<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 SEPTEMBER 30, 1997
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 OCTOBER 31, 1997 THERE WERE 9,074,335 SHARES OF COMMON STOCK, $.01 PAR
VALUE PER SHARE, OUTSTANDING.
<PAGE> 2
MATHSOFT, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PAGE
------
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Condensed Financial Statements
- Consolidated Condensed Balance Sheets as of
September 30, 1997 and June 30, 1997 3-4
- Consolidated Condensed Statements of Operations for the
Three Month Periods Ended September 30, 1997 and 1996 5
- Consolidated Condensed Statements of Cash Flows for the
Three Month Periods Ended September 30, 1997 and 1996 6-7
- Notes to Consolidated Condensed Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
Cautionary Statements 14-17
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE> 3
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,707,430 $2,802,389
Accounts and other receivables, less reserves of
approximately $1,796,000 at September 30, 1997
and $1,720,000 at June 30, 1997 4,193,541 3,237,812
Inventories 270,989 343,785
Prepaid expenses 369,372 475,525
---------- ----------
Total current assets 7,541,332 6,859,511
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment and software 4,469,696 4,396,927
Property and equipment under capital lease 512,780 427,898
Furniture and fixtures 1,015,177 989,520
Leasehold improvements 626,890 626,889
---------- ----------
6,624,543 6,441,234
Less - Accumulated depreciation and amortization 5,087,942 4,888,216
---------- ----------
1,536,601 1,553,018
OTHER ASSETS:
Purchased technology, net of accumulated amortization
of approximately $2,938,000 at September 30, 1997 and
$2,722,000 at June 30, 1997 70,500 287,253
Other assets 106,638 86,661
---------- ----------
177,138 373,914
---------- ----------
$9,255,071 $8,786,443
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE> 4
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 308,201 $ 319,690
Accounts payable 2,103,370 2,036,745
Accrued expenses 2,505,997 2,592,532
Accrued restructuring, current portion 10,539 10,539
Deferred revenue 1,522,603 1,443,244
------------ ------------
Total current liabilities 6,450,710 6,402,750
------------ ------------
ACCRUED RESTRUCTURING, LESS CURRENT PORTION 11,857 13,613
------------ ------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 155,555 182,619
------------ ------------
ACCRUED RENT, LESS CURRENT PORTION 15,076 19,335
------------ ------------
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 - 9,036,146 shares
at September 30, 1997 and 9,006,376 shares at
June 30, 1997 90,361 90,064
Additional paid-in capital 29,228,915 29,161,835
Accumulated deficit (26,642,308) (26,992,109)
Cumulative translation adjustment (55,095) (91,664)
------------ ------------
Total stockholders' equity 2,621,873 2,168,126
------------ ------------
$ 9,255,071 $ 8,786,443
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE> 5
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---------- -----------
<S> <C> <C>
REVENUES:
Software licenses $5,432,088 $ 3,924,406
Services and other 922,870 601,871
---------- -----------
Total revenues 6,354,958 4,526,277
---------- -----------
COST OF REVENUES:
Software licenses 984,678 783,034
Services and other 316,273 191,273
---------- -----------
Total cost of revenues 1,300,951 974,307
---------- -----------
Gross profit 5,054,007 3,551,970
---------- -----------
OPERATING EXPENSES:
Sales and marketing 2,621,963 2,425,480
Research and development 1,401,826 1,090,842
General and administrative 679,224 525,610
---------- -----------
Total operating expenses 4,703,013 4,041,932
---------- -----------
INCOME (LOSS) FROM OPERATIONS 350,994 (489,962)
INTEREST INCOME, NET 8,842 39,708
---------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 359,836 (450,254)
PROVISION FOR INCOME TAXES 10,035 14,836
---------- -----------
NET INCOME (LOSS) $ 349,801 $ (465,090)
========== ===========
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.04 $ (0.05)
========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 9,791,346 8,616,653
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE> 6
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 349,801 $ ($465,090)
Adjustments to reconcile net income (loss) to net
cash used in operating activities -
Depreciation and amortization 418,535 262,771
Changes in assets & liabilities-
Accounts and other receivables (955,729) 302,246
Inventories 72,796 (3,616)
Prepaid expenses 106,153 (80,846)
Accounts payable 66,625 543,636
Accrued expenses (154,670) (1,016,646)
Deferred revenue 79,359 71,562
----------- -----------
Net cash used in operating activities (17,130) (385,983)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (183,308) (192,296)
Increase in other assets (22,034) (21,056)
----------- -----------
Net cash used in investing activities (205,342) (213,352)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (60,865) (4,676)
Borrowings on capital lease obligations 84,432 --
Proceeds from exercise of stock options and
Employee Stock Purchase Plan 67,377 219,393
----------- -----------
Net cash provided by financing activities 90,944 214,717
Effect of exchange rate changes on cash 36,569 (8,226)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (94,959) (392,844)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,802,389 4,954,416
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 2,707,430 4,561,572
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
<PAGE> 7
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $11,432 $ 715
======= =======
Income taxes $ 2,981 $22,366
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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, 1997.
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 month period
ended September 30, 1997 are not necessarily indicative of the results to be
expected for the full fiscal year.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------ --------
<S> <C> <C>
Materials and supplies $ 75,980 $ 41,648
Finished goods 195,009 302,137
-------- --------
$270,989 $343,785
======== ========
</TABLE>
3. 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.
For financial reporting purposes, the periods preceding the acquisition have not
been restated, as the acquisition of AcroScience Corporation was not material to
the Company's historical consolidated financial statements.
