<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-020992
MATHSOFT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2842217
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
101 MAIN STREET
CAMBRIDGE, MASSACHUSETTS 02142-1521
(Address, including zip code, of registrant's principal executive offices)
(617) 577-1017
(Registrant's telephone number including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR AT LEAST THE PAST 90 DAYS.
YES X NO
--- ---
AS OF FEBRUARY 5, 1997 THERE WERE 8,978,097 SHARES OF COMMON STOCK, $.01 PAR
VALUE PER SHARE, OUTSTANDING.
<PAGE> 2
MATHSOFT, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Condensed Financial Statements
- Consolidated Condensed Balance Sheets as of
December 31, 1996 and June 30, 1996 3-4
- Consolidated Condensed Statements of Operations
for the Three and Six Month Periods Ended
December 31, 1996 and 1995 5
- Consolidated Condensed Statements of Cash Flows for the
Six Month Periods Ended December 31, 1996 and 1995 6-7
- Notes to Consolidated Condensed Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
Cautionary Statements 13-15
PART II. OTHER INFORMATION:
Item 2. Changes in Securities 16
Item 4. Submission of Matters to a Vote of Security-Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE> 3
<TABLE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(UNAUDITED)
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,916,098 $ 4,954,416
Accounts receivable and other receivables, less
reserves of approximately $983,000 at December
31, 1996 and $776,000 at June 30, 1996 3,629,952 3,881,568
Inventories 537,260 547,892
Prepaid expenses 445,761 381,638
----------- -----------
Total current assets 8,529,071 9,765,514
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment and software 4,505,170 4,052,662
Furniture and fixtures 978,110 968,644
Leasehold improvements 626,890 621,354
----------- -----------
6,110,170 5,642,660
Less - Accumulated depreciation and amortization 4,481,036 4,044,072
----------- -----------
1,629,134 1,598,588
OTHER ASSETS:
Purchased technology, net of accumulated amortization
of approximately $2,613,000 at December 31, 1996
and $2,505,000 at June 30, 1996 395,630 504,006
Other Assets 74,481 31,044
----------- -----------
470,111 535,050
----------- -----------
$10,628,316 $11,899,152
=========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Note payable $ 16,000 $ 0
Current portion of capital lease obligations 8,938 16,753
Accounts payable 2,407,918 1,699,414
Accrued expenses 1,857,385 2,255,214
Accrued restructuring, current portion 15,928 13,316
Deferred revenue 1,036,834 1,092,541
------------ ------------
Total current liabilities 5,343,003 5,077,238
------------ ------------
ACCRUED RESTRUCTURING, LESS CURRENT PORTION 18,883 24,152
------------ ------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION - 2,694
------------ ------------
ACCRUED RENT, LESS CURRENT PORTION 27,854 36,372
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized - 1,000,000 shares
Issued and outstanding-none - -
Common stock, $.01 par value-
Authorized - 20,000,000 shares
Issued and outstanding - 8,925,939 shares
at December 31, 1996 and 8,579,262 shares at
June 30, 1996 89,259 85,793
Additional paid-in capital 29,011,410 28,158,558
Accumulated deficit (23,758,712) (21,474,509)
Cumulative translation adjustment (103,381) (11,146)
------------ ------------
Total stockholders' equity 5,238,576 6,758,696
------------ ------------
$ 10,628,316 $ 11,899,152
============ ============
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
---------- ---------- ----------- -----------
REVENUES:
Software licenses $4,341,275 $4,853,750 $ 8,265,680 $ 9,269,323
Services and other 610,642 634,365 1,212,513 1,306,878
---------- ---------- ----------- -----------
Total revenues 4,951,917 5,488,115 9,478,193 10,576,201
---------- ---------- ----------- -----------
COST OF REVENUES:
Software licenses 795,790 740,260 1,578,825 1,445,487
Services and other 212,719 223,101 403,991 464,381
---------- ---------- ----------- -----------
Total cost of revenues 1,008,509 963,361 1,982,816 1,909,868
---------- ---------- ----------- -----------
Gross profit 3,943,408 4,524,754 7,495,377 8,666,333
---------- ---------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing 2,582,164 2,455,533 5,007,644 4,870,105
Research and development 1,286,926 951,709 2,377,768 1,703,602
General and administrative 715,075 588,782 1,240,686 1,174,674
---------- ---------- ----------- -----------
Total operating expenses 4,584,165 3,996,024 8,626,098 7,748,381
---------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (640,757) 528,730 (1,130,721) 917,952
INTEREST INCOME, NET 40,014 41,667 79,723 79,976
---------- ---------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (600,743) 570,397 (1,050,998) 997,928
PROVISION FOR INCOME TAXES 746 10,274 15,582 21,470
---------- ---------- ----------- -----------
NET INCOME (LOSS) $ (601,489) $ 560,123 $(1,066,580) $ 976,458
========== ========== =========== ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.07) $ 0.06 $ (0.12) $ 0.10
========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 8,769,065 9,497,571 8,693,148 9,308,032
========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
5
<PAGE> 6
<TABLE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($1,066,580) $ 976,458
Adjustments to reconcile net income (loss) to net
cash used in operating activities -
Depreciation and amortization 545,620 501,979
Changes in assets & liabilities-
Accounts receivable and other receivables 251,616 (1,551,351)
Inventories 17,472 (152,620)
Prepaid expenses (64,123) (18,619)
Accounts payable 694,961 488,192
Accrued expenses (1,018,900) (561,610)
Deferred revenue (55,707) (60,568)
----------- -----------
Net cash used in operating activities (695,641) (378,139)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in short-term investments - 248,678
Purchases of property and equipment (449,107) (458,106)
(Increase) Decrease in deposits and other assets (35,834) 13,337
Cash acquired from the TriMetrix, Inc. acquisition - 27,849
Cash acquired from the AcroScience Corporation acquisition 9,691 -
----------- -----------
Net cash used in investing activities (475,250) (168,242)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt - (3,211)
Payments on capital lease obligations (10,510) (52,774)
Proceeds from exercise of stock options & warrants 235,318 151,804
Net proceeds from sale of common stock - 2,940,463
----------- -----------
Net cash provided by financing activities 224,808 3,036,282
Effect of exchange rate changes on cash (92,235) (55,610)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,038,318) 2,434,291
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,954,416 3,486,329
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,916,098 $ 5,920,620
=========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
6
<PAGE> 7
<TABLE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 2,642 $ 5,341
======= =======
Income taxes $23,111 $21,470
======= =======
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
7
<PAGE> 8
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared by MathSoft, Inc. ("MathSoft" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto for the fiscal year ended June 30, 1996.
The accompanying consolidated condensed financial statements reflect all
adjustments (consisting solely of normal, recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of results for the
interim periods presented. The results of operations for the three and six month
periods ended December 31, 1996 are not necessarily indicative of the results to
be expected for the full fiscal year.
2. INVENTORIES
<TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
----------- --------
<S> <C> <C>
Materials and supplies $135,736 $162,627
Finished goods 401,524 385,265
-------- --------
$537,260 $547,892
======== ========
</TABLE>
3. SALE OF STOCK
On July 27, 1995, the Company completed a private placement of 750,000 shares of
common stock. The company received net proceeds of approximately $2.94 million.
4. ACQUISITION OF ACROSCIENCE CORPORATION
On November 26, 1996, the Company acquired all of the outstanding capital stock
of AcroScience Corporation, a Boulder, Colorado developer of visual modeling and
programming tools, in a business combination accounted for as a pooling of
interests. As a result of the transaction, AcroScience Corporation became a
wholly-owned subsidiary of the Company. As part of the business combination,
former stockholders of AcroScience Corporation received a total of 250,000
shares of the Company's common stock in exchange for all outstanding shares of
AcroScience Corporation.
8
<PAGE> 9
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ACQUISITION OF ACROSCIENCE CORPORATION (CONTINUED)
For financial reporting purposes, the periods preceding the acquisition have not
been restated, as the acquisition of AcroScience Corporation was not material to
the consolidated financial statements.
