UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______________ to
______________.
Commission file number: 0-15627
SEQUENT COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0826369
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
15450 S.W. Koll Parkway, Beaverton, Oregon 97006-6063
(Address of principal executive offices, including zip code)
Registrant's telephone number, including are code: (503) 626-5700
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
______________________ ______________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at February 28, 1997, based on the closing price on such date on
the NASDAQ National Market System: $592,694,320.
Number of shares of Common Stock outstanding as of February 28, 1997:
34,765,481.
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
1996 Annual Report to Shareholders Parts II and IV
Proxy Statement for 1997 Annual
Meeting of Shareholders Part III
TABLE OF CONTENTS
Item of Form 10-K Page
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 4(a). Executive Officers of the Registrant 11
PART II
Item 5. Market for the Registrant's Common Equity and 13
Related Stockholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants 13
on Accounting and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 14
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners and 14
Management
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports 15
on Form 8-K
SIGNATURES 23
PART I
Item 1. Business.
Sequent Computer Systems, Inc. ("Sequent" or "the Company") is a provider
of scalable data center ready open systems solutions for large organizations
spanning diverse industries. Sequent designs, manufactures and markets high-
performance symmetric multiprocessing (SMP) and CC-NUMA (Cache Coherent Non-
Uniform Memory Access) computer systems and operating environment software.
The Company's systems are widely used for large-scale on-line transaction
processing (OLTP), applications in decision support systems (DSS) and data
warehouses, for custom applications built upon relational database management
systems (RDBMS), and as the central server in client-server architectures.
Sequent's project-oriented offerings include a comprehensive portfolio of
customer, professional and education services to solve complex Information
Technology (IT) problems. The Company has an established set of partnerships
with other software, hardware and services providers to deliver complete
solutions to its customers.
The Company was incorporated in Delaware in January 1983 and was
reincorporated in Oregon in December 1988. Unless the context otherwise
requires, references in this Report on Form 10-K to the "Company" or "Sequent"
refer to the prior Delaware corporation, the current Oregon corporation and
its subsidiaries. The Company's principal executive offices are located at
15450 S.W. Koll Parkway, Beaverton, Oregon 97006, and its telephone number at
that location is (503) 626-5700.
Market Overview
In the past decade, Sequent has developed the experience to guide large
organizations through complex changes faced in moving to open systems. These
changes include the renovation of business processes aligned with new
information systems, maximizing benefits of SMP architectures and open
systems, widespread use of relational database management system (RDBMS)
applications and the substitution of OLTP for traditional batch processing.
Since the launch of its SMP family of systems in 1984, Sequent has installed
more than 8,000 SMP open systems worldwide.
Information Systems Renovation. Global economies and intense competitive
pressures today prompt many companies to provide employees with access to data
in order to increase responsiveness to customer needs. This need for access
to data requires companies to re-engineer or redesign their business processes
to take advantage of innovative open client/server architectures, systems and
products. Sequent offers a focused collection of IT infrastructure
consulting, education and implementation services. These services are geared
to assess an organization's current systems, work with the customer's IT staff
or their chosen systems integrator to design new systems that support business
objectives, and to deliver and implement systems with a complete IT solution.
SMP Architectures. With dramatic improvement in the power and
price/performance characteristics of processors and the proven ability of SMP
architectures to incorporate multiple processors into a single large-scale
system or group of systems, customers are increasingly employing SMP systems
to meet their commercial computing needs. Sequent has thirteen years of
success with SMP systems. The adoption of SMP architectures by other major
computer systems providers ensures continued acceptance of SMP in the
commercial marketplace.
NUMA-Q Architectures. For nearly a decade, SMP systems have been able to
meet the demands for large-scale OLTP, DSS and business communications
implementations. However, the architecture of these systems can limit
performance beyond a certain number of processors. All of the processors in
an SMP system are connected to each other and to memory and I/O by a single
bus. The bandwidth of the bus imposes limits on processing scalability, a
significant penalty with the dramatically rising level of processor
performance. This limitation has prevented SMP nodes from increasing much
beyond 32 processors. As a result, Sequent realized that a new SMP
architecture was required: NUMA-Q. NUMA-Q is the first CC-NUMA architecture
for large-scale systems available to the commercial marketplace. Sequent
began shipment of NUMA-Q during the fourth quarter of 1996.
Open Systems. Historically, large organizations have relied upon
computing equipment based upon a single vendor's proprietary technology that
was generally incompatible with that of other vendors. In recent years,
proprietary systems have become increasingly unacceptable to companies that
want the flexibility to purchase computing equipment and software best suited
for a specific need without being constrained by the technology employed by a
specific vendor. Proprietary systems also make it difficult for the PC user
to access information and applications from the central computer. An open
system, by contrast, incorporates industry standard technology and permits
users to integrate computer equipment and software offered by different
vendors. An open systems environment also facilitates offloading applications
from the central computer to a less expensive department, desktop or special-
purpose computer. Many companies are replacing some or all of their
proprietary central computing systems, moving to a more open, distributed
system when they upgrade or expand their systems.
RDBMS and OLTP. RDBMS is the primary vehicle for managing information in
large organizations. RDBMS systems are also used to support OLTP, which is
increasingly replacing traditional batch processing of historical data in
businesses with centralized information needs and distributed operations. The
OLTP market includes any systems that support the day-to-day operational
processes of a corporation. The market demand for OLTP computing systems,
particularly those using RDBMS technology, spans a wide variety of industries
and applications and has increased dramatically as more businesses require
instantaneous processing of information.
Rapid Growth in Desktop and Network Computing. In recent years,
companies have increasingly sought to improve the efficiency of their
computing systems by integrating PCs with centralized computing resources to
enable enterprise-wide communication, distributed processing and instantaneous
access to enterprise information (database) and computing services
(applications software). Recently market introductions include "Thin Clients"
or "Network Clients" which are lightweight desktop devices with little innate
computing capability and no magnetic storage. The use of such devices as an
alternative for PCs or ASCII terminals is expected to increase demand for
larger back-end servers similar to those offered by Sequent.
Sequent's Strategy
Sequent's strategy is to integrate the best technologies from across the
industry in order to deliver scalable data center ready open systems
solutions, including a comprehensive portfolio of migration services and
offerings. With the Company's new NUMA-Q architecture and an established set
of partnerships with industry-leading technology vendors, Sequent's systems
enable implementation of complex business applications that support customers'
critical needs.
Migration to Open Systems. Sequent concentrates on understanding the
business objectives and IT needs of the customer at all organizational levels.
The Company then works closely with the customer and suppliers of key
technology components to design an open, integrated solution to meet the
customer's computing needs. The Company seeks to add value for the customer
by teaming with them, or their designated systems integrator, to design an
integrated system that directly supports the customer's business objectives
and conforms to a sound architectural infrastructure including processing and
data storage hardware, system software, applications and data center
management services. The Company focuses on large-scale organizations that
have data center based information systems and are committed to migrating from
a proprietary system environment to open systems.
Leading-Edge Technologies. Sequent's NUMA-Q systems, recognized as the
industry's leading large-scale CC-NUMA platforms for the commercial
marketplace, provide exceptional price/performance and scalability for RDBMS,
core business and client/server applications. The performance benefits of
NUMA-based architectures, compared to standard SMP and single processor
systems, are especially pronounced in transaction-intensive and decision
support applications. Sequent's NUMA-Q systems currently use Intel
Pentium Pro processors and have been designed to incorporate up to 252
processors in a single node. Sequent intends to maintain its leadership
position in NUMA-Q systems, including upgrading to new Intel processor
generations as they become available.
Commitment to Open Systems. Sequent's open system architecture leverages
industry standards whenever possible, including the use of Intel processors,
the UNIX and Windows NT operating systems, and standard network and
communications interfaces. Sequent systems are designed to operate in a multi-
vendor heterogeneous environment and support a wide variety of third-party
software, including open RDBMSs, packaged applications, and decision support
tools and applications.
"Partnering" with Leading Vendors. Sequent devotes substantial resources
to strategic marketing and product development relationships with those
companies it believes offer the best open systems technologies. Sequent has
relationships with industry-leading systems management and tools vendors, such
as Tivoli, Computer Associates, BMC and Hewlett Packard, in order to deliver a
computing environment ready to run in customers' data centers. The Company
also has relationships with major providers of RDBMS software, including
Oracle Corporation, Informix Software Inc., and Computer Associates. Sequent
also has strategic relationships with Intel for joint research and development
of future computer hardware "building blocks"; with suppliers of other major
operating systems, such as Microsoft for Windows NT; with major suppliers of
communications and network software, including Novell; with emerging suppliers
of client/server application development products such as Forte Software,
Inc.; and with suppliers of third-party applications software such as Oracle,
PeopleSoft, Baan and SAP.
Platform Overview
Business automation and systems integration applications require
extensive amounts of computing power, memory and disk storage throughput.
Sequent systems are designed for customers with extensive computing
requirements. Sequent products are based on industry standards and are
designed to easily combine with other computing hardware in an open systems
environment. Sequent systems enable customers to implement cost-effective
computing, to automate business functions and to integrate enterprise-wide
computing operations.
The Company's Symmetry systems, which start at two processors, are
currently based on Intel Pentium processors and offer high levels of
transaction processing and decision support performance. The Company's NUMA-Q
systems, which start at four processors and are based on Intel Pentium Pro
processors, have shown performance and scalability capabilities expanded
beyond the limitations of current single-bus SMP architecture.
Sequent's processor-independent architecture allows the Company to
incorporate technological advances in its product offerings more quickly and
inexpensively than manufacturers of computer systems with proprietary central
processing units. The Company's ongoing product development efforts leverage
advances in open systems technology, including processor enhancements, storage
technology, communications and user-interface enhancements. These
enhancements directly benefit customers who can upgrade their installed
Sequent systems without altering source programs, retraining users or
replacing hardware and software not directly affected by the upgrade. The new
NUMA-Q systems (NUMA-Q 2000) are binary compatible with Sequent's previous
generation of systems, the Symmetry 5000. Future processors will be offered
for the NUMA-Q systems and will be binary compatible and function in the same
systems as the current generation of processors.
Sequent's Symmetry and NUMA-Q systems are based on an open system
architecture that incorporates industry standards such as those in the UNIX
operating system. DYNIX/ptx, Sequent's version of UNIX, enhanced for SMP in
the commercial marketplace, allows Sequent systems to provide nearly linear
improvements in incremental performance as processors are added. DYNIX/ptx
provides Sequent customers access to a growing array of UNIX software
applications. Sequent Symmetry and NUMA-Q systems used in network and
client/server applications link PCs and department level and central computers
to deliver applications and information to desktop PCs through network and PC
interfaces, allowing users access to extensive processing power and
information.
The Company's low-end and mid-range NT systems, which run Microsoft
Windows NT operating system, are based on Intel Pentium processors. The
Windows NT-based systems provide database and application services for
workgroup, departmental and enterprise-level computing requirements.
Operating Systems. The Company is committed to support both the UNIX
operating system and the emerging Windows NT system, which the Company
believes will be the two major operating systems for open, enterprise-wide
computing. The Company's continuing leadership in the development of UNIX-
based SMP systems has been acknowledged by the industry's leading developers
of commercial UNIX systems software.
The Company continues to enhance the DYNIX/ptx operating system,
currently as DYNIX/ptx 4.3 adding features to operate in mission critical
environments. The Company is currently developing DYNIX/ptx Version 4.4,
which will be available in the second quarter of 1997. These features include
increased scalability and improved systems management and will support highly
available systems and clusters.
The Company has had ongoing technical discussions with Microsoft and
other partners to extend the scalability, reliability and manageability of the
Windows NT operating system and applications.
Partnering with Leading Vendors
Relational Database Management Software. Sequent has strategic marketing
and development relationships with major independent providers of RDBMS
software, including Oracle Corporation, Informix Software, Inc. and Computer
Associates. Sequent's SMP architecture is designed to maximize the performance
and scalability requirements for managing extensive amounts of computing power
required by OLTP applications in conjunction with RDBMS software. In addition,
this same technology, coupled with the emerging capabilities provided by
Sequent's RDBMS partners, strengthens the decision support performance
required by large-scale enterprises today. Sequent has chosen to run its
partners' software in support of its own enterprise needs. Sequent and these
strategic partners join forces in joint development programs, joint marketing
programs, and sales teaming efforts. The result is an exchange of technical
personnel, dedicated marketing expertise and a highly trained sales
organization to help sell the Company's and its partners' combined solutions.
Client/Server Application Software. Sequent maintains strategic
relationships with key software providers to assure the availability and
maximum performance of pivotal software products on the Sequent platform.
Sequent offers packaged and custom applications.
Packaged Applications: Packaged software applications provide a standard
pre-engineered solution for a common set of functional business problems.
Packaged applications offer the potential to trim the total cost of a
solution, reduce the time required for implementation, and lower overall
project risk. Sequent maintains a number of strategic relationships with
software partners who provide products in this area including Oracle,
PeopleSoft, Baan and SAP.
Custom Software Applications: Custom software applications are developed
using a variety of tools provided by software partners. The applications are
used in building custom solutions in situations where packaged applications do
not meet business requirements or where customers desire to build systems for
a competitive edge. Sequent maintains a number of strategic relationships
with software partners who provide products in this area including Oracle,
Informix and Forte.
Communications Products. The Company's systems support communications
products which allow Symmetry and NUMA-Q systems to interconnect in a
multivendor systems environment. These products include hardware which
connect to wide and local area networks of different media and software which
supports protocols for open and proprietary systems.
Sequent's communications products are differentiated by Parallel
STREAMS Architecture which utilizes SMP architecture to produce high
performance and scalable communications. Parallel STREAMS are used for both
low level communications media software to drive Ethernet, Token Ring, fiber
distributed data interface ("FDDI") and synchronous lines as well as high
level protocols.
In addition to open systems communications using protocols such as
TCP/IP, Open Systems Interconnections ("OSI") and X.25, Sequent communicates
directly with IBM and DEC systems via Systems Network Architecture ("SNA") or
DECnet/LAT protocols, respectively. The Company interfaces with many other
vendors utilizing these same protocols.
Sequent offers several high speed communications connections on the NUMA-
Q systems. These include 100 Megabit-per-second Ethernet, CDDI (a copper wire
version of FDDI), ATM, and high speed Synchronous E1/T1 which offer an order
of magnitude increase to the bandwidth of previous offerings.
Third-Party Applications Programs. The rapidly expanding universe of
applications software can be easily ported to Sequent's UNIX-based Symmetry
and NUMA-Q multiprocessing systems. The Company recognizes that applications
software is a critical element in providing solutions to the enterprise and
maintains marketing programs to promote the development and support of third-
party applications software packages for the Company's systems. Currently,
over 650 software application modules from approximately 300 vendors are
available to Sequent users. The software products offered drive core business
applications in transaction-intensive, decision support, database technologies
and development environments. The software packages available address the
needs of many different vertical markets, including manufacturing,
telecommunications, health care, financial services and state and local
governments. To supplement the marketing efforts of the third-party
suppliers, the Company actively promotes these software partners to end users
through joint sales campaigns, demonstrations at its sales offices and trade
shows, marketing collateral, and joint marketing programs.
In addition, Sequent's NT systems support the thousands of software
applications developed by third-party companies for the Microsoft Windows NT
operating system.
Sales and Distribution
The Company sells its products and services through worldwide direct and
indirect distribution channels. The primary sales channel in North America
and Europe is through the direct sales force, increasingly in partnership with
major systems integrators, while sales channels in Asia and the rest of the
world are primarily through distributors. The Company has 59 sales offices
worldwide, including 33 in North America and 14 in Europe. Indirect sales
channels utilized by the Company include value-added resellers, original
equipment manufacturers ("OEMs"), and foreign distributors.
As is common in the computer industry, a significant portion of orders is
generally received and shipped in the last month of a fiscal quarter. As a
result, the Company's product backlog is relatively small, is not necessarily
indicative of sales levels for future periods and is not material to
understanding the Company's business.
The Company had no single customer that represented greater than 10% of
total revenues in 1996, 1995 or 1994. International sales were approximately
55% of the Company's total revenues in 1996 and 1995 and 48% in 1994.
Competition
The computer industry is intensely competitive and characterized by rapid
technological advances resulting in frequent new product introductions and
improvements in performance. Competitive factors include product quality and
reliability, professional services capability, architectural fit, relative
price/performance, ease of understanding and operation of the system,
capability of the operating system software, availability of applications
software, marketing capability, service and support, name recognition, and
corporate reputation and longevity.
Within the commercial segment of the general purpose computing market,
Sequent competes against, among others, the major computer manufacturers
including Hewlett-Packard, DEC, IBM and SUN. The size, reputation, installed
base and distribution strength of these companies make them significant
competitors. Sequent's Professional Services organization is closely aligned
to its systems business. Accordingly, it competes against the professional
services organizations of its rival computer manufacturers, including, among
others, SUN, Hewlett-Packard, DEC and IBM. Sequent's Professional Services
organization also competes to a lesser degree with small, localized consulting
firms who offer tactical help in the areas of systems administration, database
design and administration and other design services. Although some of these
competitors have financial, marketing, distribution and technical resources
which significantly exceed those of the Company, the Company believes that it
can compete favorably in the open systems marketplace based on its
technological advancements, professional services expertise, price/performance
and value to the customer.
Product Development
The Company's research and development programs are continually focused
on advancing hardware and software technologies. Sequent not only leverages
the availability of processor technology from Intel, but also leverages
systems management and backup/restore software products supplied by open
systems vendors. Sequent adds high-end capabilities to these products to
better satisfy customer needs.
In December of 1996, Sequent successfully introduced systems based on its
new Cache Coherent Non-Uniform Memory Access (CC-NUMA) architecture.
Sequent's CC-NUMA architecture (NUMA-Q) condenses four Intel Pentium Pro
processors, memory and input/output ports into a single building block for
increased performance and reliability. These four-processor "quads"
interconnect with the Company's IQ-Link technology which allows a large
number of quads to become a distributed shared memory SMP system. As with
previous designs, the performance will scale nearly linearly as quads are
added to a system. Sequent's NUMA-Q systems are expected to be both software
compatible and clustered systems compatible with Sequent's existing Symmetry
product line in the second quarter of 1997. Sequent will continue to enhance
the NUMA-Q product line to best meet market needs.
The Company's software development program is focused on improving the
performance of its parallel-enabled operating system, providing highly
available clustering software, and enhancing its suite of communications,
network and client/server and third-party applications software. The Company
intends to continue making substantial investments in research and development
activities to maintain and enhance its competitive position in a market
characterized by rapid technological advances.
Professional Services and Product Support
Sequent offers a wide range of professional services to ensure that
every phase of a customer's project, from advance planning and architecture to
technology deployment and ongoing systems support, is successful.
Professional services include: IT architecture and transition planning; DSS
design and implementation; packaged OLTP installation and implementation (such
as Oracle Financials & Manufacturing, SAP, Baan, and PeopleSoft applications);
and enterprise management design and systems administration. The Company's
Professional Services group uses leading edge knowledge to deliver enterprise-
wide system solutions designed to meet customers' business requirements. In
addition, Sequent offers customers a comprehensive set of education and
training programs.
