)
and Non-Reproduction of Proprietary Information (Paragraph 7) shall survive such
termination of this Agreement. (II) If Mobius, whether directly or through a
successor or affiliate shall cease to be in the software business, or if Mobius
should be declared bankrupt or insolvent by a court of competent jurisdiction,
Licensee shall have the right to obtain, for its own and sole use only, a single
copy of the then current version of the source program of the object programs
supplied under this Agreement, and a single copy of the documentation associated
therewith, upon payment to the person in control of the source program the
reasonable cost of making each copy. Each source program supplied to Licensee
under this paragraph shall be subject to each and every restriction on use set
forth in this Agreement. Licensee may at any time request of Mobius the name and
address of the organization holding the source code of SYSTEM. Mobius will
respond by letter, within thirty (30) business days, with the name and address
of above storage company.
<PAGE> 63
AMENDMENT TO EXHIBIT 1
The following features documented in the TapeSaver User's Guide attached as
EXHIBIT 1 *
*
*
*
*
*
*
*
*
*
*
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 64
AMENDMENT TO EXHIBIT 1 (Cont'd)
The following list of features *
*
*
*
*
*
*
*
*
*
*
*
Please initial below to signify your agreement with this amendment
/s/ JA 9/20/91
-------- -------- Mobius Management Systems, Inc.
initial Date
/s/ JFL 9/20/91
-------- -------- Compucept of Nevada
initial Date
/s/ DSM 9/17/91
-------- -------- Software Assist Corporation
initial Date
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 65
AMENDMENT TO SCHEDULE A
The following modules will *
CLISTS:
TSTBCVT - Table Maint - *
TSTBPRT - Table Maint - *
TSTBNROW - Table Maint - *
Please initial below to signify your agreement with this amendment:
/s/ JA 9/20/91
-------- -------- Mobius Management Systems, Inc.
initial Date
/s/ JFL 9/20/91
-------- -------- Compucept of Nevada
initial Date
/s/ DSM 9/17/71
-------- -------- Software Assist Corporation
initial Date
- --------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 1
Exhibit 10.20
CONFIDENTIAL TREATMENT REQUESTED
CDP COMMUNICATIONS INC.
OEM AGREEMENT
THIS AGREEMENT is made and effective as of the 15th of October, 1993, between
CDP COMMUNICATIONS INC. ("CDP"), having its principal place of business at 17
Dundonald Street, Toronto, Ontario, and MOBIUS MANAGEMENT SYSTEMS, INC. (the
"OEM"), a corporation duly organized under the laws of New York and having its
principal place of business at One Ramada Plaza, New Rochelle, New York 10801.
In consideration of the mutual agreements and covenants set forth herein, CDP
and the OEM agree as follows:
1. Definitions
As used in this Agreement, the following words and terms shall be defined
as indicated below:
1.1 "Added Value" means the substantial value to be added by the OEM to
the CDP Products as described in Schedule F attached hereto.
1.2 "Authorized Service Agent" means an organization contracted by CDP
to perform Product installation and maintenance services on its
behalf.
1.3 "Base Royalty" means, for any Software, the list price or license
fee, as the case may be, for such Software as set forth on Schedule
B.
1.3.1 "Concurrent Session" means a computer is connected to other
computers on a communication network and each use of the Software by
each user concurrently connected to the other computers is a
Concurrent Session.
1.4 "Customer Support Services" means services supplied by the OEM to
its Customers for the continued operation of a System.
1.5 "Customers" means those persons and entities who license or are
marketed Software and Added Value from the OEM or OEM remarketers
for their own use but not for resale.
1.6 "Demo System" means a System consisting of at least one Processing
Unit (a "CPU") and the minimum peripherals to make such CPU
effective for demonstration purposes.
1.6.1 "Evaluation Copies" means copies of the Software and Added Value
which OEM provides to Customers pursuant to
<PAGE> 2
an Evaluation Agreement (as defined in Section 6.3.1 of this
Agreement) and for which no OEM Royalty or Maintenance Fee shall be
paid to CDP.
1.6.2 "Maintenance Fees" means the maintenance royalties on the Software
which OEM's Customers have sublicensed and for which such Customers
have paid OEM a maintenance fee. Maintenance fees shall be
calculated in accordance with Schedule B of this Agreement.
1.7 "Minimum Commitment" means the purchase and license volume
commitments set forth in Schedule A attached to this Agreement.
1.8 "OEM Royalty" is defined in Section 7.1 of this Agreement.
1.9 "Software" means the object code versions of the computer software
programs listed on Schedules A and B and developed and owned by CDP
and ancillary and related documentation and all future modifications
and enhancements thereto.
1.10 "System" means the combination of the Software and the Added Value
software and other components and services offered by OEM.
1.11 "Territory" means the territory shown on Schedule C attached to this
Agreement.
2. Appointment
2.1 Appointment
CDP hereby grants OEM the non-exclusive right to use, make
reproductions of the Software, market, display, demonstrate and to
sublicense such copies of the Software to Customers in the Territory
solely on the condition that the OEM only sublicenses copies of the
Software in conjunction with the Added Value and further provided,
however, that this appointment, and the rights and licenses granted
herein, are made subject to and contingent upon the terms and
conditions of this Agreement.
OEM acknowledges and agrees that the marketing of the Software
without Added Value is expressly prohibited.
OEM warrants to CDP that its employees shall be conversant with the
technical language of computer products in general and shall develop
sufficient knowledge of the Software and of competitors' products to
be able to explain the difference to Customers.
-2-
<PAGE> 3
2.2 Sales
The OEM shall use due diligence in efforts to promote the
sublicensing of copies of the Software to Customers. The OEM is
responsible for obtaining all permits and licenses required in the
Territory for the conduct of the OEM's business pursuant to this
Agreement.
3. Term
3.1 Term
This Agreement shall be for an initial term of three years (the
"Initial Term"). After the Initial Term, this Agreement may be
renewed for subsequent three year term(s) ("Renewal Term"). If at
any time during the Initial Term or any Renewal Term, either party
notifies the other, in writing, of its intention to terminate this
Agreement, this Agreement shall terminate 360 days from the date of
such notice of termination.
4. Territory
4.1 Sales to other OEMs
The OEM is entitled to use remarketers (distributors and dealers) to
market the System as long as CDP is paid the required OEM Royalty
for each Concurrent Session of the Software sublicensed to a
Customer and the relevant Maintenance Fees.
5. Not Applicable.
6. Software License
6.1 CDP hereby grants, and the OEM hereby accepts, a non-exclusive
license, subject to the terms and conditions of this Agreement and
to the payment by the OEM of the relevant OEM Royalty therefor, to
use, make reproductions of the Software, market, display,
demonstrate and sublicense the use of the Software, including
enhancements, updates and revisions, as part of a System. A separate
license agreement shall be required for each Customer who
sublicenses the Software.
6.2 Title to Programs
Title to and ownership of the Software, and all modifications,
enhancements, additions to and developments of the Software prepared
by CDP, including all patents, copyrights and property rights
applicable thereto, shall at all times remain solely and
-3-
<PAGE> 4
exclusively with CDP, notwithstanding that the OEM or a Customer as
the case may be, may contribute to the cost of making such
modifications, enhancements, additions or developments, and the OEM
shall not take any action inconsistent with such title and
ownership. Notwithstanding the foregoing, the Added Value software,
and any other software, modifications, enhancements, or additions
developed by OEM, that do not infringe CDP property rights in the
Software, including all patents, copyrights and property rights
applicable thereto, shall at all times remain solely and exclusively
with OEM, and CDP shall not take any action inconsistent with such
title and ownership.
6.3 Transfer and Sublicenses
This license of the Software granted under this Agreement is
nontransferable, except that:
6.3.1 The OEM is authorized to sublicense the Software to Customers,
provided that the OEM enters into a written agreement with each such
Customer substantially in the form of Schedule D to this Agreement
(a "Sublicense Agreement") or substantially in the form of Schedule
F (an "Evaluation Agreement"), prior to the installation of any
Software for such Customer.
6.3.2 This license may be transferred to a subsidiary, affiliate, parent
company, successor or assignee of the OEM provided the transferee
agrees to be bound by all the terms hereof.
6.4 Protection of Programs
The OEM acknowledges that CDP represents that it has trade secrets
and other proprietary interests in the Software and the OEM shall
hold such Software in confidence. The OEM shall not, without the
prior written consent of CDP, disclose or otherwise make available
such Software in any form to any person, except to the OEM's own
employees, agents, prospects, distributors and Customers who have
signed a Sublicense Agreement or Evaluation Agreement. The OEM is
granted the right to copy the Software for the purposes of
distribution to Customers, subject to other clauses in this
Agreement. The OEM shall not remove or obscure any copyright,
patent, trademark, trade secret or similar notice affixed to any
Software and shall reproduce and affix such notice on any copies or
modifications of the Software performed by CDP. The OEM shall notify
CDP promptly upon its actual discovery of the unauthorized
possession or use of the Software and of other information made
available to OEM under this Agreement, by any person or organization
not
-4-
<PAGE> 5
authorized by this Agreement to have such possession or use. OEM
will all at the sole cost of CDP: (i) promptly furnish full details
of such possession or use to CDP, (ii) reasonably assist in
preventing the recurrence of such unauthorized possession or use,
and (iii) reasonably cooperate with CDP in any litigation against
third parties reasonably deemed necessary by CDP to protect such
proprietary rights as CDP may have had on the date of this
Agreement.
Notwithstanding anything to the contrary in this Agreement, OEM may
disclose any information required by law to be disclosed or that may
otherwise be disclosed under the terms of the Nondisclosure
Agreement, between the parties, dated January 18, 1993.
6.5 Term of License
CDP may terminate any license (including the rights granted to OEM
hereunder) granted under this Agreement by written notice to the
OEM, if the OEM has materially breached this Agreement and such
material breach continues for 30 days after OEM's receipt of notice
thereof from CDP; provided that the termination of any license
granted to the OEM hereunder shall not affect the sublicenses
granted by the OEM to its Customers or the Evaluation Agreements
with OEM's Customers, so long as the OEM does not have the right to
terminate such Customers' Sublicense Agreements or Evaluation
Agreements due to an uncured material breach by such Customers.
Within 30 days after such termination of the OEM's or a Customer's
license rights, the OEM or the Customer as the case may be, shall
destroy or return to CDP the original and all copies (including
partial copies) of terminated Software and certify in writing to CDP
that it has done so. The obligations of the OEM and the Customer
under Subsection 6.4 above shall survive the termination of any such
license, or sublicense, for ten (10) years.
