<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended January 1, 1995
Commission File Number 0-18238
SEQUOIA SYSTEMS, INC.
---------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-2738973
- - -------- ----------
(State or Other Jurisdiction I.R.S. Employer
of Incorporation or Organization) Identification No.)
400 Nickerson Road, Marlborough, Massachusetts 01752
- - ---------------------------------------------- -----
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code (508) 480-0800
--------------
Securities registered pursuant to Section 12(b) of the Act
Common Stock, $0.40 par value
-----------------------------
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at January 31, 1995
----- -------------------------------
<S> <C>
Common Stock, $.40 par value 9,866,956
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
ASSETS January 1, June 30,
1995 1994
(unaudited)
------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $19,613,549 $20,740,826
Accounts receivable, net of allowance for doubtful accounts
of $1,238,000 at January 1, 1995 and $1,399,000 at June 30, 1994 5,829,422 4,556,618
Accounts receivable from related parties 78,537 845,940
Current portion of long-term accounts receivable -- 50,000
Inventories 6,292,734 3,431,456
Other current assets 572,950 522,450
------------------------------------
Total current assets 32,387,192 30,147,290
------------------------------------
Equipment and Improvements, at cost:
Computer equipment 9,332,856 8,708,812
Machinery and equipment 2,336,909 2,176,185
Equipment under capital lease 2,665,660 2,665,660
Furniture and fixtures 558,534 538,361
Leasehold improvements 685,827 649,192
------------------------------------
15,579,786 14,738,210
Less - Accumulated depreciation and amortization 13,269,088 12,288,662
------------------------------------
2,310,698 2,449,548
------------------------------------
Other Assets 381,098 213,634
------------------------------------
Total Assets $35,078,988 $32,810,472
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations $117,492 $111,646
Accounts payable 1,401,463 1,889,621
Accrued expenses 7,212,011 6,345,133
Deferred revenue 873,053 813,375
------------------------------------
Total current liabilities 9,604,019 9,159,775
------------------------------------
Obligations Under Capital Lease, net of current portion 130,116 190,360
------------------------------------
Stockholders' Equity:
Preferred stock, $.40 par value:
Authorized--11,453,000 shares at January 1, 1995 and June 30, 1994
Issued--none
Common stock, $.40 par value:
Authorized--25,000,000 shares at January 1, 1995 and June 30, 1994
Issued and outstanding 9,841,043 shares at January 1, 1995,
and 9,811,000 shares at June 30, 1994 3,936,417 3,924,400
Additional paid-in capital 79,855,000 79,782,064
Accumulated deficit (58,446,564) (60,246,127)
------------------------------------
Total stockholders' equity 25,344,853 23,460,337
------------------------------------
Total Liabilities and Stockholders' Equity $35,078,988 $32,810,472
====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended, For the six months ended,
January 1, January 2, January 1, January 2,
1995 1994 1995 1994
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues
System $8,292,838 $7,460,934 $14,359,372 $14,446,228
Service 3,678,530 3,611,331 7,477,408 6,883,755
Other -- 8,062 11,981 145,550
-------------------------- ---------------------------
Total revenues 11,971,368 11,080,327 21,848,761 21,475,533
Cost of Revenues
System 3,244,618 2,818,349 5,831,819 5,749,363
Service and other 1,963,034 1,553,777 3,970,843 3,104,120
-------------------------- ---------------------------
Total cost of revenues 5,207,652 4,372,126 9,802,662 8,853,483
Gross profit 6,763,716 6,708,201 12,046,099 12,622,050
Research and Development Expenses 2,077,454 1,847,402 3,983,599 3,757,203
Selling, General and Administrative Expenses 3,498,978 2,475,944 6,621,036 5,020,230
-------------------------- ---------------------------
Total operating expenses 5,576,432 4,323,346 10,604,635 8,777,433
Income from operations 1,187,284 2,384,855 1,441,464 3,844,617
Interest Income 186,240 72,398 391,126 149,010
Interest Expense (6,343) (24,735) (14,507) (99,000)
Other Income (Expense) 72,901 (55,243) 84,400 (45,749)
-------------------------- ---------------------------
Income before provision for income taxes 1,440,082 2,377,275 1,902,483 3,848,878
Provision for Income Taxes 90,000 -- 110,000 --
-------------------------- ---------------------------
Net income $1,350,082 $2,377,275 $1,792,483 $3,848,878
========================== ===========================
Net Income Per Common and Common Share Equivalent $0.13 $0.24 $0.17 $0.41
========================== ===========================
Weighted Average Number of Common and Common Share
Equivalents Outstanding 10,236,268 10,001,123 10,300,382 9,445,105
========================== ===========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the six months ended, January 1, January 2,
1995 1994
--------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $1,792,483 $3,848,878
Adjustments to reconcile net income to
net cash provided by (used in ) operating activities--
Depreciation 980,426 1,177,612
Amortization 107,315 16,584
Provision for bad debts 75,000 --
Changes in assets and liabilities:
Accounts receivable (1,163,415) (150,060)
Accounts receivable from related parties 767,403 43,913
Accounts receivable, long-term -- 50,000
Inventories (2,861,278) 786,957
Other current assets (50,500) 157,217
Accounts payable (488,157) 582,604
Accrued expenses 866,879 (107,613)
Deferred revenue (74,711) (519,248)
--------------------------
Net cash provided by (used in)
operating activities (48,555) 5,886,844
--------------------------
Cash Flows From Investing Activities:
Purchase of equipment and improvements (841,574) (405,652)
Decrease (increase) in other assets (274,779) 139,170
--------------------------
Net cash provided by (used in)
investing activities (1,116,353) (266,482)
--------------------------
Cash Flows From Financing Activities:
Repayment of obligations under capital leases (54,399) (139,070)
Proceeds from issuance of common stock 84,953 42,879
--------------------------
Net cash provided by (used in) financing activities 30,554 (96,191)
--------------------------
Effect of exchange rates on cash 7,077 --
Net Increase (Decrease) in Cash and Cash Equivalents (1,127,277) 5,524,171
Cash and Cash Equivalents, beginning of year 20,740,826 10,639,494
--------------------------
Cash and Cash Equivalents, end of year $19,613,549 $16,163,665
==========================
Supplemental Disclosures of Noncash Investing
and Financing Activities:
Issuance of convertible preferred stock in settlement
of class action lawsuit -- $2,875,000
Release of restricted cash for:
Class action settlement -- $1,000,000
Repayment of note payable to bank -- $1,950,000
Repayment of obligations under capital leases -- $1,039,249
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $6,343 $155,240
Income taxes paid (refunds received) $30,000 ($171,531)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
Notes to Consolidated Financial Statements
Sequoia Systems, Inc. and Subsidiaries
(unaudited)
NOTE 1 BASIS OF PRESENTATION
- - ------
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that the disclosures made are
adequate to make the information not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's latest audited financial statements,
which are contained in the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, filed with the Commission on September 7, 1994, as amended
by Amendment No. 1 on Form 10 K/A, filed with the Commission on October 27,
1994, and as further amended by Amendment No. 2 on Form 10-K/A, filed with the
Commission on February 10, 1995.
