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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1995
Commission File Number 0-18238
SEQUOIA SYSTEMS, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-2738973
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
400 Nickerson Road, Marlborough, Massachusetts 01752
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (508) 480-0800
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.40 per share
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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
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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 ]
Page 1 of ____ pages
Exhibit Index appears on p.38.
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The approximate aggregate market value of the voting stock held by
non-affliates of the registrant, computed by reference to the closing sales
price of such stock quoted on the Nasdaq on August 15, 1995, was $77,702,723
The number of shares outstanding of the Registrant's common stock,
$.40 par value per share, as of August 15, 1995 was approximately 15,289,856.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in the following
part of this Form 10-K: information required in Items 10, 11, 12 and 13 Part
III, of this Annual Report on Form 10-K is incorporated from the Proxy Statement
relating to the 1995 annual meeting of stockholders of the Company.
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PART I
ITEM 1. BUSINESS
Sequoia Systems, Inc. ("Sequoia" or the "Company") designs, manufactures and
markets differentiated computer systems, servers, microcomputers and central
processor unit ("CPU") boards for critical information processing environments
that require the highest degree of data reliability and availability. These
products are based on industry standard components from the Intel Corporation
("Intel"), Sun Microsystems, Inc. and Motorola Inc., with Sequoia-developed
technology added to provide fault tolerance and ruggedness as required by the
application or user environment. The Company supports its customers with a full
range of services, including professional services and hardware and software
maintenance support.
On March 31, 1995, the Company completed a merger and stock purchase pursuant
to which the Company acquired all of the common stock of SPCO, Inc., along with
its subsidiaries Texas Microsystems, Inc. and Texas Micro Electronics, Inc. and
their respective subsidiaries ("the TMI Group"). The Company issued 5,272,944
shares of its common stock in exchange for all the common stock and securities
to acquire the common stock of each of the members of the TMI Group. The
Transaction has been accounted for as a pooling of interests, and accordingly,
the consolidated financial statements for all comparative periods have been
restated to include the results of operations, the financial position and cash
flows of the TMI Group.
Sequoia was incorporated in Delaware in September, 1981. Sequoia's principal
executive offices are located at 400 Nickerson Road, Marlborough, Massachusetts
01752. The Company's telephone number is (508) 480-0800.
Industry Background
In January 1995, the Standish Group, an industry research organization,
published a report on the need for computer system availability within MIS
operations in the United States. Their results stated that the "... demand for
around the clock IT (information technology) operations is being fueled by the
need to meet customer requirements and meet or beat the competition."
According to the Standish Group survey, 12.1% of Enterprise applications
currently run 24 hours a day. This proportion will increase two fold by 1996 to
24.9%. Nearly one-third of these applications will require almost constant
availability, i.e., a maximum allowable downtime of 0 to 3 seconds in any given
day.
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Many of these computers must also operate in unusual environments -- somewhere
other than a desktop or a computer room. Today, computers are being used more
frequently in field environments and on factory floors -- places where
information is increasingly being put into digitized form onto computers. The
need to quickly and accurately process information in these environments is
often no less pressing than within a traditional corporate MIS environment.
Therefore, the computers used in the field and on the factory floor must be
environmentally rugged enough to withstand the conditions that typically exist
in these environments -- greater extremes of vibration, temperature, dust,
humidity, etc.
Accordingly, the Company believes that continuous system availability and data
integrity is an increasingly important requirement to business enterprises of
all sizes. Sequoia meets this need with fault-tolerant and high availability
products and ruggedized microcomputers.
Company Strategy
Sequoia operates in the computer hardware segment of the industry, while
specifically addressing expanding market requirements for greater system
availability. Sequoia provides Motorola-based and Intel-based systems and
upgrade products for the on-line transaction processing market ("OLTP") and for
interactive computing environments. With the acquisition of Texas Microsystems,
Inc., Sequoia's expanded business lines also include ruggedized, mission-
critical computers, both SPARC and Intel-based, for the industrial market, as
well as Bellcore Network Equipment Building Specifications ("NEBS") compliant
products specifically designed for the telecommunications market. Sequoia also
makes its open systems technology available to global partners through licensing
agreements. The objective of these licensing agreements is to take advantage of
the greater research and development capabilities of such partners to produce
expanded features that can broaden the market for Sequoia's computer products.
Sequoia's business strategy incorporates the following key elements:
Product Differentiation
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Sequoia differentiates its products from commercial computers marketed by
larger competitors by focusing on market niches where highly available hardware
is required to meet the more rigorous demands of the application. Sequoia has
applied fault-tolerant and ruggedization strategies to systems and desktop
personal computers ("PC"s) and has adapted SPARC workstations and PC's to the
NEBS central office telecommunications environment.
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Focus on Targeted Vertical Markets
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Sequoia has focused on a limited number of vertical markets. In particular,
Sequoia has developed strong customer relationships through both Value Added
Reseller ("VAR") and Original Equipment Manufacturer ("OEM") channels in the
telecommunications, industrial, health care claims processing, retail
distribution and financial services markets.
Technology Licensing and Strategic Partnerships
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Sequoia licenses its patented fault-tolerant technology to companies in
computer-related industries. Prospective candidates for the licensing of
Sequoia's technology are companies that desire or need greater reliability in
their computer-related hardware or software products. These companies recognize
that a growing number of their customers depend on their products for continuous
access to accurate information. Sequoia's current licensing arrangements include
Toshiba Corporation, Samsung Electronics Co., Ltd. and Novell, Inc. Sequoia
intends to seek opportunities to form additional strategic alliances, including
potential acquisitions.
Customer Support, Training and Professional Services
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Sequoia's Customer Service Operation has a 24-hour, seven-day a week,
worldwide telemaintenance and support capability whereby customer Enterprise
systems are continuously monitored by various support systems. Technical support
operations also provide telephone troubleshooting service for end user customers
and distributors. Sequoia offers a broad array of training and other
professional services to assist its customers in maximizing the return on their
investment in Sequoia's products.
Products
Sequoia develops, markets, sells, manufactures, and services systems that meet
critical business requirements for Enterprise computing. Sequoia also provides
ruggedized microcomputers and components that can withstand harsh conditions.
Today's products range from ruggedized microcomputers and components, primarily
Intel and SPARC-based, to larger Enterprise systems that are migrating from
Motorola 68040-based to Intel-based microprocessors. In fiscal 1996, Sequoia
will begin offering Intel-based, highly available Enterprise systems which are
designed to recover quickly from failures with a minimum loss of data.
Enterprise Server Products
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Sequoia's fault-tolerant and highly available systems are based on industry-
standard technologies combined with patented fault-tolerant techniques to
address the needs of the OLTP market. The requirement for immediate access to
data created the market for OLTP systems. In order to address the needs of a
distributed computing environment, Sequoia is expanding its product line to
newer technologies based on Intel microprocessors. Intel-based Enterprise
systems, which can be used as a server in a client/server distributed
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computing network, will allow Sequoia to provide industry-standard products
compatible with all major databases and software applications, increasing
Sequoia's market opportunities. Sequoia's Enterprise systems include the
following features:
Industry-Standard Compatibility
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By using industry-standard components (such as Motorola and Intel
microprocessors), operating systems (UNIX), database technologies (Pick),
communications and peripheral devices and protocols (X.25, Ethernet), Sequoia's
systems can be integrated easily into a wide variety of computing environments
and can support new technologies and services without significant system
redesign.
System Architecture, Modularity and Expandability
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The architecture of Sequoia's fault-tolerant systems is designed to provide
the user with continuous and reliable computer availability and to address the
high performance requirements of computer-intensive, on-line applications.
Sequoia's Series 500 and 440 systems achieve fault tolerance and high
performance with a tightly coupled symmetric multiprocessing architecture
consisting of multiple processors that share memory and are managed by a single
operating system, based on UNIX. Through this design, tasks are automatically
and efficiently distributed over all available processors, which allows the
Sequoia platform to support a large number of users. The Sequoia architecture
enables customers to expand incrementally the processing power and capacity of
their systems by adding processors, memory elements and peripheral devices as
needed. Sequoia's Intel-based systems can also be tailored to handle a large
number of users, simply by adding the appropriate disk capacity, memory and
terminals.
Data Integrity
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Sequoia's Series 500 and 440 fault-tolerant hardware design, coupled with
Sequoia's UNIX-compatible operating environment are designed to provide
continuous system availability and data integrity. If a hardware fault is
detected, the faulty module is automatically taken out of service and the
operating system returns the system to normal operations without loss of data or
program continuity. If the error was due to a transient fault, the module is
returned to service. The detection, isolation and correction of the fault all
occur automatically without requiring the user's intervention.
Operating Systems
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Sequoia's Series 500 and 440 are Motorola-based products based on TOPIX,
Sequoia's proprietary version of the UNIX operating system. Although UNIX was
originally developed to work with standard uniprocessor systems, Sequoia
designed TOPIX for high-performance OLTP applications in a symmetric
multiprocessor fault-tolerant environment, while still adhering to the industry
standards defined for UNIX. Sequoia's SES100/110 Intel-based products will run
in SEQUOIApro, a native Pick mode operating environment.
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Product Line Models
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Sequoia's current computer system product lines include the fault-tolerant
Motorola-based Series 440, Series 500 and the high reliability Intel-based
Sequoia Enterprise Servers, models 100 and 110. In a fault-tolerant system, all
faults are detected, isolated and fully recovered, transparent to the end-user
applications. Faults can range from transient power fluctuations to hardware
component failures; data storage device outages to communications line errors;
known software 'panics' to transient error conditions within the operating
system. A fault-tolerant system will protect the end-user from an interruption
in application processing.. Sequoia currently addresses high reliability by
engineering robust systems with higher mean-time-between-failure ("MTBF")
characteristics and lower mean-time-to-repair ("MTTR") features.
The Series 440 system is the successor to Sequoia's Series 100, Series 200,
Series 300 and Series 400 systems. The Series 440 is a complete computer system
consisting of electronics, peripherals, communications interfaces and system
software. The Series 440 is based on the Motorola 68040 microprocessor. The
Series 500, a successor of the S40, and also based on the Motorola 68040
microprocessor, offers a lower priced entry to fault-tolerant systems, as well
as a number of new operating features.
The Sequoia Enterprise Server SES/100, Intel-based, is a mini-tower computer
designed to maintain high reliability for critical applications. It contains a
passive back-plane, allowing easy enhancements to the system performance and
upgradability. The Sequoia Enterprise Server SES/110 tower computer, also
Intel-based, provides greater expansion capabilities over the SES/100. It is
intended for those sites requiring large disk capacity and flexibility in
peripheral selection.
The end-user list price of a Series 440 ranges from approximately $300,000 to
more than $5,000,000, depending upon the configuration. The Series 500 base
configuration starts at $86,000. The Sequoia Enterprise Servers, SES/100 and
SES/110, range from an entry level average list price of $17,500 to $70,000 at
the high end of the configuration. Sequoia typically offers discounts from its
list prices to resellers and customer in order to meet competitive conditions.
Ruggedized Products
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Sequoia focuses its ruggedized products on critical applications in the
industrial and telecommunications markets. Characterized by rigorous
environments and the need for unattended, uninterrupted operations, Sequoia's
Intel and SPARC based microcomputers are designed to withstand wide temperature
ranges, shock, vibration, dirty air, moisture and electromagnetic and radio
frequency interference ("EMI/RFI"). Sequoia has adapted SPARC technology that
is NEBS compliant and is the leading supplier of SPARC based products to the
telephone central office industry. Sequoia has also developed ruggedized
mobile and vehicle mounted computers and has broadened its market opportunities
by
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developing a range of fault-tolerant features for the PC. These ruggedized
products platforms feature:
Industry Standard Compatibility
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The Company's passive backplane PC's are fully compatible with standard PC
operating systems, peripherals and application software. SPARC based products
are also fully compliant with Sun Microsystems operating systems and
peripherals.
Modularity
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The Intel-based passive backplane systems provide for much greater
expandability than the generic motherboard. These systems can be configured
with from 5 to 20 expansion slots depending on chassis selection, with a wide
range of supporting peripherals.
Scaleable Growth
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Ruggedized products are available in industry standard rackmount configuration
with many options such as expansion chassis and disk farms. Typical customers
will employ multiple rackmounted systems in a configuration where scalability is
achieved by adding additional modules as needed.
High Reliability
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Sequoia addresses high reliability and availability by engineering robust
systems with higher mean-time-between-failure ("MTBF") characteristics and lower
mean-time-to-repair ("MTTR") features. The Company is currently developing
technology that will provide sub-second failover capability to the ruggedized
microcomputer platform.
Product Line Models
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Sequoia manufactures a broad line of ruggedized PC compatible products,
including rackmount system platforms and boards, for use in data acquisition,
process control, embedded control, and other applications requiring resistance
to shock, temperature extremes, dust, or humidity.
Ruggedized system products for the industrial markets consist primarily of
rackmount platforms which offer different combinations of expansion slots, disk
capacity, alarming capability, power options, and a choice of processors.
Systems may also include various video, I/O, or communication expansion cards
which are sourced from outside vendors. These products are offered at a wide
range of price points depending on configurations.
Rackmount platforms are also specially designed for the telecommunications
marketplace. The 9610 and 9620 families are based on SPARC based boards
purchased from SUN Microsystems. These platforms are designed and tested to
stringent NEBS specifications required for installation into telephone central
office facilities, and are often
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attached to telephone 'switches' as Intelligent Peripherals. These platforms
sell at prices from $12,000 to $80,000 depending on CPU speed, memory, and
storage configuration.
Board level products include 386, 486, and Pentium based CPUs, with new
generations to be introduced in the future. These CPUs are embedded into
manufactured system products and are also sold as components to be integrated
into specialized platforms by customers. Depending on specifications, these
board level products sell at prices from $300 to $2500.
On February 1, 1995, the Company acquired certain assets of Intel related to
Intel's OmniRACK and XpressRACK product lines. These systems are usually
configured with either manufactured system boards or motherboards purchased
from Intel.
Marketing, Sales and Customers
Through June 30, 1995, Sequoia has collectively shipped more than 370
Enterprise level systems and 110,000 PC based systems or complements of chassis
and CPU boards, with additional components such as memory boards and processor
expansion units, to more than 5,000 customers worldwide.
In recent years, for the Enterprise systems Motorola-based product line,
Sequoia has focused its sales and marketing efforts in three primary markets:
(i) health maintenance organizations which typically use Sequoia systems for
administrative services; (ii) retail wholesalers and telemarketers which use
Sequoia systems to support order processing and inventory control requirements;
and (iii) financial services organizations which typically use Sequoia systems
for customer applications such as credit card or mortgage processing.
The Company's ruggedized products primarily serve two markets: industrial and
telecommunications. In these markets, the products are most frequently used in
"mission-critical" or "job-critical" applications where reliability,
availability and/or data integrity are essential to the enterprise. Sequoia
believes that the growing need for extremely dependable microcomputers will make
"mission-critical" applications one of the most rapidly expanding sectors of the
microcomputer industry.
For the industrial PC market, Sequoia provides microcomputers that operate
reliably in harsh industrial environments, allowing them a significant role in
process control, discrete manufacturing and data acquisition. The systems and
board-level products are used in applications that often have government-
mandated requirements for up-to-the-minute reporting of data, such as
environmental safety information, financial data or transit monitoring.
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For the telecommunications market, the central office environment has very
rigorous standards for operating equipment. Telecommunications computer systems
in the U. S. must be NEBS compliant including 48-volt power, heat and dust
protection, earthquake resistance, alarming and remote monitoring features.
Because of its experience in designing and building reliable rack-mounted
systems that operate under harsh conditions, Sequoia believes that the
telecommunications industry presents significant opportunities for its products.
The markets for NEBS compliant SPARC and Intel based products and ruggedized
Intel based products are characterized by rapidly changing technology and user
needs, requiring significant investment for product development. Sequoia
believes that part of its success in the future will depend upon its ability to
develop, manufacture and market products which meet changing user needs in these
markets and which successfully respond to technological changes in architectural
standards in a cost-effective and timely basis.
Sequoia markets its products through a combination of its direct sales
organization, distributors, Value Added Resellers (VAR's)/ Value Added
Distributors (VAD's), System Integrators (SI's), and Original Equipment
Manufacturers (OEM's).
VAR's generally package Sequoia Enterprise Servers with other hardware or
applications programs for resale to end-users. Sequoia generally appoints VAR's
and resellers which target particular applications or vertical markets, or cover
certain geographies. At the end of fiscal 1995, over 25 VAR's Enterprise server
products and over 1,000 resellers were under contract to sell ruggedized
products.
Internationally, Sequoia sells through a combination of direct sales and
distributors. Sequoia has approximately 40 distributors in over 25 countries
including the United Kingdom, the Netherlands, Germany, Israel and Australia.
During fiscal 1995, sales to one customer, DSC Communications Corporation,
represented 13% of total revenues. For the previous fiscal year, there were no
sales to any customer that represented over 10% of total revenues. The Company
believes that certain VAR's in the healthcare market and a select number of
customers in the telecommunications market will continue to represent a
substantial portion of overall sales. Changes in Sequoia's relationship with,
performance by or loss of such customers could have a significant effect on the
Company's revenues and operating results.
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Competition
Competitors of Sequoia vary among the products offered by the Company.
Sequoia's Enterprise Systems and fault-tolerant products compete in the 10 to
2,000-plus user range of the on-line transaction processing, open systems
market. Sequoia therefore competes against other fault-tolerant companies and
against a wide range of open systems non fault-tolerant companies which market
their products as achieving high availability. The majority of Sequoia's
customers for the Enterprise Server business use the Pick database. For fault
tolerant products, Sequoia's primary competitors are Tandem Computers
Incorporated and Stratus Computer, Inc. Sequoia believes that it competes
effectively in the fault-tolerant market on the basis of its system
architecture, price/performance attributes, its version of the UNIX operating
system and use of industry standard hardware and software. In the broader
general purpose non fault-tolerant marketplace, Sequoia's primary competitors
include Hewlett-Packard, Sequent, Data General, Digital Equipment Corporation
("Digital"), IBM and Siemens.
Sequoia's ruggedized systems and board level products compete in the
industrial market with the products of Diversified Technology, Industrial
Computer Source and I-Bus and, to a lesser extent, IBM and others in the United
States and with Siemens A.G. and others in Europe. In the telecommunications
market, the Company competes with Digital, Motorola, Tandem, Stratus and
Hewlett-Packard, as well as several smaller companies.
Sequoia believes that it competes effectively based on its engineering
responsiveness to special needs and the price/performance characteristics and
hardware specialization of its products. These attributes help offset the
greater recognition and broader service and support resources of the Company's
larger competitors.
The computer marketplace is highly competitive and is characterized by rapid
changes and improvements in technology. Many of Sequoia's competitors have
significantly greater financial, marketing and technological resources than
Sequoia. There can be no assurance that Sequoia will have the resources
necessary to compete successfully in the future.
Product Development
Development efforts are focused on providing users with an open systems
environment and a broad range of fault tolerance and ruggedized features up to
and including total system availability. Sequoia's engineering strategy is to
continue to develop fault-tolerant and ruggedized capabilities that can be added
to industry-standard technologies. Through this product development strategy
Sequoia is able to provide industry-standard products that are compatible with
all standard software and hardware environments, but provide a
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much greater degree of system availability to users by focusing on reliability,
availability and data integrity as core features.
Product development at Sequoia will build on the portfolio of fault tolerant
patents developed by the Company since 1985. Sequoia will continue to advance
new passive backplane technology, introducing the latest versions of Pentium and
next generation (P-6) Intel CPUs. Projects for the coming year include the
introduction of a new ruggedized hand held PC; the development of a symmetric
multiprocessing version of Intel's P-6 CPU in a passive backplane architecture;
and the prototyping of a new telecommunications platform based on a SPARC
multiprocessor that will employ Sequoia's "memory check pointing" failover
technology.
Technology Licensing and Strategic Alliances
An element of Sequoia's strategy is to enter into strategic alliances to help
achieve important goals: the licensing of Sequoia's technology; the acquisition
of additional technology for sale with its systems; and the development of
additional product and distribution capabilities. Sequoia currently has
strategic alliances with Samsung Electronics Co., Ltd. ("Samsung"), Toshiba
Corporation ("Toshiba") and Novell, Inc. ("Novell"). Sequoia intends to seek
opportunities to form additional strategic alliances, including potential
acquisitions.
Sequoia's ability to achieve its goals will depend in part on the ability of
current licensees, and the willingness of future licensees, to develop products
that may be marketed and sold by Sequoia, or which will provide license fees or
royalty income for Sequoia. There can be no assurance that Sequoia will be
successful in obtaining new licensees or that any such licensees will
successfully develop products that achieve market acceptance.
Samsung
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In September 1993, Sequoia and Samsung entered into new agreements that
expanded upon and superseded original OEM and product development and
technology license agreements which had been signed in 1990. These agreements
have a term of five years and may be extended by mutual agreement.
Sequoia has granted Samsung rights to use certain Sequoia technology in the
development of an enhanced Series 40 system and future products. Samsung has
agreed to pay Sequoia royalties with respect to its sales of Series 40 systems
(other than sales to Sequoia), and sales of future products which are based on
Sequoia's Motorola-based technology, subject to a credit of up to $4,800,000 for
Samsung's initial manufacturing license fee and development costs. Sequoia, at
its option, may act as Samsung's maintenance provider for Series 400 and Series
40 products worldwide, except in Korea.
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Toshiba
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Sequoia and Toshiba entered into a development, manufacturing and distribution
agreement in December 1991, subsequently amended in April 1994, under which
Sequoia and Toshiba agreed to use Sequoia technology to jointly develop a new
computer system based on SPARC. Sequoia granted Toshiba exclusive distribution
rights in Japan for this SPARC-based system and retained exclusive rights to
distribute this SPARC-based system outside of Japan.
In October 1994, Toshiba informed Sequoia that it had modified its development
plans and would develop a new fault-tolerant computer system based on the Power
PC microprocessor instead of the SPARC microprocessor as had been planned.
Sequoia has granted Toshiba a non-exclusive license to use existing Sequoia
technology in the development of such systems in consideration of a non-
refundable license fee which was completely paid during the fiscal 1994 and
1995. New technology developed in the course of the development of the systems
will be jointly owned by Sequoia and Toshiba. Sequoia has the option to
manufacture such jointly-developed products or to purchase them from Toshiba on
an OEM basis for distribution outside of Japan. The agreement has an initial
term of five years from January 1992, with an automatic renewal period of one
year unless terminated by either party.
Novell
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In April 1994, Sequoia signed a software development cooperation agreement
with Novell's UNIX System Laboratories ("USL"). Under this agreement, Sequoia
will work with USL and other USL partners to incorporate certain of Sequoia's
fault-tolerant features into future releases of Novell's microkernel-based UNIX
operating system. When completed, these future UNIX releases will be compatible,
without further modification, with Sequoia's procedures for recovering from
detected hardware and software faults. Subsequently, Sequoia believes that it
would be able to offer the latest UNIX releases on its products as soon as such
releases become available from Novell This could potentially open new
opportunities to offer selected modules of its fault-tolerant technology to
other distributors and users of USL's UNIX products, including the industry
leading companies in the client server market.
Novell has recently announced that it is selling its Unix business to the
Santa Cruz Operation, Inc. ("SCO") in a business relationship that also includes
Hewlett-Packard Company. If Novell, or assuming the consummation of this
transfer, SCO, does not include Sequoia's fault-tolerant software in a future
release of the UNIX operating system, or if the Novell implementation of UNIX
containing the Sequoia fault-tolerant software fails to achieve significant
market acceptance, Sequoia's growth opportunities will be diminished.
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Customer Service and Support
Sequoia provides service, training and technical support to its customers in
varying degrees depending both on the product line and on customer contractual
arrangements.
Sequoia's Motorola-based fault tolerant systems provide immediate fault
detection, isolation and correction. These functions are designed to take place
automatically, without requiring the user's intervention and while the system
continues operating. When a faulty component is detected, the system removes the
component from service, ensuring that no corrupted data will affect the rest of
the system. An electronic message is automatically sent to Sequoia's customer
support center by the malfunctioning system to report the error condition. The
system tests the isolated component and, if the system determines that the fault
is transient, the component is added back into the system. System use is not
disrupted during the course of this activity. For permanent faults, either a
component is dispatched via overnight delivery for customer replaceable units or
a field service engineer is dispatched to the customer's site to install the
part. In either case, the system assesses the remaining resources, balances the
work load among them automatically and continues operating.
The architecture of the Motorola-based systems and the recently-announced
Intel-based systems allow Sequoia to utilize telemaintenance to perform many of
the tasks that must be performed by on-site field service engineers for other
systems. Telemaintenance, which consists of hot-line support, system monitoring,
remote diagnosis, operating system support and downloading, is provided by
Sequoia's customer support center. This enables Sequoia to minimize labor costs
by reducing the number of on-site visits.
For the Intel and SPARC based product lines, the technical support operations
provide initial technical telephone troubleshooting service for end user
customers and distributors. These services include isolating and verifying
product failures, authorizing product returns, tracking completion of repaired
goods in support of customer requirements and maintaining a Bulletin Board.
Sequoia generally provides end-user purchasers of its systems with a 90-day to
two year warranty depending on the product line. Sequoia customer service
maintains a spares inventory to support the customer base. Sequoia offers a
variety of service agreements to its end-user customers and resellers for
ongoing system support. Customers whose systems are under warranty or service
agreements are entitled to receive telemaintenance services. Sequoia also
provides technology migration, system optimization, network services, and
training programs to customers on a fee basis.
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Manufacturing
Sequoia manufactures in two locations:
. Motorola-based products in Marlborough, Massachusetts
. Intel and SPARC-based products in Houston, Texas
At its headquarters in Marlborough, Massachusetts, Sequoia's manufacturing
process for its Motorola-based products consists primarily of assembly, testing
and quality control. The production of printed circuit boards is subcontracted
and the boards are then incorporated into Sequoia's systems. Sequoia produces
standard subsystems which are tailored to customers' specific configurations
when purchase orders are received. This method of manufacturing enables Sequoia
to respond quickly to customer needs while maintaining a high level of quality.
The Sequoia Enterprise Servers, the Intel-based models 100 and 110, as well as
its ruggedized low-volume Intel board-level and system products, are
manufactured in Houston, Texas. High-volume component manufacturing is
subcontracted to independent manufacturers.
Sequoia purchases from other manufacturers substantially all peripheral
devices and components used in its products. Most of the components and
peripherals are available from a number of different suppliers, although certain
major items are procured from single sources. The Company believes that
alternative sources could be developed for such single-source items, if
necessary; however certain peripheral or component shortages, should they occur,
could have an adverse affect on the Company's business. Key components used in
Sequoia systems for which alternative sources are not readily available are the
Motorola and Intel microprocessors, SPARC-based CPUs, and power supply
components for certain products from Elgin E2, Inc. Any delay or inability to
obtain these components at any time could adversely affect Sequoia's business.
Certain products are manufactured pursuant to a patent license from IBM under
which the Company pays specified royalties.
The Company relies on several key contract manufacturers for the manufacture
of several high-volume components used in the assembly of its ruggedized
products. Although such subcontracting arrangements offer cost advantages, and
would eliminate the need to incur certain capital expenditures associated with
manufacturing, reliance on third-party manufacturers gives the Company less
control over the manufacturing process for these components than if it undertook
such activities itself. Any failure of such subcontractors to manufacture and
deliver components as planned, or any problems with the quality of such
components, could have a material adverse effect on the Company's operations.
15
<PAGE>
Proprietary Rights
Sequoia owns nine United States patents and 53 foreign patents. Other United
States and foreign patent applications are pending. While Sequoia believes that
its patents provide it with protection for its products and the processes
through which its systems achieve fault tolerance, Sequoia also believes that
such patents may be of less significance to its future success than such factors
as innovation, technical skill and management ability and experience. In
addition, Sequoia relies on copyright protection and its trade secret program to
protect aspects of its proprietary technology.
Employees
As of June 30, 1995, Sequoia employed 443 people, including 141 in sales,
marketing and administration, 120 in research and development and related
engineering activities, 52 in customer service and support, and 130 in
manufacturing. Sequoia believes that its future success will depend in part
upon its continued ability to attract and retain highly qualified managerial,
technical, sales, marketing, support and manufacturing personnel. Competition
in recruiting technical, marketing and sales personnel in the computer industry
is often intense. None of Sequoia's employees is represented by a labor union,
and Sequoia considers its employee relations to be good.
Backlog
At June 30, 1995, the Company had an unfilled order backlog of approximately
$8.7 million, which was subject to shipment in the subsequent fiscal quarter, as
compared to $5.3 million at June 30, 1994. This backlog consists primarily of
orders which were taken in the fourth quarter and are shipped according to
specific customer-scheduled requests.
Seasonality
Although the Company does not consider its business to be highly seasonal, the
Company in general experiences seasonally lower sales and earnings in the first
quarter of the fiscal year which is affected by the U.S. and Europe summer
slowdowns for business capital purchases.
16
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company occupies two primary facilities in the U.S. for administrative,
manufacturing, marketing and sales, warehousing and research and development
functions consisting of approximately 85,000 square feet in Marlborough,
Massachusetts and 105,000 square feet in Houston, Texas. The Company occupies
these premises under leases expiring in 1997 and 2000, respectively. The Company
leases ten additional offices, primarily for sales and services, in various
locations throughout the United States. The Company also leases space for sales
and service offices in the United Kingdom, the Netherlands, Germany, Australia
and Japan. The Company's aggregate annual rental expense for these facilities
for the fiscal year ended June 30, 1995 was approximately $2,098,000. The
Company believes that its current facilities are adequate for its near term
requirements. See Note 6 of Notes to Consolidated Financial Statements for
additional information regarding the Company's lease obligations.
ITEM 3. LEGAL PROCEEDINGS
On May 8, 1992, the Securities and Exchange Commission notified the Company
that the Commission 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. On February 16, 1995, the Company
and the Commission entered into a settlement agreement, subsequently approved by
the U.S. District Court for the District of Columbia, pursuant to which the
Company consented to the issuance of an injunction against it prohibiting future
violations of certain securities laws and regulations, and the Company was not
required to pay any fines or make any other payments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended June 30, 1995.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol SEQS since March 1990.
The following table reflects, for the fiscal quarters indicated, the high
and low closing sales prices of the Company's Common Stock as reported on the
Nasdaq National Market, in each case, based on published financial sources.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1993
Quarter ended September 27, 1992 $ 8.875 $ 5.000
Quarter ended December 27, 1992 $ 7.000 $ 1.375
Quarter ended March 28, 1993 $ 3.813 $ 1.625
Quarter ended June 30, 1993 $ 3.000 $ 1.750
Fiscal 1994
Quarter ended October 3,1993 $ 3.500 $ 1.750
Quarter ended January 2, 1994 $ 6.000 $ 2.750
Quarter ended April 3, 1994 $ 6.843 $ 3.9375
Quarter ended June 30, 1994 $ 5.875 $ 3.250
Fiscal 1995
Quarter ended October 2,1994 $ 5.875 $ 3.500
Quarter ended January 1, 1995 $ 4.750 $ 3.250
Quarter ended April 2, 1995 $ 4.3125 $ 3.500
Quarter ended June 30, 1995 $ 4.5625 $ 3.750
</TABLE>
On August 15, 1995 the closing price of the Company's Common Stock as
reported by Nasdaq on the National Market was $7.125 per share.
As of August 15, 1995, there were approximately 638 holders of record of
the Company's Common Stock. Except for a mandatory dividend in respect of the
Company's former Series A Convertible Preferred Stock, the Company has not paid
any dividends since its inception and does not intend to pay any cash dividends
on its Common Stock in the foreseeable future.
18
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth below.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $104,039 $91,826 $81,323 $100,015 $94,720
Cost of revenues 57,079 48,009 46,867 48,505 46,726
------ ------ ------ ------ ------
Gross profit 46,960 43,817 34,456 51,510 47,994
Research and development
expenses 13,044 11,621 15,104 17,774 12,635
Selling, general and
administrative expenses 28,052 22,053 31,187 37,083 28,402
Restructuring charge (credit) - (1,109) 13,990 - -
-------- ------ ------ -------- -------
Income (loss) from
operations 5,864 11,252 (25,825) (3,347) 6,957
Other income
(expense), net 373 (113) (4,715) (484) 681
-------- -------- -------- --------- -------
Income (loss) before
provision for income taxes 6,237 11,139 (30,540) (3,831) 7,638
-------- -------- -------- --------- -------
Provision for income taxes 960 658 512 (183) 2,144
-------- -------- -------- --------- -------
Income before cumulative effect
of change in accounting principle 5,277 10,481 (31,052) (3,648) 5,494
Cumulative effect of change
in accounting principle - - 171 - 160
-------- -------- -------- --------- -------
Net income (loss) $5,277 $10,481 ($30,881) ($3,648) $5,654
======== ======== ======== ========= =======
Net income (loss) per share $0.34 $0.69 ($2.23) ($0.27) $0.39
======== ======== ======== ========= =======
Weighted average number of
common and common share
equivalents outstanding 15,565 15,103 13,829 13,528 14,353
</TABLE>
See Notes 1 and 8 of Notes to Consolidated Financial Statements for discussion
on the restructuring charge / credit and class action lawsuit settlement
provisions.
19
<PAGE>
The following information may be utilized in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
<TABLE>
<CAPTION>
Percent of Revenues For the years ended June 30, Year to Year Percent Change
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<C> <C> <C> <S> <C> <C> <C>
100% 100% 100% Revenues 13% 13% (19%)
55% 52% 58% Cost of revenues 19% 2% ( 3%)
----- ----- ----- ----- ------ -------
45% 48% 42% Gross profit 7% 27% (33%)
13% 13% 19% Research and development 12% (23%) (15%)
Selling, general and
27% 24% 38% administrative expenses 27% (29%) (16%)
- ( 1%) 17% Restructuring charge (credit) N.M N.M N.M
----- ----- ----- ----- ------ -------
Income (loss) from
6% 12% (32%) operations (48%) N.M. N.M.
- - ( 6%) Other income (expense) N.M. N.M. N.M.
6% 12% (38%) Income (loss) before taxes (44%) N.M. N.M.
1% 1% 1% Provision for income taxes 46% N.M. N.M.
5% 11% (38%) Net Income (Loss) (50%) N.M N.M
===== ===== ===== ===== ====== =======
</TABLE>
N.M. = Not Meaningful
20
<PAGE>
Consolidated Balance Sheets
(In thousands)
AS OF JUNE 30,
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $29,884 $26,270 $13,266 $37,974 $43,259
Total assets $52,241 $50,409 $46,162 $69,195 $74,563
Short-term debt
including current portion of
long-term debt $125 $2,484 $6,611 $3,552 $3,361
Long-term obligations $56 $1,835 $4,225 $4,654 $5,792
Stockholder's equity $35,326 $29,484 $15,844 $46,253 $48,687
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On March 31, 1995, the Company completed a merger and stock purchase (the
"Transaction") pursuant to which the Company acquired all of the common stock of
SPCO, Inc., along with its subsidiaries Texas Microsystems, Inc. and Texas Micro
Electronics, Inc. (collectively, the "TMI Group"). The Company issued 5,272,944
shares of its common stock in exchange for all the common stock and securities
to acquire the common stock of each of the members of the TMI Group. The
Transaction has been accounted for as a pooling of interests, and accordingly,
the consolidated financial statements for all comparative periods have been
restated to include the results of operations, the financial position and cash
flows of the TMI Group.
The Company provides Motorola-based systems and upgrade products for on-line
transaction processing and other interactive applications in which system
availability, fast response times and data integrity are critical. With the
acquisition of the TMI Group, the Company's expanded business lines also include
ruggedized, mission-critical computers, both SPARC and Intel based, for the
industrial market and Bellcore Network Equipment Building Specifications
("NEBS") compliant products specifically designed for the telecommunications
market. As a leading supplier of ruggedized and mission critical computers from
the desktop to the mainframe, the Company operates in one segment, computer
systems, and addresses expanding market requirements for greater system
availability.
RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1994
REVENUES
--------
The Company's revenues increased by 13% to $104,039,000 for fiscal 1995 from
$91,826,000 for fiscal 1994. This is attributable to a 15% increase in product
revenues and a 9% increase in service revenues.
Product revenue growth of $11,620,000 was attributable to (i) sales, which
more than doubled, of NEBS compliant SPARC and Intel based products specifically
designed for the telecommunications market and (ii) a 5% increase in ruggedized
Intel based products for the industrial market. These gains were partially
offset by a 5% decrease in sales of Motorola-based products for the on-line
transaction processing market.
The increased sales of NEBS compliant SPARC and Intel based products for the
telecommunications market were caused primarily by significantly higher demand
from one customer in the second half of fiscal 1995, from which such demand is
not expected to
22
<PAGE>
continue at this level for fiscal 1996. The increased revenues were comprised of
a 30% increase in units shipped and a significant increase in the average system
price which reflects higher functionality and performance. The Company expects
that sales of these products overall will increase although at a slower rate of
growth than in fiscal 1995.
On February 1, 1995, the Company acquired certain assets of Intel Corporation
("Intel") related to Intel's OmniRACK and XpressRACK product lines. These
products, sold to Intel as well as other customers, contributed $2,523,000, the
significant proportion of the 5% increase in fiscal 1995 ruggedized product
revenues over fiscal 1994 revenues. This growth in ruggedized sales was
comprised of an 11% increase in units shipped offset by a slight decline in
average system price which reflects a more mature product life cycle. Planned
product transitions during fiscal 1996 to the next performance level of CPU may
result in higher average system prices. However, these are expected to be
offset by higher discounts expected as the Company plans, in fiscal 1996, to
derive a higher proportion of its revenues through an independent distribution
channel.
During fiscal 1995 and fiscal 1994, approximately 70% and 65%, respectively,
of revenues from sales of ruggedized products and products designed for the
telecommunications markets were derived from the sale of computer systems and
peripherals and approximately 30% and 35%, respectively, were derived from the
sale of board-level products.
The decline in Motorola-based products was attributable to a substantially
lower level of new systems shipped compared to fiscal 1994, as new system sales
were slower pending new product introductions and as overall market demand for
Motorola-based systems declined in the United States. This decline in new
systems was partially offset by an increased level of upgrade and expansion
sales to the Company's installed base.
On July 1, 1994 the Company purchased selected assets and the ongoing business
operations of its Australia joint venture with Tricom Group Pty Ltd. In fiscal
1995, this newly formed subsidiary contributed $5,798,000 in Motorola-based
products and related services revenues, as compared to $1,332,000 when operated
as a distributor in fiscal 1994. Approximately 9% or $1,246,000 represents
increases in service revenues, primarily a result of the service revenue stream
generated from this acquisition.
Sales outside the United States comprised $23,445,000, or 22% of total
revenues for fiscal 1995, as compared to $19,305,000 or 21% of fiscal 1994
revenues. These increases were primarily attributable to the additional revenues
provided from the Company's Australian subsidiary.
In the fourth quarter, fiscal 1995, the Company received $1,000,000 for
software license fees, as reported in Other Revenues, as the final payment from
Toshiba Corporation ("Toshiba") as part of a development and distribution
agreement. In fiscal 1994, the Company received $1,500,000 for software license
fees from Toshiba.
23
<PAGE>
During fiscal 1995, sales to one customer, DSC Communications Corporation,
represented 13% of total revenues. For fiscal 1994, there were no sales to any
customer that represented over 10% of total revenues.
The Company believes that certain Value Added Resellers ("VAR's") in the
healthcare market and customers in the telecommunications market will continue
to represent a substantial portion of overall sales. Changes in the Company's
relationship with, performance by or loss of such customers could have a
significant effect on the Company's revenues and operating results.
During fiscal 1995, Motorola-based product revenues consisted primarily of
sales of expansion systems, or upgrades, to existing customers who have
increased information processing requirements, rather than systems sales to new
customers. While sales of such expansion systems have provided a reliable
source of revenues during periods when sales to new customers have been
particularly slow, revenues from the sales of expansion systems and upgrades
will likely decline during fiscal 1996 since the Company intends to develop
limited upgrade or expansion features for these products that would be
attractive to existing customers. The Company began shipping in the fourth
quarter lower priced Motorola-based fault-tolerant systems designed to be sold
to new customers. The Company has announced, subsequent to the 1995 fiscal year,
the introduction of a new line of enterprise servers using Intel processors to
expand sales which is expected to offset the decline of Motorola-based products.
The markets for NEBS compliant SPARC and Intel based products and ruggedized
Intel based products are characterized by rapidly changing technology and user
needs, requiring significant investment for product development. The Company
believes that a large part of its ability to increase revenues in the future
will depend upon its ability to develop, manufacture and market new products
which meet changing user needs in these markets and which successfully respond
to technological changes in architectural standards in a cost-effective and
timely manner.
The Company's future success will also depend in part on the market acceptance
of its recently announced new line of Intel servers for the on-line transaction
processing market and the ability of current and the willingness of future
licensees of the Company's proprietary technology to develop products and
technology that may be marketed and sold by the Company, or which provide
royalty income for the Company.
GROSS MARGIN
------------
Gross margin declined by 3% to 45% for fiscal 1995 from 48% for fiscal 1994.
The decrease in gross margin was due to decreases both in product margins to 44%
for fiscal 1995 as compared to 46% for fiscal 1994, and decreases in customer
service and other margins to 49% for fiscal 1995 as compared to 56% for fiscal
1994.
24
<PAGE>
Gross profits increased $3,143,000 to $46,960,000 for fiscal 1995 as compared
to $43,817,000 for fiscal 1994. This increase resulted from the higher revenues
which were partially offset by the decline in margins.
The decrease in product margin is primarily related to a 2% decline in the
margins for Motorola-based products due to the introduction of new systems sold
at the low end of the market. Ruggedized product margins held relatively
constant for fiscal 1995 as compared to fiscal 1994. Sales of refurbished
equipment, acquired through upgrade programs, contributed 2% to 1995 product
gross margins. Sales of refurbished equipment are expected to continue in
fiscal 1996. In addition, in fiscal 1994, sales of approximately $900,000 of
inventory previously written off had contributed 1% to fiscal 1994 product gross
margin.
The decrease in service and other margin is caused by (i) lower service
pricing for higher reliability Motorola VME-based products; (ii) additional
costs due to increases in staffing within the product support group and the
professional services group, and (iii) lower technology license fees in fiscal
1995 as compared to fiscal 1994.
The Company expects continued pressure on gross margins as the product revenue
mix shifts to a higher proportion of Intel and SPARC based ruggedized products
which carry lower margins than the Motorola-based systems, upgrades and
expansion products. Fluctuations in margin levels may result from the mix of
product revenues and respective varying margin contributions from sales of
ruggedized products to the telecommunication and industrial markets and
Motorola-based products.
RESEARCH AND DEVELOPMENT EXPENSES
---------------------------------
The Company's research and development expenses increased 12% to $13,044,000
for fiscal 1995 from $11,621,000 in fiscal 1994. These increases resulted
primarily from efforts made to support the continuing joint development program
with Novell, to develop operating software programs for new open system
products, to further expand product offerings for the telecommunications
market and to continue to introduce hand held and mobile computer ruggedized
products.
Research and development expenses as a percentage of revenues remained
relatively unchanged in fiscal 1995 as compared to fiscal 1994 at 13%, as
spending on research and development programs increased in proportion to the
revenue increases year over year.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
---------------------------------------------
Selling, general and administrative expenses increased 27% to $28,052,000 for
fiscal 1995 as compared to $22,053,000 for fiscal 1994. This increase was
primarily the result of four factors: (i) expenses related to the acquisition
of the TMI Group; (ii) increased
25
<PAGE>
selling expenses related to the higher revenue volume; (iii) new advertising and
increased marketing programs; and (iv) additions in personnel.
More specifically (i) the Company incurred expenses of $2,146,000 in
connection with the acquisition of the TMI Group, primarily for fees to
financial advisors and for legal, accounting and printing services; (ii)
commissions and external VAR fees increased as a result of the increase in sales
volume; (iii) new corporate advertising was initiated and marketing promotion
programs increased related to new products and the expansion of sales channels;
and (iv) personnel additions were focused on expanding distribution channels in
the U.S. telecommunications market and staffing the Australian subsidiary which
commenced operation on July 1, 1994.
OPERATING INCOME
----------------
The Company reported operating profits of $5,864,000 during fiscal 1995, as
compared to $11,252,000 during fiscal 1994. The decrease in operating profit
was primarily the result of reduced gross margins, the expenses related to the
completion of the acquisition of the TMI Group and other increases in operating
expenses. In addition, fiscal 1994 operating profits reflect a restructuring
credit of $1,109,000 and the sales of previously written off inventory of
$900,000.
INTEREST INCOME / (EXPENSE)
---------------------------
The Company had interest income of $809,000 for fiscal 1995, as compared to
interest income of $345,000 for fiscal 1994. The increase in interest income
resulted from higher average cash and short-term investment balances earning
higher interest rates as well as lower capital lease obligations during fiscal
1995.
The Company had interest expense of $290,000 for fiscal 1995, as compared to
interest expense of $561,000 for fiscal 1994. The decrease reflects the June 7,
1994 paydown of a subordinated note, which carried a substantially higher
interest rate, to Keystone International, Inc. ("Keystone") using proceeds of a
three year term bank note and a revolving credit facility.
OTHER INCOME / (EXPENSE)
------------------------
Foreign currency translation and transaction gains and losses accounted for
substantially all of the other income (expense). Fluctuation in these amounts
from fiscal 1994 to fiscal 1995 are a result of currency fluctuations in the
countries in which the Company conducted its business.
26
<PAGE>
INCOME TAXES
------------
The Company recorded provisions for income taxes of $960,000 for fiscal 1995
and $658,000 for fiscal 1994. These tax provisions reflect the combination of
the Company's pre-merger provisions for income taxes for federal alternative
minimum tax and state tax liabilities, and the pre-merger tax provisions of the
TMI Group.
RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994 AND 1993
REVENUES
--------
The Company's revenues increased 13% to $91,826,000 for fiscal 1994 as
compared to $81,323,000 for fiscal 1993. The increase was primarily due to a 10%
increase in product revenues largely from increased volume of ruggedized product
sales, an 18% increase in customer service revenues from $11,571,000 to
$13,636,000 and the receipt of a $1,500,000 software license fee from Toshiba in
fiscal 1994.
For the Motorola-based products, product revenues during fiscal 1994 consisted
primarily of sales of expansion systems and upgrades to existing customers
having increased information processing requirements rather than system sales to
new customers. Motorola product revenues increased slightly in fiscal 1994 as
compared to fiscal 1993, which reflected an increase in sales of expansion
systems and upgrades offset by a reduction in sales of new systems sold. During
the third quarter of fiscal 1994, the Company's VME technology was introduced.
VME based products accounted for 40% of fourth quarter total Motorola system and
system upgrade revenues and 23% of total Motorola system and system upgrade
revenues for the full fiscal year.
Revenues for the ruggedized Intel and SPARC based products increased 16% for
fiscal 1994 as compared to fiscal 1993. The increase in revenues was primarily
attributable to increased international sales resulting from the European
economic recovery and increased penetration of the United States
telecommunications market. During fiscal 1994 and fiscal 1993, approximately
65% and 72%, respectively, of revenues from sales of ruggedized products and
products designed for the telecommunications markets were derived from the sale
of computer systems and peripherals and approximately 35% and 28%, respectively,
were derived from the sale of board-level products.
The Company's sales outside the United States during fiscal 1994 and fiscal
1993 were $19,305,000 and $12,996,000 respectively, representing 21% and 16% of
revenues during such years. This increase reflects the receipt of a $1,500,000
software license fee from Toshiba in Japan during fiscal 1994 compared to
minimal licenses fees from this region in fiscal 1993 and increased sales of
ruggedized products in Western Europe and Asia during fiscal 1994.
27
<PAGE>
There were no sales to any one customer in fiscal 1994 or fiscal 1993 that
represented over 10% of total revenues.
GROSS MARGIN
------------
The Company's gross margin increased to 48% for fiscal 1994 as compared to 42%
for fiscal 1993 as a result of (i) an increase of 4% in fiscal 1994 product
margins as compared to fiscal 1993, (ii) an increase of 10% in fiscal 1994
service margins as compared to fiscal 1993, and (iii) the receipt of a
$1,500,000 software license fee from Toshiba in fiscal 1994.