Notwithstanding anything in this Agreement to the contrary, upon the
termination of any license or sublicense granted under this
Agreement, OEM shall retain all rights necessary to comply with
existing obligations and commitments to Customers in existence on
the effective date of such termination, but only for the number of
Concurrent Sessions that were licensed, or for any Concurrent
Sessions for which commitments to license were made, prior to the
termination of the Agreement; provided that if any additional
Concurrent Sessions licenses are issued, applicable royalties must
be paid to CDP.
7. Prices and Payment
-5-
<PAGE> 6
7.1 OEM Royalty
As compensation for the right to reproduce copies of the Software,
the OEM shall be charged and agrees to pay the OEM Royalty in
accordance with the terms of this Agreement. OEM Royalties shall be
based on the * sublicensed. The Normal OEM Royalty shall equal the
Base Royalty for Software set forth on the OEM Royalty and
Maintenance Schedule attached hereto as Schedule B. During the first
18 (eighteen) months of the Agreement, the Base Royalties in
Schedule B will be replaced with the Incentive Royalties as defined
in Schedule A if the OEM meets the Minimum Commitment specified in
Schedule A. The OEM will initially pay the Base OEM Royalty;
however, if the Minimum Commitment volume has been achieved during
the first 18 months, CDP will provide a credit, to be deducted
evenly from revenues payable over the next six months for adjustment
of the pricing of the first eighteen months of Software
sublicensing. The OEM Royalty may be changed at any time by CDP on
at least 90 days prior written notice. * .
7.2 Taxes and Import Duties
All OEM Royalties and Maintenance Fees are in United States dollars,
unless otherwise specified and noted in Schedule B. Except as stated
above, OEM Royalties and Maintenance Fees are exclusive of all local
jurisdiction, sales, use, occupational or similar taxes now in force
or enacted in the future, all of which shall be paid by the OEM,
except for such taxes as are imposed on CDP's income or gross
receipts, which shall be paid by CDP. The OEM is responsible for
obtaining and providing to CDP any certificate of exemption or
similar document required to exempt any sale or license from sales,
use or similar tax liability.
7.3 Payment Terms
OEM shall pay CDP, by the 10th of each month, the OEM Royalties due
on Software sublicense fees actually received by OEM during the
previous month.
7.4 Late Payment Charges
If the OEM fails to pay any amounts within 30 days after payment is
due, interest on overdue amounts shall accrue at an annual rate
equal to three percent (3%)
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
-6-
<PAGE> 7
over the prime interest rate as set by the Royal Bank
of Canada.
8. Purchase Orders/Delivery
8.1 Not Applicable.
8.2 Delivery
Within 10 days of the commencement date of this Agreement, CDP shall
provide a master diskette containing the Software to the OEM.
9. Not Applicable.
10. Warranties
10.1 Software Warranty
The Software is provided "AS IS" without warranty whatsoever.
However, CDP shall, at no cost to the OEM, for a period of 365 days
from the date of delivery of the master diskette to the OEM (the
"Warranty Period"), provide reasonable assistance by due care and
diligence to correct all defects in the Software delivered to the
OEM. As used in this subsection, "defect" shall mean material
deviations from the published specifications for the Software.
10.2 No Warranties by OEM
The OEM is not authorized to make any warranty commitment to any
party, whether written or oral, on behalf of CDP other than as
provided by CDP hereunder, and will indemnify and save CDP harmless
from any and all liability, loss, damages, costs and expenses
incurred or arising out of the breach of this obligation.
10.3 Disclaimers
(a) EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH HEREIN, CDP MAKES
NO FURTHER WARRANTIES, EITHER EXPRESSED OR IMPLIED, AS TO ANY
MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ANY
CONDITION OR WARRANTY OF MERCHANTABILITY OR MERCHANTABLE
QUALITY OF THE SOFTWARE OR ITS FITNESS FOR ANY PARTICULAR
PURPOSE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR
FROM A COURSE OF DEALING OR USAGE OF TRADE. IN NO EVENT WILL
EITHER PARTY BE LIABLE FOR ANY DAMAGES, INCLUDING BUT NOT
LIMITED TO (i) DAMAGES CAUSED BY THE OEM'S FAILURE TO PERFORM
ITS COVENANTS AND RESPONSIBILITIES, BY REASON OF CDP'S
NEGLIGENCE OR OTHERWISE; (ii)
-7-
<PAGE> 8
DAMAGES CAUSED BY REPAIRS OR ALTERATIONS DONE WITHOUT CDP'S
WRITTEN APPROVAL; (iii) DAMAGES DUE TO DETERIORATION DURING
PERIODS OF STORAGE BY THE OEM; (iv) LOST DATA; OR (v) ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES.
(b) The parties will reasonably cooperate with each other and
undertake at the requesting party's expense reasonably
necessary action required by laws and regulations of the
Territory where Customers are located to ensure that this
Agreement's limits of responsibility as set forth above are
valid and enforceable against whomever they are applicable.
The OEM will promptly inform CDP as soon as the OEM becomes
aware of liability claims by a third party against the OEM or
CDP, based on the Software.
(c) NOTWITHSTANDING ANYTHING IN THE FOREGOING PARAGRAPHS (a) AND
(b) OR OTHERWISE IN THIS AGREEMENT TO THE CONTRARY: (i) OEM
AND CDP, AS THE CASE MAY BE, SHALL BE LIABLE FOR ANY AND ALL
DAMAGES DUE TO SUCH PARTY'S NEGLIGENCE OR WILLFUL MISCONDUCT
AND (ii) CDP'S INDEMNITY OBLIGATIONS TO OEM SHALL NOT BE
LIMITED IN ANY WAY BY ANY LIMITATION ON CDP'S LIABILITY.
11. Training
Training shall be provided in accordance with training schedules
established by CDP from time to time. Training shall be at a time
mutually agreed upon. The OEM shall be responsible for all travel
and living expenses of its employees in connection with such
training.
12. Customer Services
12.1 Installation and Maintenance Services
CDP will not have any responsibilities to provide OEM's Customers
with direct installation and maintenance services. CDP will provide
maintenance training to the OEM in accordance with its then
prevailing charges and terms and conditions.
12.2 Customer Support Services
OEM will charge and collect maintenance fees consistent with
maintenance fees for other similar software marketed by the OEM. CDP
will not have any responsibilities to collect fees for Customer
Support Services from OEM's Customers. The OEM shall at all times
have sufficient CDP trained customer support
-8-
<PAGE> 9
representatives, having the appropriate qualifications to meet the
requirements of its marketplace.
12.3 OEM Support
CDP maintenance services to OEM shall include the attempts on a best
efforts basis to fix material defects in the Software within one
week of receiving notice thereof and the provision of all
enhancements, modifications and new releases of the Software to OEM.
CDP shall make the foregoing maintenance services available to OEM
on behalf of all installed Customers during the first year of their
Sublicense Agreement or Evaluation Agreement and all other installed
Customers who have a Software maintenance agreement in effect with
OEM.
CDP maintenance services to OEM shall also include the prompt
provision in a reasonable time frame of all modifications to the
Software that are necessary to support * .
When OEM's problem diagnosis procedures confirm the existence of a
defect in the Software which the OEM is unable to resolve, OEM shall
have the right to obtain second level support from CDP for the
maintenance fee for the Initial Term as set out in Schedule B; such
fee is to be negotiated for each Renewal Term; provided that
aggregate annual increases shall not exceed the increase in the
Consumer Price Index by more than * . CDP shall use due care and
diligence to correct documented errors. CDP will provide support
directly to OEM only. If OEM asks CDP to directly support Customers,
this work will be performed on a time and materials basis at rates
on the then current CDP consulting fee schedule.
12.4 Charges
The OEM shall not charge Customers for maintenance and support
services until after the expiration of the applicable warranty
period. OEM agrees to pay to CDP for each of its Customers the
maintenance fees actually received by OEM set out in Schedule B
attached hereto. Amounts shall be due and payable to CDP 30 days
following the end of a calendar period established by the OEM in
advance of the commencement date of this Agreement, as approved by
CDP. The calendar period shall be quarterly.
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
-9-
<PAGE> 10
13. Verification of OEM's Records
Upon 5 business days' written request, CDP shall have reasonable
access to the OEM's records relating to amounts paid or payable to
CDP hereunder, solely for purposes of audit to verify the
correctness of payments. Such audit will be performed no more
frequently than annually by a mutually acceptable party at CDP's
expense. If any audit reveals a discrepancy between the amounts
payable to CDP and the amounts actually paid to CDP since the date
of this Agreement or the most recent previous audit (whichever is
later), and if that discrepancy exceeds five percent (5%) of the
amounts payable as determined in the audit, OEM shall pay all CDP's
verified reasonable costs associated with this audit.
14. Advertising and Promotion
Not Applicable
15. Patents and Trademarks
15.1 Infringement Indemnification by CDP
At its expense, CDP will defend any action brought against the OEM
or its Customers, and pay all reasonable expenses and damages of the
OEM or its Customers, as the case may be, and hold harmless OEM and
its Customers against any loss, cost or expense suffered or incurred
in connection with any claim, suit or proceeding arising in
connection with any claims that the Software infringes a patent,
copyright or other third party right ("Infringement") effective in
the Territory, provided the OEM notifies CDP promptly in writing of
the action and shares with CDP control of the defense and
negotiations for its settlement or compromise. CDP shall pay all
damages and costs awarded therein against the OEM but shall not be
responsible for any compromise made without its consent, which shall
not be unreasonably withheld. In the event of a judgment, or
injunction which prohibits the OEM's or its Customer's continued use
of any Software by reason of an Infringement, CDP may at its option,
but only upon the OEM's specific written request: (a) obtain for the
OEM and its Customers the rights to continued use of any such
Software; (b) replace or modify such Software so that it is no
longer infringing; or (c) refund the amount paid to CDP by OEM in
respect of the Software, less 2% per month of use as depreciation.
CDP shall have no liability for any claim of infringement based
solely on: (a) use of other than a current unaltered release of the
Software available from CDP if such Infringement would have been
-10-
<PAGE> 11
avoided by the use of such current Software release; provided that
the foregoing phrase "current unaltered release of the Software
available from CDP" shall include: (i) the most current release of
the Software and all prior releases of the Software that were
released during the 180 days prior to the most current release and
(ii) the Software as modified with CDP's approval, or (b) use of
combination of the Software with software or equipment not supplied
by CDP, other than the Added Value. THIS PARAGRAPH STATES THE ENTIRE
RESPONSIBILITY OF CDP CONCERNING INFRINGEMENTS.
CDP shall have no liability to the OEM under any provision of this
Section 15 if any Infringement or claim thereof is based upon the
use of Software delivered hereunder in a manner for which such
Software was not designed.
