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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For the Fiscal Year Ended: March 31, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
91 Hartwell Ave., Lexington, MA 02421
- ------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 674-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 15, 1999 (based on the closing price as quoted by Nasdaq
National Market as of such date) was $11,600,000.
As of June 15, 1999, 7,935,788 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement relating to the Company's Annual
Meeting of Stockholders to be held on July 30, 1999 are incorporated by
reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
General
Founded in 1992, Workgroup Technology Corporation ("WTC" or the "Company")
designs, develops, markets and supports a family of products and services that
facilitates the management of product information and work processes performed
by multi-functional, enterprise product development organizations. The Company
provides both production-proven, enterprise product data management (through
CMS(TM)) and real-time knowledge-based program management (through WTC
OpCenter(TM)) solutions for product development. WTC ServiceCenter(TM) is a
line of professional service offerings providing consulting, training and
technical support services that improve efficiency and help optimize the product
development process for WTC's customers.
The Company was incorporated in the State of Delaware in May 1992. The
Company's principal executive offices are located at 91 Hartwell Avenue,
Lexington, Massachusetts 02421, and its telephone number is (781) 674-2000.
References herein to "WTC" and the "Company" include Workgroup Technology
Corporation and its wholly-owned subsidiary, Workgroup Technology GmbH.
From time-to-time, information provided by the Company or statements made
by its employees, including statements made herein, may contain "forward-
looking" information which involve risks and uncertainties. In particular, the
statements set forth below under the heading "WTC's Strategy" regarding the
Company's objectives to build a leadership position, enhance product offerings,
expand third-party relationships and broaden distribution and market awareness
are "forward-looking" statements and are based on the assumptions and
expectations of the Company's management at the time such statements are made.
The Company's actual results may vary significantly from those stated in any
forward-looking statements. Important information about the factors that may
cause such differences include, but are not limited to, the risks, uncertainties
and other information discussed in "Certain Factors That May Affect Future
Results" in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in this Form 10K.
Industry Background
Intense competitive pressures are driving companies to shorten product
development cycles and time-to-market, improve the predictability of product
development programs and reduce product costs. At the same time, the
globalization of markets and an increase in competition demands consistent
product quality and the ability to tailor product features to suit local and
regional market conditions. These pressures are forcing companies to reengineer
their approach to managing the product development process including the
conceptual design, engineering, production and marketing of their products.
Managing the product development process imposes significant demands on
information systems. Companies must be able to manage product information within
global organizations and distribute this information to support decision making
in remote locations and across functional areas. Increasingly, product
development information is created and stored electronically by a wide range of
disparate applications and systems such as Computer Aided Design ("CAD")
systems; Electronic Design Automation ("EDA") systems; word processing, document
management and spreadsheet applications; enterprise manufacturing resource
planning ("MRP") systems; and various project management tools.
The pressures on product development are driving companies to implement
product data management ("PDM") and product development management solutions to
manage and track the increasing complexity of product development with the
ultimate goal of shortening and improving the predictability of product
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development cycles. WTC offers software solutions that meet the needs of product
development organizations for capturing, utilizing, maintaining and modifying
product data and associated change processes while offering access to current
information at all stages of the product development process.
WTC Family of Products
WTC's family of products and services facilitate the management of product
information and work processes performed by multi-functional, enterprise product
development organizations. WTC's current product development solutions include
its PDM product (CMS) and its knowledge-based program management product (WTC
OpCenter).
CMS is an enterprise-wide, pragmatic product data management solution
designed to automate and accelerate the creation, capture, modification, control
and reuse of product and process information. CMS processes, stores and
retrieves all electronic data including design models, bills of material,
spreadsheets, voice, video and multimedia files through a global organization.
CMS currently provides thousands of end-users worldwide with a production-proven
solution including the following important benefits:
Quick Adaptability: The highest hurdle companies must overcome when
instituting a PDM system is lengthy implementation and deployment time.
CMS is a flexible, modular system and can be used immediately with minimal
programming or customization. As a result, CMS can be managed without an
overwhelming burden on programmers and administrators, reducing the ongoing
cost of ownership.
Effective Integration: Through its open architecture and API module, CMS
can be integrated with various information systems, tools and industry
products. WTC also provides integration with industry standard tools such
as Parametric Technology Corporation's ("PTC") Pro/ENGINEER(R), Mentor
Graphics(R), Informative Graphics' Myriad(R) and Engineering Animation,
Inc.'s ("EAI") PreVIEW(R).
Global Accessibility: Leveraging the capabilities of the Internet and
corporate intranets, WTC products rapidly disseminate the most up-to-date
product information worldwide throughout extended enterprise networks and
across functional areas.
The CMS product solution is packaged as a suite of modules. When combined,
the modules form an integrated solution, based upon a unified software
architecture foundation that provides a consistent user interface and common
data management structure. CMS modules may be deployed in any combination to
meet the specific needs of a customer. The following modules comprise the CMS
product family:
CMS
---
The core of the CMS product family, CMS provides comprehensive document and
release management, including vault management, version control, security,
administration and reporting. CMS manages documents, data and information
such as CAD models, bills of materials, technical specifications and
regulatory documents.
CMS Workflow(TM)
--------------
CMS Workflow is a flexible process management application that allows
companies to model the business process for CMS managed information. Work
requests are routed to the appropriate individuals and groups, together with
the information needed to perform the work. CMS team members have access to
the status of all active workflows, as well as the statistics for completed
workflows.
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CMS Replication Server(TM)
------------------------
When a customer needs to support an enterprise or an extended enterprise
distributed over wide-area networks ("WAN"), CMS Replication Server supports
distribution to multiple sites worldwide. The CMS Replication Server
distributes read-only copies of files to user-defined replication vaults that
can exist anywhere on the WAN. CMS Replication Server reduces network traffic
and response time for the distributed teams, particularly for those sharing
work on large design projects.
CMS API(TM)
---------
Through its API module, CMS can be integrated to various information systems
and tools, for example, CAD/CAM, MRP/ERP, document management, workflow and
other PDM systems. CMS API is a programmatic interface that enables the
building of applications that perform site-specific operations, as well as
the automation and streamlining of repetitive tasks.
WTC WebLink(TM)
-------------
WTC WebLink is an easy-to-use toolkit for producing customer-specific CMS Web
clients. With WTC WebLink, users can create clients tailored specifically to
the needs of particular users or groups of users. Simplified clients can be
created utilizing familiar browser interfaces which mask the complexity of
the underlying data management system. WTC WebLink enables organizations to
replace inefficient paper-based systems for distributing product development
information from the engineering department to other users of the information
within and outside of the company.
CMS Integrator for Pro/ENGINEER(TM)
---------------------------------
CMS Integrator for Pro/ENGINEER provides tight integration with PTC's
Pro/ENGINEER family of mechanical design and analysis tools. This integration
supports the management of all Pro/ENGINEER configurations and automatically
extracts and maintains the relationships and attributes which define the
Pro/ENGINEER design. By leveraging CMS release management, the Pro/ENGINEER
design team is able to easily build and retrieve configurations throughout
the product lifecycle.
CMS Integrator for Mentor Graphics(TM)
------------------------------------
CMS Integrator for Mentor Graphics represents the first fully integrated data
management solution for the Mentor Graphics design environment, giving Mentor
Graphics users the power to build and maintain configurations based on the
Mentor Graphics Design Architect and BoardStation data models. CMS Integrator
for Mentor Graphics shortens development cycle time by automatically
providing access to managed design data by all team members at any design
milestone. It maintains secure configuration control over the electronic
information throughout the enterprise allowing for increased reuse of design
information and eliminating non-value added engineering activity.