Sequent's Professional Services business is positioned to support
traditional management consultants that perform business process analysis and
re-engineering, such as Nola, Norton & Co., and McKinsey & Co., with Sequent's
technical system integration skills. The Company also teams with major
systems integration companies and "Big 6" consulting firms such as Electronic
Data Systems Corp., Ernst & Young, and KPMG when developing IT solutions for
large and complex system projects. Both management consultants and technical
system integration consultants are strategic components of the Company's
success in delivery of services to its customers.
The Company also offers an array of customer service and support
programs, including hardware maintenance and service, software service and
upgrades and documentation support. In addition, hardware maintenance is
offered for many third-party peripheral products connected to the Sequent
system. The Company maintains a 24-hour toll-free telephone line for
technical consultation as well as remote log-in capability for diagnosing
customer hardware and software problems. In some cases, in-field hardware
service is contracted to third-party suppliers, which rely on Sequent for
customer interface and diagnostic support. The Company's standard warranty on
its products generally extends 90 days from the date of customer installation.
The Company believes that the quality and reliability of its computer
systems are important to customer satisfaction. Sequent's systems have proven
their high quality and reliability. High system uptime is a built-in
advantage of Sequent's architecture. Sequent personnel perform all
installations and hardware fault isolation and provide complete software
support for direct customers. Sequent systems are equipped with diagnostic
tools that allow the Company's service engineers to identify, diagnose and
repair a failed component from remote locations. Replacement modules can be
provided quickly to restore the system to full capacity. The Company also
offers service and support programs in system performance evaluation and
disaster protection.
Revenue generated from services and support was 30%, 27% and 24% of total
revenue during 1996, 1995 and 1994, respectively.
Manufacturing
The Company's manufacturing operations consist of procurement, assembly,
test and quality control. Subcontractors are often used to assemble and test
subassemblies, such as printed circuit boards. The modular nature of the
Company's products, together with the standards-based open architecture,
permit ease of manufacture and system configuration. Once integrated, all
systems go through a fully operational, continuous burn-in cycle while
executing rigorous system stress and diagnostic tests. Final assembly and
testing occur only when a specific customer order is due for shipment (because
of the broad range of system configurations possible from a relatively few
basic modules and the many choices of peripherals). If a failure occurs or a
problem of unknown origin arises during work-in-progress testing, it is the
policy of the Company to halt shipment of products which may be affected while
the Company isolates and corrects the problem and determines whether the
problem may extend to other systems in manufacturing or at customer sites.
Such interruptions could cause fluctuations in quarterly results.
The Company generally obtains most parts and components from one vendor,
even where multiple sources are available, to maintain quality control and
enhance the working relationship with suppliers. These relationships include
joint engineering programs for new product development. The Company attempts
to reduce the risk of supply interruption through close supplier relationships
and greater inventory positions in certain sole-sourced components. The
failure of a supplier to deliver on schedule could delay or interrupt the
Company's delivery of products and thereby adversely affect the Company's
revenue and profits.
Patents and Licenses
Four U.S. and three United Kingdom patents have been issued to the
Company. The Company has filed ten additional U.S. patent applications and
two foreign applications covering technology incorporated into its products,
which are still pending. The Company believes that the rapid pace of
technological change in the computer industry makes patent protection less
significant than factors such as its continued focus and efforts in research
and product development, its technical expertise and the management ability of
its personnel. The Company has been made aware of others in the industry who
assert exclusive rights to certain technologies, copyrights or trademarks,
usually in the form of an offer to license certain rights for a fee or
royalties. The Company's policy is to evaluate such claims on a case-by-case
basis. The Company may seek to enter into licensing agreements with companies
having or asserting rights to technologies if the Company concludes that such
licensing arrangements are necessary or desirable. There can be no assurance
that the Company will be able to obtain such licenses or, if obtained, that
such licenses will be on favorable terms.
Employees
At December 28, 1996 the Company employed approximately 2,656 employees
of whom approximately 268 were employed as sales executives, 1,459 in sales
support, marketing and service, 466 in product development, 159 in
manufacturing and 304 in administrative and support services. The Company's
continued success will depend in part on its ability to attract and retain
highly skilled and motivated personnel who are in great demand throughout the
industry. None of the Company's employees is represented by a labor union.
All full-time Sequent employees are granted options to acquire Common Stock of
the Company. Sequent believes that its employee relations are excellent and
believes that its stock incentive plans, its challenging work environment and
the opportunities for advancement within the Company are key factors to its
ability to attract and retain qualified personnel.
Trademarks
Sequent, Symmetry, WinServer and DYNIX/ptx are registered trademarks
and Parallel STREAMS, NUMA-Q and IQ-Link are trademarks of Sequent
Computer Systems, Inc. This Report on Form 10-K also refers to trademarks
held by other corporations.
Forward-Looking Statements
Information in this Report on Form 10-K that is not historical
information, including information regarding product development schedules,
constitutes forward-looking statements that involve a number of risks and
uncertainties. Additional forward-looking statements may be made by the
Company from time to time. The following factors are among the factors that
could cause actual results to differ materially from the forward-looking
statements: timely completion of product development and customer acceptance
of the Company's NUMA-Q product line; business conditions and growth in the
electronics industry and general economies, both domestic and international;
lower than expected customer orders, delays in receipt of orders or
cancellation of orders; competitive factors, including increased competition,
new product offerings by competitors and price pressures; the availability of
third party parts and supplies at reasonable prices; changes in product mix
and the mix between product and service revenue; significant quarterly
performance fluctuations due to the receipt of a significant portion of
customer orders and product shipments in the last month of each quarter; and
product shipment interruptions due to manufacturing problems. Any forward-
looking statements should be considered in light of these factors.
Item 2. Properties.
The Company's headquarters and its product development and manufacturing
operations are located in facilities totaling approximately 560,000 square
feet in Beaverton, Oregon, 10 miles west of Portland. The Company occupies
these facilities under leases which expire from 1999 to 2006. On the
expiration dates of these leases, the Company generally has the option of
purchasing the leased facilities at fair market value or renewing the leases
for an additional five years. In addition, the Company owns 38.12 acres of
undeveloped land in Beaverton held in anticipation of future facility growth
requirements. The Company also leases for sales, marketing and customer
support offices in locations throughout the United States, Europe, Canada and
Asia Pacific. The Company anticipates that it will continue to expand its
corporate and field facilities as business growth warrants.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
There are no material pending legal proceedings involving the Company.
Item 4(a). Executive Officers of the Registrant.
Name Age Position
Karl C. Powell, Jr. 53 Chairman and Chief Executive Officer, Director
John McAdam 46 President and Chief Operating Officer, Director
Robert S. Gregg 43 Sr. Vice President of Finance and Legal
and Chief Financial Officer
Steve Chen 53 Executive Vice President of Product Group and
Chief Technology Officer, Director
Andre Dahan 48 Sr. Vice President of World Wide Field Operations
and Marketing
Mr. Powell, a co-founder of the Company, is Chairman and Chief Executive
Officer, and has been a director since 1983. Mr. Powell has served as the
Company's sole Chief Executive Officer or shared the Office of the Chief
Executive with the co-founder of the Company since the Company's inception.
From 1974 to 1983, Mr. Powell was employed by Intel Corporation, where his
most recent position was General Manager for Microprocessor Operations. Mr.
Powell served on the National Board of Directors of the American Electronics
Association from 1985 to 1986. He holds a B.S. degree in mechanical
engineering from the US Merchant Marine Academy.
Mr. McAdam joined the Company in August 1989 as U.K. Sales Director. He
became U.K. General Manager in January 1991, Vice President and General
Manager of European Operations in October 1992, and Senior Vice President of
European and Asian Operations in January 1994. He was promoted to President
and Chief Operating Officer in February 1995, and was elected to the Board of
Directors in November 1995. Prior to joining the Company Mr. McAdam was
employed for 10 years by Data General U.K. Ltd., serving most recently as
Regional Manager, Public Sector, Finance and Government Market. Mr. McAdam
holds a B.Sc. first class honors degree in Computer Sciences from Glasgow
University.
Mr. Gregg joined the Company in 1983 as its Controller. He became
Director of Finance in 1984 and Vice President of Finance and Chief Financial
Officer in March 1986. He was promoted to Senior Vice President of Finance &
Legal and Chief Financial Officer in February 1995. Prior to joining the
Company, Mr. Gregg spent eight years at the public accounting firm of Price
Waterhouse LLP. Mr. Gregg holds a B.S. degree in business and accounting from
the University of Oregon.
Dr. Chen joined the Company in 1996 as its Executive Vice President of
Product Group and Chief Technology Officer and as a member of the Board of
Directors. Prior to joining the Company, Dr. Chen was a co-founder of
SuperComputer International (SCI), later renamed Chen Systems, which was
recently acquired by Sequent. Prior to founding SCI, Dr. Chen was President
and CEO of Supercomputer Systems, Inc. (SSI). Previous to this, Dr. Chen was
employed for eight years at Cray Research, Inc., serving most recently as
Senior Vice President. Dr. Chen holds a Ph.D. in computing science from the
University of Illinois, a M.S. degree in electrical engineering from Villanova
University and a B.S. degree in electrical engineering from the National
Taiwan University.
Mr. Dahan joined the Company in 1996 as its Vice President of World Wide
Marketing and was then promoted to Senior Vice President of World Wide Field
Operations. Prior to joining the Company, Mr. Dahan was employed as the Vice
President of Marketing of AT&T's Global Information Solutions division. Mr.
Dahan holds a B.S. degree in computer science from Jerusalem Institute of
Technology.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The information required by this item is included under "Market
Information (unaudited)" in the Company's 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data.
Information with respect to selected financial data is included
under "Selected Financial Data" in the Company's 1996 Annual Report
to Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Information with respect to management's discussion and analysis of
financial condition and results of operations is included under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Information with respect to selected quarterly financial data is
included under "Quarterly Financial Data (unaudited)" in the
Company's 1996 Annual Report to Shareholders and is incorporated
herein by reference. The other information required by this item
is included under "Consolidated Financial Statements" and "Notes
to Consolidated Financial Statements" as listed in item 14 of this
report and in the Company's 1996 Annual Report to Shareholders
which is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to directors of the Company will be included
under "Election of Directors" in the Company's Proxy Statement for
its 1997 Annual Meeting of Shareholders and is incorporated herein by
reference. Information with respect to executive officers of the
Company is included under Item 4(a) of Part I of this Report.
Item 11. Executive Compensation.
Information with respect to executive compensation will be included
under "Summary Compensation Table", "Stock Option Grants in Last
Fiscal Year", "Stock Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values", "Repricing of Stock Options" under
"Executive Compensation," and "Certain Transactions" in the
Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information with respect to security ownership of certain beneficial
owners and management will be included under "Voting Securities and
Principal Shareholders" and "Election of Directors" in the Company's
Proxy Statement for its 1997 Annual Meeting of Shareholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information with respect to transactions with management will be
included under "Certain Transactions" in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements.
The following financial statements are included in the Company's 1996
Annual Report to Shareholders:
Sequent Computer Systems, Inc. and Subsidiaries:
Consolidated Statements of Operations - Fiscal Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994
Consolidated Balance Sheets - December 28, 1996 and December 30, 1995
Consolidated Statements of Shareholders' Equity - Fiscal Years Ended December
28, 1996, December 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows - Fiscal Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedules.
The following schedules and report of independent accountants are
filed herewith:
Page in this report
on Form 10-K
Schedule V Property and Equipment F-1
Schedule VI Accumulated Depreciation and Amortization
of Property and Equipment F-2
Schedule VIII Valuation and Qualifying Accounts F-3
Schedule IX Short-term Borrowings F-4
Schedule X Supplementary Income Statement Information F-5
Report of Independent Accountants on Financial Statement Schedules F-6
All other schedules are omitted as the required information is inapplicable or
is presented in the financial statements or related notes thereto.
(a)(3) Exhibits.
Exhibit
Number Description
3.1 Articles of Incorporation, as amended, and Articles of
Merger of Sequent Computer Systems, Inc. (the "Company").
(Incorporated by reference to Exhibit 4A to the Company's
Registration Statement on Form S-8 (file no. 33-63972).)
3.2 Bylaws, as amended, of the Company. (Incorporated by
reference to Exhibit 4B to the Company's Registration
Statement on Form S-8 (file no. 33-39315).)
4.1 Note Purchase Agreement dated April 10, 1992 regarding
7.5% Convertible Subordinated Notes due March 31, 2000,
between the Company and a group of institutional
investors. (Incorporated by reference to Exhibit 19 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 28, 1992).
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the
Company agrees to furnish any other long term debt
agreements to the Commission upon request.
10.1A Amended and Restated Lease Agreement between KC
Woodside and the Company, as amended, dated May 8, 1987
("First Building Lease"), and related agreements.
(Incorporated by reference to Exhibit 19.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 4, 1987 (file no. 0-15627).)
10.1B Second Amendment to First Building Lease, dated July
28, 1988. (Incorporated by reference to Exhibit 10.3B to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1989 (file no. 0-15627).)
10.1C Third Amendment to First Building Lease dated July 28,
1989. (Incorporated by reference to Exhibit 10.3C to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1D Fourth Amendment to First Building Lease dated
September 20, 1991. (Incorporated by reference to Exhibit
10.1D to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991 (file no. 0-15627).)
10.1E Fifth Amendment to First Building Lease dated December
2, 1992. (Incorporated by reference to Exhibit 10.1E to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1F Sixth Amendment to First Building Lease dated April 5,
1993. (Incorporated by reference to Exhibit 10.1F to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 (file no. 0-15627).)
10.1G Lease Agreement between KC Woodside and the Company,
dated May 8, 1987 ("Second Building Lease").
(Incorporated by reference to Exhibit 19.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 4, 1987 (file no. 0-15627).)
10.1H First Amendment to Second Building Lease, dated July
28, 1988. (Incorporated by reference to Exhibit 10.3E to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1989 (file no. 0-15627).)
10.1I Second Amendment to Second Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1G to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1J Third Amendment to Second Building Lease, dated
December 2, 1992. (Incorporated by reference to Exhibit
10.1L to the Company's Annual Report on Form 10-K for
fiscal year ended January 2, 1993 (file no. 0-15627).)
10.1K Fourth Amendment to Second Building Lease, dated April
5, 1993. (Incorporated by reference to Exhibit 10.1K to
the Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 (file no. 0-15627).)
10.1L Lease Agreement, dated July 28, 1988 between KC
Woodside and the Company ("Third Building Lease").
(Incorporated by reference to Exhibit 10.3F to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1M First Amendment to Third Building Lease, dated July 28,
1989. (Incorporated by reference to Exhibit 10.3G to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1N Second Amendment to Third Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1J to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1O Third Amendment to Third Building Lease, dated December
2, 1992. (Incorporated by reference to Exhibit 10.1M to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1P Fourth Amendment to Third Building Lease, dated April
5, 1993. (Incorporated by reference to Exhibit 10.1P to
the Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994 (file no. 0-15627).)
10.1Q Lease Agreement, dated July 28, 1989 between KC
Woodside and the Company ("Fourth Building Lease").
(Incorporated by reference to Exhibit 10.3H to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1989 (file no. 0-15627).)
10.1R First Amendment to Fourth Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1P to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1S Second Amendment to Fourth Building Lease dated August
13, 1992. (Incorporated by reference to Exhibit 10.1P to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1T Third Amendment to Fourth Building Lease dated December
2, 1992. (Incorporated by reference to Exhibit 10.1Q to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1U Fourth Amendment to Fourth Building Lease dated April
5, 1993. (Incorporated by reference to Exhibit 10.1U to
the Company's Annual Report on Form 10-K for fiscal year
ended January 1, 1994 (file no. 0-15627).)
10.1V Triple Net Lease dated July 9, 1990 between KC Woodside
and the Company ("Fifth Building Lease"). (Incorporated
by reference to Exhibit 19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 29,
1990 (file no. 0-15627).)
10.1W First Amendment to Fifth Building Lease dated April 29,
1991. (Incorporated by reference to Exhibit 10.1N to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991 (file no. 0-15627).)
10.1X Second Amendment to Fifth Building Lease dated April
29, 1991. (Incorporated by reference to Exhibit 10.1O to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991 (file no. 0-15627).)
10.1Y Third Amendment to Fifth Building Lease dated June 10,
1991. (Incorporated by reference to Exhibit 10.1P to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991 (file no. 0-15627).)
10.1Z Fourth Amendment to the Fifth Building Lease dated July
3, 1991. (Incorporated by reference to Exhibit 10.1Q to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991 (file no. 0-15627).)
10.1aa Fifth Amendment to Fifth Building Lease dated
September 13, 1991. (Incorporated by reference to
Exhibit 10.1R to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991 (file no. 0-
15627).)
10.1bb Sixth Amendment to Fifth Building Lease dated December
2, 1992. (Incorporated by reference to Exhibit 10.1X to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1cc Seventh Amendment to Fifth Building Lease dated April
5, 1993. (Incorporated by reference to Exhibit 10.1cc to
the Company's Annual Report on Form 10-K for fiscal year
ended January 1, 1994 (file no. 0-15627).)
10.1dd Lease Agreement between KC Woodside and the Company,
dated June 10, 1991 (Umpqua). (Incorporated by reference
to Exhibit 10.1Y to the Company's Annual Report on Form
10-K for fiscal year ended January 2, 1993 (file no. 0-
15627).)
10.1ee Lease Agreement between KC Woodside and the Company,
dated June 10, 1991 (Charles). (Incorporated by
reference to Exhibit 10.1Z to the Company's Annual Report
on Form 10-K for fiscal year ended January 2, 1993 (file
no. 0-15627).)
10.1ff First Amendment to Lease, dated October 31, 1991
(Charles). (Incorporated by reference to Exhibit 10.1aa
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1gg Second Amendment to Lease, dated May 6, 1992
(Charles). (Incorporated by reference to Exhibit 10.1bb
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1hh Third Amendment to Lease, dated January 8, 1993
(Charles). (Incorporated by reference to Exhibit 10.1cc
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1jj Lease Agreement between KC Woodside and the Company,
dated June 10, 1991 (S. Platte). (Incorporated by
reference to Exhibit 10.1dd to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993
(file no. 0-15627).)
10.1kk First Amendment to Lease, dated May 12, 1992
(Guadalupe). (Incorporated by reference to Exhibit 10.1ff
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1ll Business park Lease between KC Woodside and the
Company, dated June 10, 1991 (Hillsborough).
(Incorporated by reference to Exhibit 10.1gg to the
Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1mm Fourth Amendment to Lease, dated July 21, 1995
(Charles). (Incorporated by reference to Exhibit 10.1dd
to the Company's Annual Report on 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1nn First Amendment to Lease, dated July 21, 1995 (South
Platte). (Incorporated by reference to Exhibit 10.1ee to
the Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.1oo Second Amendment to Lease, dated July 21, 1995
(Guadalupe). (Incorporated by reference to Exhibit 10.gg
to the Company's Annual Report on Form 10-K for fiscal
year ended January 2, 1993 (file no. 0-15627).)