15.2 Ownership of Patents and Trademarks
All patents, trademarks, trade names, copyrights, trade secrets,
designs and other proprietary rights in the Software and the
literature supplied by CDP in connection therewith shall be and
remain the property of CDP and no rights to duplicate such property
shall accrue to the OEM, except as set forth in this Agreement or
unless written permission is granted by CDP. The OEM shall not
itself and shall not permit its employees to infringe or deal with
CDP's title to its property in any manner inconsistent with CDP's
exclusive ownership. Except to the extent required to permit the OEM
to carry out its obligations hereunder or as required by law, the
OEM and its agents, employees and consultants shall not disclose any
technical information concerning the Software or any literature
furnished by CDP to any person, firm or corporation.
16. Trade Name and Copyright
16.1 The OEM shall market the Software under the OEM's trade names, which
names shall not be confusingly similar to the names used by CDP. The
OEM shall include and shall not alter, obscure or remove any
copyright notice of CDP.
16.2 Any advertising or promotional literature or announcement to the
press by a party regarding its relationship with the other party or
otherwise utilizing such other party's name must be approved by such
other party in advance in writing. The only such authorized
representation to third parties by the OEM is to identify itself an
authorized OEM.
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<PAGE> 12
16.3 The terms of this Agreement and its existence shall not be disclosed
by either party without the prior written consent of the other
party, except for the following:
(a) Disclosure by both parties to their current and potential
investors;
(b) Disclosure as required by law.
17. Force Majeure
Neither CDP nor OEM shall be liable in any respect for failure or
delay in the performance of its obligations under this Agreement
where such failure or delay shall have been due to causes beyond the
reasonable control of CDP or OEM, as the case may be. In the event a
party's failure to perform or delay in performance of its
obligations under this Agreement due to causes beyond its reasonable
control continues for 60 days, the party to whom performance is due
may treat such nonperformance as a breach and pursue its remedies.
18. Assignment and Corporate Reorganizations
Except for OEM's assignment to a parent, subsidiary, successor,
affiliate company or any other assignee which agrees to be bound in
writing by the terms of this Agreement, neither this Agreement nor
any rights granted hereby may be assigned by either party
voluntarily or by operation of law without the other party's prior
written consent and such consent shall not be unreasonably withheld,
and any such attempted assignment shall be null and void. Assignment
shall be deemed to include the transfer of substantially all of the
assets of, or a majority interest in the voting shares of, a party,
or the merger or amalgamation of a party with one or more entities.
This Agreement shall inure to the benefit of and be binding upon any
permitted assign or successor of a party.
19. Default/Remedies
19.1 Events of Default
19.1.1 OEM Default
Upon occurrence of any of the following acts or events, the OEM
shall be in default and breach of this Agreement:
(a) The OEM attempts to assign this Agreement or any of its rights
hereunder, in violation of this Agreement.
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<PAGE> 13
(b) The OEM fails to cure any payment deficiency within 30 days of
receipt of CDP's written notice thereof.
(c) The OEM neglects or fails to perform any of its material
covenants, obligations or responsibilities under this
Agreement and such failure continues for 30 days after OEM's
receipt of written notice thereof from CDP.
(d) The OEM is not paying its undisputed debts as such debts
become due, becomes insolvent, files or has filed against it a
petition in bankruptcy or any similar filing or action under
the laws of any country and such involuntary petition or
filing is not dismissed or stayed within 60 days; proposes any
dissolution, liquidation, financial reorganization or
recapitalization with creditors; makes an assignment for the
benefit of creditors; or if a receiver, trustee, custodian,
similar agent or government agency is appointed or takes
possession with respect to any material property or business
of the OEM; or if the OEM takes any other similar step or
measure under any applicable insolvency, bankruptcy or similar
law.
(e) The OEM engages in any unauthorized use, or misuse of CDP's
name, trademarks or trademarks or trade names.
19.1.2 CDP Default
Upon occurrence of any of the following acts or events, CDP shall be
in default and breach of this Agreement.
(a) CDP neglects or fails to perform any of its material
covenants, obligations or responsibilities under this
Agreement and such breach occurs for 30 days after CDP's
receipt of written notice from OEM.
(b) CDP is not paying its undisputed debts as such
debts become due, becomes insolvent, files or has
filed against it a petition in bankruptcy or any
similar filing or action under the laws of any
country and such involuntary petition or filing is
not dismissed or stayed within 60 days; proposes
any dissolution, liquidation, financial
reorganization or recapitalization with creditors;
makes an assignment for the benefit of creditors;
or if a receiver, trustee, custodian, similar
agent or government agency is appointed or takes
possession with respect to any material property
or business of CDP; or if CDP takes any other
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<PAGE> 14
similar step or measure under any applicable insolvency,
bankruptcy or similar law.
(c) CDP engages in any unauthorized use, or misuse of the OEM's
name, trademarks or trade names.
(d) CDP attempts to assign this Agreement or any of its rights
hereunder, in violation of this Agreement.
19.1.3 Escrow
CDP shall deposit the source code for the Software with a mutually
acceptable Toronto-based escrow agent pursuant to a mutually
acceptable escrow agreement being signed by both parties. The OEM
shall be responsible for the cost of preparing the escrow agreement
and for the escrow agent fees.
The Escrow Agreement shall provide for the following:
(1) CDP shall maintain with the escrow agent the most current
version of the Software source code and the version of the
Software source code for which OEM has the object code.
(2) CDP or the escrow agent shall immediately deliver the Software
source code described in paragraph (1) above to OEM in the
event (a) CDP fails to maintain the Software in accordance
with this Agreement, (b) CDP has ceased its on-going business
operations, or sale, licensing, maintenance or other support
of the Software and such business has not been assumed by any
other party, or (c) CDP has availed itself, or been subjected
to by any third party, a proceeding in bankruptcy in which CDP
is the named debtor, an assignment by CDP for the benefit of
its creditors, the appointment of a receiver for CDP, or any
other proceeding involving insolvency or the protection of, or
from, creditors, and same has not been discharged or
terminated without any prejudice to OEM's rights or interests
within sixty (60) days. Upon receipt of the Software source
code pursuant to this paragraph (2), OEM shall have the right
to freely use, modify, or create derivative works based upon,
the Software source code, and OEM shall have sole and complete
ownership of all derivative works based upon the Software
source code.
(3) CDP shall give OEM written notice of the name and address of
the escrow agent.
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<PAGE> 15
19.2 Remedies
If the OEM fails (a) to cure any payment deficiency within 30 days
of receipt of written notice from CDP, or (b) to cure any other
default within 30 days of receipt of written notice thereof from
CDP, then CDP, in its sole discretion, shall, in addition to any
other remedy which it may be entitled to at law, have the right to
terminate this Agreement by written notice to the OEM on a date
specified therein.
In the event CDP is in default or breach of this Agreement under
Section 19.1.2, then OEM in its sole discretion, shall, in addition
to any other remedy which it may be entitled to at law or under this
Agreement, have the right to: (i) terminate this Agreement or (ii)
continue the Agreement in force with a 50% reduction in the OEM
Royalty and Maintenance Fees.
CDP shall give OEM at least 180 days prior written notice of any
material modification to the Software that may materially adversely
affect OEM. In the event of any such modification to the Software,
OEM may immediately terminate this Agreement upon 30 days notice or
continue the Agreement in force with a 50% reduction in the OEM
Royalty and Maintenance Fees.
19.3 Duties of the OEM Upon Termination
Upon termination of this Agreement for an OEM default, the OEM shall
pay to CDP, in full within 30 days of such termination, all amounts
owed to CDP. CDP shall be entitled to set off and deduct from any
money due the OEM, whether or not arising from or under this
Agreement, any and all amounts due CDP from the OEM.
Notwithstanding anything in this Agreement to the contrary, CDP's
and OEM's Software maintenance, support and source code escrow
obligations shall survive any termination of this Agreement.
19.4 Limitation of Liability
Three years after the termination of this Agreement neither party
shall have any obligation to the other for compensation or for
damages of any kind, whether on account of the loss by a party of
present or prospective sales, investments or goodwill due to such
termination; and the parties hereby waive any rights which may be
granted to them by statute or otherwise which are not granted to
them by this Agreement.
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<PAGE> 16
20. General
20.1 Export
The OEM agrees that it shall use its best efforts to prevent the
Software from being distributed by OEM in such a way as to make it
available in or exported to foreign countries in contravention of
any law of The United States of America.
20.2 Confidentiality
CDP and the OEM agree that, in addition to Software, certain
information supplied by CDP to the OEM and vice versa during the
course of this Agreement may be proprietary, secret or confidential,
shall be held in confidence by the receiving party for a period of
five years following the date of disclosure and shall be used only
for the purposes of this Agreement. All documentation with respect
to the Software, including training documentation, software
documentation and maintenance manuals and drawings, is furnished
solely for the OEM's and its Customer's internal use. The OEM may
make, and may permit its Customers to make, copies of such
documentation to satisfy internal requirements and those of its and
its Customers, provided that all such copies include appropriate
copyright and proprietary information notices. No other copies or
use of such documentation, or any potion thereof, shall be made
without the prior written approval of CDP.
20.3 Applicable Law and Jurisdiction
This Agreement shall be governed and construed in accordance with
the laws of the New York State.
20.4 Relationship of the Parties
The parties acknowledge that both parties hereto are independent
contractors and that the OEM will, on its own behalf, solicit orders
for Software only as an independent contractor. The OEM shall
arrange the terms and conditions of the license of the Software,
including price, independent of CDP, except with respect to the
sublicensing terms set forth in Section 6 hereof which the OEM
agrees to fully comply with in its contracts with its Customers.
Neither party shall represent itself as a partner, joint-venturer,
agent, employee or general representative of the other party. Each
party acknowledges that it shall have no right, power or authority
to, in any way obligate the other party to any contract or other
obligation.
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<PAGE> 17
20.5 Entire Agreement
This Agreement is the exclusive statement of the terms and
conditions between the parties with respect to its subject matter as
of its date, supersedes all prior agreements, negotiations,
representations and proposals, written or oral, and does not operate
as an acceptance of any conflicting terms or provision of any OEM's
purchase order or any other instrument. The terms and conditions
contained herein shall prevail notwithstanding any variance with the
terms and conditions of any order submitted by the OEM for Software
licensed hereunder. Deviations from these terms and conditions shall
not be valid and binding upon a party unless specifically accepted
by an authorized officer of such party in writing.