CMS Integrator for PreVIEW(TM)
----------------------------
CMS Integrator for Myriad(TM)
---------------------------
CMS Integrator for PreVIEW integrates CMS with EAI's PreVIEW and CMS
Integrator for Myriad integrates CMS with Informative Graphics' Myriad. Both
integrations provide complete electronic management of documents, including a
paperless review process, which allow users to view, mark up and print files
on-line. Project managers and reviewers can easily suggest product design
changes, confident that those changes will be rapidly and accurately
communicated to people responsible for source documentation. CMS Integrator
for PreVIEW and CMS Integrator for Myriad automatically launch and support
all functions of PreVIEW and Myriad, respectively, including markup and
watermarking.
CMS products are available on Sun Microsystems, Hewlett-Packard, Silicon
Graphics and Windows NT servers with Unix, Windows and Web clients.
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WTC OpCenter is a knowledge-based program management solution for real-time
control of mission-critical product development processes. WTC OpCenter uniquely
addresses the challenges of product development by providing executives, program
managers and team members with visibility into resources, process, current
status and execution, which enhances product development decisions.
WTC OpCenter is comprised of four essential components:
Process Modeling provides an easy-to-use forms-based interface that allows
users to enter valuable process and procedural information, such as
deliverables, tasks, completion criteria, stages, gates and milestones.
Through WTC OpCenter, models and real-life scenarios for developing and
using corporate best practices are established.
Program Execution enables users to dispatch and receive work assignments
through a Web interface, as well as track, in real-time, the status of
work, available resources and associated costs. In addition, as
individuals feed information into the system, other team members are
automatically updated of deliverables that may impact their work.
Knowledgebase includes quantifiable data from past processes, as well as
the soft data, such as human resources data and schedule availability. By
leveraging the knowledge gained and the lessons learned from past
programs, users can successfully design templates that incorporate best
practice procedures from a past program and implement these templates to
better manage a current program.
With Decision Support, project and program managers are better able to
make decisions because they have a view of the entire product lifecycle.
Users are enabled to interpret and analyze the historical work status
information and real-time metrics and respond to changes and conflicts in
the project or overall strategy of the corporation in real-time. This
allows managers to alter a process or reallocate personnel and resources
during the project to ensure project and deliverables deadlines are met.
WTC OpCenter provides users at all levels of the development process with the
tools that make the right information available at the right time.
Executives are able to effectively manage their pipeline and portfolio,
balance their resources across the enterprise, and utilize program
information at whatever level of detail they need.
Managers and planners are able to balance schedules, resources and team
tasks in real time. Managers and planners are provided with multiple views
of work across projects and against metrics.
Individual team members report the status of their own tasks and see the
status of other tasks that directly affect their work. Multiple tasks are
prioritized and time devoted to multitasking is minimized.
WTC ServiceCenter is a complete line of technical support, consulting and
training offerings. These services are an important component of the total
solution the Company provides to its customers.
System-level training is provided to customers' system administrators and
database administrators to prepare them for successful implementation of CMS.
Implementation and business consulting services are offered to those customers
who request assistance in installing software, designing databases, organizing
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data and modeling development processes. The Company also provides software
maintenance which includes central call center support, technical updates and
maintenance releases of products.
WTC's Strategy
WTC's strategy is to continue to build a leadership position in the product
development management market with its PDM and knowledge-based program
management products. The Company intends to achieve this goal by providing
customers with pragmatic, adaptable solutions that can be put into production
quickly to meet customers' product development needs, expanding third-party
relationships, and creating a world-class organization that can sustain its
future expansion.
In line with this strategy, the Company has further enhanced the
functionality of its core PDM technology with upgraded product releases,
additional applications and related products developed both internally and in
conjunction with leading technology partners. During fiscal 1999, the Company
delivered nine product innovations, adding critical new functionality to its PDM
product, CMS, such as web-enabled capabilities, year 2000 compliance and Windows
NT support. During fiscal 2000, the Company plans to continue to build upon its
technology base by adding new features and functionality to the CMS product with
the release of a major new version which will be renamed WTC ProductCenter.
The Company has also built upon its core competency in providing PDM
solutions with the introduction of WTC OpCenter, its product development
management solution, which was released in fiscal 1999. The Company believes
that this product and its real-time visibility into the current status of
product development will be critical to the overall future growth and success of
WTC.
In addition to its product development efforts, the Company recognizes the
importance of increasing its visibility within the product development market.
The Company intends to increase the distribution of its products through the
development of additional strategic relationships with resellers, systems
integrators and consulting firms. The Company also plans to continue to build
market awareness of its products through increased marketing and public
relations activities.
Customers
WTC solutions are used by thousands of individuals at more than 500 customers
worldwide and have been implemented across a range of industries including
telecommunications, medical products, automotive, aerospace and defense. WTC
customers include leading corporations such as 3Com Corporation; ADC
Telecommunications, Inc.; Alcatel USA; AlliedSignal, Inc.; Eaton Corporation;
General Electric Company; Siemens Energy & Automation, Inc.; Tektronix, Inc.;
United States Surgical Corp. and Whirlpool Corporation.
Sales and Marketing
During fiscal 1999, the Company reorganized its sales organization into three
distinct divisions: national accounts, new business development and value-added
resellers ("VARs"). The national accounts group consists of sales
representatives and technical account managers and is focused on meeting the
needs of and expanding the Company's opportunities within its existing customer
base. The new business development group consists of sales representatives
supported by business consultants and is focused on expanding the breadth of the
Company's customer base. Both of the direct sales organizations are also
supported by a team of telesales representatives. The Company does not believe
that its revenue is materially impacted by seasonality.
The Company utilizes VARs to complement its direct sales force. These VARs
have vertical market expertise and are predominantly focused on providing
product development solutions to new and existing
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customers. To avoid channel conflict, generally, direct sales personnel are
compensated both on their performance and that of the VARs in their territory.
As of March 31, 1999, the Company had nine VARs located throughout North America
and Europe.
The Company also maintains OEM partnerships with Mentor Graphics Corporation
and Zuken, Inc. Mentor Graphics Corporation is a world leader in manufacturing,
marketing and supporting software and hardware Electronic Design Automation
(EDA) products. Zuken is one of Japan's largest independent software suppliers,
focused on the ECAD marketplace. OEM partners provide vertical market expertise
and sell to customers generally not targeted by or geographically accessible to
the Company's direct sales force.
To support the sales process, the Company conducts comprehensive marketing
programs that include public relations, seminars, trade shows, direct mail,
telemarketing, and customer communications programs. The Company has also
developed strategic partnerships with third-party consulting organizations such
as Arthur Andersen and Meritus Consulting. The Company sponsors user groups,
focus groups and a customer advisory board as a source of feedback about its
customers' requirements.
As of March 31, 1999, the Company's sales and marketing organization
consisted of 35 people located in the Company's headquarters in Lexington,
Massachusetts and in locations throughout the United States.
Customer Support and Consulting
The Company's customers utilize CMS and WTC OpCenter in mission-critical
applications on which the success of the organization may depend. Therefore, a
high level of customer service, training and technical support is critical. The
Company's customer support organization provides support through telephone, the
worldwide web, electronic mail and fax communications. As of March 31, 1999, the
Company's customer support and consulting organization consisted of 19 people.
OEMs and some VARs offer first-level customer support to their end-user
customers and rely on the Company for any additional required support. The
Company receives fees for support and maintenance provided to these channel
partners. The Company offers consulting services, at a fee, to customers seeking
assistance in the implementation, use and expansion of the Company's products.
Product Development
Since its inception, the Company has made substantial investments in research
and development. The Company believes its future success depends in part upon
its ability to enhance its existing products and to develop and introduce
products that address technological developments in the marketplace and the
increasingly sophisticated needs of its customers.
While the Company expects that certain of its new products will be developed
internally, the Company may, based upon timing and cost considerations, acquire
technology and/or products from third parties. Additionally, the Company has a
partners program which provides the Company's customers with various third-party
developed applications that are complementary to the Company's products.
As of March 31, 1999, the Company's product development staff consisted of 38
employees. The Company's total expense for research and development in fiscal
1997, 1998 and 1999 was $4.6 million, $5.7 million and $6.7 million,
respectively.