This information includes all adjustments, (consisting of normal, recurring
adjustments) which the Company considers necessary for a fair presentation of
such information. The results of operations for the six months ended January 1,
1995, are not necessarily indicative of results to be expected for the entire
year.
NOTE 2 INVENTORIES
- - ------
Inventories are stated at the lower of cost (first-in, first-out) or market
which requires the periodic assessment of net realizable value. The difference
between cost and market is charged to income in the period the impairment is
determined. Inventory including materials, labor and manufacturing overhead
consists of the following:
<TABLE>
<CAPTION>
January 1, June 30,
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 672,602 $ 507,457
Work-in-process 2,778,506 1,500,078
Finished goods 2,841,626 1,423,921
---------- ----------
$6,292,734 $3,431,456
========== ==========
</TABLE>
5
<PAGE>
Notes to Consolidated Financial Statements
Sequoia Systems, Inc. and Subsidiaries
(unaudited)
NOTE 3 NET INCOME PER SHARE
- - ------
For the three and six month periods ended January 1, 1995, and January 2,
1994, respectively, net income per share was based on the weighted average
number of common and common share equivalents outstanding during the period,
computed in accordance with the treasury stock method. Primary and fully
diluted earnings per share are not separately stated as they are substantially
the same. For the three and six month periods ending January 2, 1994, common
and common share equivalents included 743,144 equivalent shares associated with
the Company's then outstanding convertible preferred stock. Subsequent to
January 2, 1994, these shares were converted and have been included as common
stock outstanding in determining Earnings Per Share for the three and six months
ended January 1, 1995.
NOTE 4 NOTE PAYABLE TO BANK
- - -------
On March 22, 1994, the Company and State Street Bank and Trust Company entered
into a credit agreement which provides for maximum borrowings of $10,000,000.
Borrowings under this agreement bear interest at the rate of prime to prime plus
1%, dependent on certain ratios. The Company is required to meet specific
covenants throughout the duration of this agreement. Available borrowings under
this agreement are subject to a borrowing base formula. The agreement expires
on May 31, 1995. At January 1, 1995, no amount was outstanding under this
agreement.
NOTE 5 LEGAL PROCEEDINGS
- - ------
On May 8, 1992, the Commission notified the Company that the Commission's
staff had begun an informal investigation with respect to the Company's revenue
recognition policies. On September 28, 1992, after receiving certain
documentation and information requested from the Company, the Commission
notified the Company that the Commission had entered a formal order of
investigation with respect to these matters. The Company and the Commission have
reached a preliminary settlement pursuant to which the Company will make no
monetary payment. The preliminary settlement is subject to the approval of the
Commission.
6
<PAGE>
Notes to Consolidated Financial Statements
Sequoia Systems, Inc. and Subsidiaries
(unaudited)
NOTE 6 SIGNIFICANT CUSTOMERS
- - ------
During the three months ended January 1, 1995, sales to two customers, CSC
Healthcare Systems (a subsidiary of Computer Sciences Corporation) at 22% of
revenues and Bell Atlantic Corporation ("Bell Atlantic) at 12% of revenues,
represented 34% of total revenues. During the six months ended January 1, 1995,
sales to two customers, CSC Healthcare Systems at 21% of revenues and KHP
Services, Inc. at 10% of revenues, represented 31% of total revenues. During
the three and six month periods ended January 2, 1994, sales to one customer,
CSC Healthcare Systems, represented 20% and 18%, respectively, of total
revenues.
NOTE 7 SUBSEQUENT EVENT
- - ------
On November 9, 1994, the Company and its acquisition subsidiary entered into a
definitive merger and stock purchase agreement with SPCO, Inc. and Keystone
International, Inc. Under the agreement, the Company will issue approximately
5.3 million shares of its common stock to acquire all of the closely-held shares
of Texas Microsystems Inc. and its affiliates. The Company intends to account
for the transaction as a pooling of interests. Completion of the transaction is
subject to approval by Sequoia shareholders and various other conditions. If
approved, the transaction is expected to be consummated in March, 1995. On
December 23, 1994, in connection with this proposed transaction, the Company
filed preliminary proxy materials with the Commission to be used in connection
with a Special Meeting of Sequoia shareholders.
On July 1, 1994 the Company reached agreement with Tricom Group Pty Ltd.
("Tricom") and purchased selected assets and the ongoing business operations of
its joint venture with Tricom for cash totaling $1.1 million.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
- - --------
The Company's revenues increased by 8% to $11,971,000 for the three months ended
January 1, 1995 from $11,080,000 for the three months ended January 2, 1994. The
higher revenue resulted from an 11% increase in sales of products and a 2%
increase in customer services revenues. The higher revenue was largely a result
of the Company's acquisition on July 1, 1994 of selected assets and the ongoing
business operations of its former Australian distributor by a newly formed
Australian subsidiary. This subsidiary contributed $2,377,000 in product and
service revenues for the three months ended January 1, 1995 versus $261,000
contributed by the Australian distributor in the comparative three months ended
January 2, 1994.
The Company's revenues increased by 2% to $21,849,000 for the six months ended
January 1, 1995 from $21,476,000 for the six months ended January 2, 1994. This
is attributable to a 9% increase in customer service revenues offset by a less
than 1% decrease in product revenues. For the six months ended January 1, 1995,
the Company's Australian subsidiary contributed $3,098,000, or 14% of total
revenues versus $373,000, or 2% of total revenues, contributed by the Australian
distributor in the comparative six months ended January 2, 1994.