9
<PAGE> 10
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues decreased 9.8% from $5,488,000 in the second quarter of fiscal
1996 to $4,952,000 in the second quarter of fiscal 1997. The decrease in total
revenues was primarily attributable to a worldwide decrease in both new licenses
and upgrade revenue generated by the Company's core product, Mathcad for
Windows, offset by the release of Mathcad 6.0 for Macintosh in November 1996 and
growth in the Company's Axum product line acquired in the second quarter of
fiscal 1996 as part of the TriMetrix, Inc. acquisition. The Company's last
significant upgrade, Mathcad 6.0 for Windows, was released approximately
eighteen months earlier in July 1995 and supported upgrade revenue of $1,149,000
in the second quarter of fiscal 1996 compared to upgrade revenue of $269,000 in
the second quarter of fiscal 1997, a decrease as a percentage of total revenues
from 20.9% to 5.4%, respectively, as the Mathcad 6.0 for Windows upgrade cycle
draws to a close. Worldwide Mathcad for Windows non-upgrade product line sales
decreased 26.5% from $2,743,000 in the second quarter of fiscal 1996 to
$2,017,000 in the second quarter of fiscal 1997 and decreased as a percentage of
total revenues from 50.0% in the second quarter of fiscal 1996 to 40.7% in the
second quarter of fiscal 1997. The release of Mathcad 6.0 for Macintosh in
November 1996 accounted for $772,000, or 15.6% of total revenues, in the second
quarter of fiscal 1997. Revenues attributable to the Axum product line accounted
for $92,000, or 1.7% of total revenues, in the second quarter of fiscal 1996
compared to $406,000, or 8.2% of total revenues, in the second quarter of fiscal
1997.
Worldwide S-PLUS product line and services revenue decreased 2.7% from
$1,414,000 in the second quarter of fiscal 1996 to $1,376,000 in the second
quarter of fiscal 1997, and increased as a percentage of total revenues from
25.8% in the second quarter of fiscal 1996 to 27.8% in the second quarter of
fiscal 1997. Total international revenues increased 10.0% from $1,709,000 in the
second quarter of fiscal 1996 to $1,880,000 in the second quarter of fiscal
1997, and increased as a percentage of total revenues from 31.1% in the second
quarter of fiscal 1996 to 38.0% in the second quarter of fiscal 1997.
Total cost of revenues increased 4.8% from $963,000 in the second quarter of
fiscal 1996 to $1,009,000 in the second quarter of fiscal 1997, and increased as
a percentage of total revenues from 17.5% to 20.4%, respectively. The increase
in total cost of revenues as a percentage of total revenues was primarily
attributable to a reduction of inventory reserves in the second quarter of
fiscal 1996 based on an evaluation of actual inventory exposure. A similar
reduction was not required in the second quarter of fiscal 1997. In addition,
fixed costs such as amortization of purchased technology and royalties were
allocated over a lower revenue base in the second quarter of fiscal 1997.
10
<PAGE> 11
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Sales and marketing expenses increased 5.1% from $2,456,000 in the second
quarter of fiscal 1996 to $2,582,000 in the second quarter of fiscal 1997, and
increased as a percentage of total revenues from 44.8% to 52.1%, respectively.
The increase in overall sales and marketing expenses was primarily attributable
to expenses incurred related to the launch of Mathcad 6.0 for Macintosh and new
retail packaging for the Company's StudyWorks product line in addition to
increased spending on both domestic and International channel marketing
programs. International sales and marketing expenses increased from $586,000 in
the second quarter of fiscal 1996 to $669,000 in the second quarter of fiscal
1997.
Research and development expenses increased 35.2% from $952,000 in the second
quarter of fiscal 1996 to $1,287,000 in the second quarter of fiscal 1997, and
increased as a percentage of total revenues from 17.3% to 26.0%, respectively.
The increase in research and development expenses was due primarily to increased
personnel and consulting costs associated with the continued development of the
S-PLUS product line.
General and administrative expenses increased 21.4% from $589,000 in the second
quarter of fiscal 1996 to $715,000 in the second quarter of fiscal 1997, and
increased as a percentage of total revenues from 10.7% to 14.4%, respectively.
The increase in overall general and administrative expenses was primarily
attributable to fluctuations in international exchange rate transactions and, to
a lesser extent, increased legal fees and the addition of personnel from the
AcroScience Corporation acquisition in the second quarter of fiscal 1997. The
Company recorded exchange rate gains of $30,000 in the second quarter of fiscal
1996 compared to exchange rate losses of $54,000 in the second quarter of fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, totaling $3,916,000 at December 31, 1996, decreased
$1,038,000 during the six month period ended December 31, 1996 from $4,954,000
at June 30, 1996. The negative cash flow resulted primarily from cash used in
operating activities of approximately $696,000 and purchases of property and
equipment of approximately $449,000, offset by proceeds received from the
exercise of stock options of approximately $235,000.
11
<PAGE> 12
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's financial reserves are represented by cash and cash equivalents as
of December 31, 1996. The Company has a line of credit agreement with a
commercial bank. Borrowings under the line are limited to the lesser of 80% of
eligible domestic accounts receivable or $1,000,000. Borrowings are secured by a
first security interest on substantially all of the Company's assets and bear
interest at the bank's prime rate plus 1/2%. The line of credit contains certain
restrictive covenants, including minimum amounts of profitability, equity,
leverage and liquidity, all as defined in the agreement, and expires on December
1,1997. There were no amounts outstanding under the line as of
December 31, 1996.
The Company believes its financial reserves and cash flows from future
operations will be sufficient to meet its liquidity requirements for at least
the next twelve months. The foregoing statement is forward-looking and involves
risks and uncertainties, many of which are outside the Company's control. The
Company's actual experience may differ materially from that discussed above.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Cautionary Statements" as well as future events that have
the effect of reducing the Company's available cash balances, such as
unanticipated operating losses or capital expenditures or cash expenditures
related to possible future acquisitions. The Company may be presented from time
to time with acquisition opportunities which require additional external
financing, and the Company may from time to time seek to obtain additional funds
from public or private issuances of equity or debt securities. There can be no
assurance that any such financing will be available at all or on terms
acceptable to the Company.
12
<PAGE> 13
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
In addition to the other information in this report, the following cautionary
statements should be considered carefully in evaluating the Company and its
business. Information provided by the Company from time to time may contain
certain "forward-looking" information, as that term is defined by (i) the
Private Securities Litigation Reform Act of 1995 (the "Act") and (ii) in
releases made by the Securities and Exchange Commission (the "SEC"). These
cautionary statements are being made pursuant to the provisions of the Act and
with the intention of obtaining the benefits of the "safe harbor" provisions of
the Act.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results may vary significantly from quarter to quarter, depending upon factors
such as the introduction and market acceptance of new products and new versions
of existing products, the ability to reduce expenses, and the activities of
competitors. Because a high percentage of the Company's expenses are relatively
fixed in the near term, minor variations in the timing of orders and shipments
can cause significant variations in quarterly operating results. The Company
operates with little or no backlog and has no long-term contracts, and
substantially all of its product revenues in each quarter result from software
licenses issued in that quarter, and the Company's ability to accurately
forecast future revenues and income for any period is necessarily limited. Any
forward-looking information provided from time to time by the Company represents
only management's then-best current estimate of future results or trends, and
actual results may differ materially from those contained in the Company's
estimates.
POTENTIAL VOLATILITY OF STOCK PRICE. There has been significant volatility in
the market price of securities of technology companies. The Company believes
factors such as announcements of new products by the Company or its competitors,
quarterly fluctuations in the Company's financial results or other software
companies' financial results, shortfalls in the Company's actual financial
results compared to results previously forecasted by stock market analysts, and
general conditions in the software industry and conditions in the financial
markets could cause the market price of the Common Stock to fluctuate
substantially. These market fluctuations may adversely affect the price of the
Company's Common Stock.