8
<PAGE> 9
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
For the three month period ended September 30, 1996, net loss per share was
computed using the weighted average number of shares of common stock outstanding
during the period. Common stock equivalents have not been included, as their
effect would have been antidilutive.
For the three month period ended September 30, 1997, net income per common and
common equivalent share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the period,
computed in accordance with the treasury stock method. Fully diluted net income
per common and common equivalent share has not been presented, as the amounts
would not differ significantly from primary earnings per share.
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
SFAS No. 128 establishes standards for computing and presenting earnings per
share and applies to entities with publicly held common stock or potential
common stock. SFAS No. 128 must be adopted as of June 30, 1998 and will require
restatement of prior years' reported per share amounts. Early adoption of SFAS
No. 128 is not permitted.
In accordance with Staff Accounting Bulletin No. 74, the Company is disclosing
the effect this statement would have on the three month periods ended September
30, 1997 and 1996 on a pro forma basis. The following table summarizes the pro
forma earnings per share amounts under SFAS No. 128.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
PER SHARE
NET INCOME SHARES AMOUNT
<S> <C> <C> <C>
Net income $349,801 -- --
Basic earnings (loss) per share:
Earnings available to common shareholders 349,801 9,023,775 $ .04
Diluted earnings (loss) per share:
Stock options -- 767,572 --
Income available to common stockholders
plus assumed conversions $349,801 9,791,346 $ .04
======== ========= =======
</TABLE>
9
<PAGE> 10
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
PER SHARE
NET INCOME SHARES AMOUNT
<S> <C> <C> <C>
Net loss $(465,090) -- --
Basic earnings (loss) per share:
Earnings available to common shareholders (465,090) 8,616,653 $ (.05)
Diluted earnings (loss) per share:
Stock options -- -- --
--------- ---------- -------
Loss available to common stockholders
plus assumed conversions $(465,090) 8,616,653 $ (.05)
========= ========== =======
</TABLE>
Basic earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding during the
three month period. The computation of diluted earnings per share is similar to
the computation of basic earnings per common share except that the denominator
is increased for the assumed exercise of dilutive options using the treasury
stock method.
10
<PAGE> 11
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Month Period Ended September 30, 1997 Compared with the Three Month Period
Ended September 30, 1996.
RESULTS OF OPERATIONS
Total revenues increased 40.4% from $4,526,000 in the first quarter of fiscal
1997 to $6,355,000 in the first quarter of fiscal 1998. The increase in total
revenues was primarily attributable to upgrade revenue generated by the recent
release of Mathcad 7 for Windows in June 1997 and new license and services
revenue generated from S-PLUS 4 released in September 1997.
Mathcad for Windows generated upgrade revenue of $206,000 in the first quarter
of fiscal 1997 compared to $1,503,000 in the first quarter of fiscal 1998, and
increased as a percentage of total revenues from 4.6% to 23.7%, respectively.
Prior to the release of Mathcad 7 for Windows, the Company's last significant
upgrade, Mathcad 6 for Windows, was released in early fiscal 1995 and its
upgrade cycle therefore was winding to a close in the first quarter of fiscal
1997. Worldwide S-PLUS product line and services revenue increased 40.2% from
$1,402,000 in the first quarter of fiscal 1997 to $1,966,000 in the first
quarter of fiscal 1998, and remained constant as a percentage of total revenues
at 31.0% compared to 30.9%, respectively. In addition, S-PLUS services revenue
increased due to a record level of consulting services in the first quarter of
fiscal 1998. Total international revenues attributable to sales of all Company
product lines increased 15.3% from $1,301,000 in the first quarter of fiscal
1997 to $1,500,000 in the first quarter of fiscal 1998, and decreased as a
percentage of total revenues from 28.7% to 23.6%, respectively.
Total cost of revenues increased 33.6% from $974,000 in the first quarter of
fiscal 1997 to $1,301,000 in the first quarter of fiscal 1998, and decreased as
a percentage of total revenues from 21.5% to 20.5%, respectively. The decrease
in total cost of revenues as a percentage of total revenues was primarily
attributable to switching from disk to CD media with the release of Mathcad 7
for Windows, thereby decreasing direct material costs on a per unit basis. To a
lesser degree, fixed costs, such as licensing costs for the "S" language used in
the S-PLUS product line and the amortization of purchased technology, decreased
as a percentage of total revenues due to an overall higher revenue base in the
first quarter of fiscal 1998. Such decreases were partially offset by
11
<PAGE> 12
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
increased inventory reserves in the first quarter of fiscal 1998 to adequately
cover inventory exposure in the sales distribution channel and an increase in
cost of services from $191,000 in the first quarter of fiscal 1997 to $316,000
in the first quarter of fiscal 1998.
Sales and marketing expenses increased 8.1% from $2,425,000 in the first quarter
of fiscal 1997 to $2,622,000 in the first quarter of fiscal 1998, and decreased
as a percentage of total revenues from 53.6% to 41.3%, respectively. The
increase in overall sales and marketing expenses was primarily attributable to
expenses incurred related to the launch of Mathcad 7 for Windows and S-PLUS 4,
as well as to an increase in S-PLUS domestic sales expenses incurred to support
direct sales into this expanding product line.
Research and development expenses increased 28.5% from $1,091,000 in the first
quarter of fiscal 1997 to $1,402,000 in the first quarter of fiscal 1998, and
decreased as a percentage of total revenues from 24.1% to 22.1%, respectively.
The increase in overall research and development expenses was due to expenses
incurred related to development initiatives in the Company's Data Analysis
Products Division and additional personnel to support such initiatives.
General and administrative expenses increased 29.1% from $526,000 in the first
quarter of fiscal 1997 to $679,000 in the first quarter of fiscal 1998, and
decreased as a percentage of total revenues from 11.6% to 10.7%, respectively.