10.1pp Lease Agreement between KC Woodside and the Company,
dated January 15, 1996 (Guadalupe), as amended March 1,
1996 and October 1, 1996.
10.2 Master Software License Agreement between Unix System
Laboratories, Inc. (formerly owned by American Telephone
& Telegraph Company) and the Company, dated effective as
of April 18, 1985. (Incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for
fiscal year ended January 2, 1993 (file no. 0-15627).)
10.2A Sublicensing Agreement dated January 28, 1986, as
amended June 22, 1987 and August 10, 1987. (Incorporated
by reference to Exhibit 10.2A to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993
(file no. 0-15627).)
10.2B Substitution Agreement between Unix System
Laboratories, Inc. and the Company, dated January 28,
1986. (Incorporated by reference to Exhibit 10.2B to the
Company's Annual Report on Form 10-K for fiscal year
ended January 2, 1993 (file no. 0-15627).)
10.2C Amendment dated November 13, 1992 to Master Software
License Agreement and Sublicensing Agreement with Unix
System Laboratories, Inc.
10.2D License Agreement dated July 15, 1983 between The
Regents of University of California and the Company, as
amended July 2, 1986. (Incorporated by reference to
Exhibit 10.2C to the Company's Annual Report on Form 10-K
for fiscal year ended January 2, 1993 (file no. 0-
15627).)
+ 10.3 Distributorship Agreement between the Company and
Oracle Corporation, dated March 31, 1987, as amended on
December 29, 1988, August 30, 1989, May 28, 1990, May 31,
1991 and June 30, 1991. (Incorporated by reference to
Exhibit 10.3 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for fiscal year ended January 2, 1993
(file no. 0-15627).)
* 10.4 Aircraft Lease Agreement between the Company and
B&K Transportation, Inc., dated October 1, 1993, as
amended November 1, 1993 and December 12, 1994.
(Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1994 (File no. 0-15627).)
* 10.4A Aircraft Lease Agreement between the Company and
CP Transportation, Inc., dated October 1, 1996.
* 10.5 Sequent Computer Systems, Inc. Incentive Stock
Option Plan and Nonstatutory Stock Option Plan adopted
March 20, 1984, as amended. (Incorporated by reference
to Exhibit 10.10 to the Company's Registration Statement
on Form S-1 (File no. 33-33444).)
* 10.6 Sequent Computer Systems, Inc. 1987 Employee Stock
Option Plan, as amended. (Incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on
Form S-1 (File no. 33-33444).)
* 10.7 Sequent Computer Systems, Inc. 1987 Nonstatutory
Stock Option Plan, as amended. (Incorporated by reference
to Exhibit 10.12 to the Company's Registration Statement
on Form S-1 (File no. 33-33444).)
* 10.8 Sequent Computer Systems Inc. Restated Employee
Stock Purchase Plan. (Incorporated by reference to
Appendix A to the Company's Proxy Statement dated March
18, 1993).
* 10.9 Sequent Computer Systems, Inc. 1989 Stock
Incentive Plan, as amended. (Incorporated by reference
to Appendix A to the Company's Proxy Statement for its
1994 Annual Meeting of Shareholders).
10.10 Agreement between American International
Motorsports (AI Motorsports) and Sequent Computer
Systems, Inc., dated January 30, 1996.
* 10.11 DP Applications, Inc. 100% Convertible Note dated
August 20, 1996 in favor of Robert W. Wilmot and Mary J.
Wilmot, trustees of the RW & MJ Wilmot Living Trust,
U/D/T dated April 18, 1995 (the "Wilmot Trust") and DP
Applications, Inc. Warrant for the Purchase of Shares of
Capital Stock dated August 20, 1996 in favor of Robert W.
Wilmot and Mary J. Wilmot, trustees of the RW & MJ Wilmot
Living Trust U/D/T dated April 18, 1995.
* 10.12 DP Applications, Inc. Restricted Stock Purchase
Agreement dated December 2, 1996.
11 Statement regarding computation of earnings per share.
13 1996 Annual Report to Shareholders (portions not incorporated
by reference are not deemed filed).
21 Subsidiaries.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
________________________
+ Confidential treatment for portions of this contract has been
previously requested of the Commission.
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(a) (3)
of this Report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
last quarter of fiscal 1996.
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.
Sequent Computer Systems, Inc.
Date: March 25, 1997 By: /s/ Robert S. Gregg
Robert S. Gregg
Sr. Vice President of Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1996.
Signature Title
/s/ Karl C. Powell, Jr. Chairman and Chief Executive Officer
(Karl C. Powell, Jr.) and Director (Principal Executive Officer)
/s/ Robert S. Gregg Sr. Vice President of Finance and Legal
(Robert S. Gregg) and Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ Steve Chen Director
(Steve Chen)
/s/ John McAdam Director
(John McAdam)
DAVID R. HATHAWAY *
(David R. Hathaway) Director
ROBERT C. MATHIS *
(Robert C. Mathis) Director
MICHAEL S. SCOTT MORTON *
(Michael S. Scott Morton) Director
RICHARD C. PALERMO *
(Richard C. Palermo) Director
ROBERT W. WILMOT *
(Robert W. Wilmot) Director
By: /s/ Robert S. Gregg *
Robert S. Gregg, Attorney-in-fact
<TABLE>
SCHEDULE V
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
PROPERTY AND EQUIPMENT (1)
(In thousands)
<CAPTION>
Balance at Balance at
Beginning of Additions Other Charges End of
Period at Cost Retirements Add (Deducts) Period
<S> <C> <C> <C> <C> <C>
Year ended Dec. 31, 1994
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 95,895 38,053 14,413 0 119,535
Furniture and equipment 46,643 14,875 7,646 0 53,872
Leasehold improvements 11,193 1,707 559 0 12,341
$ 158,768 $ 54,635 $ 22,618 $ 0 $ 190,785
Year ended Dec. 30, 1995
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 119,535 25,162 9,800 0 134,897
Furniture and equipment 53,872 14,499 1,361 0 67,010
Leasehold improvements 12,341 3,711 78 0 15,974
$ 190,785 $ 43,372 $ 11,239 $ 0 $ 222,918
Year ended Dec. 28, 1996
Land $ 5,037 $ 0 $ 0 $ 0 $ 5,037
Operational equipment 134,897 59,356 19,591 0 174,662
Furniture and equipment 67,010 29,375 6,434 0 89,951
Leasehold improvements 15,974 6,728 118 0 22,584
$ 222,918 $ 95,459 $ 26,143 $ 0 $ 292,234
(1) Depreciation and amortization is provided on a straight-line basis
over the estimated life as follows:
Operational equipment 3 to 5 years
Furniture and equipment 3 to 5 years
Leasehold improvements 5 to 10 years
SCHEDULE VI
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
(In thousands)
<CAPTION>
Additions
Balance at Charged to Retirements Other Balance at
Beginning of Costs and Charged to Charges End of
Period Expenses Other Accts. Add (Deducts) Period
<S> <C> <C> <C> <C> <C>
Year ended Dec. 31, 1994
Operational equipment $ 41,321 $ 19,370 $ 5,060 $ 0 $ 55,631
Furniture and equipment 27,456 13,810 5,524 0 35,742
Leasehold improvements 3,682 1,613 97 0 5,198
$ 72,459 $ 34,793 $ 10,681 $ 0 $ 96,571
Year ended Dec. 30, 1995
Operational equipment $ 55,631 $ 18,183 $ 2,339 $ 0 $ 71,475
Furniture and equipment 35,742 12,490 2,389 0 45,843
Leasehold improvements 5,198 2,291 54 0 7,435
$ 96,571 $ 32,964 $ 4,782 $ 0 $ 124,753
Year ended Dec. 28, 1996
Operational equipment $ 71,475 $ 21,246 $ 8,839 $ 0 $ 83,882
Furniture and equipment 45,843 20,738 2,343 0 64,238
Leasehold improvements 7,435 2,959 118 0 10,276
$ 124,753 $ 44,943 $ 11,300 $ 0 $ 158,396
SCHEDULE VIII
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Additions Additions
Balance at Charged to Charged to Write-offs Balance at
Beginning of Costs and Other Accts. Net of End of
Period Expenses Describe (1) Recoveries Period
<S> <C> <C> <C> <C> <C>
Year ended Dec. 31, 1994
Allowance for doubtful
accounts $ 1,781 $ 898 $ 9 $ 355 $ 2,333
Accumulated amortization
capitalized software $ 28,912 $ 12,778 $ 0 $ 0 $ 41,690
Year ended Dec. 30, 1995
Allowance for doubtful
accounts $ 2,333 $ 1,089 $ (18) $ 588 $ 2,816
Accumulated amortization
capitalized software $ 41,690 $ 16,618 $ 0 $ 0 $ 58,308
Year ended Dec. 28, 1996
Allowance for doubtful
accounts $ 2,816 $ 317 $ (315) $ 12 $ 2,806
Accumulated amortization
capitalized software $ 58,308 $ 19,984 $ 0 $ 39,846 $ 38,446
(1) Foreign currency translation adjustment
SCHEDULE IX
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(In thousands)
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
End of Interest During the During the During the
Period Rate Period Period Period (1)
<S> <C> <C> <C> <C> <C>
Year ended Dec. 31, 1994
Notes payable to bank $ 59,437 5.5% $ 59,437 $ 44,772 5.6%
Year ended Dec. 30, 1995
Notes payable to bank $ 41,146 5.5% $ 61,529 $ 47,155 6.3%
Year ended Dec. 28, 1996
Notes payable to bank $ 59,925 5.6% $ 78,725 $ 36,781 5.2%
(1) The weighted average interest rate during the period is calculated
using monthly weighted averages.
SCHEDULE X
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
<CAPTION>
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
<S> <C> <C> <C>
Depreciation and amortization:
Depreciation $ 44,943 $ 34,972 $ 31,822
Capitalized software amortization 19,984 16,618 12,778
Goodwill amortization 607 504 536
Total $ 65,534 $ 52,094 $ 45,136
Royalties $ 12,139 $ 10,141 6,374
Advertising $ 16,674 $ 11,358 $ 11,674
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Sequent Computer Systems, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 23, 1997 appearing in the 1996 Annual Report to Shareholders of
Sequent Computer Systems, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Portland, Oregon
January 23, 1997
EXHIBIT 11
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT SHOWING CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING AND EARNINGS
PER AVERAGE COMMON SHARE
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 28, 1996 December 28, 1996
Weighted average number
of common shares outstanding 34,026 33,641
Application of the "treasury stock"
method to the stock option and
employee stock purchase plans (A) 2,309 834
Weighted average of common stock
equivalent shares attributable to
convertible debentures 575 575
Total common and common
equivalent shares, assuming
full dilution 36,910 35,050
Net income $ 2,512 $ 7,771
Add:
Interest on convertible debentures,
net of applicable income taxes 125 500
Net income, assuming full dilution $ 2,637 $ 8,271
Net income per common share,
assuming full dilution (B) $ .07 $ .23
(A) Effective with the third quarter of 1996, the Company applied the
"Modified Treasury Stock" method to calculate outstanding shares for
stock options in accordance with APB 15.
(B) In accordance with generally accepted accounting principles, fully-
diluted earnings per share may not exceed primary earnings per share.
The computation of primary net income per common share is not included as the
computation can be clearly determined from the material contained in this
report.
<TABLE>
EXHIBIT 13
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<CAPTION>
Fiscal Year Ended
Dec 28, Dec. 30, Dec. 31, Jan. 1, Jan. 2,
1996 1995 1994 1994 1993
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Total revenue $ 595,362 $ 540,345 $ 450,823 $ 353,806 $ 307,274
Income (loss) before income taxes $ 10,676 $ 47,327 $ 38,800 $ (6,331) $ 15,884
Net income (loss) $ 7,771 $ 35,073 $ 33,134 $ (7,524) $ 14,433
Net income (loss) per share $ .23 $ 1.04 $ 1.03 $ (.26) $ .55
Average shares outstanding 34,254 33,665 32,028 29,335 26,120
BALANCE SHEET DATA
Working capital $ 183,428 $ 214,749 $ 168,468 $ 134,156 $ 86,914
Total assets $ 612,009 $ 503,923 $ 435,977 $ 375,424 $ 278,759
Long-term obligations $ 16,503 $ 9,106 $ 10,341 $ 10,906 $ 24,034
Shareholders' equity $ 374,809 $ 353,188 $ 291,195 $ 243,488 $ 172,502
</TABLE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $595.4 million in 1996 compared to $540.3 million in
1995 and $450.8 million in 1994. The Company recorded net income in 1996 of
$7.8 million, compared to $35.1 million in 1995 and $33.1 million in 1994.
The Company's total revenue for 1996 represents a 10% increase over 1995 and
is attributed to significant increases in customer and professional service
revenues in 1996 over 1995. The Company's service revenue increased 25% in
1996 over 1995 as a result of a growing number of customer installation bases
and related service contracts, as well as an increase in the number of
project-based sales. The decrease in net income in 1996 compared to 1995 is
the result of the heavy investment made in 1996 to bring the next-generation
NUMA-Q product to market in December 1996 and expand the sales and
professional services organizations to leverage the capability of the new
technology.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenue:
Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Revenue:
End-user products 68.5% 69.4% 70.6%
OEM products 1.1 3.9 5.1
Service 30.4 26.7 24.3
Total revenue 100.0 100.0 100.0
Cost of products and service 56.7 54.8 53.7
Gross profit 43.3 45.2 46.3
Operating expenses:
Research and development 9.0 7.5 7.8
Selling, general and administrative 32.1 28.7 29.7
Total operating expenses 41.1 36.2 37.5
Operating income 2.2 9.0 8.8
Interest income (expense), net 0.0 0.2 (0.3)
Other income (expense), net (0.4) (0.4) 0.1
Income before provision
for income taxes 1.8 8.8 8.6
Provision for income taxes 0.5 2.3 1.3
Net income 1.3% 6.5% 7.3
REVENUE
End-user product revenue increased $32.8 million, or 9%, from 1995 to
1996 and $56.7 million, or 18%, from 1994 to 1995. These increases have been
primarily in the Company's North American and Asia Pacific geographies. The
revenue growth rate from 1995 to 1996 was impacted by the Company's product
transition from its Symmetry line to its next-generation NUMA-Q systems,
especially in the second half of 1996. Despite the ongoing demand for
Symmetry systems which are binary compatible with the NUMA-Q technology, the
awareness of the pending release of the new product adversely affected
Symmetry sales during 1996. Volume shipments of NUMA-Q began late in the
fourth quarter of 1996.
As anticipated, total OEM revenue continued to decline in 1996 compared
to 1995 and 1994 due to decreases in revenue from Unisys Corporation. Total
OEM revenue in 1996 and 1995 was $6.5 million and $20.9 million, respectively,
compared to $23.1 million in 1994.
During 1996 and 1995, the Company's customer and professional service
revenue continued to increase in dollar amount and as a percentage of total
revenue primarily due to the growth in customer installation bases and
associated customer service/maintenance contracts, as well as a focus on
selling more solutions.
The Company has continued to benefit from its significant investment in
developing worldwide sales and distribution channels. International revenue
as a percentage of total revenue was 55% in 1996 and 1995, increasing from 48%
in 1994. The majority of the international revenue is from Europe
(particularly the United Kingdom), with the balance coming from Asia-Pacific
and Canada.
COST OF SALES
Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Cost of products sold as a percentage
of product revenue 48% 48% 48%
Cost of service as a percentage
of service revenue 77 75 71
Total cost of sales as a percentage
of total revenue 57 55 54
The factors influencing gross margins in a given period include unit
volumes (which affect economies of scale), product configuration mix, changes
in component and manufacturing costs, product pricing and the mix between
product and service revenue.
Total cost of sales as a percentage of total revenue increased both in
1996 and 1995 primarily due to lower margin service increasing as a percentage
of total revenue. As planned, the Company invested in expanding its
professional service organization which has contributed to the overall
increase of cost of service as a percentage of service revenue. The Company
increased headcount in its professional service organization by approximately
38% in 1996.
RESEARCH AND DEVELOPMENT
(dollars in millions) Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Research and development expense $53.7 $40.9 $35.0
As a percentage of total revenue 9% 8% 8%
Software costs capitalized $34.2 $23.4 $19.1
Research and development expense increased 31% in 1996 compared to 1995
and 17% in 1995 compared to 1994. The Company continued to invest
significantly in its new NUMA-Q architecture and software development, in
addition to ongoing enhancements to existing products. Consistent with
management's plans, the NUMA-Q products began shipping in the Company's fourth
quarter. Research and development costs as a percentage of total revenue were
approximately 9% in 1996, compared to 8% for 1995 and 1994. Management
intends to make significant investments during 1997 as it continues to enhance
its NUMA-Q product line.
Capitalized software amortization was approximately $20.0 million, $16.6
million, and $12.8 million in 1996, 1995 and 1994, respectively. The Company
has continued to increase its focus on software design for computing solutions
and its next-generation products, resulting in greater investments in software
development and products.
SELLING, GENERAL AND ADMINISTRATIVE
(dollars in millions) Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Selling, general and administrative $191.1 $155.0 $134.1
As a percentage of total revenue 32% 29% 30%
The Company's selling, general and administrative costs increased both in
dollars and as a percentage of revenue in 1996, as the Company made
significant investments in its worldwide sales force for successful delivery
of NUMA-Q at the end of 1996. During the year, the Company increased the
number of sales teams by 54% worldwide.
INTEREST AND OTHER, NET
(dollars in millions) Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
Interest income $3.0 $5.3 $3.5
Interest expense $3.2 $4.2 $4.7
Other income (expense), net $(2.0) $(2.3) $0.5
Interest income is primarily generated from restricted deposits held at
foreign and domestic banks, short-term investments and cash and cash
equivalents. Interest expense includes costs related to convertible
debentures, foreign currency hedging loans, interim short-term borrowings and
capital lease obligations.
Other expense consists primarily of net gains and losses on sales of
assets and discount on sale of receivables.
INCOME TAXES
The Company provided $2.9 million for income taxes in 1996 on a net
profit before tax of $10.7 million. The difference between the statutory rate
and the effective tax rate is principally due to the benefit from the
Company's Foreign Sales Corporation. The 1996 effective tax rate of 27.2%
compares to effective rates of 25.9% in 1995 and 14.6% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $183.4 million at December 28, 1996 compared to
$214.7 million at December 30, 1995. The Company's current ratio at December
28, 1996 and December 30, 1995 was 1.9:1 and 2.5:1, respectively.
Although net cash provided by operations for the year ended December 28,
1996 totaled $64.1 million, cash and cash equivalents decreased by $24
million. The Company continued to make significant investments in property
and equipment ($80.6 million), inventory ($13.6 million) and capitalized
software ($34.2 million), primarily related to product and software
development associated with its new NUMA-Q product line. Other investments
included approximately $27 million in software licenses resulting from a long-
term strategic partner alliance, of which approximately $15 million is
included in prepaid royalties and other current assets. Other sources of
funds included net proceeds of stock issuances ($11 million), notes payable
($18.8 million) and capital lease transactions ($14.7 million).
The Company has a $20 million receivable sales facility with a group of
banks. At December 28, 1996, accounts receivable in the accompanying
consolidated balance sheet is net of $20 million received by the Company under
this agreement to sell its domestic accounts receivable.