RISKS ASSOCIATED WITH DISTRIBUTION CHANNELS. The Company markets and distributes
its S-PLUS products in the U.S. through the Company's telesales force and
internationally through third party resellers and distributors. Mathcad products
are currently marketed and distributed in the U.S. through third party resellers
and distributors, telesales and direct mail (for upgrades to the Company's
installed base). Internationally, the Company's Mathcad products are marketed
and distributed through third party resellers and distributors. There can be no
assurance that the Company will be able to retain its current resellers
13
<PAGE> 14
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
and distributors, or expand its distribution channels by entering into
arrangements with new resellers and distributors in the Company's current
markets or in new markets.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. Sales outside North America
accounted for approximately 36.1% of the Company's total revenues in fiscal
1995, approximately 32.5% of the Company's total revenues in fiscal 1996 and
approximately 33.5% for the six months ended December 31, 1996, and may continue
to represent a significant portion of the Company's product revenues. Any
decrease in sales outside North America may have a materially adverse effect on
the Company's operating results. The Company's international business and
financial performance may be affected by fluctuations in exchange rates and by
trade regulations.
RELIANCE ON THIRD PARTY LICENSORS. Maple V, a software product licensed as a
part of the most recent version of Mathcad, contains certain copyrighted texts
licensed from third party publishers incorporated in the Company's Electronic
Books, and the S programming language, the language on which all of StatSci's
products are based, are currently licensed from a single source or limited
source suppliers. If such licenses are discontinued, there can be no assurance
that the Company will be able to independently develop substitutes or to obtain
alternative sources or, if able to be developed or obtained as needed in the
future, that such efforts would not result in delays or reductions in product
shipments or cost increases that could have a material adverse effect on the
Company's consolidated business operations.
RAPID TECHNOLOGICAL CHANGE; COMPETITION. The technical calculation software
market is subject to rapid and substantial technological change, similar to that
affecting the software industry generally. The Company, to remain successful,
must be responsive to new developments in hardware and chip technology,
operating systems, programming technology and multimedia capabilities. In
addition, the Company competes against numerous other companies, some of which
have significant name recognition, as well as substantially greater capital
resources, marketing experience, research and development staffs and production
facilities than the Company. The Company's financial results may be negatively
impacted by the failure of new or existing products to be favorably received by
retailers and consumers due to price, availability, features, other product
choices or the necessity of promotions to increase sales of the Company's
products.
14
<PAGE> 15
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
UNCERTAINTIES REGARDING PROTECTION OF PROPRIETARY TECHNOLOGY; UNCERTAINTIES
REGARDING PATENTS. The Company believes that while the mathematical calculations
performed by the Company's software are not proprietary, the speed and quality
of displaying the computation and the ease of use are unique to MathSoft's
products. The Company's success will depend, in part, on its ability to
aggressively protect the proprietary aspects of its products. The Company seeks
to protect these proprietary aspects of its products principally through a
combination of patents, contract provisions and copyright, trademark and trade
secret laws. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology. Although the Company believes that its products and technology
do not infringe any existing proprietary rights of others, the use of patents to
protect software has increased and there may be pending or issued patents of
which the Company is not aware that the Company may need to license or challenge
at significant expense. There can be no assurance that any such license would be
available on acceptable terms, if at all, or that the Company would prevail in
any such challenge.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company has made a number of
acquisitions and will continue to review future acquisition opportunities. No
assurances can be given that acquisition candidates will continue to be
available on terms and conditions acceptable to the Company. Acquisitions
involve numerous risks, including, among other things, possible dilution to
existing shareholders, difficulties and expenses incurred in connection with the
acquisitions and the subsequent assimilation of the operations and services or
products of the acquired companies, the difficulty of operating new (albeit
related) businesses, the diversion of management's attention from other business
concerns and the potential loss of key employees of the acquired company. In the
event that the operations of an acquired business do not live up to
expectations, the Company may be required to restructure the acquired business
or write-off the value of some or all of the assets of the acquired business.
There can be no assurance that any acquisition will be successfully integrated
into the Company's operations.
RELIANCE ON ATTRACTING AND RETAINING KEY EMPLOYEES. The Company's continued
success will depend in large part on its ability to attract and retain
highly-qualified technical, managerial, sales and marketing and other personnel.
Competition for such personnel is intense. None of the senior management of the
Company is subject to an employment contract, although the Company does have
non-competition agreements with its key management and technical personnel.
There can be no assurance that the Company will be able to continue to attract
or retain such personnel.
15
<PAGE> 16
MATHSOFT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
(c) On November 26, 1996 the Company acquired all of the outstanding
capital stock of AcroScience Corporation, a Washington corporation
("AcroScience"). As a part of the transaction, the former
stockholders of AcroScience received a total of 250,000 shares of
the Company's common stock (the "Shares") in exchange for all of
the outstanding shares of AcroScience. The Shares were issued in
reliance upon an exemption from the registration provisions of the
Securities Act of 1933, as amended (the "Act"), set forth in
Section 4(2) thereof. In connection with this issuance, the
AcroScience stockholders made certain representations to the
Company as to their investment intent, level of sophistication and
access to information. The Shares issued were subject to
restrictions on transfer absent registration under the Act or an
exemption therefrom.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) An Annual Meeting of the Stockholders of the Company was held on
November 8, 1996.
(b) Not applicable.
(c) At the meeting, the Stockholders of the Company voted:
(i) to elect Charles H. Federman as a Class I director, to serve
for a three-year term (until the Annual Meeting of
Stockholders in 1999) (7,259,281 shares in favor; 22,235
shares withheld; 0 shares abstaining; and 0 shares unvoted);
(ii) to amend the Company's Amended and Restated 1992 Stock
Plan to increase the number of shares of Common Stock
available for issuance under the plan from 2,150,000 shares
to 2,550,000 shares, and to permit grants thereunder to
comply with Section 162(m) of the Internal Revenue Code.
(5,658,812 shares in favor; 903,028 shares against; 15,900
shares abstaining; and 703,776 shares unvoted);
(iii) to ratify the selection of Arthur Andersen LLP as auditors
for the fiscal year ending June 30, 1997 (7,256,302 shares
in favor; 20,069 shares against; 5,145 shares abstaining;
and 0 shares unvoted).
(d) Not applicable.
16
<PAGE> 17
MATHSOFT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Software License Agreement dated February 18, 1996 between
the Company and Lucent Technologies Inc. *
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a current Report on Form 8-K dated January
14, 1997 reporting second quarter results.
* Confidential treatment requested as to certain portions.
17
<PAGE> 18
MATHSOFT, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATHSOFT, INC.
Dated: February 14, 1997 By /s/ Charles J. Digate
-------------------------
Charles J. Digate
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Dated: February 14, 1997 By /s/ Robert P. Orlando
-------------------------
Robert P. Orlando
Vice President Finance and Administration,
Chief Financial Officer, Treasurer, and Clerk
(Principal Financial and Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Software License Agreement dated February 18, 1996 between
the Company and Lucent Technologies Inc. *
27.1 Financial Data Schedule.
* Confidential treatment requested as to certain portions.
19
<PAGE> 1
EXHIBIT 10.1
------------
[ ] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Commission pursuant to Rule 24b-2
SOFTWARE LICENSE AGREEMENT
BETWEEN
LUCENT TECHNOLOGIES INC.
AND
STATISTICAL SCIENCES, INC.
