<PAGE>
______________________________________________________________________________
______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission file number 0-27798
WORKGROUP TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3153644
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
91 Hartwell Avenue, Lexington, Massachusetts 02421
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (781) 674-2000
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at November 3, 1999
---------------------------- -------------------------------
Common Stock, $.01 par value 8,021,818
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
INDEX
Page(s)
-------
Part I. Financial Information:
Item 1. Condensed Consolidated Balance Sheets
at September 30, 1999 and March 31, 1999 2
Consolidated Statements of Operations for the
three and six month periods ended
September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows for the
six month periods ended
September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Part II. Other Information:
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
(unaudited)
ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,743 $ 22,050
Accounts receivable, net 1,072 1,835
Prepaid expenses and other current assets 318 194
-------- --------
Total current assets 17,133 24,079
-------- --------
Property and equipment, net 1,091 1,318
-------- --------
$ 18,224 $ 25,397
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 263 $ 593
Accrued expenses 1,469 1,840
Accrued royalties 270 341
Deferred revenue 1,593 2,509
-------- --------
Total current liabilities 3,595 5,283
-------- --------
Stockholders' equity:
Common stock 86 85
Additional paid-in capital 44,372 44,325
Treasury stock (1,361) (1,155)
Accumulated translation adjustment (26) (31)
Accumulated deficit (28,442) (23,110)
-------- --------
Total stockholders' equity 14,629 20,114
-------- --------
$ 18,224 $ 25,397
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1999 1998 1999 1998
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Software licenses $ 427 $ 811 $ 1,000 $ 1,487
Maintenance and services 1,528 1,235 2,996 2,423
------- ------- ------- -------
Total revenue 1,955 2,046 3,996 3,910
Cost of revenue
Cost of software licenses 289 76 384 132
Cost of maintenance and services 719 761 1,529 1,607
------- ------- ------- -------
Total cost of revenue 1,008 837 1,913 1,739
------- ------- ------- -------
Gross profit 947 1,209 2,083 2,171
Operating expenses
Selling and marketing 1,748 1,644 3,746 3,380
Research and development 1,677 1,703 3,173 3,406
General and administrative 602 452 1,017 879
------- ------- ------- -------
Total operating expenses 4,027 3,799 7,936 7,665
------- ------- ------- -------
Loss from operations (3,080) (2,590) (5,853) (5,494)
Interest and other income, net 266 369 521 773
------- ------- ------- -------
Net loss $(2,814) $(2,221) $(5,332) $(4,721)
======= ======= ======= =======
Basic and diluted net loss per common share $ (0.35) $ (0.26) $ (0.67) $ (0.56)
======= ======= ======= =======
Weighted average basic and diluted shares outstanding 7,963 8,407 7,981 8,389
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended September 30,
1999 1998
(unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,332) $(4,721)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 455 471
Provision for doubtful accounts 69 -
Changes in operating assets and liabilities:
Accounts receivable 694 (232)
Prepaid expenses and other current assets (124) (66)
Accounts payable (330) (463)
Accrued expenses (366) (79)
Accrued royalties (71) 82
Deferred revenue (916) 43
------- -------
Net cash used in operating activities (5,921) (4,965)
Cash flows from investing activities:
Purchases of property and equipment (228) (355)
Cash flows from financing activities:
Proceeds from issuance of common stock 48 63
Payments for common stock repurchases (206) -
Payments of capital lease obligations (5) -
------- -------
Net cash provided by (used in)
financing activities (163) 63
Effect of exchange rate changes on cash 5 (11)
------- -------
Net decrease in cash and cash equivalents (6,307) (5,268)
Cash and cash equivalents, beginning of period 22,050 31,779
------- -------
Cash and cash equivalents, end of period $15,743 $26,511
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Workgroup Technology Corporation (the "Company"), incorporated in May 1992,
develops and markets CMS, a production-proven product data management
solution that facilitates the management of product information and work
processes performed by multi-functional product development teams.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements and notes do not
include all of the disclosures made in the Company's Annual Report on Form
10-K for fiscal 1999, which should be read in conjunction with these
statements. However, in the opinion of management, the statements include
all adjustments necessary for a fair presentation of the quarterly results.
All adjustments made to these financial statements were considered to be of a
normal and recurring nature. The results for the six month period ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full fiscal year.
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates and would impact future
results of operations and cash flows.