Competition
The PDM and product development markets are intensely competitive and are
subject to rapid change. The Company's competitors offer a variety of products
and services to address these markets. No company is currently the dominant
leader in the PDM and product development markets. However, the Company's
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CMS family of products currently encounters direct competition from a number of
public and privately-held companies. In addition, the possible entrance of new
competitors may intensify competition in these markets. Vendors of relational
database management systems and enterprise MRP systems, among others, may
compete with the Company in the future. Many of the Company's current and
possible future competitors have significantly greater financial, technical,
marketing and other resources than the Company, and many have well established
relationships with current and potential customers of the Company. It is also
possible that alliances among competitors may emerge and rapidly acquire
significant market share. The Company also expects that competition will
increase as a result of software industry consolidations. Increased competition
may result in price reductions, reduced gross margins and loss of market share,
any of which would materially adversely affect the Company's business, operating
results and financial condition.
The Company believes that the principal competitive factors affecting its
market include product features and functionality, such as flexibility,
scalability, ease of integration, ease of implementation, ease of use, quality,
and performance; price and total cost of ownership; customer service and
support; company reputation and financial viability; and effectiveness of sales
and marketing efforts. There can be no assurance that the Company will be able
to maintain a competitive position against current and potential competitors.
Proprietary Rights
The Company primarily relies upon a combination of copyright, trademark and
trade secret laws, nondisclosure agreements and license agreements to establish
and protect proprietary rights in its products. The Company does not currently
hold any patents but does have a patent pending on its WTC OpCenter product. The
source code for the Company's products is protected both as a trade secret and
as an unpublished copyrighted work. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. The software development
industry is characterized by rapid technological change. Therefore, the Company
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are more important to establishing
and maintaining a technology leadership position than the various legal
protections of its technology. The Company is not aware that any of its products
infringe the proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim such infringement by the Company or
its licensors with respect to current or future products. The Company expects
that software product developers will increasingly be subject to such claims as
the number of products and competitors in the Company's market segment grows and
the functionality of products in different market segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or might require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company.
Workgroup Technology Corporation, Workgroup, WTC, the Company's logo, CMS,
CMS Workflow, CMS Replication Server, CMS Integrator for Pro/ENGINEER, CMS
Integrator for Mentor Graphics, CMS Integrator for PreVIEW, CMS Integrator for
Myriad, CMS API, WTC WebLink, WTC ServiceCenter, WTC OpCenter and WTC
ProductCenter are trademarks of the Company. All other trademarks and trade
names referred to in this report are the property of their respective owners.
Employees
As of March 31, 1999, the Company employed 110 persons, including 38 product
development personnel, 27 sales personnel, 19 customer support, training and
consulting personnel, 18 finance and administration personnel and 8 marketing
personnel. None of the Company's employees is represented by a
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collective bargaining arrangement, and the Company has experienced no work
stoppages. The Company considers its relations with its employees to be good.
The Company's future success depends in large part on the ability to continue
to motivate and retain highly qualified employees, including management
personnel, and to attract and retain a significant number of additional
qualified personnel, including sales, product development and operations staff.
Competition for qualified personnel in the Company's industry is intense, and
many of the companies with which the Company competes for qualified personnel
have substantially greater financial and other resources than the Company.
Furthermore, competition for qualified personnel can be expected to become more
intense as competition in the Company's industry increases. There can be no
assurance that the Company will be able to recruit, retain and motivate a
sufficient number of qualified personnel to compete successfully. The loss of
any of the Company's senior management personnel or any material failure to
recruit, retain and motivate a sufficient number of qualified personnel could
have a material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company's headquarters are located in approximately 29,000 square feet of
office space in Lexington, Massachusetts. This facility accommodates research,
marketing, sales, customer support and corporate administration. The lease on
this facility expires in September 2001. The Company also leases office space
for regional offices in San Mateo, California and Dallas, Texas to support its
field sales and support operations. The Company believes that its existing
facilities are adequate for its current needs and that, if necessary, additional
facilities are available for lease to meet future needs.
ITEM 3. 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
During the fourth quarter of the year ended March 31, 1999, no matters were
submitted to a vote of security holders of the Company through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "WKGP". On June 15, 1999, the closing price of the Company's Common Stock
was $1.84 per share. As of June 15, 1999, there were approximately 110 holders
of record of the Company's Common Stock and at least 1,750 beneficial holders,
based on information obtained from the Company's transfer agent.
The following table sets forth quarterly high and low prices of the Common
Stock for the indicated fiscal periods:
<TABLE>
<CAPTION>
1999 1998
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $4.00 $3.50 $5.25 $3.75
Second Quarter 3.56 2.13 4.81 3.69
Third Quarter 2.63 1.56 4.75 3.13
Fourth Quarter 2.88 1.50 4.38 3.63
</TABLE>
The Company has never paid cash dividends on its Common Stock and currently
intends to retain earnings, if any, for use in its business. Any future
declaration and payment of dividends will be subject to applicable law and the
discretion of the Company's Board of Directors and will depend upon the
Company's results of operations, earnings, financial condition, contractual
limitations, cash requirements, future prospects and other factors deemed
relevant by the Company's Board of Directors. The Company does not anticipate
paying any cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the financial
statements of the Company, and should be read in connection with those
statements, which are included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 8,631 $ 7,638 $10,439 $10,477 $ 4,616
Gross profit 5,069 4,465 7,969 8,794 3,404
Operating expenses 15,311 14,248 12,255 7,405 4,692
Income (loss) from operations (10,242) (9,783) (4,286) 1,389 (1,289)
Net income (loss) (8,936) (8,075) (2,407) 1,448 (1,437)
Basic net income (loss) per common share $ (1.07) $ (0.98) $ (0.30) $ 0.80 $ (0.84)
Basic shares outstanding 8,360 8,226 7,994 1,808 1,714
Diluted net income (loss) per common share $ (1.07) $ (0.98) $ (0.30) $ 0.29 $ (0.84)
Diluted shares outstanding 8,360 8,226 7,994 5,036 1,714
</TABLE>
<TABLE>
<CAPTION>
March 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 18,789 $28,442 $36,555 $39,426 $(1,161)
Total assets 25,397 35,075 41,796 44,073 4,588
Convertible preferred stock - - - - 4,290
Total stockholders' equity (deficit) 20,114 30,039 37,927 40,114 (5,113)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the financial
statements and related notes thereto.
Results of Operations
The following table sets forth for the periods indicated, certain
consolidated financial data as a percentage of total revenue:
<TABLE>
<CAPTION>
Percentage of Total Revenue
--------------------------------
Fiscal Year Ended March 31,
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software licenses 38.8% 42.9% 62.8%
Maintenance and services 61.2 57.1 37.2
------ ----- -----
Total revenue 100.0 100.0 100.0
Gross profit 58.7 58.5 76.3
Operating expenses:
Selling and marketing 79.9 80.9 57.5
Research and development 77.1 75.2 44.4
General and administrative 20.4 30.4 15.5
------ ----- -----
Total operating expenses 177.4 186.5 117.4
Loss from operations (118.7)% (128.0)% (41.1)%
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Revenue. The Company's revenue consists of license fees for its CMS and WTC
OpCenter software products and fees for professional services and software
maintenance. The Company had total revenue of $8,631,000 in fiscal 1999 as
compared to total revenue of $7,638,000 in fiscal 1998, an increase of $993,000
or 13.0%.
Software license revenue increased 2.3% in fiscal 1999 to $3,353,000 from
$3,277,000 in fiscal 1998. The revenue increase resulted primarily from sales of
the Company's knowledge-based program management product, WTC OpCenter, which
was first released in the third quarter of fiscal 1999.