20.6 Waivers
No delay or omission on the part of either party to this Agreement
in requiring performance by the other party hereunder, or in
exercising any right hereunder, shall operate as a waiver of any
provision hereof or of any right or rights hereunder; and the
waiver, omission or delay in requiring performance or exercising any
right hereunder on any one occasion shall not be construed as a bar
to or waiver of such performance or right, or of any right or remedy
under this Agreement, on any future occasion.
20.7 Notices
For purposes of this Agreement, and for all notices and
correspondence hereunder, the addresses of the respective parties
have been set out at the beginning of this Agreement and no change
of address shall be binding upon the other party unless notice of
such change is given in writing at the address shown herein. All
notices shall be effective upon receipt if delivered personally or
sent by facsimile transmission or telegram, and seven days after
mailing if sent by registered mail.
20.8 Section Headings
Section headings are for descriptive purposes only and shall not
control or alter the meaning of this Agreement.
20.9 Rights and Remedies
All rights and remedies of either party shall be cumulative and may
be exercised singularly or concurrently. The failure of either
party, in any one
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<PAGE> 18
or more instances, to enforce any of the terms of this Agreement
shall not be construed as a waiver of future enforcement of that or
any other term.
20.10 Severability
If any provision of this Agreement shall for any reason be held
illegal or unenforceable, such provision shall be deemed separable
from the remaining provision of
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<PAGE> 19
this Agreement and shall in no way affect or impair the validity or
enforceability of the remaining provisions of this Agreement.
IN WITNESS WHEREOF, CDP and the OEM hereby have duly executed this Agreement as
of the date first above written.
CDP COMMUNICATIONS INC. MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Ernie Crawford By: /s/ Mitchell Gross
---------------------------- ----------------------------
Title: Vice President Title: President
INDEX OF SCHEDULES
Schedule A: Incentive Royalty Schedule
Schedule B: OEM Royalty and Maintenance Schedule
Schedule C: Territory
Schedule D: Master Software License Agreement
Schedule E: Evaluation Agreement
Schedule F: Added Value
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<PAGE> 20
SCHEDULE A INCENTIVE ROYALTY SCHEDULE
This Royalty schedule becomes applicable if OEM sublicenses * of Software within
18 months of the commencement date of this Agreement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Level Low High Royalty per Concurrent
Quantity Quantity Session License to be
Paid by OEM
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A 0 * *
- --------------------------------------------------------------------------------
B * * *
- --------------------------------------------------------------------------------
C * * *
- --------------------------------------------------------------------------------
D * * *
- --------------------------------------------------------------------------------
E * Plus *
- --------------------------------------------------------------------------------
</TABLE>
Example
When the OEM is at Level A pricing, if a 100 user * were sold, this would result
in 100* * or * Royalty to CDP.
Software
*
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
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Schedule B OEM Royalty and Maintenance Schedule
The following is a schedule of Royalties due for each * license used by OEM or
its Customers:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Level Low High Royalty per Concurrent
Quantity Quantity Session License to be
Paid by OEM
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A 0 * *
- --------------------------------------------------------------------------------
B * * *
- --------------------------------------------------------------------------------
C * * *
- --------------------------------------------------------------------------------
D * * *
- --------------------------------------------------------------------------------
E * Plus *
- --------------------------------------------------------------------------------
</TABLE>
Maintenance Fees
CDP will receive * annually for each * license of the Software after the
expiration of the first year of such license, if the Customer has paid the OEM
maintenance fees.
Software
*
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
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<PAGE> 22
Schedule C
The Territory shall be worldwide.
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<PAGE> 23
Schedule D
LICENSE AGREEMENT
This License Agreement is made as of the date indicated below by and between
Mobius Management Systems, Inc. (Mobius), a New York corporation located at One
Ramada Plaza, New Rochelle, New York 10801, and the party executing this
Agreement as Licensee (hereinafter referred to as "Licensee") as follows:
1. SCOPE OF THIS LICENSE AGREEMENT
Mobius agrees to grant to Licensee and Licensee agrees to accept from Mobius a
non-exclusive, non-assignable and non-transferable license for the use of the
computer software components described in Exhibit A (hereinafter referred to as
the "SYSTEM") on the terms and conditions hereinafter set forth.
2. LICENSE TERM
The license shall be for an initial term of fifteen (15) years from the date
Mobius first furnishes the SYSTEM to Licensee (the "Delivery Date").
3. PAYMENT TERMS
Payment shall be made in accordance with Exhibit A. All payments shall be made
in U.S. Dollars within ten days of the date of the invoice. Mobius reserves the
right to add an interest charge not exceeding 1-1/2% per month, or fraction
thereof, for failure to make a payment within 10 days of the invoice date.
4. TITLE AND NON-ASSIGNABILITY
Title to SYSTEM, all property rights therein and all materials supplied to
Licensee under this Agreement shall remain the sole property of Mobius. Licensee
may not assign this Agreement without the prior written consent of Mobius. Any
attempt to assign any of the rights, duties or obligations of this Agreement
without such consent is void.
5. RESTRICTIONS ON USE
(i) The SYSTEM and other items supplied by Mobius are for the sole use of
Licensee and may be used to process work and data owned by Licensee. SYSTEM
shall not be used to process work or data of another company as a "Service
Bureau" except SYSTEM may be used to process work and data of a parent company
or of a subsidiary of which Licensee owns more than fifty-percent (50%). (ii)
The computer programs licensed hereunder shall be used only on a single central
processing unit or mainframe (referred to as the CPU) as specified on Exhibit A
and its associated peripheral units at the same site. Use of a program shall
consist either of copying any portion of the program from storage units or media
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<PAGE> 24
into the CPU, or the processing of data with the program, or both. The programs
licensed hereunder may be temporarily transferred to another CPU while the
specified CPU is undergoing repairs, but Licensee shall notify Mobius in writing
of such transfer if it is for a period of more than 72 hours. Licensee may
create backup copies of the SYSTEM for use in the CPU in the event of accidental
loss of the SYSTEM.
6. NON-DISCLOSURE
Licensee recognizes that the computer programs, documentation manuals and other
materials supplied by Mobius to Licensee are subject to the proprietary rights
of Mobius. Mobius has represented that the programs, documentation and all
information or data supplied by Mobius are trade secrets of Mobius, are
protected by civil and criminal law, including the law of copyright, are very
valuable to Mobius, and that their use and disclosure must be carefully and
continuously controlled. Licensee agrees that (i) all programs, documentation,
and materials in machine-readable form supplied under this License shall be kept
in a secure place, under access and use restrictions not less strict than those
applied to Licensee's most valuable and sensitive programs. Licensee agrees to
notify Mobius immediately of the unauthorized possession or use of any item
supplied under this License and of other information made available to Licensee
under this Agreement, by any person or organization not authorized by this
Agreement to have such possession or use. Licensee will promptly furnish full
details of such possession or use to Mobius, will assist in preventing the
-24-
<PAGE> 25
recurrence of such unauthorized possession or use, and will cooperate with
Mobius (at Mobius' expense) in any litigation against third parties deemed
necessary by Mobius to protect such proprietary rights as Mobius may have had on
the date of this Agreement.
7. NON-REPRODUCTION OF PROPRIETARY INFORMATION
Licensee agrees that while this License is in effect, or while it has custody or
possession of any property of Mobius, it will not, except as otherwise permitted
hereby, (a) copy or duplicate, or permit anyone else to copy or duplicate, a
physical or magnetic version of the computer programs, documentation or
information furnished by Mobius in machine-readable or other form, (b) create or
attempt to create, or permit others to create or attempt to create, by reverse
engineering or otherwise, the source programs or any part thereof from the
object program or from other information made available under this License or
otherwise (whether oral, written, tangible or intangible). Licensee may copy for
its own use and at its own expense operator manuals, training materials, and
other terminal-user-oriented materials.
8. LIABILITY
Except as specified in this paragraph or elsewhere in this Agreement, Mobius
shall not be liable for any loss or damages that may arise in connection with
the furnishing, performance or use by Licensee of SYSTEM including, without
limitation, any indirect, special, incidental or consequential damages. Except
as otherwise provided for herein, the remedies of Licensee set forth under
paragraph nine hereof shall be the sole and exclusive remedies of Licensee for
any breach of any obligation of Mobius hereunder or otherwise and in no event
shall Licensee be entitled to any monetary damages against Mobius in excess of
the amounts paid to Mobius by Licensee hereunder.
9. REPRESENTATIONS AND WARRANTIES
Mobius represents and warrants that it has all right, title and interest in and
to the SYSTEM, that it has the authority to enter into this Agreement and to
grant the rights and licenses provided herein, and that this Agreement violates
no previous agreement between Mobius and any third parties.
Mobius represents and warrants that the SYSTEM does not infringe, and that no
claim has been made by any party that the SYSTEM infringes any patent,
copyright, trade secret or similar proprietary right of any third party. Mobius
represents and warrants that there is no current or pending dispute or
litigation with any third party regarding Mobius' trademarks associated with the
SYSTEM, or with Mobius' use thereof.
Mobius further warrants that at the time of delivery of the initial SYSTEM and
for a period of one (1) year thereafter, SYSTEM will be in substantial
accordance with the applicable general description previously supplied to
Licensee. The extent of Mobius' liability under this warranty shall be limited
to the correction or replacement as soon as
<PAGE> 26
practicable of any defective item(s) in the initial SYSTEM (or any subsequent
release) which Mobius determines to be necessary at Mobius' own cost and
expense, provided written notice of such defective item(s) is given to Mobius
during the warranty period. This warranty shall not apply if: (i) an item of
SYSTEM shall not be used in accordance with Mobius' instructions; (ii) an item
of SYSTEM shall have been altered, modified or converted by Licensee without the
written approval of Mobius; or (iii) any of Licensee's equipment shall
malfunction.
THE WARRANTIES AND REPRESENTATIONS STATED WITHIN THIS AGREEMENT ARE EXCLUSIVE,
AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
10. LIMITATION OF LIABILITY
MOBIUS SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF
REVENUES AND LOSS OF PROFITS.
11. TERMINATION
If a party to this Agreement petitions for reorganization under the bankruptcy
laws of any jurisdiction, is adjudicated bankrupt or commits any material breach
of this Agreement and fails to remedy such breach within 30 days after written
notice by the other party of such breach, such other party may, without further
notice, terminate this Agreement. (i) Upon such termination of this Agreement by
Licensee, Licensee must return to Mobius at Licensee's own expense all copies,
materials, documentation, reproductions and modifications of the software held
by Licensee, purge all machine readable media relating to such software and
certify to Mobius in writing that the foregoing duties have been performed.
