Exhibit 99
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement. The
Company desires to take advantage of the new " safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is including this exhibit
in order to do so. Accordingly, the Company hereby identifies the following
important factors which could cause the Company's actual financial results to
differ materially from any such results which might be projected, forecast or
estimated by the Company in forward-looking statements.
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report and presented elsewhere by management from time to time in Company
filings with the Securities and Exchange Commission.
(a) Restructuring - In August 1996, the Board of Directors approved a plan to
restructure the Company's operations and made changes to executive
management. Included in the restructuring was a shift in the Company's
development and marketing efforts to focus substantially all its resources
on the Company's Process Engineer product line, eliminating or substantially
reducing its development and marketing investment in the System Engineer,
Insight, GUI Guidelines and Client Server Guidelines product lines, and to
discontinue its direct sales and service operations outside the U.S. The
Company replaced its non-U.S. operations with third-party distributor
relationships. There is no assurance that such distributors will be
successful. Also, the Company discontinued its telesales operations in the
U.S. The Company's future ability to generate sustained profitability is
dependent on the Company's Process Engineer product line and the Company's
direct sales operations in the U.S. There is no assurance that the Company
will be able to generate or sustain profitability. The Company has not
historically been successful in selling its Process Engineer product line
outside the U.S.
In connection with the Company's restructuring plan, the Company recorded a
$17.6 million restructuring charge in the three months ended October 31,
1996. The restructuring charge was comprised primarily of lease costs,
severance and other employee costs and impairment of certain operating
assets, principally outside the U.S. The restructuring actions may result in
a substantial reduction in the Company's
cash balance. The estimated total cash requirements associated with the
restructuring actions is substantial, however, currently, such cash
requirements extend over several years. Additionally, the Company's
restructuring plan could result in additional claims or liabilities which
the Company has not anticipated or included in the restructuring charge.
Unanticipated claims or liabilities could result in additional cash needs
for the Company.
Publicity concerning the Company's reported loss for fiscal 1997 and losses
reported in previous years, could adversely affect the Company's operations
and financial position including the ability to complete product sales and
retain or attract key management and other personnel.
(b) Fluctuations in Operating Results; Seasonality. The Company has experienced
substantial fluctuations in quarterly operating results in the past, and
future operating results could vary substantially from quarter to quarter.
Fluctuations in operating results may result in volatility in the price of
the ADSs. The Company generally fulfills orders as received and as a result
typically has little or no product license backlog. Quarterly revenue and
operating results therefore depend on the volume and timing of orders
received during the quarter, which are difficult to forecast. In addition,
the Company historically has recognized a substantial portion of its revenue
in the last weeks of a quarter. To the extent this trend continues, the
failure to achieve such revenue in the last weeks of any given quarter may
have a material adverse effect on the Company's financial results for that
quarter. The timing of sales and related revenue recognition is influenced
by a number of other factors, including seasonal customer buying patterns,
changes in product development and sales and marketing expenditures, and
compensation incentives for sales teams. Because the Company's staffing and
operating expenses are based on anticipated revenue levels and a high
percentage of the Company's costs are fixed in the short-term, small
variations in timing of recognition of specific revenue can cause
significant variations in operating results from quarter to quarter.
Results from quarter to quarter may not be indicative of future results.
There can be no assurance that the Company will be able to sustain
profitability on an annual or quarterly basis.
(c) Need for Market Acceptance of Process Management. The Company's product
lines are designed specifically for process management in the client/server
environment. The Company's future financial performance will depend in large
part on continued growth in the number of organizations using process
management tools to manage their development processes. The Company believes
that while the market for process management tools is growing, it is still
immature. Even if broader market acceptance is achieved, there can be no
assurance that the market will continue to grow or that the Company will be
able to respond effectively to the evolving requirements of the market. The
Company's reduced focus and investment on products other than process
management could result in reduced opportunities for sales of process
management products and adversely affect the Company's business, financial
condition and results of operations.