The increase in overall general and administrative expenses was due primarily to
costs incurred for management incentive compensation provisions based primarily
on the achievement of profitability targets, and to a lesser extent, to
fluctuations in international exchange rate transactions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, totaling $2,707,000 at September 30, 1997, decreased
$95,000 during the three month period ended September 30, 1997 from $2,802,000
at June 30, 1997. The negative cash flow resulted primarily from purchases of
property and equipment of approximately $183,000, partially offset by proceeds
received from the exercise of stock options of approximately $67,000.
12
<PAGE> 13
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 September 30, 1997. The Company also has a line of credit agreement with a
commercial bank. Borrowings under the line are limited to the lesser of 65% 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%. The Company had no outstanding
borrowings under this line as of September 30, 1997. The agreement contains
covenants that, among other things, require the Company to meet certain
profitability and maximum leverage ratios, and to maintain a minimum level of
tangible net worth. Through September 30, 1997, the Company has complied with
all such covenants. The line of credit expires in December 1998.
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.
13
<PAGE> 14
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 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 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
14
<PAGE> 15
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
RISKS ASSOCIATED WITH ACQUISITIONS (CONTINUED).
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.
RISKS ASSOCIATED WITH DIVESTITURES. The Company's product offerings presently
may be divided between two principal product families - those related to its
Mathcad line addressing the calculation needs of the technical, professional and
education markets, and its S-PLUS offerings, marketed primarily to professionals
needing statistical analysis tools.
In setting strategic goals to maximize shareholder value, the Company from time
to time considers the options of divesting itself of one product family or the
other, or product lines within a given family, to concentrate its focus on the
business opportunity associated with the remaining product family or product
lines.
At the present time, the Company is not party to any agreement relating to the
sale of either of its product families or product lines within such families,
but it may elect to pursue such options at any time. If the Company were to
consummate such a sale, there can be no assurance that it would receive returns
from such sale that investors in the Company would consider attractive.
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 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 32.5% of the Company's total revenues in fiscal
1996, approximately 34.0% of the Company's total revenues in fiscal 1997 and
approximately 23.6% for the three months ended September 30, 1997, 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.
15
<PAGE> 16
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
RELIANCE ON THIRD PARTY LICENSORS. Maple V, a software product licensed as a
part of Mathcad, 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 the StatSci division'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 be able 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.
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.
16
<PAGE> 17
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
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. Except for the President and Chief
Financial Officer, 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.
17
<PAGE> 18
MATHSOFT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Executive Agreement, dated as of July 28, 1997, between
the Company and Charles J. Digate.
10.2 Option Acceleration Agreement, dated as of September 15,
1997, between the Company and Robert P. Orlando.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated
July 17, 1997 reporting fiscal fourth quarter and year-end
results.
18
<PAGE> 19
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: November 13, 1997 By /s/ Charles J. Digate
-------------------------
Charles J. Digate
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
Dated: November 13, 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)
19
<PAGE> 20
MATHSOFT, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 Executive Agreement, dated as of July 28, 1997, between
the Company and Charles J. Digate.
10.2 Option Acceleration Agreement, dated as of September 15,
1997, between the Company and Robert P. Orlando.
27.1 Financial Data Schedule.
20
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE AGREEMENT
EXECUTIVE AGREEMENT, dated as of July 28, 1997, by and between MathSoft,
Inc. (the "Company") and Charles J. Digate (the "Executive").
WHEREAS, the Executive is the President and Chief Executive Officer of the
Company and has made and is expected to continue to make major contributions to
the Company;
WHEREAS, the Company desires continuity of management; and
WHEREAS, the Executive is willing to continue to render services to the
Company subject to the conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive agree
as follows:
1. SALARY.
(a) As compensation for the services rendered by the Executive under this
Agreement, the Company shall pay to the Executive, for the fiscal year ended
June 30, 1998, a salary equal to $250,000 ("Salary"), payable to the Executive
in accordance with the Company's payroll practices in effect from time to time.
(b) In addition, the Executive shall be eligible to earn a bonus of up to
$100,000 for the fiscal year ended June 30, 1998, based on the Company's
achievement of a net income plan approved by the Board of Directors of the
Company, plus additional bonus payments based on specific objectives to be
agreed upon between the Executive and the Board of Directors of the Company from
time to time (collectively, "Bonus"). The Bonus, if earned, shall be payable to
the Executive in accordance with the Company's payroll practices in effect from
time to time.
2. NOTICE OF VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive agrees
to provide the Board of Directors of the Company with three months advance
written notice of his intention to terminate his employment with the Company.
3. MEMBERSHIP ON THE BOARD OF DIRECTORS. After any termination of the
Executive's employment with the Company, the Company may request that the
Executive serve as a non-executive member of the Board of Directors of the
Company. If the Executive agrees to serve in such a capacity following the
termination of his employment, the Executive shall be considered as maintaining
a "business relationship" with the Company during such period of service, and
any installments of any stock options held by the Executive on the termination
of his employment that are not exercisable and have not expired shall continue
to become exercisable in accordance with the terms of the relevant option
agreements and option plans during such period of service. When the Executive
ceases to be a non-executive member of the Board of
<PAGE> 2
-2-
Directors, he shall have three years to exercise any then-exercisable, unexpired
installments of any stock options held by the Executive on the Executive's last
date of service on the Board of Directors.