The Company maintains a $70 million revolving line of credit agreement.
The line is unsecured and extends through May 30,1997. The line contains
certain financial covenants and prohibits the Company from paying dividends
without the lenders' consent. As of December 28, 1996, $12.2 million was
outstanding under the line of credit.
The Company maintains a short-term borrowing agreement with a foreign
bank to cover foreign currency exposures. Maximum borrowings allowed under
the foreign bank agreement were $57.2 million, of which $44.7 million was
outstanding at December 28, 1996 (based on currency exchange rates on such
date).
The Company also maintains miscellaneous borrowing arrangements with a
foreign bank. At December 28, 1996, amounts outstanding under this agreement
totaled $870,000.
In addition to the above, a subsidiary of the Company issued short-term
convertible notes during 1996 totaling $2.2 million, which were outstanding at
December 28, 1996.
Management expects that current funds, funds from operations and the bank
lines of credit will provide adequate resources to meet the Company's
anticipated operational cash requirements during 1997.
FORWARD-LOOKING STATEMENTS
The Chairman's Letter, Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this Annual Report
contain information regarding growth expectations, market size, planned
expenditure levels and comments relating to technology development and
resulting release of future products. These statements are forward-looking
statements that involve a number of risks and uncertainties. Additional
forward-looking statements may be made by the Company from time to time. The
following factors are among the factors that could cause actual results to
differ materially from the forward-looking statements: timely completion of
product development and customer acceptance of the Company's NUMA-Q product
line; business conditions and growth in the electronics industry and general
economies, both domestic and international; lower than expected customer
orders, delays in receipt of orders or cancellation of orders; competitive
factors, including increased competition, new product offerings by competitors
and price pressures; the availability of third party parts and supplies at
reasonable prices; changes in product mix and the mix between product and
service revenue; significant quarterly performance fluctuations due to the
receipt of a significant portion of customer orders and product shipments in
the last month of each quarter; and product shipment interruptions due to
manufacturing problems.
<TABLE>
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Fiscal Year Ended
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue:
Product $ 414,418 $ 395,941 $ 341,504
Service 180,944 144,404 109,319
Total revenue 595,362 540,345 450,823
Costs and expenses:
Cost of products sold 197,702 188,232 164,991
Cost of service revenue 139,983 107,721 77,238
Research and development 53,733 40,923 35,047
Selling, general and administrative 191,069 154,950 134,070
Total costs and expenses 582,487 491,826 411,346
Operating income 12,875 48,519 39,477
Interest income 3,007 5,340 3,515
Interest expense (3,187) (4,207) (4,687)
Other income (expense), net (2,019) (2,325) 495
Income before provision
for income taxes 10,676 47,327 38,800
Provision for income taxes 2,905 12,254 5,666
Net income $ 7,771 $ 35,073 $ 33,134
Net income per share $ 0.23 $ 1.04 $ 1.03
Weighted average number of common
and common equivalent shares outstanding 34,254 33,665 32,028
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
Dec. 28, 1996 Dec. 30, 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,979 $ 61,939
Restricted deposits 44,655 39,642
Receivables, net 209,752 178,322
Inventories 74,491 60,853
Prepaid royalties and other 30,577 13,464
Total current assets 397,454 354,220
Property and equipment, net 133,838 98,165
Capitalized software costs, net 59,567 45,381
Other assets, net 21,150 6,157
Total assets $ 612,009 $ 503,923
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 59,925 $ 41,146
Accounts payable and other 88,119 60,095
Accrued payroll 24,853 11,723
Unearned revenue 30,787 21,466
Income taxes payable 3,017 4,981
Current obligations under capital leases and debt 7,325 60
Total current liabilities 214,026 139,471
Other accrued expenses 6,671 2,158
Long-term obligations under capital leases and debt 16,503 9,106
Total liabilities 237,200 150,735
Commitments and contingencies (Notes 6 and 12)
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized, 34,188 and 33,221 shares outstanding 342 332
Paid-in capital 313,159 302,186
Retained earnings 60,715 52,945
Foreign currency translation adjustment 593 (2,275)
Total shareholders' equity 374,809 353,188
Total liabilities and shareholders' equity $ 612,009 $ 503,923
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<CAPTION>
Retained Foreign
earnings currency
Common Stock Paid-in (accumulated translation
Shares Amount capital deficit) adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 30,245 $302 $265,910 $(15,262) $(7,462) $243,488
Common shares issued 1,115 12 12,235 - - 12,247
Net income - - - 33,134 - 33,134
Foreign currency translation
adjustment - - - - 2,326 2,326
Balance, December 31, 1994 31,360 314 278,145 17,872 (5,136) 291,195
Common shares issued 1,798 18 18,298 - - 18,316
Tax benefit of option exercises - - 4,743 - - 4,743
Conversion of debentures 63 - 1,000 - - 1,000
Net income - - - 35,073 - 35,073
Foreign currency translation
adjustment - - - - 2,861 2,861
Balance, December 30, 1995 33,221 332 302,186 52,945 (2,275) 353,188
Common shares issued 967 10 9,622 - - 9,632
Tax benefit of option exercises - - 175 - - 175
Warrants issued - - 1,176 - - 1,176
Net income - - - 7,771 - 7,771
Foreign currency translation
adjustment - - - - 2,868 2,868
Rounding - - - (1) - (1)
Balance, December 28, 1996 34,188 $342 $313,159 $ 60,715 $ 593 $374,809
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Fiscal Year Ended
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 7,771 $ 35,073 $ 33,134
Reconciliation of net income
to net cash and cash equivalents provided
by operating activities-
Depreciation and amortization 65,534 52,094 44,600
Changes in assets and liabilities-
Receivables, net (31,430) (44,751) (18,010)
Inventories (13,638) (12,155) (2,833)
Prepaid royalties and other (17,113) (652) (403)
Accounts payable and other 28,024 13,351 (17,072)
Accrued payroll 13,130 (71) 891
Unearned revenue 9,321 11,750 2,593
Income taxes payable (1,964) 1,131 2,835
Other accrued expenses 4,513 58 314
Net cash provided by
operating activities 64,148 55,828 46,049
Cash flow from investing activities:
Restricted deposits (5,013) 19,795 (27,158)
Investments -- -- 5,000
Purchases of property and equipment, net (80,617) (38,923) (40,256)
Capitalized software costs (34,170) (23,444) (19,116)
Foreign currency translation adjustment 2,868 2,861 2,326
Other assets, net (15,600) (4,262) 399
Net cash used for investing activities (132,532) (43,973) (78,805)
Cash flow from financing activities:
Notes payable, net 18,779 (18,291) 27,158
Proceeds (payments) under capital lease obligations 14,662 (719) (3,293)
Long-term debt payments, net -- (256) (51)
Stock issuance proceeds, net 10,983 23,059 12,247
Net cash provided by financing activities 44,424 3,793 36,061
Net increase (decrease) in cash and cash equivalents (23,960) 15,648 3,305
Cash and cash equivalents at beginning
of period 61,939 46,291 42,986
Cash and cash equivalents at end of period $ 37,979 $ 61,939 $ 46,291
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SEQUENT COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sequent Computer Systems, Inc. and subsidiaries ("Sequent" or the
"Company") was incorporated in January 1983. Sequent is a provider of
scalable data center ready open systems solutions for large organizations
spanning diverse industries. Sequent designs, manufactures and markets high-
performance symmetric multiprocessing (SMP) and Cache Coherent Non-Uniform
Memory Access (CC-NUMA) computer systems and operating environment software.
The Company's systems are widely used for large-scale on-line transaction
processing (OLTP), applications in decision support systems (DSS) and data
warehouses, for custom applications built upon relational database management
systems (RDBMS), and as the central server in client-server architectures.
Sequent's project-oriented offerings include a complete portfolio of customer,
professional and education services to solve complex Information Technology
(IT) problems. The Company has an established set of partnerships with other
software, hardware and services providers to deliver complete solutions to its
customers.
Principles of Consolidation. The Company's fiscal year is based on a
52-53 week year ending the Saturday closest to December 31. The consolidated
financial statements of the Company include accounts of Sequent Computer
Systems, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and profits have been eliminated.
The financial statements and transactions of the Company's foreign
subsidiaries are maintained in their functional currencies and translated into
U.S. dollars for purposes of consolidation. Translation adjustments are
accumulated as a separate component of shareholders' equity. Gains and losses
resulting from transactions denominated in a currency other than an entity's
functional currency are included in other income (expense) in the consolidated
statements of operations. Net losses aggregating $0.3 million and $0.8
million, for 1995 and 1996 respectively, were realized from such transactions.
During 1994 the Company realized a net pretax gain of $1.1 million as a result
of positive impact of changes in exchange rates, primarily in the United
Kingdom.
Revenue Recognition and Receivables. Revenue from product sales is
generally recognized upon shipment; however, depending upon contract terms,
revenue recognition may be deferred until customer acceptance or clarification
of funding. Revenue is recognized as earned on the straight-line basis over
the term of customer service/maintenance contracts, and on either the
percentage-of-completion or milestone achievement basis for professional
service contracts.
Receivables are shown net of allowance for doubtful accounts of $2.8
million at both December 28, 1996 and December 30, 1995.
The Company has an agreement with a group of banks to sell, without
recourse, undivided ownership interests in a revolving pool consisting of
substantially all of the Company's domestic accounts receivable for a maximum
of $20 million. The agreement expires May 30, 1997. At December 28, 1996 and
December 30, 1995, accounts receivable in the accompanying consolidated
balance sheets is net of $20 million and $14 million, respectively, received
by the Company under this agreement.
The Company had no single customer that represented greater than 10% of
total revenue in 1996, 1995 and 1994.
Inventories. Inventories are stated at the lower of cost or market.
Costs are determined using the first-in, first-out (FIFO) method and include
material, labor and manufacturing overhead.
Prepaid Licenses and Royalties. The Company has entered into agreements
with various vendors which provide for prepayment of future licenses and
royalties based on sales of certain software. Prepaid licenses and royalties
were $28.4 million at December 28, 1996 and $3.6 million at December 30, 1995,
and are stated at the lower of cost or net realizable value. Approximately
$16.1 million and $1.2 million were included in prepaid royalties and other
current assets at December 28, 1996 and December 30, 1995, respectively. Such
prepaid amounts are realized by receipt of reverse royalties from the vendors
based upon software sales by the vendor, and/or by charging cost of products
sold for certain software sales by the Company.
Property and Equipment. Property and equipment are stated at cost and
depreciated over their estimated useful lives, ranging from three to five
years, on the straight-line method. Leasehold improvements and equipment held
under capital leases are amortized on the straight-line basis over the shorter
of the asset life or lease term. Maintenance and repairs are expensed as
incurred.
Research and Development. Software development costs for certain
projects are capitalized from the time technological feasibility is
established to the time the resulting software product is first shipped.
Capitalized software costs are stated at the lower of cost or net realizable
value and are shown net of accumulated amortization of $38.4 million at
December 28, 1996 and $58.3 million at December 30, 1995. Amortization,
generally based on a three-year straight-line basis, was $20 million in 1996,
$16.6 million in 1995 and $12.8 million in 1994. All other research and
development costs are expensed as incurred.
Income Taxes. The Company's general practice is to reinvest the earnings
of its foreign subsidiaries in those operations, unless it would be
advantageous to the Company to repatriate the foreign subsidiaries' retained
earnings.
Per Share Information. Primary earnings per share is computed based on
the weighted average number of common and dilutive common equivalent shares
outstanding. Outstanding stock options, net of assumed buy-back, are common
stock equivalents. The computation of fully dilutive earnings per share also
assumes conversion of the remaining 7.5% Convertible Subordinated Debentures
issued April 1992 when it would be dilutive. A fully diluted earnings per
share amount is not shown as the effect of the debentures would be
antidilutive.
Consolidated Statement of Cash Flows. The Company considers short-term
investments which are highly liquid, readily convertible into cash and having
original maturities of less than three months to be cash equivalents for
purposes of the statement of cash flows.
Total cash expenditures for income taxes were $5.9 million, $5.3 million
and $2.3 million during 1996, 1995 and 1994, respectively. Interest paid does
not differ materially from interest expense.
Non-cash investing and financing activities include the following: 1996 -
300,000 stock warrants, valued at $1.2 million using the Black-Scholes pricing
model, were issued in exchange for other non-current assets; 1995 - $1 million
of Convertible Debentures were converted into 63,000 shares of common stock.
Management Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Reclassifications. Certain prior year amounts have been reclassified to
conform to fiscal 1996 presentation. These changes had no impact on
previously reported results of operations or shareholders' equity.
New Accounting Pronouncements. In October 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). SFAS 123 allows companies to choose whether
to account for stock-based compensation on a fair value method or to continue
to account for stock-based compensation under the current intrinsic value
method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted SFAS 123 during 1996, and has elected to
continue to follow the provisions of APB Opinion No. 25. (Note 8)
2. INVENTORIES
(in thousands)
December 28, December 30,
1996 1995
Raw materials $ 14,205 $ 9,385
Work-in-progress 2,166 1,736
Finished goods 58,120 49,732
$ 74,491 $ 60,853
Finished goods inventory includes evaluation systems aggregating $30.8
million and $15.7 million as of December 28, 1996 and December 30, 1995,
respectively. Such systems are located at potential customer sites for
demonstration.
3. PROPERTY AND EQUIPMENT
(in thousands)
December 28, December 30,
1996 1995
Land $ 5,037 $ 5,037
Operational equipment 174,662 134,897
Furniture and office equipment 89,951 67,010
Leasehold improvements 22,584 15,974
292,234 222,918
Less accumulated depreciation
and amortization (158,396) (124,753)
$ 133,838 $ 98,165
Depreciation and amortization charged to expense totaled $44.9 million in
1996, $35.0 million in 1995 and $31.8 million in 1994.
4. NOTES PAYABLE
The Company has an unsecured line of credit agreement with a group of
banks which provides short-term borrowings up to $70 million (increased in the
third quarter of 1996 from $50 million). The line of credit agreement
contains financial covenants, including covenants relating to net worth, ratio
of liabilities to net worth and limitations on net operating losses, and
prohibits the Company from paying dividends without the group of banks'
consent. The line of credit agreement extends through May 30, 1997. At
December 28, 1996, $12.2 million was outstanding under this line of credit
agreement. At December 30, 1995, there were no borrowings outstanding under
the line of credit. The interest rate on this borrowing at December 28, 1996
was 8.25%
The Company has a short-term borrowing agreement with a foreign bank as a
hedge to cover certain foreign currency exposures. Borrowings under the
agreement are denominated in various foreign currencies. Proceeds from the
borrowings are converted into U.S. dollars and placed in a term deposit
account with the foreign bank. The deposits, which are classified as
restricted deposits in the accompanying consolidated balance sheets, are
pledged to the foreign bank so long as borrowings under the agreement are
outstanding. During July 1996, the Company re-negotiated the agreement and
extended it through July 1997. The foreign bank, without cause, can terminate
the agreement at any time. At December 28, 1996, maximum borrowings allowed
under the agreement were $57.2 million. Amounts outstanding were $44.7
million and $39.6 million at December 28, 1996 and December 30, 1995,
respectively. The maximum borrowing limit is denominated in specified foreign
currencies and fluctuates with the change in foreign exchange rates. The
average interest rate on these borrowings at December 28, 1996 was 4.8%.
In addition to the above borrowing agreements, the Company has entered
into certain other miscellaneous borrowing arrangements with a foreign bank.
Amounts outstanding were $0.9 million and $1.5 million at December 28, 1996
and December 30, 1995, respectively. The interest rate on these borrowings
was 1.5% at December 28, 1996.
During 1996 a U.S. subsidiary of the Company entered into a financing
arrangement with third parties for $2.2 million, of which $1 million is with a
related party. The financing consists of short-term convertible notes with an
interest rate of 10% due February 23, 1997. At the option of the holders, the
notes may be converted into capital stock of the subsidiary.
5. OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT
In April 1992, the Company issued $20 million of 7.5% Convertible
Subordinated Debentures ("Convertible Debentures" or "Debentures") due March
31, 2000. In conjunction with the Company's equity offering in 1993, $9.9
million of the Debentures were converted into 626,000 shares of common stock
and are no longer classified as long-term debt. The Convertible Debentures
are convertible into the Company's common stock at the option of the holders
at an initial conversion price of $15.81 per share. Under this provision, in
August 1995, an additional $1.0 million of the debentures were converted into
63,000 shares of common stock, further reducing long-term debt. Beginning on
June 30, 1997, the Company is required to make quarterly principal payments of
$1.7 million through 1998 to retire the outstanding Debentures. The balance
outstanding on the Debentures was $9.1 million at both December 28, 1996 and
December 30, 1995. At December 28, 1996, $5.0 million is classified as
current obligations. The Convertible Debentures are callable at the option of
the Company after five years. The Debentures contain certain financial
covenants, including restrictions on additional debt, minimum net worth levels
and a prohibition on the payment of dividends.
Sequent leases certain equipment under five-year capital leases. These
lease terms require maintenance of certain financial ratios and generally
include a fair market value purchase option at the end of the lease. The cost
of equipment under capital leases was $0.3 million and $0.4 million at the end
of 1996 and 1995, respectively. Accumulated amortization was $0.1 million and
$0.3 million, respectively. These leased assets are pledged as security for
capital lease obligations.
In addition to the above capital leases, the Company entered into a
sales-leaseback transaction in September 1996 under which certain operating
equipment with a net book value of $12.2 million was sold for $15.3 million
and then leased back under a capital lease. The related lease terms stipulate
monthly payments ranging from $274,000 to $341,000 over the five-year lease
term beginning September 1996 at an annual interest rate of 7.4%. The
resulting gain of $3.1 million has been recorded under "Other Accrued
Expenses" and is being amortized in proportion to the related equipment
depreciation over three years. The terms of the lease include an asset buy-
back provision at the end of the lease for the then fair market value of the
assets at the Company's option. Future minimum lease payments are as follows:
1997 $ 3,285
1998 3,285
1999 3,960
2000 4,095
2001 2,730
Total minimum lease payments 17,355
Less amount representing interest (2,849)
Present value of minimum lease payments $ 14,506
6. OPERATING LEASE COMMITMENTS
Sequent is committed under operating leases for office space and
manufacturing facilities. Future minimum lease payments are as follows:
(in thousands)
1997 $19,052
1998 16,468
1999 13,051
2000 10,558
2001 and thereafter 22,390
$81,519
Rent expense for operating leases was $17.4 million, $14.9 million and
$15.1 million in 1996, 1995 and 1994, respectively.