(d) Risks Relating to New Product Releases and Product Enhancements. The
Company's future success will depend, in large part, upon the Company's
ability to enhance its current process management product line and develop
and introduce new products to meet customers' process management tool needs
as well as emerging industry standards. There can be no assurance that the
Company will be able to successfully develop and market a broader line of
such products or that the Company will not encounter unexpected difficulties
and delays in enhancing its existing products. The Company has introduced a
new product, Deliverables Manager, which has required and will continue to
require substantial development, marketing, management and other investment.
There can be no assurance that Deliverables Manager or other new products or
product enhancements will meet the requirements of the marketplace or
achieve market acceptance.
Software products such as the products offered by the Company often
encounter development delays and may contain undetected errors or failures
when introduced or when new versions are released. Because of the complexity
of the Company's products and the possibility of unforeseen technical
problems in the development process, the Company risks missing announced
delivery dates for new products or product enhancements. The Company has in
the past and may in the future experience delays in the introduction of new
products and product enhancements. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of a new product or
product enhancement or its functioning after release. Substantial delays in
the availability of any of the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, products such as those offered by the Company may
contain undetected or unresolved software errors when they are first
introduced or as new or enhanced versions are released. The Company has in
the past discovered software errors in certain of its new products and
product enhancements. Although the Company has not experienced any material
adverse effects resulting from any such errors to date, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments resulting in loss of or delay in market
acceptance, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
(e) Rapid Technological Change. The market for process and asset management
tools is characterized by rapid technological advances, evolving industry
standards, changes
in customer requirements and frequent new product introductions and
enhancements. The Company's future success will depend in part on its
ability to enhance its existing products and introduce new products that
address changing customer requirements and emerging industry standards, such
as new operating systems, including Windows 95. Any failure by the Company
to anticipate or respond adequately to technology developments and customer
requirements, or any significant delays in product development or
introduction, could result in a loss of competitiveness or revenue. In
addition, from time to time the Company or others may announce products,
features or technologies which have the potential to shorten the life cycle
or replace the Company's existing products. Such announcements could cause
customers to defer the decision to buy, or determine not to buy, the
Company's products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
(f) Competition. The process and asset management tools market is extremely
competitive, fragmented and rapidly changing, and is characterized by a lack
of standards and numerous competitors in the areas of tools, methodologies
and services. The Company believes that its ability to compete depends on
many factors both within and outside of its control, including corporate and
product reputation, product architecture, functionality and features,
product quality, performance, ease-of-use, quality of support, availability
of product implementation and training services, and price.
In addition, because of the complexities inherent in software development,
software companies and the information technology departments of other
business organizations may determine that it is more cost effective to
develop their own software tools offering similar solutions to those
products offered by the Company. Furthermore, the Company faces the risk
that vendors of tools, databases and other elements of the client/server
development market may add to their products some or all of the
functionality that the Company's products provided to customers, thereby
reducing the number of prospective customers in need of the Company's
products. There can be no assurance that the loss of customers will not have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company expects competition from existing and additional competitors to
increase. Many of the Company's competitors have, and new competitors may
have, larger technical staffs, more established and larger marketing and
sales organizations, better developed distribution systems and significantly
greater financial resources than the Company. There can be no assurance that
either existing or new competitors will not develop products that are
superior to the Company's products or that achieve greater market
acceptance. There can be no assurance that future competition will not have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, distribution channels, technical
requirements and levels and bases of competition may differ as the Company
introduces new products, and there can be no assurance that the Company will
be able to compete favorably. In addition, a proliferation of software
products to meet the needs of the process and asset management tools market
may have a downward pressure on the prices of such products. Such downward
pressure on product prices could have an impact on the Company's operating
margins. There can be no assurance that the Company could avoid these price
pressures.
(g) Risks Relating to Indirect Sales Channels. An important aspect of the
Company's future sales and marketing strategy is to increase the
effectiveness of current indirect sales channels outside the U.S. and
develop indirect channels inside the U.S. Although the Company currently
sells its products through indirect sales channels outside the U.S., revenue
from such sales, particularly since the restructuring, has been minimal.