Maintenance and services revenue increased 21.0% to $5,278,000 from
$4,361,000 in fiscal 1998. This increase resulted primarily from higher
maintenance revenue as a result of an increase in the customer maintenance base
and a higher rate of maintenance renewals from customers 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 royalties payable to third parties upon the
license of products as well as costs associated with media, packaging,
documentation and delivery of the Company's products. Gross profit associated
with software license revenue for fiscal 1999 was $2,983,000 or 89.0% of
software license revenue versus $3,000,000 or 91.5% of software license revenue
in fiscal 1998. This decrease in gross margin resulted primarily from the
-11-
<PAGE>
mix of products sold during each of the periods which required royalty payments
to another party as well as higher packaging costs associated with the initial
release of WTC OpCenter.
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 $2,086,000 in fiscal 1999 from $1,465,000 in fiscal 1998. As a
percentage of maintenance and services revenue, the gross margin increased to
39.5% in fiscal year 1999 from 33.6% in fiscal year 1998. This increase in gross
profit is due primarily to a favorable mix of higher margin maintenance revenue
for fiscal 1999 and, to a lesser extent, higher revenue productivity in the
consulting organization.
Selling and Marketing. The Company's products are distributed worldwide
through its direct sales organization as well as its strategic partners, which
include resellers and OEMs. Selling and marketing expenses increased 11.6% in
fiscal 1999 to $6,895,000 from $6,178,000 in fiscal 1998. This increase is
primarily attributable to higher recruiting and personnel costs resulting from
an increase in the number of employees in the selling and marketing
organizations as well as additional marketing program costs associated with the
release of WTC OpCenter.
Research and Development. Research and development expenses increased 15.8%
in fiscal 1999 to $6,654,000 from $5,747,000 in fiscal 1998. The increase in
fiscal 1999 resulted primarily from the increased use of external contractors to
develop and enhance the Company's products. As a result of this expense increase
and the higher revenue level of the Company, research and development expenses
as a percentage of revenue was 77.1% in fiscal 1999 versus 75.2% in fiscal 1998.
General and Administrative. In fiscal 1999, general and administrative
expenses decreased 24.1% to $1,762,000 from $2,323,000 in fiscal 1998. The
decrease in general and administrative expenses in fiscal 1999 as compared to
fiscal 1998 was due to expenses associated with the termination and recruitment
of several management positions in fiscal 1998. As a percentage of revenue,
general and administrative expenses decreased to 20.4% in fiscal 1999 from 30.4%
in fiscal 1998.
Net Interest Income. Net interest income consists primarily of interest
earned on cash and cash equivalents. As a result of a lower average cash balance
and slightly lower interest rates during fiscal 1999, net interest income
decreased 26.5% to $1,306,000 in fiscal 1999 from $1,778,000 in fiscal 1998.
Provision for Income Taxes. For fiscal 1999, the provision for income taxes
decreased to zero from $70,000 for fiscal 1998. The fiscal 1998 provision for
taxes was attributable to state taxes as well as taxable income in the Company's
foreign subsidiaries, some of which have been closed.
Fiscal 1998 Compared to Fiscal 1997
Revenue. The Company had total revenue of $7,638,000 in fiscal 1998 as
compared to total revenue of $10,439,000 in fiscal 1997, a decrease of
$2,801,000 or 26.8%.
Software license revenue decreased 50.0% in fiscal 1998 to $3,277,000 from
$6,553,000 in fiscal 1997. The revenue decrease resulted primarily from lower
demand for the CMS product as well as a delay in the release of an enhanced
version of the product with additional functionality and integrations. The
Company initiated a strategy of releasing the components of the additional
features of the enhanced product in stages which began in the second half of
fiscal 1998.
-12-
<PAGE>
Maintenance and services revenue increased 12.2% to $4,361,000 from
$3,886,000 in fiscal 1997. This increase resulted primarily from higher
maintenance revenue as a result of an increase in the customer maintenance base.
Cost of Revenue and Gross Profit. Gross profit associated with software
license revenue for fiscal 1998 was $3,000,000 or 91.5% of software license
revenue versus $6,213,000 or 94.8% of software license revenue in fiscal 1997.
The decrease in gross profit of $3,213,000 resulted primarily from lower
software revenue in fiscal 1998.
The Company's gross profit on maintenance and services revenue decreased to
$1,465,000 in fiscal 1998 from $1,756,000 in fiscal 1997. As a percentage of
maintenance and services revenue, the gross margin decreased to 33.6% in fiscal
year 1998 from 45.2% in fiscal 1997. This decrease in gross profit is due to
incremental costs associated with the hiring and training of additional staff in
the customer support and professional services organizations as well as a
greater utilization of outside contractors versus employees in the professional
services organization which are more costly to the Company.
Selling and Marketing. Selling and marketing expenses increased 3.0% in
fiscal 1998 to $6,178,000 from $5,999,000 in fiscal 1997. This increase is
primarily attributable to the costs associated with additional marketing
programs. Selling and marketing expenses as a percentage of revenue increased
to 80.9% in fiscal 1998 from 57.5% in fiscal 1997. This increase as a
percentage of revenue resulted primarily from lower revenue in fiscal 1998.
Research and Development. Research and development expenses increased 24.0%
in fiscal 1998 to $5,747,000 from $4,635,000 in fiscal 1997. The increase in
fiscal 1998 resulted primarily from the employment of additional staff and the
use of external contractors to develop and enhance the Company's products. As a
result of this expense increase and the lower revenue level of the Company,
research and development expenses as a percentage of revenue increased to 75.2%
in fiscal 1998 from 44.4% in fiscal 1997.
General and Administrative. In fiscal 1998, general and administrative
expenses increased 43.3% to $2,323,000 from $1,621,000 in fiscal 1997. General
and administrative expenses increased primarily as a result of an increase in
personnel costs and expenses associated with the termination and recruitment of
several management positions in fiscal 1998. As a percentage of revenue, general
and administrative expenses increased to 30.4% in fiscal 1998 from 15.5% in
fiscal 1997.
Net Interest Income. As a result of a lower average cash balance during
fiscal 1998, net interest income decreased 8.1% to $1,778,000 in fiscal 1998
from $1,934,000 in fiscal 1997.
Provision for Income Taxes. For fiscal 1998, the provision for income taxes
increased to $70,000 from $55,000 for fiscal 1997. The provision for taxes
resulted primarily from taxable income in the Company's foreign subsidiaries as
well as certain state taxes.
Liquidity, Capital Resources and Market Risks
Cash and cash equivalents at March 31, 1999 decreased $9,729,000 to
$22,050,000 from $31,779,000 at March 31, 1998. This decrease results primarily
from cash used for operating activities of $8,025,000, stock repurchases of
$1,155,000 and capital expenditures of $704,000 in fiscal 1999.
In October 1998, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's outstanding common stock, of which the Company
repurchased approximately 489,000
-13-
<PAGE>
shares in fiscal 1999. In May, 1999, the Board of Directors authorized the
repurchase of an additional 250,000 shares.
The Company believes its existing cash and cash equivalent balances will be
sufficient to meet its cash requirements for at least the next fiscal year.
During fiscal 1999, the Company did not own any derivative financial
instruments, or other financial and commodity instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standard
No. 107. The Company holds no investment securities nor has it issued any debt
obligations which would require disclosure of market risk. Currently, the
Company does not engage in foreign currency hedging activities.
To date, neither foreign currency exposure nor inflation has had a material
impact on the Company's financial results.
Year 2000
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 CMS and WTC OpCenter 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 necessary corrective measures, if
necessary, throughout calendar year 1999.
Major Suppliers. The Company has initiated communications with 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. 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 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
-14-
<PAGE>
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.
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, 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.
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, including the recently introduced WTC OpCenter, the growth of the
product data management, product development management, and knowledge-based
program management markets 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.
-15-
<PAGE>
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.
-16-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are included herein and are
indexed under Item 14 (a) (1) - (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
or financial disclosure matters in the last two years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item may be found under the sections
captioned "Election of Directors," "Occupations of Directors and Executive
Officers" and "Section 16 Reporting" in the Company's Proxy Statement (the "1999
Proxy Statement") for the Company's Annual Meeting of Stockholders to be held on
July 30, 1999, and is incorporated herein by reference. The 1999 Proxy Statement
will be filed with the Securities and Exchange Commission not later than 120
days after the close of the Company's year ended March 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item may be found under the section
captioned "Compensation and Other Information Concerning Directors and Officers"
in the 1999 Proxy Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item may be found under the section
captioned "Management and Principal Holders of Voting Securities" in the 1999
Proxy Statement, and is incorporated herein by reference.