The Company's product revenues for the three and six month periods primarily
consisted of sales of expansion systems and upgrades to existing customers. For
the first half of fiscal 1995 there were three system sales resulting in
$1,169,000 in revenues representing two new customers. Sales of VME-based
technology, first introduced in the third quarter of fiscal 1994, comprised 51%
and 56% of total product revenues in the first three and six months periods of
fiscal 1995. Revenues from customer service increased by 2% and 9% to $3,679,000
and $7,477,000, respectively, for the three and six months ended January 1, 1995
from $3,611,000 and $6,884,000, respectively, for the three and six months
ending January 2, 1994. These increases were largely attributable to the
additional revenues provided by the new Australian subsidiary.
During the three and six months ended January 1, 1995, 69% and 66% of the
Company's revenues, respectively was derived from the sale of products,
including the licensing of associated software, and 31% and 34% of revenues
8
<PAGE>
were derived from service. During the three and six months ended January 2,
1994, 67% of the Company's revenues were derived from the sale of products,
including the licensing of associated software, and 33% of revenues were derived
from service and other.
During the three months ended January 1, 1995, sales to two customers, CSC
Healthcare Systems (a subsidiary of Computer Sciences Corporation) at 22% of
revenues and Bell Atlantic Corporation at 12% of revenues, represented 34% of
total revenues. During the six months ended January 1, 1995, sales to two
customers, CSC Healthcare Systems at 21% of revenues and KHP Services, Inc. at
10% of revenues, represented 31% of total revenues. During the three and six
month periods ended January 2, 1994, sales to one customer, CSC Healthcare
Systems, represented 20% and 18%, respectively, of total revenues.
Most recently, system revenues consisted of sales of expansion systems, or
upgrades, to existing customers with increased information processing
requirements rather than system sales to new customers. While sales of
expansion systems have provided a reliable source of revenues during periods
when sales to new customers have been particularly slow, those revenues could
decline if the Company failed to develop attractive, competitively priced
upgrade features and products for existing customers or if the Company were
unable to increase the size of its installed base.
The Company's ability to maintain or increase its level of revenues in the
future will primarily depend on the successful introduction of new products, the
ability to add new customer accounts, and a continued high level of upgrade
sales. The Company's future success will also depend in part on the ability of
current and the willingness of future licensees to develop products and
technology that may be marketed and sold by the Company, or which provide
royalty income for the Company.
GROSS MARGIN
- - ------------
The Company's gross margin decreased to 57% and 55%, respectively, for the three
and six months ended January 1, 1995 as compared to 61% and 59% for the three
and six months ended January 2, 1994. The decrease in gross margin was due in
large part to decreases in customer service margins to 47% for the three and six
months ended January 1, 1995 compared to 57% and 56% for the three and six
months ended January 2, 1994. This is caused by lower service pricing on VME-
based products and increases in staffing within both the product support and the
recently-formed professional services group which has not contributed
substantially to revenues due to its start-up status.
9
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
- - ---------------------------------
The Company's research and development expenses increased 12% and 6% to
$2,077,000 and $3,984,000, respectively, for the three and six months ended
January 1, 1995 from $1,847,000 and $3,757,000 for the three and six months
ended January 2, 1994. These increases resulted in part from investments made
to support the joint development program with Novell, Inc. and prototype
expenses associated with new products. Research and development expenses as a
percentage of revenues remained relatively unchanged at 17% for each three month
period and 18% for each six month period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
- - ---------------------------------------------
Selling, general, and administrative expenses increased 41% and 32% for the
three and six months ended January 1, 1995 to $3,499,000 and $6,621,000 from
$2,476,000 and $5,020,000, respectively, for the three and six months ended
January 2, 1994. These increases were the result of personnel increases,
expenses incurred by the Australian subsidiary which had not yet been formed in
fiscal 1994 and increased advertising. Personnel increases were primarily to
expand distribution channels in the U.S. and Australia, to invest in marketing
and to strengthen management information resources. In addition, the Company
expended $440,000 in the first six months of fiscal 1995 for legal, accounting,
and printing costs incurred in connection with the pending merger transaction,
and expects to incur additional related costs through the consummation of the
pending merger which is expected in March 1995.
OPERATING INCOME
- - ----------------
The Company reported operating profits of $1,187,000 and $1,441,000 during the
three and six months ended January 1, 1995, as compared to operating profits of
$2,385,000 and $3,845,000 during the three and six months ended January 2, 1994.
The decreases in operating profit were primarily the result of reduced service
margins and increased operating expenses.
10
<PAGE>
INTEREST INCOME (EXPENSE)
- - -------------------------
The Company had net interest income of $180,000 and $377,000 for the three and
six month periods ended January 1, 1995 compared to interest income of $48,000
and $50,000, respectively, for the same periods ended January 2, 1994. The
increase in net interest income resulted from higher cash and short-term
investment balances at higher interest rates, and lower capital lease
obligations during the three and six months ended January 1, 1995.
OTHER INCOME (EXPENSE)
- - ----------------------
Other income (expense) for the three and six months ended January 1, 1995 and
January 2, 1994 reflect the impact of foreign currency translation.
INCOME TAXES
- - ------------
The Company booked provisions for income taxes in the three and six months ended
January 1, 1995 of $90,000 and $110,000 for federal alternative minimum tax and
state minimum tax requirements. The Company had no state or federal income tax
liability for the three and six months ended January 2, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At January 1, 1995, the Company had cash and cash equivalents and working
capital of $19,614,000 and $22,783,000, respectively, compared to cash and cash
equivalents and working capital of $20,741,000 and $20,988,000 at June 30, 1994.
The reduction in cash was due primarily to the acquisition of net assets of the
Company's Australian distributor on July 1, 1994 for $1,100,000. The increase
in working capital was due predominantly to higher levels of inventories and
receivables at January 1, 1995.
At January 1, 1995, the Company's net accounts receivable totaled $5,908,000 as
compared to $5,453,000 at June 30, 1994. The Company's days sales outstanding
at January 1, 1995, calculated on net accounts receivable, was 45 days compared
to 38 days at June 30, 1994.
Inventories have increased to $6,293,000 at January 1, 1995 from $3,431,000 at
June 30, 1994, due to the purchase of inventory for $1,100,000 as part of the
acquisition of the Australian distributor and the procurement of inventories
associated with the introduction of new products. The Company expects to be
11
<PAGE>
able to continue to manage its inventory at current levels throughout fiscal
1995, unless there are significant deviations from planned revenue levels.