7. INCOME TAXES
Pre-tax income from continuing operations for the last three fiscal years
was taxed under the following jurisdictions:
(in thousands)
Fiscal Fiscal Fiscal
1996 1995 1994
Domestic $ 5,593 $ 29,556 $ 27,332
Foreign 5,083 17,771 11,468
Total $ 10,676 $ 47,327 $ 38,800
The provision (benefit) for income taxes was as follows:
Fiscal Fiscal Fiscal
1996 1995 1994
Current:
Federal $ 789 $ 5,890 $ 1,420
Foreign 3,109 5,435 3,769
State 164 355 96
4,062 11,680 5,285
Deferred:
Federal (900) -- --
Foreign (257) 574 381
(1,157) 574 381
Total provision $ 2,905 $ 12,254 $ 5,666
Deferred tax liabilities (assets) are comprised of the following
components:
(in thousands)
Dec. 28, Dec. 30,
1996 1995
Research and development $ 22,998 $ 17,534
Other 1,567 2,929
Gross deferred tax liabilities 24,565 20,463
Net operating loss carryforwards:
Domestic (24,985) (21,677)
Foreign (7,965) (8,733)
Credit carryforwards (12,741) (10,720)
Expenses not currently deductible (7,971) (7,586)
Depreciation (1,596) (798)
Revenue currently taxable (1,399) (945)
Inventory basis differences (556) (1,337)
Restructuring costs (71) (188)
Gross deferred tax assets (57,284) (51,984)
Deferred tax asset valuation allowance 31,583 31,542
Net deferred tax liability (asset) $ (1,136) $ 21
The provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory federal tax rate to pre-tax income
due to the following:
Fiscal Fiscal Fiscal
1996 1995 1994
Statutory federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 4.2 4.2 4.2
Tax benefit from Foreign
Sales Corporation (6.8) (1.6) (3.9)
Tax provision on foreign earnings (0.9) (2.1) (0.1)
Realized benefit from net
operating losses (1.3) (9.6) (20.9)
Other, net (3.0) -- 0.3
27.2% 25.9% 14.6%
The deferred tax asset valuation allowance in fiscal years 1994-1996 is
attributed to U.S. federal, state, and foreign deferred tax assets.
Management believes sufficient uncertainty exists with regard to the
realizability of such assets that a valuation allowance of $31.6 million has
been provided at December 28, 1996. When and if these reserved deferred tax
assets are ultimately realized, $15.5 million will reduce the Company's
federal and state tax provision and $16.1 million will be credited to paid-in
capital (related to stock option deductions).
In accordance with FAS 109, the valuation allowance is allocated pro-rata
to federal, state, and foreign current and non-current deferred tax assets.
The net deferred tax asset at December 28, 1996 and the net deferred tax
liability at December 30, 1995 reflect foreign liabilities offset by U.S.
assets.
The Company has accumulated unused research and development credits of
$5.0 million for income tax purposes. These credits expire from 1998-2011.
The Company also has Alternative Minimum Tax Credits (AMT) which may be
carried forward indefinitely and certain state tax credits which expire from
1997-2001.
The Company may realize tax benefits as a result of the exercise of
certain employee stock options. For financial reporting purposes, any
reduction in income tax obligations as a result of these tax benefits is
credited to paid-in capital. During 1996 and 1995, $175,000 and $4.7 million
of benefits were credited to paid-in capital, respectively, with a related
reduction in current taxes payable. No benefits were recognized in 1994.
An income tax provision has not been recorded for U.S. or additional
foreign taxes on undistributed earnings of foreign subsidiaries as the
undistributed earnings have been and will continue to be reinvested in
operations outside the United States.
8. SHAREHOLDERS' EQUITY
Common Stock. In 1995, $1.0 million of convertible debentures were
converted into 63,000 shares of common stock. (Note 5)
Stock Compensation Plans. At December 28, 1996, the Company had the
following stock-based compensation plans:
Stock Option Plans
At December 28, 1996 the Company had options outstanding to employees and non-
employees under the following Stock Option Plans: 1984 Employee Stock Option
Plan and 1984 Nonstatutory Stock Option Plan (the "1984 Plans"), the 1987
Employee Stock Option Plan and 1987 Nonstatutory Stock Option Plan (the "1987
Plans"), the 1989 Stock Incentive Plan (the "1989 Plan"), the 1995 Stock
Incentive Plan and the 1996 Stock Option Plan. Options granted after May 18,
1995 were made under the 1995 Stock Incentive Plan and the 1996 Stock Option
Plan. As of December 28, 1996, the Company has reserved a total of 12,365,000
shares of common stock for issuance under these Plans, of which 6,909,440
shares were outstanding at December 28, 1996. Employee and non-employee
options vest over varying time periods, generally ranging from one to four
years, as long as, in the case of employees, the optionee remains employed by
Sequent. Option prices generally have been at 85% or greater of the fair
market value of the common stock on the date of grant. Options generally
expire ten years from the date of the grant.
Employee Stock Purchase Plan
In September 1987, Sequent established an Employee Stock Purchase Plan. Under
the plan, Sequent is authorized to grant rights to purchase up to 5,550,000
shares of common stock in a series of eighteen-month offerings. At December
28, 1996, there were 1,674,002 shares available for future purchase.
Substantially all employees are eligible to receive rights under the plan.
The purchase price is the lesser of 85% of the fair market value of the common
stock on the date of commencement of the offering or on the date of purchase.
During 1996, 1995 and 1994, Sequent issued 682,864, 576,423 and 467,479 shares
under the plan, respectively.
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost related to stock options issued to
employees under these plans using the method of accounting prescribed by the
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting in APB
25 must make pro forma disclosures of net income and earnings per share, as if
the fair value based method of accounting defined in this Statement has been
applied.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method prescribed in APB 25 and related
Interpretations. Accordingly, no compensation cost has been recognized in the
consolidated statements of operations for its stock-based compensation plans
other than for performance-based awards.
Had compensation cost for the other stock-based compensation plans been
determined based on the fair value at the grant dates for awards under these
plans consistent with the method of FASB Statement 123, "Accounting for Stock-
Based Compensation", the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
(in thousands) Fiscal Fiscal
1996 1995
Net income (loss) As reported $7,771 $35,073
Pro forma (709) 30,959
Primary earnings (loss)
per share As reported $0.23 $1.04
Pro forma (0.02) 0.91
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995 and 1996:
Fiscal Fiscal
1996 1995
Risk-free interest rate 6.05% 6.33%
Expected dividend yield -- --
Expected lives 3 years 4 years
Expected volatility 50% 55%
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for 1995 and 1996:
Fiscal Fiscal
1996 1995
Risk-free interest rate 5.58% 5.23%
Expected dividend yield -- --
Expected lives 1 year 1 year
Expected volatility 50% 55%
The weighted-average per share fair value of those purchase rights granted in
1995 and 1996 was $15.51 and $13.15, respectively.
A summary of the status of the Company's stock option plans as of December 28,
1996 and December 30, 1995, and changes during the years ending on those dates
is presented below:
<TABLE>
(in thousands, except per share)
<CAPTION>
Fiscal Fiscal
1996 1995
Weighted-Average Weighted-Average
Shares per share Shares per share
under option Exercise Price under option Exercise Price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 5,068 $ 14.26 4,432 $ 11.63
Granted:
Price = Fair Value 3,353 12.60 1,716 18.21
Price < Fair Value 1,196 11.12 612 14.90
Exercised (196) 8.53 (1,056) 9.68
Forfeited (2,512) 16.55 (636) 14.78
Outstanding at
end of year 6,909 12.27 5,068 14.26
Options exercisable
at year-end 1,446 1,276
Weighted-average per share fair value of
options granted during the year $ 3.69 $ 8.46
The following table summarizes information about stock options outstanding at
December 28, 1996:
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted-
Number Weighted-Average Weighted-Average Number Average
Range of Outstanding Remaining per share Exercisable per share
Exercise Prices at 12/28/96 Contractual Life Exercise Price at 12/28/96 Exercise Price
<S> <C> <C> <C> <C> <C>
$0 - $10.50 1,573,560 7.0 years $ 9.55 553,826 $ 8.61
$10.63 - $11.88 1,700,109 8.1 11.38 264,476 11.59
$11.90 - $13.88 1,435,227 7.7 12.86 272,295 13.28
$13.92 - $14.00 1,502,886 8.0 14.00 -- --
$14.03 - $22.31 697,658 7.3 15.62 355,511 15.77
$0.00 - $22.31 6,909,440 7.7 12.27 1,446,108 11.79
</TABLE>
9. GEOGRAPHIC SEGMENT INFORMATION
Information about the Company's foreign operations and export sales is
provided in the table below. Foreign revenue is that which is produced by
identifiable assets located in foreign countries while export revenue is that
which is generated by identifiable assets located in the United States.
(in thousands)
Fiscal Fiscal Fiscal
1996 1995 1994
Revenue:
United States $ 270,571 $ 244,029 $ 233,246
Foreign:
Europe 262,396 242,133 177,320
Other 41,443 32,784 24,624
Export:
Other 20,952 21,399 15,633
$ 595,362 $ 540,345 $ 450,823
Operating income (loss):
United States $ 5,825 $ 27,184 $ 27,773
Foreign:
Europe 7,424 18,290 9,444
Other (374) 3,045 2,260
$ 12,875 $ 48,519 $ 39,477
Identifiable assets:
United States $ 448,527 $ 367,196 $ 321,857
Foreign:
Europe 148,727 123,614 105,232
Other 14,755 13,113 8,888
$ 612,009 $ 503,923 $ 435,977
Intercompany sales between geographic areas, primarily from the United
States to Europe, were $155.7 million during 1996, $131.0 million during 1995
and $111.1 million during 1994.
10. FOREIGN CURRENCY EXPOSURE
A substantial portion of the Company's business is conducted overseas
through its foreign subsidiaries, primarily in Europe. This exposes the
Company to risks associated with foreign currency rate fluctuations which can
impact the Company's revenue and net income. To mitigate this risk the
Company enters into foreign currency transactions with foreign and domestic
banks on a continuing basis in amounts and timing consistent with the
underlying currency exposure so that gains and losses on these transactions
offset gains and losses on the underlying exposure. The Company does not
engage in any speculative trading activity. See related discussion in Note 4.
In addition to the arrangements described in Note 4, at December 28,
1996, the Company also has a forward exchange contract denominated in Japanese
yen with a contract amount of approximately $2.8 million. This forward
contract is used to hedge certain intercompany payables. The Company has also
purchased off-setting currency options and calls used to hedge certain
anticipated but not yet firmly committed transactions expected to be
recognized within one year. Gains and losses on such contracts have not been
significant to date.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments.
Cash and cash equivalents, restricted deposits, receivables, notes
payable, accounts payable and other and current obligations under capital
leases and debt are reflected in the consolidated financial statements at fair
value because of the short-term maturity of these instruments.
The fair value of long-term obligations under capital leases was
estimated by discounting the future cash flows using market interest rates and
does not differ significantly from the amount reflected in the consolidated
financial statements.
Due to the private nature of the Company's convertible debentures and the
subjectivity of assessing the impact of the Company's future common stock
price, the fair value of long-term debt is judged to be materially the same as
that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
12. COMMITMENTS AND CONTINGENCIES
Lawsuits arise during the normal course of business. In the opinion of
management, none of the pending lawsuits will result in a significant impact
on the consolidated results of operations or financial position.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sequent Computer Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Sequent Computer Systems, Inc. and its subsidiaries at December 28, 1996 and
December 30, 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 28, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
January 23, 1997
QUARTERLY FINANCIAL DATA (unaudited)
(In thousands, except per share amounts)
Total Gross Net Earnings
Revenue Profit Income Per Share
Fiscal 1996
First quarter $ 120,745 $ 51,481 $ 598 $ 0.02
Second quarter 142,587 61,203 3,306 0.10
Third quarter 148,785 66,132 1,355 0.04
Fourth quarter 183,245 78,861 2,512 0.07
Year $ 595,362 $ 257,677 $ 7,771 $ 0.23
Fiscal 1995
First quarter $ 116,099 $ 52,689 $ 5,953 $ 0.18
Second quarter 139,207 65,082 11,010 0.33
Third quarter 133,215 59,565 7,441 0.22
Fourth quarter 151,824 67,056 10,668 0.31
Year $ 540,345 $ 244,392 $ 35,073* $ 1.04
*The sum of quarterly net income does not equal annual net income due to
rounding.
MARKET INFORMATION (unaudited)
Sequent's Common Stock has been traded on the NASDAQ National Market
System since April 1987 under the symbol SQNT. The following table sets
forth, for the fiscal quarters indicated, the high and low sales prices for
the common stock as reported on the NASDAQ National Market System.
High Low
1996:
First quarter $ 14.88 $ 10.31
Second quarter $ 14.88 $ 11.88
Third quarter $ 13.88 $ 10.88
Fourth quarter $ 18.25 $ 12.50
1995:
First quarter $ 20.63 $ 15.56
Second quarter $ 18.63 $ 14.44
Third quarter $ 25.25 $ 17.88
Fourth quarter $ 19.50 $ 14.38
At December 28,1996, there were approximately 1,134 shareholders of
record of the Company's common stock and 34.2 million shares outstanding. The
Company has never paid cash dividends on its common stock. The Company
intends to retain earnings for use in its business and, therefore, does not
anticipate paying cash dividends in the foreseeable future. In addition, the
Company's bank line of credit agreement and the agreements relating to the
Company's Convertible Debentures prohibit payment of dividends without the
lenders' consent.
EXHIBIT 21
SEQUENT COMPUTER SYSTEMS, INC. - SUBSIDIARIES
ENTERPRISE FINANCE COMPANY (Oregon)
SEQUENT EXPORT, INC. (Barbados)
DP APPLICATIONS, INC. (Oregon)
CANADA:
SEQUENT COMPUTER SYSTEMS (CANADA) LIMITED
EUROPE:
SEQUENT COMPUTER SYSTEMS LIMITED (United Kingdom)
SEQUENT COMPUTER SYSTEMS A.B. (Sweden)
SEQUENT COMPUTER SYSTEMS GmbH (Germany)
SEQUENT COMPUTER SYSTEMS, S.A. (France)
SEQUENT COMPUTER SYSTEMS, B.V. (Netherlands)
SEQUENT COMPUTER SYSTEMS, spol. s r.o. (Czechoslovakia)
OPEN TOOL INTERNATIONAL, B.V. (Netherlands)
SEQUENT COMPUTER SYSTEMS S. r. I. (Italy)
SEQUENT COMPUTER SYSTEMS CJSC (Russia)
JAPAN:
SEQUENT COMPUTERS JAPAN CO., LTD
ASIA:
SEQUENT COMPUTER SYSTEMS (N.Z.) LIMITED (New Zealand)
SEQUENT COMPUTER SYSTEMS AUSTRALIA PTY. LIMITED
SEQUENT COMPUTER SYSTEMS ASIA LIMITED (Hong Kong)
SEQUENT COMPUTER SYSTEMS (SINGAPORE) PTE. LIMITED
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-16428, 33-16463, 33-33338, 33-36836, 33-39315,
33-39657, 33-40941, 33-40942, 33-63972, 33-63974, 33-59147 and 33-59611) of
Sequent Computer Systems, Inc. of our report dated January 23, 1997 appearing
in the Annual Report to Shareholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules.
PRICE WATERHOUSE LLP
Portland, Oregon
March 21, 1997
Sponsorship Agreement
This agreement is entered into effective the 30th day of January, 1996 between
American International Motorsports (AI Motorsports) and Sequent Computer
Systems, Inc. an Oregon Corporation (Sequent).
A. AI Motorsports has a present right to use for promotional purposes two
top fuel dragsters owned by AI Motorsports. Further, AI Motorsports
employs Scott Kalitta and Connie Kalitta as professional race car
drivers who currently drive the top fuel dragsters owned by AI
Motorsports on the National Hot Rod Association ("NHRA") top fuel
dragster circuit.
B. Sequent is an Oregon Corporation and is in the business of
manufacturing a high performance multiprocessing family of computer
systems.
C. Sequent desires to sponsor AI Motorsports in order to assist in the
promotions, marketing and advertising of the computer systems.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein the parties hereto agree as follows:
1. Display of Corporate Name and Logo. Subject to the conditions and upon
the terms set forth herein, AI Motorsports hereby allows Sequent to
promote its computer systems business by causing placement of the
Corporate name and Logo used by Sequent in its promotional efforts
("Logo") on AI Motorsports competition top fuel dragsters ("Competition
Dragsters") driven by Scott Kalitta and Connie Kalitta for promotional
purposes. In addition to placing the name and Logo on the Competition
Dragsters, the name and Logo shall appear on the trailers used by AI
Motorsports to transport the Competition Dragsters; on
patches/embroidery to be worn on the firesuit of the driver as per the
art work attached as Exhibit A and incorporated herein.
2. Term. The initial term of this Agreement shall be for the period
beginning January 30, 1996 and ending December 31, 1996. Sequent must
give AI Motorsports written notice 30 days prior to the end of the
initial term of December 31, 1996 of its intent to renew this Agreement
via certified mail return receipt requested. Thereafter, the parties
hereto agree to negotiate in good faith for the renewal of this
Agreement. If the parties are unable to reach a mutual agreement for
the renewal of this Agreement prior to December 31, 1996, then this
Agreement shall terminate and neither party shall have any further
obligations hereunder except as to those obligations which may have
accrued prior to such termination.
3. Promotional Fee: In consideration of the rights granted and services
provided hereunder and the display of Sequent's Corporate name and Logo
on the Competition Dragsters, trailers and firesuits of both Scott
Kalitta and Connie Kalitta, Sequent will pay to AI Motorsports $450,000.
4. The Dragsters: (a) During the term of this Agreement, AI Motorsports
hereby agrees to cause the name and Logo to be prominently displayed as
provided in paragraph 1 hereof. Sequent will have the sole
responsibility to supply the artwork for placement of the name and Logo
on the Competition Dragsters and on all other display areas referred to
in paragraph 1 hereof. AI Motorsports shall pay all costs associated
therewith, including expenses associated with the placement of the name
and Logo on the Competition Dragsters or other areas referred to herein.
(b) Sequent acknowledges that this is a non-exclusive Agreement and that
associated sponsors may display their Corporate names and logos on the
Competition Dragsters. Sequent will receive logos measuring 9" x 36" on
the Dragsters and 1' x 7' on both sides of the trailers and on the rear
door of the trailers. Sequent will be listed on all entries as being a
secondary sponsor for the team.
5. Racing Schedules. Sequent hereby acknowledges the NHRA schedule for
the year 1996 in which the Competition Dragster will be competing, which
is attached hereto as Exhibit "B" and made a part hereof. AI
Motorsports acknowledges that the Competition Dragster will compete in
all NHRA National Points events during the term of this Agreement, as
attached.
6. Hospitality Truck and Trailer. AI Motorsports will provide personnel
to assist in the setup and tear down of awning on Hospitality Trailer at
each event. These services are included in the overall fee. Sequent
will remain responsible for the cost and maintenance of insurance,
permits, and necessary mechanical maintenance of Hospitality Truck and
Trailer. Sequent will provide hospitality at 8 National events to an
average of 20 AI Motorsports guests per race. This will include
tickets, food, registration, use of trailer facilities for one day. AI
Motorsports can entertain additional guests for additional days by
paying for tickets and $15 a day per person for food. The Hospitality
Trailer is not available until the evening race on Friday.