4. TERMINATION PRIOR TO A CHANGE OF CONTROL. If, prior to a "Change of
Control" (as such term is defined in Section 7(c) below), the Company terminates
the Executive's employment with the Company without "Cause" (as such term is
defined in Section 7(d) below), the Company shall:
(a) Continue to pay to the Executive, in accordance with the Company's
normal payroll practices and policies in effect from time to time (including any
required withholding), the Executive's current base salary (at the monthly base
salary rate in effect for such Executive immediately prior to the termination of
his employment) for eighteen (18) months following the termination of the
Executive's employment (the "Severance Payments"); provided, however, that the
Company shall not be obligated to make any payments pursuant to this Section
4(a) during any period in which the Executive is in violation of the terms of
his Confidential Information, Inventions and Non-Competition Agreement with the
Company.
(b) Provide the Executive with insurance substantially similar to that
which the Executive was receiving immediately prior to the termination of his
employment until the earlier of: (i) the date which is eighteen (18) months
following the termination of the Executive's employment; or (ii) the date the
Executive begins receiving substantially similar insurance from a subsequent
employer.
(c) Provide that the Executive shall have three years to exercise any
then-exercisable, unexpired installments of any stock options held by the
Executive on the Executive's last date of employment or if later, the date when
the Executive ceases to be a member of the Board of Directors of the Company.
5. CHANGE OF CONTROL. Upon a Change of Control, the Company shall cause
half of any unexercisable installments of any stock options held by the
Executive on the Change of Control that have not expired to become exercisable
on the Change of Control; provided, however, that such acceleration of
exercisability shall not occur to the extent that: (A) the Change of Control is
intended to be accounted for as a pooling of interests; and (B) the Company
concludes, after consulting with its independent accountants, that such
acceleration would prevent the Change of Control transaction from being
accounted for as a pooling of interests for financial accounting purposes. It is
understood and agreed that the acceleration of exercisability provided for in
this Section 5 shall be in addition to, and not in lieu of, any acceleration of
exercisability pursuant to the terms of the Executive's letter agreement dated
September 8, 1994 and the relevant option agreements and option plans.
<PAGE> 3
-3-
6. TERMINATION FOLLOWING A CHANGE OF CONTROL.
(a) If, at any time after a Change in Control, the Company terminates the
Executive's employment without Cause or the Executive terminates his employment
with the Company for "Good Reason" (as such term is defined in Section 6(b)
below), the Company shall:
(1) Continue to pay to the Executive, in accordance with the Company's
normal payroll practices and policies in effect from time to time
(including any required withholding), (i) the Executive's current base
salary (at the monthly base salary rate in effect for such Executive
immediately prior to the termination of his employment) for eighteen
(18) months following the termination of the Executive's employment
(the "Severance Payments").
(2) Provide the Executive with insurance substantially similar to that
which the Executive was receiving immediately prior to the termination
of his employment until the earlier of: (i) the date which is eighteen
(18) months following the termination of the Executive's employment;
or (ii) the date the Executive begins receiving substantially similar
insurance from a subsequent employer.
(3) Provide that the Executive shall have three years to exercise any
then-exercisable, unexpired installments of any stock options held by
the Executive on the Executive's last date of employment or, if later,
the date when the Executive ceases to be a member of the Board of
Directors of the Company.
(b) For purposes of Section 6, "Good Reason" shall mean the occurrence of
one or more of the following events following a Change of Control: (i) the
assignment to the Executive of any duties inconsistent with his position,
authority, duties or responsibilities immediately prior to the Change of Control
or any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities; (ii) a reduction in the
aggregate of the Executive's base or incentive compensation or the termination
of the Executive's rights to any employee benefits immediately prior to the
Change of Control, except to the extent any such benefit is replaced with a
substantially similar benefit, or a reduction in scope or value thereof; or
(iii) a relocation of the Executive's place of business which results in the
one-way commuting distance for the Executive increasing by more than 40 miles
from the location thereof immediately prior to the Change of Control (PROVIDED,
HOWEVER, that travel consistent with past practices for business purposes shall
not be considered "commuting" for purposes of this clause (iii)); or (iv) a
failure by the Company to obtain the agreement referenced in Section 7(f).
7. GENERAL.
(a) Notwithstanding anything else to the contrary herein: (i) the Company's
obligation to provide any of the amounts and benefits set forth in this
Agreement shall be subject to, and conditioned upon, the Executive's execution
of a full release of claims satisfactory to the Company releasing the Company
and its affiliates, subsidiaries, divisions, directors, employees
<PAGE> 4
-4-
and agents from any claims arising from or related to the Executive's employment
or severance from employment with the Company, including any claims arising from
this Agreement, such release to be substantially in the form of EXHIBIT A hereto
(the "Release"); (ii) the Company shall not be obligated to provide any of the
amounts and benefits set forth in this Agreement until any applicable period
within which the Executive may revoke the Release has expired; and (iii) any
amounts and benefits set forth in this Agreement shall be reduced by any and all
other severance or other amounts or benefits paid or payable to the Executive as
a result of the termination of his employment.
(b) In the event the Executive's employment with the Company is terminated
by the Company for any reason other than without Cause, or the Executive
terminates his employment with the Company for any reason other than Good
Reason, the Executive shall not be entitled to any severance benefits or other
considerations described herein.
(c) For purposes of this Agreement, "Change of Control" shall mean the
closing of: (i) a merger, consolidation, liquidation or reorganization of the
Company into or with another Company or other legal person, after which merger,
consolidation, liquidation or reorganization the capital stock of the Company
outstanding prior to consummation of the transaction is not converted into or
exchanged for or does not represent more than 50% of the aggregate voting power
of the surviving or resulting entity; (ii) the direct or indirect acquisition by
any person (as the term "person" is used in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) of more than 50% of the voting
capital stock of the Company, in a single or series of related transactions; or
(iii) the sale, exchange, or transfer of all or substantially all of the
Company's assets (other than a sale, exchange or transfer to one or more
entities where the stockholders of the Company immediately before such sale,
exchange or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the entities to which the assets were
transferred).