3. NET LOSS PER COMMON SHARE
The Company's basic net loss per common share is computed by dividing net
loss by the weighted average number of shares of common stock outstanding and
diluted net loss per common share is based on the same computation but also
includes dilutive potential common shares. Potential common shares include
shares issuable upon the exercise of stock options or warrants, net of shares
assumed to have been purchased with the proceeds. Potential common shares,
which consisted only of stock options, were antidilutive for each of the
periods ended September 30, 1999 and 1998 and therefore the basic and diluted
net loss per common share were the same for those periods.
Options to purchase weighted average shares of the Company's common stock of
1,554,070 and 1,913,873 were outstanding for the periods ended September 30,
1999 and 1998, respectively, at weighted average prices of $3.45 and $4.01,
respectively, but were not included in the computation of diluted earnings
per share because they were antidilutive.
5
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SUBSEQUENT EVENTS
In October 1999, the Board of Directors authorized management actions that
will result in the discontinuance of development, sales and marketing efforts
related to the WTC OpCenter product and the Company will begin exploring
opportunities for the potential license or sale of the product line. As a
result of this, the Company reduced its workforce by approximately 20 percent
and will record a related one-time charge during the third quarter of fiscal
2000.
6
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Revenue. The Company's revenue consists of license fees for its CMS family of
software products and fees for professional services and software maintenance.
Revenue for the second quarter of fiscal 2000 decreased 4.4% to $1,955,000 from
$2,046,000 compared with the same period of fiscal 1999. Revenue for the six
month period ended September 30, 1999 increased 2.2% to $3,996,000 from
$3,910,000 in the comparable period of fiscal 1999.
Software license revenue for the three and six month periods ended September 30,
1999 decreased 47.3% and 32.8%, respectively, to $427,000 and $1,000,000 from
$811,000 and $1,487,000 in the same periods of fiscal 1999. The three and six
month periods ended September 30, 1998 were favorably impacted by higher sales
from the initial promotion of the Weblink and View/Markup products.
Maintenance and services revenue for the three and six month periods ended
September 30, 1999 increased 23.7% and 23.6%, respectively, to $1,528,000 and
$2,996,000 from $1,235,000 and $2,423,000 in the comparable periods of fiscal
1999. This increase resulted primarily from higher maintenance revenue as a
result of an increase in the customer maintenance base as well as an increase in
revenue from consulting services.
Cost of Revenue and Gross Profit. The Company's cost of software license
revenue consists primarily of third party royalties payable upon the license of
products for which another party is entitled to receive compensation, as well as
costs associated with media, packaging, documentation and delivery of the
Company's product. Gross profit associated with software license revenue for the
second quarter of fiscal 2000 decreased to $138,000 or 32.3% of software license
revenue from $735,000 or 90.6% of software license revenue in the second quarter
of fiscal 1999. For the six months ended September 30, 1999, gross profit from
software license revenue decreased to $616,000 or 61.6% of software license
revenue from $1,355,000 or 91.1% for the same period of fiscal 1999. These
changes result primarily from lower software license revenue, a one-time charge
in the second quarter of fiscal 2000 for the write-off of prepaid royalties
related to the WTC OpCenter product line and, to a lesser extent, the mix of
products sold during each of the periods which required royalty payments to
another party.
Cost of maintenance and services revenue consists primarily of personnel and
related costs for the Company's customer support and professional services
organizations. The Company's gross profit on maintenance and services revenue
increased to $809,000 or 52.9% of maintenance and services revenue in the second
quarter of fiscal 2000 from $474,000 or 38.4% of maintenance and service revenue
in the second quarter of fiscal 1999. For the six months ended September 30,
1999, gross profit on the maintenance and services revenue increased to
$1,467,000 or 49.0% from $816,000 or 33.7% of the associated revenue in the
comparable period of fiscal 1999. These increases in gross profit are due
primarily to higher maintenance revenue as well as lower personnel costs and
higher revenue productivity in the consulting organization.
Total gross profit as a percentage of total revenue decreased to 48.4% and 52.1%
for the three and six months ended September 30, 1999 from 59.1% and 55.5% in
the same periods of fiscal 1999. These decreases are the result of lower
software margins and a one-time charge in the second quarter of fiscal 2000 for
the write-off of prepaid royalties related to the WTC OpCenter product line,
partially offset by an improvement in services margins.
7
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling and Marketing. Selling and marketing expenses increased 6.3% and 10.8%
for the three and six month periods ended September 30, 1999 to $1,748,000 and
$3,746,000 from $1,644,000 and $3,380,000, respectively, for the same periods of
fiscal 1999. These increases resulted from higher costs for marketing programs
and external market research consultants. As a result of these increases,
selling and marketing expenses as a percentage of revenue increased to 89.4% and
93.7% in the three and six month periods of fiscal 2000 from 80.4% and 86.4% in
the same periods of fiscal 1999.