Licensee's obligations of Payment (Paragraph 3), Non-Disclosure (Paragraph 6)
and Non Reproduction of Proprietary Information (Paragraph 7) shall survive such
termination of this Agreement. (ii) If Mobius, whether directly or through a
successor or affiliate shall cease to be in the software business, or if Mobius
should be declared bankrupt or insolvent by a court of competent jurisdiction,
Licensee shall have the right to obtain for its own and sole use only, a single
copy of the then current version of the source program of the object programs
supplied under this Agreement, and a single copy of the documentation associated
therewith, upon payment to the person in control of the source program the
reasonable cost of making each copy. Each source program supplied to Licensee
under this paragraph shall be subject to each and every restriction on use set
forth in this Agreement. Licensee may at any time request of Mobius the name and
address of the organization holding the source code of SYSTEM. Mobius will
respond by letter, within thirty (30) business days, with the name and address
of above storage company.
12. SEVERABILITY
If any provision or provisions of this Agreement shall be held to be invalid,
illegal or
<PAGE> 27
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
13. WAIVER
The failure of Licensee or Mobius to insist upon the performance of any term or
condition of this agreement and the waivering or modifying of any term or
condition shall not be construed to waive or relinquish the right to performance
of such terms or condition, now or in the future.
14. TAXES
Prices or fees are exclusive of all Federal, state, municipal, or other
government, excise, sales, use, occupational, or like taxes now in force or
enacted in the future and, therefore, prices are subject to an increase equal in
amount to any tax Mobius may be required to collect or pay upon the sale or
delivery of items purchased or licensed. If a certificate of exemption or
similar document or proceeding is to be made in order to exempt the sale from
sales or use tax liability, the Licensee will obtain and pursue such
certificate, document or proceeding.
15. GENERAL
A. This Agreement can only be modified by a written agreement duly signed by
persons authorized to sign agreements on behalf of Licensee and of Mobius, and
variance from the terms and conditions of this Agreement in any order or other
written notification from the Licensee will be of no effect.
B. No action, regardless of form arising out of this Agreement may be brought by
either party more than two years after the cause of action has arisen, or, in
the case of non-payment, more than two years from the date of the last payment.
C. This Agreement will be governed by the laws of the State of
New York.
D. Exhibit A attached hereto is made a part of this Agreement
as if fully included in the text hereof.
This Agreement is the complete and exclusive statement of the agreement between
the parties, which supersedes all proposals or prior agreements, oral or
written, and all other communications between the parties relating to the
subject matter of this Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF
____________________, BY THEIR RESPECTIVE DULY AUTHORIZED REPRESENTATIVES.
MOBIUS MANAGEMENT SYSTEMS, INC.
<PAGE> 28
(LICENSEE) (MOBIUS)
One Ramada Plaza
New Rochelle, New York 10801
By: By:
(Name and Title) (Name and Title)
<PAGE> 29
EXHIBIT A
TO
MOBIUS MANAGEMENT SYSTEMS, INC.
LICENSE AGREEMENT
1. SOFTWARE.
Mobius will furnish to Licensee in machine-readable object code form and provide
documentation to Licensee for:
(i) Software known as:
(ii) With the following modules:
(iii) With the following manuals:
2. INSTALLATION SPECIFICATIONS
Address of Installation Sites Designated CPU's CPU Serial Nos.
3. PAYMENT
The License fee is $___________ for the initial fifteen (15) year License term.
The License renewal fee for each additional 15 year term is one (1) percent of
the initial License fee for each year of the renewal term. The License fee is
payable within 10 days of the date of invoice.
4. MAINTENANCE
A. Mobius shall provide maintenance services described in paragraphs 4B and 4C
below for a period of one year beginning with the Delivery Date at no
maintenance
<PAGE> 30
charge. Licensee may purchase maintenance services at the expiration of the
first year for a fee of fifteen (15) percent of the current published License
fee for such modules and options in effect on the anniversary of the Delivery
Date. Licensee will be invoiced prior to each anniversary of the Delivery Date
for maintenance for the following year and maintenance services will commence
upon receipt by Mobius of payment. There shall be added to maintenance fees and
other charges to this Agreement amounts equal to any tariff, duties and /or
sales or use tax, or any tax in lieu thereof imposed by any government or
governmental agency with respect to the services rendered by Mobius under this
Agreement.
B. During the term of the Maintenance Agreement, Mobius will correct or replace
SYSTEM and/or provide services necessary to remedy any programming error which
is attributed to Mobius and which significantly affects use of the SYSTEM. Such
correction, replacement or services will be promptly accomplished after Licensee
has identified and notified Mobius in writing of any such error. Licensee agrees
to provide Mobius with dumps, as requested and with sufficient support and test
time on Licensee's computer system to duplicate the problem, certify that the
problem is indeed with the SYSTEM, and to certify that the problem has indeed
been fixed. Corrections for difficulties or defects which Mobius in its
reasonable judgment deems traceable to Licensee errors or system changes will be
billed at standard Mobius time and material rates. In addition, if Mobius
personnel are requested by Licensee to travel to Licensee's location, Licensee
will pay Mobius for travel and subsistence. Any corrections or alterations to or
new versions of the SYSTEM that Mobius may deliver to Licensee under this
Agreement shall be limited to one copy of such SYSTEM and documentation
delivered to the Licensee. Licensee shall inform Mobius in writing of any
modifications made by Licensee to the SYSTEM. Mobius shall not be responsible
for maintaining Licensee modified portions of the SYSTEM or for maintaining
portions of the SYSTEM affected by Licensee-modified portions of the SYSTEM.
C. It is understood that Mobius is continually modifying and enhancing SYSTEM
which results in new releases of SYSTEM. During the term of the License, under
the Maintenance and Enhancement Plan of Mobius, to the extent Mobius shall
produce any such releases, Mobius will provide to Licensee one (1) copy of every
new release of SYSTEM, for the modules owned by Licensee including all
modifications, enhancements and corresponding technical documentation. Mobius
will provide reasonable telephone technical consultation.
In addition, Licensee must incorporate into the SYSTEM within one hundred eighty
(180) days after issue date all releases relating to the SYSTEM furnished by
Mobius.
5. THIS EXHIBIT A IS AGREED TO AND INITIALED FOR IDENTIFICATION BY:
MOBIUS MANAGEMENT SYSTEMS, INC.
(LICENSEE) (MOBIUS)
<PAGE> 31
One Ramada Plaza
New Rochelle, New York 10801
By: By:
(Name and Title) (Name and Title)
<PAGE> 32
SCHEDULE E
================================================================================
INFOPAC TRIAL AGREEMENT AND ORDER FORM
Please send me the INFOPAC products indicated below for a free trial.
1. The trial period will be for ___ days, starting the day the INFOPAC
product(s) indicated below are successfully installed and operating or
demonstrated by Mobius personnel.
2. There is no charge for the trial.
3. Company will respect and protect Mobius Management Systems, Inc.
proprietary rights to the product(s) ordered for trial.
4. Company agrees to return all tapes and materials related to the product(s)
under trial, and certify that the product(s) have been removed from the
Company's systems, and are no longer in use, if the Company does not lease
or license the product(s).
5. Company will protect the product(s) under trial as they protect their own
assets, while in their possession.
6. Product(s): _________________________________________
______________________________________________________
______________________________________________________
I agree to the terms and conditions of this agreement.
- ---------------------- --------------------- ----------------- ----------
Company Name Signature Title Date
- --------------------------------------------------------------------------------
Installation Profile
Company Name ________________ ___)___-_______
Address ____________________
____________________
____________________
Contact Name ________________ ___)___-_______
CPU Model ___________ Operating System _______ Release _______
Return to:
Mobius Management Systems, Inc.
One Ramada Plaza
New Rochelle, New York 10801
(914) 632-7960 Ext. 286 or (914) 632-1789 (FAX)
================================================================================
-25-
<PAGE> 33
SCHEDULE F
ENTERPRISE DATA MANAGEMENT SOFTWARE FROM MOBIUS MANAGEMENT SYSTEMS
INFOPAC-RDS for Windows
INFOPAC-RDS for Windows changes the way end-users view and print output.
INFOPAC-RDS for Windows uses the Microsoft(R) Windows environment to provide a
friendly graphical user interface to display report data stored anywhere in the
enterprise: the Host file server (including data stored on magnetic DASD,
optical disk and tape), local file servers, the LAN or the workstation hard
drive. Taking advantage of the power and flexibility of the workstation,
INFOPAC-RDS for Windows extends this power to enterprise report viewing and
printing.
Direct Access to Your Enterprise
Network With Full Security and
Data Integrity
INFOPAC-RDS for Windows, working with its mainframe partners INFOPAC-RDS and
ViewDirect, creates a true client/server relationship. This architecture
supports two application programming interfaces (APIs) for communicating between
the client and server. You can use any Windows-based PC communications product
that supports either of these APIs.
============================================
Attach Server
- --------------------------------------------
Recipient ID Passwordtxxxxxx
- --------------------------------------------
-----------------------------
Server ID IRDSPRO
Report ID
-----------------------------
CR 001 MONTHLY EXPENSE REPORT
Version ID CR001 SALES CALL DETAIL
SL001 MONTHLY SALES REPORT
Section ID
o HLLAPI - High-level Language Application Programming Interface supported
by many Windows 3270 terminal emulation packages, including those that
support TCP/IP.
o CPI-C API - Common Programming Interface for Communications, a standard
communications interface designed to support APPC software and LU6.2
protocols.
Using the client/server architecture, INFOPAC-RDS for Windows gives authorized
users access to data throughout the network. Pop down boxes display the servers
you can work with, a customized list of reports you are allowed to access,
versions that are available, and sections of reports you may view.
If you have ViewDirect or the Optical Disk Interface, you can directly access
archives stored on tape or optical disk.
Minimizes Network Traffic with the Intelligent
Object Processor(TM) Architecture
Through the unique and powerful intelligent Object Processor architecture.
INFOPAC.RDS for Windows minimizes the load on your network and optimizes the use
of the correct platform for each function. The Intelligent Object Processor
moves objects (data ______ requests) throughout the network to prosecute objects
on the most efficient platform, which, depending on the object might be the
server or the client. For example, the Intelligent Object Processor executes a
simple SEARCH command first on the workstation for data in the buffer then ships
the search to the server if it cannot be satisfied on the workstation. The
results of the object are then moved to the workstation after the prosecution of
the object on the server is complete. The end result, network traffic is
minimized and functionality is maximized.
-26-
<PAGE> 34
View Entire Page
INFOPAC-RDS for Windows allows you to display the report page in any size
window. It uses Variable font support to allow each user to dynamically define
how many characters and lines of the report are displayed on the screen at a
time. Simply by altering the font and its size, you alter displayed report text
to suit your preferences - from very small to very large.
