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WebMethods Chief Resigns

By Ellen McCarthy
Washington Post Staff Writer
Tuesday, October 5, 2004; Page E01

Phillip Merrick, the 41-year-old co-founder and chief executive of WebMethods Inc., resigned suddenly, citing health reasons that company officials described as "stress-related."

David Mitchell, who previously served as the Fairfax software company's president and chief operating officer, took over the chief executive's position yesterday. Bill Russell, an outside director, was appointed chairman of the company's board.

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Mitchell, 39, said Merrick submitted his resignation Saturday at his doctor's urging, describing the stress-related condition as "life-altering but not life-threatening." Merrick could not be reached for comment.

Competitors and analysts credited Merrick's passion for the company's Web technology for the staying power of the business and were surprised that he was stepping down.

"To the investment community, [Merrick and WebMethods] are one and the same," said David Hilal, a Friedman, Billings, Ramsey Group Inc. analyst who follows the company.

Merrick, a native of Great Britain who grew up in Australia, co-founded WebMethods in 1996 with his wife, Caren DeWitt. They started out in the basement of their Burke townhouse, preaching the power of Web-based software to help companies do business with one another. After struggling early on to attract investors and customers, WebMethods' profile rose with the buzz over e-commerce.

Four years after the company's inception, it held one of the dot-com boom's more successful public offerings. After opening at $35 a share, the stock closed its first day of trading at $212.62. At the time, Merrick was 37 years old. His wife was 39. Together they owned about 10.5 percent of the stock, a holding then worth about $700 million.

"My big joke is that had I could have bought half of Virginia had I invested," said Mario Morino, a technology entrepreneur who turned down Merrick's early appeal for an angel investment but remained friends with the WebMethods executive. "The leaders in this sector were not the cheerleaders; it was the people that were building businesses here, and Phillip was one of them."

By September 2000, the company had 600 employees. Merrick and DeWitt set up a $25 million charitable foundation to contribute to health care, education and housing organizations. DeWitt left the company to work with the foundation.

But WebMethods was pummeled in the economic downturn, as corporations all but halted technology spending. In July 2001, the company announced its first round of layoffs, cutting 160 from a staff of 1,063. Its stock was trading under $20 a share.

"It's been very tough out there," said Gregory J. Owens, chairman of Manugistics Group Inc., a Rockville business software firm and a friend of Merrick. "I think all of us that were operating in that environment put in a tremendous amount of hours, and the growth hasn't been there."

WebMethods' strategy, once centered on helping businesses work with one another, has broadened to include software that helps large clients like Starbucks Corp. and FedEx Corp. integrate multiple technology applications within their own networks.

Merrick's quiet management style and insistence on customer service built loyalty inside and outside the company, said Gene Riechers, former managing director of FBR Technology Venture Partners, one of WebMethods' original venture investors. "He hired a lot of great people and was determined to build a great business."

WebMethods has 800 employees, and it struggles to break even. In the three months ended June 30, it lost $10.8 million (20 cents a share) and posted $41.8 million in revenue.

Merrick, a father of two, is still WebMethods' largest individual shareholder, holding 2.7 million shares, or about 5.1 percent of the company's stock. His stake was worth $15.4 million at yesterday's closing price of $5.69, up 19 cents. Merrick's salary last year was $187,250.

The company's general counsel said Merrick's departure agreement calls for him to provide some "transition services" for the next year at compensation not exceeding his current salary, $360,000.


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