Contributing to the favorable product margins, particularly in the Motorola-
based products, were significant overhead cost reductions in manufacturing,
including facility consolidations and the sale of approximately $900,000 of
previously written off inventory. Partially offsetting these were slight
decreases in the ruggedized product line margins caused by a more competitive
pricing policy with respect to chassis products sold with Intel-based CPUs,
higher discounts to some high-volume customers and, to a lesser extent, a
general decline in margins in the microcomputer industry.
The increase in services margin was primarily the result of an increase in
service revenues with services costs holding constant and partially associated
with the retroactive billing of $230,000 of maintenance charges for services
performed at a cost of approximately $105,000 prior to contract execution.
RESEARCH AND DEVELOPMENT EXPENSES
---------------------------------
The Company incurred research and development expenses of $11,621,000 and
$15,104,000 in fiscal 1994 and fiscal 1993, respectively. The $3,483,000
reduction in expenses was the result of substantial reductions in personnel
related expenses and a reduction in depreciation expense resulting from the
write-off of idle assets associated with the Company's restructuring during the
second fiscal quarter ended December 27, 1992. Research and development
expenses as a percentage of revenues decreased to 13% in fiscal 1994 as compared
to 19% in fiscal 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses decreased 29% to $22,053,000 in
fiscal 1994 as compared to $31,187,000 in fiscal 1993. The decrease was the
combined result of personnel reductions, vacated leased facilities and reduced
depreciation charges related to written off equipment resulting from the
Company's restructuring during the second fiscal quarter ended December 27,
1992, as well as decreases in certain expenses such as external
28
<PAGE>
commissions, bad debt provisions, and audit and legal fees associated with
shareholder lawsuits.
As a percentage of revenues, selling, general and administrative expenses
decreased to 24% in fiscal 1994 from 38% in fiscal 1993.
RESTRUCTURING CHARGE / (CREDIT)
-------------------------------
During fiscal 1993, the Company recorded a $13,990,000 restructuring charge to
reduce the carrying value of excess assets and to accrue costs for anticipated
liabilities arising from a restructuring and downsizing of the business in
December 1992. As a result of the restructuring, the Company reduced its
personnel, leased facilities and equipment utilized in the business. The impact
of these reductions in fiscal 1994 was to lower the associated operating
expenses by approximately $14,500,000. During fiscal 1994, the Company
recognized a $900,000 gain from the sale of previously written-off inventory,
which was not expected to be sold at the time of the restructuring.
By the end of fiscal 1994, substantially all of the restructuring activities
were completed and the utilization of the restructuring reserves had been
consistent with the original estimates and reflected actions planned and
implemented. Excess reserves totaling $1,109,000 were reversed in fiscal 1994
as a result of the Company's ability, through successful negotiations with
lessors and vendors, to settle certain of its commitments for amounts lower than
its contractual obligations. These excess reserves consisted principally of
amounts accrued for commitments for leases, software licenses and engineering
services. As of June 30, 1994, the remaining accrued restructuring balance
amounted to $373,000 for contractual obligations.
OPERATING INCOME
----------------
The Company incurred an operating profit of $11,252,000 in fiscal 1994 versus
an operating loss of $25,825,000 in fiscal 1993. Excluding the fiscal 1993
restructuring charges and class action settlement, the fiscal 1994 operating
profit resulted from higher revenues and gross profit, lower operating expenses,
the license fee from Toshiba of $1,500,000 and the reversal of a restructuring
reserve of $1,109,000.
INTEREST INCOME / (EXPENSE)
---------------------------
The Company had interest income of $345,000 in fiscal 1994 compared to
interest income of $222,000 in fiscal 1993. This improvement was the combined
result of higher cash balances, the paydown of bank debt and reduction of
capital lease obligations in fiscal 1994.
29
<PAGE>
The Company had interest expense of $561,000 in fiscal 1994 compared to
$1,016,000 in fiscal 1993. This decrease was the result of the reduction of
outstanding debt and lower average interest rates.
OTHER INCOME / (EXPENSE)
Foreign currency translation and transaction gains and losses, accounted for
substantially all of the other income (expense). Fluctuation in these amounts
from fiscal 1993 to fiscal 1994 are a result of currency fluctuations in the
countries in which the Company conducted its business.
INCOME TAXES
------------
The Company recorded a provision for income taxes in the amount of $658,000 in
fiscal 1994 as compared to $512,000 in fiscal 1993. This amount reflects
alternative minimum tax requirements and foreign withholding taxes. See Note 4
of the Notes to Consolidated Financial Statements.
In addition, during fiscal 1993, the IRS disallowed certain of the TMI Group's
pre-acquisition deductions related to the acquisition of certain assets from
Keystone in May 1989. To cover this assessment, the fiscal 1993 income tax
provision included an additional $346,000. In fiscal 1994, the TMI Group reached
an agreement with the IRS, as a result of which the original assessment was
reduced by $215,000. Since the original assessment was expensed by the TMI Group
in fiscal 1993, the Company recorded a tax benefit of $215,000 in fiscal 1994
with respect to this matter.
Effective July 1, 1992, the TMI Group adopted SFAS No.109, "Accounting for
Income Taxes," which replaces SFAS No. 96. The adoption of SFAS No. 109 resulted
in a benefit of $171,000 which was recorded as a cumulative effect of change in
accounting for income taxes in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had cash and cash equivalents and working
capital of $15,317,000 and $29,885,000, respectively, compared to cash and cash
equivalents and working capital of $21,024,000 and $26,270,000, respectively, at
June 30, 1994. The reduction in cash and cash equivalents was largely due to the
acquisition of the net assets of the Company's Australian distributor on July 1,
1994 for $1,100,000 and the paydown of all bank and long term debt of Texas
Microsystems, Inc. during the fourth quarter totaling $5,229,000.
30
<PAGE>
In fiscal 1995 as in fiscal 1994, the Company funded its operations through
positive cash flow from operations. Cash flows from operations reflected net
income offset by cash outflows for inventories.
The Company generally ships systems within 30 days after receipt of specific
purchase orders from customers. In order to do so, the Company typically
produces and maintains an inventory of subsystems in standard configurations.
Inventories including customer spares increased to $16,713,000 at June 30, 1995
from $9,698,000 at June 30, 1994, due to the purchase of inventory as part of
the acquisition of the Australian distributor and the procurement of inventories
associated with the introduction of new products, planned higher revenue levels
and backlog. The Company expects that its inventory levels will grow in fiscal
1996, but at a slower pace in relationship to revenue growth, reflecting
management's objective to increase inventory turns.
At June 30, 1995, the Company's net accounts receivable totaled $12,739,000
compared to $12,759,000 at June 30, 1994. The Company's days sales outstanding
at June 30, 1995 was 44 days, a decrease from 50 days at June 30, 1994.
Capital expenditures totaled $2,478,000 for fiscal 1995, and were comprised
primarily of computer equipment, including the capitalization of internally
manufactured systems, and software licenses. This compared with fiscal 1994
capital expenditures of $2,254,000, also primarily comprised of computer
equipment. The Company expects to slightly increase capital expenditures in
fiscal 1996 related to increased investment and development in the Intel and
SPARC-based product lines.
During 1995, the Company through its subsidiary Texas Microsystems, Inc., had
a $2,000,000 term loan and a maximum $4,000,000 revolving line of credit with
Texas Commerce Bank, National Association and a note payable to Keystone
International, Inc. In the fourth quarter fiscal 1995, subsequent to the
Transaction, the Company paid down fully all bank and long term debt of Texas
Microsystems, Inc. totaling $5,229,000.
The Company terminated its previous $10,000,000 credit line with State Street
Bank and Trust Company and in connection with the completion of the Transaction,
on March 31, 1995, the Company, State Street Bank and Trust Company and Texas
Commerce Bank, National Association, entered into a new credit agreement that
provides for maximum borrowings of $20,000,000 secured by substantially all the
assets of the Company. At the Company's option, loans may be drawn down subject
to two interest rate alternatives: (i) a prime rate option bearing interest at
the then current prime rate and (ii) a LIBOR option bearing interest at the
LIBOR rate plus 2%. 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
October 31, 1996. At June 30, 1995, no amounts were outstanding under this
agreement and the Company had $7,549,000 available under the borrowing base
formula.
31
<PAGE>
The Company believes that its present cash and cash equivalents, working capital
levels, and borrowing capacity are adequate for its operating needs through
fiscal 1996.
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following statements are filed as part of this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Accountants F-1
Audited Financial Statements:
Consolidated Balance Sheets at June 30, 1995 and 1994 F-3
Consolidated Statements of Operations for the three years
ended June 30, 1995 F-4
Consolidated Statements of Cash Flows for the three
years ended June 30, 1995 F-5
Consolidated Statements of Stockholders' Equity for the
three years ended June 30, 1995 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
33
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
The information required for Part III, Item 10 in this Annual Report on
Form 10-K is incorporated by reference from the Company's definitive Proxy
Statement relating to the Company's 1995 Annual Meeting of Stockholders. Such
information will be contained in the sections of the Proxy Statement captioned
"Directors" and "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information required for Part III, Item 11 in this Annual Report on
Form 10-K is incorporated by reference from the Company's definitive proxy
statement relating to the Company's 1995 Annual Meeting of stockholders. Such
information will be contained in the sections of the proxy statement captioned
"Report of the Compensation Committee", "Director's Compensation", Named
Executive Officer's Compensation", "Option Grants and Exercises", Stock Option
Repricing" and "Comparative Stock Performance".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required for Part III, Item 12 in this Annual Report on
Form 10-K is incorporated by reference from the Company's definitive proxy
statement relating to the Company's 1995 Annual Meeting of stockholders. Such
information will be contained in the sections of the proxy statement captioned
"Voting Securities and Certain Holders Thereof".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for Part III, Item 13 in this Annual Report on
Form 10-K is incorporated by reference from the Company's definitive proxy
statement relating to the Company's 1995 Annual Meeting of stockholders. Such
information will be contained in the sections of the proxy statement captioned
"Certain Transactions".
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed in the Exhibit Index on page 38 are filed as part
of this Annual Report on Form 10-K.
(b) Financial Statement Schedule
The Financial Statement Schedule is listed on page 33 of this Annual
Report on Form 10-K.
(c) Reports on Form 8-K
On April 14, 1995, the Company filed a Current Report on Form 8-K
(the "Form 8-K"), dated March 31, 1995 announcing completion of the
Company's acqusition of the TMI Group.
35
<PAGE>
The following trademarks are mentioned in this Annual Report on Form 10-K:
Sequoia and Topix are registered trademarks of Sequoia Systems, Inc.
Total Availability Solutions is a trademark of Sequoia Systems, Inc.
OmniRACK and XpressRACK are trademarks of Texas Microsystems, Inc.
Pick is a trademark of Pick Systems, Inc.
UNIX is a registered trademark of UNIX System Laboratories, Inc.
Novell is a registered trademark of UNIX System Laboratories, Inc.
36
<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.
SEQUOIA SYSTEMS, INC.
By:/s/ Cornelius P. McMullan
-------------------------
Cornelius P. McMullan
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Cornelius P. McMullan President, Chief Executive September 22, 1995
- --------------------------- Officer and Director
Cornelius P. McMullan (principal executive officer)
/s/ Francis J. Hughes, Jr. Chairman of the Board September 22, 1995
- --------------------------- of Directors
Francis J. Hughes, Jr.
/s/ Richard B. Goldman Executive Vice President of September 22, 1995
- --------------------------- Finance and Chief Financial
Richard B. Goldman Officer (principal financial
and accounting officer)
/s/ J. Michael Stewart Executive Vice President; September 22, 1995
- --------------------------- President and Chief
J. Michael Stewart Operating Officer,
Texas Microsystems, Inc.
/s/ Dean C. Campbell Director September 22, 1995
- ---------------------------
Dean C. Campbell
/s/ John F. Smith Director September 22, 1995
- ---------------------------
John F. Smith
Director September 22, 1995
- ---------------------------
A. Theodore Engkvist
/s/ Dennis M. Malloy Director September 22, 1995
- ---------------------------
Dennis M. Malloy
</TABLE>
37
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Merger and Stock Purchase Agreement dated as of November 9, 1995
by and among the Company, Sequoia Acquisition Corporation, SPCO, Inc.
and Keystone International, Inc., as amended (incorporated by
reference from Exhibit 2.1 to the Company's Registration Statement on
Form S-4 (File No. 33-54777), filed on February 21, 1995).
2.2 Amendment No. 1 to the Merger Agreement, dated as of February 7, 1995
(incorporated by reference from Exhibit 2.2 to the Company's
Registration Statement on Form S-4 (File No. 33-54777), filed on
February 21, 1995).
2.3 Amendment No. 2 to the Merger Agreement, dated as of February 23, 1995
(incorporated by reference from Exhibit 2.3 to the Company's
Registration Statement on Form S-4/A (File No. 33-54777), filed on
February 24, 1995).
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to the Company's Amendment No. 2 to the Annual Report on
Form 10-K filed on February 21, 1995.
3.2 Certificate of Amendment of Restated Certificate of Incorporation of
the Company.*
3.3 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1
(File No. 33-33024)).
10.1 1986 Incentive Stock Option Plan and 1986 Supplemental Incentive Stock
Option Plan (collectively the "Option Plans") and related form of
stock option agreements (incorporated by reference to Exhibit 10.10
and Exhibit 10.11, respectively, to the Company's Registration
Statement on Form S-1 (File No. 33-33024)).+
10.2 Amendment to the Option Plans (incorporated by reference to Exhibit
10.42 to the Company's 1990 Annual Report on Form 10-K (File No.
0-18238)).+
10.3 Amendment to the Option Plans adopted December 13, 1994.+*
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
10.4 1990 Outside Director's Stock Option Plan (incorporated by reference
to Exhibit 10.45 to the Company's 1990 Annual Report on Form 10-K
(File No. 0-18238)).
10.5 1993 Employee Stock Purchase Plan.+*
10.6 Amendment to the 1993 Employee Stock Purchase Plan, adopted December
13, 1994.+*
10.7 1995 Outside Directors' Stock Option Plan.*
10.8 401(k) Plan of the Company (incorporated by reference to Exhibit 10.37
to the Company's Registration Statement on Form S-1 (File No.
33-33024)).+
10.9 Lease dated November 23, 1983 between the Company and Metropolitan
Life Insurance Company (incorporated by reference to Exhibit 10.12 to
the Company's Registration Statement on Form S-1 (File No. 33-33024)).
10.10 Third Amendment dated April 2, 1990 to Lease of November 23, 1983,
between the Company and Metropolitan Life Insurance Company
(incorporated by reference to Exhibit 10.38 to the Company's 1990
Annual Report on Form 10-K (File No. 0-18238)).
10.11 Lease dated March 20, 1992 between the Company and Metropolitan Life
Insurance Company (incorporated by reference to Exhibit 10.14 to the
Company's 1992 Annual Report on Form 10-K, Amendment No. 1 (File No.
0-18238)).
10.12 Employment Agreement dated October 20, 1987 between the Company and
Jack J. Stiffler (incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (File No. 33-33024)).
10.13 Pick Systems - Open Architecture License Agreement dated October 10,
1986 among the Company, Concurrent Operating Systems Technology and
Pick Systems, and assigned to the Company on February 24, 1988
(incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (File No. 33-33024)).
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
10.14 Product Development and Technology License Agreement dated July 24,
1990 between the Company and Samsung Electronics Company Ltd.
(incorporated by reference to Exhibit 10.40 to the Company's 1990
Annual Report on Form 10-K (File No. 0-18238)).**
10.15 OEM Agreement dated July 24, 1990 between the Company and Samsung
Electronics Company Ltd. (incorporated by reference to Exhibit 10.41
to the Company's 1990 Annual Report on Form 10-K (File No.
0-18238)).**
10.16 Service Provider II Maintenance Agreement dated January 1, 1992
between the Company and Samsung Electronics Company Ltd. (incorporated
by reference to Exhibit 10.45 to the Company's 1992 Annual Report on
Form 10-K, Amendment No. 1 (File No. 0-18238)).
10.17 OEM Agreement dated September 7, 1993 between the Company and Samsung
Electronics Co., Ltd. (incorporated by reference to Exhibit 10.43 to
the Company's 1993 Annual Report on Form 10-K (File No. 0-18238)).
10.18 Master Agreement dated September 7, 1993 between the Company and
Samsung Electronics Co., Ltd. (incorporated by reference to Exhibit
10.44 to the Company's 1993 Annual Report on Form 10-K (File No.
0-18238)).
10.19 Development, Manufacturing, and Distribution Agreement dated as of
December 26, 1991 between the Company and Toshiba Corporation
(incorporated by reference to Exhibit 10.48 to the Company's 1992
Annual Report on Form 10-K, Amendment No. 1 (File No. 0-18238)).**
10.20 Revised Development, Manufacturing, and Distribution Agreement
executed as of May 13, 1994 between the Company and Toshiba
Corporation.
10.21 Software Cooperation Agreement executed April 5, 1994 between the
Company and UNIX System Laboratories, Inc.**
10.22 Purchase of Business Agreement dated June 17, 1994 by and among the
Company, SEQ (Aust.) Pty. Ltd., Sequoia Systems (Australia) Pty. Ltd.,
Tricom Group Pty. Ltd., Samuel Seabury and William A. Cruthers.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
10.23 Employment Agreement dated November 5, 1992, as amended January 22,
1993 between the Company and Cornelius P. McMullan. (incorporated by
reference to Exhibit 10.56 to Amendment No. 1 to the Company's 1993
Annual Report on Form 10-K/A. (File No. 0-18238)).+
10.24 Employment Agreement dated October 2, 1992, as amended November 7,
1992 between the Company and Richard B. Goldman. (incorporated by
reference to Exhibit 10.57 to Amendment No. 1 to the Company's 1993
Annual Report on Form 10-K/A (File No. 0-18238)).+
10.25 Credit Agreement dated March 31, 1995 by and between State Street Bank
and Trust Company, Texas Commerce Bank, National Association and the
Company (incorporated by reference to Exhibit 10.31 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 2, 1995
(File No. 0-18238)).
10.26 Pick 64 Purchase Agreement dated March 24, 1995 between Alpha
Microsystems, Inc. and the Company.*
10.27 Amendment dated August 11, 1995 to Pick Systems - Open Architecture
License Agreement dated October 10, 1986 among the Company, Concurrent
Operating Systems Technology and Pick Systems, and assigned to the
Company on February 24, 1988.*
10.28 Amendment dated February 2, 1995 to Pick Systems - Open Architecture
License Agreement dated October 10, 1986 among the Company, Concurrent
Operating Systems Technology and Pick Systems, and assigned to the
Company on February 24, 1988.*
10.29 Asset Sale Agreement by and between Intel Corporation and Texas
Microsystems, Inc. dated November 30, 1994.*
10.30 Consent and Undertakings of the Company filed February 24, 1995 in
Securities and Exchange Commission v. Sequoia Systems, Inc. et al.,
------------------------------------------------------------------
U.S. District Court, District of Columbia.*
10.31 Lease by and between Chevron U.S.A. Inc. and Texas Microsystems, Inc.
dated December 11, 1992, as amended.*
10.32 Letter of Employment between the Company and J. Michael Stewart dated
March 31, 1995.*+
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
11 Statement re: Computation of Earnings*
21 Subsidiaries of the Company.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Arthur Andersen LLP*
27 Financial Data Schedule*
</TABLE>
- ------------------
* Filed herewith
** Confidential treatment previously granted to certain portions thereof.
*** Previously filed subject to request for confidential treatment as to
certain portions thereof.
+ Management Contract or Compensatory Plan or Arrangement required to be
filed by Item 14C of this Annual Report on Form 10-K
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sequoia Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Sequoia Systems,
Inc. and subsidiaries as of June 30, 1994 and 1995 and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ending June 30, 1995. These financial statements give
retroactive effect to the merger of Sequoia Systems, Inc. and the TMI Group on
March 31, 1995, which has been accounted for using the pooling of interests
method as described in Note 1 to the consolidated financial statements. 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 did not audit the financial statements of the TMI Group for any
year prior to June 30, 1995 which statements reflect total assets constituting
35% of consolidated total assets as of June 30, 1994, and which reflect total
revenues constituting 51% and 19% of consolidated total revenues for each of the
years ending June 30, 1994 and 1993, respectively. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for the TMI Group, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sequoia Systems, Inc.
and subsidiaries at June 30, 1994 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ending June 30, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 25, 1995
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Boards of Directors of the
Texas Microsystems Group:
We have audited the combined balance sheets of the Texas Microsystems
Group, as of June 30, 1994 and 1993, and the related combined statements of
operations, shareholders' equity and cash flows for the years then ended (not
presented separately herein). These combined financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Texas
Microsystems Group as of June 30, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Effective July 1, 1992, the Group adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Arthur Andersen LLP
Houston, Texas
November 30, 1994
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
ASSETS June 30, June 30,
1995 1994
----------------------
Current Assets: (in thousands)
<S> <C> <C>
Cash and cash equivalents $ 15,317 $ 21,024
Accounts receivable, net of allowance for doubtful accounts
of $1,288 at June 30, 1995 and $1,699 at June 30, 1994 12,739 12,759
Inventories 16,713 9,698
Other current assets 1,974 1,879
----------------------
Total current assets 46,743 45,360
----------------------
Equipment and Improvements, at cost:
Computer equipment 12,329 10,236
Machinery and equipment 4,687 4,457
Equipment under capital lease 2,666 2,666
Furniture and fixtures 1,306 1,189
Leasehold improvements 1,575 1,537
----------------------
22,563 20,085
Less - Accumulated depreciation and amortization 17,828 15,275
----------------------
4,735 4,810
----------------------
Other Assets 763 239
----------------------
Total Assets $ 52,241 $ 50,409
======================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Short-term borrowings on line of credit $ -- $ 1,705
Current maturities of long-term debt -- 667
Current portion of capital lease obligations 125 112
Accounts payable 6,809 6,383
Accrued expenses 9,037 9,410
Deferred revenue 888 813
----------------------
Total current liabilities 16,859 19,090
----------------------
Obligations under capital lease, net of current portion 56 190
Long-term debt -- 1,645
----------------------
Total long-term obligations 56 1,835
----------------------
Commitments & Contingencies
Stockholders' Equity:
Preferred stock, $.40 par value:
Authorized--12,500,000 shares at June 30, 1995 and 1994
Issued--none
Common stock, $.40 par value:
Authorized--35,000,000 shares at June 30, 1995
and --25,000,000 shares at June 30, 1994, respectively
Issued and outstanding 15,165,000 shares at June 30, 1995,
and 14,899,000 shares at June 30, 1994 6,066 5,960
Additional paid-in capital 79,395 79,052
Accumulated deficit (50,288) (55,565)
Cumulative translation adjustment 153 37
----------------------
Total stockholders' equity 35,326 29,484
----------------------
Total Liabilities and Stockholders' Equity $ 52,241 $ 50,409
======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the years ended,
June 30, June 30, June 30,
1995 1994 1993
------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C>
Revenues
Product $ 88,145 $ 76,525 $ 69,400
Service 14,882 13,636 11,571
Other 1,012 1,665 352
------------------------------------------------
Total revenues 104,039 91,826 81,323
Cost of Revenues
Product 48,985 41,345 40,082
Service and other 8,094 6,664 6,785
------------------------------------------------
Total cost of revenues 57,079 48,009 46,867
Gross profit 46,960 43,817 34,456
Research and Development Expenses 13,044 11,621 15,104
Selling, General and Administrative Expenses 28,052 22,053 31,187
Restructuring Charge (Credit) (1,109) 13,990
------------------------------------------------
Total operating expenses 41,096 32,565 60,281
Income (loss) from operations 5,864 11,252 (25,825)
Interest Income 809 345 222
Interest Expense (290) (561) (1,016)
Other Income (Expense) (146) 103 (46)
Provision for Settlement of Class Action Lawsuit (3,875)
------------------------------------------------
Income (loss) before provision for income
taxes and cumulative effect of change in
accounting for income taxes 6,237 11,139 (30,540)
Provision for Income Taxes 960 658 512
------------------------------------------------
Income (loss) before cumulative effect of
change in accounting for income taxes 5,277 10,481 (31,052)
Cumulative effect of change in accounting for income taxes 171
------------------------------------------------
Net income (loss) $ 5,277 $ 10,481 $ (30,881)
================================================
Income (Loss) Per Common and Common Share Equivalent
Before Cumulative Effect of Change in Accounting for
Income Taxes $ 0.34 $ 0.69 $ (2.25)
Cumulative Effect of Change in Accounting for Income Taxes 0.02
----
Net Income (Loss) Per Common and Common Share Equivalent $ 0.34 $ 0.69 $ (2.23)
================================================
Weighted Average Number of Common and Common Share
Equivalents Outstanding 15,565 15,103 13,829
================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the years ended June 30, 1995 1994 1993
----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 5,277 $ 10,481 $ (30,881)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities--
Depreciation 2,553 2,557 3,192
Amortization 518 761 1,371
Provision for bad debts (32) 191 1,242
Restructuring charge (credit) - (1,109) 10,341
Changes in assets and liabilities:
Restricted cash reclass for class action settlement (1,000)
Accounts receivable 102 (1,771) 10,494
Accounts receivable, long-term - 50 130
Accrued interest included in long-term debt - (251) (106)
Inventories (7,015) 2,497 5,364
Federal income taxes receivable/prepaid 423 (390) 169
Deferred tax assets (491) 13 (517)
Other current assets 78 247 2,569
Accounts payable 426 1,476 (965)
Accrued expenses (373) 661 5,129
Deferred revenue 75 (128) 580
----------------------------------------------
Net cash provided by operating activities 1,385 15,285 7,112
----------------------------------------------
Cash Flows From Investing Activities:
Purchase of equipment and improvements (2,477) (2,254) (3,026)
Decrease (increase) in other assets (1,042) 218 590
----------------------------------------------
Net cash used in investing activities (3,519) (2,036) (2,436)
----------------------------------------------
Cash Flows From Financing Activities:
Restricted cash for collateral on bank debt - - (2,989)
Repayment of note payable to bank - - (1,050)
Proceeds from note payable to bank - - 3,000
Repayment of obligations under capital leases (121) (191) (1,334)
Short-term debt (2,372) (1,535) 2,380
Long-term debt (1,645) (1,663) (666)
Payment of cash dividend on preferred shares - (61) -
Proceeds from issuance of common stock 449 294 496
----------------------------------------------
Net cash used in financing activities (3,689) (3,156) (163)
----------------------------------------------
Effect of exchange rates on cash 116 52 (24)
Net Increase (Decrease) in Cash and Cash Equivalents (5,707) 10,145 4,489
Cash and Cash Equivalents, beginning of year 21,024 10,879 6,390
----------------------------------------------
Cash and Cash Equivalents, end of year $ 15,317 $ 21,024 $ 10,879
==============================================
Supplemental Disclosures of Noncash Investing
and Financing Activities:
Issuance of convertible preferred stock in settlement
of class action lawsuit $ - $ 2,875 $ -
Release of restricted cash for:
Class action settlement $ - $ 1,000 $ -
Repayment of note payable to bank $ - $ 1,950 $ -
Repayment of obligations under capital leases $ - $ 1,039 $ -
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 532 $ 1,261 $ 1,069
Income taxes paid (refunds received) $ 1,090 $ 921 $ (1,179)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ending June 30, (dollars in thousands)
<TABLE>
<CAPTION>
($ in thousands)
----------------------------------------------------------------------------
Common Stock Additional Preferred Stock Additional
Par Paid-in Par Paid-in
Shares Value Capital Shares Value Capital
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 $13,953,000 $ 5,581 $ 80,992 $ - $ - $ -
Issuance of common stock pursuant to stock option
and employee stock purchase plans 210,000 84 412 - - -
Retirement of treasury stock (475,000) (190) (5,036) - - -
Foreign currency translation - - - - - -
Net loss - - - - - -
----------------------------------------------------------------------------
Balance, June 30, 1993 13,688,000 5,475 76,366 - - -
Issuance of common stock pursuant to stock option
and employee stock purchase plans 164,000 66 228 - - -
Issuance of convertible preferred stock - - - 1,047 419 2,456
Conversion of preferred stock 1,047,000 419 2,456 (1,047) (419) (2,456)
Foreign currency translation - - - - - -
Dividends paid on convertible preferred stock - - - - - -
Net Income - - - - - -
----------------------------------------------------------------------------
Balance, June 30, 1994 14,899,000 5,960 79,052 - - -
Issuance of common stock pursuant to stock option - - - - - -
and employee stock purchase plans 265,000 106 343 - - -
Foreign currency translation - - - - - -
Dividends paid on convertible preferred stock - - - - - -
Net Income - - - - - -
----------------------------------------------------------------------------
Balance, June 30, 1995 $15,165,000 $ 6,066 $ 79,395 $ - $ - $ -
============================================================================
<CAPTION>
($ in thousands)
----------------------------------------------------------------------------
Cumulative
Preferred Accumulated Translation Common Stock in Treasury
Dividends Deficit Adjustment Shares Cost Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 $ - $ (35,104) $ 9 $ 475 $(5,226) $ 46,252
Issuance of common stock pursuant to stock option
and employee stock purchase plans - - - - - 496
Retirement of treasury stock - - - (475) 5,228 -
Foreign currency translation - - (24) - - (24)
Net loss - (30,881) - - - (30,681)
----------------------------------------------------------------------------
Balance, June 30, 1993 - (65,985) (15) - - 15,843
Issuance of common stock pursuant to stock option
and employee stock purchase plans - - - - - 294
Issuance of convertible preferred stock - - - - - 2,875
Conversion of preferred stock - - - - - -
Foreign currency translation - - 52 - - 52
Dividends paid on convertible preferred stock (61) - - - - (61)
Net Income - 10,481 - - - 10,481
----------------------------------------------------------------------------
Balance, June 30, 1994 (61) (55,504) 37 - - 29,484
Issuance of common stock pursuant to stock option - - - - - -
and employee stock purchase plans - - - - - 449
Foreign currency translation - - 116 - - 116
Dividends paid on convertible preferred stock 61 (61) - - - -
Net Income - 5,277 - - - 5,277
----------------------------------------------------------------------------
Balance, June 30, 1995 $ - $ (50,288) $ 153 $ - $ - $ 35,326
============================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
Note 1 Basis of Presentation
------
The Company provides Motorola-based systems and upgrade products for on-
line transaction processing and other interactive applications in which system
availability, fast response times and data integrity are critical. With the
acquisition of the TMI Group, the Company's expanded business lines also include
ruggedized, mission-critical computers, both SPARC and Intel based, for the
industrial market and Bellcore Network Equipment Building Specifications
("NEBS") compliant products specifically designed for the telecommunications
market. As a leading supplier of ruggedized and mission critical computers from
the desktop to the mainframe, the Company operates in one segment, computer
systems, and addresses expanding market requirements for greater system
availability.
A. Merger and Stock Purchase
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., by which the Company acquired all of the common
stock of SPCO, Inc., along with its subsidiaries Texas Microsystems, Inc. and
Texas Micro Electronics, Inc. and their respective subsidiaries (the "TMI
Group") (collectively the "Transaction"). On March 31, 1995, the Transaction
was consummated and the Company issued 5,272,944 shares of its common stock in
exchange for all the common stock and securities to acquire the common stock of
each of the members of the TMI Group.
The Transaction has been accounted for as a pooling of interests, and
accordingly, the historical consolidated financial statements for all periods
prior to the acquisition have been restated to include the results of
operations, the financial position and cash flows of the TMI Group. The terms
of the Transaction are fully described in the Company's Registration Statement
on Form S-4 (file No. 33-54777) under the Securities Act of 1933, filed with the
Securities and Exchange Commission on February 21, 1995 and amended on February
24, 1995.
Total transaction costs of approximately $2,134,000 were expensed as
incurred in the first nine months of fiscal 1995. These transaction costs
included fees to financial advisors and legal, accounting, printing and other
related expenses incurred in connection with the merger.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
The following information presents certain income statement data of
Sequoia Systems and the TMI Group for the periods prior to the Transaction. The
consummation of the Transaction was substantially coincident with the fiscal
third quarter 1995 closing.
<TABLE>
<CAPTION>
(unaudited)
(in thousands)
Sequoia Systems TMI Group Total
--------------- --------- ---------
<S> <C> <C> <C>
Revenues for:
Nine months ending:
April 2, 1995 $32,850 $44,337 $77,187
April 3, 1994 32,205 34,251 66,456
Year ending June 30:
1994 44,765 47,061 91,826
1993 41,019 40,304 81,323
<CAPTION>
Sequoia Systems TMI Group Total
--------------- --------- ---------
<S> <C> <C> <C>
Net Income for:
Nine months ending:
April 2, 1995 $2,097 (1) $1,463 (1) $3,560 (1)
April 3, 1994 5,073 841 5,914
Year ending June 30:
1994 8,567 1,914 10,481
1993 (31,033) 152 (30,881)
</TABLE>
(1) includes pre-tax expenses related to the Transaction of $1,236,000 for
Sequoia Systems and $898,000 for the TMI Group for the nine months ended
April 2, 1995
B. Restructuring Charge/Credit
The Company recorded a restructuring charge of $13,990,000 in fiscal 1992 as the
result of lower revenues and a downsizing of the operations based on anticipated
future revenue levels. The restructuring charge included: $4,022,000 for
provisions to reduce the carrying value of excess inventory, $3,077,000 for
provisions to write off idle equipment and improvements, and $3,242,000 for
provisions to reduce the carrying value of other current and long-term assets to
their estimated net realizable values. The restructuring charge also included
$2,494,000 of provisions for lease obligations for abandoned facilities, and
$1,155,000 for other contractual obligations and provisions. During fiscal
1994, the Company settled the lease, contractual, and other obligations, and
determined that, as of June 30, 1994, $1,109,000 of restructuring charges was in
excess of the business requirements and recorded a restructuring credit.
Additionally, the Company realized a benefit in cost of revenues of $900,000 in
fiscal 1994 as a result of the sale of inventory which had been written-off as
part of the restructuring. As of June 30, 1995, restructuring activities were
completed.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
Note 2 Summary of Significant Accounting Policies
- ------
The consolidated financial statements reflect the application of certain
accounting policies described in this and other notes to consolidated financial
statements.
A. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
B. Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market. Cash
equivalents consist of highly liquid investments with original maturities of 90
days or less.
C. Inventories
Inventories are stated at the lower of average cost (first-in, first-out) or
market which requires the periodic assessment of net realizable value. The
difference of 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>
(in thousands)
June 30, 1995 1994
-------------------------
<S> <C> <C>
Raw materials $ 9,966 $4,545
Work-in-process 3,595 2,986
Finished goods 3,152 2,167
-------------------------
$16,713 $9,698
-------------------------
</TABLE>
D. Depreciation and Amortization
The Company provides for depreciation and amortization by charges to operations
in amounts estimated to allocate the cost of equipment and leasehold
improvements over their estimated useful lives on a straight-line basis.
Computer equipment, machinery and equipment, equipment under capital lease and
furniture and fixtures are depreciated over three to ten years, and leasehold
improvements are amortized over the term of the associated leases.
The cost of improvements is charged to the property accounts, while maintenance
and repairs are charged to income as incurred. The Company periodically
evaluates its fixed assets to determine whether assets are impaired or continue
to be utilized. Upon determination of an impairment, retirement or other
disposition of property and equipment, the cost and related depreciation are
removed from the accounts, and any resulting gain or loss is reflected in the
results of operations.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
E. Software License Fees and Royalties
The Company has entered into license and royalty agreements for software to be
incorporated into certain computer systems held for resale. The initial fees
under such software license arrangements are capitalized in other assets and
amortized over the lesser of the term of the license agreement or on a straight-
line basis over three to five years. Royalty payments are expensed upon the sale
of computer systems that incorporate the licensed software.
F. Revenue Recognition
Revenues from product sales, which include revenues from software licenses are
recognized upon shipment unless significant uncertainties exist. Service
revenues include maintenance, installation fees and professional services; other
revenues include rental revenue and technology license fees. Service revenues
related to maintenance agreements are recognized ratably over the period in
which the service is provided. All other service revenues are recognized as
earned. Other revenue, primarily technology license fees, are recognized as
revenue upon receipt of non-refundable payments.
The Company entered into a development, manufacturing and distribution agreement
with Toshiba Corporation in December 1991 and amended such agreement in April
1994. Technology license fees due the Company, amounted to $1,000,000 and
$1,500,000, for the years ended June 30, 1995 and 1994, respectively.
G. Research and Development
Costs relating to research and development are expensed as incurred.
H. Net Income (Loss) per Share
Primary and fully diluted earnings per share are not separately stated as they
are substantially the same. For the years ended June 30, 1995, 1994 and 1993,
net income/(loss) per share was based on the weighted average number of common
and common share equivalents outstanding during the year, computed in accordance
with the treasury stock method. Under this method, common share equivalents are
not included in the calculation for fiscal 1993 as their impact would be
antidilutive. The net income/(loss) per share calculations for all years
presented include shares issued to consummate the pooling transaction on March
31, 1995 (see Note 1 A).
I. Foreign Currency Translation
For foreign subsidiaries where the functional currency is the U.S. dollar, the
financial statements of the Company's foreign subsidiaries are translated using
rates of exchange in effect at the end of the fiscal year for monetary assets
and liabilities and historical rates for non-monetary assets and liabilities.
Income and expenses are translated at average exchange rates prevailing during
the fiscal year and the resulting gains or losses are reflected in results of
operations.. For foreign subsidiaries where the functional currency is the
local currency, the financial statements are translated as above except that
assets and liabilities are translated at current exchange rates and the
resulting gains or losses are recorded as a separate component of stockholders'
equity.
Transaction gains and (losses) recognized by the Company amounted to $(82,000),
$(9,000), and $1,000 for the years ended June 30, 1995, 1994, and 1993,
respectively.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
J. Postretirement Benefits
The Company sponsors two defined contribution employee savings and retirement
plans (the Plans), which cover only U.S. employees. Employees participate in
the Plans based on the subsidiary of their employment. The Plans are
contributory for which contributions by the Company are made at the discretion
of management. Employees may contribute up to 15% or 20% of their annual
compensation depending on their respective plan. The Company made contributions
of $231,000, $236,000 and $125,000 in fiscal 1995, 1994 and 1993 respectively.
K. Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents and trade receivables. The
Company's cash equivalents are placed with high credit quality financial
institutions or invested in government securities. The Company limits the
amount of credit exposure to any one institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the varied customer base, comprised principally of distributors and
resellers, dispersed across various industries and geographic locations. The
Company generally does not require collateral; however, in certain circumstances
the Company may require letters of credit from its customers. The Company may
require deposits to be paid with an order or may negotiate added discounts in
exchange for payment at time of shipment.
L. Reclassifications
Certain prior year balances have been reclassified to conform to current year
presentation.
M. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the
liability method specified by SFAS No. 109, deferred tax assets, net of any
valuation allowance, and deferred tax liabilities are determined based on the
temporary differences between the financial statement and tax basis of assets
and liabilities and net operating losses as measured using the enacted tax rates
which are expected to be in effect when these differences reverse.
N. Warranty Obligations
The Company generally provides its systems with a 90-day to two year warranty
from the date of installation depending on the product line. Estimated warranty
obligations are evaluated and provided at the time of sale.
Note 3 Note Payable to Bank & Long-Term Debt
- ------
The Company, through its subsidiary Texas Microsystems, Inc. had (i) a
$2,000,000 term loan, payable in equal monthly installments based on a three-
year amortization with the balance due on June 1, 1997, (ii) $4,000,000
revolving line of bank credit and (iii) a zero coupon note payable to Keystone
International with $415,000 due. Subsequent to the third quarter, 1995, the
Company paid
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
down all bank and long term debt of Texas Microsystems, Inc. totaling $5,229,000
and terminated these agreements.
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. At June 30, 1994, no amounts were outstanding
under this agreement and the Company had $3,060,000 available under the
borrowing base formula.
The Company terminated its previous credit line with State Street Bank and Trust
Company and in connection with the completion of the Transaction, on March 31,
1995, the Company, State Street Bank and Trust Company and Texas Commerce Bank,
National Association entered into a revolving credit agreement providing for
maximum borrowings of $20,000,000 secured by substantially all the assets of the
Company. At the Company's option, loans may be drawn down subject to two
interest rate alternatives: (i) a prime rate option bearing interest at the
then current prime rate and (ii) a LIBOR option bearing interest at the LIBOR
rate plus 2%.
The Company is required to meet specific covenants throughout the duration of
this agreement, the most restrictive of which is that the Company shall not have
a net loss (i) of greater than $1,000,000 for any fiscal quarter or (ii) nor in
any two consecutive fiscal quarters, or (iii) an annual loss in excess of
$1,800,000. In addition, the Company may not declare cash dividends. This
agreement expires on October 31, 1996. Available borrowings under this
agreement are subject to a borrowing base formula predicated on qualified
receivables as defined and are collateralized by substantially all assets of the
Company. At June 30, 1995, no amounts were outstanding under this agreement and
the Company had $7,549,000 available under the borrowing base formula.
Long-term debt at June 30, 1994 and 1993, consisted of the following:
<TABLE>
<CAPTION>
($ in thousands)
1994 1993
------- ------
<S> <C> <C>
$4,250,000 original face amount subordinated note
payable to Keystone, extinguished in 1994............... - $3,534
$500,000 face amount subordinated zero coupon note
payable to Keystone, dated May 19th 1989 (less
unamortized discount of $133,000 and
$171,000 respectively, with an effective interest rate
of 11.54%), due May 1, 1997............................. 367 329
$2,000,000 term note payable to Texas Commerce
Bank, dated June 7, 1994................................ 1,945 -
Accrued interest - 251
------ ------
2,312 4,114
Less - Current portion of long-term debt................ 667 733
------ ------
$1,645 $3,381
====== ======
</TABLE>
All bank and long term debt was paid during 1995.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
Note 4 Other Assets
- ------
Other assets consist of the following:
<TABLE>
<CAPTION>
(in thousands)
June 30: 1995 1994
---------------
<S> <C> <C>
Software license fees, net of accumulated
amortization of $629 and $382 in
1995 and 1994, respectively. $ 663 $ 112
Other 100 127
----- -----
$ 763 $ 239
----- -----
</TABLE>
Note 5 Accrued Expenses
- ------
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
(in thousands)
June 30: 1995 1994
---------------
<S> <C> <C>
Accrued compensation and benefits $4,435 $3,284
Accrued commissions and royalties 715 1,001
Accrued other 3,887 5,125
---------------
$9,037 $9,410
---------------
</TABLE>
Note 6 Income Taxes
- ------
Effective July 1, 1992, the TMI Group adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109). Effective
July 1, 1993, Sequoia Systems, Inc. adopted SFAS No. 109, "Accounting for Income
Taxes". For the TMI Group the benefit of adopting the statement, $171,000, was
recorded as a cumulative effect of change in accounting for income taxes in the
accompanying financial statements in fiscal 1993. The impact of Sequoia
Systems, Inc. adoption was immaterial to the financial statements in fiscal
1994.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
The provisions for income taxes in the accompanying statements of income consist
of the following for the years ended June 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
(in thousands)
1995 1994 1993
-----------------------------
<S> <C> <C> <C>
Current
Federal income taxes $ 1,259 $ 436 $ 806
State income taxes 91 59 52
Foreign income taxes 100 150 --
-------- -------- ------
$ 1,451 $ 645 $ 858
-------- -------- ------
Deferred
Federal income taxes (491) 13 (346)
State income taxes -- -- --
-------- -------- ------
(491) 13 (346)
-------- -------- ------
Total provisions $ 960 $ 658 512
-------- -------- ------
</TABLE>
The components of the net deferred tax asset at June 30, 1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets $ 25,390 $ 23,039
Deferred tax liabilities -- (107)
-------- --------
Net deferred tax assets 25,390 22,932
Valuation allowance (24,395) (22,428)
-------- --------
$ 995 504
-------- --------
</TABLE>
Due to the uncertainty surrounding realization of the deferred tax assets in
future tax returns, the Company has established a full valuation allowance
against substantially all of its otherwise recognizable net deferred asset.
The components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
NOL carryforward $ 19,971 16,649
Property and equipment 1,124 2,554
Inventory 2,451 1,601
Bad debt reserve 517 416
Accrued liabilities -- 228
Other 1,327 1,484
-------- -------
Total net asset 25,390 22,932
Valuation allowance $(24,395) (22,428)
-------- -------
Deferred tax asset $ 995 504
-------- -------
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows for the years ended June 30,
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
Net benefit of tax credits and
operating loss carryforwards (21%) (28.5%) --
State income taxes, net of federal
benefit 1.0% 0.5% (0.1%)
Federal Alternative Minimum Tax 0.8% 1.3% --
Net losses without tax benefit -- -- (34%)
Revenue Agent Review Adjustments -- (2.0%) (1.1%)
Foreign income tax 1.6% 1.4% --
Other (1.0%) (0.7%) (0.5)%
---- ----- -----
Effective tax rate 15.4% 6.0% (1.7%)
---- ----- -----
</TABLE>
The Tax Reform Act of 1986 (the Act), enacted in October 1986, limits the amount
of net operating loss carryforwards that companies may utilize in any one year
in the event of cumulative changes in ownership in excess of 50%, as defined in
the Act, which has limited the Company's ability to utilize in any one year the
net operating loss carryforwards incurred prior to the change in ownership
occurring upon the Company's initial public offering. The Company estimates that
the total net operating loss carryforward subject to this limitation is
approximately $23,000,000. The utilization of the available net operating loss
carryforwards and general business credit carryforwards generated prior to the
ownership change is limited to approximately $2,700,000 in each year subsequent
to the change in ownership until fiscal 2002, at which time the unused net
operating loss carryforwards will expire. These carryforwards are subject to
review and possible adjustment by the Internal Revenue Service. The Company's
net operating loss and general business credit carryforwards at June 30, 1995,
were approximately $44,500,000 ($21,500,000 unrestricted) and $2,800,000,
respectively. Included with-in the net operating losses is approximately $4.6
million of Incentive Stock Option deductions. This deduction when utilized will
be a direct credit to stockholders' equity and will not benefit the income
statement.
Note 7 Stockholders' Equity
- ------
A. Common and Preferred Stock
The Company has 35,000,000 and 12,500,000 authorized shares of common and
preferred stock, respectively at June 30, 1995. There were 25,000,000 and
12,500,000 authorized shares of common and preferred stock at June 30, 1994. No
shares of preferred stock were issued or outstanding at June 30, 1995, or 1994.
The Company has reserved 3,700,000 authorized shares of common stock for
issuance under the Company's options plans, 750,000 authorized shares of common
stock for issuance under the 1993 employee stock purchase plan, 131,000 shares
for issuance under the 1991 outside directors' stock option plan, and 150,000
shares for issuance under the 1995 outside directors stock option plan.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
On October 27, 1993, the Company issued 1,047,418 shares of Series A Convertible
Preferred Stock in settlement of the class action litigation. Subsequently,
holders of 264,435 shares of preferred stock converted, at their option, such
shares into the same number of common shares. The remaining 782,983 shares of
Series A Convertible Preferred Stock were automatically converted to the same
number of common shares on March 15, 1994, in accordance with a mandatory
conversion clause in the class action settlement agreement.
B. Stock Option Plans
The Company has two employee stock option plans: the 1986 Incentive Stock Option
Plan (the Incentive Plan) and the 1986 Supplemental Stock Option Plan (the
Supplemental Plan). The Incentive Plan provides for the grant of incentive stock
options to officers and employees of the Company at a price no less than the
fair market value on the date of the grant. The Supplemental Plan provides for
the grant of nonqualified stock options to employees and consultants at no less
than 85% of the fair market value on the date of grant. Options expire 10 years
from the date of grant or, if applicable, three months after termination of the
optionee's employment or other applicable relationship with the Company.
In fiscal 1990, the Company established the 1990 outside directors' stock option
plan (the 1990 Directors' Plan) which provides for the issuance of nonqualified
stock options at a price no less than the fair market value on the date of grant
to members of the Company's Board of Directors who are not employees of the
Company. An aggregate of 131,000 shares of common stock was reserved for
issuance under the 1990 Directors' Plan. The options expire upon the earlier of
10 years from the date of grant or six months after the director ceases to be a
director of the Company. This plan expired on June 7, 1995. The 131,000 shares
allocated to the plan are available for allocation to other 1995 plans at the
Board of Directors discretion.
In fiscal 1995, the Company established the 1995 outside directors' stock option
plan (the 1995 Directors' Plan). The terms of the 1995 Plan are identical to
the 1990 Directors' Plan. An aggregate of 150,000 shares of common stock was
reserved for issuance under the 1995 Directors' Plan. This plan expires on
July 1, 1999.