Research and Development. Research and development expenses decreased 1.5% and
6.8% for the three and six month periods ended September 30, 1999 to $1,677,000
and $3,173,000 from $1,703,000 and $3,406,000, respectively, for the same
periods of fiscal 1999. The decrease for the six month period resulted
primarily from lower headcount in the development organization. As a result of
these decreases, research and development expenses as a percentage of revenue
decreased to 79.4% in the six month period of fiscal 2000 from 87.1% in the same
period of fiscal 1999. For the second quarter, research and development
expenses as a percentage of revenue increased to 85.8% in fiscal 2000 from 83.2%
in fiscal 1999 as a result of lower revenue.
General and Administrative. General and administrative expenses increased 33.2%
and 15.7% for the three and six month periods ended September 30, 1999 to
$602,000 and $1,017,000 from $452,000 and $879,000, respectively, for the same
periods of fiscal 1999. These increases are primarily the result of expenses
associated with the hiring of a new president during the quarter and an increase
in the accounts receivable reserve. As a result of these increases, general and
administrative expenses as a percentage of revenue increased to 30.8% and 25.5%
for the three and six month periods of fiscal 2000 from 22.1% and 22.5% for each
of the same periods of the previous fiscal year.
Interest and Other Income, (Net). Interest and other income, net consists
primarily of interest earned on cash and cash equivalents and other income,
offset by interest expense associated with equipment financing. Interest and
other income for the three and six month periods ended September 30, 1999
decreased $103,000 or 27.9% and $252,000 or 32.6%, respectively, from the same
periods of fiscal 1999. A decrease in interest income due to lower cash and
cash equivalent balances was partially offset by other income during the
quarter.
8
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents at September 30, 1999 decreased $6,307,000 to
$15,743,000 from $22,050,000 at March 31, 1999. This decrease resulted
primarily from cash used in operations, as well as capital expenditures of
$228,000, during the six month period ended September 30, 1999. Working capital
decreased $5,258,000 to $13,538,000 at September 30, 1999 from $18,796,000 at
fiscal year end.
During the second quarter of fiscal 2000, the Company repurchased 10,000 shares
of its common stock for $13,000. At September 30, 1999, approximately 600,000
shares of the 750,000 shares authorized by the Board of Directors had been
repurchased by the Company.
In October 1999, the Board of Directors authorized management actions that will
result in the discontinuance of development, sales and marketing efforts related
to the WTC OpCenter product and the Company will begin exploring opportunities
for the potential license or sale of the product line. As a result of this, the
Company reduced its workforce by approximately 20 percent and will record a
related one-time charge during the third quarter of fiscal 2000.
The Company believes its existing cash and cash equivalent balances will be
sufficient to meet its cash requirements for at least the next year.
To date, neither foreign currency exposure nor inflation has had a material
impact on the Company's financial results.
9
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 READINESS DISCLOSURE STATEMENT
- ----------------------------------------
Background. The Year 2000 ("Y2K") issue is the result of computer programs
using a two-digit format, as opposed to four digits, to indicate the year.
Computer systems based on a two-digit format will be unable to interpret dates
beyond the year 1999, which could cause a system failure or other computer
errors, leading to disruptions in operations.
Assessment. The Y2K issue could affect the Company's products, computers,
software and other equipment used, operated, or maintained by the Company.
Accordingly, the Company has developed a Y2K readiness plan focused on:
(1) assessing the readiness of its software product offerings, internal
infrastructure and major suppliers; (2) addressing Y2K issues; and (3) planning
and budgeting for reasonably likely contingencies.
Software Product Offerings. The Company has completed testing its current
product offerings for Y2K compliance. Based on its review to date, the Company
believes that the current version of its products are Y2K compliant. However,
management also believes that it is not possible to determine with complete
certainty that all Y2K issues affecting the Company's software products have
been identified or corrected due to the complexity of these products and the
fact that these products interact with other third-party vendor products and
operate on computer systems which are not under the Company's control.
Internal Infrastructure. The Company believes that it has identified the major
computers, software applications and related equipment used in connection with
its mission critical internal operations and has completed an assessment of
these systems in regards to Y2K compliance. The Company expects to continue
testing its internal systems and to undertake corrective measures, if necessary,
throughout calendar year 1999.
Major Suppliers. The Company has communicated with its third-party suppliers of
the major computers, software and other equipment used, operated, or maintained
by the Company to identify and, to the extent possible, to resolve issues
involving Y2K. Based on information received to date, no material Y2K issues
have been identified. However, the Company has limited or no control over the
actions of these third-party suppliers. Where the Company believes that a
particular vendor or supplier poses unacceptable Y2K risks, it has identified or
will identify an alternative supply source.