-17-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................................... F-1
Consolidated Balance Sheets at March 31, 1999 and 1998.................................... F-2
Consolidated Statements of Operations for the years ended March 31, 1999, 1998 and 1997... F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended
March 31, 1999, 1998 and 1997......................................................... F-4
Consolidated Statements of Cash Flows for the years ended March 31, 1999, 1998 and 1997... F-5
Notes to Consolidated Financial Statements................................................ F-6
</TABLE>
(a)(2) Financial Statement Schedules:
All schedules for which provisions made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
-18-
<PAGE>
(a)(3) List of Exhibits.
The following exhibits are filed as part of and incorporated by
reference into, this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ ------------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen certificate representing the Common Stock
10.1(1) 1996 Stock Plan
10.2(2) Form of Incentive Stock Option Agreement under the 1996 Stock Plan
10.3(2) Form of Non-Qualified Stock Option Agreement under the 1996 Stock Plan
10.4(1) 1996 Employee Stock Purchase Plan
10.5(2) 1996 Employee Stock Purchase Plan Enrollment Authorization Form
10.6(1) 1996 Non-Employee Director Stock Option Plan
10.7(2) Form of Non-Qualified Stock Option Agreement under the 1996 Non-Employee Director Stock
Option Plan of the Registrant
10.8(1) Registration Rights Agreement between the Company and the Preferred Stockholders, James
Carney and James Simmons, as amended as of November 27, 1995
10.9(3) Master Lease Agreement between the Company and Mortimer B. Zuckerman and Edward H.
Linde, Trustees of 91 Hartwell Avenue Trust dated July 30, 1996
10.10(1) Form of Executive Management Incentive Compensation Plan of the Company
10.11(1) Form of Non-Competition Agreement between the Company, its executive officers and
founders
10.12(4) Transition and Severance Agreement between the Company and James Carney dated March 13,
1998
10.13(4) Employment Agreement between the Company and John P. McDonough
10.14* Form of Severance Agreement between the Company and certain executive officers
21.1* Subsidiaries of the Company
23.1* Consent of Independent Accountants (PricewaterhouseCoopers LLP)
24.1* Power of Attorney (see page 20)
</TABLE>
- -------------------
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 333-00810).
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997.
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
* Filed herewith.
(b) Reports On Form 8-K
There were no reports on Form 8-K filed by the Company for the quarter
ended March 31, 1999.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: June 29, 1999 By: /s/ John P. McDonough
---------------------
John P. McDonough
Chief Executive Officer and President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Workgroup Technology
Corporation, hereby severally constitute and appoint John P. McDonough and Diane
M. Marcou, and each of them singly, our true and lawful attorneys, with the
power to them and each of them singly, to sign for us and in our names in the
capacities indicated below, any amendments to this Report on Form 10-K, and
generally to do all things in our names and on our behalf in such capacities to
enable Workgroup Technology Corporation to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all the requirements of the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities indicated, on the 29th day of June, 1999.
Signature Title(s)
--------- --------
/s/ John P. McDonough President, Chief Executive Officer, Director and
- ---------------------
John P. McDonough Secretary (Principal Executive Officer)
/s/ Diane M. Marcou Vice President- Finance and Administration and
- ---------------------
Diane M. Marcou Treasurer (Principal Financial and Accounting Officer)
/s/ James M. Carney Chairman
- ----------------------
James M. Carney
/s/ Stephen J. Gaal Director
- ----------------------
Stephen J. Gaal
/s/ Charles E. Moran Director
- ----------------------
Charles E. Moran
-20-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Workgroup Technology Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Workgroup
Technology Corporation and its subsidiaries (the "Company") at March 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 23, 1999
F-1
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,050 $ 31,779
Accounts receivable (net of allowance of
$200 in 1999 and 1998) 1,835 1,497
Prepaid expenses and other current assets 187 202
-------- --------
Total current assets 24,072 33,478
Property and equipment, net 1,318 1,574
Other assets 7 23
-------- --------
Total assets $ 25,397 $ 35,075
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 593 $ 1,031
Accrued expenses 1,582 1,753
Accrued vacation 258 229
Accrued royalties 341 139
Deferred revenue 2,509 1,884
-------- --------
Total current liabilities 5,283 5,036
Commitments (Note G)
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding at March 31, 1999 and 1998 - -
Common stock, $.01 par value; 30,000,000 shares
authorized; 8,511,635 and 8,367,671 shares issued
at March 31, 1999 and 1998, respectively 85 84
Additional paid-in capital 44,325 44,142
Treasury stock, at cost; 488,914 shares at March 31, 1999 (1,155) -
Accumulated deficit (23,110) (14,174)
Accumulated other comprehensive income (31) (13)
-------- --------
Total stockholders' equity 20,114 30,039
-------- --------
Total liabilities and stockholders' equity $ 25,397 $ 35,075
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the fiscal years ended March 31, 1999, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software licenses $ 3,353 $ 3,277 $ 6,553
Maintenance and services 5,278 4,361 3,886
-------- ------- -------
Total revenue 8,631 7,638 10,439
Cost of revenue:
Cost of software licenses 370 277 340
Cost of maintenance and services 3,192 2,896 2,130
-------- ------- -------
Total cost of revenue 3,562 3,173 2,470
-------- ------- -------
Gross profit 5,069 4,465 7,969
Operating expenses:
Selling and marketing 6,895 6,178 5,999
Research and development 6,654 5,747 4,635
General and administrative 1,762 2,323 1,621
-------- ------- -------
Total operating expenses 15,311 14,248 12,255
-------- ------- -------
Loss from operations (10,242) (9,783) (4,286)
Net interest income 1,306 1,778 1,934
-------- ------- -------
Loss before income taxes (8,936) (8,005) (2,352)
Provision for income taxes - 70 55
-------- ------- -------
Net loss $ (8,936) $(8,075) $(2,407)
======== ======= =======
Basic and diluted net loss per common share $ (1.07) $ (0.98) $ (0.30)
Weighted average basic and diluted shares outstanding 8,360 8,226 7,994
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended March 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Treasury Stock Additional Officers' Other
------------- -------------- Paid-In Notes Accumulated Comprehensive
Shares Amount Shares Amount Capital Receivable Deficit Income (Loss)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 7,927 $ 79 $43,727 $ (7) $ (3,692) $ 7
Sale of stock under stock plans 188 2 72
Stock option compensation 156
Collection of officers' notes 7
Comprehensive loss:
Net loss (2,407)
Foreign currency translation
adjustment (17)
Comprehensive loss
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 8,115 81 43,955 - (6,099) (10)
- -----------------------------------------------------------------------------------------------------------------------------------
Sale of stock under stock plans 253 3 187
Comprehensive loss:
Net loss (8,075)
Foreign currency translation
adjustment (3)
Comprehensive loss
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 8,368 84 44,142 - (14,174) (13)
- -----------------------------------------------------------------------------------------------------------------------------------
Sale of stock under stock plans 144 1 183
Repurchase of common stock (489) $(1,155)
Comprehensive loss:
Net loss (8,936)
Foreign currency translation
adjustment (18)
Comprehensive loss
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 8,512 $ 85 (489) $(1,155) $44,325 $ - $(23,110) $ (31)
===================================================================================================================================
<CAPTION>
Total
Comprehensive Stockholders'
Loss Equity
------------------------------
<S> <C> <C>
Balance at March 31, 1996 $ 40,114
Sale of stock under stock plans 74
Stock option compensation 156
Collection of officers' notes 7
Comprehensive loss:
Net loss $(2,407) (2,407)
Foreign currency translation
adjustment (17) (17)
--------
Comprehensive loss (2,424)
- --------------------------------------------------------------------
Balance at March 31, 1997 37,927
- --------------------------------------------------------------------
Sale of stock under stock plans 190
Comprehensive loss:
Net loss (8,075) (8,075)
Foreign currency translation
adjustment (3) (3)
--------
Comprehensive loss (8,078)
- --------------------------------------------------------------------
Balance at March 31, 1998 30,039
- --------------------------------------------------------------------
Sale of stock under stock plans 184
Repurchase of common stock (1,155)
Comprehensive loss:
Net loss (8,936) (8,936)
Foreign currency translation
adjustment (18) (18)
-------
Comprehensive loss $(8,954)