(d) For purposes of this Agreement, "Cause" shall mean: (i) the commission
of the Executive of a felony, either in connection with the performance of his
obligations to the Company or which adversely affects the Executive's ability to
perform such obligations; (ii) gross negligence, dishonesty or breach of
fiduciary duty; or (iii) the commission by the Executive of an act of fraud or
embezzlement which results in loss, damage or injury to the Company, whether
directly or indirectly.
(e) Notwithstanding anything to the contrary in this Agreement, if the
Company determines in its sole discretion after consultation with its tax and
accounting advisors that the Executive is a Disqualified Individual (as defined
in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"))
and that any portion of any payment or distribution by the Company to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a "Payment")
would be an Excess Parachute Payment (as defined in Section 280G of the Code)
but for the application of this sentence, then the amount of all such Payments
otherwise payable to the Executive pursuant to this Agreement shall be reduced
to the minimum extent necessary (but in no event to less than zero) so that no
portion of any Payment, as so reduced, constitutes an Excess Parachute Payment.
<PAGE> 5
-5-
For purposes of this reduction, no portion of any Payment shall be taken into
account to the extent that such Payment, in the opinion of the Company, after
consultation with its tax and accounting advisors, does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code.
(f) Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the Company and any successor (whether direct
or indirect, by purchase, merger, consolidation, reorganization or otherwise) of
the Company; PROVIDED, HOWEVER, that the Company shall obtain the written
agreement of any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) of the Company to be bound by the
provisions of this Agreement as if such successor were the Company and for
purposes of this Agreement, any such successor of the Company shall be deemed to
be the "Company" for all purposes.
(g) Nothing in this Agreement shall create any obligation on the part of
the Company or any other person to continue the employment of the Executive. If
the Executive elects to receive the severance and benefits set forth in this
Agreement by executing the Release, the Executive shall not be entitled to any
other salary continuation, severance or other termination benefits in the event
of his cessation of employment with the Company.
(h) Nothing herein shall affect the Executive's obligations under any key
employee, non-competition, confidentiality, option or similar agreement between
the Company and the Executive currently in effect or which may be entered into
in the future.
(i) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts. This Agreement constitutes the
entire Agreement between the Executive and the Company concerning the subject
matter hereof and supersedes any prior negotiations, understandings or
agreements concerning the subject matter hereof, whether oral or written, and
may be amended or rescinded only upon the written consent of the Company and the
Executive. The invalidity or unenforceability of any provision of this Agreement
shall not affect the other provisions of this Agreement and this Agreement shall
be construed and reformed to the fullest extent possible. The Executive may not
assign any of his rights or obligations under this Agreement; the rights and
obligations of the Company under this Agreement shall inure to the benefit of,
and shall be binding upon, the successors and assigns of the Company. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument.
<PAGE> 6
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
The Company:
------------
MATHSOFT, INC.
By: /s/ Robert P. Orlando
-------------------------------------------
Name: ROBERT P. ORLANDO
Title: VICE PRESIDENT OF FINANCE AND C.F.O.
The Executive:
--------------
/s/ Charles J. Digate
----------------------------------------------
Charles J. Digate
<PAGE> 7
EXHIBIT A
AGREEMENT/WAIVER
----------------
It is hereby agreed by and between ____________________ (the "Executive")
and MathSoft, Inc. (the "Company"), for good and sufficient consideration more
fully described below, that:
1. CONSIDERATION. The Company will provide the Executive with the amounts
and benefits described in Section __ of the Severance Agreement entered into by
the Company and the Executive, dated ___________, 1997 (the "Severance
Agreement"), subject to the terms and conditions of such Severance Agreement.
The Executive understands that payment of and all such amounts and benefits are
conditioned upon the Executive signing this Agreement.
2. SETTLEMENT OF AMOUNTS DUE THE EXECUTIVE. The Executive agrees that the
amounts set forth above in Section 1, together with any amounts previously
provided to the Executive by the Company, shall be complete and unconditional
payment, settlement, satisfaction and accord with respect to all obligations and
liabilities of the Company and any of its affiliated companies (including their
respective successors, assigns, shareholders, officers, directors, employees
and/or agents) to the Executive, and all claims, causes of action and damages by
the Executive against the Company and/or any such other parties regarding the
Executive's employment with and termination from employment with the Company,
including, without limitation, all claims for back wages, salary, draws,
commissions, bonuses, vacation pay, equity compensation, expenses, compensation,
severance pay, attorney's fees, compensatory damages, exemplary damages, or
other costs or sums.
3. RELEASE.
(a) In exchange for the amounts and benefits described in Section 1 and
other good and valuable consideration, receipt of which is hereby acknowledged,
the Executive and his representatives, agents, estate, successors and assigns,
absolutely and unconditionally hereby release and forever discharge the Company,
its affiliated companies and/or their successors, assigns, directors,
shareholders, officers, employees and/or agents, both individually and in their
official capacities, (the "Releasees"), from any and all actions or causes of
action, suits, claims, complaints, contracts, liabilities, agreements, promises,
debts and damages, whether existing or contingent, known or unknown, which arise
out of the Executive's employment with or termination from employment with the
Company. This release is intended by the Executive to be all encompassing and to
act as a full and total release of any claims that the Executive may have or has
had against the Releasees, including, but not limited to, any federal, state or
local law or regulation dealing with either employment or employment
discrimination such as those laws or regulations concerning discrimination on
the basis of age, race, color, religion, creed, sex, sexual orientation,
national origin, ancestry, marital status, physical or mental disability, any
veteran status or any military service or application for any military service;
any contract, whether oral or written, express or implied; or common law.