Cost of Year 2000 Compliance. Costs incurred in our Y2K compliance effort
include the allocation of personnel to test our products and systems as well as
to upgrade internal systems. To date, costs incurred by the Company for Y2K
compliance have not been material nor does the Company expect the Y2K problem to
have a material impact on its business or operating results.
Risk of Year 2000 Issues. The Company expects to identify and resolve Y2K
issues that could materially adversely affect its business operations. However,
management believes that it is not possible to determine with complete certainty
that all Y2K issues affecting the Company have been identified or corrected. The
Company cannot predict the nature or materiality of the impact on its operations
or operating results of Y2K disruption by parties over whom it has no control.
Furthermore, the purchasing patterns of the Company's customers or potential
customers may be affected by Y2K issues if they must expend significant
resources to correct their own systems. As a result, they may have fewer funds
available to purchase the Company's products and services.
10
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Contingency Plans. As part of its Y2K compliance planning process, the Company
is also considering contingency plans to be implemented if the need arises.
Depending on the systems affected, these plans could include accelerated
replacement of affected equipment or software, short- to medium-term use of
backup equipment and software, increased work hours for Company personnel or use
of contract personnel to correct on an accelerated schedule any Y2K issues that
arise or to provide manual workarounds for information systems, and similar
approaches. If the Company is required to implement any of these contingency
plans, it could affect the Company's financial condition and results of
operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
- ----------------------------------------------
The Company does not provide forecasts of its future financial performance.
However, from time-to-time information provided by the Company or statements
made by its employees may contain "forward-looking" information that involves
risks and uncertainties. In particular, statements contained in filings with the
Securities and Exchange Commission (including this Form 10-Q), press releases
and oral statements which are not historical facts constitute forward-looking
statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results of
operations and financial condition have varied and may in the future vary
significantly from those stated in any forward-looking statements and there can
be no assurance that the results set forth in those statements will be achieved.
Factors that may cause such differences include, but are not limited to, the
factors discussed below. Each of these factors, and others, are discussed from
time to time in the Company's filings with the Securities and Exchange
Commission, including the Company's Form 10-K filed in June 1999.
The Company's future results are subject to substantial risks and uncertainties.
Because the Company derives a substantial portion of its revenue from software
license fees, the Company's quarterly and annual operating results are sensitive
to the size, timing and shipment of individual orders, customer order deferrals
in anticipation of new products or the lengthening of the sales cycle either
generally or with respect to individual customers. In addition, the Company's
continued growth is dependent on achieving broader market acceptance of its
products, the growth of the product data management market, and the ability of
the Company to introduce enhancements and additional integrations to its
products in a timely manner to meet the evolving needs of its customers. The
Company also relies on certain intellectual property protections to preserve its
intellectual property rights. Any invalidation of the Company's intellectual
property rights or lengthy and expensive defense of those rights could have a
material adverse effect on the Company. The segment of the software industry in
which the Company is engaged is extremely competitive. Certain current and
potential competitors of the Company are more established and benefit from
greater market recognition and have substantially greater financial, development
and marketing resources than the Company. The Company's ability to achieve Year
2000 compliance, and the level of incremental costs associated therewith, could
be adversely impacted by, among other things, the availability and cost of
programming and testing resources, vendors' ability to modify proprietary
software, and unanticipated problems identified in the ongoing compliance
review.
11
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's quarterly and annual operating results are impacted by a variety
of factors that could materially adversely affect revenues and profitability,
including the timing and shipment of enhancements to the Company's products and
changes or anticipated changes in economic conditions. Because the Company's
operating expenses are relatively fixed, an unanticipated shortfall in revenue
in a quarter may have an adverse impact on the Company's results of operations
for that quarter. As a result of the foregoing and other factors, the Company
may experience material fluctuations in future operating results on a quarterly
or annual basis which could materially and adversely affect its business,
financial condition and stock price.
12
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any litigation that it believes would have
a material impact on its business.
Item 4. Submission of Matters to a Vote of Security Holders
On July 30, 1999, the Company held its Annual Meeting of Stockholders.