Capital expenditures during the six months ended January 1, 1995 were primarily
for computer equipment, software licenses, and the capitalization of internally
manufactured systems, and totaled $842,000 compared with $406,000 for the six
months ended January 2, 1994.
At January 1, 1995, the Company had remaining obligations of approximately
$275,000 for leases and engineering service contracts related to its
restructuring charge in December 1992. The Company believes that the ultimate
settlement of these remaining obligations related to the restructuring will not
materially impact the Company's liquidity.
On March 22, 1994, the Company and State Street Bank and Trust Company entered
into a credit agreement which provides for maximum borrowings of $10,000,000.
Borrowings under this agreement bear interest at the rate of prime to prime plus
1%, and are dependent on the Company's achievement of certain financial ratios.
The Company is required to meet specific covenants throughout the duration of
this agreement which expires on May 31, 1995. Available borrowings under this
agreement are subject to a borrowing base formula. At January 1, 1995, no
amounts were outstanding under this agreement. The Company plans to renegotiate
its existing credit line and increase availability in association with the
pending merger with Texas Microsystems Inc. and its affiliates. The Company
believes that the present cash and cash equivalents balances and cash flows from
operations are adequate to meet foreseeable cash requirements including
transaction costs relating to the consummation of the pending merger.
12
<PAGE>
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Software Services Agreement, dated as of April 16, 1992, as
amended on March 19, 1993 and June 4, 1994, between the Company
and ICIM International, Inc.
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 10, 1994
Sequoia Systems, Inc.
By: /s/ Richard B. Goldman
----------------------
Richard B. Goldman
Vice President of Finance,
Chief Financial Officer
14
<PAGE>
EXHIBIT 10.1
SOFTWARE SERVICES AGREEMENT
This Software Services Agreement (the "Agreement") is entered into effective
April 16, 1992 by and between ICIM International, Inc. a California corporation
with its principal place of business in San Jose, California ("III"), and
Sequoia Systems, Inc., a Delaware corporation with its principal place of
business in Marlborough, Massachusetts ("Client").
RECITALS
WHEREAS, Client is a supplier of Fault Tolerant Computer Hardware and high
throughput On Line Transaction Processing Systems (OLTP) with an aggressive
"Open Systems" product line. Client is pursuing a strategy of leveraging
leading edge products and solutions to it's customers. Client is interested in
expanding it's software products and services to provide solutions to it's
customers as well as prospective customers on a worldwide basis in order to
increase it's market share. Client is therefore keen to build a strategic
relationship with supplier to develop software products and services such that
the combined offerings result in improved solutions for it's customers and also
entry into new markets to support it's overall growth strategies.
WHEREAS, III is a Software Company with a strong background in Open Systems
Transaction Processing Applications and large project management. III has a
development facility in India which provides quality software development
facilities at competitive prices.
WHEREAS, the intent of this relationship between Client and III is to develop
a strategic development relationship. To facilitate this process a two stage
process is foreseen. In stage one a team of engineers from III will be trained
over a twelve month period in order to get expertise on the Client's product
line, design architecture and other relevant technical details. During this
period Client will essentially incur living expenses in the US for this team.
In the second phase Client will have products developed and tested at III's
development facility in India.
WHEREAS, Client desires to retain III on a long-term basis to provide
software consulting services to Client;
WHEREAS, III has agreed to provide Client with such software consulting
services under the terms set forth below;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
Definitions
I.1 "Additional Software Consulting Services" shall mean Software Consulting
Services in excess of the amount of such services guaranteed by III pursuant to
Section II.2 and shall include, but not be limited to, development of Detailed
Specifications referred to in Article VII.
I.2 "Additional Software Engineers" shall mean software engineers performing
Additional Software Consulting Services as defined in I.1.
I.3 "III Affiliate" shall mean a corporation or other entity controlled by or
in control of III, with control defined as direct or indirect ownership of at
least fifty percent (50%) of the voting power of the corporation or other
entity (including III).
I.4 "III Manager" shall mean the person provided by III pursuant to Section
II.3.
1
<PAGE>
I.5 "Engineer-Years" shall mean 224 eight hour working days in India and 240
eight hour days in USA.
I.6 "Software Consulting Services" shall mean any and/or all of the
consulting services to be provided by III in the area of computer software.
I.7 "Software Engineers" shall mean the III personnel selected pursuant to
Section II.4. Exhibit A names the Software Engineers who shall perform the
Software Consulting Services in year one.
ARTICLE II
Performance of Software Consulting Services
II.1 Performance of Software Consulting Services. Client hereby retains III
and III hereby agrees to provide Client with Software Consulting Services upon
the terms and conditions of this Agreement for particular projects of Client.
II.2 Minimum Level of Services. III hereby agrees to provide Client with
Software Consulting Services at least equivalent to the number of Engineer-
Years set forth below:
a. July 1, 1992-June 30, 1993--Six Engineer-Years
b. July 1, 1993-June 30, 1994--Eight Engineer-Years
c. July 1, 1994-June 30, 1995--Ten Engineer-Years
II.3 Managerial Services. Commencing at a time specified by the Client and
continuing until the termination of this Agreement, at the option of Client III
shall provide the III Manager to work at Client's facilities to co-ordinate
project management between III and Client.
II.4 Selection of III Personnel. The selection of Software Engineers required
to perform Software Consulting Services based upon project details provided by
Client shall be made by III and approved by Client.
II.5 Performance of III Personnel. Each Software Engineer shall diligently
devote such time and best efforts as is reasonably required to satisfactorily
complete each software consulting project to which he or she is assigned.
II.6 Purchase of Sequoia Computer Systems by III. In order to facilitate the
performance of the Software Consulting Services in India, III (or an Affiliate)
will purchase one Sequoia Computer System and recommended spares on the terms
and conditions set forth in Exhibit B to be installed at its development
facility in India. This system shall not be resold by III during the validity
of this agreement. The purchase of additional computer systems if any will be
considered in 1994 and 1995 as per requirements and workloads on an
economically viable basis.
II.7 Assignment of Projects in Year One.