During 1993, the Company canceled certain options to employees and directors and
reissued options, with similar terms, to employees and directors with an
exercise price of $2.25, the fair market value at the date of grant.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
The following table summarizes the option activity under the Incentive,
Supplemental and 1990 and 1995 Directors Stock Option Plans for the respective
periods.
<TABLE>
<CAPTION>
Number of Option Price
Shares per Share
---------- --------------
<S> <C> <C>
Outstanding at June 30, 1992 1,243,669 .35 - 16.81
1993 Activity:
Options granted 943,644 2.25 - 7.63
Options exercised (173,176) .80 - 5.13
Options terminated (1,107,131) .80 - 16.50
----------------------------------
Outstanding at June 30, 1993 907,006 .80 - 16.50
1994 Activity:
Options granted 656,020 1.94 - 6.06
Options exercised (137,392) .80 - 2.25
Options terminated (120,802) .80 - 11.44
----------------------------------
Outstanding at June 30, 1994 1,304,832 $ .80 - $11.44
----------------------------------
1995 Activity:
Options granted 523,700 3.22 - 5.13
Options exercised (222,561) .35 - 3.13
Options terminated ( 40,020) 2.06 - 5.44
----------------------------------
Outstanding at June 30, 1995 1,565,951 $ .35 - $ 5.44
----------------------------------
Exercisable at June 30, 1995 801,847 $ .80 - $11.44
----------------------------------
</TABLE>
C. Employee Stock Purchase Plans
In March 1995, the Board of Directors amended the 1993 employee stock purchase
plan (the 1993 Plan) to encompass fiscal years 1996, and 1997, as well as fiscal
years 1994 and 1995, and to increase to 750,000 shares of common stock the
number of shares available for issuance. Under the terms of the 1993 employee
stock purchase plan, eligible employees were able to purchase shares of the
Company's common stock at 85% of market price, as defined by the 1993 Plan. The
term of the 1993 Plan is four years, divided into eight separate semi-annual
offerings commencing on July 1, 1993,(fiscal 1994) and ending on January 1, 1997
(fiscal 1997). In the fiscal 1994 offering which commenced on July 1, 1993 and
ended on June 30, 1994, (two offering periods)45,578 shares were issued. In the
third offering which commenced on July 1, 1994 and ended on December 31, 1994,
24,346 shares were issued. The fourth offering, which commenced on January 1,
1995 and ended on June 30, 1995, resulted in 25,969 shares being issued
subsequent to the end of fiscal 1995.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
Note 8 Commitments and Contingencies
- ------
A. Lease Commitments
The Company leases equipment and office space for its headquarters and sales
offices under various operating arrangements that expire at various dates
through 2000. In addition, the Company leases certain equipment, office
furniture and software licenses under capital leases that mature at various
dates through July 2000. At June 30, 1995, minimum payments due under all
operating and capital lease arrangements are as follows:
<TABLE>
<CAPTION>
(in thousands)
Operating Capital
Lease Lease
Fiscal Year Commitments Commitments
----------- -----------
<S> <C> <C>
1996 $1,945 $137
1997 1,769 69
1998 1,315 --
1999 839 --
2000 839 --
------ ----
Total minimum lease payments $6,706 $206
------ ----
Less--Amount representing interest on
capital lease -- 25
------ ----
Present value of minimum lease payments $ -- $181
------ ----
</TABLE>
Approximately $2,098,000, $2,272,000 and $2,938,000 were charged to rent expense
in fiscal 1995, 1994 and 1993, respectively, under operating lease agreements.
Accumulated amortization on equipment under capital lease amounted to $2,460,000
and $2,507,000 at June 30, 1995 and 1994, respectively.
B. Legal Proceedings
In 1992 the Company was named a defendant to a class action suit brought in the
United States District Court of Massachusetts. The plaintiffs purported to
represent a class of persons who purchased the common stock of the Company
between July 29, 1991 and December 11, 1992 and alleged that the Company
violated (S)10 (b) of the Securities and Exchange Act of 1934 and committed
common law fraud by materially overstating its revenue and income for the fiscal
quarter ended September 30, 1991, thereafter failing to disclose the alleged
need to restate the Company's revenue and income for that fiscal quarter and by
agreeing with certain revenue and earnings projections for the Company made by
financial analysts. On July 30, 1993, the Company entered into a settlement by
which all claims asserted by the plaintiffs against the Company, Arthur Andersen
& Co., the Company's former auditors, and former executives of the Company were
settled. The global settlement provided for a cash payment totaling $3,125,000,
of which $1,075,000 was paid by the Company and $2,050,000 was paid by the
Company's insurance carrier and the other defendants in the class action
litigation. In addition, the Company issued to the plaintiffs $2,875,000 in
face amount of a new class of preferred stock, bearing dividends at a rate of 7%
per year, payable annually, and convertible into common stock at a conversion
price equal to 110% of the average trading price of the Company's common stock
during a specified period prior to the effective date.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
The preferred stock was automatically converted to common stock according to its
terms on March 15, 1994 on which date the closing price of the Company's common
stock was $6.0625 per share. The agreement was approved by the District Court on
September 10, 1993.
On May 8, 1992, the Securities and Exchange Commission notified the Company that
the Commission 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. On February 16, 1995, the Company
and the Commission entered into a settlement agreement, subsequently approved by
the U.S. District Court for the District of Columbia, pursuant to which the
Company consented to the issuance of an injunction against it prohibiting future
violations of certain securities laws and regulations, but the Company was not
required to pay any fines or make any other payments.
Note 9 Significant Customers and Domestic and Export Sales
- ------
The Company had one customer, DSC Communications Corporation, that represented
13%, or $13,559,000, in revenues for the year ending June 30, 1995. There were
no customers exceeding 10% of revenues for the fiscal years ending June 30 1994,
and 1993, respectively.
The following summarizes domestic and export sales for the years ended June 30:
<TABLE>
<CAPTION>
(in thousands)
Years Ended June 30 1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Domestic $ 80,594 $72,521 $68,327
Foreign 10,592 4,010 2,461
Export--
Europe 5,505 5,518 3,555
Asia 2,019 3,579 1,401
Australia - (1) 1,331 934
All other 5,329 4,867 4,645
-------- ------- -------
$104,039 $91,826 $81,323
-------- ------- -------
Percent:
Domestic 78% 79% 84%
Foreign 10% 4% 3%
Export--
Europe 5% 6% 4%
Asia 2% 4% 2%
Australia - 2% 1%
All other 5% 5% 6%
-------- ------- -------
100% 100% 100%
-------- ------- -------
</TABLE>
(1) (see Note 10)
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
Note 10 Acquisition of Joint Venture
- -------
In November 1991, the Company entered into a joint venture, Sequoia Systems Pty.
Ltd., with Tricom Group Pty. Ltd. ("Tricom"). The joint venture (owned 15% by
Sequoia), through Tricom, had the right to distribute the Company's products in
Australia and New Zealand.
On July 1, 1994, the Company reached agreement and purchased selected assets and
the ongoing business operations of Sequoia Systems (Australia) Pty. Ltd., its
joint venture with Tricom for cash totaling $1.1 million. The Company has also
incorporated certain Australian legal entities to operate the business in the
same geographical market area. Tricom also agreed to specific noncompete
arrangements in selected markets with the Company and/or its subsidiary(s) and
further, that the joint venture would be liquidated, as defined in the
agreement.
F-20
<PAGE>
SCHEDULE II
SEQUOIA SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JUNE 30, 1993:
- ---------------------------------
Allowance for Doubtful Accounts 3,407,000 1,282,000 400,000 2,843,000 2,246,000
Inventory Reserve: 4,341,000 1,245,000 0 880,000 4,706,000
JUNE 30, 1994:
- ---------------------------------
Allowance for Doubtful Accounts 2,246,000 116,000 300,000 963,000 1,699,000
Inventory Reserve: 4,706,000 548,000 579,000 2,692,000 3,141,000
JUNE 30, 1995:
- ---------------------------------
Allowance for Doubtful Accounts 1,699,000 226,000 (175,000) 462,000 1,288,000
Inventory Reserve: 3,141,000 573,000 0 1,789,000 1,925,000
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Sequoia Systems, Inc.:
Our report on the consolidated financial statements of Sequoia Systems, Inc. and
subsidiaries is included on page 33 of this Annual Report on Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule for each of the three years in the
period ended June 30, 1995 listed in the index on page 33 of this Annual Report
on Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements take as a whole,
presentS fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 25, 1995
S-2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
SEQUOIA SYSTEMS, INC.
Sequoia Systems, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, at a
meeting duly called and held on December 13, 1994, as filed with
the minutes of the Board, duly adopted a resolution pursuant to
Section 242 of the General Corporation Law of the State of
Delaware ("Delaware Law") proposing and declaring advisable the
following amendment to the Restated Certificate of Incorporation
of the Corporation:
RESOLVED: That, subject to stockholder approval, the first
-------- paragraph of Article FOURTH of the Corporation's
Charter be amended to read in its entirety as
follows:
ARTICLE IV
----------
The total number of shares of capital stock
which the Corporation shall have authority to issue
is forty-seven million five hundred thousand
(47,500,000) shares, consisting of thirty-five
million (35,000,000) shares of common stock, $.40
par value per share ("Common Stock"), and twelve
million five hundred thousand (12,500,000) shares
of Preferred Stock, $.40 par value per share
("Preferred Stock"), all of which remain available
for designation in accordance with the provisions
of Section 151 of the General Corporation Law of
<PAGE>
the State of Delaware and the Corporation's
Certificate of Incorporation, as amended."
SECOND: That the foregoing Amendment to the Corporation's
Restated Certificate of Incorporation was adopted by the holders
of a majority of the outstanding shares of Common Stock at the
Corporation's Special Meeting of Stockholders held on March 29,
1995 pursuant to notice duly given.
IN WITNESS WHEREOF, Sequoia Systems, Inc. has caused this
Certificate to be signed by Richard B. Goldman, its Vice
President, Finance and Chief Financial Officer and attested by
Jeremy F. Swett, its Vice President, General Counsel and Secretary
this 11th day of April, 1995.
SEQUOIA CORPORATION
By: /s/Richard B. Goldman
---------------------
Richard B. Goldman
Vice President, Finance and
Chief Financial Officer
ATTEST:
By: /s/Jeremy F. Swett
------------------
Jeremy F. Swett, Vice
President and General Counsel
- 2 -
<PAGE>
SEQUOIA SYSTEMS, INC.
Amendment to 1986 Incentive Stock Option Plan
and
1986 Supplemental Stock Option Plan
(Adopted by the Board of Directors on December 13, 1994 and
Approved by the Stockholders on March 29, 1995.)
RESOLVED: That, subject to stockholder approval, Section 3(a)
-------- of the Company's 1986 Incentive Stock Option Plan
be amended to read in its entirety as follows:
"3. SHARES SUBJECT TO THE PLAN.
--------------------------
(a) Subject to the provisions of Section 9
relating to adjustments upon changes in the
Company's Common Stock, the shares that may be sold
pursuant to options granted under the Plan shall
not exceed in the aggregate three million seven
hundred thousand (3,700,000) shares of the
Company's Common Stock; provided, however, that
such aggregate number of shares shall be reduced to
reflect the number of shares of the Company's
Common Stock that have been sold pursuant to, or
may be sold pursuant to outstanding options granted
under, the Company's 1986 Supplemental Option Plan
to the same extent as if such sales had been made
or options had been granted pursuant to this Plan.
If any option granted under the Plan shall for any
reason expire or otherwise terminate without having
been exercised in full, the stock not purchased
under such option shall again become available for
the Plan."
FURTHER
RESOLVED: That, subject to stockholder approval, Section 3(a)
-------- of the Company's 1986 Supplemental Stock Option
Plan be amended to read in its entirety as follows:
"3. SHARES SUBJECT TO THE PLAN.
--------------------------
(a) Subject to the provisions of Section 9
relating to adjustments upon changes in the
Company's Common Stock, the shares that may be sold
pursuant to options granted under the Plan shall
not exceed in the aggregate three million seven
hundred thousand (3,700,000) shares of the
Company's Common Stock; provided, however, that
such aggregate number of shares shall be reduced to
reflect the number of shares of the Company's
<PAGE>
Common Stock that have been sold pursuant to, or
may be sold pursuant to outstanding options granted
under, the Company's 1986 Incentive Stock Option
Plan to the same extent as if such sales had been
made or options had been granted pursuant to this
Plan. If any option granted under the Plan shall
for any reason expire or otherwise terminate
without having been exercised in full, the stock
not purchased under such option shall again become
available for the Plan."
FURTHER
RESOLVED: That, subject to stockholder approval, Section 4 of
-------- each of the Company's 1986 Incentive Stock Option
Plan and 1986 Supplemental Stock Option Plan be
amended by adding the following to the last
subsection of each such Section;
"Notwithstanding any provision of the Plan to the
contrary and subject to adjustment as provided in
Section 9, from and after December 13, 1994, the
maximum number of shares with respect to which
options may be granted to any employee under the
Plan shall not exceed 500,000 in any given calendar
year."
-2-
<PAGE>
SEQUOIA SYSTEMS, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
1. Purposes.
--------
The 1993 Employee Stock Purchase Plan of Sequoia Systems,
Inc. (the "Plan") is intended to provide a method for employees of
Sequoia Systems, Inc. and its Subsidiary Corporations (as defined
below) (hereinafter collectively referred to, unless the context
otherwise requires, as the "Company") to acquire an ownership
interest in the Company through the purchase of shares of the
common stock of the Company (the "Common Stock"). It is the
intention of the Company to have the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"). Accordingly, the Plan
shall be construed so as to extend and limit participation in a
manner consistent with the requirements of such Section 423.
2. Definitions.
-----------
(a) "Employee" means any person who is customarily
employed by the Company for 20 or more hours per week.
(b) "Monetary Compensation" means an Employee's regular
base pay (as the same may be adjusted from time to time),
including shift differentials, plus overtime, commissions and
other special cash payments to such Employee during an Offering
Period (as defined below).
(c) "Offering" or "Offerings" means the offering(s) of
shares of Common Stock to Employees of the Company pursuant to
this Plan.
(d) "Offering Commencement Date" means the date on
which an Offering under the Plan commences pursuant to
Paragraph 4.
(e) "Offering Termination Date" means the date on which
an Offering under the Plan terminates pursuant to Paragraph 4.
(f) "Offering Period" means, with respect to each
Offering under the Plan, the period of time beginning on the
applicable Offering Commencement Date and ending on the applicable
Offering Termination Date.
-1-
<PAGE>
(g) "Subsidiary Corporation" means any present or
future corporation which (i) is a "subsidiary corporation" as that
term is defined in Section 424 of the Code and (ii) is designated
as a participant in the Plan by the Board of Directors or by the
Committee described in Paragraph 13.
3. Eligibility.
-----------
(a) Any Employee who shall have completed two weeks of
employment and who shall be employed by the Company on an Offering
Commencement Date shall be eligible to participate in the
applicable Offering under the Plan.
(b) Any provision of the Plan to the contrary
notwithstanding, no Employee shall be granted an option to
participate in the Plan:
(i) if, immediately after the grant, such Employee
would own stock, and/or hold outstanding options to
purchase stock, possessing 5% or more of the total
combined voting power or value of all classes of stock
of the Company or of any Subsidiary Corporation (for
purposes of this Paragraph the rules of Section 424(d)
of the Code shall apply in determining stock ownership
of any Employee); or
(ii) which permits his or her rights to purchase
stock of the Company or of any Subsidiary Corporation to
accrue at a rate which exceeds $25,000 of the fair
market value of such stock (determined at the time such
option is granted) for any one calender year.
4. Offering Dates.
--------------
The Plan will be implemented by four semi-annual Offerings of
an aggregate of 62,500 shares (subject to adjustment as provided
in Paragraphs 12(a) and 17) each of the Common Stock, as follows:
(i) the first Offering shall commence on July 1,
1993 and shall terminate on December 31, 1993;
(ii) the second Offering shall commence on
January 1, 1994 and shall terminate on
June 30, 1994;
(iii) the third offering shall commence on July 1,
1994 and shall terminate on December 31, 1994;
and
(iv) the fourth Offering shall commence on
January 1, 1995 and terminate on June 30,
1995.
-2-
<PAGE>
5. Participation.
-------------
All eligible Employees will become participants in an
Offering on the applicable Offering Commencement Date. Payroll
deductions for a participant shall commence on the Offering
Commencement Date applicable to the Offering (or as soon
thereafter as may be determined by the Company in its discretion)
and shall end on the Offering Termination Date applicable to such
Offering, unless sooner terminated pursuant to Paragraph 10.
6. Payroll Deductions.
------------------
(a) Participants may elect to have amounts withheld
from Monetary Compensation by completing an authorization for a
payroll deduction (an "Authorization") on the form provided by the
Company and delivering it to the Company. At the time a
participant files his or her Authorization for a payroll
deduction, the participant shall elect to have deductions made
from his or her pay on each payday during the time he or she is a
participant in an Offering at the rate of 0, 1, 2, 3, 4, 5, or 6%,
of his or her Monetary Compensation. The aggregate amount of a
participant's payroll deductions for any Offering Period is
referred to herein as the "Authorized Deduction." An
Authorization filed with respect to any Offering shall also be
deemed to be an Authorization with respect to any subsequent
Offering; provided, that (i) the participant may amend his or her
Authorization with respect to any subsequent Offering by filing a
new Authorization at least seven days prior to the Offering
Commencement Date of such subsequent Offering, and (ii) the
participant may withdraw his or her payroll deductions from the
Plan at any time pursuant to Section 8(b). If a participant has
not filed an Authorization with respect to an Offering (including
an Authorization deemed to apply to any Offering pursuant to the
preceding sentence) on or before the date(s) specified by the
Company, he or she shall be deemed to have filed an Authorization
election to withhold 0% of any Monetary Compensation.
(b) All payroll deductions made for a participant shall
be credited to his or her account under the Plan. Except as
provided in Section 6(d), a participant may not make any separate
cash payment into such account.
(c) Except as provided in Paragraph 8(b) or
Paragraph 10, a participant may not make changes to the rate of
deductions from his or her Monetary Compensation during an
Offering Period.
(d) Notwithstanding the foregoing, the Company may
permit and/or require participants who are not residents of the
United States to make one or more lump-sum contributions to the
Plan in lieu of contributions through payroll deductions, such
-3-
<PAGE>
number of contributions and the manner of making such
contributions required of any such participant shall be determined
by the Committee (as defined in Section 13 hereof) or such other
officer of the Company as the Committee shall designate. No such
employee shall participate in the Plan, however, unless such
employee shall have filed an Authorization on or before the date
on which other employees must file Authorizations. Any lump-sum
contributions shall be treated as payroll deductions for all
purposes under the Plan.
7. Granting of Options.
-------------------
(a) With respect to each Offering, a participating
Employee shall be deemed to have been granted, on the applicable
Offering Commencement Date, an option (the "Option") to purchase a
maximum number of shares of Common Stock determined as follows:
85% of the market value of a share of Common Stock on such
Offering Commencement Date shall be divided into an amount equal
to 6% of such Employee's Monetary Compensation for the period of
such Offering, provided that in no event shall an Employee be
granted an Option to purchase more than 500 shares of Common Stock
with respect to each Offering. The market value of the Common
Stock shall be determined as provided in paragraph (b) below.
(b) With respect to each Offering, the purchase price
of a share of Common Stock purchased with the Authorized Deduction
(the "Option Exercise Price") shall be the lower of:
(i) 85% of the composite closing price of the
Common Stock on the over the counter market as reported
by NASDAQ in "The Wall Street Journal" on the Offering
Commencement Date applicable to such Offering (or on the
next regular business day on which shares of the Common
Stock shall be traded in the event that no such shares
shall have been traded on the Offering Commencement
Date); or
(ii) 85% of the composite closing price of the
Common Stock on the over the counter market as reported
by NASDAQ in "The Wall Street Journal" on the Offering
Termination Date applicable to such Offering (or on the
next regular business day on which shares of the Common
Stock shall be traded in the event that no such shares
shall have been traded on the Offering Termination
Date).
8. Exercise of Options.
-------------------
With respect to each Offering during the term of the Plan:
(a) Unless a participant gives written notice of
withdrawal to the Company as provided in Paragraph 10, his or her
-4-
<PAGE>
Option will be deemed to have been exercised automatically on the
Offering Termination Date applicable to such Offering for the
purchase of the number of whole shares of Common Stock which the
Authorized Deduction in his or her account on such date will
purchase at the applicable Option Exercise Price (but not in
excess of the number of shares for which an Option has been
granted the employee pursuant to Paragraph 7(a)). No fractional
shares will be issued. Any excess in such participant's account
on such date will either, (i) to the extent it is attributable to
amounts that would have purchased fractional shares only, with the
consent of such participant (and with the consent of the Company,
which may be withheld in its sole discretion), remain in such
participant's account under the Plan or under a successor plan, if
any, or (ii) be returned to him or her; provided that any excess
returned will not be credited with any interest.
(b) By written notice to the Company at any time prior
to the applicable Offering Termination Date, a participant may
elect to withdraw all (but not less than all) of the accumulated
payroll deductions in his or her account at such time.
9. Delivery of Share Certificates.
------------------------------
As promptly as practicable after the Offering Termination
Date with respect to each Offering, the Company will deliver to
each participant, as appropriate, a certificate or certificates
representing the shares of Common Stock purchased upon the
exercise of such participant's Option.
10. Withdrawal.
----------
(a) As indicated in Paragraph 8(b), a participant may
withdraw payroll deductions credited to his or her account at any
time prior to the applicable Offering Termination Date by giving
written notice of withdrawal to the Company. All of the
participant's payroll deductions credited to his or her account
will be paid to the participant promptly after receipt of such
notice of withdrawal, and no further payroll deductions will be
made with respect to such participant during such Offering. The
Company may, at its option, treat any attempt by an employee to
borrow on the security of accumulated payroll deductions as an
election to withdraw such deductions.
(b) A participant's withdrawal from any Offering will
not have any effect upon his or her eligibility to participate in
any succeeding Offering or in any similar plan which may hereafter
be adopted by the Company; provided, however, that an Employee who
is subject to Section 16 of the Securities Exchange Act of 1934,
as amended, who withdraws his or her payroll deductions prior to
the end of an Offering Period may not participant in the Plan or
in any similar successor plan for a period of at least six months
from the date of such withdrawal.
-5-
<PAGE>
(c) Upon termination of the participant's employment
for any reason, including retirement but excluding death or
disability while in the employ of the Company, the payroll
deductions credited to his or her account will be returned to the
participant or, in the case of his or her death subsequent to the
termination of employment, to the person or persons entitled
thereto under Paragraph 14.
(d) Upon termination of the participant's employment
because of death or disability, the participant or his or her
beneficiary (as defined in Paragraph 14) shall have the right to
elect, by written notice given to the Company prior to the
expiration of the period of 30 days commencing with the date of
the death or disability of the participant, either:
(i) to withdraw all of the payroll deductions
credited to the participant's account under the Plan; or
(ii) to exercise the participant's option for the
purchase of Common Stock on the Offering Termination
Date next following the date of the participant's death
or disability for the purchase of the number of full
shares of Common Stock which the accumulated payroll
deductions in the participant's account at the date of
the participant's death or disability will purchase at
the applicable Option Exercise Price, and any excess in
such account will be returned to the participant or said
beneficiary.
In the event that no such written notice of election shall be
duly received by the Company, the participant or beneficiary shall
automatically be deemed to have elected to withdraw the payroll
deductions credited to the participant's account at the date of
the participant's death or disability, and the same will be paid
promptly to the participant or said beneficiary.
11. Interest.
--------
No interest will be paid or allowed on any money paid into
the Plan or credited to the account of any participant employee
except as specifically set forth in this Plan.
12. Stock.
-----
(a) The maximum number of shares of Common Stock which
shall be made available for sale under the Plan during any
Offering under the Plan shall be 62,500 shares, subject in each
case to adjustment upon changes in capitalization of the Company
as provided in Paragraph 17. If the total number of shares for
which Options are exercised on any Offering Termination Date in
accordance with Paragraph 8 exceeds 62,500, the Company shall make
-6-
<PAGE>
a pro rata allocation of the shares available for delivery and
distribution in as nearly a uniform manner as shall be practicable
and as it shall determine to be equitable, and the balance of
payroll deductions credited to the account of each participant
under the Plan shall be returned to him or her as promptly as
possible. If fewer than 62,500 shares are purchased during any
given Offering under the Plan, the amount not purchased may be
carried over to and made available during the next and other
subsequent Offerings under the Plan.
(b) No participant will have any interest in Common
Stock covered by his or her Option until such Option has been
exercised.
(c) The Common Stock to be delivered to a participant
under the Plan will be registered in the name of the participant,
or, if the participant so directs, by written notice to the
Company prior to the Offering Termination Date applicable thereto,
in the names of the participant and one such other person as may
be designated by the participant, as joint tenants with rights of
survivorship, to the extent permitted by applicable law.
(d) The Board of Directors of the Company may, in its
discretion, require as conditions to the Exercise of any Option
that the shares of Common Stock reserved for issuance upon the
exercise of the Option shall have been duly listed, upon official
notice of issuance, on the over the counter market as reported by
NASDAQ, and that either:
(i) a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), with
respect to said shares shall be effective; or
(ii) the Company shall have received the opinion of
counsel acceptable to the Company to the effect that the
issuance of such shares is exempt from all registration
requirements under the Securities Act.
13. Administration.
--------------
The Plan shall be administered by the Compensation Committee
(the "Committee") appointed by the Board of Directors of the
Company. The officer of the Company charged by the Committee with
day-to-day administration of the Plan shall, for matters involving
the Plan, be an ex officio member of the Committee. The
interpretation and construction of any provision of the Plan and
the adoption of all rules and regulations for administering the
Plan shall be made by the Committee; provided, however, that any
such interpretation, rule or regulation adopted by the Committee
may be subsequently altered, amended or repealed by the Committee
or the Board of Directors. All such interpretations, rules and
regulations made by the Committee and approved by the Board of
-7-
<PAGE>
Directors with respect to any matter or provision contained in the
Plan shall be final, conclusive and binding upon the Company and
upon all participants, their heirs or legal representatives. The
Company shall indemnify Committee members, to the fullest extent
permitted by applicable statute, for any expenses incurred in
defending a civil or criminal action or proceeding arising out of
such member's actions with respect to the administration of the
Plan, in advance of the final disposition of such action or
proceeding, upon receipt of an undertaking by the member
indemnified to repay such payment if such member shall be
adjudicated not to have, acted in good faith in the reasonable
belief that such members actions were in the best interests of the
Company.
14. Designation of Beneficiary.
--------------------------
A participant may file a written designation of a beneficiary
who is to receive any shares of Common Stock and/or cash in the
event of the death of the participant prior to the delivery of
such shares or cash to the participant. Such designation of
beneficiary may be changed by the participant at any time by
written notice to the Company. Within 30 days after the
participant's death, the beneficiary may, as provided in Paragraph
l0(d), elect to exercise the participant's Option when it becomes
exercisable on the Offering Termination Date of the then current
Offering. Upon the death of a participant and upon receipt by the
Company of proof of the identity and existence at the
participant's death of a beneficiary validly designated by the
participant under the Plan, and notice of election of the
beneficiary to exercise the Option, the Company shall deliver such
stock and/or cash to such beneficiary. In the event of the death
of a participant and in the absence of a beneficiary validly
designated under the Plan designated under the Plan who is living
at the time of such participant's death, the Company shall deliver
such stock and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator
has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such stock and/or cash to the
spouse or to any one or more dependents of the participant as the
Company may designate. No beneficiary shall prior to the death of
the participant by whom he has been designated acquire any
interest in the stock or cash credited to the participant under
the Plan.
15. Transferability.
---------------
Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an Option or
to receive stock under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way by the participant
-8-
<PAGE>
otherwise than by will or the laws of descent and distribution.
Any such attempted assignment, transfer, pledge, or other
disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with
Paragraph 8(b).
16. Use of Funds.
------------
All payroll deductions received or held by the Company under
this Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll
deductions.
17. Effect of Changes of Common Stock.
---------------------------------
In the event of any changes of outstanding shares of the
Common Stock by reason of stock dividends, subdivisions,
combinations and the like, the aggregate number and class of
shares available under this Plan and the Option Exercise Price per
share shall be appropriately adjusted by the Board of Directors of
the Company, whose determination shall be conclusive. Any such
adjustments may provide for the elimination of any fractional
shares which would otherwise become subject to any Option.
18. Amendment or Termination.
------------------------
The Board of Directors of the Company may at any time
terminate or amend the Plan. Except as hereinafter provided,
however, no such termination may affect Options previously
granted, and no such amendment may make any change in any Option
previously granted which would adversely affect the rights of any
participant. In addition, no amendment may be made without prior
approval of the stockholders of the Company if such amendment
would (a) materially increase the benefits accruing to
participants under the Plan or (b) materially modify the
requirements as to eligibility for participation under the Plan.
19. Notices.
-------
All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to
have been duly given when received by the Company's Human
Resources Department.
20. Merger or Consolidation.
-----------------------
If the Company shall at any time merge into or consolidate
with another corporation and the Company is the surviving entity,
the holder of each Option then outstanding will thereafter be
entitled to receive at the next Offering Termination Date upon the
exercise of such Option for each share as to which such Option
shall be exercised the securities or property to which a holder of
-9-
<PAGE>
one share of the Common Stock was entitled upon and at the time of
such merger or consolidation, and the Board of Directors of the
Company shall take such steps in connection with such merger or
consolidation as the Board of Directors shall deem necessary to
assure that the provisions of Paragraph 17 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the
said securities or property as to which such holder of such Option
might thereafter be entitled to receive thereunder. In the event
of a merger or consolidation in which the Company is not the
surviving entity, or of a sale of all or substantially all of the
assets of the Company, the Plan shall terminate, and all payroll
deductions credited to participants' accounts shall be returned to
them.
21. Approval of Stockholders.
------------------------
The Plan has been adopted by the Board of Directors of the
Company, but shall be void and of no effect unless it is approved
by the stockholders of the Company at the 1993 annual meeting.
22. Registration and Qualification of the Plan Under
------------------------------------------------
Applicable Securities Laws.
--------------------------
No Option shall be granted under the Plan until such time as
the Company has qualified or registered the shares which are
subject to the Options under the applicable state and federal
securities laws to the extent required by such laws.
APPROVED BY THE BOARD OF DIRECTORS ON JUNE 11,
1993.
APPROVED BY THE STOCKHOLDERS ON JANUARY 28, 1994.
-10-
<PAGE>
SEQUOIA SYSTEMS, INC.
Amendment to 1993 Employee Stock Purchase Plan
(Resolutions Adopted by the Board of Directors on
December 13, 1994 and Approved by the Stockholders
on March 29, 1995)
RESOLVED: That, subject to stockholder approval, Section 4 of
-------- the Company's 1993 Employee Stock Purchase Plan be
amended to read in its entirety as follows:
"4. Offering Dates.
--------------
The Plan will be implemented by:
(I) four (4) semi-annual offerings of an aggregate
of 62,500 shares (subject to adjustment as provided
in paragraphs 12(a) and 17) each of the Company's
Common Stock as follows:
(i) the first Offering shall commence on
July 1, 1993 and shall terminate on
December 31, 1993;
(ii) the second Offering shall commence on
January 1, 1994 and shall terminate on
June 30, 1994;
(iii) the third Offering shall commence on
July 1, 1994 and shall terminate on
December 31, 1994; and
(iv) the fourth Offering shall commence on
January 1, 1995 and shall terminate on
June 30, 1995 and
(II) four (4) semi-annual offerings of an aggregate
of 125,000 shares (subject to adjustment as
provided in paragraphs 12(a) and 17) each of the
Company's Common Stock as follows:
(v) the fifth Offering shall commence on
July 1, 1995 and shall terminate on
December 31, 1995;
(vi) the sixth Offering shall commence on
January 1, 1996 and shall terminate on
June 30, 1996;
<PAGE>
(vii) the seventh Offering shall commence on
July 1, 1996 and shall terminate on
December 31, 1996; and
(viii) the eighth Offering shall commence on
January 1, 1997 and shall terminate on
June 30, 1997."
-2-
<PAGE>
SEQUOIA SYSTEMS, INC.
1995 OUTSIDE DIRECTORS' STOCK OPTION PLAN
-----------------------------------------
1. Purpose.
-------
The purpose of this 1995 Outside Directors' Stock Option Plan
(the "Plan") of Sequoia Systems, Inc. (the "Company") is to
encourage stock ownership in the Company by outside directors of
the Company whose continued services are considered essential to
the Company's future success and to provide them with a further
incentive to remain as directors of the Company.
2. Administration.
--------------
The Board of Directors of Sequoia Systems (the "Board") shall
supervise and administer the Plan. Grants of stock options under
the Plan and the amount and nature of the options to be granted
shall be automatic in accordance with Section 5. However, all
questions concerning interpretation of the Plan or any options
granted under it shall be resolved by the Board and such
resolution shall be final and binding upon all persons having an
interest in the Plan.
3. Participation in the Plan.
-------------------------
Directors of the Company who are not employees of the Company
or any subsidiary of the Company ("outside directors") shall be
eligible to receive options under the Plan.
4. Stock Subject to the Plan.
-------------------------
(a) The maximum number of shares of the Company's Common
Stock, par value $.40 per share ("Common Stock"), which may be
issued under the Plan shall be 150,000 shares, subject to
adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason
expires or is terminated without having been exercised in full,
the shares covered by the unexercised portion of such option shall
again become available for issuance pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory
options not under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
<PAGE>
5. Terms, Conditions and Form of Options.
-------------------------------------
Each option granted under the Plan shall be evidenced by a
written agreement in such form as the Chairman of the Board of
Directors shall from time to time approve, which agreement shall
comply with and be subject to the following terms and conditions:
(a) Option Grant Dates and Shares Subject to Option.
-----------------------------------------------
(i) Initial Grants. A fully vested option to purchase
--------------
12,000 shares of Common Stock shall be granted automatically to
each person who becomes an outside director of the Company after
the date of the Board's adoption of the Plan.
(ii) Subsequent Grants. A fully vested option to
-----------------
purchase 2,500 shares of the Common Stock shall be granted
automatically to each outside director on each July 1 from July 1,
1995 through and including July 1, 1999, provided, that he or she
is an eligible director on the date of grant of such option.
(b) Option Exercise Price. The option exercise price per
---------------------
share for each option granted under the Plan shall be equal to the
fair market value per share of Common Stock on the date of grant,
which shall be determined as follows: (i) if the Common Stock is
listed on the Nasdaq National Market or another nationally
recognized exchange or trading system as of the date on which a
determination of fair market value is to be made, the fair market
value per share shall be deemed to be the last reported sale price
per share of Common Stock thereon on such date (or, if no such
price is reported on such date, such price on the nearest
preceding date on which such a price is reported); and (ii) if the
Common Stock is not listed on the Nasdaq National Market or
another nationally recognized exchange or trading system as of the
date on which a determination of fair market value is to be made,
the fair market value per share shall be deemed to be the book
value per share of the Common Stock as of the end of the most
recent fiscal quarter preceding such date.
(c) Options Non-Transferable. Each option granted under the
------------------------
Plan by its terms shall not be transferable by the optionee
otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order (as defined in
the Code), and shall be exercised during the lifetime of the
optionee only by the optionee or his or her legal representative.
No option or interest therein may be transferred, assigned,
pledged or hypothecated by the optionee during his or her
-2-
<PAGE>
lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
(d) Exercise Period. Each option may be exercised at any
---------------
time and from time to time, in whole or in part, prior to the
tenth anniversary of the date of grant, except that no option may
be exercised more than six months after the optionee ceases to
serve as a director of the Company.
(e) Termination. Each option shall terminate, and may no
-----------
longer be exercised, on the earlier of (i) the date 10 years after
the date of grant or (ii) the date one year after the optionee
ceases to serve as a director of the Company for any reason,
whether by death, resignation, removal or otherwise.
(f) Exercise Procedure. An option may be exercised only by
------------------
written notice to the Company at its principal office accompanied
by payment in cash of the full consideration for the shares as to
which the option is exercised.
(g) Exercise by Representative Following Death of Director.
------------------------------------------------------
An optionee, by written notice to the Company, may designate one
or more persons (and from time to time change such designation),
including his or her legal representative, who, by reason of the
optionee's death, shall acquire the right to exercise all or a
portion of the option. If the person or persons so designated
wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a
representative shall be subject to the provisions of the Plan.
6. Limitation of Rights.
--------------------
(a) No Right to Continue as a Director. Neither the Plan,
----------------------------------
nor the granting of an option nor any other action taken pursuant
to the Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the optionee shall be
entitled to continue as a director for any period of time.
(b) No Stockholder Rights for Options. An optionee shall
---------------------------------
have no rights as a stockholder with respect to the shares covered
by his or her option until the date of the issuance to him or her
of a stock certificate therefor, and no adjustment will be made
for dividends or other rights (except as provided in Section 7)
for which the record date is prior to the date such certificate is
issued.
-3-
<PAGE>
7. Adjustment Provisions for Mergers, Recapitalizations and
--------------------------------------------------------
Related Transactions.
--------------------
If, through or as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar
transaction, (i) the outstanding shares of Common Stock are
exchanged for a different number or kind of securities of the
Company or of another entity, or (ii) additional shares or new or
different shares or other securities of the Company or of another
entity are distributed with respect to such shares of Common
Stock, the Board shall make an appropriate and proportionate
adjustment in (x) the maximum number and kind of shares reserved
for issuance under the Plan, (y) the number and kind of shares or
other securities subject to then outstanding options under the
Plan, and/or (z) the price for each share subject to any then
outstanding options under the Plan (without changing the aggregate
purchase price for such options), to the end that each option
shall be exercisable, for the same aggregate exercise price, for
such securities as such optionholder would have held immediately
following such event if he or she had exercised such option
immediately prior to such event. No fractional shares will be
issued under the Plan on account of any such adjustments.
8. Modification, Extension and Renewal of Options.
----------------------------------------------
The Board shall have the power to modify or amend outstanding
options; provided, however, that no modification or amendment may
(i) have the effect of altering or impairing any rights or
obligations of any option previously granted without the consent
of the optionee, or (ii) modify the number of shares of Common
Stock subject to the option (except as provided in Section 7).
9. Termination and Amendment of the Plan.
-------------------------------------
The Board may suspend, terminate or discontinue the Plan or
amend it in any respect whatsoever; provided, however, that
without approval of the stockholders of the Company, no amendment
may (i) increase the number of shares subject to the Plan (except
as provided in Section 7), (ii) materially modify the requirements
as to eligibility to receive options under the Plan, or
(iii) materially increase the benefits accruing to participants in
the Plan; and provided further that the Board may not amend the
provisions of Sections 3 or 5, insofar as they relate to the
amount, price and timing of options to be granted hereunder, more
frequently than once every six months, other than to comply with
changes in the Code or the rules thereunder.
-4-
<PAGE>
10. Notice.
------
Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Treasurer of the
Company and shall become effective when it is received.
11. Governing Law.
-------------
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the Commonwealth
of Massachusetts.
12. Stockholder Approval.
--------------------
The Plan is conditional upon approval by the Company's
stockholders of the Plan within one year from its date of adoption
by the Board. No option under the Plan may be exercised until
such stockholder approval is obtained, and the Plan and all
options granted under the Plan shall be null and void if the Plan
is not so approved by the Company's stockholders.
As adopted by the Board on
December 13, 1994.
Approved by the Stockholders on
March 29, 1995.
-5-
<PAGE>
EXHIBIT 10.26
PICK 64 PURCHASE AGREEMENT
BETWEEN
ALPHA MICROSYSTEMS, INC.
AND
SEQUOIA SYSTEMS, INC.
AGREEMENT made this 24th day of March 1995 by and between Alpha Microsystems,
----
Inc. of 3511 Sunflower, Santa Ana, California 92704 ("Seller") and Sequoia
Systems, Inc. of 400 Nickerson Road, Marlborough, Massachusetts 01752 ("Buyer").
Recitals
--------
A. Seller is the developer of and owns all right, title and interest in a
derivative work of Pick Systems' Pick operating system/database software (the
"Pick Database"), which derivative work is known as Pick 64, as more fully
defined in Paragraph 1(a), and licenses such derivative work to others as part
of its customary business;
B. Seller desires to sell and Buyer desires to acquire the right to reproduce
and license Pick 64 to others, all on the terms and conditions recited herein.
Agreements
----------
1. Purchase and Sale
-----------------
Subject to and upon the terms and conditions of this Agreement, Seller
shall sell and deliver to Buyer at Closing, and Buyer shall purchase from Seller
all of Seller's right, title and interest, including the right to reproduce and
license to others, in:
<PAGE>
(a) Seller's derivative work, known as Pick 64, of the Pick Database, and
all revisions thereof, as it is more particularly described in Exhibit A hereto,
including all source code and all copies thereof (collectively, "Pick 64");
(b) all of its inventions, discoveries, technology, design specifications,
databases and know-how related to Pick 64;
(c) all U.S. and foreign patents, copyrights, design rights, trademarks and
any registrations or applications therefor related to Pick 64 and all rights to
secure renewals, reissuances and extensions of the foregoing;
(d) all of its trade secrets and confidential or proprietary information
related to Pick 64;
(e) the information contained in Exhibit B hereto;
(f) the three computer systems and associated equipment and documentation
listed in Exhibit C hereto.
2. Purchase Price and Closing
--------------------------
The purchase price to be paid to Seller by Buyer hereunder shall be
comprised of a guaranteed portion, as described in (a), below, and a second
portion, payment of which is contingent upon the occurrence of certain events,
as described in (b), below.
(a) Subject to the conditions specified herein, at the Closing, Buyer shall
deliver to Seller by wire transfer the sum of $100,000. Thereafter, Buyer shall
deliver to Seller in immediately available funds five payments of $40,000 each,
to be made within five business days of each of the following dates:
2
<PAGE>
June 30, 1995, September 30, 1995, December 31, 1995, March 31, 1996 and June
30, 1996.
(b) Buyer shall make further payments to Seller based on the number of
Process Identification Blocks ("PIBs") of Pick 64 that Buyer licenses to third
parties during the period commencing as of the date of this Agreement and ending
eighteen (18) months after Buyer's first customer shipment of Pick 64 as part of
a Buyer computer system, as follows: No payments will be made in respect of the
initial 3,000 PIBs so licensed; however, Buyer shall pay Seller $100 for each
PIB it so licenses thereafter to a maximum of 4,000 PIBs licensed subsequent to
such initial 3,000 PIBS. Payments under this Paragraph 2(b) shall in no event
exceed $400,000, and no payments shall be due in respect of any PIBs licensed by
Buyer after the expiration of the 18-month period described above.
(c) Payments due Seller under (b), above, shall be made within fifteen
business days after the end of each calendar quarter for each qualifying PIB
licensed by Buyer during such quarter.
(d) Closing shall take place on or before March 24, 1995 at Buyer's
offices, unless otherwise agreed ("Closing"); the actual date of Closing is
referred to herein as the "Closing Date". At the time of Closing, Seller shall
ship to Buyer's Marlborough, Massachusetts office the master media containing
Pick 64 and shall deliver to Buyer all physical, printed and electronic copies,
executable object code versions, source code, simulations, program listings,
system documentation, manuals, software diagnosis reports, engineering
notebooks, flow charts, programmer notes, development and maintenance records,
bug-fixes,
3
<PAGE>
updates, revisions, releases, marketing materials, and the like related to
Pick 64, title to all of which shall pass to Buyer.
3. Reports and Audit Rights
------------------------
(a) Buyer shall keep complete and accurate records of all Pick 64 licensing
activity relevant to the determination of payments required to be made to Seller
under Paragraph 2 hereof and within fifteen business days after the end of each
calendar quarter shall provide Seller a reasonably detailed written report of
such activity during such quarter together with the calculation of such
payments. Such record-keeping and reporting obligation shall expire after Buyer
makes the required report for the last quarter of the 18-month period described
in Paragraph 2(b).
(b) Seller may at its expense inspect Buyer's records of Pick 64 licensing
activity at anytime during normal business hours upon at least 72 hours prior
notice solely for the purpose of verifying the accuracy of the payments required
of Buyer pursuant to Paragraph 2(b). Such inspections may be made not more than
twice prior to the expiration of the 18-month period referred to above and once,
within six months, thereafter. All information obtained during such inspection
shall be considered Information subject to the Non-Disclosure Agreement dated,
December 21, 1995 between Seller and Buyer. Should such audit disclose any
underpayment in excess of $500.00, Buyer shall reimburse Seller its reasonable
costs of conducting such audit.
4. Seller's Agreements with Others
-------------------------------
Except as specifically provided herein, Buyer shall not acquire by
purchase, assignment, transfer or otherwise any
4
<PAGE>
contracts, licenses, leases or other agreements, written or oral, express or
implied, executory or completed, or any rights, liabilities or obligations
thereunder, between Seller and any other party or person.
5. Non-Assumption of Liabilities
-----------------------------
Buyer shall not assume or agree to perform, pay or discharge, and Seller
shall remain unconditionally liable for, all obligations, liabilities and
commitments, fixed or contingent, known or unknown, of Seller or its employees,
officers of directors related to Pick 64 or otherwise.
6. Training
--------
Seller agrees to provide without charge to Buyer, on a schedule to be
agreed upon, fourteen days of training at Seller's Santa Ana, California office
for each of six Buyer employees in the structure, operation and maintenance of
Pick 64, such training to be conducted by experienced Seller personnel
knowledgeable in the subject matter.
7. [Deleted]
8. Buyer's Due Diligence
---------------------
Seller will permit Buyer to conduct a thorough due diligence investigation
of Seller's business as it relates to Pick 64 and will cooperate with Buyer in
giving Buyer access to Seller's engineering, technical, maintenance, sales and
marketing, accounting and executive employees who are most knowledgeable about
Pick 64 and Seller's Pick 64 business. Seller will also cooperate with Buyer in
arranging meetings between Buyer and a
5
<PAGE>
reasonable number of Pick 64 customers selected by Buyer for purposes of
evaluating user experiences with Pick 64.
9. Pick Systems License Agreement
------------------------------
Buyer will cooperate with Seller in obtaining the consent of Pick Systems,
Inc. to permit Buyer to license and sublicense Pick 64 to others under the terms
of Buyer's existing Pick Systems-Open Architecture License Agreement.
10. Seller's Representations
------------------------
Seller represents and warrants to Buyer that the statements contained in
this Paragraph are true and correct:
(a) Organization. Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of California and has
requisite power and authority to use, maintain and license Pick 64 to others,
subject to the terms of Seller's Open Architecture License Agreement with Pick
Systems dated December 9, 1986 (the "Pick License"), to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
(b) Authorization. The execution and delivery of this Agreement and the
-------------
consummation by Seller of the transactions contemplated hereby have been duly
authorized by all necessary corporate action. This Agreement constitutes the
valid and legally binding obligation of Seller, enforceable in accordance with
its terms.
6
<PAGE>
(c) Noncontravention. The execution and delivery of this Agreement will
----------------
not (i) conflict with or violate Seller's charter or bylaws, (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver (except the consent of Seller's primary
lender which Seller shall use commercially reasonable efforts to obtain) under,
any contract, license, sublicense, security interest, agreement or other
arrangement to which Seller is bound or is a party and which relates to Pick 64
(excepting the Pick License), (iii) result in the imposition of any security
interest upon Pick 64, (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller.
(d) Rights in Pick 64. Except to the extent that Pick 64 is a derivative
-----------------
work of the Pick Database, owned by Pick Systems, Inc., Seller is, and at the
Closing will be, the sole true and lawful owner of Pick 64 and will have the
right to sell and transfer to Buyer good and clear title to Pick 64, free and
clear of all claims, liabilities, liens, pledges and encumbrances of any kind.
Upon the Closing, Buyer will have good and clear title to Pick 64, except to the
extent of the interest of Pick Systems in the underlying work noted in the prior
sentence, free and clear of all security interests, mortgages, pledges,
restrictions, prior assignments, encumbrances and claims of any kind whatsoever.
(e) Quality. To the best of Seller's knowledge, Pick 64 is free from
-------
material errors and defects and all computer viruses, code blocks and other
harmful code, does not require unreasonable levels of maintenance, support or
troubleshooting and will operate in all material respects in accordance with
Seller's
7
<PAGE>
published user documentation as set forth in Exhibit A. The documentation,
manuals and other materials listed in Paragraph 1(a) document in reasonable
detail all of the functions of, and relevant information related to the
operation, maintenance and support of, Pick 64 and are sufficient to enable a
person of reasonable skill in the field to understand the functionality and
operation of Pick 64 and to maintain and support it.