At the meeting, the Stockholders acted upon a proposal to elect one
Class I director to serve for a three-year term or until his or her
successor is elected and qualified. The Board of Directors nominated and
recommended that Mr. James M. Carney, who is currently a director, be
elected a Class I director. The proposal was approved by the
Stockholders. Holders of 6,865,115 shares of common stock voted for the
proposal. Holders of 15,285 shares abstained and there were no broker
non-votes. The terms of directors Stephen J. Gaal, Charles E. Moran and
John P. McDonough continued after the Annual Meeting of Stockholders. In
addition, on September 20, 1999, Mr. John P. McDonough resigned as a
Class II director and the Board of Directors elected Mr. Patrick H.
Kareiva as a Class II director to hold office until the 2000 Annual
Meeting of Stockholders or until his successor is duly elected and
qualified.
Item 5. Other Information
In October 1999, the Board of Directors authorized management actions
that will result in the discontinuance of development, sales and
marketing efforts related to the WTC OpCenter product and the Company
will begin exploring opportunities for the potential license or sale of
the product line. As a result of this, the Company reduced its workforce
by approximately 20 percent and will record a related one-time charge
during the third quarter of fiscal 2000.
Proposals of stockholders intended for inclusion in the proxy statement
to be furnished to all stockholders entitled to vote at the next Annual
Meeting of Stockholders of the Company must be received at the Company's
principal executive offices not later than March 2, 2000. The deadline
for providing timely notice to the Company of matters that stockholders
otherwise desire to introduce at the next annual meeting of stockholders
of the Company is March 2, 2000, provided, however, notice shall not be
given prior to February 1, 2000. Further, any proposals must comply with
the other procedural requirements set forth in the Company's By-laws, a
copy of which is on file with the SEC, and as set forth by the SEC. In
order to curtail any controversy as to the date on which a proposal was
received by the Company, it is suggested that proponents submit their
proposals by Certified Mail, Return Receipt Requested to Workgroup
Technology Corporation, 91 Hartwell Avenue, Lexington, Massachusetts,
02421, Attention: Corporate Secretary.
13
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.16 Employment Agreement between the Company and Patrick H.
Kareiva
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
14
<PAGE>
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.
WORKGROUP TECHNOLOGY CORPORATION
Registrant
Date: November 8, 1999 /s/ Patrick H. Kareiva
----------------- -----------------------------------------
Patrick H. Kareiva
President, Chief Executive Officer, Chief
Financial Officer and Secretary
Date: November 8, 1999 /s/ Diane M. Marcou
----------------- -----------------------------------------
Diane M. Marcou
Vice President - Finance & Administration,
Treasurer and Assistant Secretary
15
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 20th day of September, 1999, by and between
Patrick H. Kareiva, a person residing at 21 Albion Road, Wellesley Hills,
Massachusetts 02481 (the "Employee") and Workgroup Technology Corporation, a
Delaware corporation with its principal place of business at 91 Hartwell Avenue,
Lexington, MA 02421 (the "Company").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. Position and Responsibilities. During the term of this Agreement, the
-----------------------------
Employee agrees to serve as the President and Chief Executive Officer of the
Company. The Employee shall at all times report to, and his activities shall at
all times be subject to the direction and control of the Board of Directors of
the Company, and the Employee shall exercise such powers and comply with and
perform, faithfully and to the best of his ability, such directions and duties
in relation to the business and affairs of the Company as may from time to time
be vested in or requested of him. During the period of Employee's employment by
the Company, Employee shall devote substantially all of his time and best
efforts to the business of the Company. If Employee shall be elected to other
offices of the Company or any of its affiliates, he shall serve in such
positions without further compensation than provided for in this Agreement.
2. Compensation: Salary, Bonuses and Other Benefits. During the term of
------------------------------------------------
this Agreement, the Company shall pay the Employee the following compensation:
(A) Salary. In consideration of the services to be rendered by the Employee
------
to the Company, the Company shall pay to the Employee a monthly salary of
Twenty-Eight Thousand Dollars ($28,000.00) (the Employee's "base rate")
during the term of this Agreement. Such salary shall be payable in conformity
with the Company's customary practices for executive compensation, as such
practices shall be established or modified from time to time.
(B) Fringe Benefits. The Employee will not be entitled to any health,
---------------
welfare or other benefits from the Company. However, the Company will allow
the Employee to participate in benefit plans if: (a) it is mandated by law;
(b) it is mandated by master contract; or (c) if it is of no material cost to
the Company. If the Employee does participate in any benefits or plans, he
shall participate on the same general basis and subject to the same rules and
regulations as other Company employees and as such benefits or plans may be
modified or amended from time to time.
(C) Expenses. The Company shall pay or reimburse the Employee for all
--------
reasonable business expenses incurred or paid by the Employee in the
performance of his duties and responsibilities hereunder in accordance with
the expense policies of the Company as they may be established or modified
from time to time.