Projects assigned to Software Engineers between July 1, 1992 and June 30,
1993 at Sequoia or other US locations designated by Client are at the
discretion of Client. After year one projects are assigned as described in
Article VII.
II.8
Client may communicate its dissatisfaction with any one or more of the
engineers provided by III, to III in writing, not later than 45 days from date
of commencement of the engineer's services. Such a communication shall specify
the reason for dissatisfaction and shall request III to change this engineer.
III
2
<PAGE>
shall promptly change the engineer at its own cost. In all cases Client will
receive a engineer-years effort for each year of service for which III receives
compensation.
ARTICLE III
Confidentiality and Nondisclosure
III.1 Confidentiality. III acknowledges that Client has expended and will
continue to expend substantial sums in creating software systems and
documentation, customer lists, prospect and marketing research materials,
business plans and manner of conducting business, and adaptations,
modifications or derivative works based thereon ("Confidential Information"),
which Confidential Information may be disclosed to III during III's performance
under this Agreement. III agrees and acknowledges that the Confidential
Information, and any reports, plans, derivative works, adaptations or
modifications thereto, have tangible value, contain valuable trade secrets,
copyrights and confidential information of Client and are the sole property of
Client.
III.2 Non-Disclosure. III shall not in any manner or form reproduce, copy,
disclose, provide or otherwise make available, in whole or in part, the
Confidential Information, whether developed by Client, III, or a third party,
other than to Client's or III's employees for purposes specifically related to
III's performance of this Agreement. III shall make no other use of the
Confidential Information and shall require all Software Engineers providing
Software Consulting Services to enter into a confidentiality agreement which
contains these obligations. Copies of all such Confidentiality agreements shall
be promptly furnished to the Client.
The obligation of secrecy hereunder shall not apply to information to the
extent that III can show:
(a) That such information is publicly available;
(b) That such information was in its possession prior to the date of
disclosure;
(c) That it subsequently received such information from any third party
without restriction as to its disclosure or use; or
(d) That it is authorized to disclose such information by any subsequent
written agreement between the parties hereto.
III.3 Proprietary Rights Notices. III shall ensure that any copy, in whole or
in part, of the Confidential Information or any reports, plans, adaptations or
modifications thereto made by III shall have affixed thereto proprietary,
copyright and trade secret notices in such manner and location as to give
reasonable notice of the proprietary, copyright and trade secret protection of
Client and its Customers. III shall have no right to print or copy, in whole or
in part, such Confidential Information except as authorized herein.
III.4 Further Action. III shall take all appropriate action, whether by
instruction, agreement or otherwise, to ensure the protection, confidentiality
and security of the Confidential Information or any reports, plans, adaptations
or modifications thereto and any related materials, and to satisfy III's
obligations under this Agreement. Client has the right to audit III's security
and confidentiality process and procedures, with prior notice.
ARTICLE IV
Relationship of Parties
IV.1 Independent Contractors. III acknowledges and agrees that III has been
engaged as an independent contractor, not as an employee, and nothing in this
Agreement shall be construed as creating an
3
<PAGE>
employer/employee relationship or any partnership or joint venture between
Client and III, or between Client and III's employees. III shall not incur any
liability on behalf of Client or in any way represent or bind Client in any
manner whatsoever and nothing herein shall be deemed to constitute either party
the agent or legal representative of the other.
ARTICLE V
Ownership of Inventions
V.1 Ownership of Inventions. III agrees and acknowledges that all reports,
computer programs, improvements, enhancements, modifications or discoveries
made by III under or arising out of this Agreement ("Inventions") shall be
works for hire and the ownership thereof shall vest in Client. All Inventions
shall be deemed to be Confidential Information and III hereby assigns and
transfers all of its right, title and interest in any and all copyright or
other intellectual property rights in and to said Inventions to Client. Client
shall have the right to obtain in its own name, copyrights, patents or similar
protection which may be advisable in any such Inventions. III agrees to give
Client all assistance reasonably required to apply for or register patents or
copyrights or otherwise to perfect such intellectual property rights.
V.2 Assignment of Ownership. III hereby assigns to Client all of its right,
title and interest in and to copyrights on all writings, documents, reports,
drawings, tabulations, computer programs or other works written or made by III
in connection with the provision of Software Consulting Services under this
Agreement. All such works are hereby deemed to be works for hire by III on
behalf of Client.
ARTICLE VI
Software Consulting Fees
VI.1 Consulting Fees. In consideration for the performance of the Software
Consulting Services provided by III (including the Additional Software
Consulting Services), Client shall pay to III:
a. For the period from July 1, 1992 to June 30, 1993 (the "First Year"),
$30,000 per Engineer-Year for the services of six (6) Software Engineers,
to work at the Client's facility at Marlborough or some other US location
as designated by Client.
b. For additional Software Engineers provided by III to Client in the
First Year and for any Software Engineers provided for the remaining term
of the contract i.e. Second and Third Year, $30,000 per Engineer-Year (or
proportionately less for fractions of Engineer-Years) for Software
Consulting Services performed in India and $65,000 per Engineer-Year (or
proportionately less for fractions of Engineer-Years) for Software
Consulting Services performed in the United States.
VI.2 Minimum Commitment. Client shall at a minimum retain (and compensate III
at the rates set forth in Section VI.1 above) at least the number of Software
Engineers set forth below with respect to each period.
a. July 1, 1992-June 30, 1993--Six (6)
b. July 1, 1993-June 30, 1994--Eight (8)
c. July 1, 1994-June 30, 1995--Ten (10)
VI.3 Minimum Payments. In accordance with the payments described in Section
VI.1 and VI.2, Client shall make minimum annual payments (the "Minimum
Payments") to III in accordance with the following schedule:
a. July, 1 1992-June 30, 1993--$180,000
b. July 1, 1993-June 30, 1994-- 240,000
c. July 1, 1994-June 30, 1995-- 300,000
4
<PAGE>
VI.4 Management Fee. Client shall pay III $65,000 per man year for an III
Manager, on site in Marlborough, if Client chooses such service.
VI.5 Expenses.
During the First Year, III will bear all travel and related expenses for six
(6) Software Engineers to be located at Client's facility or other US location
designated by Client. Client shall bear the travel and transportation costs
incurred by any Additional Software Engineers during the term of this Agreement
while on assignment with Client in the United States, including the cost of
round-trip transportation by each Software Engineer between the United States
and India and local expenses (e.g., car rental fees). For the six engineers in
year one any travel within the United States or elsewhere at the request of
Client shall be paid for by Client.