7. Use of Name and Accomplishment. AI Motorsports agrees to allow Sequent
to use AI Motorsports name and AI Motorsports racing accomplishments
from past years and any of Scott Kalitta's and Connie Kalitta's
accomplishments that may occur during the term of this Agreement in
order to further advertise and promote Sequent's products. At the end
of this Agreement all rights to the use by Sequent of AI Motorsports
name shall lapse and terminate. Sequent wishes to have Scott Kalitta
and Connie Kalitta meet their guests and sign autographs each day during
race weekends. Sequent wishes to have Ed McCoullough provide a group
presentation on each Saturday am for Sequent guests.
8. Parking. Sequent wishes to park side by side, awning to awning, in the
pit area with Scott Kalitta's truck/trailer subject to approval of track
owner and NHRA for each race.
9. Insurance. AI Motorsports agrees that it will at all relevant times
during the term of this Agreement, at no cost and expense to Sequent
maintain or cause to be maintained public liability insurance upon AI
Motorsports and agents against claims for bodily injury, death or
property damage resulting from the negligent acts or omissions of AI
Motorsports and agents in performance of their duties for AI Motorsports
and in turn AI Motorsports' duties to Sequent. Such insurance shall
afford protection, with respect to the business premises used by AI
Motorsports to a combined single limit of $1,000,000 in respect to
bodily injury and property damage for one occurrence. Such insurance
shall also afford protection, with respect to the trucks and trailers
used by AI Motorsports in the transportation of the Competition
Dragster. Such insurance will also afford protection, with respect to
the truck and trailer used by AI Motorsports in the transportation of
the Competition Dragsters in a combined single policy limit of not less
than $325,000.00 per occurrence. Additionally AI Motorsports shall
maintain or cause to be maintained a $1,000,000.00 combined single limit
liability policy to cover bodily injury or property damage to third
parties while using the trucks and trailers. Such insurance whether in
one or more policies, shall also name Sequent as additional insureds.
Notwithstanding the foregoing, Sequent understands that during the term
hereof AI Motorsports will maintain such public liability insurance
during those times when they are competing with the Competition
Dragsters. During such times of competition, AI Motorsports represents
and warrants that such insurance is provided by NHRA to be maintained
and provided for the person, organization and sponsors such as Sequent.
Accordingly, Sequent sponsorship shall extend only to: (a) top fuel
dragster events, including those described on Exhibit "B" attached
hereto, that are held during the term of this Agreement, and are
sanctioned by the NHRA, and are covered by public liability insurance
which is no less in amount and coverage than that shown on Exhibit "C"
with such insurance to be provided by insurance companies with at least
a Best Insurance Guide A rating; and (b) top fuel dragster practice
runs at tracks that are covered by public liability insurance which is
no less in amount and coverage as set out in (a) above.
10. No Agency, Partnership or Joint Venture. Each party hereto
acknowledges and represents to the other that this Agreement provides
merely for the sponsorship through rights which Sequent acquires in AI
Motorsports and is procured and administered by AI Motorsports, with
regard to the Competition Dragsters. Nothing contained herein shall be
deemed to create an agency, joint venture, or partnership between the
parties hereto, or between Sequent and AI Motorsports. Except as
specifically allowed in this Agreement, each party to this Agreement is
specifically prohibited from acting for or on behalf of any other party
to this Agreement.
11. Scott Kalitta and Connie Kalitta's Obligation. AI Motorsports
acknowledges that Scott Kalitta is Motorsports' professional driver for
its top fuel Competition Dragster and was 1995 NHRA "World Champion" in
the top fuel Competition Dragster circuit. Accordingly, AI Motorsports
agrees that they will do all things reasonable and necessary to fulfill
the terms and conditions of this Agreement and AI Motorsports guarantees
to Sequent the performance of AI Motorsports hereunder. If for any
reason, whether the fault of AI Motorsports, or otherwise, AI
Motorsports is in any way prohibited from carrying out the terms and
conditions of this Agreement, then, in such event, Sequent shall, at its
sole option, be entitled to receive a refund equal to rights and
services paid for and not received by Sequent, or Sequent may elect to
have such amounts credited to performance fees for subsequent racing
season(s).
12. Assignment. Each party to this Agreement shall be restricted from
assigning, conveying or transferring its rights and obligations, except
as between a party and its affiliates, under this Agreement without the
express written consent of the other parties hereto.
13. Indemnification. AI Motorsports agrees to indemnify and hold harmless
Sequent against any costs, (including reasonable attorney fees) losses,
claims, damages or liabilities, joint or several, to which Sequent or
the other subsidiaries may become subject, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) that
arise out of or are based upon AI Motorsports' racing activities and
performance of their respective obligation hereunder.
Sequent agrees to indemnify and hold AI Motorsports harmless against any
costs (including reasonable attorney fees), losses, claims, damages or
liabilities, joint or several to which AI Motorsports may be subject
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon Sequent's wrongful use
of AI Motorsports' name.
14. Notices. Notices under this Agreement shall be in writing and
delivered to the following person at the following addresses:
Sequent Computer Systems, Inc.
15450 S.W. Koll Parkway
Beaverton, Oregon 97006-6063
Attn: Manager Contracts
American International Motorsports
2757 I-94 Service Drive
Ypsilanti, Michigan 48198
The effective date for notices under this Agreement shall be the date of
delivery and not the date of mailing.
15. Applicable Law. This Agreement will be construed in accordance with
the laws of the State of Oregon without regard to the choice of law
principles.
AI MOTORSPORTS SEQUENT COMPUTER SYSTEMS, INC.
By: By:
Name: Name:
Title Title:
Date: Date:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR UNDER STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL SUCH NOTE IS REGISTERED UNDER SUCH ACTS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
DP APPLICATIONS, INC.
10% CONVERTIBLE NOTE
$1,000,000 August 20, 1996
FOR VALUE RECEIVED, DP Applications, Inc., an Oregon corporation (the
"Company"), hereby promises to pay to Robert W. Wilmot & Mary J. Wilmot,
Trustees of the R.W. & M.J. Wilmot Living Trust, U/D/T dated April 18, 1995
(the "Wilmot Trust"), or order, the principal amount of One Million Dollars
($1,000,000), together with interest on the unpaid portion of said principal
amount from the date hereof until paid at the rate of ten percent (10%) per
annum. Principal and accrued interest shall be due and payable six months
after the date hereof and may not be prepaid by the Company without the
consent of the Wilmot Trust.
The principal amount of this Note, together with interest accrued
hereunder, shall be converted into the same shares of capital stock of the
Company as may be issued by the Company prior to January 20, 1997 in its first
round of equity financing (the "Financing") at the per share price prevailing
in the Financing. The other terms and conditions of the conversion
investment shall be the same as those prevailing in the Financing.
In the event that the Financing shall not have occurred prior to January
20, 1997, the principal amount of this Note together with interest accrued
hereunder may, at the option of the Wilmot Trust, be converted into shares of
capital stock of the Company, which have the same per share valuation and all
of the same rights, preferences, privileges and restrictions as, and are
otherwise pari passu with, the shares of capital stock issued by the Company
to Sequent Computer Systems, Inc.; provided, however, that the liquidation
preference for the capital stock issued to the Wilmot Trust shall be $1.55
per share compared to the per share liquidation preference of $3.10 for the
shares issued to Sequent Computer Systems, Inc.
The payment of the obligations under this Note by the Company shall be
subordinated in all respects to the payment by the Company of its existing and
future senior indebtedness. The Wilmot Trust agrees to execute from time to
time such agreements as may be required by such lenders to evidence such
subordination.
This Note may be declared due prior to its expressed maturity date (i) if
the Company breaches any covenant contained herein; (ii) if the Company shall
make an assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or shall file a voluntary
petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or
shall file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file
any answer admitting or not contesting the material allegations of a petition
filed against the Company in any such proceeding, or shall seek or consent to
or acquiesce in the appointment of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the property of the Company, or
the Company or its directors or majority stockholders shall take any action
looking to the dissolution or liquidation of the Company; or (iii) if, within
thirty (30) days after the commencement of an action against the Company
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, such action shall not have been dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Company stayed, or if the stay of any such order or proceeding shall
thereafter be set aside; or if, within sixty (60) days after the appointment
without the consent or acquiescence of the Company of any trustee, receiver
or liquidator of the Company or of all or any substantial part of the
properties of Company, such appointment shall not have been vacated.
The Wilmot Trust, by acceptance hereof, represents and warrants to the
Company as follows:
1. It is experienced in evaluating and investing in new companies such
as the Company and has the financial resources to bear the economic risks
associated with its investment.
2. It is acquiring the Note for investment for its own account, not as
a nominee or agent, and not with a view to, or for resale in connection with,
any distribution thereof. It understands that the Note has not been
registered under the Securities Act or qualified pursuant to the Oregon
Revised Statutes by reason of specific exemptions therefrom which depend
upon, among other things, the bona fide nature of the investment intent and
the accuracy of such Holder's representations as expressed herein.
3. It acknowledges that the Note must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. It is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions.
4. It understands that no public market now exists for any of the
securities issued by the Company and that it is likely that a public market
may never exist.
5. It has had an opportunity to discuss the Company's business,
management and financial affairs with its management.
This Note shall be governed by and construed in accordance with the laws of
the State of Oregon. If any legal action or any arbitration upon mutual
agreement is brought for the enforcement of this Note or because of an alleged
dispute, breach, default in connection with this Note, the Wilmot Trust shall
be entitled to recover reasonable attorneys' fees and other costs and expenses
incurred in that action or proceeding, in addition to any relief to which it
may be entitled.
DP APPLICATIONS, INC.
By:____/s/Bruce Love_____________
BRUCE LOVE
President and Chief Executive Officer
Representations set forth herein are hereby acknowledged by the Wilmot
Trust.
ROBERT W. WILMOT & MARY J. WILMOT, TRUSTEES OF THE
R.W. & M.J. WILMOT LIVING TRUST, U/D/T DATED APRIL
18, 1995
____/s/ Robert W. Wilmot______
Robert W. Wilmot
___/s/Mary J. Wilmot__________
Mary J. Wilmot
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR UNDER ANY STATE SECURITIES ACT, AND MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO
THE PROVISIONS OF THE SECURITIES ACT AND UNDER ANY STATE SECURITIES ACT OR AN
OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE
WITH AVAILABLE EXCEPTIONS FROM SUCH REGISTRATION.
August 20, 1996
DP APPLICATIONS, INC.
(Incorporated under the laws of the State of Oregon)
Warrant for the Purchase of Shares of Capital Stock
FOR VALUE RECEIVED, DP Applications, Inc., an Oregon corporation (the
"Company"), hereby certifies that Robert W. Wilmot & Mary J. Wilmot, Trustees
of the R.W. & M.J. Wilmot Living Trust, U/D/T dated April 18, 1995 (the
"Holder") is entitled, subject to the provisions of this Warrant, to purchase
from the Company the same shares of capital stock of the Company as may be
issued by the Company prior to January 20, 1997 in its first round of equity
financing (the "Financing"). The number of such shares purchasable hereunder
shall be determined by dividing $300,000 by the per share price of the
capital stock to be issued in the Financing (the "Capital Stock"). This
Warrant shall be exercisable at the per share price prevailing in the
Financing (the "Exercise Price").
In the event the Financing shall not have occurred prior to January 20,
1997, this Warrant shall be exercisable for shares of capital stock of the
Company which have the same per share valuation and all of the same rights,
preferences, privileges and restrictions as, and are otherwise pari passu with,
the shares of capital stock issued by the Company to Sequent Computer Systems,
Inc.; provided, however, that the liquidation preference for the capital stock
issued to the Wilmot Trust shall be $1.55 per share compared to the per share
liquidation preference of $3.10 for the shares issued to Sequent Computer
Systems, Inc.
The number of shares of Capital Stock to be received upon the exercise of
this Warrant may be adjusted from time to time as hereinafter set forth. The
shares of Capital Stock deliverable upon such exercise, and as adjusted from
time to time, are hereinafter referred to as "Warrant Stock." The term "Other
Securities" means any other equity or debt securities that may be issued by
the Company in addition thereto or in substitution for the Warrant Stock.
The term "Company" means and includes the corporation named above as well as
(i) any immediate or more remote successor corporation (or any immediate or
more remote successor corporation of such corporation) with another
corporation, or (ii) any corporation to which such corporation (or any
immediate or more remote successor corporation of such corporation) has
transferred its property or assets as an entirety or substantially as an
entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case
of the loss, theft or destruction) of satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held subject to, all of the conditions, limitations
and provisions set forth herein.
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time, or from time to time during the period commencing on the date
hereof and expiring, 5:00 p.m., Eastern Time on August 20, 1999 (the
"Expiration Date") or, if such day is a day on which banking institutions in
New York are authorized by law to close, then on the next succeeding day that
shall not be such a day, by presentation and surrender of this Warrant to the
Company at its principal office, or at the office of its stock transfer
agent, if any, with the Warrant Exercise Form attached hereto duly executed
and accompanied by payment (either in cash or by certified or official bank
check, payable to the order of the Company) of the Exercise Price for the
number of shares specified in such form and instruments of transfer, if
appropriate, duly executed by the Holder or his or her duly authorized
attorney. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Capital Stock purchasable hereunder. Upon receipt by the
Company of this Warrant, together with the Exercise Price, at its office, or
by the stock transfer agent of the Company at its office, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares
of Capital Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Capital Stock shall not then be actually
delivered to the Holder. The Company shall pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Capital Stock on exercise of this Warrant (but not on
the subsequent transfer of such shares).
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Capital
Stock (and Other Securities) from time to time receivable upon exercise of
this Warrant. All such shares of Capital Stock (and Other Securities) shall
be duly authorized and, when issued upon such exercise, shall be validly
issued, fully paid and non-assessable and free of all preemptive rights.
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant, but the
Company shall pay the Holder an amount equal to the fair market value of such
fractional shares of Capital Stock in lieu of each fraction of a share of
Capital Stock otherwise called for upon any exercise of this Warrant. For
purposes of this Warrant, the fair market value of a share of Capital Stock
shall be determined as follows:
(a) If the Capital Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the current market value shall be the last
reported sale price of the Capital Stock on such exchange or system on the
last business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid and asked prices for
such day on such exchange or system; or
(b) If the Capital Stock is not so listed or admitted to
unlisted trading privileges, the current market value shall be the mean of the
last reported bid and asked prices reported by the National Quotation Bureau,
Inc. on the last business day prior to the date of the exercise of this
Warrant or
(c) If the Capital Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof as at
the end of the most recent fiscal year of the Company ending prior to the
date of the exercise of the Warrant, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company.
4. Exchange and Registry of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations, entitling the Holder to purchase in
the aggregate the same number of shares of Capital Stock purchasable
hereunder. This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation hereof at the office of the Company
or at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Holder hereof.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Anti-Dilution Provisions.
6.1 Adjustment for Recapitalization. If the Company shall
at any time subdivide its outstanding shares of Capital Stock (or Other
Securities at the time receivable upon the exercise of the Warrant) by
recapitalization, reclassification or split-up thereof, or if the Company
shall declare a stock dividend or distribute shares of Capital Stock to its
stockholders, the number of shares of Capital Stock subject to this Warrant
immediately prior to such subdivision shall be proportionately increased and
the Exercise Price shall be proportionately decreased, and if the Company
shall at any time combine the outstanding shares of Capital Stock by
recapitalization, reclassification or combination thereof, the number of
shares of Capital Stock or Other Securities subject to this Warrant
immediately prior to such combination shall be proportionately decreased and
the Exercise Price shall be proportionately increased. Any such adjustments
pursuant to this Section 6.1 shall be effective at the close of business on
the effective date of such subdivision or combination or if any adjustment is
the result of a stock dividend or distribution then the effective date for
such adjustment based thereon shall be the record date therefor.
6.2 Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any reorganization of the Company (or any other corporation,
the securities of which are at the time receivable on the exercise of this
Warrant) or the Company (or any such other corporation) shall consolidate
with or merge into another corporation or convey all or substantially all of
its assets to another corporation, then, and in each such case, the Holder of
this Warrant upon the exercise thereof as provided in Section 1 at any time
after the consummation of such reorganization, consolidation, merger or
conveyance, shall be entitled to receive, in lieu of the securities and
property receivable upon the exercise of this Warrant prior to such
consummation, the securities or property to which such Holder would have been
entitled upon such consummation if such Holder had exercised this Warrant
immediately prior thereto.
6.3 No Dilution. The Company will not, by amendment of its
Certificate of Incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against impairment. Without limiting the generality of the
foregoing, while this Warrant is outstanding, the Company (a) will not permit
the par value, if any, of the shares of Capital Stock receivable upon the
exercise of this Warrant to be above the amount payable therefor upon such
exercise and (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue or sell fully paid
and non-assessable shares of Capital Stock upon exercise of this Warrant.
6.4 Certificate as to Adjustments. In each case of an
adjustment in the number of shares of Warrant Stock or Other Securities
receivable on the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate executed by an executive officer of the
Company setting forth such adjustment and showing in detail the facts upon
which such adjustment is based. The Company will forthwith mail a copy of
each such certificate to the Holder.
6.5 Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the holders of its
Capital Stock (or Other Securities at the time receivable upon the exercise of
the Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities, or to receive any other rights, or
(b) of any capital reorganization of the Company, any
reclassification of the Capital Stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of
all or substantially all of the assets of the Company to another corporation,
or
(c) of any voluntary or involuntary dissolution, liquidation,
or winding up of the Company, then, and in each such case, the Company shall
mail or cause to be mailed to each Holder of the Warrant at the time
outstanding a notice specifying, as the case may be, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up is
to take place, and the time, if any, is to be fixed, as to which the holders
of record of Capital Stock (or such Other Securities at the time receivable
upon the exercise of the Warrant) shall be entitled to exchange their shares
of Capital Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding up. Such notice
shall be mailed at least 20 days prior to the date therein specified and the
Warrant may be exercised prior to said date during the term of the Warrant.
7. Compliance with Securities Act. The Wilmot Trust, by
acceptance hereof, represents and warrants to the Company as follows:
7.1 Experience. It is experienced in evaluating and
investing in new companies such as the Company and has the financial
resources to bear the economic risks associated with its investment.
7.2. Investment. It is acquiring the Warrant for investment
for its own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof. It understands that the
Warrant has not been registered under the Securities Act or qualified
pursuant to the Oregon Revised Statutes by reason of specific exemptions
therefrom which depend upon, among other things, the bona fide nature of the
investment intent and the accuracy of such Holder's representations as
expressed herein.
7.3. Rule 144. It acknowledges that the Warrant and any
Warrant Stock or Other Securities must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. It is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions.
7.4. No Public Market. It understands that no public market
now exists for any of the securities issued by the Company and that it is
likely that a public market may never exist.
7.5. Access to Data. It has had an opportunity to discuss
the Company's business, management and financial affairs with its management.
8. Registration Rights The shares of Capital Stock shall have
such registration rights as are otherwise negotiated in connection with the
Financing.
9. Transfer or Disposition of Warrant. This Warrant may not be
transferred, assigned or otherwise disposed of by the Holder.