=============================================
INSFOPAC RDS\C\REPORTS\STAC081.RPT
- ---------------------------------------------
File Exit View Options
- ---------------------------------------------
-27-
<PAGE> 1
Exhibit 10.21
CONFIDENTIAL TREATMENT REQUESTED
===========================
SOURCE CODE LICENSE AND
AMENDMENT TO OEM AGREEMENT
BETWEEN
CDP COMMUNICATIONS INC.
AND
MOBIUS MANAGEMENT SYSTEMS
MADE AS OF
AUGUST 12, 1997
============================
<PAGE> 2
SOURCE CODE LICENSE AND
AMEND MENT TO OEM AGREEMENT
THIS AGREEMENT made as of the 12th day of August, 1997.
AMONG:
CDP COMMUNICATIONS INC., a corporation incorporated under the laws
of the Province of Ontario (hereinafter referred to as the "CDP")
and
MOBIUS MANAGEMENT SYSTEMS, INC. a corporation incorporated under the
laws of the State of Delaware (hereinafter referred to as "Mobius")
WHEREAS CDP and Mobius entered into an OEM Agreement dated as of
October 15, 1993, as amended by the parties pursuant to amending agreement dated
July 18, 1995, (the "OEM Agreement") pursuant to which CDP granted certain
rights to Mobius to use, reproduce and sublicense the object code * version of
CDP's *;
AND WHEREAS CDP, Mobius and FileSafe, Inc. entered into a Source
Code Escrow Agreement dated April 21, 1994 (the "Escrow Agreement") pursuant to
which CDP placed the source code * version of the * in escrow to be released to
Mobius only under certain specific conditions referred to therein;
AND WHEREAS CDP subsequently developed a * version of the * ;
AND WHEREAS Mobius wishes to license the object code to the *
version of the * for sublicensing to its customers pursuant to the OEM Agreement
and license the source code of the * version and the * version of the * for the
purposes more fully set forth herein, including to make certain enhancements and
to maintain such software for its customers, and CDP is willing to grant such a
license under certain restrictions and conditions;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and the payment by each
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
1
<PAGE> 3
of the parties to the other of the sum of ten dollars ($10.00) and other good
and valuable consideration (the adequacy of which consideration as to each of
the parties hereto is hereby mutually acknowledged), the parties hereto covenant
and agree, and as appropriate, amend the OEM Agreement, as follows:
ARTICLE I - INTERPRETATION
1.1 Definitions
In this Agreement, the following terms shall have the meanings
ascribed to them as follows:
(a) "Acceptance Tests" has the meaning set forth in Section 2.5(b);
(b) "CDP Source Code" means the source code to the * and the * versions
of the * and technical documentation relating thereto as such source
code exists as at the date first written above and as described in
Schedule A to this Agreement;
(c) "CDP Software" means the object code to the * and the * versions of
the * as licensed to Customers under the OEM Agreement;
(d) "Confidential Information" means the confidential, secret or
proprietary information of CDP, including technical, financial and
business information and software of CDP which has been or may
hereafter be disclosed, directly or indirectly to Mobius, either
orally, in writing or in any other material form, or delivered to
Mobius;
(e) "Customers" means those persons or entities who are validly
sublicensed by Mobius, in compliance with the OEM Agreement, as
end-users of the Software and the Added Value (as such terms are
defined in the OEM Agreement);
(f) "Enhancements" includes changes, modifications, derivations,
improvements, and additions to the CDP Source Code;
(g) "Intellectual Property Rights" means all intellectual and industrial
property rights including all rights to
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
2
<PAGE> 4
copyrights, copyright applications. trademarks, patents, inventions,
discoveries, patent applications, industrial designs, design rights,
trade secrets and information of a confidential nature; and
(h) "License Fee Period" means the * period during which License Fees
are payable as set forth in Schedule B to this Agreement.
ARTICLE 2 - LICENSE
2.1 Delivery of CDP Source Code
(a) CDP shall deliver to Mobius, at its offices at One Ramada Plaza, New
Rochelle, New York, one copy of the CDP Source Code and Mobius shall conduct
Acceptance Tests on the CDP Source Code in accordance with Section 2.5.
(b) In addition, the CDP Source Code shall include (i) the * ; and (ii)
the * .
(c) CDP shall have no obligation to deliver any source code for any
products which CDP licenses separately from the CDP Software (to the extent that
such source code is not incorporated in, or otherwise forms a part of, the CDP
Software). Notwithstanding the foregoing Mobius agrees that it shall separately
purchase or otherwise acquire a license * or its functional equivalent to be
used together with the CDP Source Code and CDP shall have no obligation to
provide or cover the cost of licensing such additional software.
2.2 Use of CDP Source Code by Mobius
(a) Mobius shall have and CDP hereby grants to Mobius, a perpetual,
non-transferrable, non-exclusive license, to be exercised by its employees,
officers, directors and duly authorized agents, to (i) maintain, modify and
update the CDP Source Code, and (ii) develop Enhancements to the CDP Source
Code.
(b) Mobius acknowledges and agrees that prior to the end of the License
Fee Period, the rights granted under Subsection 2.1(a) are granted solely to
enable Mobius to provide maintenance and support services to Customers and to
develop Enhancements to the CDP Software. Mobius agrees to only market,
distribute or license the Enhancements developed by or for Mobius to Customers
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
3
<PAGE> 5
in accordance with the terms of the OEM Agreement as amended by
the terms hereof.
2.3 Obligations of Mobius
(a) Mobius shall establish a secure location to maintain the CDP Source
Code and shall maintain the CDP Source Code in the same manner, and under the
same controls and conditions as it maintains its own proprietary and
confidential source code.
(b) Except as provided in this Agreement, Mobius agrees that it shall not
divulge, disclose or otherwise make available to third parties the CDP Source
Code, without the express prior written consent of CDP, which consent shall not
be unreasonably withheld.
(c) Mobius agrees not to use the CDP Source Code or any part thereof
during the License Fee Period to develop any software, or source material for
creating software, which may compete with the CDP Software.
(d) During the License Fee Period and for one year thereafter, Mobius
agrees not to solicit, directly or indirectly, any of CDP's * OEMs or strategic
partners for the purpose of developing, licensing to or otherwise promoting an
object designed solely to * .
2.4 Turnover and Training
CDP shall provide Mobius with up to 10 days (in two or three sessions, at
times mutually agreeable to the parties) of turnover and training on-site at
Mobius' offices in New Rochelle, New York. A senior CDP representative,
knowledgeable in both versions of the CDP Source Code, shall be made available
for such purposes. Mobius shall reimburse CDP for all reasonable travel and
living expenses incurred pursuant to this Section 2.4. Unless otherwise agreed
to in writing by the parties, six months from the date of delivery as set forth
in Section 2.1(a) hereof all remaining rights to turnover and training services
as set forth herein shall terminate regardless of whether any turnover and
training days have accrued to such date, provided that CDP has not unduly
delayed the delivery of such services.
2.5 Acceptance
(a) Upon delivery of the CDP Source Code, Mobius shall have two business
days (the "Approval Period") after delivery thereof within which to approve or
reject the CDP Source Code. If Mobius does not reject or approve the CDP Source
Code within the Approval Period, the CDP Source Code shall be deemed to be
accepted by Mobius.
- ------------
*The Redacted Material Has Been Separately Filed With The Commission.
4
<PAGE> 6
(b) All to be conducted by Mobius during the Approval Period (the
"Acceptance Tests") shall be conducted on a single computer disconnected from
any network and all such testing shall be conducted in the presence of a senior
CDP developer. The Acceptance Tests shall consist solely of (i) establishing
that the CDP Source Code compiles and link edits, and (ii) confirming that the
compiled files of the CDP Source Code accurately compared to the CDP Software.
(c) If, upon conducting the Acceptance Tests Mobius has a reasonable
objection to the CDP Source Code, Mobius may reject the CDP Source Code. In such
event, Mobius will deliver to CDP within the Approval Period a notice setting
forth the specific reasons for rejection and CDP shall make commercial and
reasonable efforts to make the appropriate changes and redeliver the revised CDP
Source Code. Mobius shall again be entitled to an Approval Period to accept or
reject the revised CDP Source Code.
2.6 Modifications to the * Version of the CDP Source Code
Prior to September 30, 1997, CDP shall deliver to Mobius a modified
copy of the * version of the CDP Source Code with * as set forth in the
memorandum of Mobius to CDP dated August 8, 1997, a copy of which is attached
hereto as Schedule D.
2.7 Update of the * Version of the CDP Source Code
Once available, CDP shall deliver to Mobius an update of the *
version of the CDP Source Code and such update shall include (i) the
modifications to such source code as are set forth in the memorandum of Mobius
to CDP dated August 11, 1997, a copy of which is attached hereto as Schedule E,
and (ii) the * set forth in Schedule D.
ARTICLE 3 - TITLE AND OWNERSHIP
3.1 Property of CDP
The entire Intellectual Property Right, title and interest in the
CDP Source Code shall be retained as the sole property of CDP. Mobius
acknowledges and agrees that this Agreement does not transfer to Mobius any
Intellectual Property Right, title or interest with respect to the CDP Source
Code and that all such Intellectual Property Rights, title and interest belong
exclusively to CDP.
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
5
<PAGE> 7
3.2 Enhancements
Mobius shall own the entire Intellectual Property Right, title and
interest in any Enhancements to the CDP Source Code developed by or on behalf of
Mobius. Unless otherwise provided in writing, CDP shall own the entire
Intellectual Property Right, title and interest in all Enhancements to the CDP
Source Code not developed by or on behalf of Mobius. Any Enhancements made by or
on behalf of Mobius shall not in any way prohibit or affect CDP's right to
develop any Enhancements to the CDP Source Code for its own purposes or for
other licensees.
ARTICLE 4 - CONFIDENTIAL INFORMATION
4.1 Confidentiality Obligation
(a) Mobius shall use no less than the same means it uses to protect its
similar confidential and proprietary information, but in any event not less than
reasonable means, to prevent the disclosure and to protect the confidentiality
of the Confidential Information. Mobius agrees that it will not use the
Confidential Information except for the purposes of this Agreement and as
authorized herein.
(b) Mobius acknowledges that the CDP Source Code constitutes Confidential
Information which information shall not be accessed other than by Mobius and its
employees, officers, directors and duly authorized agents who reasonably require
such access for the purposes of this Agreement and who are required to protect
the confidentiality of the Confidential Information. Mobius agrees to strictly
enforce such requirements with regards to the Confidential Information.