- --------------------------------------------------------------------
Balance at March 31, 1999 $ 20,114
====================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal years ended March 31, 1999, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(8,936) $(8,075) $(2,407)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 944 776 582
Equity-based compensation - 73 156
Provision for doubtful accounts - 150 50
Loss on disposal of assets 16 88 -
Changes in operating assets and liabilities:
Accounts receivable (338) 532 (154)
Prepaid expenses and other current assets 15 92 (60)
Other assets 16 10 11
Accounts payable (438) 371 (230)
Accrued expenses (160) 731 195
Accrued vacation 29 (42) 68
Accrued royalties 202 (42) 40
Deferred revenue 625 90 153
------- ------- -------
Net cash used in operating activities (8,025) (5,246) (1,596)
Cash flows from investing activities:
Purchases of property and equipment (704) (1,099) (1,160)
Cash flows from financing activities:
Proceeds from issuance of common stock 184 190 74
Proceeds from the collection of officers' notes - - 7
Payments for common stock repurchases (1,155) - -
Payments of capital lease obligations (11) (14) (316)
------ ------- -------
Net cash provided by (used in) financing activities (982) 176 (235)
Effect of exchange rate changes on cash (18) (3) (17)
------- ------- -------
Net decrease in cash and cash equivalents (9,729) (6,172) (3,008)
Cash and cash equivalents, beginning of year 31,779 37,951 40,959
------- ------- -------
Cash and cash equivalents, end of year $22,050 $31,779 $37,951
======= ======= =======
Supplemental cash flow information:
Interest paid $ 2 $ 2 $ 23
Income taxes paid $ 21 $ 22 $ 55
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Nature of the Business
----------------------
Workgroup Technology Corporation (the "Company"), incorporated on May 11,
1992, provides both production-proven, enterprise product data management
(through the CMS product) and real-time knowledge-based program management
(through the WTC OpCenter product) solutions for product development. The
Company's products and services provide an integrated product development
management solution for every member of the enterprise including senior
management, marketing, engineering, finance and production.
B. Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Revenue Recognition
The Company has adopted Statement of Position 97-2 "Software Revenue
Recognition" in fiscal 1999. This Statement supersedes Statement of Position
91-1 on software revenue recognition.
The Company's standard end user license agreement for the Company's products
provides for an initial fee to use the product in perpetuity up to a maximum
number of users. Fees from licenses are recognized as revenue upon contract
execution, provided all shipment obligations have been met, fees are fixed or
determinable, and collection is probable. Fees from licenses sold together
with consulting services are generally recognized upon shipment provided that
the above criteria have been met and payment of the license fees is not
dependent upon the performance of the consulting services. Payments received
in advance for services, development or product are initially recorded as
deferred revenue. Revenue from training and consulting is recognized as the
services are performed. Maintenance and support revenue is recognized ratably
over the contract term, typically one year.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency. Assets and liabilities are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date and income and expense
items are translated at the average rates for the period. The effect of such
translations are excluded from net earnings and accumulated as a separate
component of stockholders' equity. Transaction gains and losses from foreign
currency transactions have not been material to date.
Cash Equivalents
Cash equivalents consist of commercial paper and money market mutual funds
with remaining maturities at acquisition of three months or less and are
carried at cost plus accrued interest which approximates market value.
The Company has approximately $155,000 of restricted cash included in the
March 31, 1999 and 1998 cash balances. This restricted cash serves as
collateral for a letter of credit obtained in fiscal year 1997 related to the
Company's property lease.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided under the
straight-line method based upon the following estimated useful lives:
Asset Classification Estimated Useful Life
-------------------- ---------------------
Computer software 3 years
Furniture and fixtures 3 years
Equipment 2 or 3 years
Leasehold improvements Estimated useful life of
and equipment under the asset or term of the
capital leases lease, whichever is
shorter
Major replacements of, or improvements to, property and equipment are
capitalized. Minor replacements, repairs and maintenance are charged to
expense as incurred. Upon retirement or sale, the cost of the assets disposed
and the related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recorded in operations.
Research and Development Costs
Research and development costs are charged to operations as incurred. The
Company capitalizes eligible software costs incurred after technological
feasibility of the product has been established. The Company believes it has
achieved technological feasibility when the working model has been
established, which is typically demonstrated by beta shipment. Qualifying
capitalized costs for the years ended March 31, 1999, 1998 and 1997 have been
immaterial and, therefore, the Company has not capitalized such costs.
Royalty Expense
Royalty expense with respect to sales of product under royalty agreements is
recorded when the revenue is recognized.
Income Taxes
The Company uses the asset and liability approach in its method of accounting
for income taxes which requires the recognition of deferred tax liabilities
and assets for expected future tax consequences of temporary differences
between
F-6
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the carrying amounts and the tax basis of assets and liabilities. A valuation
allowance against deferred tax assets is recorded if, based upon weighted
available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Basic and Diluted Net Loss Per Common Share
The Company's basic net loss per share is computed by dividing net loss by
the weighted average number of shares of common stock and diluted net loss
per share is based on the same computation and 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 fiscal years 1999, 1998 and 1997 and
therefore the basic and diluted net loss per share were the same for those
periods.
The following table set forth for the periods indicated, the options to
purchase shares of the Company's common stock:
March 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
Number of shares 1,996,000 1,726,000 1,292,000
Weighted average
exercise price $ 3.65 $ 3.95 $ 3.08
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
No. 130 "Reporting Comprehensive Income" in fiscal 1999, which requires that
changes in comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements. The Company
has presented accumulated other comprehensive loss and comprehensive loss on
the Consolidated Statements of Stockholders' Equity in accordance with this
standard.
New Accounting Standards
The Company will adopt Statement of Position 98-1 "Internal Use Software" in
fiscal 2000. This Statement provides guidance on the accounting for the costs
of software developed or obtained for internal use. The Company believes that
the adoption of this Statement will not have a material effect on its
financial statements.
The Company will adopt SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" in fiscal 2001. This Statement provides comprehensive
guidance on accounting for derivative instruments, including certain
derivatives that are embedded in other contracts, and hedging activities. The
Company believes that adoption of this Statement will not have a material
effect on its financial statements.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact future
results of operations and cash flows.
The Company invests its cash primarily in commercial paper and money market
mutual funds with a large commercial bank. The Company has not experienced
any losses to date on its invested cash.
The Company sells its product to a wide variety of customers in a variety of
industries. The Company performs ongoing credit evaluations of its customers
but does not require collateral or other security to support customer
receivables. The Company believes any credit losses will not be material.
C. Property and Equipment
----------------------
Property and equipment consisted of the following:
(in thousands) March 31,
------------------
1999 1998
---- ----
Computer software $ 563 $ 423
Furniture and fixtures 134 110
Equipment 2,535 2,230
Leasehold improvements 92 92
------ ------
3,324 2,855
Less accumulated
depreciation and amortization (2,006) (1,281)
------ ------
$1,318 $1,574
====== ======
D. Stockholders' Equity
--------------------
Preferred Stock
The Board of Directors was authorized upon the closing of the Initial Public
Offering, subject to certain limitations prescribed by law, without further
stockholder approval, to issue from time-to-time up to an aggregate of
1,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designation of such series.