10 Legend. Unless the shares of Warrant Stock or Other Securities
have been registered under the Securities Act and under any applicable state
securities laws, upon exercise of the Warrant and the issuance of any of the
shares of Warrant Stock or Other Securities, all certificates representing
such securities shall bear on the face thereof substantially the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR UNDER ANY STATE SECURITIES
ACT, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
ACTS OR UNLESS AN OPINION OF COUNSEL TO THE CORPORATION IS OBTAINED STATING
THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION.
11. Notices. All notices required hereunder shall be in writing
and shall be deemed given when telegraphed, delivered personally or within two
days after mailing when mailed by certified or registered mail, return receipt
requested, to the Company at its principal office, or to the Holder at the
address set forth on the record books of the Company, or at such other
address of which the Company or the Holder has been advised by notice
hereunder.
12. Applicable Law. The Warrant is issued under and shall, for
all purposes be, governed by and construed in accordance with the laws of the
State of Oregon.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
DP APPLICATIONS, INC.
By: ____/s/Bruce Love___________
BRUCE LOVE
President and Chief Executive
Officer
WARRANT EXERCISE FORM
DP Applications, Inc.
_____________________
_____________________
Attn: President
1. The undersigned hereby elects to purchase _______________ shares of
Capital Stock of DP APPLICATIONS, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price in full.
2. Please issue a stock certificate or certificates representing said
shares of Capital Stock in the name of the undersigned or in such other names
as is specified below:
Robert W. Wilmot & Mary J. Wilmot,
Trustees of the R.W. & M.J. Wilmot
Living Trust, U/D/T dated April 18,
1995
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("Agreement") is entered into
as of December 2, 1996 between DP Applications, Inc., an Oregon corporation
(the "Company") and Karl C. Powell, Jr. ("Purchaser"), an employee, officer,
or director of Sequent Computer Systems, Inc. ("Sequent").
In consideration of the mutual promises set forth in this Agreement, the
parties agree as follows:
1. Sale of Shares. Purchaser agrees to purchase from the Company,
and the Company agrees to sell to Purchaser, 100,000 shares of common stock of
the Company (the "Shares") at a price of $0.15 per share, for a total purchase
price of $15,000, payable in cash or by the execution and delivery of a
promissory note in the form of Exhibit A (the "Note"). In addition to terms
and conditions set forth in this Agreement, the Shares shall be subject to the
restrictions on transfer contained in Article VII of the Company's Bylaws. To
secure its rights under the Repurchase Option described in Section 2, the
Company will retain the certificate or certificates representing the Shares.
Purchaser will deliver to the Company executed blank stock powers covering the
Shares subject to the Repurchase Option. The closing of this sale shall occur
upon receipt by the Company from Purchaser of an executed copy of this
Agreement, full payment of the purchase price for the Shares, and executed
blank stock powers covering the Shares.
2. Repurchase Option.
2.1 Option on Termination of Employment Initiated by
Purchaser. If Purchaser voluntarily leaves employment of Sequent (a
"Voluntary Termination"), then the Company shall have an irrevocable,
exclusive option (the "Repurchase Option") for a period of 60 days from the
date of Voluntary Termination to repurchase at the original price per Share
set forth in Section 1 all of the Shares held by Purchaser on the date of the
Voluntary Termination that have not been released from the Repurchase Option
as provided in Section 2.4. If Purchaser ceases to be an employee of Sequent
for any reason other than Voluntary Termination, including termination with or
without cause or by reason of death or disability (an "Involuntary
Termination"), the Repurchase Option shall not apply to the Shares, but shall
terminate as to all of the Shares as of the date of the Involuntary
Termination.
2.2 Exercise of Option. The Repurchase Option shall be
exercised by the Company within 60 days of the date of Voluntary Termination
(such 60-day period, the "Exercise Period") by delivering to the Purchaser a
written notice of exercise of the Repurchase Option and a check in the amount
of the purchase price (or, if applicable, by a reduction in the outstanding
principal of the Note equal to the purchase price). Upon delivery of such
notice and payment of the purchase price, the Company shall become the legal
and beneficial owner of the Shares being repurchased and all rights and
interest therein or related thereto, and the Company shall have the right to
transfer to its own name the number of Shares being repurchased without
further action by Purchaser.
2.3 Termination of Repurchase Option. If the Company does
not exercise the Repurchase Option before the end of the Exercise Period, the
Repurchase Option shall terminate.
2.4 Release from Repurchase Option. The Shares shall be
released from the Repurchase Option over a period of four years and two months
commencing December 2, 1996 (the "Vesting Reference Date"). One hundred
percent (100%) of the Shares shall initially be subject to the Repurchase
Option. None of the Shares shall be released from the Repurchase Option until
the first anniversary of the Vesting Reference Date, on which date twenty-four
percent (24%) of the shares shall be released from the Repurchase Option.
Thereafter, two percent (2%) of the Shares shall be released from the
Repurchase Option for each month of service completed after the first
anniversary of the Vesting Reference Date, so that all of the Shares will be
released from the Repurchase Option 50 months after the Vesting Reference
Date. No fractional shares shall be released from the Repurchase Option until
a number of such fractional shares accumulate to equal one share. Subject to
the provisions of Section 3 regarding escrow of the Shares, as soon as
practicable after the end of each one-year period from the Vesting Reference
Date, the Company will deliver to Purchaser a certificate or certificates
representing the Shares released from the Repurchase Option during that year.
2.4.1 Accelerated Release From Repurchase Option Upon
Sequent Change of Control. If at any time before all of the Shares have been
released from the Repurchase Option, there is a Change in Control with respect
to Sequent, all Shares then subject to the Repurchase Option shall immediately
be released from the Repurchase Option, and the Repurchase Option shall
terminate as of the date of the Change of Control. As used in this Agreement,
the term "Change of Control" means the occurrence of any one of the following
events:
(a) The shareholders of Sequent approve one of the
following transactions:
(i) any consolidation, merger, or plan of exchange
involving Sequent pursuant to which Sequent's Common Stock would be converted
into cash; or
(ii) any sale, lease, exchange, or other transfer
(in one transaction or in a series of related transactions) of all or
substantially all of the assets of Sequent or the adoption of any plan or
proposal for the liquidation or dissolution of Sequent; or
(b) a tender or exchange offer, other than one by
Sequent, is made for Sequent's Common Stock (or securities convertible into
Sequent Common Stock) and such offer results in a portion of those securities
being purchased and the offeror after consummation of the offer is the
beneficial owner (as determined pursuant to Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), directly or
indirectly, of at least 20 percent of Sequent's outstanding Common Stock; or
(c) Sequent receives a report on Schedule 13D under the
Exchange Act reporting beneficial ownership by any person of 20 percent or
more of Sequent's outstanding Common Stock, except that if such receipt occurs
during a tender offer or exchange offer by any person other than Sequent or a
wholly owned subsidiary of Sequent, then the accelerated release from the
Repurchase Option provided for this Section 2.4.1 shall not occur until the
conclusion of such offer; or
(d) During any period of 12 months or less, individuals
who at the beginning of such period constituted a majority of Sequent's Board
of Directors cease for any reason to constitute a majority thereof unless the
nomination or election of such new directors was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of such period.
3. Limitations on Transfer. Without the written consent of the
Company, Purchaser shall not sell, assign, encumber, dispose of or transfer
(including transfer by operation of law) any interest in any Shares that have
not been released from the Repurchase Option. In addition, if Purchaser
purchased the Shares by execution and delivery of the Note, Purchaser shall
not sell, assign, encumber, dispose of or transfer (including transfer by
operation of law) any interest in any Shares until the Note has been repaid in
full with respect to such Shares. The Company shall hold in escrow all Shares
(including those not subject to the Repurchase Option) with respect to which
the Note has not been repaid, and shall release Shares not subject to the
Repurchase Option only upon Purchaser's full repayment of the all outstanding
principal and interest on the Note relating to the purchase price for those
Shares. Upon payment of principal of the Note at any time, the Company shall
release from escrow and deliver to Purchaser a number of Shares equal to the
amount of the repayment (less accrued interest) divided by the purchase price
for such Shares as set forth in Section 1 hereof. To the extent that the
Company exercises the Repurchase Option as to any Shares, the principal amount
of the Note shall be reduced by the amount of the purchase price therefor.
4. Lock-up Period. Purchaser hereby agrees that if so requested by
the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), Purchaser shall not sell, make short sale of, loan, grant
any option for the purchase of, or otherwise transfer any Shares or other
securities of the Company during the 180-day period (or such longer period as
may be requested in writing by the Managing Underwriter and agreed to in
writing by the Company) (the "Market Standoff Period") following the effective
date of a registration statement of the Company filed under the Securities
Act; provided, however, that such restriction shall apply only to the first
registration statement of the Company to become effective under the Securities
Act that includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such Market Standoff Period.
5. Stock Certificate Legends. All certificates representing any of
the Shares shall contain the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN A
RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION."
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE CORPORATION IS AUTHORIZED TO ISSUE DIFFERENT CLASSES OF SHARES OR
DIFFERENT SERIES WITHIN A CLASS. THE CORPORATION WILL FURNISH TO ANY
SHAREHOLDER ON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF EACH CLASS OF
SHARES AUTHORIZED TO BE ISSUED AND THE VARIATIONS IN THE RIGHTS, PREFERENCES
AND LIMITATIONS BETWEEN THE SHARES OF EACH SERIES SO FAR AS THEY HAVE BEEN
DETERMINED. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE RELATIVE
RIGHTS AND PREFERENCES OF A SERIES BEFORE THE ISSUANCE OF ANY SHARES OF THAT
SERIES."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND
TRANSFERABLE ONLY UPON COMPLIANCE WITH THE TERMS AND CONDITIONS CONTAINED IN
ARTICLE VII OF THE COMPANY'S BYLAWS, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION."
6. Assignment by the Company. The right of the Company under the
Repurchase Option to purchase any part of the Shares may be assigned in whole
or in part to any person or persons designated by the Board of Directors of
the Company.
7. Transfer on Books of Company. The Company shall not be required
(a) to transfer on its books any of the Shares which have been sold or
transferred in violation of any of the provisions set forth in this Agreement
or the Company's Bylaws, or (b) to treat as owner of such Shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such Shares shall have been so transferred.
8. Restricted Securities. Purchaser understands and acknowledges
that the sale of the Shares has not been registered under the Securities Act,
or applicable state securities laws, that the Shares must be held indefinitely
unless subsequently registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration requirement is
available, that the Company is under no obligation to register the Shares, and
that the certificate representing the Shares will be stamped with the legends
specified in Section 5 of this Agreement. The Purchaser agrees to comply with
the transfer restrictions specified in the legends set forth in Section 5.
9. Investment Representations and Warranties. Purchaser warrants
and represents to the Company as follows:
9.1 Purchase Entirely for Own Account. The Shares will be
acquired for investment for Purchaser's own account and not with a view to the
resale or distribution of any part thereof, and Purchaser has no intention of
selling, granting any participation in, or otherwise distributing the same.
9.2 Investment Experience. Purchaser is experienced in
evaluating and investing in companies in the development stage, can bear the
economic risk of an investment in the Shares, and has enough knowledge and
experience in financial and business matters to evaluate the merits and risks
of the investment in the Shares.
9.3 Qualifications as an Accredited Investor. Purchaser is an
accredited investor, as that term is defined in Rule 501(a) under the
Securities Act.
9.4 Opportunity to Review Documents and Ask Questions. The
Company has made available to Purchaser all documents and information
requested by Purchaser relating to an investment in the Company. In addition,
Purchaser has had adequate opportunity to ask questions and to receive answers
from the management of the Company covering the terms and conditions of the
purchase and sale of the Shares and the Company's business, management, and
financial affairs.
10. Miscellaneous.
10.1 Entire Agreement; Amendment. This Agreement constitutes
the entire agreement of the parties with regard to the subjects hereof and may
be amended only by written agreement between the Company and the Purchaser.
10.2 Notices. Any notice required or permitted under this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally to the party to whom it is addressed or when deposited into the
United States Mail as registered or certified mail, return receipt requested,
postage prepaid, addressed to the Company at its address shown below its
signature or to the Purchaser at the address shown below the Purchaser's
signature, or at such other address as such party may designate by ten (10)
days' advance written notice to the other party.
10.3 Rights and Benefits. The rights and benefits of this
Agreement shall inure to the benefit of and be enforceable by the Company's
successors and assigns and, subject to the restrictions on transfer of this
Agreement, be binding upon the Purchaser's heirs, executors, administrators,
successors and assigns.
10.4 Further Action. The parties agree to execute such
further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
10.5 Applicable Law; Attorneys' Fees. The terms and
conditions of this Agreement shall be governed by the laws of the State of
Oregon. In the event either party institutes litigation hereunder, the
prevailing party shall be entitled to reasonable attorneys' fees to be set by
the trial court and, upon any appeal, the appellate court.
10.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE COMPANY: DP APPLICATIONS, INC.
By: ___/c/_Bruce Love_________
BRUCE LOVE
Title: President
Address:
PURCHASER: ____/c/Karl C. Powell, Jr.___
Karl C. Powell, Jr.
Address:
EXHIBIT A
FORM OF PROMISSORY NOTE
$15,000 San Bruno, California
December 2, 1996
For value received the undersigned promises to pay to the order of
DP Applications, Inc. (the "Company") at its principal offices in San Bruno,
California, the principal sum of fifteen thousand dollars ($15,000) in lawful
money of the United States of America, with interest thereon from the date
hereof until paid at the rate of ___ percent per annum. Interest shall be due
and payable annually. The entire principal and all accrued interest shall be
due and payable in full on the fifth anniversary of the date written above.
Payments of principal and interest shall be made in lawful money of the
United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Restricted Stock Purchase
Agreement, dated as of December 2, 1996. This Note is secured in part by a
pledge of the Company's Common Stock under the terms of a Security Agreement
of even date herewith and is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event of institution of suit or action for the collection of this
note or any portion hereof the undersigned hereby promises and agrees to pay,
in addition to the costs and disbursements which may be provided by statute,
such sum as the court may adjudge reasonable to be allowed to plaintiff
therein for its attorneys' fees at trial, appeal, or for any petition for
appeal.
________________________________
AIRCRAFT LEASE AGREEMENT
This lease agreement ("Agreement") is entered into as of the 1st day of
October, 1996 (Effective Date), by and between CP Transportation, Inc.
("Lessor") and Sequent Computer Systems, Inc. ("Lessee").
RECITALS
WHEREAS, Lessor and Lessee desire that Lessee lease a certain 1970
Gulfstream American G-1159, N183SC, Serial No. 091 equipped with two (2)
Royal Royce Model Spey MK511-8 engines Serial No.'s 8633 and 8644
("Aircraft"), pursuant to the terms of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. TERM AND TERMINATION
The term of this Agreement shall be three (3) years. This Agreement
shall also terminate upon any sale or transfer of ownership of the
Aircraft by Lessor. Any such sale or transfer of ownership shall be
upon mutual agreement of the parties.
2. LEASE OF AIRCRAFT
Lessor hereby leases the Aircraft to Lessee on an exclusive basis,
however Lessor may use the Aircraft at such times as are agreeable to
Lessee. Lessor agrees to pay for any operating costs associated with
Lessor's use of the Aircraft, including pilot fees, fuel and incidental
fees and shall also pay a fee of $650 per flight hour for any
unallocated tax, insurance and maintenance reserve.
Lessee may sublease the Aircraft on such terms as it shall determine,
provided, however, that Lessee shall remain primarily liable to Lessor
upon any such sublease.
3. LESSOR REPRESENTATION
Lessor represents and warrants that is has the requisite authority to
act as Lessor of the Aircraft and to enter into this Agreement. Lessor
further warrants that the Aircraft is currently registered,
certificated and airworthy under and in accordance with requirements of
the Federal Aviation Administration (FAA) and has been maintained in
accordance with the FAA Regulations found in 14 FAR, Part 91.
4. AIRCRAFT MAINTENANCE
During the term of this Agreement, Lessee agrees, at its cost, to keep
the Aircraft in good and efficient working order, condition and repair,
to maintain the Aircraft in compliance with the manufacturer's
recommended service and maintenance specifications and with the
requirements of FAR Part 91, and to keep the Aircraft currently
registered, certificated and airworthy under and in accordance with the
requirements of the FAA.
During the term of this Agreement Lessee agrees to pay $175.00 per
flight hour flown into an interest bearing Engine Restoration Reserve
(ERR). Payment into the ERR shall be made monthly on the first day of
the month following the calendar month in which the hours are accrued.
The ERR is to be used to defray any costs associated with engine mid-
life inspections, engine overhauls, and thrust reverser overhauls. In
the event that the ERR is insufficient to cover any said costs incurred
during the term of this Agreement, Lessee agrees to pay the deficit.
Upon termination of this lease any residual associated with such ERR
shall pass to Lessor.
5. AIRCRAFT CHARGES
As rental for Lessee's use of the Aircraft, Lessee agrees to pay Lessor
as follows:
(a) $50,000 per month due and payable on the 1st day of each month
commencing November 1996.
(b) Incidental expenses including, but not limited to, landing charges,
airport fees and customs charges incurred during the Lessee's
operation of the Aircraft when charged to Lessor and not paid
directly by Lessee.
(c) Any and all property taxes assessed with respect to the Aircraft.
This is an irrevocable lease, and any present or future law to the
contrary notwithstanding, Lessee's obligation to pay Lessor or its
assigns all amounts due hereunder is absolutely unconditional and this
Lease shall not terminate by operation of law or otherwise, except as
set forth in Paragraph 1, nor shall Lessee be entitled to any
abatement, reduction, setoff, counterclaim, defense or deduction with
respect to any of the aircraft charges described herein, or any other
amounts payable by the Lessee hereunder, nor shall any obligations of
Lessee hereunder be affected for any reason whatsoever, no matter how,
when, or against whom asserted, arising or claimed; provided, however,
that Lessee may institute an independent action or claim against Lessor
(but not against any collateral assignee of Lessor) for any alleged
breach hereof. No collateral assignee of Lessor shall be liable to
perform any covenant of Lessor. The provisions of this paragraph are
made expressly for the benefit of Lessor and any assignee of Lessor.
This Agreement is subject and subordinate to the rights of Pitney Bowes
Credit Corporation under that certain Security Agreement by and between
Pitney Bowes Credit Corporation as Secured Party and CP Transportation,
Inc. as Debtor dated as of October 31, 1996.
6. INSURANCE
(a) During the term of this Agreement Lessee shall, at Lessee's
expense, maintain hull insurance on the Aircraft for the value
stated in Subparagraph (c), below, including all-risk ground and
flight insurance, seizure and confiscation insurance plus breach
of warranty insurance and comprehensive liability coverage which
shall name Lessor, Pitney Bowes Credit Corporation, and any pilot
operating the Aircraft on behalf of Lessor as an additional
insured, including Lessor's use of the Aircraft, in an amount of
not less than $100,000,000 without right of subrogation against
Lessor. Certificates of the insurance will be furnished to the
Lessor upon request. The policy shall require the carrier to
provide to the insured, and Lessee, in turn, shall provide to
Lessor, not less than thirty (30) days written notice prior to any
cancellation or reduction in coverage.
(b) The Aircraft shall at all times be in the care, custody and
control of Lessor or Lessee.