VI.6 Invoices. III will invoice Client on or before the fifth day of the
month for Software Consulting Services (including Additional Software
Consulting Services) rendered during the previous month and Client will make
payments to III within 20 days of the receipt of such invoice. To the extent
Client has not satisfied the Minimum Commitment for a year as required by
Section VI.2, Client shall promptly pay to III an amount equal to $30,000
multiplied by an amount equal to the Minimum Commitment less the number of
Software Engineers actually retained during the year. All invoice amounts shall
be paid in United States dollars. The Management Fee payable under Section VI.4
shall be invoiced on a monthly basis. Any invoiced amount (other than amounts
which are the subject of a good faith dispute between parties), not received
within the 20 days will be subject to interest at the US prime rate.
VI.7 Payment Procedures. Client shall make all payments to III by wire
transfer to a bank designated by III. All bank charges with respect to such
payments will be to III's account.
ARTICLE VII
TEST AND ACCEPTANCE AFTER YEAR ONE AT SEQUOIA; VARIATIONS; LATE COMPLETION AND
TRAINING
VII.1 Project Assignments. From time to time during the term of this
Agreement, Client shall notify III of projects for which Client requires
Software Development Services. The parties will agree on the Detailed
Specification (and project plan with detailed milestones) and III will provide
a quote of the number of Engineer-Years to completion (the "Quote").
VII.2 Forthwith upon the approval by Client of the Detailed Specification and
project plan the Completion Date and the Quote, III shall commence its
development works upon the basis of and in compliance with the Detailed
Specification.
VII.3 III shall use its best endeavors to complete the development of the
Program by the Completion Date and in accordance with the Quote. III shall
notify Client in advance of any anticipated time overruns.
VII.4 On or before the Completion Date specifically set in the individual
projects, III shall submit to the Client test data and results suitable to
assess whether the Programs operate in accordance with the Detailed
Specification.
VII.5 Client shall by notice within fourteen (14) days of receipt of the test
data and results either approve or reject the same. Client shall only be
entitled to reject the test data and results upon the basis that (and by
detailing the manner in which) either or both of them require the Programs to
operate in a manner not provided for by the Detailed Specification.
VII.6 III shall forthwith upon receipt of a rejection by Client of test data
and results make all such alterations to the said test data and results as
shall in the circumstances be necessary and shall resubmit the
5
<PAGE>
same for approval by Client. Such alterations shall not be at the Client's
expense unless agreed to prior to beginning such alterations.
VII.7 III shall implement acceptance test of the Programs within Fourteen
(14) days of the approval by Client of the test data and results. The
acceptance test shall be based strictly on the test data and results approved
by Client.
VII.8 If the Program fails to pass the acceptance test then III shall
forthwith implement free of charge such alterations or modifications to the
Program as it shall in the circumstances reasonably judge necessary and in
sufficient time to make possible the repetition of the acceptance test by
Client within thirty (30) days of the date of failure.
VII.9 If the Program fails the repeat acceptance test then Client may at its
option:
a. require III by written notice to forthwith implement such further
alterations or modifications to the Program free of charge as Client shall
reasonably judge necessary to enable the Program to pass the acceptance
test; or
b. accept the Program; or
c. reject the Program. If Client rejects, Client is entitled to refunds
and/or credits for dollars spent. In such a case, Client is not entitled to
the Program or to any ownership rights as prescribed in Article V; the
program and ownership rights under Article V shall belong to III. However,
III shall still be subject to the provisions of Article III in respect of
such program.
VII.10 Client shall be entitled at any time prior to the Completion Date of
the individual project, to request in writing to III to modify the design of
the Program.
VII.11 Client shall provide III with full particulars of any requested
modification and such further information as III shall reasonably require.
VII.12 Following a request pursuant to Section VII.10 above, III shall inform
Client in a timely manner in writing of the alterations to the Completion Date
and the Quote that it shall reasonably judge necessary to make as a result of
such request or its inability to do so.
VII.13 If Client elects to proceed with the modification then the Completion
Date and the Quote shall be amended in the manner indicated by III pursuant to
Section VII.12 above.
VII.14 If the Program is modified in whole or in part in accordance with this
Article the parties shall make all appropriate related modifications to the
Detailed Specification.
VII.15 Client and III recognize and agree that individual agreement for
Software Development Services may be executed for each project. In case of any
conflict between the terms of the individual agreement and the terms under this
Article VII, Client and III agree that the terms of the individual agreements
shall prevail. The terms under this Article VII shall only apply when they are
applicable.
ARTICLE VIII
Term and Termination
VIII.1 Term. This Agreement shall commence on the date first set forth above
and shall continue in full force and effect until June 30, 1995 unless
terminated under this Article VIII.
VIII.2 Termination for Cause. Either party may terminate this Agreement for
cause if the other party breaches any material provision of this Agreement and
fails to cure such breach within thirty (30) days after
6
<PAGE>
written notice from the non-breaching party. For example if the Client
considers the service provided by III to be significantly less than expected
e.g. chronic failure to meet schedules or below average software quality,
Client will work with III to remedy the situation. However, if such service
continues to be unacceptable, the Client may terminate this agreement for
cause.
VIII.3 In the event the Client terminates this Agreement for other than
Cause, the Client's obligation shall be payment of all services performed to
date plus 50% of the services, planned for the remaining period of the
agreement.
VIII.4 Return of Property. Upon the termination of this Agreement, III agrees
to end all further use and utilization of, and to immediately return to Client
all tangible Confidential Information, papers, tabulations, reports, computer
programs and other documents or equipment furnished by Client or created or
prepared by III under this Agreement. To destroy all copies thereof and to
certify to Client in writing that all such materials have been delivered to
Client and that all copies have been destroyed.
VIII.5 Survival. The obligations of the parties under Articles III, V and
Sections VI.3, VI.6, VIII.3, VIII.4, IX.1, IX.2, X.9, X.10, X.11 and X.12 shall
survive any termination of this Agreement.
ARTICLE IX
Warranty
IX.1 Warranty. III shall use its best efforts to ensure that any software
developed under this Agreement shall function properly in conformity with the
specifications provided by Client.