EFFECTIVE AS OF FEBRUARY 18, 1996
RELATING TO LUCENT'S S SOFTWARE
<PAGE> 2
SOFTWARE LICENSE AGREEMENT
TABLE OF CONTENTS
ARTICLE I - STATUS OF PRIOR AGREEMENTS
1.01 Prior Agreements
1.02 Retained Rights and Licenses and Survival of Obligations
ARTICLE II - RIGHT TO USE SOFTWARE PRODUCT
2.01 Grant of Right
2.02 Furnishing of SOFTWARE PRODUCT
2.03 Ownership
2.04 Non-Transmission
2.05 U.S. Export Control
2.06 Maintenance
2.07 Contractors
ARTICLE III - SUBLICENSING RIGHTS
3.01 Grant of Rights
3.02 Enforcement
ARTICLE IV - SOLE LICENSEE CONDITIONS
4.01 Development of CUSTOMER SOFTWARE
4.02 Termination of Certain Rights and Licenses
ARTICLE V - FEES
5.01 Yearly Fees
5.02 Sublicensing Fees
5.03 Accrual
5.04 Records
5.05 Payments
5.08 Taxes
ARTICLE VI - TERM OF THE AGREEMENT AND TERMINATION
6.01 Term
6.02 Termination for Breach.
6.03 Survival
ARTICLE VII - MISCELLANEOUS PROVISIONS
<PAGE> 3
7.01 Agreement Prevails
7.02 Disclaimer
7.03 Nothing Construed
7.04 Confidentiality
7.05 Publicity
7.06 Nonassignability
7.07 Addresses
7.08 Integration
7.09 Choice of Law
7.10 SUBSIDIARIES
7.11 Dispute Resolution
7.12 Additional Agreements
APPENDIX A - DEFINITIONS
APPENDIX B - DELIVERABLES COMPRISING NEW SOFTWARE PRODUCT
APPENDIX C - YEARLY FEE SCHEDULE
APPENDIX D - SUBLICENSING FEE SCHEDULE
-ii-
<PAGE> 4
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") is effective as of
[ ]. The Parties to this Agreement, LUCENT TECHNOLOGIES INC., a
Delaware corporation ("LUCENT"), having an office at 600 Mountain Avenue, Murray
Hill, New Jersey 07974, and STATISTICAL SCIENCES, INC., a Massachusetts
corporation ("LICENSEE"), having an office at 1700 Westlake Avenue North, Suite
500, Seattle, Washington 98107, agree as follows.(1)
ARTICLE I
STATUS OF PRIOR AGREEMENTS
1.01 PRIOR AGREEMENTS
LUCENT, as successor to American Telephone and Telegraph Company, and
LICENSEE are parties to PRIOR LICENSE AGREEMENTS.
1.02 RETAINED RIGHTS AND LICENSES AND SURVIVAL OF OBLIGATIONS
As of the effective date hereof, all licenses, rights and obligations
under PRIOR LICENSE AGREEMENTS are terminated except: (i) licenses, rights and
obligations with respect to each product made, imported, sold, leased or put
into use under PRIOR LICENSE AGREEMENTS prior to the effective date of this
Agreement, and (ii) those obligations which, either explicitly or by their
nature, would survive termination of PRIOR LICENSE AGREEMENTS including, but not
limited to, confidentiality obligations and obligations to pay fees and
royalties due under such PRIOR LICENSE AGREEMENTS.
ARTICLE II
RIGHT TO USE SOFTWARE PRODUCT
2.01 GRANT OF RIGHT
(a) LUCENT, at the request of LICENSEE, grants to LICENSEE, during
the term of this Agreement as set forth in Section 6.01, a [ ] and [ ]
right to [ ] SOFTWARE PRODUCT, subject to Section 2.05, [ ] for LICENSEE's [
]. Such right to use includes the right to [ ] SOFTWARE
PRODUCT and to [ ], provided that any
such [ ] or [ ] that contains any part of SOFTWARE
PRODUCT is treated hereunder the same as SOFTWARE PRODUCT. During the SOLE
LICENSEE PERIOD, LUCENT agrees not to grant to any other party, except
SUBSIDIARIES of LUCENT and except as otherwise expressly provided in this
Agreement, rights to [ ] SOFTWARE PRODUCT or to [ ] SOFTWARE PRODUCT and
[ ]. LUCENT claims no ownership interest in
any portion of a [ ]or [ ] that is [ ].
- ---------------------------
(1) Terms in capital letters defined in the Definitions Appendix shall have the
meanings specified therein.
<PAGE> 5
(b) LUCENT further grants to LICENSEE, during the term of this
Agreement as set forth in Section 6.01, [ ] and [ ]
right to [ ] and [ ] copies of CUSTOMER SOFTWARE under the terms and
conditions set forth in Article III herein.
(c) LICENSEE may make those copies of SOFTWARE PRODUCT necessary to
the use by LICENSEE for which rights are granted hereunder, provided that each
such copy contains any copyright or proprietary notice appearing on or in
SOFTWARE PRODUCT being copied.
(d) LICENSEE agrees that it will not use or copy SOFTWARE PRODUCT
except as authorized herein.
(e) Except as expressly provided in this Agreement, no right is
granted for the use of SOFTWARE PRODUCT directly for any third person, or for
any use by any third person of SOFTWARE PRODUCT. By way of example, but not of
limitation, use of SOFTWARE PRODUCT in a [ ] or a [ ]
is permitted only pursuant to a specific, separate provision. Upon request by
LICENSEE, LUCENT will enter into negotiations with LICENSEE for an agreement,
under reasonable terms and conditions, granting rights under such a specific,
separate provision.
2.02 FURNISHING OF SOFTWARE PRODUCT
Subject to receipt by LUCENT of the first yearly fee as specified in
Section 5.01, within a reasonable time after such receipt, LUCENT shall furnish
the NEW SOFTWARE PRODUCT portion of SOFTWARE PRODUCT to LICENSEE in the form
specified in APPENDIX B - DELIVERABLES COMPRISING NEW SOFTWARE PRODUCT, attached
hereto. LICENSEE acknowledges possession of PRIOR SOFTWARE PRODUCT delivered to
LICENSEE by LUCENT. LUCENT agrees to consider requests by LICENSEE to furnish
additional source code and documentation relating to S. Any such furnished
additional source code and documentation shall be considered and treated as part
of NEW SOFTWARE PRODUCT.
2.03 OWNERSHIP
No ownership interest in SOFTWARE PRODUCT, or any portion thereof, is
transferred to LICENSEE hereunder. Nothing herein requires LICENSEE to furnish
CUSTOMER SOFTWARE or ADAPTATIONS to LUCENT.
2.04 NON-TRANSMISSION
LICENSEE agrees that it will not, without the prior written consent of
LUCENT, transmit, directly or indirectly, SOFTWARE PRODUCT to any country
outside of the United States.
2.05 U.S. EXPORT CONTROL
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<PAGE> 6
(a) LICENSEE hereby assures LUCENT that it does not intend to and
will not knowingly, without the prior written consent, if required, of the
Bureau of Export Administration of the U.S. Department of Commerce, Washington,
D.C. 20230, United States of America, transmit directly or indirectly:
(i) CUSTOMER SOFTWARE; or
(ii) any immediate product (including processes and services)
produced directly by the use of SOFTWARE PRODUCT or CUSTOMER
SOFTWARE; or
(iii) any commodity produced by such immediate product if the
immediate product of SOFTWARE PRODUCT or CUSTOMER SOFTWARE
is a plant capable of producing a commodity or is a major
component of such plant;
to (1) Haiti, Iran, Iraq, the People's Republic of China, Syria, those
areas of the Republic of Bosnia and Herzegovina that continue under the control
of Bosnian-Serb military forces, or to any Group Q, S, Y or Z country specified
in Supplement No. 1 to Part 770 of the Export Administration Regulations issued
by the U.S. Department of Commerce or (2) any national or resident of the
foregoing countries.
(b) If the immediate product of SOFTWARE PRODUCT or CUSTOMER SOFTWARE
is a plant or a major component of a plant, LICENSEE hereby assures LUCENT that
any and all requirements of the Export Administration Regulations (including
obtaining necessary assurances or licenses) will be satisfied with respect to
any controlled commodity produced by such plant.
2.06 MAINTENANCE
During the term of this Agreement and following delivery of SOFTWARE
PRODUCT to LICENSEE, LUCENT may furnish, at its discretion, updates to SOFTWARE
PRODUCT. Such updates may include minor enhancements and/or revisions to correct
known problems. Appropriate documentation will be included with such updates.