(f) Maintenance of Rights to Pick 64. Seller has taken reasonable
--------------------------------
measures consistent with industry practice to maintain its rights in and to Pick
64 and has not disclosed its source code or other confidential or proprietary
information constituting, embodied in or pertaining to Pick 64 to any person and
has taken reasonable measures to prevent such disclosure, other than disclosure
of such source code to employees and independent contractors of Seller pursuant
to binding nondisclosure agreements with such persons which are in full force
and effect. Seller has not distributed Pick 64 except pursuant to binding
license or sublicense agreements that remain in full force and effect. No
licensees of Seller have been permitted to distribute Pick 64, and no third
parties are permitted to use Pick 64, except pursuant to sublicense agreements,
a form of which has been provided to Buyer. To Seller's knowledge, no
unauthorized third parties are using Pick 64 for commercial purposes, are
distributing Pick 64 to others or are supporting or maintaining Pick 64 on a
commercial basis.
(g) Litigation. Seller is not a party to or threatened with, any
----------
litigation, suit, action, investigation, proceeding or controversy before any
court, administrative agency or other governmental authority relating in any way
to Pick 64.
8
<PAGE>
(h) Customers. Exhibit B, to be delivered at Closing, shall be a complete
---------
and accurate list of the names, addresses, any last known telephone numbers and
contact personnel of all parties known to Buyer who are currently, or who have
been at anytime in the previous five years, Pick 64 licensees or sublicensees.
(i) Disclosure. No representation or warranty by Seller herein contains
----------
any untrue statement of a material fact or omits any material fact necessary in
order to make the statements contained therein not misleading. Seller has not
knowingly failed to disclose any material fact relating to the transaction
contemplated by this Agreement.
11. Buyer's Representations
-----------------------
Buyer represents and warrants to Seller that the statements contained in
this Paragraph are true and correct:
(a) Organization. Buyer is a corporation duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware and has all
requisite power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby.
(b) Authorization. The execution and delivery of this Agreement and the
-------------
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all necessary corporate action. This Agreement constitutes the
valid and legally binding obligation of Buyer, enforceable in accordance with
its terms.
9
<PAGE>
(c) Noncontravention. The execution and delivery of this Agreement will
----------------
not (i) conflict with or violate Buyer's charter or bylaws or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Buyer.
12. Pre-Closing Covenants
---------------------
From the date hereof and until the Closing occurs:
(a) Public Announcements. Except as otherwise required by law, any public
--------------------
announcements regarding this Agreement or its subject matter shall be subject to
the prior written approval of both parties, which approval shall not be
unreasonably withheld or delayed. The parties agree to cooperate in the issuance
of a joint or separate press releases within three business days after Closing.
(b) Conduct of Business. Seller shall (i) continue to support and
-------------------
maintain Pick 64 in the ordinary course in accordance with its past practice and
shall preserve Seller's relationship with Pick 64 licensees, sublicensees and
others having business relationships with it, (ii) not pledge, mortgage or
encumber Pick 64 or subject it to any security interest and shall not sell,
transfer or license Pick 64, other than licenses in the ordinary course of
business, (iii) not take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in any of the Seller representations or warranties set forth herein
becoming untrue or any of the conditions set forth in Paragraph 14 not being
satisfied, or (iv) agree to take any of the foregoing actions.
10
<PAGE>
(c) Communications with Licensees and Sublicensees. Seller and Buyer will
----------------------------------------------
cooperate in communicating with Seller's licensees and sublicensees regarding
the sale of Pick 64 to Buyer.
(d) Continued Truth of Representation and Warranties. Neither party will
------------------------------------------------
take any actions that would result in any of its respective representations or
warranties set forth herein being untrue.
(e) Exclusive Dealing. Seller shall not solicit, initiate, or engage in
-----------------
discussions or negotiations with any other party concerning any sale or other
disposition of Pick 64, other than through licenses and sublicenses in the
ordinary course of business.
13. Satisfaction of Conditions
--------------------------
Buyer and Seller agree to use their best efforts to obtain satisfaction of
the conditions set forth in this Agreement.
14. Conditions to Buyer's Obligations
---------------------------------
Buyer's obligations hereunder are subject to the fulfillment, at the
Closing Date, of the following conditions:
(a) Continued Truth of Seller's Representation and Warranties; Compliance
---------------------------------------------------------------------
with Covenants and Obligations. Seller's representations and warranties shall
- ------------------------------
be true in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such date. Seller shall
have performed and complied in all material respects with all terms, conditions,
covenants, obligations and agreements
11
<PAGE>
required by this Agreement to be performed or complied with by it prior to or at
the Closing Date.
(b) Corporate Proceedings. All corporate and other proceedings required
---------------------
to be taken by Seller to authorize or carry out this Agreement and to convey
Seller's rights in Pick 64 to Buyer shall have been taken.
(c) Consents of Third Parties. Buyer and Seller shall have received all
-------------------------
requisite consents and approvals of third parties whose consent or approval is
required to consummate the transactions contemplated hereby, including, without
limitation, the agreement of Pick Systems, Inc., referred to in Paragraph 9, and
the consent of Seller's primary lender.
(d) Adverse Proceedings. No action or proceeding by or before any court
-------------------
or other governmental body shall have been instituted or threatened that shall
seek to restrain, prohibit or invalidate the transactions contemplated by this
Agreement or which might affect Buyer's right to use Pick 64 or to own the
rights to Pick 64 being conveyed hereby.
(e) Due Diligence. Buyer shall have completed its due diligence
-------------
investigation to its satisfaction.
(f) Closing Deliveries. Buyer shall have received at Closing (i) such
------------------
instruments of conveyance, assignment and transfer, in form and substance
reasonably satisfactory to Buyer, as shall be appropriate to convey, transfer
and assign to, and vest in, Buyer, good and clear title to Pick 64, (ii) such
certificates of Seller's officers evidencing satisfaction of the condition
specified in this Paragraph 14 as Buyer shall reasonably request, (iii)
certificates of Seller's Secretary
12
<PAGE>
attesting to the incumbency of Seller's officers and the authenticity of the
resolutions authorizing the transactions contemplated hereby, (iv) such other
certificates, instruments or documents as Buyer may reasonably request and (v)
Exhibit B.
15. Conditions to Seller's Obligations
----------------------------------
Seller's obligations hereunder are subject to the fulfillment, at the
Closing Date, of the following conditions:
(a) Continued Truth of Buyer's Representation and Warranties; Compliance
--------------------------------------------------------------------
with Covenants and Obligations. Buyer's representations and warranties shall be
- ------------------------------
true in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such date. Buyer shall
have performed and complied in all material respects with all terms, conditions,
covenants, obligations and agreements required by this Agreement to be performed
or complied with by it prior to or at the Closing Date.
(b) Corporate Proceedings. All corporate and other proceedings required
---------------------
to be taken by Buyer to authorize or carry out this Agreement shall have been
taken.
(c) Adverse Proceedings. No action or proceeding by or before any court
-------------------
or other governmental body shall have been instituted or threatened that shall
seek to restrain, prohibit or invalidate the transactions contemplated by this
Agreement.
(d) Closing Deliveries. Seller shall have received at Closing (i) such
------------------
certificates of Buyer's officers evidencing satisfaction of the condition
specified in this Paragraph 14 as Seller shall reasonably request, (ii)
certificates of Buyer's
13
<PAGE>
Secretary attesting to the incumbency of Buyer's officers, and (iii) such other
certificates, instruments or documents as Seller may reasonably request.
(e) Consents of Third Parties. Seller shall have obtained the consent of
-------------------------
its primary lender to the transaction contemplated hereby.
16. Indemnification
---------------
(a) By Seller and Buyer. Seller and Buyer each hereby indemnifies and
-------------------
holds harmless the other against all claims, damages, losses, liabilities, costs
and expenses reasonably and actually incurred by the other in connection with
(i) any breach by the indemnifying party of any covenant, agreement,
representation or warranty contained in this Agreement, (ii) any
misrepresentation contained in any certificate or other document furnished by
the indemnifying party pursuant to this Agreement.
(b) By Seller. Seller further agrees to indemnify and hold harmless Buyer
---------
against all claims, losses, liabilities, costs and expenses reasonably and
actually incurred by Buyer in connection with (i) any claims against, or
liabilities or obligations of, Seller or against Pick 64 that are not
specifically assumed by Buyer pursuant to this Agreement and (ii) any warranty
claim or product liability claim relating to any copy or copies of Pick 64
licensed or sublicensed by Seller prior to the Closing Date.
(c) By Buyer. Buyer further agrees to indemnify and hold Seller harmless
--------
against all claims, losses, liabilities, costs and expenses reasonably and
actually incurred by Seller in connection with any warranty claim or product
liability claim
14
<PAGE>
relating to any copy or copies of Pick 64 licensed or sublicensed by Buyer on or
after the Closing Date.
(d) Survival of Representations; Claims for Indemnification. All
-------------------------------------------------------
representations and warranties made by the parties herein shall survive the
Closing and any investigation made by or on behalf of the parties. All such
representations and warranties shall expire on the second anniversary of the
Closing Date, except for claims, if any, asserted in writing prior to such
second anniversary, which shall survive until finally resolved and satisfied in
full. All claims and actions for indemnity hereunder shall be asserted or
maintained in writing by a party hereto on or prior to the expiration of such
two-year period.
17. Noncompetition
--------------
Seller shall not for a period of five years following the Closing, without
the prior written consent of Buyer, design, produce, market, sell, distribute,
license, sublicense or permit any other party to use any software product that
is a derivative work of the Pick Database or whose origin relates to the Pick
operating system/database software or is otherwise related to the same. Nothing
herein, however, shall restrict Seller's right (a) to market systems which use
other unrelated operating systems or (b) to provide hardware services for or
maintain the hardware for Pick-based systems.
18. Support to Seller's Licensees. Buyer agrees to make its support services
-----------------------------
and other services relating to Pick 64 available to those licensees listed on
Exhibit B ("Seller's Licensees") substantially to the same extent and on
substantially the same terms as it makes support available to its own Pick 64
licensees,
15
<PAGE>
and to include Seller's Licensees on any of its general mailings to its own
Pick 64 licensees.
19. Termination
-----------
This Agreement shall terminate at midnight E.S.T. on March 31, 1995 if the
Closing has not by that date occurred, unless such date is extended by mutual
written agreement of the parties. This Agreement may be terminated by either
party if at anytime prior to Closing there shall occur a material breach of any
of the representations, warranties or covenants of the other party or the
failure by the other party to perform any condition or obligation hereunder.
Notwithstanding the foregoing, the following Paragraphs of this Agreement shall
survive any termination in accordance with their terms: 12(a) ("Public
Announcements"), 12(e) ("Exclusive Dealing"), 19 ("Termination") and 20
("General").
20. General
-------
(a) Notices. Any notices to be given hereunder shall be sufficiently given
-------
if delivered personally or sent by facsimile, overnight delivery service, or
registered or certified mail, postage prepaid, addressed as follows or to such
other address of which the parties may have given notice:
To Seller: Alpha Microsystems, Inc.
3511 West Sunflower Avenue
Santa Ana, CA 92704
Attention: President
16
<PAGE>
To Buyer: Sequoia Systems, Inc.
400 Nickerson Road
Marlborough, MA 01752
Attention: President
Such notices shall be deemed received (i) on the date delivered, if delivered
personally, (ii) upon receipt, if sent by facsimile or overnight delivery
service, or (iii) three business days after being sent by registered or
certified mail.
(b) Brokers. The parties each represent and warrant that each has not
-------
engaged any broker or finder or incurred any liability for brokerage fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement. Each party agrees to indemnify and hold harmless the other
against claims or liabilities asserted against it with respect to such fees or
commissions.
(c) Assignment. Neither party may assign this Agreement without the prior
----------
written consent of the other, which consent shall not be unreasonably withheld.
(d) Taxes. Notwithstanding any provisions of law imposing the burden of
-----
such taxes on Seller or Buyer, as the case may be, Buyer shall be responsible
for and shall pay all sales, use and transfer taxes, and all other governmental
charges, if any, upon the sale or transfer of Pick 64 to Buyer.
(e) Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties with respect to its subject matter and
supersedes all prior oral and written negotiations, commitments and
understandings between them. This
17
<PAGE>
Agreement may be amended only in writing signed by authorized representatives of
both parties.
(f) Governing Law. This Agreement is made in and shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Massachusetts,
without regard to its conflicts of laws principles.
(g) Severability. The invalidity or unenforceability of any provision
------------
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
SEQUOIA SYSTEMS, INC. ALPHA MICROSYSTEMS, INC.
By: /s/ SIGNATURE APPEARS HERE By: /s/ SIGNATURE APPEARS HERE
---------------------------- ----------------------------
Title: President and CEO Title: President and CEO
------------------------ ------------------------
18
<PAGE>
EXHIBIT A
---------
Alpha Microsystems, Inc. Pick 64+, Volumes I and II, including the following:
Volume I
--------
Pick 64+ User Guide
Pick 64+ 2.3 Release Note
Pick 64+ Quick Reference Booklet
Pick 64+ Q 2.3 G01 Release Note
Volume II
---------
Jet Word Users Guide
Pick 64+ Basic Reference Manual
Pick 64+ System Operators Guide
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0010938 A I R S, INC (404) 949-0133 ED STACKS 003
2175-A W. COUNTY LINE ROAD (404) 949-2773 FAX #
DOUGLASVILLE, GA 30135
USA PROFILE: AMS, DEALER
0031945 A K C (201) 476-0748 KOMET, ARNOLD 003
30 KINDERKAMACK ROAD (201) 476-9061 FAX #
WOODCLIFF LAKE, NJ 07675
USA PROFILE: AMS, SERV,
DEALER, ASSC-D
0010917 ABACUS DATA SYSTEMS (516) 487-3418 ETESSAMI, MEHRAN 003
P. O. BOX 4267
GREAT NECK, NY 11023
USA PROFILE: AMS, DEALER
SALES MEMOPAD: SHIPPING ADDRESS:
13 CATALINA DR.
KINGS POINT, NY 11024
0010937 ABRAXAS SYSTEMS (404) 948-3396 SUE A. CRANE 003
109 SHANE WAY (404) 739-4924 FAX #
MABLETON, GA 30059
USA PROFILE: AMS, DEALER, ASSC-D
SALES MEMOPAD: - 03/02/94 02:23 PD :
FORMERLY S A C ASSOCIATES
----
0091308 ACCESS SOFTWARE, INC. (305) 823-4249 LEONG, W. PAUL 003
6187 N.W. 167TH STREET, H-39 (305) 556-3047
MIAMI, FL 33015
USA PROFILE: AMS, DEALER
9210410 ACCOUNTING PLUS SYSTEMS, INC. (203) 677-5477 HANSHAW III, FRANK 003
101 WEST BROAD ST., SUITE 300 E1041
FALLS CHURCH, VA 22046
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: FORMERLY: ACCOUNTING
PLUS SYSTEMS
----
0031849 ACCURATE COMPUTER TECH. (714) 651-8845 PATEL, ANIL 001
P. O. BOX 4982 (714) 651-8489 FAX #
DIAMOND BAR, CA 91765
USA PROFILE: AMS, DEALER
9410370 ACTIVE DATA PROCESSING (510) 460-8488 BRENTON, DOUGLAS H. 002
6666 OWENS DRIVE W1037
PLEASANTON, CA 94588
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 04/23/93 10:06 PD :
TERMINATED 4/19/93
----
- 04/23/93 10:12 PD :
----
9210810 ADVANCED MFG. TECHNIQUES, INC. (216) 732-9191 SPADARO, MICHAEL F. 003
26380 CURTIS WRIGHT PKWY. 302 (216) 732-9220 FKA COMPLETE INF FAX #
CLEVELAND, OH 44143
USA PROFILE: AMS, DEALER
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES MEMOPAD: MICHAEL SPADARO (JOE)
DEALER COUNCIL
ASSUMED BY ADVANCED MANUFACTURING TECHINQUES --
NEW DEALER AGREEMENT SENT 3/22/91.
FORMERLY COMPLETE INFORMATION SYSTEMS - NAME
CHANGED/NEW CONTRACTS FILED 4/19/91.
9410890 AMERICAN COMPUTER ENTREPRENEUR (713) 772-0600 JANKEL, DARYL L. 003
P.O. BOX 498 (000) 000-0000 DARYL FAX NOT ALWAYS 0
SUGAR LAND, TX 77487-0498
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 08/16/94 05:30 PD : TERMINATION LETTER SENT
THIS DATE; EFFECTIVE 10/20/94
----
0091261 AREA COMPUTER SVCS OF ORLANDO (407) 774-0830 PETILLO, FRANK 003
2180 WEST S.R. 434, SUITE 1140
LONGWOOD, FL 32779
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: - 03/03/92 07:35 PD : TERMINATION LETTER SENT
3/3/92 EFFECTIVE 5/7/92 = REMOVE FROM MAILING
LIST - MAIL BEING REFUSED
----
- 05/20/92 02:12 PD : TERMINATED
----
9220460 AUGMENTED COMPUTER TECH. (904) 407-0431 BASTIAN, ANTHONY 003
SUITE A 24 (904) 877-9840 DOROTHEA FAX #
**345 SO. MAGNOLIA DR.
TALLAHASSEE, FL 32301
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 305-989-0002
9420340 AUROTECH INCORPORATED (303) 770-5004 000
5445 DTC PARKWAY W2034
ENGLEWOOD, CO 80111
USA PROFILE: AMS, DEALER
0091338 AUTOMATED BUSINESS SOLUTIONS (305) 791-5399 IGUALADA, PAULINE 003
7090 N W 7TH STREET (305) 791-5227 FAX
**
PLANTATION, FL 33317
USA PROFILE: AMS, SERV, DEALER
0010939 AUTOMATED COMPUTER ENVIRONMENT (510) 828-0996 WAYNE DODSON 001
11875 DUBLIN BLVD. STE. B-130 (510) 828-0997 FAX#
DUBLIN, CA 94568
USA PROFILE: AMS, DEALER
0010893 AUTOMATION CONSULTANTS (510) 794-7921 CARL, R. ALAN 001
39210 STATE STREET, SUITE 108 (510) 794-7923 MIRIAM FAX
FREMONT, CA 94538
USA PROFILE: AMS, DEALER
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0090279 AVEXXIS (203) 676-9006 CARLSON, ALLEN 003
30 AVON MEADOW LANE (203) 677-2176 FAX #
AVON, CT 06001
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: - 12/10/93 08:33 PD :
FORMERLY AVELLON GROUP -- NAME
CHANGED DUE TO COPYRIGHT
INFRINGEMENT PROBLEM
----
- 01/18/94 02:27 PD :
----
0032019 AZTEC COMPUTER CORP., INC. (201) 244-0200 MILT SILVERSHEIN 003
333 ROUTE 46 WEST (201) 244-9480 FAX #
FAIRFIELD, NJ 07004
USA PROFILE: AMS, DEALER, E-USER, ASSC-D
9410960 B K P G INTEREST (713) 880-0042 KURKA, GEORGE J. 003
6801 PORT WEST DRIVE SUITE 170 (713) 865-5349 MARY JOHNSON FAX #
HOUSTON, TX 77024
USA PROFILE: AMS, DEALER
9210811 BANC ONE LEASING CORP (216) 642-0077 003
6100 ROCKSIDE WOODS BLVD E1081-1 FAX #
CLEVELAND, OH 44131
USA PROFILE: AMS, DEALER
0010894 BUSINESS INFORMATION SYSTEMS (510) 866-7000 RAGLE, STEPHEN 001
2270 CAMINO RAMON, STE. 101 (510) 866-0369 MEG FAX #
SAN RAMON, CA 94583
USA PROFILE: AMS, SERV, DEALER
9210480 BY-TEQ SYSTEMS, INC. (212) 967-9009 ATTEN: F. KENNETH FREEDMAN 003
358 FIFTH AVE E1048
NEW YORK, NY 10001-2209
USA PROFILE: AMS, DEALER
0010909 C & W ASSOCIATES, INC. (713) 367-8067 WHITNEY, GARY E. 003
6 LULLABY LANE (713) 367-8067 FAX #
THE WOODLANDS, TX 77380
USA PROFILE: AMS, DEALER
0031932 C R COMPUTING (714) 363-8130 CHUCK RUBAN 001
30902 CLUBHOUSE DR., STE 27A (714) 363-7158 FAX
LAGUNA NIGUEL, CA 92677
USA PROFILE: AMS, DEALER, DEV
0010864 C T S COMPUTERS, INC. (201) 882-7515 KOMET, ARNOLD 003
81 TWO BRIDGES ROAD, BLDG 2 (201) 808-0524 BOB KRAMER/SHERRY FAX #
FAIRFIELD, NJ 07004
USA PROFILE: AMOS, AMS, DEALER
SALES MEMOPAD: - 11/20/92 04:34 PD :
FORMERLY ASKEY COMPUTER
- 06/28/93 10:39 PD :
MAILER FLAG FLIPPED TO "N"
- MAIL BEING RETURNED AND
DEALER IS IN THE PROCESS OF
OPENING A NEW DEALERSHIP
UNDER AKC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0091365 CAPRICORN DATA INC. (619) 471-9307 MORCK, J. MICHEL 001
1285 STONE DR., SUITE 101
LAKE SAN MARCOS, CA 92069
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 01/08/92 02:20 PD :
TERMINATED 1/8/92 AT DEALER'S
REQUEST
----
9210960 CAYMAN VENTURES, INC. (804) 743-3963 003
5039 GRASSMERE RD E1096
RICHMOND, VA 23234
USA PROFILE: AMS, DEALER
9420280 CENTURY PUBLISHING SYSTEMS (208) 765-6300 ATTN: MIKE URQUHART
P. O. BOX 730 W2028
COEUR D'ALENE, ID 83814
USA PROFILE: AMS, DEALER
0010920 CHEROKEE SYSTEMS, INC. (404) 439-1299 SAM D. MYERS 003
5205 ELLIOT ROAD (404) 739-7614 CHEREE MYERS FAX #
**
POWDER SPRINGS, GA 30073
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 03/21/94 08:54 PD :
STREET ADDRESS:
422 THONTON RD. SUITE 104
LITHIA SPRINGS, GA 30057
0091355 CLASSIC SOLUTIONS (714) 724-4597 CHRISTIAN, RANDALL H. 001
BRINDERSON TOWERS SUITE 1450 (714) 263-1389 C&W 3-11-3 FAX #
19800 MACARTHUR BLVD.
IRVINE, CA 92715
USA PROFILE: AMS, DEALER, DEV
9410830 CLE ENTERPRISES INC (602) 246-3624 ATTEN:CRAIG ELGGREN
10814 WEST FRIER DR W1083
GLENDALE, AZ 85307
USA PROFILE: AMS, DEALER
9210600 COMP U TIME (708) 228-1600 GOODIN, DAVID 003
2216 LANDMEIER RD. (708) 228-6584 NCRI DUE 5-18-94 FAX #
ELK GROVE VILLAGE, IL 60007
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 10/23/91 12:54 PD :
----
9210990 COMPUTER CENTER OF TAMPA (813) 875-5050 ATTEN: ARTHUR ALVAREZ/PRE
4520 WEST KENNEDY BLVD E1099
TAMPA, FL 33609
USA PROFILE: AMS, DEALER
9420040 COMPUTER CENTER, THE (907) 456-2281
1603 COLLEGE RD W2004
FAIRBANKS, AK 99701
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
USA PROFILE: AMS, DEALER
9420050 COMPUTER CENTER, THE (206) 854-2050
P.O. BOX 1359 W2005
KENT, WA 98031
USA PROFILE: AMS, DEALER
9211020 COMPUTER PERSONALITIES, INC. (201) 996-3100 CAPELL, GEORGE L. 003
29 RACE ST (201) 996-4519 E1102 FAX #
FRENCHTOWN, NJ 08825
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 201-996-4519
- 10/16/91 10:22 PD : TERMINATION LETTER SENT
10/16/91 - WILL BE FINAL 12/20/91
----
- 12/20/91 02:48 PD : DEALER TERMINATED
----
0089699 COMPUTER SYSTEMS INC. (503) 639-9150 FRIBERG, RONALD 001
6950 SW HAMPTON (503) 639-6840 DOROTHEA FAX
PORTLAND, OR 97223
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: - 04/01/94 08:51 PD : TERMINATED THIS DAY --
UNABLE TO LOCATE DEALER
----
9410990 COMPUTRAIN, LTD (504) 524-7256 SORANT, PETER 003
938 LAFAYETTE ST (504) 523-1149 NCRI DUE 5-6-94 FAX#
NEW ORLEANS, LA 70113
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 01/20/94 02:50 PD : TERMINATED THIS DATE --
NO SALES SINCE 1992 SEE FUJITSU CONTRACT
SECTION 4.1(D)
----
9210710 COURAGE GROUP LTD (201) 851-0900 ATTN: ART CLAUSEN 003
2333 MORRIS AVE STE D-3 E1071
UNNION, NJ 07083
USA PROFILE: AMS, DEALER
9410900 COVERSTON ENTERPRISES (713) 558-4531 ATTEN: GREG COVERSTON
14686 G PERTHSHIRE W1090
HOUSTON, TX 77079
USA PROFILE: AMS, DEALER
9420270 CREATIVE COMPUTER SOLUTIONS (415) 790-2073 CLARKE, GREGORY R. 093
39350 CIVIC CENTER DR. STE 400 W2027
FREMONT, CA 94538
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 415-791-0711
- 06/12/91 08:09 PD : TERMINATED 6/1/90 PER
PHIL SMITH
- 10/23/91 02:40 PD :
----
9210420 CRS, INC. (215) 674-1399 ATTEN: HAROLD WILLIAMS 003
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
50 SOUTH PENN ST E1042
HATBORO, PA 19040
USA PROFILE: AMS, DEALER
9411000 CUSTOM REPORTS TECHNOLOGIES (916) 676-6455 KENDALL, DENNIS D. 001
3294 ROYAL DRIVE (916) 676-6460 NANCY KENDALL FAX #
SUITE 102
CAMERON PARK, CA 95682
USA PROFILE: AMS, SERV, DEALER
0010880 DANDI COMPUTER SERVICES INC. (516) 431-2827 KOPPELMAN, IRWIN 003
206 LAGOON DRIVE, WEST (516) 889-2843 FAX
LIDO BEACH, NY 11561
USA PROFILE: AMS, DEALER
0091279 DATA RESOURCE GROUP, INC. (305) 753-1024 MADDEN, H. DAN 003
P. O. BOX 8976 (305) 753-1136 MARSHA FAX #
CORAL SPRINGS, FL 33075-8976
USA PROFILE: AMS, DEALER
9411030 DATA-IMAGE SYSTEMS CORPORATION (916) 638-3333 SHOEMAKER, MERLIN 001
3062 PROSPECT PARK DRIVE (916) 638-0909 LUANNA A/P FAX #
SACRAMENTO, CA 95670
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FORMERLY SYSTEMS DATA PROCESSING
- 11/21/91 10:33 PD :
----
- 04/13/93 06:47 PD :
----
9211060 DATABASE BUSINESS APPLICATIONS (617) 932-3366 003
12 ALFRED STREET E1106
WOBURN, MA 01801
USA PROFILE: AMS, DEALER
9420230 DATABASE SOLUTIONS (713) 320-0036 GOODWIN, WILLIAM 003
7610 HERTFORDSHIRE DRIVE (713) 320-9059 FAX #
**
SPRING, TX 77379
USA PROFILE: AMS, DEALER
0010889 DATACRON, INC. (708) 832-1011 PAUL, PETER 003
977 OAKLAWN AVENUE (708) 832-1049 RACHEL, OWNER'S DAUGHTER
**
ELMHURST, IL 60126
USA PROFILE: AMS, DEALER
0031866 DATAFOX SYSTEMS INC. (519) 747-4040 ZENGER, DAVID A. 004
620 DAVENPORT ROAD UNIT 18 (519) 747-9665 DAVID ZENGER, PRES
WATERLOO, ONTARIO, N2V 2C2
CANADA PROFILE: AMS, DEALER, E-USER, DEV
0031846 DATAWORKS CORPORATION (619) 546-9600 MOHR, MARIANNE 001
5910 PACIFIC CENTER BLVD., (619) 546-9705 KATY/PRISCELLA X9770
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUITE 300
SAN DIEGO, CA 92121
USA PROFILE: AMS, SERV, DEALER, E-USER
9220550 DATEK, INC. (508) 369-0185 RADFORD, CYRUS 003
242 BAKER AVENUE (508) 371-2374 E2055 FAX NUMBER
CONCORD, MA 01742
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 508-371-2374
TERMINATED 2/5/91 PER P. SMITH LETTER OF 1/24/91
----
0010710 DEALER SOFTWARE, INC. (818) 887-5061 CRAMER, PHILIP 001
6312 VARIEL AVENUE (818) 887-2768 FAX#
** SUITE 204
WOODLAND HILLS, CA 91367
USA PROFILE: AMS, DEALER, DEV
9410390 DELIBERATE SYSTEMS, INC. (619) 280-4400
3456 CAMINO DEL RIO NORTH W1039
SAN DIEGO, CA 92108
USA PROFILE: AMS, DEALER
0010885 DELTA DATA SOLUTIONS INC. (901) 377-5511 VETTER, JOHN D. 003
5115 COVINGTON WAY, STE 5 (901) 377-5914 LISA FAX #
MEMPHIS, TN 38134
USA PROFILE: AMS, DEALER, DEV
0031767 DIVERSIFIED ANALYSIS & SOL. (201) 450-1650 TURI, PASQUAL C. 003
272 FOREST ST. AS OF 11/9
BELLEVILLE, NJ 07109 NO FAX
USA PROFILE: AMS, DEALER
9210890 DIVERSIFIED COMPUTERS (404) 475-4601
1081 CAMBRIDGE SQUARE E1089
ALPHARETTE, GA 30201
USA PROFILE: AMS, DEALER
9410920 DJAN, INC. (619) 695-6691 ATTN: DORTHA TURNER
9948 HIBERT ST. STE 101 W1092
SAN DIEGO, CA 92131
USA PROFILE: AMS, DEALER
9420200 DOLPHIN ENTERPRISES LTD (604) 687-2890 DOLPHIN, DAN R. 004
301 - 6340 BUSWELL STREET (604) 682-3571 W2020 FAX #
RICHMOND, BC, V6Y 2G1
CANADA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: DEALER COUNCIL
----
- 04/22/93 02:48 PD :
----
0091392 E C I COMPUTER, INC. (714) 434-8800 JEREMIAS, CARL 001
1231 EAST DYER ROAD SUITE 120 (714) 434-8880 SUE 434-8812 FAX#
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SANTA ANA, CA 92705
USA PROFILE: AMS, SERV, DEALER
0010866 E D P SERVICES (708) 913-0059 ALBRECHT, KYLE M. 003
14531 RIVER OAKS DRIVE
LINCOLNSHIRE, IL 60069
USA PROFILE: AMS, DEALER
0031937 E W M SYSTEMS, INC. (315) 488-3681 BILL MARTIN 003
4935 ALBART DRIVE
SYRACUSE, NY 13215-1305
USA PROFILE: AMS, DEALER
ASSC-D, SPECL
9420300 EECO COMPUTER INC. (714) 434-8800 GERRY SOMA 093
USE 91392 (714) 434-8880 CHAPTER 11 FAX #
SANTA ANA, CA 92705
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX -0714-434-8880
SHIPPING ADDRESS:
EECO COMPUTER INC.
1231 EAST DYER RD
SANTA ANA, CA 92705
CUSTOMER INACTIVE 1/8/91 PER KAY FAZEL - BANKRUPTCY FILED
9420330 ELECTRONIC BUSINESS SYSTEMS (800) 882-7740 STOKKA, JOHN R. 003
1501 - 50TH STREET (800) 736-3412 ROBIN OR JOHN FAX #
DES MOINES, IA 50266
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 8/16/94 05:30 PD : TERMINATION LETTER SENT THIS DATE; EFFECTIVE 10/20/94
----
9411040 ENFORCEMENT TECHNOLOGY, INC. (714) 707-3832 WARD, GARY E. 001
28 HAMMOND, SUITE C (714) 832-0473 LINDA FAX #
P. O. BOX 4726
IRVINE, CA 92716-4726
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: SHIPPING ADDRESS:
3002 DOW AVENUE
SUITE 502
TUSTIN, CA 92680
- 09/03/93 07:32 FD :
----
9210900 ERIN GROUP, INC., THE (708) 305-0814 BRAJE, FRANK 004
509 AURORA AVENUE, SUITE 117 (708) 357-1672 FAX #
NAPERVILLE, IL 60540
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 312-369-1878
- 11/09/92 02:30 PD : TERMINATION LETTER SENT 11/9/92 - EFFECTIVE
1/14/93
----
- 01/14/93 03:48 PD : TERMINATION FINAL
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
----
F9210350
- 01/18/94 12:03 PD :
----
9410440 ESCOM, INC. (206) 828-0995 WOLD, KURT 001
10502 N.E. 37TH CIRCLE (206) 827-2297 MAUREEN O'BRIEN FAX #
KIRKLAND, WA 98033
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - DEALER COUNCIL
- 07/12/93 01:59 PD :
----
----
9210940 EXECUSOFT, INC. (305) 345-6741 FEIG, LAWRENCE 003
9305 W. SAMPLE ROAD (305) 345-6780 E1094 FAX NUMBER
CORAL SPRINGS, FL 33065
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 305-755-4255
AFTER HOURS TECH SUPPORT - 305-345-6780
- 04/13/93 09:30 PD : TERMINATION LETTER SENT -
EFFECTIVE 6/17/93
----
- 06/24/93 01:07 PD : TERMINATED THIS DATE
----
- 12/03/93 03:25 PD : F
----
9210700 FMP (312) 272-2400
5 REVERE DR E1070
NORTHBROOK, IL 60062-1561
USA PROFILE: AMS, DEALER
0091322 FRISARD COMPUTER CONSULTANTS (504) 455-7306 FRISARD, RODNEY P. 003
DBA: ULTIMATE BUSINESS SYSTEMS (504) 887-5297 FAX #
4712 CHASTANT STREET
METAIRIE, LA 70006
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 12/01/93 11:09 PD : DEALER TERMINATED AFTER
FINAL ORDER PER HIS REQUEST.
----
-
----
9310000 FUJITSU AUSTRALIA, LTD. (000) 959-6497 MR. T. HASHIMOTO 006
ATTN: T. HASHIMOTO/FINANCE MGR (612) 411-8362 SIMON DAVIS FAX# 011
475 VICTORIA AVE.
CHATSWOOD, NSW, 2067
AUSTRALIA PROFILE: AMS, DEALER
9310060 FUJITSU CANADA INC (416) 673-8666
6280 NORTHWEST DRIVE F1006
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MISSISSAUGA, ON L4V 1-J7
USA PROFILE: AMS, DEALER
9210380 G.P. TAURIO (301) 381-7240 003
9891 BROKEN LANE PARKWAY E1038
COLUMBIA, MD 21046
USA PROFILE: AMS, DEALER
9410910 GEAC COMPUTERS, INC. (808) 625-2111
300 KAHELU AVENUE W1091
MILILANI TOWN, HI 96789
USA PROFILE: AMS, DEALER
9411060 GOLD MEDAL EQUIPMENT-ALTA (403) 279-2960 TRAXLER, WILLIAM J. 094
5904 35 ST. S.E. W1106
CALGARY, AL T2C2G3
CANADA PROFILE: AMS, DEALER
9211040 GOLUBOV COMPUTER SALES, INC. (908) 671-5800 GOLUBOV, JOSEPH N. 003
P.O. BOX 4164 (908) 671-5903 PATRICIA HASAN, A/P FAX #
MIDDLETOWN, NJ 07748
USA PROFILE: AMS, DEALER, DEV
SALES MEMOPAD: - 03/25/94 02:14 PD :
SHIPPING ADDRESS:
10 KINGS HIGHWAY
MIDDLETOWN, NJ 07748
9410380 H.L. SYNERTECH (206) 881-9491
2663 BEL-RED ROAD W1038
BELLEVUE, WA 98008
USA PROFILE: AMS, DEALER
9410620 HARDWARE HARDWARE, SOFTWARE, INC (512) 328-6244 VON MERZ, WALTER L. 003
P. O. BOX 161322 (512) 328-6244 SAME FAX #
AUSTIN, TX 78716-1322
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 1/31/92 12:07 PD :
----
9210740 HEALTH CARE TECHNOLOGIES (201) 228-8700 SAUNDERS, THOMAS G. 003
101 EISENHOWER PARKWAY (201) 228-1066 CLAIRE, A/P FAX #
ROSELAND, NJ 07068
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: NEW DEALER APPLICATION SENT 4/3/91
DEALERSHIP ACCEPTED 4/16/91
- 12/10/93 08:33 PD : DIVISION OF MEDICAL DATA TECHNOLOGY, INC.
----
0010930 HEIDER/BROWNE & ASSOCIATES (310) 370-5374 HEIDER, PEGGY J. 001
1410 FIFTH STREET (310) 379-0662 FAX #
MANHATTAN BEACH, CA 90266
USA PROFILE: AMS, DEALER
0091357 HIGHLAND LIBRARY SYSTEMS, INC. (813) 734-7300 FRAISER, PHILIP T. 003
2075 NORTH KEENE ROAD (813) 733-4791 FAX #
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLEARWATER, FL 34615-1372
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 02/07/94 12:38 PD : TERMINATION LETTER SENT THIS DATE --
EFFECTIVE 4/13/94
----
- 04/14/94 08:00 PD : TERMINATED THIS DATE
----
9410870 HYCOMP, INC. (409) 693-4575 ATTEN: GEORGIA MTLEYDE
2402 E. TEX AVE SOUTH W1087
COLLEGE STATION, TX 77840
USA PROFILE: AMS, DEALER
9211000 I M S AGENCY INFORMATION SERVS (212) 789-3600 KLAR, NEIL 003
11 WEST 42ND ST., #1271 (212) 789-3637 E1100 FAX NUMBER
SECOND FLOOR
NEW YORK, NY 10036
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 12/6/90 - CHANGED TO KTS
SYSTEMS GROUP/ADSERVE #91375
----
----
9220190 I S P A, INC. (404) 881-6212 BALTHAZAR, LANTZ A. 003
1718 PEACHTREE STREET, NW (404) 881-6218 FREDDIE LOWE FAX #
SUITE 560 SOUTH TOWER
ATLANTA, GA 30309-2409
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 404-881-6218
- 02/07/94 12:36 PD : TERMINATION LTR. SENT THIS DATE
-- EFFECTIVE 4/13/94
----
- 04/14/94 07:59 PD : TERMINATED THIS DATE
----
9210720 IMAGE COMMUNICATIONS SYSTEMS (313) 425-5225 ATTN: ROBERT GUSBAR
32553 SCHOOLCRAFT E1072
LIVONIA, MI 48150
USA PROFILE: AMS, DEALER
9210760 INDEPENDENT DATA SYSTEMS (404) 533-6628
DEALER NOT ACTIVE E1076
DECATUR, GA 30030
USA PROFILE: AMS, DEALER
9210670 INFORMATION DYNAMICS OF N.Y. (914) 761-3925 GOLOMB, HANK 003
701 WESTCHESTER AVE. #308W (708) 601-6107 CONNIE FAX #
WHITE PLAINS, NY 10604
USA PROFILE: AMS, DEALER
9210400 INFORMATION MANAGEMENT CORP (301) 953-0541 O'NEILL, JOHN W. 003
14333 LAUREL-BOWIE RD (301) 953-3254 E1040 FAX #
SUITE 310
LAUREL, MD 20708
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
USA PROFILE: AMS, DEALER
9220410 INFORMATION PROCESSING COMPANY (703) 683-8620 ATTEN: THOMAS ALFANO 003
2010 EISENHOWER AVE E2041
ALEXANDRIA, VA 22314
USA PROFILE: AMS, DEALER
9210500 INFORMATION SYSTEMS CONSULT. (813) 921-5500 000
2344 BEE RIDGE RD E1050
SARASOTA, FL 34239
USA PROFILE: AMS, DEALER
9210770 INFORMATION TECH. CONSULTANTS (201) 882-9881 ATTEN: ZAMIR HASSAN 003
75 PYLMOUTH ST E1077
FAIRFIELD, NJ 07006
USA PROFILE: AMS, DEALER
9410850 INFOSHARE, INC. (512) 736-0567 DORSEY, CLIFFORD 092
4400 PIEDRAS ST (512) 736-0537 W1085 FAX NUMBER
SUITE 175
SAN ANTONIO, TX 78228
USA PROFILE: AMS, DEALER
0010912 INOVATIVE BUS. ASSOCIATES INC (407) 788-2314 SHIBLES, LARRY 003
499 N. STATE ROAD 434 (407) 788-7264 FAX#
SUITE 2129
ALTAMONTE SPRINGS. FL 32714
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 09/29/92 02:20 PD :
----
- 09/29/94 08:35 HS :
----
9210350 INSIGHT SOLUTIONS, INC. (508) 486-0322 DUMONT, PETER 003
294 GREAT ROAD E1035
P.O. BOX 1485
LITTLETON, MA 01460
USA PROFILE: AMS, DEALER
9210580 INTEGRATED DATA SYSTEMS (317) 845-7445 ATTEN: PAM MCGUIRE
8021 CASTLETON ROAD E1058
INDIANAPOLIS, IN 46250
USA PROFILE: AMS, DEALER
9120080 INTERCOMP
DO NOT USE THIS CODE C2008
USA PROFILE: AMS, DEALER
9210510 J. GLASER & COMPANY, INC. (312) 786-0377
55 E. JACKSON BLVD E1051
CHICAGO, IL 60604
USA PROFILE: AMS, DEALER
0031940 JAMES BOYD ASSOCIATES (412) 833-0805 JIM BOYD 003
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BROOKSIDE PROFESSIONAL BLD 2 (412) 833-1295 FAX #
37 MCMURRAY ROAD, SUITE 1102
PITTSBURGH, PA 15241
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 06/29/93 04:37 PD :
----
9410430 JENKON DATA SYSTEMS, INC. (206) 256-4400 JENSEN, DANIEL O. 093
4601 NE 77TH AVENUE (206) 256-4400 NELSON COPELAND - MAINT
SUITE 300
VANCOUVER, WA 98662
USA PROFILE: AMS, DEALER
SALES MEMOPAD: TERMINATED AT CUSTOMER'S
REQUEST 10/15/90
- 06/12/91 08:28 PD :
----
- 10/23/91 02:57 PD :
----
0091375 K T S SYSTEMS GROUP/ADSERVE (212) 213-5700 TILE, GARY 003
49 WEST 27TH STREET, STE 200 (212) 213-5996 REHANA (CANADA) FAX #
NEW YORK, NY 10201
USA PROFILE: AMS, DEALER
SALES MEMOPAD: ACQUIRED IMS/ADSERVE
----
0010931 KORE DATA SYSTEMS, INC. (708) 369-5673 REDEMEIER, DON 003
P. O. BOX 3009 (708) 369-5748 FAX #
LISLE, IL 60532
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 07/20/93 09:39 PD : SHIPPING ADDRESS: 6425 ASHFORD C. LISLE, IL 6053
----
9410470 L P SYSTEMS (801) 756-4182 PARKER, LEROY 001
456 EASTVIEW DR (801) 756-4182 W1047 FAX #
ALPINE, UT 84003
USA PROFILE: AMS, DEALER
0010907 L W SUBSCRIPTION SERVICES (905) 475-4145 WULF, LOUIS 004
60 RENFREW DRIVE SUITE 260 (905) 940-3606 ELAINE FAX #
**
MARKHAM, ONTARIO, L3R OE1
CANADA PROFILE: AMS, DEALER
9410690 LAGUNA SOFTWARE & CONSULTING (714) 494-1092 WULFF, WILLIAM H. 001
P. O. BOX 168 (206) 376-6092 KRIS HAD GONE TO NCRI FAX #
EASTSOUND, WA 98245-0168
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 714-494-2370
9210360 LEARNING SOURCE OF NEW ENGLAND (617) 969-0766 ATTEN: DENNIS SANCHEZ 003
719 MAIN STREET E1036
WALTHAM, MA 02154
USA PROFILE: AMS, DEALER
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0010876 LOGICAL CONNECTIONS, INC. (813) 586-2234 SHEDD, STEPHEN K. 003
1261 - 16TH COURT, SW (000) 000-0000 NO FAX#
LARGO, FL 34640
USA PROFILE: AMS, DEALER
0010838 LTD COMPUTER SERVICES, INC. (612) 851-7020 TEGEN, THOMAS 003
2950 METRO DR. #214
BLOOMINGTON, MN 55425-1561
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 02/07/94 12:35 PD : TERMINATION LTR. SENT 2/7 -- EFFECTIVE
4/13/94
----
- 04/14/94 07:59 PD : TERMINATED THIS DATE
0010868 MARK INFORMATION SYSTEMS, INC. (415) 697-9051 FARHAD, NAHREIN 001
1633 OLD BAYSHORE HIGHWAY (415) 697-6536 FAX#
SUITE 155
BURLINGAME, CA 94010
USA PROFILE: AMS, DEALER
9211030 MARKET SOLUTIONS, INC. (813) 955-4400 LEONARD, ROBERT C. 003
550 S. PINEAPPLE AVENUE (813) 953-3764 ADAMS, MATTHEW, 1/29/92
SARASOTA, FL 34236
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 212-995-2809
- 03/03/92 07:36 PD : TERMINATION LETTER SENT 3/2/92 - EFFECTIVE
5/7/92 - REMOVED FROM MAILING LIST
- 05/20/92 02:11 PD : TERMINATED
----
9420210 MATRIX COMPUTERS (505) 831-3219
3108 ALAMONGORDO N.W. W2021
ALBUQUERQUE, NM 87120
USA PROFILE: AMS, DEALER
9210590 MEDIA SERVICES GROUP LTD, THE (203) 921-1771 DAVID SHINE 003
4 HIGH RIDGE PARK (203) 921-1791 CAROL STOSSE FAX#
STAMFORD, CT 06905
USA PROFILE AMS, SERV, DEALER
SALES MEMOPAD: FAX = 203-329-1507
- 06/12/91 08:39 PD:
----
9410840 MEDICAL COMPUTER BILLING, INC. (916) 966-9222
6403 COYLE AVE W1084
CARMICHAEL, CA 95608
USA PROFILE: AMS DEALER
9220490 MEGASYS, INC. (305) 446-8673 YUSSO, WILLIAM 003
4200 SALZEDO STREET P2049
CORAL GABLES, FL 33186
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 02/25/92 02:18 PD:
----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- 09/14/92 10:50 PD : MAIL BEING RETURNED - FLAG FLIPPED TO N
----
- 11/09/92 02:29 PD : TERMINATION LTR. SENT 11/9/92 - EFFECTIVE
1/14/93
----
- 01/14/93 03:48 PD : TERMINATION FINAL
0010887 MICRO SYSTEMS INTEGRATION (714) 644-9844 ADLER, DAN 001
450 NEWPORT CENTER DR. (714) 895-9806 SHERRI FAX #720-0366 &
SUITE 420
NEWPORT BEACH, CA 92660
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: - 03/23/94 07:46 GN :
----
- 03/23/94 07:47 GN :
----
0031856 MICRODYNE COMPANY (419) 756-5427 KEULTJES, HENRY B. 003
P. O. BOX 1056 (419) 756-5427 FAX
MANSFIELD, OH 44901-1056
USA PROFILE: AMS, DEALER
9410750 MICROPLAN COMPUTER SERVICES (000) 821-1070 ATTN: ANDREW NEAL
614 ALICANTE STE 104 W1075
EL PASO, TX 79912
USA PROFILE: AMS, DEALER
9210790 MINI BUSINESS SYSTEMS, INC. (203) 262-1306 THOMAS, TIMOTHY J. 003
194 MAIN STREET NORTH (203) 262-1310 NCRI DUE 11-14 FAX #
**P.O. BOX 425
SOUTHBURY, CT 06488
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 203-262-1310
9411010 MULTIDATA CORPORATION (408) 559-6500 BILL OGDEN 001
2105 HAMILTON AVE., STE 100 (408) 879-9220 JACKIE OGDEN FAX #
SAN JOSE, CA 95125-5900
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX = 408-879-9220
0010881 N S A TECHNOLOGIES, INC. (404) 604-9000 THOMPSON, C. DEAN 003
P. O. BOX 888465 (404) 604-9077 RUTH THOMPSON FAX #
**
ATLANTA, GA 30356
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 01/08/92 03:21 PD :
9420310 NATIONAL SOFTWARE SOLUTIONS (310) 595-5075 ANDERSON, ERIC 001
3520 LONG BEACH BLVD. (310) 595-8920 W2031 FAX #
SUITE 204
LONG BEACH, CA 90807
USA PROFILE: AMS, DEALER
</TABLE>
ESD12:ARCAP2.000 OPERATOR:PD DATE: 03/13/95, 02:36:11 PM PAGE: 15
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0091228 NEW ENGLAND COMPUTER SOLUTIONS (617) 229-1100 MACPHERSON, RONALD E. 003
128 CORPORATE CENTER (617) 229-1105 PAT DOHERTY FAX#
70 BLANCHARD ROAD
BURLINGTON, MA 01803
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 11/12/91 09:59 PD : TERMINATION LETTER SENT
11/12/91 - WILL BE FINAL ON 1/16/92
----
9410680 NEWPORT TRAFFIC STUDIES (612) 541-1979 ATTN: CLIFF YARGES
177 RIVERSIDE AVE STE F W1068
NEWPORT BEACH, CA 92663
USA PROFILE: AMS, DEALER
9410980 NOMAN SYSTEMS, INC. (714) 634-3606 WILLIAMS, RON C. 093
C/O LIBRARY SYSTEMS OF ALASKA W1098
P.O. BOX 34362
JUNEAU, AK 99803-4362
USA PROFILE: AMS, DEALER
9410700 OMNI ADVANCED TECHNOLOGIES INC (415) 536-6000
2000 EMBARCADERO W1070
OAKLAND, CA 94606
USA PROFILE: AMS, DEALER
9210440 ON-LINE GROUP, INC. (305) 266-2330 000
85 GRAND CANAL DRIVE E1044
MIAMI, FL 33144
USA PROFILE: AMS, DEALER
9410730 OPUS (415) 436-4424 ATTN: LES FISHBEIN 001
2647 E. 14TH STREET SUITE 306 W1073
OAKLAND, CA 94601
USA PROFILE: AMS, DEALER
9410720 ORYX CORPORATION (503) 620-3543
DO NOT USE THIS CODE W1072 FAX
97233
USA PROFILE: AMS, DEALER
0032071 OUTSOURCE COMPUTER SERV., INC. (713) 864-3311 PORTER PHILLIPS 003
411 DURHAM STREET, SUITE 200 (713) 869-9851 FAX#
HOUSTON, TX 77007-7265
USA PROFILE: AMS, DEALER, ASSC-D
0010890 P G I SYSTEMS (714) 729-1085 GREGOR, BRETT 001
1303 AVOCADO SUITE 220 (714) 729-1083 FAX #
NEWPORT BEACH, CA 92660
USA PROFILE: AMS, DEALER, DEV
9210970 P O S SOFTWARE SOLUTIONS, INC. (313) 751-1506 JACHYRA, TONY 003
28290 SUBURBAN W1072 FAX
WARREN, MI 48093
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0031829 PACIFIC DIGITAL PRODUCTS (818) 355-5785 LISA 001
38 E. MONTECITO AVENUE UNIT A (818) 355-5789 LISA FAX #
SIERRA MADRE, CA 91024
USA PROFILE: AMS, DEALER
9420320 PAMAR SYSTEMS, INC. (206) 896-5512 PRATT, WILLIAM 001
7600 N. E. 41ST ST. SUITE 150 (206) 896-5521 CHRISTY FAX #
VANCOUVER, WA 98662
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: FAX = 206-690-0282
9210430 PEACHTREE COMPUTER SYSTEMS (404) 998-4500
500 NORTHRIDGE ROAD E1043
ATLANTA, GA 30338
USA PROFILE: AMS, DEALER
0010842 PERELANDRA SYSTEMS, INC. (708) 304-1122 WESTERMANN, WILLIAM 004
18-3 E. DUNDEE ROAD SUITE 100 (708) 304-1132 ALLEN BELL FAX #
BARRINGTON, IL 60010
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 05/22/92 09:47 PD : TERMINATION LETTER SENT 5/22/92 -
EFFECTIVE 7/27/92
- 07/27/92 10:16 PD : TERMINATION FINAL
----
9410610 PERFORMANCE WAREHOUSE (503) 286-7140 ATTEN: LYLE MOORE
9440 N. WHITAKER RD W1061
PORTLAND, OR 97217-1748
USA PROFILE: AMS, DEALER
9210860 PERRY DATA SYSTEMS (919) 786-8100 ATTEN: ACCOUNTS PAYABLES
3401 SPRING FOREST RD E1086
RALEIGH, NC 27604
USA PROFILE: AMS, DEALER
9410540 PRACTICAL AUTOMATION CORP. (214) 980-1864
13500 MIDWAY ROAD W1054
DALLAS, TX 75244
USA PROFILE: AMS, DEALER
0090842 PRACTICAL SOFTWARE SOLUTIONS (303) 756-4951 SOLOSKY, RICHARD L.P. 001
6000 EAST EVANS AVE. (303) 756-5089 JENNIFER FAX #
SUITE 1-261
DENVER, CO 80222
USA PROFILE: AMS, DEALER
0010936 PRACTICE SUPPORT SERVICES INC. (610) 558-4439 STEVEN P. DOUGLAS 003
44 REGENCY PLAZA (610) 459-3199 FAX #
P.O. BOX 892
CONCORDVILLE, PA 19331
USA PROFILE: AMS, DEALER
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
0031854 PRO:MAN (206) 889-2121 CAREY, J. PATRICK 001
11825 - 120TH AVENUE NE (206) 827-4339 FAX #
KIRKLAND, WA 98034
USA PROFILE: AMS, DEALER
0010895 PROCO, INC. (206) 453-0212 MCCOLLEY, ROGER L. 001
12951 BEL-RED ROAD, SUITE 170 (206) 451-9566 CHERYL SHIELDS, A/P FAX
BELLEVUE, WA 98005
USA PROFILE: AMS, DEALER, DEV
SALES MEMOPAD: - 10/01/93 09:24 PD :
----
0010874 PROFESSIONAL COPYING INC. (619) 535-0555 CLARK, CHARLES 001
P.O. BOX 22268 (619) 535-0406 FAX #
SAN DIEGO, CA 92122
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 01/21/92 PD : F
----
9210980 PROFESSIONAL SOFTWARE SYSTEMS (216) 928-8491 ROWE, EUGENE E. 003
141 BROAD BLVD (216) 928-5460 E1098 FAX #
CUYAHOGA FALLS, OH 44221
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 04/27/93 10:46 PD : TERMINATED THIS DATE
----
- 05/28/93 08:16 PD : REINSTATED THIS DATE
----
- 01/18/94 12:19 PD :
----
9410630 PROMCOR DATA DESIGN, INC. (514) 426-2248 ARMSTRONG, DENNIS 004
P.O. BOX 410, STATION "H" (416) 764-9511 NCRI DUE 2-25-94
MONTREAL, QUEBEC, H3G 2LI
CANADA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: FAX = 416-764-9511
----
- 10/22/92 02:16 PD : M
----
9410400 PROVINCIAL DATA SYSTEMS (714) 645-2352 ATTN: CLIFF YARGES
170 EAST 17TH ST STE 213 W1040
COSTA MESA, CA 92627
USA PROFILE: AMS, DEALER
0091218 PROXIMA SYSTEMS LTD (514) 875-5403 MARTIN, LOUIS 004
555 BOUL. RENE-LEVESQUE QUEST (514) 875-5167 MR. BYETTE FAX #
BUREAU 1510
MONTREAL, QUEBEC, H2Z 1B1
CANADA PROFILE: AMS, DEALER
9210920 PURE LOGIC COMPUTERS (718) 625-3113 LICCIARDI, JOE 003
572 HENRY STREET (718) 625-3139 PINO, CATHERINE, AP FAX #
BROOKLYN, NY 11231
USA PROFILE: AMS, DEALER
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
SALES MEMOPAD: FAX = 718-625-3139
9210680 QUADRA TECHNOLOGY, INC. (609) 482-0930
DO NOT USE E1068
0, 0 0 PROFILE: AMS, DEALER
0091336 QUETZAL SYSTEMS, INC. (203) 677-5477 FRANK HANSHAW III 003
20 AVON MEADOW LANE
AVON, CT 06001
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 06/02/92 02:22 PD : MAIL BEING RETURNED - NEW COMPANY
ESTABLISHED UNDER AVELLON GROUP
9219520 R C I SYSTEMS INC. (203) 977-6100 DEGRANDIS, PHILIP 003
2 STAMFORD PLAZA (203) 325-8968 CHRIS SOO FAX #
P.O. BOX 10148
STAMFORD, CT 06904
USA PROFILE: AMS, DEALER
0090877 RAST COMPUTER SERVICES, INC. (718) 805-0188 TARANTOLA, SAL 003
141-60 84TH ROAD, SUITE 6M (718) 805-0377 FAX
BRIARWOOD, NY 11435
USA PROFILE: AMS, SERV, DEALER, ASSC-D
0010753 REAL TIME SYSTEMS (714) 820-2219 PECORARO, VINCENT 001
861 HAWTHORNE AVENUE FAX #
BLOOMINGTON, CA 92316
USA PROFILE: AMS, DEALER
9210450 REALTYME INTERACTIVE SYSTEMS (513) 528-3553 H. LEE SPADA, PRES 003
496 CINCINNATI-BATAVIA PIKE (513) 528-3587 HOWARD FAX #
SUITE 302
CINCINNATI, OH 45244
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 04/13/93 10:25 PD :
----
9210470 RELIANCE SYSTEMS, INC. (212) 219-3292 JOHN TOMASELLI 003
99 HUDSON STREET 2ND FLOOR (212) 334-0135 NINA FAX #
NEW YORK, NY 10013
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 10/15/93 08:40 PD : MAIL RETURNED, PHONE DISCONNECTED. OK TO
TERMINATE PER PHIL SMITH.