The foregoing warranty is in lieu of all other warranties and considerations,
express or implied, including but not limited to, those concerning
merchantability and fitness for a particular purpose. III's liability under
this agreement shall be solely to Client and shall be limited to the correction
of any defects in the software developed pursuant to this agreement.
The foregoing warranty shall not apply to defects resulting from:
a. Unauthorized modification or misuse of the software.
b. Buyer supplied software or inter-facing.
IX.2 Limitation of Liability. The remedies provided herein are Client's sole
and exclusive remedies. In no event will III be liable for any direct or
indirect, special, incidental, or consequential damages including loss of
profits or goodwill whether based on contract, tort or any other legal theory.
III shall in no event be liable for loss of profits, loss of goodwill, claims
by third parties against Client or any other special or consequential damages
suffered by Client or others arising out of the performance of services by III
under this agreement, whether or not the possibility of such damages was
disclosed to III or could have been reasonably foreseen by III.
ARTICLE X
General Terms and Conditions
X.1 Assignment. The rights, duties and obligations of III and Client under
this Agreement shall not be transferred or assigned by either party to any
third party without the prior written consent of the other party, provided,
however, that III may assign and/or subcontract its rights and Agreement to an
III Affiliate without the consent of Client. Provided, however, that III shall
at all times remain liable for all of its obligations under the contract.
7
<PAGE>
X.2 Waiver. No failure or delay by either party in exercising any rights,
power or privilege under the terms and conditions of this Agreement shall
operate as waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise therefor the exercise of any other
right, power or privilege. This Agreement or any part thereof may not be waived
or discharged orally but only by and upon written statement duly signed by both
the parties.
X.3 Notices. Any notices required or permitted under this Agreement shall be
in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, addressed to Client/III at its address first set forth above
or such other address for which the party gives notice hereunder. Notices shall
be deemed given seven (7) days after deposit in the mail.
X.4 Entire Agreement. This Agreement shall constitute the entire agreement
and understanding between the parties on the subject hereof and shall wholly
merge and supersede any and all prior agreements, if any, between them.
X.5 Modification. The terms and conditions of this Agreement may be modified
or changed only by written amendments duly executed by duly authorized
representatives of both the parties.
X.6 Severability. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable by any court of competent
jurisdiction the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
X.7 Authority. The parties acknowledge that the individual(s) signing on
their respective behalf are duly authorized to sign this Agreement and bind the
parties respectively.
X.8 Force Majeure. Non-performance of either party shall be excused to the
extent that performance is rendered impossible by strike, fire, flood,
governmental acts or orders or restrictions or any other reason where the
failure to perform is beyond the reasonable control of the non-performing
party. However, if the performance of such party be delayed for a continuous
period of sixty (60) days or more, the Agreement may be terminated by the other
party by written notice of thirty (30) days unless performance is resumed
within such thirty (30) days.
X.9 Solicitation of Employees. Client shall not directly or indirectly offer
employment to any of III's personnel or former personnel for up to one year
after the termination of this Agreement. Unless prior written notice is
received from III.
X.10 Arbitration. Any dispute or difference between the parties arising from
or under this Agreement or relating thereto or its interpretation effect or
validity, shall, unless amicably settled, be referred to binding arbitration in
Boston, Massachusetts under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators appointed in accordance
with said Rules.
X.11 Governing Law. All questions with respect to the construction of this
Agreement and the rights and liabilities of the parties hereto shall be
governed by the laws of the Commonwealth of Massachusetts without reference to
rules of conflicts of law.
X.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
X.13 Injunctive Relief. III acknowledges and agrees that Client would suffer
irreparable damage in the event that III violates any provision of Article III,
and therefore agrees that, in addition to any other remedy to which Client may
be entitled at law or equity, Client shall be entitled to an injunction or
injunctions, an to any other applicable equitable remedy, to prevent or cure
breaches of Article III.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
effective as of the date first set forth below.
ICIM International, Inc. Sequoia Systems, Inc.
Arun Tolani James M. Nolan, Jr.
By: _________________________________ By: _________________________________
Arun Tolani James M. Nolan, Jr.
Chief Operating Officer Vice President Engineering
9
<PAGE>
EXHIBIT A
SOFTWARE ENGINEERS
The software engineers selected pursuant to Section II.4 are named below:
1. S. V. Gore
2. A. P. Manoranjan
3. J. S. Lokhande
4. A. Jaeel
5. V. Sudha
6. G. R. Chandrasekhar
III shall have the right to replace either or both of the last two names, at
its option, with persons of comparable skill level.
10
<PAGE>
EXHIBIT B
SEQUOIA SYSTEM TERMS
<TABLE>
<S> <C>
1 Series 40 with 2 PEs, 2MEs (64MB), 2IOEs, 1BBU, 1 console termi-
nal, 1 console printer, 1 Ethernet card, 16 asynch ports, 4 disk
drives (400MB formatted 3.5" SCSI drives/1.2 GB Drives) 1 DAT
tape drive, TOPIX, TCP/IP, MOTIF/X Windows and ANSI C........... $67,500 CIF
Spares as per attached sheet...................................... $22,500 CIF
</TABLE>
VARIATION-CONFIGURATION
The configuration specified above is subject to change as mutually agreed
between the parties to the agreement at the time the order is actually placed
on Client by the supplier which is expected to be in the 2nd quarter of 1993.
TERMS OF PAYMENT
The supplier shall pay the price of $90,000 CIF indicated above within 20
days of receipt of the invoice or installation of the equipment whichever is
later. The payment shall be by wire transfer to the Client at a bank designated
by Client. Any delay in payment by supplier (other than amounts which are the
subject of a good faith dispute between parties) after the 20 days will be
subject to interest at the US prime rate.
MAINTENANCE
Self maintenance (service provider) after warranty period, by Sequoia-trained
ICIM engineers.
SPARES LIST Annexure to Exhibit B
<TABLE>
<CAPTION>
MODEL
# DESCRIPTION UNIT QUALITY
----- ----------- ------------
<S> <C> <C>
CP4025 S40 PE 1
CM4064 MEM 64MB 1
CI4001 S40 IOE 1
CE 401 SYS CAB 1
DS4002 DAT TRAY 1
DD4002 DSK 1.2GB 1
DC4001 SCSI CTLR 1
CE4003 PCAB VME 1
MC403 ETHERNET 1
AV203 CNSL TRMNL 1
$22,500 CIF
</TABLE>
11
<PAGE>
AMENDMENT NO. 1 TO SOFTWARE SERVICES AGREEMENT
This amendment is made as of 19 March, 1993 by and between ICIM
International, Inc., (III) a California corporation and Sequoia Systems Inc.