<PAGE> 8
A-2-
(b) The Executive agrees not only to release and discharge the Releasees
from any and all claims as stated above that the Executive could make on his own
behalf or on behalf of others, but also those claims which might be made by any
other person or organization on behalf of the Executive, and the Executive
specifically waives any right to become, and promises not to become, a member of
any class in a case in which a claim or claims against the Releasees are made
involving any matters which arise out of the Executive's employment with or
termination from employment with the Company. Nothing in this Agreement is to be
construed as an admission by the Releasees of any liability or unlawful conduct
whatsoever.
4. WAIVER OF RIGHTS AND CLAIMS UNDER THE AGE DISCRIMINATION AND EMPLOYMENT
ACT OF 1967.
(a) The Executive has been informed that since he is 40 years of age or
older, he has or might have specific rights and/or claims under the Age
Discrimination and Employment Act of 1967. In consideration for the amounts
described in Section 1 hereof, the Executive specifically waives such rights
and/or claims to the extent that such rights and/or claims arose prior to the
date this Agreement was executed.
(b) The Executive was advised by the Company of his right to consult with
an attorney prior to executing this Agreement.
(c) The Executive was further advised when he was presented by the Company
with the original draft of this Agreement on _______, 199_, that he had at least
21 days within which to consider its terms and to consult with or seek advice
from an attorney or any other person of his choosing, until the close of
business on __________, 199_.
5. CONFIDENTIALITY. The Executive agrees he shall not divulge or publish,
directly or indirectly, any information whatsoever regarding the substance,
terms or existence of the Severance Agreement or this Agreement and/or any
discussions or negotiations relating to the Severance Agreement or this
Agreement to any person or organization, except to his immediate family members,
counsel or accountant, and unless required under law or court order.
6. REPRESENTATIONS AND GOVERNING LAW.
(a) This Agreement represents the complete and sole understanding between
the parties, supersedes any and all other agreements and understandings, whether
oral or written, except for the [list key employee, non-competition, option or
confidentiality agreements] entered into by the Company and Executive, and the
Severance Agreement, which remain in full force and effect. This Agreement may
not be modified, altered or rescinded except upon written consent of the Company
and Executive. The invalidity or unenforceability of any provision of this
Agreement shall not affect the other provisions of this Agreement, but this
Agreement shall be revised, construed and reformed to the fullest extent
possible to effectuate the purposes of this Agreement. This Agreement shall be
binding upon and inure to the benefit of the Company and the Executive and their
respective heirs, successors and assigns. The parties agree that the
<PAGE> 9
A-3-
Company will not have an adequate remedy if the Executive fails to comply with
Sections 3, 4, and 5 hereof and that damages will not be readily ascertainable,
and that in the event of such failure, the Executive shall not oppose any
application by the Company requiring a decree of specific performance or an
injunction enjoining a breach of this Agreement. If the Executive breaches any
of his obligations hereunder, he shall forfeit all right to payments pursuant to
Section 1.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof.
(c) The Executive represents that he has read the foregoing Agreement,
fully understands the terms and conditions of such Agreement, and is voluntarily
executing the same. In entering into this Agreement, the Executive does not rely
on any representation, promise or inducement made by the Releasees, with the
exception of the consideration described in this document.
7. EFFECTIVE DATE. The Executive may revoke this Agreement during the
period of seven (7) days following its execution by the Executive, and this
Agreement shall not become effective or enforceable until this revocation period
has expired.
<PAGE> 10
A-4-
The Company:
------------
MATHSOFT, INC.
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
Date: ____________________________________
The Executive:
--------------
------------------------------------------
Charles J. Digate
<PAGE> 1
EXHIBIT 10.2
------------
OPTION ACCELERATION AGREEMENT
-----------------------------
OPTION ACCELERATION AGREEMENT, dated as of September 15, 1997, by and
between MathSoft, Inc. (the "Company") and Robert P. Orlando (the "Officer").
WHEREAS, the Officer has made and is expected to continue to make major
contributions to the Company;
WHEREAS, the Company desires continuity of management; and
WHEREAS, the Officer is willing to continue to render services to the
Company subject to the conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Officer agree
as follows:
1. CHANGE OF CONTROL. Upon a Change in Control, the Company shall:
(a) Cause 50% of any unexercisable installments of any stock options held
by the Officer on the Change of Control that have not expired to become
exercisable on the Change of Control; PROVIDED, HOWEVER, that such acceleration
of exercisability shall not occur to the extent that: (i) the Change of Control
is intended to be accounted for as a pooling of interests; and (ii) the Company
concludes, after consulting with its independent accountants, that such
acceleration would prevent the Change of Control transaction from being
accounted for as a pooling of interests for financial accounting purposes; and
(b) Cause the period after a termination of employment within which any
option may be exercised by the Officer in accordance with the provisions of the
relevant option agreement and option plan to be extended to twelve months;
PROVIDED, HOWEVER, that such extension of exercisability shall not occur to the
extent that: (i) the Change of Control is intended to be accounted for as a
pooling of interests; and (ii) the Company concludes, after consulting with its
independent accountants, that such extension of exercisability would prevent the
Change of Control transaction from being accounted for as a pooling of interests
for financial accounting purposes.