One copy of each update will be furnished to LICENSEE. Such updates shall be
considered to be part of NEW SOFTWARE PRODUCT.
2.07 CONTRACTORS
(a) LICENSEE may permit access to SOFTWARE PRODUCT by its contractors
and may furnish and allow use of SOFTWARE PRODUCT by its contractors provided
such access, furnishing and use is exclusively for LICENSEE in connection with
work called for in written agreements between LICENSEE and such contractors in
accordance with Section 2.07(f) of this Agreement.
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<PAGE> 7
(b) Any claim, demand or right of action arising on behalf of a
contractor from the furnishing to it or use by it of SOFTWARE PRODUCT shall be
solely against LICENSEE.
(c) Contractors shall agree to the same responsibilities and
obligations and other restrictions pertaining to the use of SOFTWARE PRODUCT as
those undertaken by LICENSEE under this Agreement.
(d) When a contractor's work for LICENSEE is completed, all copies of
SOFTWARE PRODUCT furnished to such contractor or made by such contractor and all
copies of any modifications or derivative works made by such contractor based on
SOFTWARE PRODUCT shall be returned to LICENSEE or destroyed, including any
copies stored in any computer memory or storage medium.
(e) A contractor may not acquire any ownership interest in any
modification or ADAPTATION prepared by such contractor based on or using
SOFTWARE PRODUCT subject to this Agreement unless such contractor also becomes a
licensee of LUCENT for SOFTWARE PRODUCT.
(f) LICENSEE and any such contractor shall enter into a written
agreement before or at the time of permitting access to, allowing the use of or
furnishing of SOFTWARE PRODUCT by such contractor. Such written agreement shall
be consistent with the requirements of this Section 2.07. Copies of such
agreements shall be provided to LUCENT on request; however, portions of such
agreements not required by this Section 2.07 maybe deleted from such copies.
ARTICLE III
SUBLICENSING RIGHTS
3.01 GRANT OF RIGHTS
(a) LUCENT, subject to receipt by LUCENT of the fees specified in
Sections 5.01 and 5.02, grants to LICENSEE, during the term of this Agreement as
set forth in Section 6.01, [ ] and [ ] rights:
(i) To [ ] CUSTOMER SOFTWARE, [ ] of CUSTOMER
SOFTWARE and [ ] or [ ],
such copies to customers anywhere in the world (subject to
LICENSEE satisfying applicable U.S. Government and foreign
government export requirements) for use on customers' CPUs [ ]
for such customers' [ ], provided that the
entity (LICENSEE or DISTRIBUTOR) obtains agreement, either in
writing or via a shrink wrap agreement, with such a customer,
before or at the time of furnishing each copy of CUSTOMER
SOFTWARE, that:
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<PAGE> 8
(1) only a [ ], [ ] and [ ] to
[ ] such copy of CUSTOMER SOFTWARE is granted to such
customer;
(2) no ownership interest in CUSTOMER SOFTWARE is transferred to
such customer;
(3) such customer will not copy CUSTOMER SOFTWARE except as
necessary to use such CUSTOMER SOFTWARE for backup and
archive purposes in connection with such use;
(4) if a customer's right-to-use is terminated for any reason,
such customer will either destroy or return all copies of
CUSTOMER SOFTWARE in its possession;
(5) such customer will not transfer CUSTOMER SOFTWARE to any
other party except as authorized by LICENSEE;
(6) such customer will not export or re-export CUSTOMER SOFTWARE
without the appropriate United States and/or foreign
government licenses;
(7) such customer will not reverse compile or disassemble
CUSTOMER SOFTWARE; and
(8) LUCENT does not warrant CUSTOMER SOFTWARE, does not assume
any liability regarding CUSTOMER SOFTWARE and does not
undertake to furnish any support or information regarding
CUSTOMER SOFTWARE;
(ii) to [ ], [ ] to LUCENT, CUSTOMER
SOFTWARE to [ ] upon prior
written approval of LUCENT. Any request for approval
shall state the reason for such
donation, and LUCENT shall respond within forty-five
(45) days of receipt of such request. LUCENT reserves
the right to deny any such request. Any request
granted shall indicate to the [ ] that LUCENT
is participating in such [ ], and
(iii) to use CUSTOMER SOFTWARE [ ]
that are to be delivered customers and for [
] CUSTOMER SOFTWARE to prospective customers.
(b) Each portion of CUSTOMER SOFTWARE shall include an appropriate
copyright notice. Such copyright notice may be the copyright notice or notices
appearing in or on the corresponding portions of SOFTWARE PRODUCT or, if
LICENSEE makes copyrightable changes in developing CUSTOMER SOFTWARE, LICENSEE's
copyright notice.
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<PAGE> 9
(c) During the SOLE LICENSEE PERIOD, LUCENT agrees not to grant to
any other party, except to SUBSIDIARIES of LUCENT, rights of the scope of the
rights granted in Section 3.01 (a).
(d) LICENSEE shall require each DISTRIBUTOR to enter into a written
agreement with its supplier (LICENSEE or another DISTRIBUTOR) of CUSTOMER
SOFTWARE before CUSTOMER SOFTWARE is furnished to such DISTRIBUTOR. Such
agreement shall include provisions consistent with and containing the relevant
substance of Sections 3.01(a), 3.01(e), 3.01(f) and this Section 3.01(d). For a
DISTRIBUTOR who is also to be an AUTHORIZED COPIER, such agreement shall also
include provisions consistent with and containing the relevant substance of
Section 5.04.
(e) DISTRIBUTORS who are not also AUTHORIZED COPIERS may not make
copies of CUSTOMER SOFTWARE, but may furnish to customers, and other
DISTRIBUTORS copies of CUSTOMER SOFTWARE furnished to such DISTRIBUTOR by
LICENSEE or other DISTRIBUTORS.
(f) If a DISTRIBUTOR fails to fulfill one or more of its obligations
under the agreement required by Section 3.01(d), LUCENT may, upon its election
and in addition to any other remedies that it may have, at any time notify
LICENSEE in writing of such breach and require LICENSEE to terminate all the
DISTRIBUTOR'S rights granted in such agreement by not less than three (3)
months' written notice to such DISTRIBUTOR specifying any such breach, unless
within the period of such notice all breaches specified therein shall have been
remedied; upon such termination such DISTRIBUTOR shall within thirty (30) days
immediately discontinue use of and return or destroy all copies of CUSTOMER
SOFTWARE in its possession.
(g) LUCENT agrees that it will, if so requested by LICENSEE during
the term of this Agreement as set forth in Section 6.01, grant LICENSEE the
right to [ ] CUSTOMER SOFTWARE, under reasonable terms and conditions, for
[ ] and [ ]. LUCENT agrees that it will, if so
requested by LICENSEE during the term of this Agreement as set forth in Section
in 6.01, consider entering into a [ ] with a [ ];
however, the entering into of any such [ ] shall be at LUCENT's sole
discretion.
3.02 ENFORCEMENT
LICENSEE shall use its best efforts to enforce the agreements with
customers and DISTRIBUTORS specified in Section 3.01 of this Agreement.
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<PAGE> 10
ARTICLE IV
SOLE LICENSEE CONDITIONS
4.01 DEVELOPMENT OF CUSTOMER SOFTWARE
In partial consideration for the rights and licenses granted herein,
LICENSEE agrees to [ ] and to [ ],
[ ], CUSTOMER SOFTWARE which CUSTOMER
SOFTWARE [ ] furnished in NEW
SOFTWARE PRODUCT [ ].
4.02 TERMINATION OF CERTAIN RIGHTS AND LICENSES
The Parties agree that if LICENSEE fails to fulfill its obligation
under Section 4.01 that: (i) the agreement by LUCENT in Sections 2.01(a) and
3.01(c) not to grant licenses and rights to third parties, with respect to the
NEW SOFTWARE PRODUCT portion of SOFTWARE PRODUCT, is void as of [ ],
but that all other rights, licenses and obligations shall continue, and (ii) the
yearly fee due pursuant to Section 5.01 and specified in APPENDIX C - [ ]
FEE SCHEDULE, shall be reduced to [ ] United States
dollars (U.S. $[ ]) for the years [ ] and [ ]
and the sublicensing fee due pursuant to Section 5.02 and specified in APPENDIX
D - SUBLICENSING FEE SCHEDULE, shall be reduced to [ ] ([ ]) [ ]
for the years [ ] and [ ].