----
9410860 ROBERT L. MEYERS & ASSOC. (213) 633-8443 ATTEN: ROBERT MEYERS
7332 ADAMS W1086
PARAMOUNT, CA 90723
USA PROFILE: AMS, DEALER
0090992 S B H ENTERPRISES INC. (314) 671-1330 STEPHEN B. HENKEL 003
5887 SERENE DRIVE (314) 671-1340 FAX #
HOUSE SPRINGS, MO 63051
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
USA PROFILE: AMS, SERV, DEALER, ASSC-D
SALES MEMOPAD: - 01/19/95 07:33 PD : APPLICATION FOR ASSOCIATE DEALERSHIP SENT
OUT
----
0091234 SAGUARO DATA SYSTEMS (602) 946-2983 JESS ROBERTS, PRES. 001
4100 E. BROADWAY RD. #150 (602) 946-9364 BARBARA FAX #
PHOENIX, AZ 85040-8810
USA PROFILE: AMS, SERV, DEALER
SALES MEMOPAD: FAX 602-946-9364
- 10/07/94 04:18 PD : MAILER FLAG FLIPPED - POST OFFICE IS UNABLE
TO FORWARD THEIR MAIL
----
9410460 SANDERS SOFTWARE SYSTEMS (714) 642-6595 ATTEN: RAYFORD SANDERS 093
1963 BALEARIC DR W1046
COSTA MESA, CA 92626
USA PROFILE: AMS, DEALER
9410640 SELECT DATA SYSTEMS INC. (619) 727-0060 ATTEN: PETER SERVOLD
1141 COLUMBUS WAY W1064
VISTA, CA 92083
USA PROFILE: AMS, DEALER
9420240 SOFTAC, CORPORATION (503) 636-4626
4000 KRUSE WAY PLACE W2024
LAKE OSWEGO, OR 97035
USA PROFILE: AMS, DEALER
9210910 SOFTWARE CO-OP INC (201) 355-7700 BENDER, BRUCE 003
1284 N. BROAD STREET E1091
HILLSIDE, NJ 07205
USA PROFILE: AMS, DEALER
0091225 SOFTWARE CONCEPTS, INC. (416) 475-4145 COY, PETER N. 005
60 CENTURIAN DR. SUITE 112 (416) 940-3606 LLOYD HOFFMAN FAX #
MARKHAM, ONTARIO, L3R 9R2
CANADA PROFILE: AMS, DEALER
SALES MEMOPAD: - 10/01/92 PD : TERMINATATION FINAL
----
----
9410570 SOFTWARE EXCHANGE, INC., THE (314) 275-7777 ROSS, THOMAS A. 003
1810 CRAIG RD., SUITE 102 (314) 275-7608 FAX #
ST LOUIS, MO 63146
USA PROFILE: AMS, DEALER
0010918 SOFTWARE, MANAGEMENT CONSULTANT (407) 880-6400 MAIORIELLO, AL 003
ATTN: AL MAIORIELLO (407) 880-9783 HEIDI FAX #
380 SEMORAN COMMERCE PL. B208
APOPKA, FL 32703
USA PROFILE: AMS, DEALER
</TABLE>
ESD12:ARCAP2.000 OPERATOR:PD DATE: 03/13/95, O2:37:58 PM PAGE: 20
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
0010867 SOFTWARE MARKETING ASSOCIATES (203) 721-8929 LUNDEN, JIM 003
2080 SILAS DEANE HIGHWAY (203) 257-9679 A M S I FAX #
ROCKY HILL, CT 06067-2347
USA PROFILE: AMS, DEALER
9220450 SOFTWARE SUPPORT TEAM, INC. (407) 969-2882 PEACOCK, AL 003
3900 WOODLAKE BLVD. (407) 964-2664 E2045 FAX NUMBER
SUITE 200
LAKE WORTH, FL 33463
USA PROFILE: AMS, DEALER
SALES MEMOPAD: SECOND CONTACT: MARYSE PEACOCK
0091353 SOFTWARE SUPPORT TEAM, INC.### (407) 969-2882 PEACOCK,AL 003
3900 WOODLAKE BLVD., SUITE 200 (407) 964-2662 MARYSE PEACOCK FAX #
LAKE WORTH, FL 33463
USA PROFILE: AMS, DEALER
0091251 SOUTHEASTERN COMP. CONSULTANTS (615) 791-1795 PIGG, JIM 003
128 HOLIDAY COURT, STE 114 (615) 791-4932 FAX #
FRANKLIN, TN 37064
USA PROFILE: AMS, DEALER
0031931 SOUTHERN COMPUTER SPECIALTIES (404) 242-5888 BRADLEY, STEVE 003
5120 RUNNING FOX TRAIL (404) 441-9588 FAX #
**
NORCROSS, GA 30071
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 06/06/94 02:09 PD : FORMERLY H & H ENTERPRISES
----
9410490 STAR GLASS SERVICES, LTD. (504) 456-9063
2600 NORTH HULLEN STREET W1049
METAIRIE, LA 70002
USA PROFILE: AMS, DEALER
0010875 SURVEYS INCORPORATED (203) 355-8570 DOWNIE, CHRISTOPHER 003
P. O. BOX 528 (203) 354-0669 FAX #
SHERMAN, CT 06784-0528
USA PROFILE: AMS, DEALER
0010915 SWAN CONSULTING, INC. (813) 682-1658 SWAN, GEORGE N. L. 003
2110 SYLVESTER RD, SUITE 5 (813) 682-1658 FAX #
LAKELAND, FL 33803
USA PROFILE: AMS, DEALER
9219850 SYSTEM STRATEGIES, INC. (404) 242-1659 GITLIN, DEAN 092
6961 PEACHTREE INDUSTRIAL BLVD (404) 242-1642 E1085 FAX #
NORCROSS, GA 30071
USA PROFILE: AMS, DEALER
9210851 SYSTEM STRATEGIES, INC. E1085-1
801 S. GRAND PLAZA
LOS ANGELES, CA 90017
USA PROFILE: AMS, DEALER
</TABLE>
ESD12:ARCAP2.000 OPERATOR:PD DATE: 03/13/95, 02:38:23 PM PAGE: 21
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
9210930 SYSTEMS & SOFTWARE SOLUTIONS (813) 645-7692 ATTN: FRED REGISTER 000
906 SAGO PALM WAY E1093
APOLLO BEACH, FL 33570
USA PROFILE: AMS, DEALER
SALES MEMOPAD: ----
9410510 SYSTEMS SOLUTIONS INC. (602) 955-5566 KAKAR, RAJESH 001
2108 E. THOMAS ROAD (602) 955-0085 KENDA FAX #
PHOENIX, AZ 85016-7758
USA PROFILE: AMS, DEALER
9220480 TAURUS BUSINESS SYSTEMS INC. (603) 437-4705 HOLMES, NED 003
P. O. BOX 905 (603) 437-3941 NED HOLMES FAX #
LONDONDERRY, NH 03053-0905
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 02/11/92 12:34 PD : FORMERLY GEMSTONE COMPUTER
SHIPPING ADDRESS: 46 NASHUA ROAD, SUITE 13A
LONDONDERRY, NH 03053
- 06/29/92 10:00 PD :
----
0010932 TAURUS COMPUTER GROUP (315) 431-0212 WAGNER, DANIEL J. 003
461 MANLIUS CENTER RD. (315) 431-0214 FAX #
P. O. BOX 89
E. SYRACUSE, NY 13057
USA PROFILE: AMS, DEALER
0095621 TECHTRON SYSTEMS, INC. (908) 355-2244 COHEN, JONATHAN 003
450 YORK STREET (908) 527-6060 JAN FAX #
**
ELIZABETH, NJ 07201
USA PROFILE: AMS, DEALER
9410770 TEXAS COMPUTER MANAGEMENT ATTEN: RUDY RUIZ
703 S. BLANCO W1077
LOCKHART, TX 78644
USA PROFILE: AMS, DEALER
9210650 THE MUSICLAND GROUP (612) 932-7700 ATTN:T HOLMES/ACCTS PAYAB
7500 EXCELSIOR BLVD E1065
MINNEAPOLIS, MN 55426
USA PROFILE: AMS, DEALER
0010925 THE ORODELL GROUP, INC. (310) 988-9231 MOECKEL, LUTZ E. 001
2321 E. 28TH ST., STE 404 (310) 427-7865 FAX #
LONG BEACH, CA 90806
USA PROFILE: AMS, DEALER
0091213 TOMARK-CYBER ASSOCIATES MANZOLILLO, TONY 003
29 CONTINENTAL PLACE E1083
GLEN COVE, NY 11542
USA PROFILE: AMS, DEALER
SALES MEMOPAD: - 08/12/91 12:52 PD : TERMINATION LETTER SENT 8/12/91 - EFFECTIVE
</TABLE>
ESD12:ARCAP2.000 OPERATOR:PD DATE: 03/13/95, 02:38:43 PM PAGE: 22
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
10/16/91
- 10/16/91 08:14 PD : TERMINATED 10/16/91
----
- 10/23/91 03:20 PD :
9210460 TREN TECH, INC. (201) 593-9200 DI MEO, LOU 003
23 VREELAND ST. (201) 593-9222 E1046 FAX NUMBER
2ND FLOOR
FLORHAM PARK, NJ 07932
USA PROFILE: AMS, DEALER
SALES MEMOPAD: NAME CHANGE FORM QUADRA TECHNOLOGY
- 09/14/92 10:49 PD : MAIL BEING RETURNED - MAILER FLAG FLIPPED
TO "N"
- 09/25/92 10:49 PD : OUT OF BUSINESS PER PHIL SMITH - TERMINATED
----
9210461 TREN TECH, INC. (212) 371-6020 DIMEOANK, LOU G. 003
USE ACCT # 9210460 E1046-1
NJ 07932
USA PROFILE: AMS, DEALER
SALES MEMOPAD: FORMERLY QUADRA TECHNOLOGY
9210750 TSE SOFTWARE ENTERPRISES, INC. (305) 484-5268 ATTN: J. KELLGREN
1640 W OAKLAND PARK BD STE 303 E1075
FT. LAUDERDALE, FL 33311
USA PROFILE: AMS, DEALER
9410820 UNIQUE COMPUTER SOLUTIONS, INC (714) 646-8971 ATTN: JERRY BURLEY
170 EAST 17TH ST STE 206 W1082
COSTA MESA, CA 92627
USA PROFILE: AMS, DEALER
0031764 UNISOL CORPORATION (201) 507-0800 PRICE, ROMAN 003
1099 WALL STREET WEST (201) 507-9796 C & W 6-21-94 FAX #
LYNDHURST, NJ 07071
USA PROFILE: AMS, DEALER
0031848 VEREX CORPORATION (702) 361-3557 DE ANGELO, LARRY 001
6253 INDUSTRIAL ROAD #F (702) 361-3376 ARLENE FAX #
LAS VEGAS, NV 89118
USA PROFILE: AMS, DEALER
0010897 VERSYS SOFTWARE LTD. (604) 940-8854 WRIXON, RANDY 004
4917 DELTA STREET (604) 940-1867 DEBBIE FAX
DELTA, B.C., V4K 2V1
CANADA PROFILE: AMS, DEALER, DEV
0010802 W-TECHNOLOGY (916) 971-9071 WELLBORN, ROGER 001
P.O. BOX 60787
SACRAMENTO, CA 95860-0787
USA PROFILE: AMS, DEALER, DEV
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PHONE-1 CONTACT-1
CUST # NAME PHONE-2 CONTACT-2 SLSMAN
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
9210870 WILLIAMS, BROWN & CO., INC. (212) 840-3435 BROWN, CAROL W. 003
SUITE 1108 (212) 840-3449 FAX #
19 WEST 44TH STREET
NEW YORK, NY 10036
USA PROFILE: AMS, DEALER, DEV
SALES MEMOPAD: FAX - 212-228-2782
- 03/02/94 02:23 PD : FORMERLY WINTHROP, BROWN & CO.
----
9420260 WORLDLINX TELECOMMUNICATIONS (416) 350-1000 JIM BETTS 004
BCE PLACE/181 BAY STREET, #350 (416) 350-1001 DIANA EVERTS FAX #
P O BOX 851
TORONTO, M5J 2T3
CANADA PROFILE: AMS, DEALER
SALES MEMOPAD: FAX =
416-890-6789
- 01/15/93 08:18 PD : FORMERLY IIS TECHNOLOGIES
----
9410950 YODER SYSTEMS (916) 488-5900 ATTN: SHARON YODER 000
3451 LONGVIEW DR STE 140 W10N95
N. HIGHLANDS, CA 95660
USA PROFILE: AMS, DEALER
9410780 Z-BASE COMPUTER SERVICES (714) 963-9483
CUSTOMER DELETED PER SALES W1078
FOUNTAIN VALLEY, CA 92708
USA PROFILE: AMS, DEALER
T-O-T-A-L CUSTOMER TYPE-MD RECORDS PRINTED: 195
</TABLE>
<PAGE>
EXHIBIT C
---------
System 1: ICE HOST (ICE = Intell's In-Circuit Emulator for Debugging)
---------------------------------------------------------------------
1 Summit 2000 - WYSE 386/16 with 4MB memory
1 PRIAM V185 71 MB disk drive
1 5.25" floppy drive
1 150MB WANGTEK tape drive
1 keyboard
1 monochrome video card and monitor
MS-DOS
System 2: ICE TARGET
---------------------
1 Summit 2000 - WYSE 386/16 with 4MB memory
1 MINISCRIBE 42MB disk drive
1 MAXPEED 16 port - ASSET TAG #10662
1 WYSE 8 port
1 60MB WANGTEK tape drive
1 3.5" floppy drive
1 5.25" floppy drive
1 TMI card in machine (part of ICE)( 2 spare TMI CPU chip cards for ICE - not
installed)
1 box of various chips for TMI CPU cards - not installed
1 DigiBoard host adapter card - not installed
1 DigiBoard concentrator - not installed
1 Catamount 1/2" tape controller - not installed
1 AM303-20 with SSD
MS-DOS
System 3 - Development
----------------------
486SX/20 with 8MB memory
1 MAXTOR 310 SCSI drive and Adaptec controller
1 MAXPEED 8 port controller
1 Tandberg tape drive and controller
1 3.5" floppy drive
1 5.25" floppy drive
1 AM303-20 SSD
MS-DOS
ICE Board - Bridge between ICE HOST and ICE TARGET
--------------------------------------------------
<PAGE>
EXHIBIT 10.27
SECOND AMENDMENT TO
PICK - SEQUOIA LICENSE AGREEMENT
This Second Amendment to the Pick - Sequoia Open Architecture License
Agreement is entered into effective 8-11-95, between Pick Systems ("Pick")
and Sequoia Systems, Inc. ("Sequoia").
RECITALS
A. Pick and Concurrent Operating Systems Technology ("Concurrent
Operating") entered into an Open Architecture License Agreement (the "License
Agreement") on October 10, 1986. By virtue of its purchase of Concurrent
Operating, Sequoia Systems, Inc. assumed all of Concurrent Operating's rights
and duties under the License Agreement.
B. Pick and Sequoia now wish to enter into this Second Amendment to the
License Agreement.
Now, therefore, for valuable consideration, the sufficiency of which is
acknowledged by the parties, Pick and Sequoia hereby amend the License
Agreement as follows:
1. A new Section 25 is hereby added to the License Agreement, as follows:
Operating Systems File Interface
--------------------------------
(a) Pick hereby grants to Licensee non-exclusive license to use Pick's
Operating Systems File Interface, including both source and object code
therefor, and all revisions, enhancements and upgrades thereto developed by
Pick, (collectively, "OSFI") subject to the terms and conditions of this
Agreement, except as specified in this Section 25.
(b) For such license, Licensee shall pay Pick license fees based on the
aggregate number of Seats on which Licensee sub-licenses the use of OSFI to
its sub-licensees of Licensed Systems at the rate of $20.00 each for the first
5000 Seats, $10.00 for each of the next 5000 Seats and $5.00 for each Seat
over 10,000 Seats. Such payments shall be subject, however, to an aggregate
maximum of $225,000, beyond which no further license fees with respect to the
OSFI shall be due. No other license fees or royalties shall be due in respect of
OSFI. For purposes of licensing OSFI, "Seats" shall be defined as the number
of concurrently active users of OSFI software.
(c) Licensee and Pick agree to cooperate with each other in the continued
development of OSFI, to share the results of such efforts and to furnish each
other with all upgrades and other OSFI product developments each produces
(collectively referred to
1
<PAGE>
herein as ("Enhancements") as they are available. Either party may use and
license such Enhancements as it sees fit without additional compensation to the
other party, regardless of which party originated such Enhancements, provided,
however, that neither party will license or disclose the source code for any
Enhancements to any third party without the prior written consent of the other.
This agreement will expire in three (3) years, unless an extension is mutually
agreed upon.
2. Except as specifically modified hereby, the License Agreement and its terms,
conditions and definitions shall remain in full force and effect, and shall
govern this Second Amendment. Capitalized terms used herein shall have the
meaning given to them in the License Agreement.
PICK SYSTEMS SEQUOIA SYSTEMS, INC.
By /s/ George E. Olenik By /s/ John Owens
------------------------ ------------------------
Name George E. Olenik Name John Owens
----------------------- ----------------------
Title CEO Title VP, Engineering
---------------------- ---------------------
2
<PAGE>
EXHIBIT 10.28
FIRST AMENDMENT TO
PICK - SEQUOIA LICENSE AGREEMENT
This First Amendment to the Pick - Sequoia Open Architecture License
Agreement is entered into effective Feb. 2, 1995, between Pick Systems ("Pick")
and Sequoia Systems, Inc. ("Sequoia").
RECITALS
--------
A. Pick and Concurrent Operating Systems Technology ("Concurrent
Operating") entered into an Open Architecture License Agreement (the "License
Agreement") on October 10, 1986. By virtue of its purchase of Concurrent
Operating, Sequoia Systems, Inc. assumed all of Concurrent Operating's rights
and duties under the License Agreement.
B. Pick and Sequoia now wish to enter into this First Amendment to
the License Agreement.
Now, therefore, for valuable consideration, the sufficiency of which
is acknowledged by the parties, Pick and Sequoia hereby amend the License
Agreement as follows:
AMENDMENT
----------
1. Limitation on License. Subparagraph 4(b) which excludes the use
---------------------
and sub-licensing of the Pick Systems is deleted in its entirety. All recurring
references to "Excluded" systems are also deleted.
2. Qualified Configuration. The defined term "Qualified
-----------------------
Configuration" set out in Paragraph 1.7 of the License Agreement is amended to
read as follows:
<PAGE>
1.7 "Qualified Configuration" shall mean a Licensee hardware
configuration which is based only on the microprocessor defined in
Exhibit "A" hereto. The Qualified Configuration shall include not only
the most current version of the microprocessor, but each subsequent
version by the same manufacturer which incorporates or exhibits the
same instruction set and is marketed by the manufacturer as a
sequential upgrade to the current version. The Qualified Configuration
shall include a central processing unit, random access memory, and a
hard disk drive as inherent hardware components.
3. Licensed System. The term "Licensed System" as defined in
---------------
Paragraph 1.5 of the License Agreement is amended to read as follows:
1.5 "Licensed System" shall mean a single copy of the Pick System, as
modified by an Implementation, to be used, delivered or sub-licensed
in object code form only, solely on, and bundled as an integral part
of a single "Qualified Configuration" designated by location, type and
serial number.
4. Effect of Amendment. Except as specifically modified hereby, the
-------------------
License Agreement and its terms, conditions and definitions shall remain in full
force and effect, and shall govern this First Amendment.
PICK SYSTEMS SEQUOIA SYSTEMS, INC.
By: /s/ George E. Olenik By: /s/ R. Gellert
------------------------- -------------------------
Name: George E. Olenik Name: R. Gellert
------------------------- -----------------------
Title: CEO Title: V.P./GM
------------------------- ----------------------
2
<PAGE>
EXHIBIT "A"
QUALIFIED CONFIGURATIONS
------------------------
Microprocessors based on the following: Motorola MC 68000; Intel X86, Pentium,
P6, P7; PowerPC series chips; and derivatives of the foregoing.
PICK SYSTEMS LICENSEE
TEXT TO COME TEXT TO COME
- -------------- --------------
Initials Initials
2-2-95 2-2-95
- ------------- -------------
Date Date
<PAGE>
EXHIBIT 10.29
ASSET SALE AGREEMENT
--------------------
by and between
--------------
Intel Corporation
-----------------
and
---
Texas Microsystems, Incorporated
--------------------------------
Dated November 30, 1994
-----------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<C> <S> <C>
Section 1. Purchase and Sale of Assets 4
1.1 Purchase and Sale 4
1.2 Description of Assets 4
1.3 Assets Excluded 5
1.4 Required Consents 5
1.5 Assumed Liabilities 5
Section 2. Purchase Price, Audits, Payment, Taxes and Closing 5
2.1 Price 5
2.2 Taxes 6
2.3 Closing 7
2.4 Adjustments 7
Section 3. Sellers Representations and Warranties 8
3.1 Corporate Existence 8
3.2 Authorization 8
3.3 Transfer Not Subject to Encumbrances or Third Party Approval 8
3.4 Litigation 8
3.5 Title to Assets 8
3.6 No Defaults 8
3.7 Names 8
Section 4. Representations of Buyer 8
4.1 Corporate Existence 8
4.2 Authorization 9
4.3 Buyers Acceptance 9
4.4 Conditions and Best Efforts 9
4.5 Confidential Information 9
4.6 Export 9
Section 5. Covenants of Seller 9
5.1 Seller's Operation of Business Prior to Closing Date 9
Section 6. Other Agreements 9
6.1 Inventory 10
6.2 Test Programs 10
6.3 Sellers Board Products 10
6.4 Engineering Support 10
6.5 Product Supply 10
6.6 Customer Support 10
6.7 Non-Competition 10
6.8 Astec Power Supply 11
</TABLE>
2
<PAGE>
TABLE OF CONTENTS Continued
-----------------
<TABLE>
<CAPTION>
Page
<C> <S> <C>
Section 7. Disclaimer of Warranty and Limitation of Liability 11
7.1 No Warranty 11
7.2 Other Disclaimers 11
7.3 Liability Cap 11
Section 8. Indemnification and Survival 11
8.1 Survival of Representations and Warranties 11
8.2 Buyer's Indemnification 12
8.3 Seller's Indemnification 12
Section 9. Conditions Precedent 12
Section 10. Termination 12
10.1 Termination 12
10.2 Effect of Termination 12
Section 11 Default 13
11.1 Cross Default Provision 13
Section 12 Miscellaneous 13
12.1 Documents Incorporated by Reference 13
12.2 Approvals 13
12.3 Further Assurances 13
12.4 Titles and Subtitles 13
12.5 Notices 13
12.6 Governing Law 14
12.7 Publicity 14
12.8 Integration; Amendment 14
Schedule A Asset Package 15
Schedule B List of Software 25
Schedule C List of Rackmount Customers 26
Schedule D Supplier List 28
Exhibit A Terms/Conditions of Sale-Equipment & Raw Materials 29
Exhibit B Intel Software Distribution License Agreement 31
Exhibit C Rackmount Product Purchase Agreement 36
Exhibit D Assignment of Names 45
Exhibit E Assignment of Copyright 47
</TABLE>
3
<PAGE>
AGREEMENT FOR SALE AND PURCHASE OF BUSINESS ASSETS
This agreement (hereinafter referred to as the "Agreement") is entered into this
30th day of November, 1994 (hereinafter referred to as the "Effective Date") by
and between Intel Corporation, a Delaware corporation with a place of business
at 5200 N.E. Elam Young Parkway, Hillsboro, OR, 97124-6497 (hereinafter referred
to as "Seller"), and Texas Microsystems, Incorporated, a Delaware company having
its principal place of business at 5959 Corporate Drive, Houston, Texas 77036
(hereinafter referred to as "Buyer"). Seller and Buyer may singularly or
collectively be referred to herein as a "Party" or the "Parties".
RECITALS
WHEREAS, Seller is divesting certain names, copyrights, marketing and
manufacturing documentation, customer information, engineering specifications,
equipment and inventories (hereinafter referred to as the "Assets") used in
connection with the manufacture and sale of products marketed by Seller as
OmniRACK an XpressRACK (hereinafter referred to as the "Rackmount Products").
- ----------------------
WHEREAS, Seller desires to sell such Assets to Buyer and Buyer desires to
acquire such Assets from Seller.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the Parties covenant and agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale. Subject to the terms and conditions of this
-----------------
Agreement, Seller agrees to sell to Buyer and Buyer agrees to
purchase the assets described in Section 1.2 of this Agreement.
1.2 Description of Assets. Seller agrees to deliver to Buyer and
---------------------
Buyer agrees to accept the following assets (the "Assets") on the
Closing Date:
1.2.1 All of Seller's right, title and interest in its
OmniRACK and XpressRACK name.
1.2.2 All of Sellers right, title and interest in copyrights
under, and related items specifically described with,
the manufacturing package and related documentation for
the Rackmount Products set forth in Schedule A.
1.2.3 All of Seller's rights and obligations with respect to
the Rackmount Products under purchase order agreements
with customers in Schedule C
4
<PAGE>
of this Agreement, to the extent that Seller is
authorized to make such assignments.
1.2.4 All of Sellers rights and obligations with respect to
supplies for the Rackmount Products under agreements
with vendors in Schedule D of this Agreement, to the
extent that Seller is authorized to make such
assignments.
1.3 Assets Excluded. Buyer acknowledges that Seller shall not sell
----------------
and Buyer shall not acquire any of Seller's assets not specified
in Section 1 of this Agreement, including without limitation,
accounts receivable, cash, notes receivable, and prepaid
accounts.
1.4 Required Consents. Seller shall use commercially reasonable
------------------
efforts to obtain the consent of the customers and suppliers to
assign all of the agreements set forth in Schedules C and D of
this Agreement prior to the Closing Date. In the event Seller is
unable to obtain the necessary consents, and Buyer, in its
reasonable discretion, views this lack of consent as material,
Buyer shall have no obligation to consummate this Agreement. In
the event the Buyer elects not to consummate this Agreement,
Seller shall have no liability to Buyer except to refund the
amount paid by Buyer pursuant to section 2.1.
1.5 Assumed Liabilities. Effective as of the Closing Date, Buyer
--------------------
shall assume and agrees to pay, discharge or perform, as
appropriate, (1) any and all of Seller's liabilities under
agreements with customers and suppliers assigned to Buyer and
(ii) any and all liabilities and obligations relating to
---
ownership, use or operation of the Assets and the design,
manufacture or sale of the Rackmount Products after the Closing
Date.
SECTION 2. PURCHASE PRICE, AUDITS, PAYMENT, TAXES AND CLOSING
2.1 Price. The price for the Assets shall be paid as follows:
------
2.1.1 Buyer shall pay to Seller, by cashiers or certified check
or by wire transfer, the sum of $650,000.00, as follows:
2.1.1.1 $200,000 U.S. upon execution of this Agreement;
and
2.1.1.2 $450,000 U.S. on the Closing Date.
2.1.1.3 If for any reason this Agreement is terminated
pursuant to Section 10 of this Agreement, Seller shall
promptly return the $200,000 paid by Buyer to Seller upon
execution of this Agreement without any offsets or
deductions of any kind.
2.1.2 In addition following Closing, except for sales by
Buyer to Seller, Buyer shall pay to Seller a royalty of 4%
of total net revenue (total revenue minus returns, or any
shipping, insurance, taxes, duties included on any
invoice) received by Buyer for Rackmount Products
distributed by Buyer, and successors or derivatives
thereof distributed by Buyer, for a period
5
<PAGE>
of three (3) years beginning January 1, 1996, up to a
maximum cumulative royalty of $1,000,000 U.S. Such royalty
shall be payable quarterly within thirty (30) calendar
days following the close of each calendar quarter.
2.1.2.1 Successors or derivatives will include only those
products which utilizes the Seller's baseboard, CPU
module, motherboard products, or which use the XpressRACK
or OmniRACK chassis, including any modifications of those
chassis'. Seller recognizes that Buyer designs and
manufactures other chassis' which incorporates Seller's
motherboards and which will not be subject to any royalty
under this Agreement. If Buyer incorporates their own
motherboard into Rackmount Products, Buyer will pay
royalty on the chassis and integrated options only.
2.1.2.2 Buyer will market and sell Rackmount Products for
a period of at least four (4) years from the Closing Date
provided Buyer can do so at a profit.
2.1.3 Buyer will keep accurate and complete records of royalties
owed to Seller pursuant to Section 2.1.2 of this
Agreement. Buyer agrees that Seller may conduct audits of
Buyer's records to verify Buyer's compliance with this
Agreement. If such audit discloses an underpayment, Buyer
shall promptly pay the underpayment to Seller. If the
underpayment is five percent (5%) or more of royalties
owed Seller, or the audit discloses a material breach of
this Agreement, Buyer will reimburse Seller for all costs
incurred for the audit. If such audit reflects an over
payment, Seller shall promptly refund the over payment
amount to Buyer.
2.1.4 Not more than thirty (30) days following the close of each
calendar quarter, Buyer will provide to Seller a report
showing the number of units shipped for the quarter and
the total net revenue therefor and tender to Seller a
check in the amount of all royalties payable thereunder
sent by Buyer to the following address:
Sheryl White
Intel Corporation, Post Contracts Management
5200 NE Elam Young Parkway, HF3-24
Hillsboro, OR 97124
2.2 Taxes. All payments by Buyer to Seller shall be made free and
-----
clear without deduction for any and all present and future taxes
imposed by any taxing authority. In the event that Buyer is
prohibited by law from making such payments unless such
deductions are made or withheld therefrom, then Buyer shall pay
such additional amounts as are necessary in order that the net
amounts received by Seller, after such deduction or withholding,
equal the amounts which would have been received if such
deduction or withholding had not occurred. Buyer shall promptly
furnish Seller with a copy of an official tax receipt or other
6
<PAGE>
appropriate evidence of any taxes imposed on payments made under
this Agreement, including taxes on any additional amounts paid.
In cases other than taxes referred to above, including but not
limited to sales and use taxes, stamp taxes, value added taxes,
property taxes and other taxes or duties imposed by any taxing
authority on or with respect to this Agreement, the costs of such
taxes or duties shall be borne by Buyer. In the event that such
taxes or duties are legally imposed initially on Seller or Seller
is later assessed by any taxing authority, then Seller will be
promptly reimbursed by Buyer for such taxes or duties plus any
interest and penalties suffered by Seller. However, Seller will
pay any taxes on income or profit recognized by Seller.
2.3 Closing. This Agreement shall be closed at the offices of Intel
-------
on or before the 31st of January, 1995, or at such other time as
the parties may agree in writing (the "Closing" or "Closing
Date"), as follows:
2.3.1 At the Closing, Seller shall deliver to Buyer the
following:
2.3.1.1 Name assignment of XpressRACK and OmniRACK names,
substantially in the form set forth in Exhibit D.
2.3.1.2 Copyright assignments for engineering and
marketing documentation in the form set forth in
Exhibit E.
2.3.1.3 An assignment of, and customer's consents for the
assignment of Rackmount Product's backlog.
2.3.1.4 An Assignment of, and supplier consents for
assignment of Agreements, for Rackmount Product's
supplies.
2.3.2 At the Closing, Buyer shall deliver to Seller the
following:
Cashiers or certified check for the amount of $450,000
U.S. (Four Hundred Fifty Thousand Dollars).
2.3.3 If Closing has not occurred on or prior to 28 February
1995, then either party may elect to terminate this
Agreement upon notice to the other party.
2.4 Adjustments
-----------
2.4.1 Seller and Buyer agree that Seller will continue to book
and fill orders for the Rackmount Products with its
existing customer base through 31 January 1995.
2.4.2 No assignment of Seller's accounts receivable shall occur
under this agreement for Rackmount Products shipped by
Seller, whether prior to or after the Closing Date.
7
<PAGE>
SECTION 3. SELLER'S REPRESENTATIONS AND WARRANTIES.
3.1 Corporate Existence. Seller is now and on the Closing Date will
-------------------
be a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware. Seller has all
requisite corporate power and authority to sell the Assets and
grant the licenses set forth herein, as the case may be.
3.2 Authorization. The execution, delivery and performance of this
-------------
Agreement has been duly authorized and approved by Seller, and
this Agreement constitutes a valid and binding Agreement of
Seller enforceable in accordance with its terms.
3.3 Transfer Not Subject to Encumbrances or Third-Party Approval.
------------------------------------------------------------
Except as specifically set forth in Section 1 of this Agreement,
and subject to disclaimers set forth in Section 7 of this
Agreement, the execution and delivery of this Agreement by
Seller, and the consummation of the contemplated transactions,
will not result in the creation or imposition of any valid lien,
charge, or encumbrance on any of the Assets and will not require
the authorization, consent, or approval of any third party except
as expressly provided herein, including any governmental
subdivision or regulatory agency.
3.4 Litigation. Seller has no actual knowledge of any claim,
----------
litigation, proceeding or investigation pending or threatened
against Seller which would impair Buyer's right to use the Assets
being conveyed under this Agreement.
3.5 Title to Assets. Except as disclosed to Buyer in Section 7.1,
---------------
and subject to Buyer's obligation under Section 8.2, Seller has
valid title to all of the Assets, free and clear of all liens,
security interests and encumbrances and upon assignment of the
same to Buyer, Buyer will acquire the Assets in the same manner.
3.6 No Defaults. Each of the agreements set forth in Schedules C and
-----------
D of this Agreement is in full force and effect, and Intel has
not received actual notice that defaults exist in any of such
agreements.
3.7 Names. Seller owns and will transfer to Buyer all Seller's rights
-----
in the names known as OmniRACK and XpressRACK pursuant to
Exhibit E to this Agreement. Buyer acknowledges that Seller has
not registered the OmniRACK or XpressRACK names as trademarks,
has not treated the OmniRACK or XpressRACK names as trademarks,
and has not maintained an active trademark enforcement program
with respect to the OmniRACK or XpressRACK names.
SECTION 4. REPRESENTATIONS OF BUYER
4.1 Corporate Existence. Buyer is now and on the Closing Date will be
-------------------
a corporation duly organized and validly existing and in good
standing under the laws of Delaware. Buyer has all requisite
corporate power and authority to acquire Assets and accept the
licenses set forth in this Agreement, as the case may be.
8
<PAGE>
4.2 Authorization. The execution, delivery and performance of this
-------------
Agreement has been duly authorized and approved by Buyer, and
this Agreement constitutes a valid and binding Agreement of Buyer
enforceable in accordance with its terms.
4.3 Buyer's Acceptance. Buyer represents and acknowledges that it
------------------
will make a decision whether to close this Agreement on the basis
of its own examination, personal knowledge, and opinion of the
value of the assets. Buyer has not relied on any representations
made by Seller other than those specified in this Agreement.
Buyer further acknowledges that Seller has made no agreement or
promise to repair or improve any of the equipment, inventory, or
other personal property being sold to Buyer under this Agreement
and that Buyer takes all such property in the condition existing
on the Closing Date, except as otherwise expressly provided in
this Agreement. Buyer agrees that on or before December 20, it
will advise Seller in writing whether or not it intends to close
on the basis of its own evaluation of Seller's customer and
supplier purchase orders pursuant to Schedule C and D. In the
event Buyer does not provide notice, or provides notice in its
willingness to proceed, and except as set forth in Sections 1.4,
2.3.3, and 5.1, Buyer waives its right to terminate pursuant to
Section 10.
4.4 Conditions and Best Efforts. Buyer will use its reasonable best
---------------------------
efforts to effectuate the transactions contemplated by this
Agreement and to fulfill all the conditions of Buyer's
obligations under this Agreement, and shall do all acts and
things as may be required to carry out Buyer's obligations and to
consummate this Agreement.
4.5 Confidential Information. Buyer will not disclose to third
------------------------
parties any Confidential Information received from Seller
pursuant to the Corporate Non-Disclosure Agreement #06457, dated
July 8, 1992.
4.6 Export. Buyer will not export, either directly or indirectly, the
------
Rackmount Products or any technical data describing such
Rackmount Products or software without first obtaining any
required license or other approval from the U.S. Department of
Commerce or any other agency or department of the United States
Government.
SECTION 5. COVENANTS OF SELLER
5.1 Seller's Operation of Business Prior to Closing Date. Seller
----------------------------------------------------
agrees that between the Effective Date and the Closing Date,
Seller will:
5.1.1 Not assign, sell, lease, or otherwise transfer or dispose
of any of the Assets, whether owned or hereafter acquired,
except in the normal and ordinary course of business and
in connection with its normal operation.
SECTION 6. OTHER AGREEMENTS
9
<PAGE>
6.1 Inventory. Buyer will purchase from Seller the raw materials
---------
related to the Rackmount Products in Seller's inventory, and
which Buyer in its reasonable discretion determines to be
reasonably useable in future sales by Buyer, or on order, which
Seller determines to be excess pursuant to an agreement in the
form set forth in Exhibit A, which will become effective on the
Closing Date.
6.2 Test Programs. Seller will license Buyer to use software
-------------
developed by Seller to test the Rackmount Products for a period
of four (4) years following the Closing Date pursuant to a
license agreement in the form set forth in Exhibit B, which will
become effective on the Closing Date.
6.3 Seller's Board Products. For a term of five (5) years from the
-----------------------
Closing Date of this Agreement Seller will make available to
Buyer, PC and server baseboards and CPU modules, at prices equal
to Seller's established 5Ku per quarter prices and at Seller's
standard terms and conditions of sale.
6.4 Engineering Support. Seller will provide to Buyer reasonable
-------------------
technical support services, limited to two (2) engineers for a
period of thirty (30) days following the Effective Date. Buyer
will pay all Seller's traveling expenses related to such support,
including the cost of all travel, accommodations and meals
incurred. Such support shall be limited to two trips between
Seller's and Buyer's facility. Such expenses shall be itemized by
Seller monthly and payable by Buyer by check within five (5)
business days following the close of each calendar month sent by
Buyer to the remittance address set forth in Section 2.1.4 of
this Agreement.
6.5 Product Supply. Buyer will supply to Seller Rackmount Products on
--------------
a subcontract basis prior to the Closing Date and for Seller's
internal or OEM requirements thereafter at most favored customer
prices pursuant to an agreement in the form set forth in Exhibit
C, which will become effective prior to the Closing Date of this
Agreement.
6.6 Customer Support. Buyer will maintain an acceptable quality level
----------------
for Rackmount Products as required for like products in the
industry. Buyer will offer customers of Rackmount Products,
manufactured by Buyer following the Closing Date, product support
services, technical assistance, warranty, out-of warranty, and
spares support under terms that are reasonably comparable to
those previously offered by Seller, as set forth in this
Agreement or as communicated by Seller to Buyer in writing prior
to the Closing Date.