F-7
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Treasury Stock
In October 1998, the Board of Directors authorized the repurchase, at
management's discretion, of up to 500,000 shares of the Company's stock, to
be purchased from time-to-time on the open market at prevailing prices. The
Company's repurchases of shares of Common Stock are recorded as Treasury
Stock and result in a reduction of Stockholders' Equity.
Stock Plans
At March 31, 1999, the Company has four stock-based compensation plans which
are described below. SFAS No. 123 "Accounting for Stock-Based Compensation"
requires that companies either recognize compensation expense for grants of
stock, stock options and other equity instruments based on fair value or
provide a pro forma basis disclosure of net income (loss) and earnings
(loss) per share which reflects such compensation expense in the notes to
the financial statements. The Company adopted the disclosure provisions of
SFAS No. 123 in fiscal year 1997 and has continued to apply APB Opinion 25
and related Interpretations in accounting for its plans. The Company
recognized $73,000 and $156,000 of compensation cost for its fixed stock
option plans in fiscal years 1998 and 1997, respectively, and no
compensation cost in fiscal year 1999. Had compensation cost for the
Company's four stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with
the method of SFAS No. 123, the Company's loss and loss per share would have
been on a pro forma basis:
(in thousands, except per share amounts)
1999 1998 1997
---- ---- ----
Net loss
As reported $ (8,936) $(8,075) $(2,407)
Pro forma $(10,537) $(9,487) $(3,020)
Net loss per share
As reported $ (1.07) $ (0.98) $ (0.30)
Pro forma $ (1.26) $ (1.15) $ (0.38)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
1999 1998 1997
---- ---- ----
Expected volatility 79.7% 80.3% 93.5%
Risk-free interest rates 5.0% 6.0% 6.4%
Dividend rate 0% 0% 0%
Expected life 5 years 5 years 5 years
The weighted-average fair value of options granted during fiscal year 1999,
1998 and 1997 is estimated as $2.10, $2.82 and $7.21, respectively. The
effects of applying SFAS No. 123 in this pro forma disclosure are not an
indication of future amounts. SFAS No. 123 does not apply to awards prior to
1995 and additional awards in future years are anticipated.
Stock Option Plans
The Company has three fixed stock option plans. The 1992 and 1996 Stock
Option Plans provide for the granting of incentive stock options to
employees to purchase common stock at not less than the fair market value
per share of common stock on the date of the grant. The Plans also provide
for the granting of nonqualified stock options, stock awards and purchase
rights to employees, consultants, directors and officers of the Company. The
options generally become exercisable ratably over four or five years from
the date of grant and expire ten years from the date of grant. In January
1996, the Board of Directors terminated the granting of options under the
1992 plan. At March 31, 1999, 1,258,000 shares were available for grant
under the 1996 Plan.
The Company's 1996 Non-Employee Director Stock Option Plan (the "Director
Option Plan") provides for the granting of options to purchase a maximum of
100,000 shares of Common Stock of the Company to non-employee directors.
Under the Director Option Plan, each non-employee director shall receive an
option to purchase 15,000 shares of the Company's Common Stock upon the
later of (i) the effective date of an IPO, or (ii) the date on which the
director first is elected to the Board of Directors. Each non-employee
director who is still a member of the Board of Directors upon the full
vesting of this most recently granted option under the Director Option Plan
shall receive additional options to purchase 15,000 shares of Common Stock.
All options granted under the Director Option Plan vest in twelve equal
quarterly installments beginning three months from the date of grant. All
options granted under the Director Option Plan will have an exercise price
equal to the fair market value of the Common Stock on the date of grant. The
term of each option will be for a period of ten years from the date of
grant. At March 31, 1999, 55,000 shares were available for grant under the
Director Option Plan.
During fiscal year 1997, the Board of Directors approved the repricing of
certain outstanding stock options previously granted under the 1992 and 1996
Plans. Certain options outstanding at prices ranging from $8.50 to $25.75
were canceled and reissued as new grants on October 18, 1996 to reduce their
exercise price to $6.375, the fair market value of the stock on that date. A
total of 145,833 options were granted under this repricing.
F-8
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the Company's stock option plans as of March
31, 1997, 1998 and 1999 and changes during the years ending on those dates:
(in thousands, except per share amounts)
Weighted
Number Average
of Shares Exercise Price
--------- --------------
Options outstanding
at March 31, 1996 1,309 $ 1.79
Granted 487 9.62
Exercised (173) 0.25
Canceled (331) 9.09
-----
Options outstanding
at March 31, 1997 1,292 3.08
Granted 1,180 4.13
Exercised (228) 0.43
Canceled (518) 3.74
-----
Options outstanding
at March 31, 1998 1,726 3.95
Granted 786 3.11
Exercised (116) 0.42
Canceled (400) 4.79
-----
Options outstanding
at March 31, 1999 1,996 3.65
Price range $0.15 - $2.00
(remaining contractual life of 6.8 years)
Outstanding 313 $ 0.96
Exercisable 161 0.45
Price range $2.03 - $4.00
(remaining contractual life of 8.7 years)
Outstanding 994 3.58
Exercisable 166 3.91
Price range $4.06 - $8.50
(remaining contractual life of 7.6 years)
Outstanding 672 4.69
Exercisable 273 4.82
Price range $15.00 - $25.75
(remaining contractual life of 4.5 years)
Outstanding 17 16.47
Exercisable 16 15.86
Options exercisable, March 31
1997 332 $ 1.34
1998 285 3.27
1999 616 3.72
Employee Stock Purchase Plan
The 1996 Employee Stock Purchase Plan provides for the issuance of up to
350,000 shares of Common Stock to eligible employees. The shares are issuable
at the lesser of 85% of the average market price on the first or last
business day of each semiannual period.
The following is a summary of shares issued under this plan:
1999 1998 1997
---- ---- ----
Shares 28,411 25,996 14,660
Weighted average fair
value $ 0.74 $ 1.16 $ 1.81
E. Benefit Plan
------------
The Company maintains the Workgroup Technology Corporation 401(k) Plan (the
"401(k) Plan") for all eligible employees which provides for matching
employer contributions determined annually by the Board of Directors. There
have been no matching employer contributions made to the 401(k) Plan as of
March 31, 1999.
F. Income Taxes
------------
In fiscal years 1998 and 1997, the provision for income taxes reflects
foreign and state income taxes.
Deferred income taxes represent the tax effects of transactions which are
reported in different periods for financial and tax reporting purposes.
The components of deferred tax assets and liabilities are as follows:
(in thousands)
March 31,
-------------
1999 1998
---- ----
Deferred tax assets:
Net operating
loss carryforwards $ 8,513 $ 4,578
Research & development
credit carryforwards 1,187 1,005
Depreciation & amortization 153 135
Vacation accrual 104 92
Rent 35 48
------- -------
Gross deferred tax asset 9,992 5,858
Valuation allowance (9,992) (5,858)
------- -------
Net $ - $ -
======= =======
At March 31, 1999, the Company has available net operating loss carryforwards
of approximately $21,100,000 which it may use to offset future federal
taxable income. The net operating loss carryforwards, if not utilized, will
begin to expire in 2008. The utilization of the net operating loss and credit
carryforwards for income tax purposes may be restricted due to limitations
which arise because of a change of ownership. The Company also has available
research and development credits of $743,000 and $671,000 for federal and
state purposes, respectively. The research and development
F-9
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
credits, if not utilized, will expire from 2008 through 2013. Due to the
uncertainty of the realization of deferred tax assets, a full valuation
allowance has been recorded.
G. Commitments
-----------
Lease Commitments
The Company leases the facility it occupies under a noncancelable operating
lease agreement which expires September 30, 2001. Total rent expense for the
years ended March 31, 1999, 1998 and 1997 was $748,000, $682,000 and
$457,000, respectively. The future minimum payments under such commitments as
of March 31, 1999 are as follows:
(in thousands)
Fiscal Year Future Minimum Payment
----------- ----------------------
2000 $ 646
2001 668
2002 341
H. Segment Information
-------------------
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in fiscal 1999. This Statement supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise," but
retains the requirement to report information about major customers. This
Statement establishes standards for reporting information about operating
segments in annual financial statements. Operating segments are defined as
components of an enterprise evaluated regularly by the Company's senior
management in deciding how to allocate resources and in assessing
performance.