ARTICLE V
FEES
5.01 YEARLY FEES
In partial consideration for the rights and licenses granted herein,
LICENSEE shall pay to LUCENT the yearly fees specified in APPENDIX C - YEARLY
FEE SCHEDULE, subject to Section 4.02. All payments shall be payable within
sixty (60) days of the due date as specified. In no event shall fees payable
under this Section 5.01 be refundable. Fees payable to LUCENT under this Section
5.01 shall not be credited against any sublicensing fees payable under Section
5.02 of this Agreement.
5.02 SUBLICENSING FEES
(a) For the sublicensing rights granted under Article III of this
Agreement, LICENSEE shall pay to LUCENT, in the manner and at the times
specified in Section 5.05, fees as specified in APPENDIX D - SUBLICENSING FEE
SCHEDULE hereto, subject to Section 4.02.
(b) Amounts paid to LUCENT under this Section 5.02 shall not be
credited against any yearly fees payable under Section 5.01.
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<PAGE> 11
5.03 ACCRUAL
(a) Fees shall accrue on CUSTOMER SOFTWARE upon the first sale,
lease, license or putting into use of such CUSTOMER SOFTWARE. Obligations to pay
accrued royalties shall survive termination of licenses and rights pursuant to
Article VI.
(b) When a company ceases to be a SUBSIDIARY of LICENSEE, fees which
have accrued with respect to any products of such company, but which have not
been paid, shall become payable with LICENSEE's next scheduled royalty payment.
5.04 RECORDS
(a) LICENSEE shall, for a seven (7) year period, keep full, clear and
accurate records of sales, leases, and other uses of CUSTOMER SOFTWARE by
LICENSEE or DISTRIBUTORS contributing to SUBLICENSING REVENUE, which records
include, but are not limited to, MAINTENANCE AGREEMENTS and of the number of
copies and price of CUSTOMER SOFTWARE furnished to customers.
(b) LICENSEE shall require that each AUTHORIZED COPIER shall, for a
seven (7) year period, keep full, clear and accurate records of sales, leases,
and other uses of CUSTOMER SOFTWARE by such AUTHORIZED COPIER contributing to
SUBLICENSING REVENUE, which records include, but are not limited to, the number
of copies and price of CUSTOMER SOFTWARE furnished.
(c) LICENSEE shall require that each AUTHORIZED COPIER shall furnish
a statement at least semiannually to LICENSEE identifying the number of copies
of CUSTOMER SOFTWARE furnished to customers and other DISTRIBUTORS since the
previous such statement was furnished.
(d) LICENSEE shall keep full, clear and accurate records of the
identities and locations of AUTHORIZED COPIERS.
(e) LUCENT shall have the right to make an examination and audit
during normal business hours, not more frequently than annually, of all records
kept pursuant to this Section 5.04 by LICENSEE, its SUBSIDIARIES and AUTHORIZED
COPIERS and such other records and accounts as may under recognized accounting
practices contain information bearing upon the amounts of fees payable to LUCENT
under this Agreement. Prompt adjustment shall be made by the proper Party to
compensate for any errors or omissions disclosed by such examination or audit.
Neither such right to examine and audit nor the right to receive such adjustment
shall be affected by any statement to the contrary appearing on checks or
otherwise unless such statement appears in a letter signed by the Party having
such right expressly waiving such right and such letter is delivered to the
other Party.
5.05 PAYMENTS
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<PAGE> 12
(a) Within ninety (90) days after the end of each semiannual period
ending on June 30th or December 31st, commencing with the semiannual period
ending December 31, 1996, LICENSEE shall furnish to LUCENT a statement, in form
acceptable to LUCENT and certified by an authorized representative of LICENSEE,
identifying SUBLICENSING REVENUE and remitting fees due pursuant to Section
5.02, and including the number of copies and price of CUSTOMER SOFTWARE that
were furnished by LICENSEE, its SUBSIDIARIES and DISTRIBUTORS to customers and
the [ ] of MAINTENANCE AGREEMENTS during such semiannual period.
(b) Statements and payments shall be sent to LUCENT at the address
specified in Section 7.07 of this Agreement.
(c) Overdue payments shall be subject to a late payment charge
calculated at an annual rate of three percent (3%) over the prime rate (as
posted in New York City in the Wall Street Journal during delinquency). If the
amount of such late payment charge exceeds the maximum permitted by law, such
charge shall be reduced to such maximum amount.
(d) LICENSEE shall furnish whatever additional information LUCENT may
reasonably prescribe from time to time to enable LUCENT to ascertain the amounts
of fees payable pursuant hereto.
5.06 TAXES
LICENSEE shall pay any tax, duty, levy, customs fee, or similar charge
("taxes"), including interest and penalties thereon, however designated, imposed
as a result of the operation or existence of this Agreement, including taxes
which LICENSEE or its SUBSIDIARIES are required to withhold or deduct from
payments to LUCENT, except (i) net income taxes imposed upon LUCENT by any
governmental entity within the United States (the fifty (50) States and the
District of Columbia), and (ii) net income taxes imposed upon LUCENT by
jurisdictions outside the United States which are allowable as a credit against
the United States Federal income tax of LUCENT or any of its SUBSIDIARIES. In
order for the exception in (ii) to be effective, LICENSEE must furnish to LUCENT
evidence sufficient to satisfy the United States taxing authorities that such
taxes have been paid. Such evidence must be furnished to LUCENT within thirty
(30) days of issuance by the local taxing authority.
ARTICLE VI
TERM OF THE AGREEMENT AND TERMINATION
6.01 TERM
The term of this Agreement shall commence on February 18, 1996 and
shall continue, unless terminated pursuant to Sections 6.02 or 6.03, for a term
of six (6) years.
6.02 TERMINATION FOR BREACH
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<PAGE> 13
If LICENSEE or any of its SUBSIDIARIES fails to fulfill one or more of
its obligations under this Agreement, LUCENT may, upon its election and in
addition to any other remedies that it may have, at any time terminate all the
rights granted by it hereunder by not less than [ ] ([ ]) [ ] written
notice to LICENSEE specifying any such breach, unless within the period of such
notice all breaches specified therein shall have been remedied. Upon such
termination LICENSEE and its SUBSIDIARIES shall destroy all copies of SOFTWARE
PRODUCT in its possession and certify such destruction in writing to LUCENT
within thirty (30) days. Upon such termination LICENSEE and its SUBSIDIARIES
shall also immediately discontinue distribution and use of and destroy all
copies of CUSTOMER SOFTWARE in its possession.
6.03 SURVIVAL
The obligations of LICENSEE and its SUBSIDIARIES under Sections 2.04,
2.05, 5.05, 7.04 and 7.05 shall survive and continue after any termination of
rights under this Agreement. The rights and obligations of customers in Section
301(a)(i)(18) shall survive and continue after termination of LICENSEE's rights
under this Agreement.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.01 AGREEMENT PREVAILS
This Agreement shall prevail notwithstanding any conflicting terms or
legends which may appear on or in SOFTWARE PRODUCT.
7.02 DISCLAIMER
LUCENT AND ITS SUBSIDIARIES MAKE NO REPRESENTATIONS OR WARRANTIES,
EXPRESSLY OR IMPLIEDLY. BY WAY OF EXAMPLE BUT NOT OF LIMITATION, LUCENT AND ITS
SUBSIDIARIES MAKE NO REPRESENTATIONS OR WARRANTIES, OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE, OR THAT THE USE OF SOFTWARE PRODUCT WILL NOT
INFRINGE ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT. LUCENT AND
ITS SUBSIDIARIES SHALL NOT BE HELD TO ANY LIABILITY WITH RESPECT TO ANY CLAIM BY
LICENSEE OR ITS SUBSIDIARIES, OR A THIRD PARTY ON ACCOUNT OF, OR ARISING FROM,
THE USE OF SOFTWARE PRODUCT.