(c) Notwithstanding subsections 4.1(a) and 4.1(b), Mobius may use or
disclose the Confidential Information to the extent that such Confidential
Information is (i) already known by Mobius without an obligation of
confidentiality, (ii) publicly known or becomes publicly known through no
unauthorized act of Mobius, (iii) rightfully received from a third party, (iv)
independently developed by Mobius without use of the Confidential Information,
(v) approved by CDP for disclosure, or (vi) required to be disclosed pursuant to
a requirement of a governmental agency or law so long as Mobius provides CDP
with notice of such requirement prior to any such disclosure and takes all
reasonable steps available to maintain the information in confidence.
4.2 Return of Confidentiality Information
Upon the termination of this Agreement and upon the request of CDP,
Mobius will return to CDP all documents and
6
<PAGE> 8
information, however recorded, including but not limited to drawings,
specifications, descriptions, or other papers, tapes, or any other media which
contain any of the Confidential Information.
4.3 Loss of Confidential Information
In the event of any unauthorized disclosure or loss of, or inability
to account for Confidential Information, Mobius will notify CDP immediately.
4.4 Equitable Relief
Mobius acknowledges and agrees that the Confidential Information
constitutes valuable trade secrets of CDP, and that any unauthorized
reproduction and/or disclosure of such information by Mobius may cause
irreparable harm for which CDP's remedies at law may be inadequate. Mobius
hereby agrees that CDP may be entitled, in addition to any other remedies
available to it at law or in equity, to seek injunctive relief to prevent the
breach or threatened breach of Mobius' obligations hereunder.
ARTICLE 5 - PRICE AND PAYMENT
5.1 License Fees
As compensation for the rights granted herein and in satisfaction of
Mobius' OEM Royalty obligations pursuant to the OEM Agreement, Mobius shall be
charged and agrees to pay the license fees (the "License Fees") at the times and
in the amounts as set out in Schedule B. All License Fees are in United States
dollars.
5.2 Taxes and Import Duties
Except as stated above, License Fees are exclusive of all local
jurisdiction, sales, use, occupational or similar taxes now in force or enacted
in future, all of which shall be paid by Mobius, except for such taxes as are
imposed on CDP's income, which shall be paid by CDP. Mobius is responsible for
obtaining and providing to CDP any certificate of exemption or similar document
required to exempt any sale or license from sales, use or similar tax liability.
5.3 Late Payment Charges
Notwithstanding any other rights or remedies CDP may have under this
Agreement or at law, if Mobius falls to pay any amounts within 30 days after
payment is due, interest on overdue
7
<PAGE> 9
amounts shall accrue at the rate of 18% per annum (1.5% per month) on such
unpaid amounts.
ARTICLE 6 - WARRANTIES, INDEMNITIES, LIMIT OF LIABILITY
6.1 Warranty
The CDP Source Code is provide "AS-IS" without any warranty
whatsoever except that CDP warrants and represents to Mobius that it is the
owner of the CDP Source Code and that it has full right and authority to enter
into this Agreement.
6.2 Disclaimer
(a) EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH HEREIN, CDP MAKES NO
CONDITIONS OR WARRANTIES, EITHER EXPRESSED OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ANY CONDITION OR WARRANTY OF
MERCHANTABILITY OR MERCHANTABLE QUALITY OF THE SOFTWARE OR ITS FITNESS FOR ANY
PARTICULAR PURPOSE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A
COURSE OF DEALING OR USAGE OF TRADE. IN NO EVENT WILL CDP BE LIABLE FOR ANY
DAMAGES, INCLUDING BUT NOT LIMITED TO (i) DAMAGES CAUSED BY THE MOBIUS' FAILURE
TO PERFORM ITS COVENANTS AND RESPONSIBILITIES, FOR ANY REASON, INCLUDING,
WITHOUT LIMITATION, CDP'S NEGLIGENCE; (ii) DAMAGES CAUSED BY REPAIRS OR
ALTERATIONS DONE WITHOUT CDP'S WRITTEN APPROVAL; (iii) DAMAGES DUE TO
DETERIORATION DURING PERIODS OF STORAGE BY THE MOBIUS, (iv) LOST DATA; OR (v)
ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES.
6.3 Limit of Liability
CDP'S LIABILITY FOR DAMAGES TO MOBIUS FOR ANY CAUSE (OTHER THAN AS
CONTEMPLATED BY SECTION 6.4 BELOW), REGARDLESS OF THE FORM OF ACTION INCLUDING
NEGLIGENCE, SHALL NOT EXCEED THE LICENSE FEES PAID BY MOBIUS PURSUANT TO THIS
AGREEMENT DURING THE TWENTY-FOUR MONTHS PRIOR TO THE MONTH IN WHICH MOBIUS
NOTIFIES CDP OF SUCH CLAIM OR POTENTIAL CLAIM.
6.4 Patent Copyright and Trade Secret Indemnification
(a) At its expense, CDP will defend any action brought against
Mobius, and pay all reasonable expenses and damages of Mobius, for any claims
that the CDP Source Code infringes a patent, copyright or trade secret of a
third party (a "Source Code Infringement") effective in Canada or the United
States provided Mobius notifies CDP promptly in writing of the action (and all
prior claims relating to such action) and gives CDP sole control of the defence
and negotiations for its settlement or compromise. CDP shall pay all damages and
costs awarded therein
8
<PAGE> 10
against Mobius but shall not be responsible for any compromise made without its
consent. In the event of a final judgment which prohibits Mobius' continued use
of the CDP Source Code by reason of a Source Code Infringement, or if at any
time CDP is of the opinion that the CDP Source Code is likely to become the
cause of an action for infringement, CDP's sole obligation will be to use its
best efforts to (i) obtain, at no additional cost to Mobius, the rights to
continued use of the CDP Source Code; (ii) replace or modify the CDP Source Code
so that it is no longer infringing, but maintaining equivalent functionality to
the infringing part; or (iii) remove and refund the amount paid to CDP in
License Fees by Mobius, less two percent per month of use as depreciation.
(b) Notwithstanding Subsection 6.4(a), CDP shall have no liability for any
Source Code Infringement or claim thereof based on (i) use of other than the
unaltered CDP Source Code not approved in writing by CDP, (ii) use of a
combination of the CDP Source Code with software, data or equipment not approved
in writing or supplied by CDP, (iii) use of CDP Source Code with Enhancements
developed by or for Mobius, or (iv) use of the CDP Source Code in a manner for
which the CDP Source Code was not designed.
(c) At its expense, Mobius will defend any action brought against CDP and
pay all reasonable expenses and damages of CDP for any claims, suit or
proceeding that (i) an Enhancement or Enhancements developed by or for Mobius,
(ii) use of the CDP Source Code other than as contemplated by this Agreement, or
(iii) use of the CDP Source Code as modified, altered or combined with any
equipment, device or software not supplied or approved by CDP, infringes a
patent, copyright or trade secret of a third party effective in Canada or the
United States provided CDP notifies Mobius promptly in writing of the action
(and all prior claims relating to such action) and gives Mobius sole control of
the defence and negotiations for its settlement or compromise. Mobius shall pay
all damages and costs awarded therein against CDP but shall not be responsible
for any compromise made without its consent.
ARTICLE 7 - TERM AND TERMINATION
7.1 Term and Termination
This Agreement will commence on the date first written above and
will remain in force unless terminated hereunder.
9
<PAGE> 11
7.2 Termination for Default
In the event Mobius fails to cure any material breach of this
Agreement which is capable of cure within ten business days of receipt of
written notice thereof from CDP, then CDP, in its sole discretion, shall, in
addition to any other remedy which it may be entitled to at law, have the right
to terminate this Agreement by written notice to Mobius on a date specified
therein. CDP shall have the right to terminate this Agreement by notice in
writing to Mobius in the event Mobius fails to cure any breach of this Agreement
which is not capable of cure including a breach of Article 4 (which shall be
deemed not to be curable).
7.3 Termination upon Insolvency
Either party may terminate this Agreement if the other party is
dissolved, becomes insolvent, passes a resolution for its winding up (or an
order is made by a court of competent jurisdiction for the winding up of the
other party), an administration order is made in relation to the other party or
a receiver, trustee, or liquidator is appointed over, or takes possession of,
any of the other party's assets, the other party makes an arrangement or
composition with its creditors generally, the other party makes an assignment
for the benefit of its creditors or an application to a court of competent
jurisdiction for protection from its creditors generally, or the other party
ceases operations.
7.4 Termination of OEM Agreement
This Agreement shall automatically terminate upon CDP's termination
of the OEM Agreement for material breach by Mobius during the License Fee
Period.
7.5 Survival
The parties hereto agree that the provisions hereof requiring
performance or fulfillment after the expiry or earlier termination of this
Agreement shall survive such expiry or earlier termination. Articles 3, 4 and 5
and Sections 2.2, 2.3, 6.3, 6.4, 7.5 and 7.6 shall survive the termination of
this Agreement.
7.6 Effect of Termination
Within five business days of the effective date of the termination
of this Agreement, Mobius shall return to CDP all copies of the CDP Source Code
in its possession or under its control.
10
<PAGE> 12
ARTICLE 8 - AMENDMENTS TO THE OEM AGREEMENT
AND TERMINATION OF THE ESCROW AGREEMENT
8.1 Amendments to the OEM Agreement
The OEM Agreement is hereby amended by:
(i) deleting Section 1.1 in its entirety and replacing it with the
following new Section 1.1:
1.1 "Added Value" means the value to be added by the OEM to
the CDP Products by embedding the CDP Products in any
Mobius product.
(ii) insert a new Section 1.6.1.1 as follows:
"License Fee Period" shall have the meaning set forth in the
Source Code License Agreement between Mobius and CDP dated
August 12, 1997.
(iii) amend Section 1.9 by (i) adding the words "or any portion or
element thereof" following the words "software programs" and
prior to the words "listed on", and (ii) deleting the words
"and all future modifications and enhancements thereto" at the
end of Section 1.9.
(iv) inserting in the first sentence of the first paragraph of
Section 2.1(i) the word "perpetual," following the words
"grants OEM the" and before the word "non-exclusive" and (ii)
the words ", during the License Fee Period," following the
words "condition that" and before the words "the OEM only".
(v) deleting Section 3 in its entirety.
(vi) amend Section 6.1 by (a) inserting the word "perpetual,"
following the word "a" and before the word "non-exclusive",
(b) deleting the word "and" following the words "this
Agreement" and replacing it with the words "(i) during the
License Fee Period and subject," and (c) inserting at the end
of the first sentence of Section 6.1 the words ", and (ii)
upon the conclusion of the License Fee Period, for any use
whatsoever, provided
11
<PAGE> 13
such use is not otherwise restricted by this Agreement."