6.7 Non-Competition. For a period of four (4) years from the Closing
---------------
Date, Seller shall not manufacture, market or sell any Ruggedized
Industrial Rackmount Products, as defined in section 6.7.1 and
6.7.2 below, which compete with the Assets.
6.7.1 Ruggedized Industrial Rackmount Products are defined as
having additional filtering, rugged 19 inch rackmountable chassis
designed to the industrial RETMA standard, and used in a hostile
non-environmentally controlled area.
10
<PAGE>
6.7.2 Rackmount Industrial Products exclude, (i) any Rackmount
Products purchased under Exhibit C for internal use or OEM resale
and, (ii) the commercial rackmount computer and rack under
development by Seller, targeted for environmentally controlled
computer room stacking and cable management, which does have
means for mounting on a rack, and any derivative or successor
thereof and, (iii) any like product manufactured by Seller under
special contract for specific OEM customers, provided Buyer
cannot reasonably offer the product or after reviewing a proposal
by Buyer, customer requires that the product be built by Seller.
6.8 ASTEC Power Supply. Seller will authorize Buyer to acquire ASTEC
------------------
Power Supply (Part number 202123-005) directly from Supplier at
price and terms and conditions negotiated between Buyer and
Supplier.
SECTION 7. DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY
7.1 No Warranty. SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED
-----------
CONCERNING THE TECHNICAL INFORMATION OR INTELLECTUAL PROPERTY
RIGHTS TRANSFERRED HEREUNDER, THE CONDITION OF THE INTELLECTUAL
PROPERTY UNDER THE RACKMOUNT PRODUCTS OR THE MANUFACTURABILITY OF
THE RACKMOUNT PRODUCTS, OR THE ABILITY OF BUYER TO SELL THE
RACKMOUNT PRODUCTS WITHOUT INFRINGING THIRD-PARTY PATENTS THIRD
PARTY PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS.
7.2 Other Disclaimers. EXCEPT FOR FRAUD, NEITHER PARTY HERETO SHALL
-----------------
BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES
(INCLUDING WITHOUT LIMITATION LOSS OF PROFIT) WHETHER OR NOT THE
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY ARISING OUT OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THIS EXCLUSION
INCLUDES LIABILITY THAT MAY ARISE OUT OF THIRD-PARTY CLAIMS.
7.3 Liability Cap. IN NO EVENT WILL SELLER'S TOTAL LIABILITY UNDER
-------------
THIS AGREEMENT EXCEED THE AMOUNTS PAID BY BUYER TO SELLER
PURSUANT TO SECTIONS 2.1.1 AND 2.1.2 OF THIS AGREEMENT.
SECTION 8. INDEMNIFICATION AND SURVIVAL
8.1 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made in this Agreement shall survive the Closing
of this Agreement, except that any party to whom a representation
or warranty has been made in this Agreement shall be deemed to
have waived any misrepresentation or breach of representation or
warranty of which such party had knowledge prior to Closing. Any
party learning of a misrepresentation or breach of representation
or warranty under this Agreement shall immediately give written
notice thereof to all other parties to this Agreement. Except as
otherwise set forth in Section 11 of this Agreement with respect
to Confidential Information, the representations and
11
<PAGE>
warranties in this Agreement shall terminate two (2) years from
the Closing Date, and such representations or warranties shall
thereafter be without force or effect, except any claim with
respect to which notice has been given to the party to be charged
prior to such expiration date.
8.2 Buyer's Indemnification. Buyer agrees to defend, indemnify, and
-----------------------
hold harmless Seller from and against any and all claims,
liabilities, demands, actions, causes of action, obligations, and
costs of every kind and description (including reasonable
attorney's fees) arising (i) out of or related to the sale or
distribution of the Rackmount Products by Buyer following the
Closing Date, including, without limitation death, personal
injury or property damage and use, infringement or
misappropriation of any patent, trade secret or intellectual
property right; (ii) out of Buyer's failure to perform
obligations of Seller assumed by Buyer pursuant to this
Agreement, including without limitation obligations assumed under
Exhibits A through E of this Agreement, or (iii) out of default
by Buyer of any contract, agreement or other obligation with or
to third-parties, including, without limitation, contracts,
agreements and obligations with and to customers and suppliers.
8.3 Seller's Indemnification. Seller agrees to defend, indemnify, and
------------------------
hold harmless Buyer from and against any and all claims,
liabilities, demands, actions, causes of action, obligations, and
costs of every kind and description (including reasonable
attorney's fees) arising out of any products manufactured and
sold by Seller prior to the Closing Date, including, without
limitation death, personal injury or property damage and use,
infringement or misappropriation of any patent, trade secret or
intellectual property right.
SECTION 9. CONDITIONS PRECEDENT
9.1 The obligations of Seller under this Agreement to effect the
sales or assignments contemplated herein are subject to
satisfactory performance by Buyer of obligations pursuant to
Sections 6.5 and 6.6 of this Agreement.
SECTION 10. TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing Date (a) by mutual written consent of the Seller
and Buyer, or (b) by either Buyer or Seller if, (i) pursuant to
Section 2.3.3 closing has not occurred by 28 February 1995, (ii)
there shall be a final nonappealable order of a federal or state
court in effect preventing consummation of this Agreement, (iii)
there shall be any action taken, or any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to
this Agreement by any governmental authority which would make
consummation of this Agreement illegal, or (c) by Buyer pursuant
to Sections 1.4, 4.3 and 5.1 of this Agreement.
10.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Seller or Buyer as provided in Section 10.1
of this Agreement, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part
12
<PAGE>
of the parties hereto or their respective officers or directors
except as to Section 4.5 of this Agreement.
SECTION 11. DEFAULT
11.1 Cross-Default Provision. A default in this Agreement shall
-----------------------
constitute a default in the agreements described in Section 6 of
this Agreement, and a default in any one or more of the
agreements described in Section 6 shall constitute a default in
this Agreement.
SECTION 12. MISCELLANEOUS
12.1. Documents Incorporated by Reference
-----------------------------------
12.1.1 The following Schedules and Exhibits, are incorporated
herein by reference:
Schedules:
----------
"A" Asset Package
"B" List of Software
"C" Assigned Customer Agreements
"D" Supplier List
Exhibits:
---------
"A" Terms and Conditions of Sale-Equipment and Raw
Materials
"B" Intel Software Distribution License Agreement
"C" Rackmount Product Purchase Agreement
"D" Assignment of Names
"E" Assignment of Copyright
12.2 Approvals. Any approvals required by this Agreement shall not be
---------
withheld unreasonably unless specifically otherwise indicated.
12.3 Further Assurances. The parties hereto agree to execute such
------------------
further instruments and to take such further action as may be
reasonably necessary to carry out the intent of this Agreement.
12.4 Titles and Subtitles. The titles and subtitles in this Agreement
--------------------
are for convenience only and are not considered in construing or
interpreting this Agreement.
12.5 Notices. Any notice required or permitted hereunder shall be
-------
given in writing and shall be deemed effectively given upon
personal delivery or upon deposit in the United States Post
Office, by registered or certified mail with postage and fees
prepaid, addressed to the other party hereto at his or its
address hereinafter shown below his or its signature or at such
other address as such party may designate by ten (10) days'
advance written notice to the other party hereto.
13
<PAGE>
12.6 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws and conflict of law rules of the State of Oregon
as applied to agreements among Oregon residents entered into and
performed entirely within Oregon and shall inure to the benefit
of the heirs, successors and assigns of the parties.
12.7 Publicity. Neither party may disclose the content of this
---------
Agreement, except to lawyers, bankers and external auditors,
without the prior written consent of the other party.
12.8 Integration: Amendment. This Agreement represents the entire
----------------------
understanding of the parties with respect to the subject matter
hereof and supersedes all previous understandings, written or
oral. This Agreement may only be amended with the written consent
of the parties hereto or their successors or assigns. No oral
waiver or amendment shall be effective under any circumstances
whatsoever.
IN WITNESS WHEREOF, the Parties, by and through their respective duly authorized
representatives, hereby agree upon the Effective Date.
SELLER: BUYER:
/s/ Michael Stewart
- ---------------------------- ----------------------------
Signature Signature
MICHAEL STEWART
- ---------------------------- ----------------------------
Printed Name Printed Name
PRESIDENT
- ---------------------------- ----------------------------
Title Title
14
<PAGE>
EXHIBIT 10.30
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF COLUMBIA
- -------------------------------------
:
SECURITIES AND EXCHANGE COMMISSION :
450 Fifth Street, N.W. :
Washington, D.C. 20549, : Civil Action No.
:
Plaintiff, : 95 0321
v. :
: FILED
SEQUOIA SYSTEMS, INC., : FEB 24 1995
GABRIEL P. FUSCO, :
KENT R. ALLEN, :
KEITH D. JOHNSON, and : CLERK, U.S. DISTRICT COURT
EDWIN J. HUDSON, JR., : DISTRICT OF COLUMBIA
:
Defendants. :
:
- -------------------------------------
CONSENT AND UNDERTAKINGS OF DEFENDANT SEQUOIA SYSTEMS, INC.
-----------------------------------------------------------
1. Defendant Sequoia Systems, Inc. ("Sequoia"), having been served with
the Complaint for Permanent Injunction and Other Equitable Relief ("Complaint"),
and having entered a general appearance admits the service of the Complaint upon
it and consents to the jurisdiction of this Court over it and over the subject
matter of this action.
2. Sequoia, without admitting or denying any of the allegations of the
Complaint, except as to jurisdiction which it admits, hereby consents, solely
for the purposes of this action, to the entry of the Final Judgment of Permanent
Injunction as to Defendant Sequoia Systems, Inc. ("Final Judgment") in the form
annexed hereto and incorporated by reference herein, permanently restraining and
enjoining Sequoia from engaging in conduct violative of Sections 10(b), 13(a),
13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the
"Exchange Act") [15 U.S.C.
<PAGE>
(S)(S) 78j(b), 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)] and Rules 10b-5, 12b-20,
13a-1 and 13a-13 [17 C.F.R. (S)(S) 240.10b-5, 240.12b-20, 240.13a-1 and
240.13a-13] thereunder.
3. As set forth above, Sequoia consents to the entry of the Final
Judgment, without admitting or denying any of the allegations of the Complaint,
except as to jurisdiction which it admits. Sequoia understands that it is the
Commission's policy, set forth in 17 C.F.R. (S) 202.5(e), not to permit a
defendant to consent to entry of a judgment while denying the allegations in the
Complaint. Sequoia further understands that the Commission's acceptance of this
Consent in this matter is based upon its compliance with this policy.
4. Sequoia waives the filing of an answer and waives the entry of findings
of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil
Procedure.
5. Sequoia waives any right it may have to appeal from the entry of the
annexed Final Judgment.
6. Sequoia enters into this Consent and Undertakings ("Consent")
voluntarily and of its own accord and represents that no offers, promises,
inducements, or threats of any kind have been made by the Commission or any
member, officer, agent, employee, or representative thereof to induce it to
enter into this Consent.
7. Sequoia undertakes and agrees to cooperate with the Commission and to
provide to the Commission discovery, including documentary evidence, and to
provide truthful information at any interview, deposition, and any judicial or
investigative (whether
2
<PAGE>
formal or informal) or administrative proceeding related to or in connection
with the matters alleged in, or arising out of, the Complaint, or any of the
other defendants in SEC v. Sequoia Systems, Inc., as the Commission may seek
----------------------------
or require; and that it will do so at the request of the Commission or its
staff, upon reasonable request and upon service of a subpoena on either the
General Counsel or Corporate Secretary of Sequoia, by First Class Mail or any
other method the Commission may choose.
8. Sequoia agrees that this Consent shall be incorporated by reference in
the Final Judgment with the same force and effect as if fully set forth therein.
9. Sequoia agrees that it will not oppose the enforcement of the Final
Judgment on the ground, if any exists, that it fails to comply with Rule 65(d)
of the Federal Rules of Civil Procedure, and hereby waives any objection it may
have based thereon.
10. Sequoia agrees that the Final Judgment may be presented by the
Commission to the Court for signature and entry without further notice.
11. Sequoia waives service of the Final Judgment entered herein upon it and
agrees that entry of the Final Judgment by the Court and filing with the Clerk
in the District of Columbia will constitute notice to it of the terms and
conditions of the Final Judgment.
12. Sequoia agrees that this Court shall retain jurisdiction over this
matter for the purpose of enforcing the terms and conditions of the Final
Judgment, for all purposes regarding the
3
<PAGE>
litigation of the above-captioned action, and for purposes regarding this
Consent.
SEQUOIA SYSTEMS, INC.
By: SIGNATURE APPEARS HERE
----------------------------
On this 30th day of December, 1994, Cornelius P. McMullen, being known to
me and who executed the foregoing Consent and Undertakings of Defendant Sequoia
Systems, Inc., personally appeared before me and did duly acknowledge to me that
he was authorized to execute and executed the same on behalf of Sequoia.
/s/ Florence R. Silverman
- -----------------------------------
Notary Public
My Commission expires: March 15, 1996
APPROVED AS TO FORM:
/s/ Geoffrey S. Stewart
- -----------------------------------
Geoffrey S. Stewart, Esq.
Hale & Dorr
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Counsel for Sequoia Systems, Inc.
4
<PAGE>
SEQUOIA SYSTEMS, INC.
Certificate of Corporate Resolution
-----------------------------------
I, Jeremy F. Swett, do hereby certify that I am the duly elected, qualified
and acting Secretary of Sequoia Systems, Inc., a Delaware corporation (the
"Company"), and that the following is a complete and accurate copy of a
resolution adopted by the Board of Directors of the Company on November 8, 1994:
RESOLVED: That the President and Chief Executive Officer of the
Company be and he hereby is authorized to act on behalf of the
Company, and in his sole discretion, to negotiate, approve and accept
the Offer of Settlement of Sequoia Systems, Inc., attached hereto, in
connection with the investigation conducted by the Securities and
Exchange Commission; in this connection, the aforementioned officer be
and he hereby is authorized to undertake such actions as he may deem
necessary and advisable, including the execution of such documentation
as may be required by the Securities and Exchange Commission, in order
to carry out the foregoing.
I further certify that the aforesaid resolution has not been amended or revoked
in any respect and is still in full force and effect.
IN WITNESS WHEREOF, I have executed this Certificate as a sealed
instrument as the duly elected, qualified, and acting Secretary of the Board of
Directors of Sequoia Systems, Inc. hereunto duly authorized this 30th day of
December, 1994.
/s/ Jeremy F. Swett
---------------------------
Jeremy F. Swett
Secretary
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF COLUMBIA
- -------------------------------------
:
SECURITIES AND EXCHANGE COMMISSION :
450 Fifth Street, N.W. :
Washington, D.C. 20549, : Civil Action No.
:
Plaintiff, : 95 0321
V. :
: FILED
SEQUOIA SYSTEMS, INC., :
GABRIEL P. FUSCO, : FEB 24 1995
KENT R. ALLEN, :
KEITH D. JOHNSON, and : CLERK, U.S. DISTRICT COURT
EDWIN J. HUDSON, JR., : DISTRICT OF COLUMBIA
:
Defendants. :
:
- -------------------------------------
FINAL JUDGMENT OF PERMANENT INJUNCTION
AS TO DEFENDANT SEQUOIA SYSTEMS, INC.
-------------------------------------
Plaintiff Securities and Exchange Commission (the "Commission"), having
filed a Complaint for Permanent Injunction and Other Equitable Relief
("Complaint"), and defendant Sequoia Systems, Inc. ("Sequoia"), in the attached
Consent and Undertakings of Defendant Sequoia Systems, Inc. ("Consent"), having
entered a general appearance herein, having admitted the jurisdiction of this
Court over it and over the subject matter of this action, having waived the
filing of an answer to the Complaint, having waived the entry of findings of
fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil
Procedure, and, without admitting or denying the allegations of the Complaint,
except as to jurisdiction, which it admits, having consented to the entry of
this Final Judgment of Permanent Injunction as to Defendant Sequoia Systems,
Inc. ("Final Judgment"), and it further appearing that
<PAGE>
this Court has jurisdiction over Sequoia and the subject matter hereof, and the
Court being fully advised in the premises:
I.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that Sequoia, its officers,
agents, servants, employees, and attorneys, and all persons in active concert or
participation with them who receive actual notice of this Final Judgment by
personal service or otherwise, and each of them, be and hereby are permanently
restrained and enjoined from, directly or indirectly, violating Section 10(b) of
the Securities Exchange Act of 1934 ("Exchange Act") (15 U.S.C. (S) 78j(b)] and
Rule lOb-5 [17 C.F.R. (S) 240.10b-5], promulgated thereunder, by using any means
or instrumentality of interstate commerce, or of the mails, or of any facility
of any national securities exchange:
(a) to employ any device, scheme, or artifice to defraud,
(b) to make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading,
or
(c) to engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
2
<PAGE>
II.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia, its officers,
agents, servants, employees, and attorneys, and all persons in active concert or
participation with them who receive actual notice of this Final Judgment by
personal service or otherwise, and each of them, be and hereby are permanently
restrained and enjoined from, directly or indirectly, violating Section 13(a)
of the Exchange Act (15 U.S.C. (S) 78m(a)] and Rules 12b-20, 13a-1 and 13a-13
[17 C.F.R. (S)(S) 240.12b-20, 240.13a-1 and 240.13a-13] thereunder, by filing or
causing to be filed with the Commission any periodic report on behalf of
Sequoia, which contains any untrue statement of material fact, or which omits to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading, or which fails
to comply in any material respect with the requirements of Section 13(a) of the
Exchange Act [15 U.S.C. (S) 78m(a)] and the rules and regulations thereunder.
III.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia, its officers,
agents, servants, employees, and attorneys, and all persons in active concert or
participation with them who receive actual notice of this Final Judgment by
personal service or otherwise, and each of them, be and hereby are permanently
restrained and enjoined from, directly or indirectly, violating Section 13(b)(2)
(A) of the Exchange Act [15 U.S.C. (S) 78m(b)(2)(A)] by failing to make
and keep books, records and accounts, which, in
3
<PAGE>
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Sequoia.
IV.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia, its officers,
agents, servants, employees, and attorneys, and all persons in active concert
or participation with them who receive actual notice of this Final Judgment by
personal service or otherwise, and each of them, be and hereby are permanently
restrained and enjoined from, directly or indirectly, violating Section
13(b)(2)(B) of the Exchange Act [15 U.S.C. (S) 78m(b)(2)(B)] by failing to
devise and maintain a system of internal accounting controls at Sequoia
sufficient to provide reasonable assurances that:
(a) transactions are executed in accordance with management's general or
specific authorization;
(b) transactions are recorded as necessary (I) to permit preparation of
financial statements in conformity with generally accepted accounting
principles or any other criteria applicable to such statements, and
(II) to maintain accountability for assets;
(c) access to assets is permitted only in accordance with management's
general or specific authorization; and
(d) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
4
<PAGE>
V.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia shall cooperate in
all respects with the efforts of the Commission pursuant to this Final Judgment,
shall give the Commission all reasonable assistance, and shall provide to the
Commission such discovery, including testimony, information, and documentary
evidence, as the Commission may seek or require in connection with any
continuing investigation or litigation of, or administrative proceeding relating
to, the matters alleged in, or arising out of, the Complaint.
VI.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the annexed Consent is
incorporated by reference herein with the same force and effect as if fully set
forth herein.
VII.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain
jurisdiction of this matter for the purposes of enforcing the terms and
conditions of this Final Judgment and annexed Consent, and for all purposes
regarding the litigation of the above-captioned action.
5
<PAGE>
* * *
There being no reason for delay, the Clerk of the Court is hereby directed,
pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, to enter this
Final Judgment forthwith.
SO ORDERED, this 23rd day of February, 1995, at 2:00 P.M. E.S.T.
/s/ SIGNATURE TO COME
----------------------------------
UNITED STATES DISTRICT JUDGE
6
<PAGE>
EXHIBIT 10.31
THIRD AMENDMENT TO LEASE
------------------------
THIS THIRD AMENDMENT TO LEASE (this "Amendment") is made by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS
MICRO-SYSTEMS, INC. a Texas corporation ("Tenant"), effective the 10th day of
July, 1995.
W I T N E S S E T H:
--------------------
WHEREAS, Landlord and Tenant did enter into that certain lease (the
"Lease") dated December 11, 1992, and as amended effective February 24, 1993 and
October 28, 1993 for certain leased space situated in the Building known as 5959
Corporate Drive, Houston, Texas; and
WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth
herein;
NOW THEREFORE, Landlord and Tenant in consideration of the premises and the
mutual benefits its to be derived therefrom, do hereby covenant, stipulate and
agree, each with the other, to the following terms, covenants, conditions and
obligations as an amendment to the Lease:
1. All terms, covenants, obligations and conditions in this Amendment
which conflict with a like provision in the Lease shall be controlling
over and supersede any like provision in the Lease.
2. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Amendment shall
remain in full force and effect. All defined terms in the Lease shall
have the same definition in this Amendment.
3. Article 1, Section 1.01 of the Lease is amended to include within the
Premises approximately 17,109 square feet of Net Rentable Area located
in the Northwest Quadrant of the first floor of the Building (the
"Northwest Quadrant Space") as shown on Exhibit 1 attached hereto and
incorporated herein. The Premises also shall be increased to include
3,871 square feet of Net Rentable Area located in the Basement (the
"Additional Basement Space") as shown on Exhibit 2 attached hereto and
incorporated herein.
4. Article 2, Section 2.01 of the Lease is amended to provide that the
Expiration Date shall be midnight on July 1, 2000.
1
<PAGE>
5. Article 5, Section 5.02 is amended to provide that the Base Rent for
the Northwest Quadrant Space is $8.50 per square foot of Net Rentable
Area per annum and $4.50 per square foot of Net Rentable Area per annum
for the Additional Basement Space.
6. Tenant will take the Northwest Quadrant Space on an "AS IS" basis.
Construction of demising walls shall be subject to Article 11 of the
Lease. Tenant and Landlord shall each bear one-half (1/2) the cost of
the construction of the demising walls for the Northwest Quadrant.
7. Tenant will take the Additional Basement Space on an "AS IS" basis,
agreeing that no air-conditioning is to be provided to such Additional
Basement Space, and subject to Landlord's right to substitute for the
Additional Basement Space an equally sized area of space in the
basement level of the Building, effective fourteen (14) days from
Landlord's written notice thereof to Tenant.
8. Effective July 10, 1995, Landlord will lease Tenant 44 covered parking
spaces at a rate of $15.00 per month per space, such lease shall be
co-terminus with the Lease.
9. (a) Tenant will have subject to the provisions herein, the option to
include "AS IS" the entire remaining approximately 14,606 square feet
of Net Rentable Area contained in the Northwest Quadrant for office
space at a Base Rent of $8.50 per square foot of Net Rentable Area per
annum, but such option must be exercised before December 31, 1995 and
in the following manner: Tenant must provide written notice of such
exercise to Landlord at least one (1) month prior to December 31, 1995.
if Tenant is in default under the terms of the Lease either at the time
such option is exercised or at the time Tenant is to take delivery of
the space subject to said option, this option and the exercise thereof
shall be of no effect.
(b) After December 31, 1995, Tenant will have a preferential right to
include within the Premises "AS IS" the approximately 14,606 square
feet of Net Rentable Area of the Northwest Quadrant for office space
subject to the provisions of Article 26, Section 26.03 of the Lease,
except that the Base Rent for such space shall be the greater of: (i)
$9.50 per square foot of Net Rentable Area per annum, or, (ii) the Base
Rent in the proposed third-party lease which Landlord notified Tenant
of pursuant to Article 26, Section 26.03.
10. Tenant will have a preferential right to lease "AS IS"
2
<PAGE>
the two South Quadrants on the second floor of the Building for office
space, subject to the provisions of Article 26, Section 26.03, except
that the Base Rent for such space shall be the greater of: (i) $8.50
per square foot of Net Rentable Area per annum, or, (ii) the Base Rent
in the proposed third-party lease which Landlord notified Tenant of
pursuant to Article 26, Section 26.03.
11. For a period of six (6) months following the full execution of this
Amendment (the "Basement Space Option Period"), Tenant will have the
option to include within the Premises "AS IS" approximately 10,000
square feet of Net Rentable Area in the B-2 and B-3 Expansion Space
area of the basement of the Building at a Base Rent of $7.50 per square
feet of Net Rentable Area per annum, but such option must be exercised
in the following manner: Tenant must provide written notice of such
exercise to Landlord at least one (1) month prior to the expiration of
the aforesaid Basement Space Option Period. If Tenant is in default
under the terms of the Lease either at the time such option is
exercised or at the time Tenant is to take delivery of the space
subject to said option, this option and the exercise thereof shall be
of no effect.
12. For a period of 24 months following the full execution of this
amendment, Tenant will have the option to surrender the Northwest
Quadrant Space to Landlord upon 120 days prior written notice of its
election to do so; and, Landlord will accept the surrender of the
Northwest Quadrant Space 120 days following such written notice and the
Premises shall be reduced by the approximately 17,109 square feet of
Net Rentable Area constituting the Northwest Quadrant Space.
Made as of the date first written above.
LANDLORD TENANT
-------- ------
CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC.
By SIGNATURE TO COME By SIGNATURE TO COME
--------------------------- ---------------------------
Its Lease Manager Its President
-------------------------- --------------------------
3
<PAGE>
MEMORANDUM OF UNDERSTANDING AND
SECOND AMENDMENT TO LEASE
-------------------------------
This Memorandum of Understanding and Second Amendment to Lease is made by
and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord"), and
TEXAS MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"), effective the _______
day of ______________________, 1993.
Landlord and Tenant have disputed the start of the Rental Commencement
Date, as that term is defined in the lease dated December 11, 1992, as amended
effective February 24, 1993 (the "Lease") . In order to resolve any and all
past, present, or future disputes regarding said Rental Commencement Date,
Landlord and Tenant agree that the Lease be amended as follows:
1. Subject to the provisions of Paragraph 2 below, the Rental Commencement
Date is February 19, 1993. Section 5.02 of the Lease is amended to
provide that Tenant's obligation to pay Rent shall not begin until the
date that is six (6) months and three (3) weeks after the Rental
Commencement Date. Upon the full execution of this Memorandum of
Understanding and Second Amendment to Lease, Tenant shall pay the Rent,
except for the Rent for the Basement Space which is governed by
Paragraph 2 below, for the period beginning September 12, 1993 through
October 31, 1993, adjusted to account for or Tenant's advance payment
of one month's Rent. The Rent to be paid pursuant to this Paragraph 1
is Twenty-Six Thousand Nine Hundred Fifty-Nine and 41/100 Dollars
($26,959.41), without any late fee, interest or penalty of any kind.
<PAGE>
2. Notwithstanding anything to the contrary in the Lease or herein, Tenant
shall pay Rent, as that term is defined in the Lease, for the Basement
Space, as that term is defined in the Lease, beginning August 8, 1993.
The Rent due for such Basement Space for the period August 8, 1993
through October 31, 1993 is Twenty-Three Thousand Nine Hundred
Twenty-One and 19/100 Dollars ($23,921.19), adjusted to account for
Tenant's advance payment of one month's Rent, and shall be paid,
without any late fee, interest, or penalty of any kind, upon the full
execution of this Memorandum of Understanding and Second Amendment to
Lease.
3. Section 2.01 of the Lease is amended to provide that the Expiration
Date, as that term is defined in the Lease, shall be midnight on
July 1, 1998.
4. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Memorandum of
Understanding and Second Amendment to Lease shall remain in full force
and effect.
Execution effective as of the date first written above.
LANDLORD TENANT
CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC.
By: By: SIGNATURE TO COME
---------------------------- ----------------------------
Its: Its: Chmn & CEO
--------------------------- ---------------------------
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS
MICRO-SYSTEMS, a Texas corporation ("Tenant") , effective the 24th day of
February, 1993.
W I T N E S S E T H:
--------------------
WHEREAS, Landlord and Tenant did enter into that certain lease (the
"Lease") dated December 11, 1992, for certain leased space situated in the
Building known as 5959 Corporate Drive, Houston, Texas; and
WHEREAS, Landlord and Tenant desire to amend the Lease as set forth herein;
NOW THEREFORE, Landlord and Tenant in consideration of the premises and the
mutual benefits to be derived therefrom, do hereby covenant, stipulate and
agree, each with the other, to the following terms, covenants, conditions and
obligations as an amendment to the Lease:
1. All terms, covenants, obligations and conditions in this Amendment
which conflict with a like provision in the Lease shall be controlling
over and supersede any like provision in the Lease.
2. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Amendment shall
remain in full force and effect.
3. Article 1, Section 1.01 of the Lease is amended to increase the
Premises to 83,878 square feet of Net Rentable Area, such increase
resulting from the addition of 450 square feet of Net Rentable Area to
the Basement Space, with the location of such 450 square feet as shown
on Exhibit 1 attached hereto and incorporated herein.
4. Article 5, Section 5.02 of the Lease is amended to change the required
monthly installments of Base Rent to $56,372.46.
1
<PAGE>
Executed as of the date first written above.
LANDLORD TENANT
-------- ------
CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC.
By SIGNATURE TO COME By SIGNATURE TO COME
----------------------------- ------------------------------
Its Leasing Manager Its Chmn & CEO
---------------------------- -----------------------------
2
<PAGE>
5959 CORPORATE DRIVE
HOUSTON, TEXAS
OFFICE LEASE AGREEMENT
BETWEEN
CHEVRON U.S.A. INC.
("Landlord")
AND
TEXAS MICRO-SYSTEMS, INC.
("Tenant")
<PAGE>
TABLE OF CONTENTS
FOR THE 5959 CORPORATE DRIVE LEASE TO
TEXAS MICRO-SYSTEMS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
PREMISES ............................................................. 1
ARTICLE 2
TERM ................................................................. 2
ARTICLE 4
ACCEPTANCE OF THE PREMISES AND BUILDING BY TENANT .................... 4
ARTICLE 5
RENT ................................................................. 4
ARTICLE 6
SERVICES BY LANDLORD ................................................. 13
ARTICLE 7
UTILITIES ............................................................ 15
ARTICLE 8
USE .................................................................. 18
ARTICLE 9
LAWS, ORDINANCES, AND REQUIREMENTS OF PUBLIC AUTHORITIES ............. 18
ARTICLE 10
OBSERVANCE OF RULES AND REGULATIONS .................................. 20
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 11
ALTERATIONS ......................................................... 20
ARTICLE 12
LIENS ............................................................... 22
ARTICLE 13
ORDINARY REPAIRS .................................................... 23
ARTICLE 14
INSURANCE ........................................................... 23
ARTICLE 15
DAMAGE BY FIRE OR OTHER CAUSE ....................................... 26
ARTICLE 16
CONDEMNATION ........................................................ 28
ARTICLE 17
ASSIGNMENT AND SUBLETTING ........................................... 29
ARTICLE 18
INDEMNIFICATION ..................................................... 30
ARTICLE 19
SURRENDER OF THE PREMISES ........................................... 31
ARTICLE 20
ESTOPPEL CERTIFICATES ............................................... 31
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 21
SUBORDINATION ....................................................... 32
ARTICLE 22
PARKING ............................................................. 33
ARTICLE 23
DEFAULT AND REMEDIES ................................................ 34
ARTICLE 24
ATTORNEYS' FEES AND LEGAL EXPENSES .................................. 37
ARTICLE 25
NOTICES ............................................................. 37
ARTICLE 26
TENANT'S RENEWAL OPTIONS/EXPANSION OPTIONS .......................... 38
ARTICLE 27
MISCELLANEOUS ....................................................... 46
ARTICLE 28
CONFLICTS OF INTEREST ............................................... 50
</TABLE>
-iii-
<PAGE>
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (this "Lease") dated as of December 11, 1992,
is made between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord"),
and TEXAS MICRO-SYSTEMS, INC., a Texas corporation ("Tenant").
ARTICLE 1
PREMISES
Section 1.01. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord for the Term (as defined below) and subject to the provisions
hereof, to each of which Landlord and Tenant mutually agree, the Premises (as
defined below) 83,428 square feet of Net Rentable Area (as defined below)
located on the first floor (such first floor space shall comprise 32,033 square
feet as shown on Exhibit A-1 hereto ("Existing Space") and 30,703 square feet as
shown on Exhibit A-2 hereto ("Improvement Space") plus 20,692 square feet of Net
Rentable Area in the basement as shown on Exhibit A-3 hereto ("Basement Space")
of the Building now known as 5959 Corporate Drive ("Building"), located in
Houston, Harris County, Texas ("Premises"), which Premises are more
particularly described in the floor plans in Exhibit A hereto, together with its
---------
appurtenances, including the right to use, in common with others, the lobbies,
entrances, stairs, passenger and freight elevators, offstreet loading areas (for
loading and unloading of materials and supplies), and other public portions of
the Building. Landlord covenants that the main floor lobby, atrium and common
area restrooms located on the first floor will not be unreasonably reduced or
the use thereof be otherwise unreasonably limited except as is necessary for
ordinary maintenance and repair. Landlord further covenants that a vending area
reasonably comparable to the vending area presently existing in the Building
will be maintained in the Building and be accessible to Tenant and Tenant's
employees, provided, however, that Landlord reserves the right to relocate such
vending area to another location in the Building and provided further that
Landlord may reduce the size of such vending area so long as such area continues
to be reasonably usable for its essential purpose by tenants in the Building,
including Tenant and Tenant's employees. The Building is situated on the real
property described in Exhibit B hereto (the "Land").
---------
Section 1.02. The term "Net Rentable Area", as used herein, shall be the
unit of measurement for space in the Building leased or held for lease to
tenants, and shall mean (a) in the case of a single tenancy floor, all floor
area, measured from the inside surface of the outer glass line of the Building
excluding only the areas ("service areas") used for Building stairs, fire
towers, elevator shafts, flues, vent stacks, pipe shafts, and vertical ducts
(which service areas shall be measured from the midpoint of walls enclosing such
service areas), but including any such service areas which are for the specific
use of the particular
<PAGE>
tenant such as special stairs or special elevators, plus an allocation of the
square footage of the Building's "support areas," (support areas defined as the
elevator and mechanical and electrical rooms, maintenance areas and public
areas, and (b) in the case of a floor to be occupied by more than one tenant,
all floor areas within the inside surface of the outer glass line enclosing the
Premises and measured to the midpoint of the walls separating areas leased by or
held for lease to other tenants, or "common areas," (common areas defined as
those areas devoted to corridors, elevator foyers, rest rooms, mechanical rooms,
janitor closets, vending areas and other similar facilities for the use of all
tenants on the particular floor, but including a proportionate part of the
common areas located on such floor, plus an allocation of the support areas of
the Building. No deductions from Net Rentable Area share be made for columns or
projections necessary to the Building. The Net Rentable Area of the Premises has
been calculated on the basis of the foregoing definition, includes the "add-on
factors" of fifteen percent (15%) for the Existing Space and ten percent (10%)
for the Improvement Space, and is stipulated for all purposes hereof to be the
amount stated in Section 1.01. The Net Rentable Area of the Building is to be
determined by Landlord in good faith and supplied to Tenant by Landlord in
writing on or before December 21, 1992; provided, however, that if the Net
Rentable Area is ever thereafter calculated by Landlord to be, or otherwise
established to be, more than such number, then the Net Rentable Area of the
Building shall be adjusted to such higher number for all purposes hereof.
ARTICLE 2
TERM
Section 2.01. The term of this Lease (the "Term") is sixty six (66) months
beginning on the date of execution of this Lease by Landlord and Tenant (the
"Commencement Date") and, unless sooner terminated or renewed pursuant to the
provisions hereof, ending at midnight on June 11, 1998 (the "Expiration Date").
Regardless of whether construction of Leasehold Improvements (as defined in
Article 3) in the Premises is completed by the Rental Commencement Date (as
defined in Article 3), the Term shall not be extended for any reason beyond the
Expiration Date. The period between the Commencement Date and the Expiration
Date is sometimes herein referred to as the it "original" Term, and that
portion, if any, of the Term resulting from the exercise of a renewal option
granted in Section 26.01 is sometimes referred to as a "original" Term.
Section 2.02. Provided Tenant performs all of Tenant's obligations under
this Lease, including the payment of Rent (as defined below), Tenant shall,
during the Term, peaceably and quietly enjoy the Premises without disturbance
from Landlord or any other persons acting by, through or under Landlord;
subject, however, to the terms of this Lease. This covenant and all other
covenants of Landlord in this Lease shall be binding,
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upon Landlord and its successors only with respect to breaches occurring during
its and their respective ownership of Landlord's interest hereunder.
ARTICLE 3
LEASEHOLD IMPROVEMENTS
Section 3.01. Leasehold Improvements from time to time designated by
Landlord as "Building Standard" are sometimes called in this Lease "Building
Standard Leasehold Improvements." Leasehold Improvements not designated as
Building Standard Leasehold Improvements are sometimes called in this Lease
"Non-Building Standard Leasehold Improvements." Building Standard Leasehold
Improvements and Non-Building Standard Leasehold Improvements are collectively
called "Leasehold Improvements." If the Premises already contain Leasehold
Improvements from a prior occupancy, Tenant may, at its option, use such
improvements in connection with the construction of Leasehold Improvements in
the Premises, to the extent provided in the final plans and specifications for
the Leasehold Improvements approved by Landlord and Tenant. From and after the
Commencement Date, Tenant and Tenant's Contractor share be permitted to enter
the Premises and shall construct or cause to be constructed certain additional
Leasehold Improvements in accordance with the Tenant Space Plan and Working
Drawings prepared by Tenant subject to and in accordance with the terms and
provisions of the Work Letter executed simultaneously with this Lease, the form
of which Work Letter is attached hereto as Exhibit C. Landlord shall either
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approve or disapprove such Tenant Space Plan within seven (7) days after
Landlord's receipt thereof, which approval shall not be unreasonably withheld,
conditioned or delayed. Tenant and Tenant's Contractor may enter the Premises
for construction and demolition work and may occupy the Premises and conduct
business operations from the Premises, and regardless of such entry and
occupancy, Tenant shall not be required to pay Base Rent or Additional Rent
until the Rental Commencement Date. Subject to Section 5.02, the date on which
Tenant's Rent obligations shall be the date which is seventy (70) days after the
Commencement Date (the "Rental, Commencement Date"). If for any reason, Tenant
fails to complete construction of its additional Leasehold Improvements before
the Rental Commencement Date, then this Lease shall not be void or voidable, and
Tenant shall not be liable for any loss or damage resulting therefrom except
that Tenant's obligation to pay Base Rent and Additional Operating Expenses
shall commence as of the Rental Commencement Date, provided that Tenant shall
not be obligated to pay any Base Rent or Additional Operating Expenses for any
days (i.e. for the number of days) and the Rental Commencement Date shall be
postponed for the number of days that the completion of the construction is
delayed because of Events of Force Majeure (as defined in Section 27.06)
affecting Tenant or Tenant's Contractor or because of Landlord Delay (as defined
in the Work Letter). If (i) Tenant is not delivered possession of the Existing
Space and the
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Improvement Space on or before December 14, 1992 or (ii) Tenant is not delivered
possession of the Basement Space on or before December 21, 1992, then Tenant
shall be entitled to terminate this Lease. However, without limiting the
foregoing right of Tenant, Landlord shall use reasonable efforts to deliver the
Premises to Tenant as soon as is practicable after the Commencement Date.
ARTICLE 4
ACCEPTANCE OF THE
PREMISES AND BUILDING BY TENANT
Section 4.01. Taking possession of the Premises by Tenant shall be
conclusive evidence that, except for any latent defects of which Tenant is not
aware after Tenant's exercise of a reasonable inspection period (but such
exception shall not include any latent defects in the work performed or
materials supplied by Tenant or Tenant's contractor) Tenant: (a) accepts the
Premises as suitable for the purposes for which they are leased; (b) accepts the
Building and every part and appurtenance thereof as being in good and
satisfactory condition; and (c) waives any claims against Landlord in respect of
defects in the Premises and its appurtenances, except for those defects not
discoverable by Tenant after conducting a reasonable inspection that are the
result of Landlord's negligence or willful misconduct.
ARTICLE 5
RENT
Section 5.01. Base Rent; Additional Rent. Subject to any other applicable
provisions of this Lease, the Rent reserved by Landlord and payable by Tenant in
consideration of and under the terms of this Lease for each year of the Term
thereof (prorated on a daily basis for any period less than an entire year)
shall be and consist of:
(a) an annual base rent (sometimes herein called the "Base
Rent") in the amounts stated in Section 5.02 hereof, plus
(b) such other sums of money as shall become due and payable by
Tenant as Additional Rent (as hereinafter defined), which Additional Rent shall
be payable as hereinafter provided.
Section 5.02. Base Rent. "Base Rent" shall, during the original Term
hereof, be at the per annum rate of $8.50 per square foot of Net Rentable Area
of Existing Space, $8.00 per square foot of Net Rentable Area of Improvement
Space, and $7.50 per square foot of Net Rentable Area of Basement Space. Tenant
covenants and agrees to pay Base
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Rent in equal monthly installments of $56,091.21, in advance on the first day of
each and every calendar month during the Term of this Lease from and after the
Rental Commencement Date. Notwithstanding anything in this Lease to the
contrary, Tenant shall not be obligated to pay any Rent until the date that is
six (6) months after the Rental Commencement Date. The Base Rent payable during
any renewal period granted pursuant to Section 26.01 hereof shall be at the rate
therein provided. It is further understood that the rent for the seventh (7th)
full calendar month after the Rental Commencement Date has been paid in advance
upon the execution of this Lease and Landlord acknowledges receipt thereof.
Section 5.03. Additional Rent. "Additional Rent" means all sums, other
than Base Rent, which Tenant is or becomes obligated to pay to Landlord under
this Lease, including, but not limited to, Additional Operating Expenses (as
hereinafter defined).
Section 5.04. Additional Operating Expenses. "Additional Operating
Expenses" shall be computed separately for each square foot of Net Rentable Area
in the Premises for each calendar year or portion thereof which ensues after the
Commencement Date and prior to the end of the Term of this Lease and, for each
such calendar year or portion thereof, shall mean an amount (but not less than
zero) per square foot of Net Rentable Area in the Premises determined by
subtracting the amount described below in (b) from the amount described below in
(a), to wit:
(a) The arithmetic average of the Operating Expenses (as hereinafter
defined) per square foot of Net Rentable Area in the Building
incurred during such calendar year or portion thereof.
(b) The applicable Landlord's Expense Stop (as hereinafter defined) as
to such square foot of Net Rentable Area in the Premises for such
calendar year or portion thereof.
For all purposes under this Lease, the "arithmetic average" of the Operating
Expenses per square foot of Net Rentable Area in the Building for a calendar
year shall be determined by dividing the total amount of the Operating Expenses
incurred during such calendar year by the total number of square feet of Net
Rentable Area in the Building, and, likewise, the Operating Expenses for any
portion (less than all) of a calendar year for a square foot of Net Rentable
Area in the Building shall be determined by dividing the arithmetical average of
the Operating Expenses per square foot of Net Rentable Area in the Building for
such entire calendar year by the number of days in such year and by multiplying
the result obtained by the number of days in such portion of said calendar year.
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Section 5.05. Landlord's Expense Stop. "Landlord's Expense Stop" means
as follows:
(a) For any full calendar year during the Term, "Landlord's Expense
Stop" shall mean $6.50.
(b) For any partial calendar year during the Term, "Landlord's
Expense Stop" means the product obtained by multiplying the amount in Section
5.05(a) by a fraction, the denominator of which is 365, and the numerator of
which is the number of days in such partial calendar year.
Section 5.06. Operating Expenses.
(a) Subject to the provisions of subsection (b) hereof, "Operating
Expenses" as used herein means all expenses, costs, and disbursements of every
kind which Landlord shall be required to pay, in connection with the ownership,
operation, and maintenance of the Building and the Land, including, without
limitation, the following:
(1) An amount (the "Management Fee Allocation") equal to three
percent (3%) of the Base Rent and Additional Rent;
provided, however, that for the purpose of calculating the
Management Fee Allocation, Operating Expenses shall
exclude the Management Fee Allocation.
(2) Wages, salaries, and fees of all personnel at or below the
level of building manager engaged in the operation,
maintenance, or security of the Building, including taxes,
insurance, and benefits relating thereto; provided,
however, that if during the Term such personnel are also
working on other projects being periodically developed or
operated by Landlord, their wages, salaries, fees, and
related expenses shall be allocated by Landlord in good
faith among all of such projects, and only that portion of
such expenses allocable to the Building shall be included
as an Operating Expense.
(3) All supplies and materials directly used in the operation
and maintenance of the Building.
(4) Cost of all maintenance and service agreements for the
Building, including without limitation, alarm service,
janitorial services, security services, window cleaning,
elevator maintenance, landscaping, and parking facilities
maintenance.
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(5) Cost of all insurance relating to the Building, including,
without limitation, the cost of casualty and liability
insurance applicable to the Building and Landlord's
personal property used in connection therewith, the cost
of business interruption insurance in such amounts as will
reimburse Landlord for all losses of earnings and other
income attributable to the ownership and operation of the
Building and the cost of insurance against such perils and
occurrences as are commonly insured against by prudent
landlords; provided, however, (A) any portion of such
insurance premiums, surcharge, or ascribed cost thereof
pursuant to Landlord's self-assumption of risk pursuant to
Article 19 below as a result of any use by any tenant
(including Tenant) of such tenant's premises other than
for general office purposes shall not be a Operating
Expense, but shall instead be billed to and paid for by
such tenant separately and (B) if such insurance is
provided in the form of master insurance covering more
than the Building, then only an equitable portion of the
premiums therefor shall be included in Operating Expenses.
If Landlord elects to self-assume risk as provided in
Section 14.02, the cost of insurance shall be Landlord's
estimated fair market cost, not to exceed the rates
charged to landlords of first-class office buildings in
the suburban area of Houston, Texas, during the applicable
period of time or the applicable rates published in the
Insurance Service Offices (ISO) Manual for the applicable
period, whichever is less.
(6) All taxes, assessments, and other governmental charges,
whether federal, state, county, or municipal and whether
assessed by taxing districts or authorities presently
taxing the Building or the Land or by others, subsequently
created or otherwise, and any other taxes and assessments
attributable to the Building and the Land or their
operation, exclusive of any inheritance, gift, franchise,
succession, transfer, or income taxes which may be
assessed against Landlord.
(7) Cost of repairs and general maintenance (excluding repairs
and general maintenance paid by proceeds of insurance or
by Tenant or other third parties, and alterations
attributable solely to tenants of the Building other than
Tenant).
(8) Amortization of the cost of capital investment items that
are installed primarily (and in good faith) to reduce
operating costs for the benefit of all the Building's
tenants or which may be required by any governmental
authority, including but not limited to the Americans with
Disabilities Act ("ADA"). All such costs, including
interest cost shall
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be amortized over the reasonable life of the capital
investment items, with the reasonable life and
amortization schedule being determined by Landlord
according to generally accepted accounting principles, but
in no event to extend beyond the reasonable life of the
Building.
(9) Cost of all utilities for the Building, including the cost
of water, electricity, gas, fuel oil, heating, lighting,
air conditioning, and ventilation for the Building.
(10) Landlord's legal, appraisal and other such third party
fees relating to the operation of the Building.
If the Net Rentable Area of the Building is not fully occupied during any Fiscal
Year of the Term, an adjustment shall be made in computing the Operating
Expenses for that year so that those Operating Expenses that vary with occupancy
shall be increased for that year to the amount that in Landlord's reasonable
good faith judgment, would have been incurred had the total Net Rentable Area of
the Building been occupied during that year. All Operating Expenses shall be
computed according to generally accepted accounting principles, consistently
applied.