7.03 NOTHING CONSTRUED
Nothing contained herein shall be construed as:
(i) conferring by implication, estoppel or otherwise, any
license or right to use any name, trade name, trademark,
service mark, symbol or any other identification or any
abbreviation, contraction or simulation thereof;
(ii) an obligation upon LUCENT or any of its SUBSIDIARIES to
furnish any person, including LICENSEE, any assistance of
any kind whatsoever, or
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<PAGE> 14
any information or documentation other than updates to
SOFTWARE PRODUCT furnished pursuant to Section 2.06; or
(iii) a grant to LICENSEE to sell, lease, sublicense (except to
SUBSIDIARIES) or otherwise transfer or dispose of SOFTWARE
PRODUCT, in whole or in part.
7.04 CONFIDENTIALITY
(a) LICENSEE agrees to hold all parts of SOFTWARE PRODUCT in
confidence for LUCENT. LICENSEE further agrees not to make any disclosure of
SOFTWARE PRODUCT (including methods or concepts utilized therein) to anyone,
except to employees and contractors of LICENSEE to whom such disclosure is
necessary to the use for which rights are granted hereunder.
(b) LICENSEE shall appropriately notify all employees and contractors
to whom any such disclosure is made that such disclosure is made in confidence
and shall be kept in confidence by them.
(c) LICENSEE's obligations under this Section 7.04 shall not apply to
any information relating to SOFTWARE PRODUCT (including any method or concept
utilized therein) that:
(i) is or becomes available without restriction to the general
public by acts not attributable to LICENSEE, its employees
or its contractors;
(ii) was rightfully in LICENSEE's possession without limitation
on disclosure before disclosure hereunder to LICENSEE;
(iii) is rightfully disclosed to LICENSEE by a third party
without restrictions on disclosure; or
(iv) is inherently disclosed by use of CUSTOMER SOFTWARE in
accordance with this Agreement.
7.05 PUBLICITY
LICENSEE agrees that it will not, without the prior permission of LUCENT:
(i) use in advertising, publicity, packaging, labeling or
otherwise any trade name, trademark, trade device,
service mark, symbol or any other identification or any
abbreviation, contraction or simulation thereof owned by
LUCENT or any of its SUBSIDIARIES or used by LUCENT or
any of its SUBSIDIARIES to identify any of its or their
products or services; or
(ii) represent, directly or indirectly, that any product or
service of LICENSEE is a product or service of LUCENT or
any of its SUBSIDIARIES or is
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<PAGE> 15
made in accordance with or utilizes any information or
documentation of LUCENT or any of its SUBSIDIARIES.
7.06 NONASSIGNABILITY
The Parties hereto have entered into this Agreement in contemplation of [ ]
performance by LICENSEE and intend that the rights granted to LICENSEE hereunder
[ ]. Accordingly, [ ] this Agreement [ ] rights
[ ].
7.07 ADDRESSES
(a) Any notice or other communication hereunder shall be sufficiently
given to LICENSEE when sent by certified mail addressed to Math Soft, Inc., 101
Main Street, Cambridge, Massachusetts 02142, Attn: Chief Financial Officer or to
LUCENT when sent by certified mail addressed to Contract Administrator,
Intellectual Property, Lucent Technologies Inc., 2333 Ponce de Leon Boulevard -
Suite 511, Coral Gables, Florida 33134. Changes in such addresses may be
specified by written notice.
(b) Payments by LICENSEE shall be made to LUCENT at Sun Trust, P.O.
Box 913021, Orlando, Florida, 32891-3021. Alternatively, payments to LUCENT may
be made by bank wire transfers to LUCENT's account: Lucent Technologies
Licensing, Account No. 910-2-568475, at Chase Manhattan Bank, N.A., 4 Metrotech
Center, Brooklyn, New York 11245. Changes in such address or account may be
specified by written notice.
7.08 INTEGRATION
This Agreement sets forth the entire agreement and understanding between the
Parties as to the subject matter hereof and merges all prior discussions between
them. Neither of the Parties shall be bound by any warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein, in prior written agreements, or in a writing executed with or
subsequent to the execution of this Agreement by an authorized representative of
the Party to be bound thereby.
7.09 CHOICE OF LAW
The Parties are familiar with the principles of New York commercial law, and
desire and agree that the law of the State of New York, exclusive of its
conflict of laws provisions, shall apply in any dispute arising with respect to
this Agreement.
7.10 SUBSIDIARIES
(a) The grant of each right and license hereunder includes the right
to grant sublicenses and similar rights within the scope of the Agreement to a
Party's SUBSIDIARIES for so long as they remain its SUBSIDIARIES and agree to
abide by the terms, conditions and obligations herein. Any such sublicenses and
similar rights may be made effective retroactively,
-12-
<PAGE> 16
but not prior to the effective date hereof, nor prior to the becoming a
SUBSIDIARY of such Party.
(b) LICENSEE agrees that when a SUBSIDIARY's relationship to LICENSEE
changes so that it is no longer a SUBSIDIARY of LICENSEE, (i) all rights of such
former SUBSIDIARY to use SOFTWARE PRODUCT subject to this Agreement shall
immediately cease, (ii) such former SUBSIDIARY shall immediately discontinue use
of and return to LICENSEE or destroy all copies of SOFTWARE PRODUCT and (iii)
such former SUBSIDIARY shall return to LICENSEE or destroy all copies of
CUSTOMER SOFTWARE for which fees under Section 5.04 have not been paid.
7.11 DISPUTE RESOLUTION
(a) If a dispute arises out of or relates to this Agreement, or the
breach, termination or validity thereof, the Parties agree to submit the dispute
to a sole mediator selected by the Parties or, at any time at the option of a
Party, to mediation by the American Arbitration Association ("AAA"). If not thus
resolved, it shall be referred to a sole arbitrator selected by the Parties
within thirty (30) days of the mediation, or in the absence of such selection,
to AAA arbitration which shall be governed by the United States Arbitration Act.
(b) Any award made (i) shall be a bare award limited to a holding for
or against a Party and affording such remedy as is deemed equitable, just and
within the scope of the Agreement; (ii) shall be without findings as to issues
(including but not limited to patent validity and/or infringement) or a
Statement of the reasoning on which the award rests; (iii) may in appropriate
circumstances (other than patent disputes) include injunctive relief; (iv) shall
be made within four (4) months of the appointment of the arbitrator; and (v) may
be entered in any court.
(c) The requirement for mediation and arbitration shall not be deemed
a waiver of any right of termination under this Agreement and the arbitrator is
not empowered to act or make any award other than based solely on the rights and
obligations of the Parties prior to any such termination.
(d) The arbitrator shall determine issues of arbitrability but may
not limit, expand or otherwise modify the terms of the Agreement.
(e) The place of mediation and arbitration shall be New York City.
(f) Each Party shall bear its own expenses but those related to the
compensation and expenses of the mediator and arbitrator shall be borne equally.
(g) A request by a party to a court for interim measures shall not be
deemed a waiver of the obligation to mediate and arbitrate.
(h) The arbitrator shall not have authority to award punitive or
other damages in excess of compensatory damages and each Party irrevocably
waives any claim thereto.
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<PAGE> 17
(i) The Parties, their representatives, other Participants and the
mediator and arbitrator shall hold the existence, content and result of
mediation and arbitration in confidence.
7.12 ADDITIONAL AGREEMENTS
LICENSEE acknowledges that the rights granted herein in Sections 2.01(a),
2.01(b), and 3.01(a) are, subject to payment of fees specified herein and unless
this Agreement is otherwise terminated, for the term of this Agreement as set
forth in Section 6.01. The Parties agree that, if each Party so desires and if
LICENSEE has not materially breached this Agreement, an agreement, effective
subsequent to the termination of this Agreement, specifying similar rights,
licenses and obligations will be negotiated on reasonable terms and conditions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 18
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives on the
respective dates entered below.