The Company operates in one segment. Export sales for the years ended March
31, 1999, 1998 and 1997 were approximately $126,000, $414,000 and $1,088,000,
respectively (including $46,000, $39,000 and $679,000 of sales into Japan,
respectively).
One customer represented 11% of total revenue for the year ended March 31,
1997.
F-10
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
INDEX TO EXHIBITS FILED WITH FORM 10-K
YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen certificate representing the Common Stock
10.1(1) 1996 Stock Plan
10.2(2) Form of Incentive Stock Option Agreement under the 1996 Stock Plan
10.3(2) Form of Non-Qualified Stock Option Agreement under the 1996 Stock Plan
10.4(1) 1996 Employee Stock Purchase Plan
10.5(2) 1996 Employee Stock Purchase Plan Enrollment Authorization Form
10.6(1) 1996 Non-Employee Director Stock Option Plan
10.7(2) Form of Non-Qualified Stock Option Agreement under the 1996 Non-Employee Director Stock
Option Plan of the Registrant
10.8(1) Registration Rights Agreement between the Company and the Preferred Stockholders, James
Carney and James Simmons, as amended as of November 27, 1995
10.9(3) Master Lease Agreement between the Company and Mortimer B. Zuckerman and Edward H.
Linde, Trustees of 91 Hartwell Avenue Trust dated July 30, 1996
10.10(1) Form of Executive Management Incentive Compensation Plan of the Company
10.11(1) Form of Non-Competition Agreement between the Company, its executive officers and
founders
10.12(4) Transition and Severance Agreement between the Company and James Carney dated March 13,
1998
10.13(4) Employment Agreement between the Company and John P. McDonough
10.14* Form of Severance Agreement between the Company and certain executive officers
21.1* Subsidiaries of the Company
23.1* Consent of Independent Accountants (PricewaterhouseCoopers LLP)
24.1* Power of Attorney (see page 20)
</TABLE>
__________
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 333-00810).
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1996.
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1997.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1998.
* Filed herewith.
<PAGE>
Exhibit 10.14
SEVERANCE AGREEMENT
-------------------
AGREEMENT, dated as of [Date] by and between Workgroup Technology
----
Corporation (the "Company") and [Employee Name] (the "Employee").
-------------
WHEREAS, the Employee is the [Title] for 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 Employee 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 Employee agree
as follows:
1. Term of Agreement.
-----------------
The period during which this Agreement shall be in effect (the "Term")
shall commence as of the date hereof and shall expire on the earlier of the
death, physical incapacity or mental incompetence of the Employee.
2. Severance Pay.
-------------
(a) If, during the Term of this Agreement, the Company terminates the
Employee's employment with the Company without "Cause" (as such term is defined
below) or the Employee terminates his employment with the Company for "Good
Reason" (as such term is defined below), the Company shall:
(1) pay to Employee severance pay at the Employee's then current base
salary (the "Severance Payments") for the lesser of (i) six months or
(ii) until the date the Employee commences subsequent employment (the
"Severance Period") (such Severance Payments to commence on the next
regularly scheduled pay date following the Effective Date of the
"Release" referred to below; "Effective Date" shall have the meaning
ascribed to it in the Release).
(2) during the Severance Period, continue to pay its contribution to the
Employee's health and dental insurance coverage on the same terms and
conditions as are available to all employees and Employee shall be
responsible for any contribution required from active employees for
said health and dental insurance coverage. The last day of the
Employee's employment shall be the date of the "qualifying event"
under the Consolidated Omnibus Budget Reconciliation Act of 1985.
However, the Company's obligation to provide any of the amounts and benefits
hereunder shall be subject to, and conditioned upon, the Employee's execution of
a full release of claims (the "Release") satisfactory to the Company,
substantially in the form of Exhibit A hereto, releasing the Company and its
employees and agents from any claims arising from or related to the
<PAGE>
-2-
Employee's employment or severance from employment with the Company, including
any claims arising from this Agreement.
(b) For purposes hereof, "Cause" shall mean: (1) the substantial,
continuing and willful failure of the Employee to render services to the Company
in accordance with his assigned duties, which materially and adversely affects
the business, prospects, financial condition, operations, property or affairs of
the Company; (2) the commission of the Employee of a felony, either in
connection with the performance of his obligations to the Company or which
adversely affects the Employee's ability to perform such obligations; (3) gross
negligence, dishonesty, breach of fiduciary duty or breach of any
confidentiality, non-competition or developments agreement in favor of the
Company; (4) the commission by the Employee of an act of fraud or embezzlement
which results in loss, damage or injury to the Company, whether directly or
indirectly; or (5) death or disability of the Employee.
(c) For purposes hereof, "Good Reason" shall mean: (1) the assignment to
the Employee of any duties inconsistent in any adverse, material respect with
his position, authority, duties or responsibilities or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities; (2) a material reduction in the Employee's base or
incentive compensation or the termination of the Employee's rights to any
employee benefits or a reduction in scope or value thereof; or (3) a relocation
of the Employee's place of business which results in the one-way commuting
distance for the Employee to be increased by at least 20 miles and the total
one-way commuting distance for the Employee to exceed 35 miles.
(d) In the event the Employee's employment with the Company is terminated
by the Company for any reason other than without Cause or the Employee
terminates his employment with the Company for any reason other than Good
Reason, the Employee shall not be entitled to any severance benefits or other
considerations described herein. In addition to, and not in limitation of, the
foregoing, the Company's obligations to provide severance and benefits hereunder
shall not apply to any termination of employment which occurs subsequent to the
expiration of the Term of this Agreement.
(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 Employee. If
the Employee elects to receive the severance and benefits set forth in Section 2
hereof by executing the Release, Employee 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.
3. Existing Agreements.
-------------------
Nothing herein shall affect the Employee's obligations under any non-
competition agreement or any confidentiality agreement between the Company and
the Employee currently in effect or which may be entered into in the future.
4. General Provisions.
------------------
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
<PAGE>
-3-
Employee 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 Employee. 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 Employee 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
Employee Workgroup Technology
Signature:_________________________ Signature:_____________________________
Print Name:_______________________ Print Name:____________________________
Title:_____________________________ Title:_________________________________
Date: ____________________________ Date: ________________________________
<PAGE>
Exhibit 21.1
Subsidiaries of Workgroup Technology Corporation
Workgroup Technology GmbH, organized in Germany
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-09161 and 333-11869) of Workgroup Technology
Corporation of our report dated April 23, 1999 relating to the financial
statements, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29,1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 22,050 31,779
<SECURITIES> 0 0
<RECEIVABLES> 1,835 1,497
<ALLOWANCES> 200 200
<INVENTORY> 0 0
<CURRENT-ASSETS> 24,072 33,478
<PP&E> 1,318 1,574
<DEPRECIATION> 2,006 1,281
<TOTAL-ASSETS> 25,397 35,075
<CURRENT-LIABILITIES> 5,283 5,036
<BONDS> 0 0
0 0
0 0
<COMMON> 44,410 44,226
<OTHER-SE> (24,296) (14,187)
<TOTAL-LIABILITY-AND-EQUITY> 25,397 35,075
<SALES> 8,631 7,638
<TOTAL-REVENUES> 8,631 7,638
<CGS> 3,562 3,173
<TOTAL-COSTS> 3,562 3,173
<OTHER-EXPENSES> 15,311 14,248
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,306) (1,778)
<INCOME-PRETAX> (8,936) (8,005)
<INCOME-TAX> 0 70
<INCOME-CONTINUING> (8,936) (8,075)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,936) (8,075)
<EPS-BASIC> (1.07) (0.98)
<EPS-DILUTED> (1.07) (0.98)
</TABLE>