<PAGE>
-2-
(D) Vacation. During the term hereof, the Employee shall be entitled to
--------
four (4) weeks of vacation per fiscal year to be earned at the rate of one
week for each fiscal quarter during which Employee is an employee in good
standing on the first day of such fiscal quarter. Vacation will be taken at
such times and intervals as shall be agreed to by the Company and the
Employee in their reasonable discretion.
(E) Bonus. The Employee shall also be eligible to receive a bonus upon the
-----
termination of his employment or upon the occurrence of a Liquidity Event (as
hereinafter defined), subject to the terms set forth below:
1) If Employee's employment is terminated by the Company (a) other than
"for cause" pursuant to Section 4(D) or (b) by delivery of a notice of non-
renewal pursuant to Section 3, he shall be entitled to receive on the
effective date of his termination a bonus of Fifty Thousand Dollars
($50,000.00); in addition, if Employee is so terminated after a letter of
intent has been executed with respect to a transaction which would, if
effected, result in a Liquidity Event, and such transaction closes within
180 days of Employee's termination date, Employee shall, upon the closing
of such transaction, be entitled to a bonus calculated in accordance with
Section 2(E)2 below (reduced by the initial $50,000 bonus payment).
2) If a Liquidity Event occurs while Employee remains employed by the
Company, the Employee shall be entitled to a bonus equal to the greater of
(a) $50,000, or (b) an amount equal to the appreciation in value, if any,
of 200,000 shares of Common Stock of the Company from $1.25 per share (the
market value per share on September 20, 1999) to their market or other
realized price on the effective date of the Liquidity Event. Payment of
such bonus will be made within five (5) business days of the effective date
of the Liquidity Event.
3) No bonus shall be payable to Employee if (i) Employee's employment is
terminated "for cause" (as defined in Section 4(C) of this Agreement); (ii)
Employee resigns; or (iii) Employee delivers a notice of non-renewal
pursuant to Section 3 hereof.
(F) All payments in this Section 2 shall be subject to all applicable
federal, state and local withholding, payroll and other taxes.
3. Term. Subject to the earlier termination as hereafter provided in
----
Section 4, the term of this Agreement shall commence on September 20, 1999 and
shall continue until March 31, 2000 (the "Initial Term"), provided, however, the
-------- -------
Employee's employment under this Agreement shall be automatically renewed
thereafter for successive one (1) month terms unless ten (10) calendar days
prior to the expiration of the Initial Term or any renewal term, either party
shall give written notice of non-renewal to the other.
4. Termination. The Employee's employment under this Agreement may be
-----------
terminated as follows:
<PAGE>
-3-
(A) By Expiration of the Agreement: If this Agreement expires as set forth
------------------------------
in Section 3 hereof, the Employee shall be entitled to no further payments,
severance or other benefits after the expiration date of the Agreement except
as required by law and except for, in the event the Company has delivered a
notice of non-renewal pursuant to Section 3, the bonus set forth in Section
2(E)1.
(B) At the Employee's Option. The Employee may terminate his employment
------------------------
hereunder at any time during the Initial Term of this Agreement by giving at
least thirty (30) calendar days' advance written notice to the Company. In
the event of such a termination at the Employee's option, the Company may
accelerate Employee's departure date and shall have no obligation to pay
Employee after his actual departure date. In the event of such a termination
at the Employee's option, the Employee shall be entitled to no further
payments, severance or other benefits after the effective date of his
termination, except as otherwise required by law.
(C) At the election of the Company for Cause. The Company may, immediately
----------------------------------------
and unilaterally, terminate the Employee's employment hereunder "for cause"
at any time during the term of this Agreement by providing Employee written
notice of termination "for cause." Termination of the Employee's employment
by the Company shall constitute a termination "for cause" under this Section
4(C) if such termination is for one or more of the following causes:
(i) the willful failure or refusal of the Employee to render services to
the Company in accordance with the duties of Chief Executive Officer;
(ii) the commission by the Employee of an act of fraud or embezzlement;
(iii) the commission of illegal activity by the Employee; or
(iv) the Employee's breach of the terms of this Agreement.
In the event of a termination "for cause" pursuant to the provisions of
clauses (i) through (iv) above, inclusive, the Employee shall be entitled to
no further payments, severance or other benefits except as otherwise required
by law.