(Client) a Delaware corporation.
Whereas the parties to this Agreement have entered into a Software Services
Agreement (Agreement) effective April 12, 1992;
Whereas Client requires some changes in the Agreement to meet its current and
future business needs:
And whereas, III is agreeable to these proposed changes;
Now Therefore, in consideration of the mutual promises contained herein, the
parties agree as follows:
1. Article II 6 shall be replaced by the following article:
II.6 Purchase of Sequoia Computer Systems by III. In order to
facilitate the performance of the Software Consulting Services in
India, III (or an Affiliate) will purchase one Sequoia Computer System
and recommend spares. The terms and conditions of this purchase will be
determined when it appears likely that Software Consulting Services
will be performed in India. This system will be installed at its
development facility in India. This system shall not be resold by III
during the validity of this agreement. The purchase of additional
computer systems if any will be considered in 1995 as per requirements
and workloads on an economically viable basis.
2. Article VI. 1 c shall be added as follows:
VI.1 c. Notwithstanding Article VI.1 b, for Software Engineers
provided by III to Client in the US from 17 March 1993, $72,000 per
Engineer-Year.
3. Add to the end of Article I.7
The number of Software Engineers required by Client in subsequent years or
periods shall be specified in Exhibit C which shall also indicate the start
date.
ICIM International, Inc. Sequoia Systems, Inc.
Thomas Joseph James Nolan
By __________________________________ By __________________________________
Thomas Joseph James Nolan
President & CEO VP Engineering
12
<PAGE>
EXHIBIT C
Software Engineers required:
<TABLE>
<CAPTION>
START DATE
NUMBER (ON OR BEFORE) LOCATION
------ -------------- --------
<S> <C> <C>
1 3/22/93 Marlborough, Massachusetts
1 4/1/93 Marlborough, Massachusetts
1 5/1/93 Marlborough, Massachusetts
5 8/1/93 Marlborough, Massachusetts
</TABLE>
Total number of engineers: 8
13
<PAGE>
AMENDMENT NO. 2 TO SOFTWARE SERVICES AGREEMENT
This Amendment is made as of June 4, 1994 by and between ICIM International,
Inc. (III), a California Corporation and Sequoia Systems, Inc. (Client), a
Delaware Corporation.
Whereas the parties of this Agreement have entered into a Software Services
Agreement (Agreement) effective April 16, 1992; and thereafter amended on March
19, 1993.
Whereas III and Client require some changes in the Agreement to meet its
current and future business needs:
And whereas, III and client are agreeable to these proposed changes;
Now Therefore, in consideration of the mutual promises contained herein, the
parties agree as follows:
1. Article II.6 shall be deleted.
2. Article VI 1d and e shall be added as follows:
VI 1.d. Notwithstanding Article VI 1b. and c in the Agreement, for onsite
Software engineers provided by III to client in the US, as the rate of
$72,000 per engineer year, for Software engineers provided by III in
India to Client $216,000 for 5 engineer year plus one Project Manager
year.
Communication charges will be billed on actuals and are not expected to
exceed $24,000 per year.
The number of software engineers required by Client in following years or
periods shall be specified in Exhibit D which shall also indicate the
start date.
3. Article VII.2 Loan of Sequoia Computer Systems by III.
In order to facilitate the performance of the Software Consulting
Services in India, client will loan one Sequoia Computer System for a
period of 48 months starting in June of 1994 to III (or an affiliate).
4. Article VIII.1 Term will be amended as follows:
This Agreement shall commence on the date first set forth above and shall
continue in full force and effect until June 30, 1998 unless terminated
under this Article VIII.
Article VIII.2 Termination for Cause will be amended as follows:
Either party may terminate this Agreement for cause if the other party
breaches any material provision of this Agreement or the services are
deemed unacceptable and fails to cure such breach or improve the service
to a satisfactory level within 90 days after written notice from the non-
breaching party. However, if such service continues to be unacceptable,
the Client may terminate this agreement for cause with a 30-day notice
period (after the 90-day period has elapsed).
5. The following clause shall be added to VI.5
All travel and related expenses for offshore engineers will be borne by
Client. This relates to travel incurred to locate engineers to the
Client's facility for training.
III will be responsible for providing training if any is required due
to change in the offshore engineering team.
6. The following clause will be added to Article II.2. Minimum Level of
Services II 2a. Client hereby confirms the following years of service set
forth below:
July 1, 1995-June 30, 1996--Sixteen Engineer Years
July 1, 1996-June 30, 1997--Eighteen Engineer Years
July 1, 1997-June 30, 1998--Twenty Engineer Years
However the Client has the option to review and confirm the above six
(6) months prior to the beginning of the period. In any event the
minimum number engineer years in any one year will be Ten (10).
ICIM International, Inc. Sequoia Systems, Inc.
By: Arun Tolani By: W.C. Gould
---------------------------------- ----------------------------------
Arun Tolani W.C. Gould
Chief Operating Officer Vice President Customer Service
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION FOR THE QUARTER ENDED
JANUARY 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000724621
<NAME> SEQUOIA SYSTEMS, INC
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-03-1994
<PERIOD-END> JAN-01-1995
<CASH> 19,613,549
<SECURITIES> 0
<RECEIVABLES> 7,067,209
<ALLOWANCES> 1,237,787
<INVENTORY> 6,292,734
<CURRENT-ASSETS> 32,387,192
<PP&E> 15,579,786
<DEPRECIATION> 13,269,088
<TOTAL-ASSETS> 35,078,988
<CURRENT-LIABILITIES> 9,604,019
<BONDS> 0
<COMMON> 3,936,417
0
0
<OTHER-SE> 21,408,436
<TOTAL-LIABILITY-AND-EQUITY> 35,078,988
<SALES> 8,292,838
<TOTAL-REVENUES> 11,971,368
<CGS> 3,244,618
<TOTAL-COSTS> 5,207,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> (6,343)
<INCOME-PRETAX> 1,440,082
<INCOME-TAX> 90,000
<INCOME-CONTINUING> 1,350,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,350,082
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