(vii) amending Section 6.4 by inserting at the beginning of the
fourth sentence of the first paragraph of Section 6.4 the
words "During the License Fee Period."
(viii) deleting Articles 12 and 13 in their entirety;
(ix) amending Section 16.1 by inserting at the beginning of the
second sentence the words, "During the License Fee Period";
(x) deleting Section 19.1.3 and the first paragraph of Section
19.2 each in their entirety;
(xi) deleting Schedule A in its entirety;
(xii) deleting the sentence under the heading "Software" in Schedule
B, in its entirety and replacing it with "The object code to
the * version of CDP's * and the object code to the * version
of CDP's * , as described in Schedule A to the Source Code
License Agreement between CDP and Mobius dated August 12,
1997."; and
(xiii) deleting the table and sentence preceding the table in
Schedule B in its entirety and replacing it with the following
"The payment of OEM of the License Fees (as such term is
defined in the Source Code License Agreement between CDP and
Mobius dated August 12, 1997) payable under such Source Code
License Agreement shall fully satisfy any and all OEM Royalty
obligations of OEM hereunder. Following the end of the License
Fee Period, no further OEM Royalties shall be payable."
8.2 Confirmation of OEM Agreement
The OEM Agreement as amended hereby, is hereby ratified and
confirmed in all respects, and is binding upon the parties thereto and their
successors.
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
12
<PAGE> 14
8.3 Termination of the Escrow Agreement
Effective upon acceptance of the CDP Source Code, the Escrow
Agreement shall be terminated and Mobius acknowledges that as of such date it
shall have no further rights thereunder. Mobius hereby consents to the delivery
of the Source Materials (as such term is defined in the Escrow Agreement) to CDP
and agrees to deliver to CDP the form of notice set forth in Schedule C hereto
upon receipt of the CDP Source Code.
8.4 Conflicts with OEM Agreement
In the event there is any conflict or inconsistency between the
terms of OEM Agreement and the terms of this Agreement, the terms of this
Agreement shall govern.
ARTICLE 9 - GENERAL
9.1 Headings
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof', "hereunder" and similar expressions refer to this
Agreement and not to any particular Article or Section or other portion hereof
and include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles or
Sections are to Articles or Sections of this Agreement.
9.2 Extended Meanings
In this Agreement words importing the singular number only shall
include the plural and vice versa, and words importing persons shall include
individuals, partnerships, associations, unincorporated organizations and
corporations. The terms "provision" and "provisions" refer to terms, conditions,
provisions, covenants, obligations, undertakings, warranties and representations
in this Agreement.
9.3 Ambiguities
The parties hereto agree that each of them has participated in the
drafting of this Agreement and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement.
13
<PAGE> 15
9.4 Assignment
This Agreement shall be binding on the parties hereto and their
respective successors and assigns. Neither party may, or shall have the power
to, assign this Agreement or the benefit thereof, in whole or in part, except
(i) with the prior written consent of the other party, which consent shall not
be unreasonably withheld, and (ii) by either party in connection with the sale
of all or substantially all of its property and assets or in connection with a
merger, amalgamation, or other reorganization of the party, provided that the
successor or assignee, as the case may be, undertakes in writing to the other
party to be bound by the provisions of this Agreement.
9.5 Amendments and Waiver
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by the parties hereto and
no waiver of any breach of any term or provision of this Agreement shall be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided, shall be limited to the
specific breach waived.
9.6 Further Assurances
Each of the parties hereto shall from time to time execute and
deliver all such further documents and instruments and do all acts and things as
the other party may reasonably require to effectively carry out this Agreement.
9.7 Consents and Approvals
Where a party is required hereunder to grant a consent or an
approval, unless something in the subject matter or context is inconsistent
therewith, the granting of the consent or the approval shall not be unreasonably
withheld or delayed.
9.8 Notices
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
first business day after personal delivery, delivery by overnight courier
service or transmittal by facsimile, on the fifth business day after being sent
by First Class Mail, postage prepaid, as follows:
14
<PAGE> 16
(a) If to CDP, to:
CDP Communications Inc.
25 Adelaide Street East, Suite 700
Toronto, Ontario
M5C 3Al
Attention: President
Facsimile No.: (416) 865-9650
(b) If to Mobius, to:
Mobius Management Systems, Inc.
One Ramada Plaza
New Rochelle, New York 10801
Attention: President
Facsimile No.: (914) 637-1789
If a party changes its address for notification purposes, then it shall give the
other party written notice of the new address and the date on which it shall
become effective.
9.9 Severability
If a court or other lawful authority of competent jurisdiction
declares any provision, Article or Section of this Agreement invalid, illegal or
unenforceable, this Agreement will continue in full force and effect with
respect to all other provisions, Articles and Sections and all rights and
remedies accrued under such other provisions, Articles and Sections will survive
any such declaration.
9.10 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
9.11 Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and cancels and supersedes any
prior understandings and agreements between the parties hereto with respect
thereto.
9.12 Counterparts
This Agreement may be executed in any number of counterparts which
may be delivered by facsimile transmission, each of which shall be deemed to be
an original and all of which taken together shall be deemed to constitute one
and the same
15
<PAGE> 17
instrument, and it shall not be necessary in establishing proof of this
Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF the parties have executed this Agreement.
CDP COMMUNICATIONS INC.
BY: /s/ R.Saarimaki
----------------------------------
Name: R.Saarimaki
Title: President
MOBIUS MANAGEMENT SYSTEMS, INC.
BY: /s/ Joseph J. Albracht
----------------------------------
Name: Joseph J. Albracht
Title: Executive Vice President
16
<PAGE> 18
SCHEDULE A
DESCRIPTION OF CDP SOURCE CODE
The CDP * consists of two major components:
o * pages *
o * pages *
* pages *
The transform component consists of the following sub components:
o *
o *
o *
o * page *
The conversion component is * . *objects* . This lets the applications
program control the persistence of objects. *object * .
This same conversion logic applies to all *objects. The conversion * and
the * communicates through * .
The viewing and printing component renders * pages and objects * .
*
*
*
*
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 19
SCHEDULE B
LICENSE FEES
(1) Mobius acknowledges that all sums previously paid by Mobius to CDP pursuant
to the OEM Agreement have been fully earned by CDP for services rendered prior
to the date of this Agreement.
(2) Upon execution of this Agreement and prior to delivery of the CDP Source
Code, Mobius shall pay the amount set forth on the invoice enclosed as Appendix
B1 to this Schedule and Mobius acknowledges that such amount constitutes the OEM
Royalties outstanding under the OEM Agreement as at the date immediately prior
to the date of this Agreement and that such amount is due and payable to CDP in
addition to any amount earned by CDP as referred to in (1) to this Schedule B.
(3) Upon acceptance of the CDP Source Code in accordance with Section 2.5 of
this Agreement and for the initial * of the Agreement, a License Fee shall be
payable on the last day of each calendar month in the amounts set forth below:
<TABLE>
<CAPTION>
Year Monthly Fee
---- -----------
<S> <C>
* *
* *
* *
* *
* *
* *
</TABLE>
Following the end of the * , no further License Fees shall be payable.
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 20
APPENDIX B1
CDP Communications Inc. INVOICE
& Electronic File Imaging Systems, Inc.
25 Adelaide Street East, Suite 700 INVOICE No: MOB500
Toronto, Ontario M5C 3A1 DATE: 1 August, 1997
416.865.9966 Fax 416.865.9650
To: Mobius Managements, Inc. Ship To:
One Ramada Plaza Same
New Rochelle, NY 10801
Attn: Mitch Gross
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SALESPERSON PO NUMBER DATE SHIPPED SHIPPED VIA F.O.B. POINT TERMS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COD
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
QUANTITY DESCRIPTION UNIT PRICE AMOUNT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
o * *
o * *
o * *
o All sales reported in 7/11/97 account schedule
o US Funds
- -----------------------------------------------------------------------------------------
SUBTOTAL *
GST 7% TAX
PST 8% TAX
----------
TOTAL DUE *
----------
</TABLE>
Make all checks payable to: CDP Communications Inc.
If you have any questions concerning this invoice, call: Melissa Cole,
416-865-9966
THANK YOU FOR YOUR BUSINESS!
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 21
SCHEDULE C
NOTICE
To: FileSafe, Inc.
Re: Escrow Agreement dated April 21, 1994 between CDP Communications Inc.,
Mobius Management Systems, Inc. and FileSafe, Inc. (the "Escrow
Agreement")
The undersigned each hereby agree to the termination of the Escrow
Agreement as of the date hereof and direct FileSafe Inc. to release all escrowed
materials to CDP Communications Inc.
DATED August 12, 1997
CDP COMMUNICATIONS INC.
By:
--------------------------------
MOBIUS MANAGEMENT SYSTEMS, INC.
By:
--------------------------------
<PAGE> 22
SCHEDULE D
MOBIUS Memorandum
To: Ted Dunlop
Rick Saarimaki
From: Joe Albracht
Date: August 11, 1997
Subject: *
<TABLE>
<CAPTION>
================================================================================
Date
Incident Reported Symptom Status
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
710144 1/30/97 * 8/6-- *
- --------------------------------------------------------------------------------
720601 4/4/97 * 8/11 *
- --------------------------------------------------------------------------------
750549 6/6/97 *. 8/11--*
- --------------------------------------------------------------------------------
720715 4/7/97 * 8/6-- *
750961
- --------------------------------------------------------------------------------
740176 6/27/97 * 8/11-- *.
- --------------------------------------------------------------------------------
760935 8/4/97 *. 8/11-- *
================================================================================
</TABLE>
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 23
SCHEDULE E
MOBIUS Memorandum
To: Ted Dunlop
Rick Saarimaki
From: Joe Albracht
Date: August 11, 1997
Subject: *
<TABLE>
<CAPTION>
================================================================================
Date
Issue Reported Description Status
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 8/6/97 * 8/6 *
- --------------------------------------------------------------------------------
2 8/6/97 * 8/6 *
- --------------------------------------------------------------------------------
3 8/6/97 * 8/6 *.
- --------------------------------------------------------------------------------
4 8/6/97 *. 8/6 *
- --------------------------------------------------------------------------------
5 *.
- --------------------------------------------------------------------------------
6 *
- --------------------------------------------------------------------------------
7 * *
================================================================================
</TABLE>
- ----------
* The Redacted Material Has Been Separately Filed With The Commission.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mobius Management Systems, Inc.:
The audits referred to in our report dated February 23, 1998, included the
financial statement schedule as of June 30, 1996 and 1997 and for each of the
years in the three year period ended June 30, 1997, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" and "Selected Financial Data" in the
Prospectus.
KPMG Peat Marwick LLP
Stamford, Connecticut
April 23, 1998