(D) At the Election of the Company for Reasons Other than for Cause. The
---------------------------------------------------------------
Company may terminate the Employee's employment hereunder at any time during
the Initial Term of this Agreement without cause by giving thirty (30)
calendar days' advance written notice to the Employee of the Company's
election to terminate. At the Company's sole option, the Company may give
Employee thirty (30) days pay in lieu of such notice. During such thirty
(30) day period, the Employee will be available on a full-time basis for the
benefit of the Company to assist the Company in making the transition to a
successor officer of the Company. In the event of the Company's termination
of Employee under this Section 4(D), the Employee shall be entitled to no
further payments, severance or other benefits after the
<PAGE>
-4-
effective date of his termination, except for the bonus set forth in Section
2(E)1 and as otherwise required by law.
(E) Liquidity Event. In the event of a Liquidity Event the Employee's
---------------
employment hereunder shall automatically terminate upon the effective date of
the Liquidity Event, except in the case of the sale of all or substantially
all of the assets of the Company, in which case Employee's employment shall
terminate thirty (30) calendar days after the closing of such sale. For the
purposes of this Agreement, "Liquidity Event" means (i) a sale of all or
substantially all of the assets of the Company; (ii) a merger or
consolidation of the Company with or into any other corporation, unless the
Company is the surviving entity and the shareholders of the Company
immediately prior to such event continue to own a majority of the outstanding
shares of the Company after such event; or (iii) the transfer, in a single
transaction or a series of related transactions, of a majority of the
outstanding shares of the Company. Upon termination of Employee's employment
in connection with a Liquidity Event, the Employee shall be entitled to no
further payments, severance or other benefits, except for the bonus set forth
in Section 2(E)2 and as otherwise required by law.
5. Survival of Certain Provisions. Provisions of this Agreement shall
------------------------------
survive any termination of employment of this Agreement if so provided herein or
if necessary or desirable to fully accomplish the purposes of such provision.
Without limiting the foregoing, the obligations of the parties under Sections 6
and 7 hereof expressly survive any termination of employment or termination of
this Agreement.
6. Confidentiality. Employee shall not at any time during or within three
---------------
years after the termination of his employment, reveal to any person or entity
any trade secrets or confidential information of the Company or any trade
secrets or confidential information of any third parties which the Company is
under an obligation to keep confidential, except to employees of the Company who
need to know such information for the purposes of their employment and except as
may be required in the course of performing his duties for the Company and
except as may be required by governmental investigations or in connection with
litigation proceedings. Confidential information includes, but is not limited
to, research and development activities, product designs, prototypes and
technical specifications, show how and know how, marketing plans and strategies,
pricing and costing policies, customer and suppliers lists and accounts,
nonpublic financial information, systems, processes, software programs, works of
authorship, inventions, projects, plans and proposals, but shall not include any
information (a) of which the Employee presently has knowledge and of which he
did not learn through his contact with the Company prior to the date hereof; (b)
which is subsequently designated as non-confidential or is treated as non-
confidential by the Company; (c) which is presently publicly available or a
matter of public knowledge generally; or (d) which is lawfully received by
Employee from a third party who is or was not bound in any confidential
relationship to the Company. The Employee shall keep secret all matters
entrusted to him and shall not use or attempt to use any confidential
information except as may be required in the course of performing his duties for
the Company.
<PAGE>
-5-
7. Indemnification. The Employee shall be entitled to indemnification in
---------------
accordance with the provisions of Article TENTH of the Amended and Restated
Certificate of Incorporation of the Company, as in effect on the date hereof.
The Company represents to Employee that attached hereto as Exhibit A is a true
---------
copy of said Article TENTH, as in effect on the date hereof. The Company shall
not amend the provisions of said Article TENTH without the consent of the
Employee. During the period of Employee's employment with the Company, the
Company will maintain its existing directors and officers insurance policy, with
its current $5 million policy limits, for the benefit of the Employee. The
Employee shall also be entitled to all other additional rights of
indemnification and exculpation, if any, as may be provided by law or by Company
policy in his capacity as an officer and employee of the Company.
8. Consent and Waiver by Third Parties. The Employee hereby represents and
-----------------------------------
warrants that he has obtained all waivers and/or consents from third parties
which are necessary to enable him to enjoy employment with the Company on the
terms and conditions set forth herein and to execute and perform this Agreement
without being in conflict with any other agreement, obligation or understanding
with any such third party. The Employee represents that he is not bound by any
agreement or any other existing or previous business relationship which
conflicts with, or may conflict with, the performance of his obligations
hereunder or prevent the full performance of his duties and obligations
hereunder.
9. Due Authorization. The Company represents to Employee that this
-----------------
Agreement has been duly authorized by all necessary corporate action and that,
upon execution of this Agreement by the Chairman of the Company, it will be a
duly authorized, executed and delivered agreement of the Company, enforceable
against it in accordance with its terms.