There can be no assurance that the Company will be able to increase revenue
from its current indirect sales channels or establish new indirect sales
channels. There can be no assurance that any current distributor of the
Company's products will continue to represent the Company's products, and
the inability to improve the effectiveness of current indirect sales
channels or establish new indirect sales channels could adversely affect the
Company's business, financial condition and results of operations. The
Company's strategy of marketing its products directly to end-users and
indirectly through distributors may result in distribution channel
conflicts, particularly in the U.S. The Company's direct sales efforts may
compete with those of its indirect channels and to the extent different
distributors target the same customers, distributors may also come into
conflict with each other. Although the Company attempts to allocate the
markets for its products among its distribution channels in a manner to
avoid potential conflicts, there can be no assurance that channel conflict
will not materially and adversely affect its relationships with existing
distributors.
(h) Dependence on Proprietary Technology. The Company's success is heavily
dependent upon proprietary technology. The Company's products are licensed
to customers under signed license agreements containing, among other things,
provisions protecting against the unauthorized use, copying and transfer of
the licensed program. In addition, the Company relies on a combination of
trade secret, copyright and trademark laws, non-disclosure agreements and
contractual provisions to protect its proprietary rights in its products and
technology. The Company has no patents or patent applications pending, and
existing trade secrets and copyright laws afford only limited protection.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products
or to obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is
unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem,
particularly in international markets and as a result of the growing use of
the Internet. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the
U.K. and the U.S. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies.
The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to
current or future products. As the number of software products in the market
increases and the functionality of these products further overlap, software
developers may become increasingly subject to infringement claims. Any such
claims against the Company, with or without merit, could be time-consuming
and expensive to defend, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty
agreements, if required, may not be available on terms acceptable to the
Company, or at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
(i) Dependence on Key Personnel. The Company's future success depends to a
significant extent on the performance of a number of key management and
technical personnel, the loss of one or more of whom could have a material
adverse effect on the Company. The Company's success will also depend in
part on its ability to attract and retain qualified professional, technical,
managerial, sales and marketing and customer support personnel. Competition
for such personnel in the software industry is intense. There can be no
assurance that the Company will be successful in attracting and retaining
the personnel it requires to develop new and enhanced products and to
conduct its operations successfully.
(j) Risks Associated with Global Operations. Although the Company's
restructuring strategy (discussed in (a) above) relies primarily on the U.S.
marketplace, the Company's current and future efforts outside the U.S. are
subject to risks inherent in international business activities, including,
in particular, general economic conditions in each such country, overlapping
of differing tax structures, managing an organization spread over various
jurisdictions, unexpected changes in regulatory requirements and complying
with a variety of foreign laws and regulations. Other risks associated with
operations outside the U.S. in general include import and export licensing
requirements, trade restrictions and changes in tariff and freight rates.
There can be no assurance that these factors will not have a material
adverse effect on the
Company's business, financial condition and results of operations.
The Company's non-U.S. sales have historically been denominated in foreign
currencies. To date, the Company has not established an exchange rate
hedging policy and has not engaged in any significant exchange rate hedging
activities to minimize the risks of exchange rate fluctuations. The Company
may seek to implement hedging techniques in the future with respect to its
foreign currency transactions. There can be no assurance that the Company
will be successful in such hedging activities. Gains and losses on the
translation and/or conversion of foreign transactions into U.S. dollars may
contribute to fluctuations in the Company's results of operations. Although
the Company has not experienced any material adverse impact to date from
fluctuations in foreign currencies, there can be no assurance that the
Company will not experience a material adverse affect on its business,
financial condition and results of operations from fluctuations in foreign
currencies in the future.
(k) Prior Losses; Risks Associated with Management of a Changing Business. The
Company experienced losses in fiscal 1994, 1995, 1996 and 1997. While the
Company has refocused its strategy, there can be no assurance that such
reorientation will result in sustained profitability. Furthermore, in
connection with such reorientation, the Company has experienced and will
continue to experience a period of transition. This transition has placed,
and may continue to place, a significant strain on its resources, including
its personnel. If Company management is unable to manage these changes
effectively, the Company's business, financial condition and results of
operations will be materially adversely affected.
Many of the foregoing factors discussed have been discussed in the Company's
prior SEC filings and, had the Act become effective at a different time, would
have been discussed in earlier SEC filings. The foregoing review of factors
pursuant to the Private Litigation Securities Reform Act of 1995 should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of said Act.