LUCENT TECHNOLOGIES INC.
By: ______________________________
Title: _____________________________
Date: _____________________________
STATISTICAL SCIENCES, INC.
By: _______________________________
Title: ______________________________
Date: ______________________________
THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY IN ANY MANNER
UNLESS DULY EXECUTED BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES
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<PAGE> 19
APPENDIX A
DEFINITIONS
ADAPTATION means any [ ] work [ ] on SOFTWARE PRODUCT
including (i) any work [ ] any of SOFTWARE PRODUCT [ ], (ii)
any work [ ] any COMPUTER PROGRAM from SOFTWARE PRODUCT [ ]
in a [ ] or [ ] to [ ] on a [ ], (iii) any work
[ ] a [ ] or [ ] from SOFTWARE PRODUCT that LICENSEE is
obligated to keep in confidence hereunder of (iv) any work otherwise covered by
any of LUCENT's intellectual property rights in SOFTWARE PRODUCT.
AUTHORIZED COPIER means a DISTRIBUTOR authorized by LICENSEE to make
copies of CUSTOMER SOFTWARE.
CPU means central processing unit.
COMPUTER PROGRAM means any object-code and/or source-code instruction
or plurality of such instructions for controlling the operation of a CPU.
CUSTOMER SOFTWARE means (i) COMPUTER PROGRAMS, [
] or [ ] SOFTWARE PRODUCT or [ ], (ii)
documentation listed in APPENDIX B-DELIVERABLES COMPRISING NEW SOFTWARE PRODUCT
and any other documentation included in or based on SOFTWARE PRODUCT or an
ADAPTATION.
DISTRIBUTOR means an entity authorized by LICENSEE or another
DISTRIBUTOR to receive copies of CUSTOMER SOFTWARE from LICENSEE or another
DISTRIBUTOR and furnish such copies to customers and/or other DISTRIBUTORS.
[ ] means, with respect to any item (or service)
[ ], [ ] or [ ], the [ ] of (i) the [ ] which a
[ ] would [ ] from [ ] in [ ] in [ ]
of [ ] in [ ] and [ ] and [ ] as [ ],
[ ] [ ]; or (ii) the [ ] for [ ] in
the [ ], whether or not [ ] (and without excluding therefrom
any [ ] or [ ] thereof which are included in such
[ ]).
In determining "[ ]" price the following shall be [ ]:
(a) [ ];
(b) [ ];
(c) [ ]; and
(d) [ ].
<PAGE> 20
MAINTENANCE AGREEMENT means an obligation by LICENSEE, SUBSIDIARY,
DISTRIBUTOR or LICENSEE's contractor or agent to furnish on-going bug fixes,
releases, upgrades, and/or technical support of COMPUTER SOFTWARE.
NEW SOFTWARE PRODUCT means all or any portion of deliverables, such as
COMPUTER PROGRAMS, documentation and/or other information specifically listed in
Appendix B-DELIVERABLE COMPRISING NEW SOFTWARE PRODUCT.
PRIOR LICENSE AGREEMENTS means the Software License Agreement and the
Software Sublicensing Agreement, both effective April 1, 1991, between American
Telephone and Telegraph Company and Statistical Sciences, Inc., as well as
amendments thereto.
PRIOR SOFTWARE PRODUCT means all computer programs, documentation and
other information which comprised "software product" as defined in PRIOR LICENSE
AGREEMENTS, as well as other related information, documentation and software
furnished to LICENSEE prior to the effective date of this Agreement.
SOFTWARE PRODUCT means PRIOR SOFTWARE PRODUCT and NEW SOFTWARE PRODUCT.
SOLE LICENSEE PERIOD means the period beginning February 18, 1996, and
ending the [ ] of: (i) the date of terminating rights and licenses granted
herein pursuant to Article VI, or (ii) the [ ] termination of certain rights
and licenses pursuant to Section 4.02 if Section 4.02 as a result of LICENSEE's
failure to fulfill its obligations pursuant to Section 4.01.
SUBLICENSE REVENUE:
(a) for the case where: (i) the [ ] of [ ]
is [ ] or [ ] ([ ]%) of the [ ] of [ ]
furnished by LICENSEE, SUBSIDIARIES and DISTRIBUTORS, and (ii) such [
] do not include [ ] which include [
], SUBLICENSE REVENUE means the [ ] of [ ]
furnished by LICENSEE, SUBSIDIARIES and DISTRIBUTORS;
(b) for the case where: (i) the [ ] of [ ]
is [ ] or [ ] ([ ]%) of the [ ] of
[ ] furnished by LICENSEE, SUBSIDIARIES and DISTRIBUTORS,
and (ii) one or more [ ] include [ ]
containing [ ], SUBLICENSE REVENUE means the [
] of [ ] furnished by LICENSEE, SUBSIDIARIES
and DISTRIBUTORS [ ] ([ ]) of the [ ]
of all such [ ] that [ ] such [ ]; or
(c) for the case where the [ ] of [ ]
is [ ] ([ ]%) of the [ ] of [
-2-
<PAGE> 21
] furnished by LICENSEE, SUBSIDIARIES and DISTRIBUTORS, SUBLICENSE
REVENUE means the [ ] of [ ] furnished by
LICENSEE, SUBSIDIARIES and DISTRIBUTORS [ ] ([ ]) of the [
] of [ ] ([ ]%) of the [
] of [ ] furnished by LICENSEE, SUBSIDIARIES and
DISTRIBUTORS.
SUBSIDIARY of a company means a corporation or other legal entity (i)
the majority of whose shares or other securities entitled to vote for election
of directors (or other managing authority) is now or hereafter controlled by
such company either directly or indirectly; or (ii) which does not have
outstanding shares or securities but the majority of whose ownership interest
representing the right to manage such corporation or other legal entity is now
or hereafter owned and controlled by such company either directly or indirectly;
but any such corporation or other legal entity shall be deemed to be a
SUBSIDIARY of such company only as long as such control or ownership and control
exists.
-3-
<PAGE> 22
APPENDIX B
DELIVERABLES COMPRISING NEW SOFTWARE PRODUCT
Version [ ] of S, consisting of the following files [ ] and for
on-line documentation:
[
<PAGE> 23
-2-
<PAGE> 24
]
-3-
<PAGE> 25
APPENDIX C
YEARLY FEE SCHEDULE
Payment Due Date Yearly Fee
------- -------- ----------
[ $
$
$
$
$
$]
<PAGE> 26
APPENDIX D
SUBLICENSING FEE SCHEDULE
YEAR FEES
---- ----
(beginning February 18)
---------------------
[ ] [ ] of SUBLICENSE REVENUE
[ ] [ ] of SUBLICENSE REVENUE
[ ] [ ] of SUBLICENSE REVENUE
[ ] [ ] of SUBLICENSE REVENUE
[ ] [ ] of SUBLICENSE REVENUE
[ ] [ ] of SUBLICENSE REVENUE
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,916,098
<SECURITIES> 0
<RECEIVABLES> 3,629,952
<ALLOWANCES> 0
<INVENTORY> 537,260
<CURRENT-ASSETS> 8,529,071
<PP&E> 6,110,170
<DEPRECIATION> 4,481,036
<TOTAL-ASSETS> 10,628,316
<CURRENT-LIABILITIES> 5,343,003
<BONDS> 0
0
0
<COMMON> 89,259
<OTHER-SE> 5,149,317
<TOTAL-LIABILITY-AND-EQUITY> 10,628,316
<SALES> 8,265,680
<TOTAL-REVENUES> 9,478,193
<CGS> 1,578,825
<TOTAL-COSTS> 1,982,816
<OTHER-EXPENSES> 8,626,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,642
<INCOME-PRETAX> (1,050,998)
<INCOME-TAX> 15,582
<INCOME-CONTINUING> (1,066,580)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,066,580)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