PROVIDED, HOWEVER, that: (i) the Company's obligation to provide any of the
amounts and benefits set forth in this Section 1 shall be subject to, and
conditioned upon, the Officer's execution, on or before the Change of Control,
of a full release of claims satisfactory to the Company releasing the Company
and its affiliates, subsidiaries, divisions, directors, employees and agents
from any claims arising from or related to the Officer's employment or severance
from employment with the Company, including any claims arising from this
Agreement, such release to be substantially in the form of EXHIBIT A hereto (the
"Release"); and (ii) notwithstanding any other provision of this Agreement, the
Company shall not be obligated to
<PAGE> 2
-2-
provide any of the amounts and benefits set forth in this Section 1 until any
applicable period within which the Officer may revoke the Release has expired.
2. GENERAL.
(a) For purposes of this Agreement, "Change of Control" shall mean the
closing of: (i) a merger, consolidation, liquidation or reorganization of the
Company into or with another Company or other legal person, after which merger,
consolidation, liquidation or reorganization the capital stock of the Company
outstanding prior to consummation of the transaction is not converted into or
exchanged for or does not represent more than 50% of the aggregate voting power
of the surviving or resulting entity; (ii) the direct or indirect acquisition by
any person (as the term "person" is used in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) of more than 50% of the voting
capital stock of the Company, in a single or series of related transactions;
(iii) the sale, exchange, or transfer of the business unit for which the Officer
principally works; or (iv) the sale, exchange, or transfer of all or
substantially all of the Company's assets (other than a sale, exchange or
transfer to one or more entities where the stockholders of the Company
immediately before such sale, exchange or transfer retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the entities to which the assets were transferred).
(c) Notwithstanding anything to the contrary in this Agreement, if the
Company determines in its sole discretion after consultation with its tax and
accounting advisors that the Officer is a Disqualified Individual (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) and
that any portion of any payment or distribution by the Company to or for the
benefit of the Officer, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment") would be an
Excess Parachute Payment (as defined in Section 280G of the Code) but for the
application of this sentence, then the amount of all such Payments otherwise
payable to the Officer pursuant to this Agreement shall be reduced to the
minimum extent necessary (but in no event to less than zero) so that no portion
of any Payment, as so reduced, constitutes an Excess Parachute Payment. For
purposes of this reduction, no portion of any Payment shall be taken into
account to the extent that such Payment, in the opinion of the Company, after
consultation with its tax and accounting advisors, does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code.
(d) Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the Company and any successor (whether direct
or indirect, by purchase, merger, consolidation, reorganization or otherwise) of
the Company; PROVIDED, HOWEVER, that the Company shall obtain the written
agreement of any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) of the Company to be bound by the
provisions of this Agreement as if such successor were the Company and for
purposes of this Agreement, any such successor of the Company shall be deemed to
be the "Company" for all purposes.
<PAGE> 3
-3-
(e) Nothing in this Agreement shall create any obligation on the part of
the Company or any other person to continue the employment of the Officer.
(f) Nothing herein shall affect the Officer's obligations under any key
employee, non-competition, confidentiality, option or similar agreement between
the Company and the Officer currently in effect or which may be entered into in
the future.
(g) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts. This Agreement constitutes the
entire Agreement between the Officer and the Company concerning the subject
matter hereof and supersedes any prior negotiations, understandings or
agreements concerning the subject matter hereof, whether oral or written, and
may be amended or rescinded only upon the written consent of the Company and the
Officer. The invalidity or unenforceability of any provision of this Agreement
shall not affect the other provisions of this Agreement and this Agreement shall
be construed and reformed to the fullest extent possible. The Officer may not
assign any of his/her rights or obligations under this Agreement; the rights and
obligations of the Company under this Agreement shall inure to the benefit of,
and shall be binding upon, the successors and assigns of the Company. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument.
<PAGE> 4
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
The Company:
------------
MATHSOFT, INC.
By: /s/ Charles J. Digate
-------------------------------
Name: Charles J. Digate
Title: President and C.E.O.
The Officer:
------------
Signature: /s/ Robert P. Orlando
------------------------
Printed Name: Robert P. Orlando
<PAGE> 5
EXHIBIT A
AGREEMENT/WAIVER
It is hereby agreed by and between ____________________ (the "Officer") and
MathSoft, Inc. (the "Company"), for good and sufficient consideration more fully
described below, that:
1. CONSIDERATION. The Company will provide the Officer with the amounts and
benefits described in Section 1 of the Option Acceleration Agreement entered
into by the Company and the Officer, dated ___________, 1997 (the "Acceleration
Agreement"), subject to the terms and conditions of such Acceleration Agreement.
The Officer understands that all such benefits are conditioned upon the Officer
signing this Agreement.
2. SETTLEMENT OF AMOUNTS DUE THE OFFICER. The Officer agrees that the
benefits set forth above in Section 1, together with any amounts previously
provided to the Officer by the Company, shall be complete and unconditional
payment, settlement, satisfaction and accord with respect to all obligations and
liabilities of the Company and any of its affiliated companies (including their
respective successors, assigns, shareholders, officers, directors, employees
and/or agents) to the Officer, and all claims, causes of action and damages by
the Officer against the Company and/or any such other parties regarding the
Officer's employment with and termination from employment with the Company,
including, without limitation, all claims for back wages, salary, draws,
commissions, bonuses, vacation pay, equity compensation, expenses, compensation,
severance pay, attorney's fees, compensatory damages, exemplary damages, or
other costs or sums.