(b) Notwithstanding anything to the contrary contained herein, the
term "Operating Expenses" shall not include any of the following expenses:
(1) Depreciation and amortization;
(2) Tenant allowance, tenant concessions and other costs and
expenses incurred in renovating or otherwise improving or
decorating or redecorating space for tenants or other
occupants in the Building or vacant space in the Building
or in relocating such tenants or other occupants of the
Building, including space planning and interior design fees
and the cost of removing the property of former tenants or
occupants of the Building;
(3) Any compensation paid to clerks, attendants, or other
persons in commercial concessions operated by Landlord or
any affiliate of Landlord;
(4) Leasing commissions, attorneys' fees, costs and
disbursements, and other expenses incurred in connection
with solicitations, negotiations or disputes with tenants,
other occupants or prospective tenants of the Building or
with consultants, management agents, purchasers, ground
lessors, prior owners, or mortgagees of the Building;
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(5) Costs incurred by Landlord for alterations, additions, and
replacements which are considered capital expenditures
under generally accepted accounting principles,
consistently applied, except to the extent provided in
Section 5.06(a)(8);
(6) Interest on debt or amortization payment on any mortgage or
mortgages and any rental under any ground or underlying
leases or lease (except to the extent the same may be made
to pay insurance or taxes);
(7) Advertising and promotional expenses;
(8) Costs of restoration or repair or other work on all or any
portion of the Building or Land occasioned by fire,
windstorm, or other casualty or condemnation; and
(9) Specific costs in connection with services (including
electricity), items or other benefits of a type that are
not available to Tenant without specific charge therefor,
but that are provided to another tenant or occupant of the
Building, regardless of whether such other tenant or
occupant is specifically charged therefor by Landlord, in
addition to any costs specially billed to specific tenants,
such as above Building Standard janitor service, or other
services above Building Standard.
(10) Except for the Management Fee Allocation, costs of
Landlord's general corporate overhead and general
administrative expenses including (A) any benefits or
extraordinary compensation above salaries, wages and
reasonable and customary incentive-based compensation
(other than medical benefits) payable by Landlord to any of
its employees or personnel, (B) any magazine or other
subscriptions, and (C) seminars, conferences, or other
educational or training expenses.
(11) Interest or penalties due to late payment of taxes, utility
bills or any other such costs, except any interest or
penalties arising from any late payments beyond Landlord's
control.
(12) Costs or expenses (including fines, penalties and legal
fees) incurred by Landlord due to the violation by
Landlord, its employees, agents or contractors, or any
tenant or other occupant of the Building, of the terms,
conditions of any lease in the Building or of any third
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party contract or obligation, or of any applicable laws,
rules, regulations and codes of any federal, state,
county, municipal or other governmental authority having
jurisdiction over the Building, it being intended that each
party shall be responsible for the costs resulting from his
own violation of such leases and laws, rules, regulations
and codes as same shall pertain to the Building.
(13) Without impairing any indemnity or insurance obligation
set forth herein, costs directly resulting from the
negligence, willful misconduct or other tortious conduct of
Landlord or its employees, agents or contractors. Costs
(including without limitation overhead, profit, and fees)
paid to Landlord or affiliates of Landlord for services or
other matters related to the Building or related facilities
to the extent that such costs exceed competitive costs for
such services rendered by unaffiliated persons or entities
of similar skill, confidence, and experience.
(14) All costs associated with the presence in the Building or
related facilities of asbestos, polychlorinated biphenyls,
or other hazardous or toxic materials.
(15) Costs or expenses incurred with respect to the purchase,
leasing, showing or promotion of sculpture, paintings or
other works of fine art.
(16) Contributions to operating expense reserves.
(17) Contributions to charitable organizations.
(18) Costs or fees relating to the defense of Landlord's title
to or interest in the Building, or the Land, or any part
thereof.
(19) Any other expense which, under generally accepted
accounting principles, consistently applied, would not be
considered to be normal or reasonable maintenance or
operating expense for comparable buildings.
(c) The term "Fiscal Year," as used herein shall mean a period of
twelve consecutive calendar months commencing on January 1, and ending on
December 31, or such other twelve-month period as Landlord may specify from time
to time.
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Section 5.07. Rent. "Rent" means all amounts which Tenant is obligated or
becomes obligated to pay to Landlord under this Lease, including Base Rent and
Additional Rent.
Section 5.08. Payment of Rent. Tenant shall pay to Landlord all Rent at
Landlord's lockbox in Houston, Texas or elsewhere, as Landlord may from time to
time designate to Tenant in writing, in legal tender for the payment of public
and private debts, without counterclaims, set-off, or deduction except as set
forth in this Lease, in the following manner:
(a) The Base Rent monthly in advance (without written demand) in equal
monthly installments on the first day of each full calendar month during the
Term and for any other period of occupancy; and
(b) The Additional Rent, within thirty (30) days after notice thereof
by Landlord's invoice or statement for the same as elsewhere provided and
authorized herein, and at such other times as this Lease provides for the
payment of the same.
Section 5.09. Failure to Pay; Interest. All past-due Rent shall bear
interest from and after the fifth (5th) day after it is due until paid at the
rate of interest per annum equal to the interest rate then being quoted by Bank
of America National Trust and Savings Association (or its successor) as its
"prime rate," plus two (2) points, or the maximum rate permitted under state or
federal law, if the aforesaid rate exceeds such maximum.
Section 5.10. Additional Operating Expenses. As Additional Rent, Tenant
shall pay to Landlord an amount (if any) equal to the Additional Operating
Expenses for each square foot of Net Rentable Area included in the Premises
during any calendar year or portion thereof during the Term of this Lease;
provided that for any period of time which constitutes less than an entire
calendar year, the Additional Rent if any, payable by Tenant under this Section
5.10 for each square foot of Net Rentable Area in the Premises during such
portion of a calendar year shall be calculated on a proportionate per-day basis
as described in Sections 5.04 and 5.05 above. Notwithstanding the foregoing, if
the Consumer Price Index (as hereafter defined) on the first day of the calendar
month in which this Lease commences is less than the Consumer Price Index on the
first day of any calendar year during the original Term or any renewal Term
hereof, then Tenant shall not be obligated to pay Additional Operating Expenses
for each square foot of Net Rentable Area included in the Premises in any
calendar year in an amount greater than the product of (a) the Landlord's
Expense Stop multiplied by (b) a fraction the numerator of which is the Consumer
Price Index for the year for which the Additional Operating Expenses is being
computed and the denominator of which is the Consumer Price Index for the
calendar year 1992. Additionally, notwithstanding anything to the contrary
herein,
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Tenant shall not be obligated to pay any Additional Operating Expenses for the
calendar year 1993. "Consumer Price Index" shall mean the Consumer Price Index
published by the Bureau of Labor Statistics, U.S. City Average, All Items for
Urban Wage Earners and Clerical Workers (1982-84=100).
Section 5.11. Payment of Estimated Additional Rent in Respect of
Additional Operating Expenses. At least fifteen (15) days prior to the first day
of each calendar year during the Term of this Lease, Landlord shall notify
Tenant of Landlord's good faith estimate of the amount, if any, of Additional
Rent which will become due by Tenant under Section 5.10 during the next calendar
year or part thereof. The amount of Additional Rent, if any, thus estimated by
Landlord to become due for any such period shall be divided into equal monthly
installments during such period (reduced proportionately for any partial month)
and shall be paid by Tenant in such equal monthly installments in advance on the
first day of each month during such period; provided that if Additional Rent is
estimated to accrue under Section 5.10 during a portion only of such period (as,
for example, a portion of a calendar year during which the Term hereof ends),
the entire amount of such estimated Additional Rent shall be payable in equal
monthly installments only during the portion of such period during which it is
estimated to accrue. If Landlord fails to give notice to Tenant of Landlord's
estimate of the amount of Additional Rent to become due by Tenant during any
period at least fifteen (15) days prior to commencement of such period as
required in the first sentence of this Section 5.11, Tenant shall not be
required to commence paying monthly installments of estimated Additional Rent
for such period until the first day of the first calendar month which ensues at
least fifteen (15) days after notice of such estimate is given by Landlord to
Tenant, in which event the first monthly installment of estimated Additional
Rent to be paid by Tenant after receipt of such notice shall include all monthly
installments of estimated Additional Rent for such period which would have
become due through such installment payment date if Landlord had timely given
notice of estimated Additional Rent for such period as provided for in the first
sentence of this Section 5.11.
Section 5.12. Correction of Estimated Payments. Within one hundred fifty
(150) days, or reasonably thereafter, after the end of each calendar year during
which any estimated Additional Rent has accrued under Section 5.11 above,
Landlord shall provide to Tenant a statement for such calendar year setting
forth, in reasonable detail, the Operating Expenses incurred during such
calendar year and the amount, if any, of Additional Rent due by Tenant under
Section 5.10 for such calendar year or any portion thereof. If the actual
Additional Rent, if any, due by Tenant under Section 5.10 for such calendar
year, or portion thereof, is greater than the estimated Additional Rent paid by
Tenant under Section 5.11 during such calendar year, or portion thereof, then
within thirty (30) days after receipt of such statement Tenant shall pay to
Landlord the amount of such excess. If the actual Additional Rent, if any, due
by Tenant under Section 5.10 for such calendar year, or portion thereof, is less
than the estimated Additional Rent paid by
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Tenant under Section 5.11 during such calendar year, or portion thereof, then
Landlord shall allow a credit in the amount of such overpayment plus interest
thereon from the date of delivery of said statement from Landlord until the
credit is given, at the rate of interest per annum equal to the interest rate
being quoted by Bank of America National Trust and Savings Association (or its
successor) as its "prime rate" plus two (2) percent, or the maximum rate
permitted by state or federal law if the aforesaid rate exceeds such maximum,
against the aggregate payment of Base Rent and estimated Additional Rent
otherwise becoming due under Section 5.08(a) and Section 5.11 on the next
ensuing monthly payment of Rent due or dates, if any, after delivery of such
statement to Tenant; provided that if the Term of this Lease has ended or shall
end prior to utilization of such entire overpayment as a credit against Rent
hereunder, Landlord shall promptly refund such overpayment together with
applicable interest as provided pursuant to this Section 5.12 (to the extent not
credited against Rent otherwise becoming due hereunder) to Tenant.
Section 5.13. Tenant's Right to Examine Records. Tenant shall have the
right at all reasonable times to audit and copy or reproduce at its own expense
Landlord's books and records relating to Additional Rent under this Lease for
all or any part of the immediately preceding two (2) calendar years of the Term.
Landlord agrees that it will maintain complete and accurate records of all
costs, expenses and disbursements relating to Operating Expenses that shall be
paid or incurred by Landlord, its employees, agents or contractors, or any of
the foregoing. Landlord agrees to reimburse Tenant for the professional or
accounting costs or expenses incurred by Tenant in connection with any such
inspection or audit conducted by or for Tenant (including, without limitation,
the allocated cost of Tenant's internal accounting or auditing personnel, but in
no event shall such amounts exceed the amounts that would have been charged by
unaffiliated third parties of similar skill and competence and experience for
providing such services on a competitive basis), but only up to the amount of
$10,000 of such expenses, in the event said inspection or audit shall prove that
Operating Expenses or Additional Operating Expenses, or both, for the period of
time covered by such inspection or audit shall have been overstated by five
percent (5%) or more. Furthermore, Landlord agrees to adjust its computation of
Operating Expenses or Additional Operating Expenses, or both, to the extent that
inaccuracies or mistakes are discovered by Tenant or by other tenants of the
Building (to the extent such inaccuracies or mistakes detected are applicable to
Tenant pursuant to this Lease).
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ARTICLE 6
SERVICES BY LANDLORD
Section 6.01. While Tenant or a permitted sublessee or assignee is paying
Rent as required hereunder and has not abandoned the Premises, Landlord shall
furnish the Premises or Building, as applicable, with:
(a) Passenger elevator service and freight elevator service in common
with other tenants for access to and from the Premises and to the Basement (as
well as stairwell access from the Premises to the Basement) in such number of
elevators as is customarily provided to tenants in first-class office buildings
in the suburban area of Houston, Texas, (but not less than the number of such
items currently in existence in the Building), provided that Landlord may
reasonably limit the number of passenger elevators to be operated before or
after Normal Business Hours (as defined in Section 27.03 hereof) and on holidays
(as defined in Section 27.02 hereof), provided, further that the Tenant's use of
freight elevator to be installed by Tenant pursuant to the Tenant Space Plan may
not be restricted or limited by Landlord.
(b) Janitorial cleaning services as are customarily provided to
tenants in first-class office buildings in the suburban area of Houston, Texas
provided that in the Basement Space and Improvement Space, such janitorial
services will be limited to floor sweeping and basic trash removal;
additionally, Landlord will make their compactor available to Tenant;
(c) Replacement, as necessary, of all lamps bulbs, starters and
ballasts in the Building Standard light fixtures within the Premises and all
support areas and common areas;
(d) Maintenance, painting and electric lighting service for all common
areas, support areas, and other public areas, including all restrooms and
surface parking lots serving the Building and located on the Land (including any
restriping as may be required), any and all walkways and sidewalks serving the
Building and located on the Land, all as are customarily provided to tenants in
first-class office buildings in the suburban area of Houston, Texas;
(e) Window cleaning services for the interior and exterior of the
Building as needed, but no less than twice per calendar year;
(f) Restriction on access of unauthorized individuals to the Building
and Land as is customarily provided to tenants in first-class office buildings
and the land in the suburban area of Houston, Texas; provided however that such
level of restriction of
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access, in the aggregate, shall not be reduced from the level now provided to
the Building and Land;
(g) Maintenance of all equipment supplied by Landlord (elevators,
mechanical, electrical and plumbing) as is customarily provided to tenants in
first-class office buildings in the suburban area of Houston, Texas;
(h) Maintenance of all landscaped areas as is customarily provided to
tenants in first-class office buildings in the suburban area of Houston, Texas;
(i) Pest control service as is customarily provided to tenants in
first-class office buildings in the suburban area of Houston, Texas;
(j) To the extent presently available, use of the Building's paging
system, for Tenant's exclusive use within the Premises;
(k) If a directory for the Building in the ground floor lobby is ever
constructed, then Tenant will be entitled to a quantity of listing strips on the
directory in an amount equal to the greater of (1) ten (10) listing strips or
(2) that number of listing strips which shall bear the same ratio to the total
number of listing strips on such directory as the number of square feet of Net
Rentable Area in the Premises bears to the number of square feet of Net Rentable
Area of the Building, taking into account any renewals, expansions, and
preference rights exercised by Tenant in the Building; and
(l) the services provided for in Sections 7.01 and 7.02 below.
If Tenant requires services which are not specified herein and Landlord
elects to provide such services to Tenant, Tenant will pay to Landlord, as
Additional Rent, upon demand, the cost of providing such services.
ARTICLE 7
UTILITIES
Section 7.01. While Tenant or a permitted sublessee or assignee is paying
Rent as required hereunder and has not abandoned the Premises, Landlord shall
furnish Tenant with the following services:
(a) hot and cold potable water at those points of supply provided
periodically for normal lavatory use by tenants in the Building in
such amounts and temperatures as may be customarily provided to
tenants occupying
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comparable space in first-class office buildings in the suburban
area of Houston, Texas; and
(b) heating, ventilating, and/or air conditioning in season during
Normal Business Hours for the Building and at such temperatures and
in such amounts as may customarily be provided to tenants occupying
comparable space in first-class office buildings in the suburban
area of Houston, Texas (such temperature ranges to be between 68'
and 74' degrees fahrenheit).
With respect to heating, ventilating, and/or air conditioning, if Tenant
requires air conditioning (heating and cooling) during any season outside the
hours and days specified above, Landlord shall furnish it only at Tenant's
request, and Tenant will bear the entire charge therefor.
Section 7.02. While Tenant or a permitted sublessee or assignee is paying
Rent as required hereunder and has not abandoned the Premises, Landlord will
furnish sufficient power for lighting and for typewriters, voicewriters,
calculating machines, word processors, micro-computers, duplicating machines and
other machines of low electrical consumption, exclusive of electricity for (a)
special lighting which has electrical consumption in excess of Building Standard
lighting or (b) any item that consumes more than 0.5 kilowatts per square foot
of Net Rentable Area of the Premises per hour at rated capacity all of which
power shall be supplied by Landlord and paid for by Tenant as a part of the
Additional Rent.
If Tenant's requirements for electricity exceed those described above,
Landlord, at Tenant's expense, will make reasonable efforts to supply such
service through the then-existing feeders servicing the Building and will bill
Tenant periodically for such additional service. Such additional consumption
shall be determined, at Landlord's election, either (i) by a survey performed by
a reputable consultant selected by Landlord and the reasonable cost of which is
to be paid for by Tenant, or, (ii) by a separate meter in the Premises to be
installed, maintained, and read by Landlord and the reasonable cost of
installation of such meter shall be paid for by Tenant.
Except for the abatement of Rent as provided herein, Landlord will not be
liable in any way to Tenant for any failure or defect in the supply or character
of electric energy or any other utility service furnished to the Premises
because of any requirement, act, or omission of the public utility serving the
Building with electricity or any other utility service.
All installations of electrical fixtures, appliances, and equipment
within the Premises will be subject to Landlord's prior written approval, such
approval not to be unreasonably withheld conditional, or delayed.
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Landlord's obligation to furnish electrical and other utility services as
described in this Article 7 will be subject to the rules and regulations of the
supplier of such electricity or other utility services and the rules and
regulations of any municipal or other governmental authority regulating the
business of providing electricity and other utility services.
At all times Tenant's use of electrical current will never exceed the
capacity of existing feeders to the Building or the risers or wiring
installations; provided, however, that Landlord shall not reduce the capacity of
such existing feeders, risers and wiring installations to the Building and
Premises if such reduction would result in Tenant's not being able to use the
Premises for the uses permitted herein.
Section 7.03. Failure to furnish, or any stoppage of, the services
provided for in Article 6 above and this Article 7 resulting from any cause
beyond Landlord's reasonable control will not make Landlord liable in any
respect for damages to either person, property, or business (other than the
abatement of Rent as provided herein), nor be construed as an eviction of Tenant
nor relieve Tenant of any of its obligations under this Lease, except as is
otherwise provided herein. Landlord shall use reasonable efforts to cause any
such services to be restored.
Should stoppage of the services provided for in Article 6 above or this
Article 7 render the Premises untenantable (tenantability being presumed if
Tenant is using Premises in the usual manner for its intended purpose) for more
than three (3) consecutive days (or for more than five (5) days during any
calendar month) and be the result of the act or omission of Landlord, or its
employees, contractors or agents, then Tenant's rent shall abate during the
entire period of untenantability. Should stoppage of the services provided for
in Article 6 and this Article 7 render the Premises untenantable for more than
five (5) consecutive days (or for more than ten (10) days during any calendar
month) for any cause, Tenant's rent shall abate during the entire period of
untenantability. If the period of untenantability exceeds thirty (30)
consecutive days (or for more than forty-five (45) days in any sixty (60) day
period) for any cause, Tenant shall have the right to terminate the Lease after
the thirtieth consecutive day, or after forty-five (45) days of such
untenantability have elapsed in any sixty (60) day period, by giving written
notice to Landlord prior to full restoration of such services.
Section 7.04. Landlord may require, at its option installation of a meter
or meters to monitor Tenant's use of electricity or the chilled water for
cooling purposes, the cost of installation of such meter or meters to be shared
equally by Landlord and Tenant.
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ARTICLE 8
USE
Section 8.01. The Premises shall be used only for general office purposes
and for no other purpose, with the only exception to the foregoing being those
light manufacturing activities described in Exhibit F to this Lease and the use
in connection therewith of those chemicals and in the quantities thereof
specified in Exhibit G to this Lease. Tenant agrees to use and maintain the
Premises in a clean, careful, safe, lawful, and proper manner consistent with
the foregoing.
If a change in the use of the Premises by Tenant from that permitted
herein occurs (no implied consent of Landlord being hereby given therefor) and
such change results in a materially increased environmental risk to the
Premises or Building, then Landlord may (i) impose additional requirements upon
Tenant relating to the lessening of such additional environmental risk to the
Premises or Building or (ii) demand that Tenant cease such changed use giving
rise to the additional environmental risk to the Premises or Building.
ARTICLE 9
LAWS, ORDINANCES, AND REQUIREMENTS OF PUBLIC AUTHORITIES
Section 9.01. Tenant shall, at its sole expense, comply with all laws,
orders, ordinances, and regulations of federal, state, county, and municipal
authorities, including the ADA, and with any directive of any public officer or
officers which shall, with respect to the use of the Premises or to any
abatement of nuisance, impose any violation, order or duty upon Landlord or
Tenant arising from Tenant's use of the Premises or from conditions which have
been created by or at the insistence of Tenant or required by reason of a breach
of any of Tenant's obligations hereunder.
The foregoing obligations of Tenant under this Article 9 shall not apply
to any laws, orders, ordinances, regulations, or directives to which Landlord is
subject and which are applicable to the Building (but not the Premises), or
which generally relate to Landlord's leasing of space in the Building for
general office purposes. To the best of Landlord's knowledge, except as provided
below in Section 9.02, there are no Hazardous Substances used, stored, generated
or disposed of in the Building or the Land in violation of an applicable
environmental law, however, should there prove to be Hazardous Substances within
the Building or on the Land in violation of any environmental law, through no
fault of Tenant, Landlord shall except as otherwise provided below, promptly, at
its sole expense, take any and all necessary actions to cause the Building or
Land, or both, to be in compliance with all applicable environmental laws. As
used herein,
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"Hazardous Substance" means any petroleum fuel, polychlorobiphenyls and any
hazardous or toxic substance, material or waste that is or becomes regulated by
any local government or authority, the State of Texas or the United States
Government, including, but not limited to, any material or substance defined as
a "hazardous waste", "extremely hazardous waste", "restricted hazardous waste",
"hazardous substances", "hazardous material" or "toxic pollutant" under the
Texas Statutes or under the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. (S)9601 et. seq.
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If Tenant receives written notice of the violation of any law, order,
ordinance, or regulation, it shall promptly notify Landlord thereof.
Section 9.02. (a) Landlord represents and warrants to Tenant that there
is no asbestos in the Building other than as set forth in that certain
Environmental Report dated October 16, 1989 prepared by Loflin Environmental
Services.
(b) Landlord covenants that it has implemented, or if Landlord has not,
Landlord will promptly implement, at its sole cost and expense, an Operations
and Maintenance Plan ("Plan") during the duration of this Lease or until all
asbestos-containing materials ("ACM") are removed from the Property, whichever
comes first, to address the presence of all ACM on the Property. Such Plan shall
include (1) a regular program of inspections, to be conducted no less frequently
than annually, of all ACM known to be present on the Property to determine
whether ACM have deteriorated or otherwise become capable of releasing asbestos
fibers into the air; (2) a regular program of inspections to ensure that any
improvements or other activities of tenants of the Property have not and do not
disturb ACM; (3) documentation of all inspections; (4) the designation of a
representative of Landlord who will be responsible for all ACM-related
activities at the Property and who may be notified by Tenant in the event that
Tenant's proposed activities may result in the disturbance of ACM on the
Property; and (5) compliance with all applicable laws and regulations relating
to ACM.
(c) Landlord further covenants to notify Tenant promptly upon becoming
aware of any condition relating to ACM on the Property that may pose a threat to
the health of any of Tenant's employees, agents, or representatives.
(d) If (i) the representation and warranty contained in (a) above
proves to be incorrect and the presence of asbestos poses or may be reasonable
suspected of posing a threat to the health of Tenant's employees, agents, or
representatives, or (ii) if Landlord fails to perform any covenant contained in
(b) or (c) above, then Tenant may terminate this Lease upon thirty (30) days
written notice to Landlord and thereupon Landlord shall reimburse Tenant for the
unamortized cost of Tenant's initial construction of Leasehold Improvements in
the same manner as if Landlord exercised its cancellation option pursuant to
Section 26.01.
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ARTICLE 10
OBSERVANCE OF RULES AND REGULATIONS
Section 10.01. Tenant and its servants, employees, agents,
visitors, and licensees shall observe faithfully and comply with the Rules and
Regulations attached hereto as Exhibit E; provided, however, in the event of a
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conflict between the terms of this Lease and the Rules and Regulations (whether
now existing or hereafter created), then this Lease shall control.
Landlord shall at all times have the right to make reasonable changes in
and additions to such Rules and Regulations, provided any changes in existing
rules or any new rules do not interfere with the lawful conduct of Tenant's
business in the Premises as permitted by this Lease and further provided that
such Rules and Regulations are applied uniformly to all tenants conducting
similar types of activities in the Building.
Landlord shall have no responsibility or liability to Tenant and its
servants, employees, agents, visitors, and licensees with respect to any damages
or injuries to persons or property arising out of noncompliance with the Rules
and Regulations, or any of them, by any other tenant or person in the Building.
ARTICLE 11
ALTERATIONS
Section 11.01. Tenant shall not without Landlord's prior written
consent which consent shall not be unreasonably withheld, conditioned or
delayed, make any alterations to the Premises. Should Tenant desire to make any
such alterations, Tenant agrees to submit all plans and specifications for same
to Landlord for Landlord's written approval, which approval shall not be
unreasonably withheld, conditioned or delayed, before such work is begun.
Upon Tenant's receipt of Landlord's written approval, and upon Tenant's
payment to Landlord of a Review Fee (as defined in this Section 11.01), if any,
as provided herein, Tenant may proceed with the construction of the approved
alterations, but only so long as the alterations are constructed in substantial
compliance with the approved plans and specifications and with the provisions
of this Article 11.
All alterations shall be made at Tenant's expense, at Tenant's option,
either by Tenant's contractors which have been approved by Landlord, or by
Landlord's contractors on terms reasonably satisfactory to Tenant, including a
payment of the Review Fee, if any.
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All work in connection with such alterations shall:
(a) be performed in such a manner as to maintain harmonious labor
relations;
(b) not alter the exterior appearance of the Building;
(c) not adversely affect the structure or safety of the Building;
(d) comply with all building, safety, fire, and other codes and
governmental and insurance requirements;
(e) not result in any usage in excess of Building Standard of water,
electricity, gas, heating, ventilating, or air-conditioning
(either during or after such work) unless prior written
arrangements satisfactory to Landlord are made with respect
thereto; and
(f) be completed promptly and in a good and workmanlike manner.
Tenant shall not obligated to pay to Landlord any fee or similar charge
for any alterations or additions to the Premises unless (i) such alterations or
additions affect the structural, mechanical, electrical or plumbing systems of
the Building and (ii) Landlord is incapable of reviewing and approving the plans
and specifications because Landlord does not have on its payroll any person or
persons qualified to review such plans and specifications (any such alteration
not satisfying (i) and (ii) above is herein called an "Exempt Alteration").
Tenant shall pay to Landlord, upon completion of any alteration or addition,
other than in connection with the initial Leasehold Improvements to the Premises
to be constructed and installed pursuant to the Tenant Space Plan (as such may
be amended in accordance with the Work Letter) a fee (the "Review Fee") equal to
all reasonable architectural and engineering fees and expenses paid by Landlord
in reviewing and approving the plans and specifications for any alteration that
is not an Exempt Alteration.
Section 11.02. All Leasehold Improvements, alterations, and
physical additions made or installed by or for Tenant in or to the Premises
other than Tenant's furniture, furnishings, personal property, equipment, and
removable trade fixtures shall be and remain Landlord's property, and shall not
be removed. Tenant agrees to remove, at Tenant's expense, all of its furniture,
furnishings, personal property, equipment, and removable trade fixtures by the
Expiration Date or the date of any earlier termination hereof, and shall
promptly repair all damage done to the Premises or the Building by such removal,
normal wear and tear excepted (or Tenant shall promptly reimburse Landlord for
the reasonable cost of repairing all damage done to the Premises or the Building
by
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such removal, normal wear and tear excepted). Notwithstanding the foregoing,
Tenant shall be entitled to remove the freight elevator at the expiration or
earlier termination of this Lease provided Tenant promptly repairs all damage
done to the Premises or the Building by such removal, normal wear and tear
excepted (or provided that Tenant promptly reimburses Landlord for the
reasonable cost of repairing an damage done to the Premises or the Building by
such removal, normal wear and tear excepted). If Tenant elects not to remove the
freight elevator, Tenant shall so notify Landlord in writing and Landlord may
request in writing that Tenant remove the freight elevator and thereupon Tenant
shall remove the freight elevator at Tenant's sole cost and expense and Tenant
shall promptly repair all damage done to the Premises or the Building by such
removal, normal wear and tear excepted (or Tenant shall promptly reimburse
Landlord for the reasonable cost of repairing all damage done to the Premises or
the Building by such removal, normal wear and tear excepted).
ARTICLE 12
LIENS
Section 12.01. Tenant shall keep the Premises free from any liens
arising from any work performed, materials furnished or obligations incurred by
or at the request of the Tenant. All persons either contracting with Tenant or
furnishing or rendering labor and materials to Tenant shall be notified in
writing by Tenant that they must look only to Tenant for payment for any labor
and materials. Nothing contained in this Lease shall be construed as Landlord's
consent to any contractor, subcontractor, laborer, or materialman for the
performance of any labor or the furnishing of any materials for any specific
improvement, alteration, or repair of, or to, the Premises, nor as giving Tenant
any right to contract for, or permit the performance of, any services or the
furnishing of any materials that would result in any liens against the Premises.
If any lien is filed against the Premises or Tenant's leasehold interest
therein, Tenant shall discharge same within ten (10) days after Tenant learns
that the lien has been filed. If Tenant fails to discharge any lien within such
period, then, in addition to any other right or remedy of Landlord, Landlord
may, at its election, discharge the lien by either paying the amount claimed to
be due or obtaining the discharge by deposit with a court or a title company or
by bonding. Tenant shall pay on demand any amount paid by Landlord for the
discharge or satisfaction of any lien, and all reasonable attorneys' fees and
other legal expenses of Landlord incurred in defending any such action or in
obtaining the discharge of such lein, together with all necessary disbursements
in connection therewith.
Notwithstanding the foregoing, Tenant may contest the amount or validity
of any such lien, provided that Tenant first posts with Landlord an indemnity
bond issued by a
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corporate surety reasonably satisfactory to Landlord in an amount required by
law. This bond shall name Landlord and such other parties as Landlord may direct
as assignees thereunder.
ARTICLE 13
ORDINARY REPAIRS
Section 13.01. Tenant shall, at all times during the Term hereof
and at Tenant's sole cost and expense, keep the Premises and every part thereof
(but excluding exterior glass or any structural elements, which Landlord shall
be obligated to repair) in good condition and repair.
Tenant shall, at the end of the Term hereof, surrender to Landlord the
Premises and all alterations, additions, and improvements thereto in the same
condition as when received, ordinary wear and tear and damage by fire or other
casualty not required hereunder to be repaired by Tenant excepted.
If Tenant fails to make such repairs promptly, Landlord may, at its
option, make the repairs, and Tenant shall pay Landlord on demand Landlord's
actual costs in making such repairs, plus the Review Fee, if any, as provided in
Section 11.01.
Landlord has no obligation and has made no promise to alter, remodel,
improve, repair, decorate, or paint the Premises, or any part thereof, except as
specifically herein set forth. No representations respecting the condition of
the Premises or the Building have been made by Landlord to Tenant except as
specifically herein set forth.
ARTICLE 14
INSURANCE
Section 14.01. Tenant shall, during the Term and at its sole
expense, obtain and keep in force, with Tenant, Landlord, and the mortgagees of
Landlord named as insured therein (except with respect to the Workers'
Compensation coverage) as their respective interests may appear, the following
insurance:
(a) Fire insurance, including extended coverage, vandalism, and
malicious mischief, upon property of every description and kind
owned by Tenant and located in the Building or for which Tenant is
legally liable or installed by, or on behalf of, Tenant including,
without limitation, furniture, fittings, installations, fixtures,
and any other personal property, Non-Building
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Standard Leasehold Improvements and alterations, in an amount not
less than ninety percent (90%) of the full replacement cost
thereof;
(b) Comprehensive General Liability Insurance Coverage, to include
personal injury, bodily injury, broad form property damage,
operations hazard, owner's protective coverage, contractual
liability, and products and completed operations liability, in
limits not less than $1,000,000, inclusive.
(c) Workers' Compensation and Employer's Liability insurance, in such
form and amounts as are required by applicable law.
(d) Any other form or forms of insurance as Tenant or Landlord or the
mortgagees of Landlord may reasonably require from time to time
in form, in amounts, and for insurance risks against which a
prudent tenant of a comparable size and in a comparable business
would protect itself; provided, however, that as long as Landlord
is Chevron U.S.A. Inc. or a related entity, the provisions of
this Section 14.01(d) shall not apply.
All policies shall be taken out with insurers that are licensed in Texas and
have a Best's Rating of B+ or better in form reasonably satisfactory from time
to time to Landlord. Tenant agrees that certificates of insurance reasonably
acceptable to Landlord will be delivered to Landlord or the mortgagees of
Landlord as soon as practicable after the placing of the required insurance, but
not later than ten (10) days after Tenant takes possession of all or any part of
the Premises. All policies shall contain an undertaking by the insurers to
notify Landlord and the mortgagees of Landlord in writing not less than fifteen
(15) days before any material change, reduction in coverage, cancellation, or
other termination thereof. The insurance policies (if more than one) required in
(b) above shall name Landlord as an additional insured.
Section 14.02. During the Term, Landlord shall insure the Building
and the Building Standard Leasehold Improvements (excluding any property which
Tenant is obligated to insure under Section 14.01 thereof) against damage by
fire and standard extended coverage perils (including vandalism and malicious
mischief coverage) in amounts equal to one hundred percent (100%) of the
insurable value thereof (actual replacement value without deduction for physical
depreciation) and comprehensive general public liability and broad form property
damage insurance in such amounts as shall be appropriate for a first-class
office building project in the suburban area of Houston, Texas, but in no event
with limits less than a combined single limit of $1,000,000, with overlying
umbrella coverage (or a combination of primary and umbrella coverage) to a limit
of $5,000,000. Landlord shall also maintain employee's liability insurance with
a minimum limit of $1,000,000 for bodily injury; provided, however, that
Landlord shall have the right at its election, to maintain all such insurance
under a program of self-assumption of risk
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in lieu of purchasing an insurance policy or policies pursuant to Chevron's
Self-Adjusted Claims Program if it is Landlord's normal policy to self-assume
against such perils for its property. Landlord may, but shall not be obligated
to, take out and carry any other form or forms of insurance as it or Landlord's
mortgagees may reasonably determine advisable. Notwithstanding any contribution
by Tenant to the cost of insurance premiums, as provided herein, Tenant
acknowledges that such contribution in and of itself, shall not confer upon
Tenant the right to receive any proceeds from any such insurance policies
carried by Landlord for which such contribution by Tenant has been made, unless
said insurance covers any of Tenant's property required to be insured by Tenant
hereunder. Landlord will not have to carry insurance of any kind on any Non-
Building Standard Leasehold Improvements, on Tenant's furniture or furnishings,
or on any of Tenant's fixtures, equipment, improvements, or appurtenances under
this Lease; and Landlord shall not be obligated to repair any damage thereto or
replace the same.
Section 14.03. Landlord represents and warrants to Tenant that
Tenant's use of the Premises in accordance with Section 8.01 hereof will not
violate any insurance policy carried by Landlord. With respect to those
materials or substances set forth in Exhibit G, which are used by Tenant in
connection with Tenant's use of the Premises as permitted herein, Tenant shall
at all times comply with all applicable law regarding the storage and handling
of such materials or substances. Tenant shall not bring or keep or permit to be
brought to the Premises or kept therein, anything (or any quantity of such item)
not set forth on Exhibit G attached hereto that is prohibited by any insurance
policy carried by Landlord or Tenant periodically in force covering the
Building, the Leasehold Improvements, or the Premises. If Tenant's use of the
Premises does not comply with Section 8.01 hereof, and if such non-permitted use
is prohibited by any insurance policy carried by Landlord and such violation
could lead to a cancellation or reduction in the coverage afforded by such
policy, Tenant shall cease such non-permitted use giving rise to any such
cancellation or reduction, or threatened cancellation or reduction of coverage,
immediately after notice thereof and the failure of Tenant to do so shall
constitute an event of default hereunder, and Landlord may do any one or more of
the following without any notice or demand:
(a) Exercise any one or more of the remedies provided in Section 23.02
hereof;
(b) Enter upon the Premises and attempt to remedy such condition, in
which event Landlord shall not be liable for any damage or injury
caused to any property of Tenant or of others located on the
Premises resulting from such entry and Tenant shall promptly pay to
Landlord as Additional Rent the cost to Landlord of remedying or
attempting to remedy such condition.
In the case of an increase or threatened increase in insurance premiums in
connection with any use by Tenant of the Premises not permitted herein (no
implied consent of
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Landlord hereby given to any such use), Tenant shall pay any actual increase in
premiums as Additional Rent within ten (10) days after being billed therefor by
Landlord. In determining whether increased premiums are a result of Tenant's use
of the Premises, a schedule issued by the organization computing the insurance
rate on the Building or the Leasehold Improvements showing the various
components of such rate shall be conclusive evidence of the several items and
charges which make up such rate. Provided Tenant's use of the Premises as herein
permitted is not materially impaired, Tenant shall promptly comply with all
reasonable requirements of the insurance authority or any present or future
insurer relating to the Premises.
Section 14.04. All policies of fire, extended coverage or similar
casualty insurance, which either party obtains for the Premises or the Building,
as applicable, shall include a clause or endorsement denying the insurer any
rights of subrogation against the other party to the extent rights have been
waived by the insured before the occurrence of injury or loss. Anything in this
Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives
any and all rights of recovery, claim, action, or cause of action, against the
other and such party's agents, servants, partners, shareholders, officers, or
employees for injury or loss or damage that may occur to the Premises, the
Building or the Land, or any improvements thereto or thereon, or any property of
such party therein or thereon, by reason of fire, the elements, or any other
cause which is or is required to be insured against (whether by assumption of
the risk as permitted herein or policies of insurance obtained by insurance
carriers) under the terms of the fire and extended coverage insurance policies
referred to in this Article 14, regardless of the amount of proceeds payable
under the insurance policies (or whether such loss was assumed as permitted
herein by Landlord) and regardless of cause or origin, including the negligence
or other acts or omissions of the other party hereto, its agents, officers,
partners, shareholders, servants, or employees.
ARTICLE 15
DAMAGE BY FIRE OR OTHER CAUSE
Section 15.01. Subject to Sections 15.02, 15.03, and 15.04 hereof,
if the Premises or the Building Standard Leasehold Improvements are damaged by
fire or other casualty against which Landlord is required to maintain a policy
of insurance under Section 14.02 or elects to assume the risk therefor as
permitted therein, Landlord shall, to the extent of the original Building
Standard Leasehold Improvements, diligently attempt to have the damage repaired
with reasonable speed at the expense of Landlord, subject to delays that may
arise by reason of adjustment of loss under insurance policies and for other
delays beyond Landlord's reasonable control.
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Section 15.02. Notwithstanding anything to the contrary in this
Lease, if the Premises are damaged or destroyed by any cause whatsoever, and if,
in Landlord's reasonable opinion, (a) the Premises cannot be rebuilt or made fit
for Tenant's purposes within ninety (90) days of the damage or destruction (or
the Premises are not actually rebuilt or made fit again for Tenant's purposes
within one hundred twenty (120) days after the date of such damage or
destruction), or (b) the proceeds from insurance remaining after payment of any
such proceeds to Landlord's mortgagee are insufficient to repair or restore the
damage or destruction, then Landlord or Tenant may, at its option, terminate
this Lease by giving the other party notice of termination within sixty (60)
days after such damage or destruction, and thereupon, Rent and any other
payments for which Tenant is liable under this Lease shall be apportioned and
paid to the date of such damage, and Tenant shall as soon as reasonably
possible, but in no event longer than within sixty (60) days vacate the Premises
to Landlord, provided, however, that those provisions of this Lease which are
designated to cover matters of termination and the period thereafter shall
survive the termination hereof.
Section 15.03. If the Building is damaged or destroyed by any cause
whatsoever (a) not required to be covered by insurance (or the risk therefor is
elected by Landlord to be assumed as permitted herein against) hereunder and the
cost to repair such damage or destruction according to Landlord's reasonable
estimate will exceed $1,000,000, or (b) the cost of which to repair according to
Landlord's reasonable estimate exceeds $1,000,000 and which damage or
destruction is covered by insurance required hereunder but the proceeds are not
available for the repair of restoration of the Building through no fault of
Landlord or (c) and in Landlord's reasonable estimate after conferring with
Landlord's general contractor and insurance advisor, the damage or destruction
to the Building cannot or will not be repaired or restored by Landlord using
reasonable diligence within one hundred eighty (180) days after such damage or
destruction (or the Building is not actually rebuilt or made fit again within
two hundred ten (210) days after the date of such damage or destruction), then
in the event of either (a), (b), or (c) above, Landlord may, and in the event of
(c) above, Tenant may, at its option, terminate this Lease by giving the other
party written notice of termination within sixty (60) days after such damage,
and thereafter Tenant shall vacate the Premises sixty (60) days after delivery
of notice of termination, and thereupon, Rent and any other payments shall be
apportioned and paid to the date on which possession is relinquished, if Tenant
continues to occupy the Premises for said sixty (60) day period.
Section 15.04. If the Building, the Premises, or Building Standard
Leasehold Improvements are substantially damaged by fire or other cause at any
time during the last ten (10) months of the then current Term and Tenant has not
elected to exercise a renewal option, or if such damage occurs at any time
during the last two (2) years of the last renewal Term, then Landlord or Tenant
may terminate this Lease upon written notice to the other party given within
sixty (60) days of the date of such damage, and upon such
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termination Tenant shall vacate the Premises sixty (60) days after delivery of
notice of termination, and thereupon Rent and any other payments shall be
apportioned and paid to the date on which possession is relinquished, if Tenant
continues to occupy the Premises for said sixty (60) day period, and Tenant
shall immediately vacate the Premises according to such notice of termination.
Section 15.05. Except for Tenant's right to abate rent as provided
in Sections 7.03 and 23.05 of this Lease, no damages, compensation, or claim
shall be payable by Landlord for inconvenience, loss of business, loss of
profits, or annoyance arising from any repair or restoration of any portion of
the Premises, the Building Standard Leasehold Improvements, or the Building.
Landlord shall use reasonable efforts to have such repairs made promptly so as
not unnecessarily to interfere with Tenant's occupancy.
Section 15.06. The provisions of this Article shall be considered
an express agreement governing any case of damage or destruction of the
Building, the Building Standard Leasehold Improvements, the Non-Building
Standard Leasehold Improvements, or the Premises by fire or other casualty.
Section 15.07. Tenant shall promptly notify Landlord if the
Premises or the Building Standard Leasehold Improvements are damaged by any
cause whatsoever. If the Building, Premises, or Building Standard Leasehold
Improvements shall be damaged by fire or other casualty so as to render any
portion of the Premises untenantable (i) through no neglect of Tenant, its
agents, employees or invitees or (ii) through the neglect of Tenant, its agents,
employees or invitees at a time when Landlord is carrying rent loss insurance,
then the Base Rent and Additional Operating Expenses hereunder shall abate as to
that portion of the Premises rendered untenantable by such damage from the date
of such casualty until such time as Landlord reasonably determines that such
damaged portion of the Premises has been made tenantable.
ARTICLE 16
CONDEMNATION
Section 16.01. If a material part of the Premises or the Building
shall be taken or condemned for any public purpose, whether such taking or
condemnation shall be temporary or permanent, Landlord or Tenant, may terminate
this Lease. If all of the Premises shall be taken or condemned for any public
purpose, this Lease shall automatically terminate. All proceeds from any taking
or condemnation shall belong to and be paid to Landlord; provided, however, that
any awards specifically identified and made payable to Tenant (i) for the taking
of personal property and fixtures belonging to and removable by Tenant hereunder
or (ii) for the interruption of, damage to, or
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relocation of Tenant's business or (iii) the unamortized value of any
improvements, alterations or additions paid for by Tenant, shall be payable to
Tenant. Additionally, nothing contained herein shall preclude Tenant from
pursuing any claim in its own behalf in connection with any such taking or
condemnation.
ARTICLE 17
ASSIGNMENT AND SUBLETTING
Section 17.01. Except as provided in Section 17.02, if Tenant should
desire to assign this Lease or sublet the Premises (or any part thereof), Tenant
shall give Landlord written notice at least thirty (30) days in advance of the
date on which Tenant desires to make such assignment or sublease. Landlord
shall then have a period of thirty (30) days following receipt of such notice
within which to notify Tenant in writing that Landlord elects either:
(a) to permit Tenant to assign or sublet such space, provided that if
the rental rate (prorated to reflect the Base Rate allocable to
that portion of the Premises subject to such assignment or sublease
agreed upon between Tenant and its proposed assignee or subtenant
is greater than the Base Rate that Tenant must pay Landlord
hereunder, then such excess shall constitute "Excess Rent" for
purposes hereof and fifty percent (50%) of such Excess Rent shall
be payable by Tenant to Landlord as provided herein; provided,
however, that prior to being required to pay such portion of Excess
Rent to Landlord, Tenant shall deduct from the Excess Rent first
becoming due and payable under such assignment or sublease and
shall be entitled to retain its Reimbursable Expenses. For purposes
hereof, "Reimbursable Expenses" shall mean and refer to Tenant's
reasonable out-of-pocket expenses associated with such assignment
or sublease including reasonable brokerage commissions and
attorney's fees and other costs relating to permitted alterations
or improvements to the Premises to accommodate such assignment or
subletting. Upon request at any time, and from time to time, Tenant
shall be obligated to provide Landlord an accounting of such
Reimbursable Expenses incurred by Tenant and copies of invoices
relating thereto. Such Excess Rent minus the Reimbursable Expense
shall be considered Additional Rent owed by Tenant to Landlord, and
shall be paid by Tenant to Landlord in the same manner that Tenant
pays Base Rent; or
(b) to refuse to consent to Tenant's assignment or subleasing of such
space and to continue this Lease in full force and effect as to the
entire Premises; provided, however, that Landlord will not
unreasonably withhold, delay or condition its approval or consent
of any assignment or subletting.
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If Landlord shall fail to notify Tenant in writing of such election within such
thirty (30) day period, Landlord shall be deemed to have elected option (b)
above. No assignment or subletting by Tenant, even if done by Tenant without
Landlord's consent pursuant to Section 17.02, shall relieve Tenant of Tenant's
obligations under this Lease. Any attempted assignment or sublease by Tenant in
violation of the terms and provisions of this Article 17 shall be void.
Section 17.02. Landlord may sell, transfer, assign, or convey, all
or any part of the Building and any and all of its rights under this Lease, and
in the event Landlord assigns its rights under this Lease, Landlord shall be
released from any obligations hereunder attributable to periods of time after
such assignment, and Tenant agrees to look solely to Landlord's successor in
interest for performance of such obligations.
ARTICLE 18
INDEMNIFICATION
Section 18.01. Subject to the terms of Sections 4.01 and 14.04 of
this Lease, Tenant waives all claims against Landlord and its agents, employees,
and representatives (herein collectively referred to as "Landlord") arising out
of damage to any property or injury to, or death of, any person in, upon or
about the Premises demised hereby to Tenant arising at any time and from any
cause (other than the sole negligence [but including the contributory
negligence], gross negligence and willful misconduct of Landlord, its agents,
employees, representatives or contractors), including, without limitation, the
negligence of other tenants of the Building, or their agents, employees,
representatives, or contractors, and Tenant shall hold Landlord harmless from
all liabilities, claims, losses, damages and expenses, including environmental
remediation or clean-up charges, arising from any damage, injury or death
resulting from any breach or default on the part of Tenant in the performance of
any covenant or agreement of Tenant to be performed under this Lease, or from
any act or neglect of Tenant, its employees, agents or contractors, and shall
defend Landlord against any claim or suit arising therefrom. Landlord waives all
claims against Tenant arising out of damage to any property or injury to, or
death of, any person in, upon or about that portion of the Building other than
the Premises, arising at any time and from any cause (other than the negligence,
gross negligence or willful misconduct of Tenant, its agents, employees,
representatives, contractors), and Landlord shall hold Tenant harmless from all
liabilities, claims, losses, damages and expenses, including environmental
remediation or clean-up charges in respect of any damage, injury or death
resulting from any breach or default on the part of Landlord in the performance
of any covenant or agreement of Landlord to be performed in this Lease, or from
any act or neglect of Landlord, its employees, agents or contractors, and shall
defend Tenant against any claim or suit arising therefrom. Each party's
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foregoing indemnity obligation shall include reasonable attorneys' fees,
investigation costs, and all other reasonable costs and expenses incurred by the
indemnified party from the first notice that any claim or demand has been made
or may be made, and shall not be limited in any way by any limitation on the
amount or type of damages, compensation or benefits payable under applicable
workers' compensation acts, disability benefit acts, or other employee benefit
acts. The provisions of this Article 18 shall survive the termination of this
Lease with respect to any damage, injury or death occurring before such
termination.