10. Governing Law. This Agreement, the employment relationship contemplated
-------------
herein and any claim arising from such relationship, whether or not arising
under this Agreement, shall be governed by and construed in accordance with the
internal laws of the Commonwealth of Massachusetts, without giving effect to the
principles of choice of law or conflicts of laws of such Commonwealth and this
Agreement shall be deemed to be performable in Massachusetts. Any claims or
legal actions by one party against the other arising out of the relationship
between the parties contemplated herein (whether or not arising under this
Agreement) shall be commenced or maintained in any state or federal court
located in Massachusetts, and Employee and Company hereby submit to the
jurisdiction and venue of any such court.
11. Severability. In case any one or more of the provisions contained in
------------
this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement. Moreover, if one or more
of the provisions contained in this Agreement shall for any reason be held to be
excessively broad as to scope, activity, subject or otherwise so as to be
unenforceable at law, such provision or provisions shall be construed and
reformed by the appropriate judicial body by limiting or reducing it or them, so
as to be enforceable to the maximum extent compatible with the applicable law as
it shall then appear.
<PAGE>
-6-
12. Remedies Upon Breach: The Employee agrees that any breach of this
--------------------
Agreement by him will cause irreparable damage to the Company and that in the
event of such breach the Company shall have, in addition to any and all remedies
of law, the right to an injunction, specific performance or other equitable
relief to prevent the violation of Employee's obligations hereunder.
13. Waivers and Modifications. This Agreement may be modified, and the
-------------------------
rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 13. No waiver by either party of
any breach by the other or any provision hereof shall be deemed to be a waiver
of any later or other breach thereof or as a waiver of any other provision of
this Agreement. This Agreement sets forth all of the terms of the
understandings between the parties with reference to the subject matter set
forth herein and may not be waived, changed, discharged or terminated orally or
by any course of dealing between the parties, but only by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought. No modification or waiver by the Company shall be
effective without the consent of the Chairman of the Board of Directors.
14. Assignment. The Employee may not assign any of his rights or delegate
----------
any of his duties or obligations under this Agreement provided, however, that
the rights of Employee hereunder shall inure to the benefit of his legal
representatives and heirs in the event of his death or disability. 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.
15. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the parties relating to the subject matter hereof and supersedes and cancels
all agreements, written or oral, made prior to the date hereof between the
Employee and the Company.
16. Notices. All notices hereunder shall be in writing and shall be
-------
delivered in person or mailed by certified or registered mail, return receipt
requested, addressed as follows:
If to the Company, to: Workgroup Technology Corporation
91 Hartwell Avenue
Lexington, MA 02421
Attention: James M. Carney, Chairman
With a Copy to: Andrew E. Taylor, Jr. Esq.
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
If to the Employee, to: Patrick H. Kareiva
21 Albion Road
Wellesley Hills, Massachusetts 02481
<PAGE>
-7-
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
18. Section Headings. The descriptive section headings herein have been
----------------
inserted for convenience only and shall not be deemed to define, limit, or
otherwise affect the construction of any provision hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-8-
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement effective as of the date first above written.
WORKGROUP TECHNOLOGY CORPORATION
By: /s/ James Carney
----------------
Title: Chairman
/s/ Patrick H. Kareiva
----------------------
Patrick H. Kareiva
MCNAMEE/8675.1A859873-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-2000
<PERIOD-START> JUL-01-1999 APR-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 15,743 15,743
<SECURITIES> 0 0
<RECEIVABLES> 1,222 1,222
<ALLOWANCES> 150 150
<INVENTORY> 0 0
<CURRENT-ASSETS> 318 318
<PP&E> 3,418 3,418
<DEPRECIATION> 2,327 2,327
<TOTAL-ASSETS> 18,224 18,224
<CURRENT-LIABILITIES> 3,595 3,595
<BONDS> 0 0
0 0
0 0
<COMMON> 44,458 44,458
<OTHER-SE> (29,829) (29,829)
<TOTAL-LIABILITY-AND-EQUITY> 18,224 18,224
<SALES> 1,955 3,996
<TOTAL-REVENUES> 1,955 3,996
<CGS> 1,008 1,913
<TOTAL-COSTS> 1,008 1,913
<OTHER-EXPENSES> 4,027 7,936
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (266) (521)
<INCOME-PRETAX> (2,814) (5,332)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,814) (5,332)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,814) (5,332)
<EPS-BASIC> (0.35) (0.67)
<EPS-DILUTED> (0.35) (0.67)
</TABLE>