3. RELEASE.
(a) In exchange for the amounts and benefits described in Section 1 and
other good and valuable consideration, receipt of which is hereby acknowledged,
the Officer and his/her representatives, agents, estate, successors and assigns,
absolutely and unconditionally hereby release and forever discharge the Company,
its affiliated companies and/or their successors, assigns, directors,
shareholders, officers, employees and/or agents, both individually and in their
official capacities, (the "Releasees"), from any and all actions or causes of
action, suits, claims, complaints, contracts, liabilities, agreements, promises,
debts and damages, whether existing or contingent, known or unknown, which arise
out of the Officer's employment with or termination from employment with the
Company. This release is intended by the Officer to be all encompassing and to
act as a full and total release of any claims that the Officer may have or has
had against the Releasees, including, but not limited to, any federal, state or
local law or regulation dealing with either employment or employment
discrimination such as those laws or regulations concerning discrimination on
the basis of age, race, color, religion, creed, sex, sexual orientation,
national origin, ancestry, marital status, physical or mental disability, any
veteran status or any military service or application for any military service;
any contract, whether oral or written, express or implied; or common law.
<PAGE> 6
A-2
(b) The Officer agrees not only to release and discharge the Releasees from
any and all claims as stated above that the Officer could make on his/her own
behalf or on behalf of others, but also those claims which might be made by any
other person or organization on behalf of the Officer, and the Officer
specifically waives any right to become, and promises not to become, a member of
any class in a case in which a claim or claims against the Releasees are made
involving any matters which arise out of the Officer's employment with or
termination from employment with the Company. Nothing in this Agreement is to be
construed as an admission by the Releasees of any liability or unlawful conduct
whatsoever.
4. WAIVER OF RIGHTS AND CLAIMS UNDER THE AGE DISCRIMINATION AND EMPLOYMENT
ACT OF 1967. [Only applicable if the Officer is 40 years of age or older at the
time of termination of employment.]
(a) The Officer has been informed that since he/she is 40 years of age or
older, he/she has or might have specific rights and/or claims under the Age
Discrimination and Employment Act of 1967. In consideration for the amounts
described in Section 1 hereof, the Officer specifically waives such rights
and/or claims to the extent that such rights and/or claims arose prior to the
date this Agreement was executed.
(b) The Officer was advised by the Company of his/her right to consult with
an attorney prior to executing this Agreement.
(c) The Officer was further advised when he/she was presented by the
Company with the original draft of this Agreement on _______, 199_, that he/she
had at least 21 days within which to consider its terms and to consult with or
seek advice from an attorney or any other person of his/her choosing, until the
close of business on __________, 199_.
5. CONFIDENTIALITY. The Officer agrees he/she shall not divulge or publish,
directly or indirectly, any information whatsoever regarding the substance,
terms or existence of the Acceleration Agreement or this Agreement and/or any
discussions or negotiations relating to the Acceleration Agreement or this
Agreement to any person or organization, except to his/her immediate family
members, counsel or accountant, and unless required under law or court order.
6. REPRESENTATIONS AND GOVERNING LAW.
(a) This Agreement represents the complete and sole understanding between
the parties, supersedes any and all other agreements and understandings, whether
oral or written, except for the [list key employee, non-competition, option or
confidentiality agreements] entered into by the Company and Officer, and the
Acceleration Agreement, which remain in full force and effect. This Agreement
may not be modified, altered or rescinded except upon written consent of the
Company and Officer. The invalidity or unenforceability of any provision of this
Agreement shall not affect the other provisions of this Agreement, but this
Agreement shall be revised, construed and reformed to the fullest extent
possible to effectuate the purposes of this Agreement. This Agreement shall be
binding upon and inure to the benefit of the Company and the Officer and their
respective heirs, successors and assigns. The parties agree that the
<PAGE> 7
A-3
Company will not have an adequate remedy if the Officer fails to comply with
Sections 3, 4, and 5 hereof and that damages will not be readily ascertainable,
and that in the event of such failure, the Officer shall not oppose any
application by the Company requiring a decree of specific performance or an
injunction enjoining a breach of this Agreement. If the Officer breaches any of
his/her obligations hereunder, he/she shall forfeit all right to payments
pursuant to Section 1.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof.
(c) The Officer represents that he/she has read the foregoing Agreement,
fully understands the terms and conditions of such Agreement, and is voluntarily
executing the same. In entering into this Agreement, the Officer does not rely
on any representation, promise or inducement made by the Releasees, with the
exception of the consideration described in this document.
7. EFFECTIVE DATE. [Only applicable if the Officer is 40 years of age or
older at the time of termination of employment.] The Officer may revoke this
Agreement during the period of seven (7) days following its execution by the
Officer, and this Agreement shall not become effective or enforceable until this
revocation period has expired.
<PAGE> 8
A-4
The Company:
------------
MATHSOFT, INC.
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
Date: ____________________________________
The Officer:
------------
Signature: _______________________________
Printed Name: ____________________________
Date: ____________________________________
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<ARTICLE> 5
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<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,707,430
<SECURITIES> 0
<RECEIVABLES> 4,193,541
<ALLOWANCES> 0
<INVENTORY> 270,989
<CURRENT-ASSETS> 7,541,332
<PP&E> 6,624,543
<DEPRECIATION> 5,087,942
<TOTAL-ASSETS> 9,255,071
<CURRENT-LIABILITIES> 6,450,710
<BONDS> 0
0
0
<COMMON> 90,361
<OTHER-SE> 2,531,512
<TOTAL-LIABILITY-AND-EQUITY> 9,255,071
<SALES> 5,432,088
<TOTAL-REVENUES> 6,354,958
<CGS> 984,678
<TOTAL-COSTS> 1,300,951
<OTHER-EXPENSES> 4,703,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,432
<INCOME-PRETAX> 359,836
<INCOME-TAX> 10,035
<INCOME-CONTINUING> 349,801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349,801
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
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