ARTICLE 19
SURRENDER OF THE PREMISES
Section 19.01. Upon the expiration or other termination of this
Lease for any cause whatsoever, Tenant shall peacefully vacate the Premises in
as good order and condition as the same were at the beginning of the Term or as
may thereafter have been improved by Landlord or Tenant reasonable use and wear
thereof and damage from fire or casualty insured or required to be insured by
Landlord hereunder and damage by any other casualty not required to be repaired
by Tenant hereunder excepted. Should Tenant continue to hold the Premises after
the termination of this Lease, whether the termination occurs by lapse of time
or otherwise, such holding over shall, unless otherwise agreed to by Landlord in
writing, constitute and be construed as a tenancy at will at a daily Base Rent
equal to one-thirtieth (1/30th) of an amount equal to one and one-half (1-1/2)
times the monthly Base Rent hereunder, plus all Additional Rent that would have
been due hereunder for the period involved if such period had been included in
the Term, and subject to all of the other terms set forth herein except any
right to renew this Lease. Tenant shall be liable to Landlord for all damage
that Landlord suffers because of any wrongful holding over by Tenant for a
period of more than seven (7) days after the expiration of the Term of this
Lease, and Tenant shall indemnify Landlord against (i) all claims made by any
other tenant or prospective tenant against Landlord resulting from delay by
Landlord in delivering possession of the Premises to such other tenant or
prospective tenant and (ii) all other losses, costs, and expenses, including
(without limitation) attorneys' fees, incurred by reason of such holding over.
ARTICLE 20
ESTOPPEL CERTIFICATES
Section 20.01. Tenant agrees to furnish periodically, when requested
by Landlord or the holder of any deed of trust or mortgage covering the
Building, the Land, or any interest of Landlord therein, within ten (10)
business days of Tenant's receipt of such written request, a certificate signed
by Tenant certifying (i) that this Lease is in full
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force and effect and unmodified (or if there have been modifications, that the
same is in full force and effect as modified and stating the modifications, if
any); (ii) that the Term of this Lease has commenced and the full Rent is then
accruing hereunder; (in) that Tenant has accepted possession of the Premises and
that except as stated in the certificate, to Tenant's knowledge, any
improvements required by the terms of this Lease to be made by Landlord have
been completed to the satisfaction of Tenant; (iv) that except as stated in the
certificate, no Rent under this Lease has been paid more than thirty (30) days
in advance of its due date; (v) that the address for notices to be sent to
Tenant is as set forth in this Lease (or has been changed by notice duly given
and is as set forth in the certificate); (vi) that except as stated in the
certificate, Tenant, to Tenant's knowledge as of the date of such certificate,
has no charge, lien, or claim of offset under this Lease or otherwise against
Rent or other charges due or to become due hereunder; (vii) that except as
stated in the certificate, to the knowledge of Tenant, Landlord is not then in
default under this Lease; and (viii) such other matters as may reasonably be
requested by Landlord or the holder of any such deed of trust or mortgage.
Landlord shall deliver within twenty (20) days of Landlord's receipt of such
written request, in reasonable form, an estoppel certificate to Tenant and any
party designated by Tenant certifying (if such be the case) that this Lease is
in full force and effect, the date of Tenant's most recent payment of Rent, and
to Landlord's knowledge, that Tenant is not in default under this Lease, or
stating in reasonable detail, the nature of such then continuing default and any
other information reasonably requested. Any certificate delivered hereunder may
be relied upon by any prospective purchaser, mortgagee or any beneficiary under
any deed of trust on the Building or the Land or any part thereof or to any
other party to which the certificate is addressed.
ARTICLE 21
SUBORDINATION
Section 21.01. This Lease is subject and subordinate to any deeds
of trust, mortgages, or, other security instruments which presently or may in
the future cover the Building and the Land, or any interest of Landlord therein,
and to any advances made on the security thereof, and to any increases,
renewals, modifications, consolidations, replacements, and extensions of any of
such deeds of trust, mortgages, or security instruments. Provided, however, that
any such contractual subordination by Tenant shall not become effective until
such deed of trust holder or mortgagee shall enter into a non-disturbance and
attornment agreement with Tenant (or Tenant's successors or assigns) agreeing
that notwithstanding such subordination, so long as no event of default is
occurring under this Lease, neither this Lease nor any of the rights of Tenant
hereunder shall be disturbed, terminated or subject to termination by any
trustee's sale, any action to enforce the security therefor or by any proceeding
or action in foreclosure. Contemporaneously with the execution of this Lease,
Landlord shall provide Tenant with
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a non-disturbance agreement providing the terms set forth in the preceding
sentence and in a form reasonably acceptable to Tenant, executed by (i) any
ground lessor or ground lessee holding an interest in the Premises, the
Building, or the Land, or any part thereof superior to Landlord or Tenant and
(ii) Landlord's lender and any other holder of a mortgage or deed of trust
presently encumbering the Premises, the Building or the Land or any part
thereof, provided that if no such non-disturbance agreements are provided to
Tenant the non-delivery of such instruments to Tenant shall constitute a
representation and warranty by Landlord to Tenant that no such lease, mortgage
or other encumbrance exists. Any subordination effected in accordance with this
Section 21.01 is declared by Landlord and Tenant to be self-operative and no
further instruments shall be required to effect such subordination of this
Lease. Tenant shall, however, upon demand execute, acknowledge and deliver to
Landlord any further instruments and certificates evidencing such subordination
as Landlord may reasonably require, provided Tenant is supplied the non-
disturbance and attornment agreement as required herein. This Lease is further
subject and subordinate to all applicable ordinances of the City of Houston or
relevant governmental authority; provided, however, if any such present or
future ordinance would serve to materially impair Tenant's use of the Premises
as permitted herein, then Tenant shall be entitled to terminate this Lease upon
sixty (60) days written notice to Landlord.
Section 21.02. At any time, before or after the institution of any
proceedings for the foreclosure of any such deeds of trust, mortgages, or other
security instruments, or the sale of the Building under any such deeds of trust,
mortgages, or other security instruments, provided Tenant has been supplied the
non-disturbance and attornment agreement referred to in Section 21.01, then
Tenant shall attorn to such Purchaser upon any sale or the grantee under any
deed in lieu of such foreclosure and recognize such purchaser or grantee as
Landlord under this Lease. The agreement of Tenant to attorn contained in the
preceding sentence shall survive any such foreclosure sale, trustee's sale, or
conveyance in lieu thereof.
ARTICLE 22
PARKING
Section 22.01. Landlord shall permit Tenant to use the parking
facilities ("Parking Facilities") in common with other tenants in the Building
during the Term to the extent, if any, so provided in Exhibit D hereto.
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ARTICLE 23
DEFAULT AND REMEDIES
Section 23.01. The occurrence of any one or more of the following
events shall constitute an "event of default" by Tenant under this Lease:
(a) if Tenant shall fail to pay any Rent or other sums payable by
Tenant hereunder as and when such Rent or other sums become due and payable and
such failure continues for ten (10) days after written notice thereof from
Landlord;
(b) if Tenant shall fail to perform or observe any other term hereof
(other than the provisions of Section 14.03) or any of the Rules and Regulations
and such failure shall continue for more than fifteen (15) days after notice
thereof from Landlord or for such longer period as reasonably necessary so long
as Tenant shall continuously and diligently pursue the remedy of such default at
all times until such default is cured, but in no event more than ninety (90)
days after Tenant is provided notice of such failure.
(c) if any petition is filed by or against Tenant under any section or
chapter of the present or any future federal Bankruptcy Code or under any
similar law or statute of the United States or any state thereof (and with
respect to any petition filed against Tenant, such petition is not dismissed
within ninety (90) days after the filing thereof, or Tenant shall be adjudged
bankrupt or insolvent in proceedings filed under any section or chapter of the
present or any future federal Bankruptcy Code or under any similar law or
statute of the United States or any state thereof;
(d) if Tenant becomes insolvent;
(e) if a receiver, custodian, or trustee is appointed for Tenant or for
any of the assets of Tenant which appointment is not vacated within ninety
(90) days of the date of such appointment; or
(f) any events that constitute an event of default under the terms of
Section 14.03 hereof.
Section 23.02. If an event of default occurs and at any time
thereafter while Tenant remains in default, Landlord may do any one or more of
the following without notice or demand, provided however, that Landlord shall
comply with the applicable provisions of the Texas Property Code, as amended
from time to time:
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(a) Terminate this Lease, and consider Tenant's event of default as an
anticipatory repudiation of this Lease and Tenant immediately shall become
liable for damages equal to the total of:
(1) the costs of recovering the Premises;
(2) the unpaid Rent earned as of the date of termination, plus
interest thereon at a rate per annum from the due date equal
to the lesser of (a) the prime rate plus two percent (2%) or
(b) the maximum rate of interest allowed by state or federal
law;
(3) the amount of the excess of (i) the total Rent and other
benefits which Landlord would have received under the Lease
for the remainder of the then current Term without regard to
any renewals thereof, at the rates then in effect, over (ii)
the fair market rental value of the balance of the then
current Term as of the time of such termination, each item
discounted at the rate of eight percent (8%) per annum to
the then present value; and
(4) all other sums of money and damages owing hereunder by
Tenant to Landlord;
(b) Enter upon and take possession of the Premises as Tenant's agent
without terminating this Lease and without being liable to prosecution or any
claim for damages therefor, and Landlord may relet the Premises as Tenant's
agent and receive the Rent therefor. Landlord shall use reasonable efforts to
relet the Premises; provided, however, that Landlord's failure to relet the
Premises shall not release or affect Tenant's liability for Rent or damages and
provided further that Landlord shall have the right to give preference to
leasing other premises in the Building over the reletting of the Premises. Any
rental received by Landlord from reletting the Premises as Tenant's agent shall
be applied first against the reasonable cost of renovating, repairing and
altering the Premises for such new tenant, and then against any sums due under
this Lease. Tenant shall pay to Landlord on demand any deficiency between the
sums due hereunder and that portion of any rental received from reletting
applied against such sums.
(c) Do whatever Tenant is obligated to do under this Lease and enter
the Premises without being liable to prosecution or any claim for damages
therefor, to accomplish this purpose. Tenant shall reimburse Landlord within ten
(10) days for any expenses which Landlord incurs in thus effecting compliance
with this Lease on Tenant's behalf, and Landlord shall not be liable for any
damages suffered by Tenant from such action.
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Section 23.03. No act or thing, done by Landlord or its agents
during the Term shall constitute an acceptance of an attempted surrender of the
Premises, and no agreement to accept a surrender of the Premises shall be valid
unless made in writing and signed by Landlord. No reentry or taking possession
of the Premises by Landlord shall constitute an election by Landlord to
terminate this Lease, unless a written notice of such intention is given to
Tenant. Notwithstanding any such reletting, reentry or taking possession,
Landlord may at any time thereafter terminate this Lease for a previous default.
Landlord's acceptance of Rent following an event of default hereunder shall not
be construed as a waiver of such event of default. No waiver by Landlord of any
breach of this Lease shall constitute a waiver of any other violation or breach
of any of the terms hereof. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon a breach hereof shall not constitute a waiver
of any other breach of the Lease.
Section 23.04. No provision of this Lease shall be deemed to have
been waived by Landlord unless such waiver is in writing and signed by Landlord.
Nor shall any custom or practice which may grow tip between the parties in the
administration of the terms of this Lease be construed to waive or lessen
Landlord's right to insist upon strict performance of the terms of this Lease.
The rights granted to Landlord in this Lease shall be cumulative of every other
right or remedy which Landlord may otherwise have at law or in equity or by
statute and the exercise of one or more rights or remedies shall not prejudice
or impair the concurrent or subsequent exercise of other rights or remedies.
Section 23.05. Notwithstanding any provision hereunder the contrary,
if Landlord is required to make a repair or perform an obligation hereunder,
Tenant shall provide written notice to Landlord specifying in reasonable detail
the nature of the repair or obligation. Thereafter, if Landlord fails to (i)
commence such repair or performance of such obligation within ten (10) days
after such notice (or of such repair or performance of such obligation cannot
with reasonable diligence be commenced within ten (10) days, such longer period
as is reasonably necessary to commence such repair or perform such obligation,
but in no event more than thirty (30) days after such notice, and (ii)
thereafter prosecute such repair or perform such obligation with due diligence
until such repair is completed or such obligation is performed, then Tenant
shall provide a further written notice to Landlord giving notice of Tenant's
intention to make such repairs or perform such obligations. Thereafter, if
Landlord fails to (i) commence such repair or perform such obligation within
five (5) days and (ii) thereafter prosecute such repair or perform such
obligation with due diligence until such repair or obligation is completed or
performed, then Tenant shall have the right to make such repair or perform such
obligation and deduct the reasonable expenses expended by Tenant in performing
such repair or obligation from the next installments of Base Rent due to
Landlord hereunder.
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The provisions to this Section 23.05 are not intended to limit any specific
rights given to Tenant pursuant to any other provision of this Lease.
ARTICLE 24
ATTORNEYS' FEES AND LEGAL EXPENSES
Section 24.01. In any action or proceeding brought by either party
against the other under this Lease, the prevailing party shall be entitled to
recover from the other party attorneys' fees, investigation costs, and other
legal expenses and court costs incurred by such party in such action or
proceeding as the court may find to be reasonable.
ARTICLE 25
NOTICES
Section 25.01. Any notice or document required to be delivered
hereunder shall be registered or certified mail, return receipt requested, or by
personal delivery with a receipt therefor, or by telecopy (with a confirmatory
letter to follow mailed in the manner set forth above) addressed to the parties
hereto at the respective addresses specified below:
If to Landlord -
Chevron U.S.A. Inc.
P. 0. Box 4619
Houston, Texas 77210
Attention: Leasing Manager
Telecopy No. _____________
If to Tenant -
Prior to the Commencement Date:
Texas Micro-Systems, Inc.
10618 Rockley Road
Houston, Texas 77099
Attn: W. Wayne Patterson, President
Telecopy No. (713) 983-8149
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From and After the Commencement Date:
Texas Micro-Systems, Inc.
5959 Corporate Drive, #____
Houston, Texas 77036
Attn: W. Wayne Patterson, President
Telecopy No. _____________
Notice sent in accordance with the above shall be deemed sufficiently served and
received upon the earlier of delivery (whether by telecopy or messenger) or two
(2) days after deposit of same in the United States Mail. Either party may
change its address for purposes of notice under this Article 25 to any address
within the continental United States of America upon thirty (30) days' advance
written notice to the other party hereto.
ARTICLE 26
TENANT'S RENEWAL OPTIONS/EXPANSION OPTIONS
Section 26.01. Tenant's Renewal Options.
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(a) The Options. Unless Landlord elects to cancel the Lease in
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exercise of its cancellation right set forth below, and subject to the further
provisions of this Section and provided that no event of default by Tenant under
this Lease for which Landlord has provided Tenant notice of in writing has
occurred and is continuing under this Lease at the time of exercise of any
renewal option or at commencement of any renewal Term, Tenant shall have and is
hereby given the option to renew and extend this Lease for up to an additional
five (5) year period (Tenant has a one time opportunity to choose a renewal Term
of one (1), two (2), three (3), four (4), or five (5) year term) upon the terms,
covenants, conditions, and provisions herein contained that are in effect as of
the time of the renewal and extension, excepting Rent, to follow consecutively
upon the expiration of the original Term of this Lease. However, Tenant's one-
time opportunity to choose a first renewal Term described herein shall be
subject to and conditional upon the right of Landlord to cancel any renewal of
the original Lease Term. Such cancellation must be exercised by Landlord
providing Tenant with written notice of such exercise at least eighteen (18)
months prior to the expiration of the original Lease Term. If Landlord exercises
the foregoing cancellation right, Landlord shall reimburse Tenant, upon the
expiration of the original Lease Term, for all unamortized costs for remodeling
or other Tenant work in connection with the construction of the initial
Leasehold Improvements, excluding the cost of Tenant's demolition work, based on
a ten (10) year amortization schedule (commencing as of the Rental Commencement
Date) using a 10% interest factor. Tenant shall provide Landlord with a written
statement of such costs of remodeling or other Tenant work, as well as invoices
and other receipts
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relating thereto, if available, as soon as such information is available. The
amortization computation described above will be analogous to the amortization
calculation depicted on Exhibit H (it being agreed, however, that the
calculation depicted on Exhibit H is intended solely to set forth the procedure
for the amortization and does not purport to accurately reflect or estimate the
cost of the Tenant work [excluding the cost of Tenant's demolition work] to be
reimbursable by Landlord as provided hereunder).
(b) Method of Exercise. The option contained in Section 26.01(a)
------------------
may be exercised by Tenant's giving Landlord notice of its irrevocable exercise
of the same, and choice of length of renewal Term as provided above, not less
than ten (10) months prior to the expiration date of the original Term hereof.
(c) Premises Affected by Renewal. Tenant may renew this Lease
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and extend the Term hereof as to all (but not less than all) of the Premises and
the parking spaces that are, on the date of the exercise of the option, subject
to this Lease.
(d) Terms of the Renewal. The first renewal and extension of
--------------------
this Lease shall be on and under the same covenants, agreements, terms,
provisions, and conditions as are contained herein for the original Term, except
(1) that the Base Rent for purposes of calculating annual Base Rent per square
foot of (i) Net Rentable Area of Existing Space and (ii) Net Rentable Area of
Improvement Space in the Premises and (iii) Net Rentable Area of Basement Space
shall be Market Rental Rate (as defined in Section 26.05) for first-class office
buildings in the suburban area of Houston, whether such be higher or lower,
provided that such Market Rental Rate may not exceed the original Term Base Rent
for (i), (ii), and (iii) above by more than one dollar ($1.00) per square foot.
Any second or third five (5) year renewal Term shall be subject to the
foregoing, except that the one dollar ($1.00) per square foot cap or limitation
shall not apply.
(e) If Tenant exercises its one time option for a first renewal
Term, then Tenant shall have an option for a second renewal Term of five years,
and if such foregoing option for a second renewal Term is exercised, then Tenant
shall have an option for a third five year renewal Term. The method of exercise,
premises affected, and terms of renewal for any such second or third five year
renewals shall be as provided in (b) (except that the notice shall be given by
Tenant not less than ten (10) months prior to the expiration date of the
applicable renewal Term), (c), and (d) herein. Any right or option granted to
Tenant hereunder is conditional upon an event of default by Tenant under this
Lease for which Landlord has provided Tenant notice of in writing not having
occurred and being continuing at the time of commencement of any renewal Term.
(f) Further Assurances. If Tenant exercises its option to extend
------------------
this Lease in accordance with all the provisions hereof, Landlord and Tenant,
upon request of either, will sign and acknowledge a written memorandum
evidencing such facts, and
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setting out the date to which the renewal Term will extend, and the Base Rent
will apply during such renewal Term.
Section 26.02. Tenant's Expansion Options.
--------------------------
(a) The Options. So long as no event of default by Tenant under
-----------
this Lease for which Landlord has provided Tenant notice of in writing has
occurred and is continuing at the time of delivery of any expansion space, and
subject to the other provisions thereof, Tenant shall have one-time options to
include under this Lease as a part of the Premises certain basement space
designated by diagonal lines on Exhibit I attached hereto (the "B-2 Expansion
Space") (approximately 6,700 square feet) and certain basement space designated
by cross-hatching on Exhibit J (the "B-3 Expansion Space") (approximately 2,000
square feet).
(b) Method of Exercise. Tenant may exercise its option to
------------------
include the B-2 Expansion Space effective two (2) years from the Commencement
Date (the "B-2 Expansion Date"), provided that Tenant shall have provided notice
to Landlord in writing of Tenant's exercise of such option six (6) months prior
to the B-2 Expansion Date. Tenant may exercise its option to include the B-3
Expansion Space effective four (4) years from the commencement of the Lease (the
"B-3 Expansion Date"), provided that Tenant shall have notified Landlord in
writing of Tenant's exercise of such option six (6) months prior to the B-3
Expansion Date.
(c) Terms of the Expansion. All covenants, terms, provisions,
----------------------
and conditions of this Lease (with the Base Rent for the B-2 Expansion Space
being the Base Rent per square foot of Net Rentable Area for the Basement Space)
shall apply to any B-2 Expansion Space and B-3 Expansion Space included under
Tenant's expansion options, except that the Base Rent for the B-3 Expansion
Space shall be the Market Rental Rate and the Rent payable for the B-2 Expansion
Space or the B-3 Expansion Space shall commence on the earlier of (i) the date
Tenant occupies and conducts normal business operations from the applicable
Expansion Space or (ii) the date that is thirty (30) days after the applicable
Expansion Date (the "Expansion Space Rental Commencement Date"); provided,
however, that if Tenant is not delivered the Expansion Space to begin any build-
out or remodeling Tenant may wish to do as of the applicable Expansion Date,
then Tenant shall not be obligated to begin paying Rent until the date which is
thirty (30) days after the date upon which Tenant is delivered such space.
Additionally, notwithstanding the foregoing, if Landlord does not deliver either
the B-2 Expansion Space or the B-3 Expansion Space within thirty (30) days after
the B-2 Expansion Date or the B-3 Expansion Date, respectively, then Tenant
shall not be obligated to pay any Rent for such Expansion Space after the
applicable Expansion Space Rental Commencement Date for the number of days that
Landlord was late in delivering such Expansion Space to Tenant beyond thirty
(30) days after the applicable Expansion Date.
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(d) Condition of Expansion Space. Subject to all the other terms
----------------------------
and provisions of this Lease, Tenant shall take any expansion space "as is,"
with all faults, except that all building systems shall function in accordance
with their original design intent.
(e) Construction of Leasehold Improvements. Any leasehold
--------------------------------------
improvements to such space shall be constructed in accordance with Section 3.02,
3.03, and 3.05 and Article 11 of this Lease.
Section 26.03. Tenant's Preferential Rights.
----------------------------
(a) The Preferential Rights. During the Term of this Lease, so
-----------------------
long as no event of default by Tenant under this Lease for which Landlord has
provided Tenant notice of in writing shall have occurred and be continuing, and
subject to the other provisions and conditions of this Section 26.03, Tenant
shall have the preferential right to lease the northeast and northwest quadrants
of the first floor in the Building until such space is leased to another party.
A "quadrant" is approximately one-fourth of a floor calculated as if the floor
were bisected by two lines drawn from the mid-point of both sets of opposite
outer building walls, but excluding central floor service areas, which totals
approximately thirty-five thousand (35,000) square feet of Net Rentable Area.
During the first six (6) months of the Term of this Lease, so long as no event
of default by Tenant under this Lease for which Landlord has provided Tenant
notice of in writing shall have occurred and be continuing, and subject to the
other provisions and conditions of this Section 26-03, Tenant shall have the
preferential right to lease certain space designated by cross-hatching on
Exhibit K attached hereto, or any portion thereof, provided, however, that in
the event Tenant leases only a portion of the space indicated on the attached
Exhibit K, such portion leased by Tenant shall be reasonably configured such
that, based upon customary space planning standards and applicable law, the
remaining portion of space not leased by Tenant would be reasonably leasable to
a prospective tenant. Notwithstanding the foregoing provisions of this Section
26.03(a), it is herein agreed by Tenant that if any portion of the space over
which Tenant has preferential rights under this Section 26.03(a) is occupied by
Landlord (or a related entity of Landlord) as of the Commencement Date, then
such occupied space shall not be subject to Tenant's preferential rights
contained herein until such space becomes unoccupied or until such space is
proposed to be leased to a third-party tenant).
(b) Method of Exercise. If Tenant elects to exercise any
------------------
preference right contained herein, then Tenant shall so notify Landlord in
writing and shall describe the space Tenant wishes to lease pursuant thereto.
Additionally, Landlord shall notify Tenant in writing of the material terms and
conditions of any proposed third-party lease before any such space is leased to
a third-party tenant, and Tenant shall have fifteen (15) days
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thereafter to give Landlord notice of the exercise of its preferential right as
to all such space specified in the notice. Except as provided in Section
26.03(a), Tenant may not exercise any preferential rights as to a part only of
the space specified in the notice; provided, however, if the third party lease
covers more space than the northeast and northwest quadrants and Tenant
exercises its preferential right hereunder, if the number of square feet of Net
Rentable Area to be leased by the third party is less than twice the number of
square feet of Net Rentable Area to be leased by Tenant pursuant to its
preferential right herein contained, then Tenant shall only be obligated to (and
Tenant shall have the right to) lease only the northeast and northwest
quadrants.
(c) Effect of Non-Exercise. If Tenant elects not to, or fails
----------------------
timely to, exercise any preferential rights as to any given space for which
Tenant has been notified in accordance with Section 26.03(b) hereof that such
space is proposed to be leased to a third-party tenant, then Tenant shall waive
any and all rights as to such space and Landlord shall be free for ten (10)
months to lease such space to such third party upon terms and conditions
substantially no less favorable to Landlord, taken as a whole, than the terms
and conditions stated in the notice. If Landlord fails to consummate such a
lease with such third party within such time period, then the provisions of this
Section 26.03 shall again become operative, and Tenant shall again have the
opportunity to lease such space or portion thereof as herein provided.
(d) Terms of Exercise. Landlord and Tenant shall execute an
-----------------
amendment to this Lease so that all covenants, terms, provision, and conditions
of this Lease shall apply to any space included under this Lease pursuant to
Tenant's preferential options set forth in this Section 26.03 (with the Base
Rent payable for such space being the Base Rent per square foot of the Net
Rentable Area of either the Existing Space or Improvement Space, depending upon
whether condition of option space to be absorbed into the Premises by Tenant, in
Landlord's and Tenant's reasonable opinion, more closely resembles the
condition, as of the Commencement Date of this Lease, of the Existing Space or
the Improvement Space, provided, however, that the Base Rent per square foot of
Net Rentable Area in the northeast quadrant shall be the Base Rent per square
foot of Net Rentable Area for the Improvement Space, and the Base Rent per
square foot of Net Rentable Area in the northwest quadrant shall be the Base
Rent per square foot of Net Rentable Area for the Existing Space).
Section 26.04. Except as is otherwise provided in Section 26.03(a), the
expansion rights and preferential rights granted to Tenant pursuant to Sections
26.02 and 26.03 are subordinate only to the rights of Amoco to lease such
expansion space and preference space pursuant to the Amoco Lease as currently
existing; provided, however, that Landlord represents and warrants to Tenant
that Amoco is entitled to only fifteen (15) days after notice of a third-party
tenant's election to lease space in the Building during
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which to decide whether Amoco wishes to exercise such preference right over all
such space.
Section 26.05 Market Rental Rate. The term "Market Rental Rate" as used
------------------
in this Lease, shall mean the rate (determined on a "net" lease basis in the
same manner as Base Rent is calculated for this Lease) charged to non-
renewing/non-extending tenants for space of comparable size, location and
condition in the Building and in comparable, first-class, low-rise office
buildings in the western suburban area of Houston, Texas that are located South
of Interstate Highway 10, north of Highway 59 and West of Gessner Road (giving
a strong preference to those buildings located in Beltway Business Park),
further taking into consideration the following:
(i) the location, quality and age of the building;
(ii) the use, location, size and floor level(s) of the
space in question;
(iii) the definition of "usable area" and "rentable area"
used therein;
(iv) the extent of leasehold improvements (existing or to
be provided);
(v) abatements (including with respect to base rental,
operating expenses and real estate taxes, and parking charges);
(vi) the inclusion or exclusion of parking charges in
rental;
(vii) lease takeovers/assumptions;
(viii) relocation/moving allowances;
(ix) space planning allowances;
(x) refurbishment and repainting allowances;
(xi) club memberships;
(xii) any other concessions or inducements such as rent
discounts, build out or construction allowance;
(xiii) extent of services provided or to be provided;
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(xiv) distinctions between "gross" and "net" lease (Market
Rental Rate being calculated on a "net" lease basis);
(xv) base year or dollar amount for escalation purposes of
all operating expenses, including real estate taxes, and the method
of calculation used in determining each tenant's share of
operating expenses for any given period;
(xvi) any other adjustments (including by way of indexes
such as increases based upon increases of Consumer Price Index) to
base rental;
(xvii) the extent, if any, to which the credit standing and
financial stature of the tenant and any guarantors would have an
impact on operators of comparable buildings;
(xviii) term or length of lease;
(xix) the time the particular rental rate under
consideration was agreed upon and became or is to become effective;
(xx) any leasing commissions and/or fees/bonuses to be paid
in connection therewith; and
(xxi) except as provided otherwise in this Lease to the
contrary, any other relevant term or condition in making such
Market Rental Rate determination.
Within sixty (60) days of the date upon which Tenant exercises its option
to take on the B-3 Expansion Space, or exercise its second or third Renewal Term
options (if Tenant so elects), Tenant may give Landlord a written notice
requesting Landlord to set forth in writing to Tenant the amount of such Market
Rental Rate, and Landlord shall provide Tenant with such amount in writing
together with reasonable information setting forth how such Market Rental Rate
was determined, within thirty (30) days of Tenant's written request therefor.
Notwithstanding anything else herein to the contrary, Tenant shall not be
required to exercise any such expansion or renewal option until Tenant has
received Landlord's determination of the Market Rental Rate, if requested as
herein provided by Tenant. Any dispute by the parties as to the Market Rental
Rate for the B-3 Expansion Space or the Market Rental Rate applicable during the
second or third Renewal Term, upon written request by Tenant, shall be settled
by arbitration in accordance with this Section 26.05, and any determination as a
result thereof shall be binding upon the parties. Landlord and Tenant shall use
reasonable efforts to agree, within five (5) business days following Landlord's
receipt of a notice from Tenant that
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Tenant disputes Landlord's calculation of Market Rental Rate for the space in
question, upon the appointment of one (1) arbitrator to resolve the matter. If
an agreement on a single arbitrator cannot be reached within such five (5)
business day period, Landlord and Tenant shall each appoint their respective
arbitrator within ten (10) days following the expiration of the five (5)
business day period and shall specify the name and address of their respective
arbitrator to the other party prior to the expiration of such ten (10) day
period; provided, that if one party fails to specify the name and address of its
selected arbitrator within such ten (10) day period, the arbitrator selected by
the other party shall act as the single arbitrator as if both parties had agreed
to the appointment of such arbitrator as provided above. The selected
arbitrators shall then meet and if such arbitrators are unable to agree upon
such matter, they shall appoint a third arbitrator within ten (10) business days
following their appointment. If the two (2) arbitrators are unable to agree upon
a third arbitrator within such ten (10) business day period, the third
arbitrator shall be appointed as soon as reasonably possible by the American
Arbitration Association (or any successor organization, or if no successor
organization shall then exist, by a court of competent jurisdiction residing in
Harris County, Texas) subject to the qualification requirements set out below.
In the event of the failure, refusal or inability of any arbitrator to act, a
new arbitrator shall be appointed in his stead, which appointment shall be made
in the same manner as set forth above for the appointment of such resigning
arbitrator. Immediately following the selection of the final arbitrator(s), the
arbitrator(s) shall meet and, within fifteen (15) days following the complete
selection of the arbitrators, endeavor to resolve the matter, such fifteen (15)
day period may be extended only to the extent of delay caused by Events of Force
Majeure or if resolution within such fifteen (15) day period is not reasonable
under the circumstances. Within three (3) business days following the selection
of each arbitrator, each party shall submit to such arbitrator such party's
proposed resolution of the matter being arbitrated, together with reasonable
evidence supporting such proposed resolution. The arbitrator(s) shall select
either the proposed resolution of such matter submitted by Landlord or the
proposed resolution of such matter submitted by Tenant, whichever proposal such
arbitrator(s) deem to be the most correct according to the definitions, terms
and requirements set forth in this Lease, with no compromise. The power of the
arbitrators shall be exercised by the concurrence of at least two (2)
arbitrators, except that if only one arbitrator is required, the decision of
such arbitrator shall govern. The arbitrator(s) shall resolve the controversy
and shall execute and acknowledge their decision, together with a brief
statement describing the rationale for such decision, in writing and deliver a
copy thereof to each of the parties personally or by registered or certified
mail, return receipt requested. If the arbitrators fail to reach an agreement
during such fifteen (15) day period, they shall be discharged, and new
arbitration proceedings shall commence, which appointments shall be made in the
same manner as set forth above. By agreement in writing, Landlord and Tenant may
extend the time to reach agreement either before or after the expiration
thereof. The non-prevailing party shall be assessed with all of the costs and
expenses of the arbitration. Each arbitrator shall be a real estate broker
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licensed under the laws of the State of Texas, shall be a member of the Society
of Office or Industrial Realtors (or any successor or equivalent organization
then existing), and shall have been actively and continuously engaged in leasing
transactions involving office space in Houston, Texas for the immediately
preceding ten (10) year period. Until the arbitration proceedings have
concluded, if the Tenant has begun to pay Base Rent for such space, the Base
Rent payable by Tenant shall be the Base Rent proposed by Landlord in its notice
to Tenant provided, however, that upon the final determination of the Market
Rental Rate by the arbitrators, the difference between the Base Rent paid by
Tenant and the correct Base Rent shall be refunded by Landlord to Tenant or paid
by Tenant to Landlord, as the case may be, within ten (10) days of the
determination of the correct Rent, together with interest thereon at the prime
rate from the date owed or paid, as the case may be, until paid or returned, as
the case may be.
ARTICLE 27
MISCELLANEOUS
Section 27.01. Tenant represents and warrants that it has had no
dealings with any broker or agent, other than Peter Dienna and Doug Simpkins of
the Dienna/Simpkins Company (the "Tenant's Broker") in connection with the
negotiation or execution of this Lease and Landlord shall pay Tenant's Broker a
commission pursuant to separate agreement, a copy of which is attached as
Exhibit L. Tenant shall indemnify and hold Landlord harmless from any costs,
expenses, or liability for commissions or other compensation or charges claimed
by any broker or agent, other than Tenant's Broker, claiming by, through, or
under Tenant with respect to this Lease. Landlord represents and warrants that
it has had no dealings with any broker or agent, other than Gerry Trione of
Trione & Gordon (the "Landlord's Broker") in connection with the negotiation or
execution of this Lease and Landlord shall pay Landlord's Broker and Tenant's
Broker a commission pursuant to a separate agreement, a copy of which is
attached as Exhibit L. Landlord shall indemnify and hold Tenant harmless from
any costs, expenses, or liability for commissions or other compensation or
charges claimed by any broker, including Tenant's Broker and Landlord's Broker
or agent claiming by, through, or under Landlord with respect to this Lease.
Section 27.02. As used herein, the terms "business days" means
Monday through Friday (except for holidays); "Normal Business Hours" means 7:00
a.m. to 5:30 p.m. on business days and 7:00 a.m. to 12:00 p.m. on Saturdays
(except for holidays); and "holidays" means those holidays designated by
Landlord (but in no event more than eight (8) days in any calendar year), which
holidays shall be consistent with those holidays designated by landlords of
other first-class office buildings in the suburban area of Houston, Texas.
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Section 27.03. Every agreement contained in this Lease is, and shall
be construed as, a separate and independent agreement. If any term of this Lease
or the application thereof to any person or circumstances shall be invalid and
unenforceable, the remainder of this Lease, or the application of the term to
other persons or circumstances, shall not be affected.
Section 27.04. There shall be no merger of this Lease or of the
leasehold estate hereby created with the fee estate in the Premises or any part
thereof by reason of the fact that the same person may acquire or hold, directly
or indirectly, this Lease or the leasehold estate hereby created or any interest
in this Lease or in such leasehold estate as well as the fee estate in the
Premises or any interest in such fee estate. In the event of a voluntary or
other surrender of this Lease, or a mutual cancellation hereof, Landlord may, at
its option, terminate all subleases, or treat such surrender or cancellation as
an assignment of any of such subleases.
Section 27.05. Tenant's recovery of any judgment against Landlord
for any breach of Landlord of the terms and conditions of this Lease shall be
limited to the fair market value of the Building and the Land (as determined
without regard to any mortgage, deed of trust, or other encumbrance).
Section 27.06. "Events of Force Majeure" means each of the following
events to the extent that (and only for the number of days that) such event
delays the performance of an obligation hereunder by the party claiming such
delay: strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations, or restrictions or any other cause of any kind
whatsoever that is beyond the reasonable control of the party claiming such
delay. The existence of any Event of Force Majeure shall not excuse a party's
performance of any provision hereof, or prohibit the other party from exercising
any remedy it might have for the failure of such performance, in any
circumstance under this Lease unless such provision expressly provides that such
party is excused from such performance, or that the other party's exercise of
any remedy therefor is delayed, by virtue of the existence of an Event of Force
Majeure.
Section 27.07. The article headings contained in this Lease are for
convenience only and shall not enlarge or limit the scope or meaning of the
various and several articles hereof. Words of any gender used in this Lease
shall include any other gender, and words in the singular number shall be held
to include the plural, unless the context otherwise requires.
Section 27.08. Neither Landlord nor Landlord's agents or brokers
have made any representations or promises with respect to the Premises or the
Building except as herein expressly set forth and all reliance with respect to
any representations or promises is based solely on those contained herein. No
rights, easements, or licenses are acquired
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by Tenant under this Lease by implication or otherwise except as expressly set
forth in this Lease.
Section 27.09. This Lease sets forth the entire agreement between
the parties and cancels all prior negotiations, arrangements, brochures,
agreements and understandings, if any, between Landlord and Tenant regarding the
subject matter of this Lease. No amendment or modification of this Lease shall
be binding or valid unless expressed in writing and executed by both parties
hereto.
Section 27.10. The submission of this Lease to Tenant shall not be
construed as an offer, nor shall Tenant have any rights with respect thereto
unless Landlord executes a copy of this Lease and delivers the same to Tenant.
Section 27.11. If Tenant signs as a corporation, each of the persons
executing this Lease on behalf of Tenant represents and warrants that Tenant is
a duly organized and existing corporation, that Tenant has and is qualified to
do business in Texas, that the corporation has full right and authority to enter
into this Lease, and that all persons signing on behalf of the corporation were
authorized to do so by appropriate corporate actions. If Landlord signs as a
corporation, each of the persons executing this Lease on behalf of Landlord
represents and warrants that Landlord is a duly organized and existing
corporation, that Landlord has and is qualified to do business in Texas, that
the corporation has full right and authority to enter into this Lease, and that
an persons signing on behalf of the corporation were authorized to do so by
appropriate corporate actions.
Section 27.12. This Lease shall be governed by and construed under
the laws of the State of Texas. Any action brought to enforce or interpret this
Lease shall be brought in the court of appropriate jurisdiction in Harris
Comity, Texas.
Section 27.13. Tenant shall not, without the prior written consent
of Landlord, use the name of the Building for any purpose other than as the
address of the business to be conducted by Tenant in the Premises, nor shall
Tenant do or permit the doing of anything in connection with Tenant's business
or advertising which in the reasonable judgment of Landlord may reflect
unfavorably on Landlord or the Building or confuse or mislead the public as to
any apparent connection or relationship between Landlord, the Building, and
Tenant.
Section 27.14. Any elimination or shutting off of exterior light,
air, or view by any structure that may be erected on lands adjacent to the
Building and the Land shall in no way affect this Lease or impose any liability
on Landlord.
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Section 27.15. Landlord covenants and agrees with Tenant to furnish
Tenant Two (2) keys to each corridor door to the Premises. Additional keys will
be furnished at a reasonable charge by Landlord on an order signed by Tenant or
Tenant's authorized representative. All such keys shall remain the property of
Landlord. No additional locks shall be allowed on any door of the Premises
without Landlord's permission, and Tenant shall not make or permit to be made
any duplicate keys, except those furnished by the Landlord. Upon termination of
this Lease, Tenant shall surrender to Landlord all keys to the Premises, and
give to Landlord the explanation of the combination of all locks for safes, safe
cabinets, and vault doors not removed by Tenant from the Premises. Tenant shall
be permitted to maintain a secure caged area that only Tenant or Tenant's
designated employee will have or be permitted access. The size of such secure
area shall be approximately twenty (20) feet by twenty (20) feet; provided,
however, that the top of such caged area shall not extend into any area that is
within two (2) feet of the roof structure of the area in which the caged area is
located. The location of such secure caged area is to be mutually agreed upon by
Landlord and Tenant.
Section 27.16. Tenant shall not cause this Lease to be filed of
public record. However, Landlord or Tenant shall have the right (but not the
obligation) to cause a memorandum or this Lease to be filed of public record,
and upon request by the other party Landlord or Tenant shall promptly execute,
acknowledge, and deliver to the requesting party such a memorandum of this
Lease. Any such memorandum shall not set forth the rental or other charges
payable pursuant to this Lease, and shall state that it is not intended to vary
the terms of this Lease. Upon the expiration or earlier termination of the Term
of this Lease, Tenant, upon the request of Landlord, shall enter into a short
form memorandum of termination of this Lease in recordable form.
Section 27.17. Tenant will be permitted to erect an exclusive sign
monument (the "Sign Monument") at Tenant's sole cost and expense on Corporate
Drive, the exact location and design of the Sign Monument to be as chosen by
Tenant and reasonably acceptable to Landlord, provided that Landlord may
reasonably withhold its consent to such Sign Monument if such exceeds forty-
eight (48) inches above grade or if such exceeds one hundred twenty (120) inches
in length. Tenant or Tenant's permitted assignee or sublessee may erect and use
the Sign Monument for so long as Tenant and such permitted assignee or sublessee
has not abandoned the Premises, provided, however, if Tenant and Tenant's
permitted assignee or sublessee has abandoned the Premises, so long as Rent as
required herein is paid, then Tenant or such assignee or sublessee may continue
to display its name (or their names as the case may be) on the Sign Monument.
Section 27.18. Notwithstanding anything to the contrary contained in
this Lease, Landlord does hereby waive, relinquish and discharge all liens and
rights (constitutional, statutory, consensual, or otherwise) that Landlord may
have on any personal property or fixtures of Tenant of any kind, and all
additions, accessions and
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substitutions thereto (except for judgment liens that may hereafter arise in
favor of Landlord). This clause shall be self-operative and no further
instrument of waiver need be required by any lienholder on such property or
fixtures. In confirmation of such waiver, however, Landlord shall, at Tenant's
request, execute promptly any appropriate certificate or instrument that Tenant
may reasonably request.
Section 27.19. Tenant shall, at Tenant's sole cost and expense, be
entitled to construct and maintain a freight elevator for Tenant's exclusive use
within the Premises to operate between the first floor of the Premises and the
Basement Space within the Premises. Such freight elevator shall be constructed
in accordance with the Tenant Space Plan to be approved by Landlord. The freight
elevator installed by Tenant shall be maintained by Tenant at Tenant's sole cost
and expense.
Section 27.20. The exhibits attached to this Lease are by this
reference incorporated fully herein. The term "this Lease" shall be considered
to include all such exhibits.
ARTICLE 28
CONFLICTS OF INTEREST
Section 28.01. Conflicts of interest relating to this Agreement are
strictly prohibited. Except as otherwise expressly provided herein, neither
Tenant, nor any director, employee, or agent of Tenant, shall give to or receive
from any director, employee, or agent of the Landlord, any gift entertainment,
or other favor of significant value, or any commission, fee, or rebate.
Likewise, neither Tenant, nor any director, employee, or agent of Tenant shall
enter into any business relationship with any director, employee or agent of
Landlord (or any affiliate of Landlord), without prior written notification
thereof to Landlord unless such person is acting for and on behalf of Landlord.
Any authorized representative(s) of Landlord may audit the records of Tenant
relating to this transaction, including the expense records of the Tenant's
employees involved in this transaction, upon reasonable notice and during
regular business office hours for the sole purpose of determining whether there
has been compliance with this Section 28.01. However, the foregoing audit rights
shall not apply to Tenant's confidential business records or trade secrets not
related to this transaction.
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EXECUTED as of the date first written above.
LANDLORD
CHEVRON U.S.A. INC.
By: /s/ Gary D. Schuman
--------------------------------
Name: Gary D. Schuman
------------------------------
Title: Lease Manager
-----------------------------
TENANT
TEXAS MICRO-SYSTEMS, INC.
By: /s/ W. W. Patterson
--------------------------------
Name: W. W. Patterson
------------------------------
Title: Chmn. & CEO
-----------------------------
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March 31, 1995
Mr. J. Michael Stewart
Texas Microsystems, Inc.
5959 Corporate Drive
Houston, TX 77242
Dear Michael:
On behalf of Sequoia Systems, Inc., it is my pleasure to offer you the position
of Executive Vice President of Sequoia and President of the TMI/TME division
based at TMI's headquarters in Houston, Texas, commencing with the closing of
Sequoia's acquisition of TMI/TME. Your starting salary will be $7,211.54 (which
calculates to $187,500 annually) paid bi-weekly. Your salary will be reviewed
on an annual basis. This position reports directly to me.
You will be entitled to all employee benefits, including group insurance,
employee stock purchase plan, 401(k) plan, etc., normally extended to new
Sequoia employees. Additionally, as an officer of Sequoia, you will receive an
additional executive life insurance policy of two times your base salary. You
should understand and agree that your employment is governed by the employee
policies and practices of Sequoia and that you will be an employee at will
rather than for any fixed period of time.
You will be eligible to participate in Sequoia's Officer Incentive Compensation
Plan targeted to provide additional earnings potential, dependent on achievement
of individual goals and the financial results of the new company, on the same
basis as other Sequoia officers. For FY94, such incentive compensation was
generally in the range of 30-60% of base salary.
This offer is contingent upon your completing and signing several documents, as
well as the closing of Sequoia's acquisition of TMI/TME. You must sign a
Proprietary Information and Inventions Agreement, and you should complete a
Direct Deposit form. Additionally, we will provide you with a copy of Form I-9,
which must be completed by all newly hired employees.
Please indicate your acceptance by signing and returning the copy of this letter
to me, together with the signed copy of the Proprietary Information and
Inventions Agreement.
<PAGE>
Please call me with any particular questions regarding this offer. You may
contact Don Colanton, Director of Human Resources, for additional information
concerning Sequoia benefits.
The Board of Directors and the management team at Sequoia join me in enthusiasm
at the prospect of your joining Sequoia.
Sincerely,
Neil McMullan
President & CEO
I accept your offer of employment with Sequoia Systems, Inc.
Signed: /s/ J. Michael Stewart Date:
------------------------------------- -----------------------------
<PAGE>
Exhibit 11
Sequoia Systems, Inc.
Statement re: Computation of Earnings per Share
<TABLE>
<CAPTION>
June 30,
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Weighted Average Common Share outstanding 15,033,000 14,486,000 13,829,000
---------------------------------------------
Weighted Average Options Outstanding 1,426,000 1,310,000
Shares assumed to be purchased (900,000) (701,124)
------------------------------
Primary weighted average common and
common share equivalents outstanding 15,559,000 15,095,000
Dilutive effect of weighted average options 6,000 8,000
------------------------------
Fully diluted weighted average common
and common share equivalent outstanding 15,565,000 15,103,000
==============================
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
<S> <C>
Texas Microsystem, Inc. Delaware
Sequoia Systems (UK) Limited United Kingdom
Sequoia Systems (Australia) Pty Ltd. Australia
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Sequoia Systems, Inc. on Form S-8 (File Nos. 33-35362, 33-40339 and 33-64690) of
our reports dated July 25, 1995, on our audits of the consolidated financial
statements and financial statement schedule of Sequoia Systems, Inc. as of June
30, 1995 and 1994 and for each of the three years in the period ended June 30,
1995 which reports are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 25, 1995
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated November 30, 1994 on the combined financial statements of The Texas
Microsystems Group (the Company) as of and for the years ended June 30, 1994 and
1993 (and to all references to our firm), included in this Form 10K. It should
be noted that we have not audited any financial statements of the Company
subsequent to June 30, 1994, or performed any audit procedures subsequent to the
date of our report.
ARTHUR ANDERSEN LLP
Houston, Texas
September 26, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000724621
<NAME> SEQUOIA SYSTEMS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-1-1994
<PERIOD-END> JUN-30-1995
<CASH> 15,317
<SECURITIES> 0
<RECEIVABLES> 14,027
<ALLOWANCES> 1,288
<INVENTORY> 16,713
<CURRENT-ASSETS> 46,743
<PP&E> 22,563
<DEPRECIATION> 17,828
<TOTAL-ASSETS> 52,241
<CURRENT-LIABILITIES> 16,859
<BONDS> 0
<COMMON> 6,066
0
0
<OTHER-SE> 29,260
<TOTAL-LIABILITY-AND-EQUITY> 52,241
<SALES> 88,145
<TOTAL-REVENUES> 104,039
<CGS> 48,985
<TOTAL-COSTS> 57,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 290
<INCOME-PRETAX> 6,237
<INCOME-TAX> 960
<INCOME-CONTINUING> 5,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,277
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