(c) Lessor states the maximum replacement value of the Aircraft for
hull coverage purposes is $4,400,000. Hull insurance furnished as
provided in this Paragraph 6 shall be for the Aircraft's
replacement value at time of loss. Lessor agrees to make no
further claim against Lessee in excess of the maximum of
replacement value for loss or damage to the Aircraft arising out
of any occurrence. Lessor will bear any insurance deductible
applicable to any loss.
7. INDEMNIFICATION
Lessee shall indemnify Lessor, including any of its assignees and
creditors and specifically including Pitney Bowes Credit Corporation
(collectively, the "Indemnitees") and shall hold such Indemnitees
harmless from and against all loss, liability, damages, costs and
expense (including, without limitation, attorneys' fees) incurred or
suffered by such Indemnitees as a result of or arising out of any and
all claims and demands relating in any way to Lessee's possession or
use of the Aircraft; provided that such indemnification shall not cover
any such loss, liability, damages, costs or expense attributable to
possession or use of the Aircraft by Lessor or any failure by it to
perform any of its obligations under this Agreement.
8. EVENTS OF DEFAULT; ACCELERATION
A very important element of this Agreement is that Lessee make all its
payments promptly as agreed upon. Also essential is that the Aircraft
continue to be in good condition and adequate security for the
indebtedness. The following are events of default under this Agreement
which will allow Lessor to take such action under this Section and
under Section 9 as it deems necessary:
(a) any of Lessee's obligations to Lessor under any agreement with
Lessor is not paid on or before the tenth day following the date
when the same becomes due and payable;
(b) Lessee breaches any warranty or provision hereof, or of any note
or of any instrument or agreement delivered by Lessee to Lessor
and such breach continues for a period in excess of thirty (30)
days after Lessor shall have given Lessee written notice of
default with respect thereto;
(c) Lessee breaches any policy of insurance covering the Aircraft;
or if any such policy be canceled;
(d) Lessee becomes insolent or ceases to do business as a going
concern;
(e) it is determined that Lessee has given Lessor materially mis-
leading information regarding its financial condition and such
information shall not be made good within thirty (30) days after
written notice thereof to Lessee;
(f) any of the Aircraft is lost, secreted, misused, destroyed,
encumbered, seized, confiscated or disposed of in violation of
the terms hereof;
(g) a petition in bankruptcy or reorganization be filed by or against
Lessee or Lessee admits in writing its inability to pay its debts
as they mature;
(h) property of Lessee be attached unless the attachment doesn't
result in the threatened or actual foreclosure of the property
and, further, that the attachment is either bonded or released
within thirty (30) days of such attachment or a receiver be
appointed for Lessee;
(i) whenever Lessor in good faith believes the Aircraft is insecure;
If Lessee shall be in default hereunder, the indebtedness herein
described and all other debts then owing by Lessee to Lessor under this
or any other present or future agreement shall, if Lessor shall so
elect, become immediately due and payable. This acceleration of all
indebtedness, if elected by Lessor, shall be subject to all applicable
laws, including laws as to rebates and refunds of unearned charges.
9. LESSOR'S REMEDIES AFTER DEFAULT; CONSENT TO ENTER PREMISES
Lessor may require Lessee to return the Aircraft to Lessor at a place
to be designated by Lessor which is reasonably convenient to both
parties. If permitted by law, the Sheriff of any county in which the
Aircraft is located may, on request of Lessor and the delivery to the
Sheriff of a copy hereof, take possession of the Aircraft. Expenses of
retaking and the like shall include reasonable attorneys' fees and
other legal expenses.
10. WAIVER OF DEFAULTS; AGREEMENT INCLUSIVE
Lessor may in its sole discretion waive a default, or cure, at Lessee's
expense, a default. Any such waiver in a particular instance or of a
particular default shall not be a waiver of other defaults or the same
kind of default at another time. No modification or change in this
Agreement or any related note, instrument or agreement shall bind
Lessor unless in writing signed by Lessor. No oral agreement shall be
binding.
11. NOTICES
All notices hereunder shall be sent to the following addresses, via
U.S. First Class mail:
If to Lessor: CP Transportation, Inc.
5256 S.W. Humphrey Boulevard
Portland, OR 97221
If to Lessee: Sequent Computer Systems, Inc.
Attn: Ross Summers
15450 SW Koll Parkway
Beaverton, OR 97006
If to Assignee: Pitney Bowes Credit Corporation
3020 Old Ranch Parkway, Suite 410
Seal Beach, CA 90740
12. GOVERNING LAW AND ATTORNEYS FEES
This Agreement shall be governed by the laws of the state of Oregon.
Should a dispute arise with respect to any portion of this Agreement,
the prevailing party shall be entitled to its reasonable attorneys fees
and costs in any litigation.
13. TRUTH IN LEASING CLAUSE
LESSOR AND LESSEE UNDERSTAND THAT THE AIRCRAFT HAS BEEN MAINTAINED AND
INSPECTED DURING THE PERIOD PRECEDING THE EXECUTION OF THIS AGREEMENT,
COMMENCING UPON THE EFFECTIVENESS OF THE REGISTRATION OF THE AIRCRAFT
WITH THE FAA, UNDER FEDERAL AVIATION REGULATIONS PART 91. LESSEE
CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED WITH THE
APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS OF THE FEDERAL
AVIATION REGULATIONS PART 91. AT ALL TIMES DURING THE TERM OF THIS
AGREEMENT, LESSOR AND LESSEE UNDERSTAND THAT LESSEE IS THE PARTY
RESPONSIBLE FOR THE OPERATIONAL CONTROL OF THE AIRCRAFT DURING THE
PERIODS IN WHICH LESSEE HAS POSSESSION OF THE AIRCRAFT UNDER THIS
AGREEMENT. LESSEE CERTIFIES THAT IT UNDERSTANDS ITS RESPONSIBILITIES
FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. LESSEE'S
CORRECT NAME AND ADDRESS APPEAR IN SECTION 11 ABOVE. AN EXPLANATION OF
FACTORS BEARING ON THE OPERATIONAL CONTROL AND PERTINENT FEDERAL
AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
IN WITNESS WHEREOF, the parties have executed this Agreement as follows:
Lessor: CP TRANSPORTATION, INC. Lessee: SEQUENT COMPUTER SYSTEMS, INC.
By:____________________________ By:________________________________
Title: President Title: Vice President Finance and CFO
Date: October 1, 1996 Date: October 1, 1996
BUSINESS PARK LEASE
TABLE OF CONTENTS
Page
1. BASIC LEASE TERMS.........................................1
a. DATE OF LEASE EXECUTION............................1
b. TENANT.............................................1
c. LANDLORD...........................................1
d. TENANT'S USE OF PREMISES...........................1
e. PREMISES AREA......................................1
f. PROJECT AREA.......................................1
g. AGREED UPON PREMISES PERCENT OF PROJECT............1
h. TERM OF LEASE......................................1
i. BASE MONTHLY RENT..................................1
j. RENT ADJUSTMENT....................................1
(1) Cost of Living.................................1
(2) Step Increase..................................1
k. ANNUAL EXPENSE BASE................................1
l. PREPAID RENT.......................................1
m. TOTAL SECURITY DEPOSIT.............................1
n. BROKER(S)..........................................1
o. GUARANTORS.........................................1
2. PREMISES..................................................1
3. TERM......................................................1
4. RENT......................................................2
a. Base Monthly Rent..................................2
b. Rent Adjustment....................................2
(1) Cost of Living Adjustment......................2
(2) Step Increase..................................2
c. Expenses...........................................2
(1) Expenses Defined...............................2
(2) Annual Estimate of Expenses....................2
(3) Monthly Payment of Expenses....................2
(4) Rent Without Offset and Late Charge............3
5. PREPAID RENT..............................................3
6. DEPOSIT...................................................3
7. USE OF PREMISES AND PROJECT FACILITIES....................3
8. SIGNAGE...................................................3
9. PERSONAL PROPERTY TAXES...................................4
10. PARKING...................................................4
11. UTILITIES.................................................4
12. MAINTENANCE...............................................4
13. ALTERATIONS...............................................4
14. RELEASE AND INDEMNITY.....................................4
15. INSURANCE.................................................4
16. DESTRUCTION...............................................5
17. CONDEMNATION..............................................5
a. Definitions...........................................5
b. Obligations to Be Governed by Lease...................5
c. Total or Partial Taking...............................5
d. Landlord's Election...................................5
e. Award.................................................5
18. ASSIGNMENT OR SUBLEASE....................................5
19. DEFAULT...................................................6
20. LANDLORD'S REMEDIES.......................................6
21. ENTRY ON PREMISES.........................................6
22. SUBORDINATION.............................................6
23. NOTICE....................................................6
24. WAIVER....................................................7
25. SURRENDER OF PREMISES; HOLDING OVER.......................7
26. LIMITATION OF LIABILITY...................................7
27. MISCELLANEOUS PROVISIONS..................................7
a. Time of Essence.......................................7
b. Successor.............................................7
c. Landlord's Consent....................................7
d. Commissions...........................................7
e. Other Charges.........................................7
f. Landlord's Successors.................................7
g. Interpretation........................................7
h. Third Parties.........................................8
i. Survival..............................................8
28. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE.............8
a. Emissions.............................................8
b. Storage and Use.......................................8
(1) Storage...............................................8
(2) Use...................................................8
c. Disposal of Waste.....................................8
(1) Refuse Disposal.......................................8
(2) Sewage Disposal.......................................8
(3) Disposal of Other Waste...............................8
d. Compliance with Law...................................8
e. Indemnification.......................................8
f. Additional Provisions.................................8
g. Information...........................................9
29. SPACE PLAN................................................9
FORUM
PROPERTIES
BUSINESS PARK LEASE
1. BASIC LEASE TERMS.
a. DATE OF LEASE EXECUTION: 1/15/96
b. TENANT: Sequent Computer Systems, Inc.
Trade Name:
Address (Leased Premises): 15125 SW Koll Parkway, Suite EFG Beaverton,
Oregon 97006
Building/Unit: 4/EFG
Address (For Notices): 15450 SW Koll Parkway Beaverton, Oregon 97006
c. LANDLORD: Petula Assoc. Ltd., and Koll Woodside Assoc. dba KC Woodside
Address (For Notices): 15050 SW Koll Parkway, Suite 2H Beaverton,
Oregon 97006
d. TENANT'S USE OF PREMISES: Lab
e. PREMISES AREA: Approximately 6302 Square Feet
f. PROJECT AREA: Approximately 131017 Square Feet
g. AGREED UPON PREMISES PERCENT OF PROJECT: 4.81%
h. TERM OF LEASE Commencement: 12/1/95 Expiration: 11/30/96 Number
of Months: 12
i. BASE MONTHLY RENT: $4,727.
j. (Deleted in its entirety from this Lease.)
k. ANNUAL EXPENSE BASE:
Expense Rate $0
Premises Area Square Feet X 6302
Annual Expense Base $0
Note: An Annual Expense Base of $0 does not mean Expenses are not
payable by Tenant. See Section 4 below. Currently, Expenses are
estimated to be .23 per square foot per month.
l. PREPAID RENT: $4,727.
m. TOTAL SECURITY DEPOSIT: $0 , including a $0 nonrefundable cleaning fee.
The Security Deposit shall be paid by a separate check made payable to
the Landlord.
n. BROKER(S): Forum Properties, Inc.
o. GUARANTORS: N/A
2. PREMISES.
Landlord leases to Tenant the premises described in Section 1 and in
Exhibit A (the "Premises"), located in the project described on Exhibit
B (the "Project"). Landlord reserves the right to modify Tenant's percentage
of the Project as set forth in Section 1 if the Project size is increased
through the development of additional property. By taking occupancy of the
Premises, Tenant acknowledges that it has examined the Premises and accepts
the Premises in their then present condition, subject only to any work which
landlord has herein agreed to perform prior to commencement which Landlord
and Tenant identify in writing, prior to occupancy, as not completed.
3. TERM.
The term of this Lease is for the period set forth in Section 1,
commencing on the date in Section 1. If Landlord, for any reason, cannot
deliver possession of the Premises to Tenant upon the scheduled commencement
date set forth in Section 1, this Lease shall not be void or voidable, nor
shall Landlord be liable to Tenant for any loss or damage resulting from
such delay. In that event, however, Landlord shall deliver possession of
the Premises as soon as practicable and the commencement date shall be the
date of such delivery with the term of the Lease remaining unchanged, and
all other terms and conditions of this Lease remaining in full force and
effect. However, if Landlord is delayed in delivering possession to Tenant
for any reason attributable to Tenant, this Lease (including the obligation
to pay all rents) shall commence on the scheduled commencement date set
forth in Section 1 above. If Landlord, for any reason not attributable to
Tenant, is unable to deliver possession of the Premises within ninety (90)
days following the scheduled commencement date, either party may terminate
this Lease by written notice given within ten (10) days following expiration
of such period.
4. Rent
a. Base Monthly Rent. Tenant shall pay to Landlord base monthly rent in
the initial amount in Section 1 which shall be payable monthly in
advance on the first day of each and every calendar month ("Base Monthly
Rent"); provided, however, the Base Monthly Rent for the first month of
the term (or the first month following any rental abatement period, if
applicable) is due upon execution of this Lease by Tenant. If the term
of this Lease contains any rental abatement period, Tenant hereby agrees
that if Tenant breaches the Lease and/or abandons the Premises before
the end of the Lease term, or if this Lease or Tenant's right to
possession is terminated by Landlord because of Tenant's breach of the
Lease, Landlord shall, at its option, (1) void the rental abatement
period, and (2) recover from Tenant, in addition to all other damages
due Landlord, rent for the duration of the rental abatement period at a
rental rate equivalent to the highest Base Monthly Rent specified
herein. All charges and sums due from Tenant to Landlord hereunder
shall be deemed rent.
For purposes of Section 467 of the Internal Revenue Code, the parties to
this Lease hereby agree to allocate the stated rents, provided herein,
to the periods which correspond to the actual rent payments as provided
under the terms and conditions of this agreement.
b. (Deleted in its entirety from this Lease.)
c. Expenses. The purpose of this Section 4.c is to ensure that Tenant
bears a share of all Expenses related to the use, maintenance,
ownership, repair or replacement, and insurance of the Project.
Accordingly, beginning on the date Tenant takes possession of the
Premises, Tenant shall pay to Landlord that portion of Tenant's share of
Expenses related to the Project which is in excess of the Annual Expense
Base, if any, shown in Section 1.
(1) Expenses Defined. The term "Expenses" shall mean all costs and expenses
incurred by Landlord with respect to the ownership, operation,
maintenance, repair or replacement, and insurance of the Project,
including without limitations the following costs:
(a) All supplies, materials, labor, equipment, and utilities used in or
related to the operation and maintenance of the Project;
(b) All management, janitorial, legal, accounting, insurance, and
service agreement costs related to the Project;
(c) All maintenance, replacement and repair costs relating to the areas
within or around the Project, including, without limitation, air
conditioning systems, sidewalks, landscaping, service areas,
driveways, parking areas (including resurfacing and restriping
parking areas), walkways, building exteriors (including painting),
signs and directories, repairing and replacing roofs, walls, etc.
These costs may be included either based on actual expenditures or
based on establishment of reasonable reserves.
(d) Amortization (along with reasonable financing charges) of capital
Improvements made to the Project which may be required by any
government authority or which will improve the operating efficiency
of the Project (provided, however, that the amount of such
amortization for Improvements not mandated by government authority
shall not exceed in any year the amount of costs reasonably
determined by Landlord in its sole discretion to have been saved by
the expenditure either through the reduction, or minimization of
increases, of costs which would have otherwise occurred).
(e) All Real Property Taxes, which shall mean and include all taxes,
assessments (general and special) and other impositions or charges
which may be taxed, charged, levied, assessed or imposed upon all
or any portion of or in relation to the Project or any portion
thereof, any leasehold estate in the Premises or measured by rent
from the Premises, including any increase caused by the transfer,
sale or encumbrance of the Project or any portion thereof. "Real
Property Taxes" shall also include any form of assessment, levy,
penalty, charge or tax (other than estate, inheritance, net income
or franchise taxes) imposed by any authority having a direct or
indirect power to tax or charge, including, without limitation, any
city, county, state, federal or any improvement or other district,
whether such tax is (1) determined by the area of the Project or
the rent or other sums payable under this Lease; (2) upon or with
respect to any legal or equitable interest of Landlord in the
Project or any part thereof;(3) upon this transaction or any
document to which Tenant is a party creating a transfer in any
interest in the Project; (4) in lieu of or as a direct substitute
in whole or in part of or in addition to any real property taxes on
the Project; (5) based on any parking spaces or parking facilities
provided in the Project; or (6) in consideration for services, such
as police protection, fire protection, street, sidewalk and roadway
maintenance, refuse removal or other services that may be provided
by any governmental or quasi-governmental agency from time to time
which were formerly provided without charge or with less charge to
property owners or occupants. "Real Property Taxes" shall also
include all assessments under recorded covenants or master plans
and/or by owner's associations.
(2) Annual Estimate of Expenses. When Tenant takes possession of the
Premises, Landlord shall estimate Tenant's portion of Expenses for the
remainder of the calendar year based on the Tenant's portion of the
Project Area set forth in Section 1. At the commencement of each
calendar year thereafter, Landlord shall estimate Tenant's portion of
Expenses for the coming year based on the Tenant's portion of the
Project Area set forth in Section 1.
(3) Monthly Payment of Expenses. If Tenant's portion of said estimate of
Expenses shows an increase for the remainder of the first calendar year
over the Annual Expense Base, if any, as set forth in Section 1, Tenant
shall pay to Landlord, as additional rent, such estimated increase in
monthly installments of one-twelfth (1/12) beginning on the date Tenant
takes possession of the Premises. If Tenant's portion of said estimate
of Expenses shows an increase for subsequent calendar years over the
Annual Expense Base, if any, as set forth in Section 1, Tenant shall pay
to Landlord, as additional rent, such estimated increase in monthly
installments of one-twelfth (1/12) beginning on January 1 of the
forthcoming calendar year, and one-twelfth (1/12) on the first day of
each succeeding calendar month. As soon as practical following each
calendar year, Landlord shall prepare an accounting of actual Expenses
incurred during the prior calendar year and such accounting shall
reflect Tenant's share of Expenses. If the additional rent paid by
Tenant under this Section 4.c(3) during the preceding calendar year was
less than the actual amount of Tenant's share of Expenses, Landlord shall
so notify Tenant and Tenant shall pay such amount to Landlord within 30
days of receipt of such notice. Such amount shall be deemed to have
accrued during the prior calendar year and shall be due and payable from
Tenant even though the term of this Lease has expired or this Lease has
been terminated prior to Tenant's receipt of this notice. Tenant shall
have thirty (30) days from receipt of such notice to contest the amount
due; failure to so notify Landlord shall represent final determination
of Tenant's share of expenses. If Tenant's payments were greater than the
actual amount, then such overpayment shall be credited by Landlord to
all present rent due under this Section 4.c(3).
(4) Rent Without Offset and Late Charge. All rent shall be paid by Tenant
to Landlord monthly in advance on the first day of every calendar month
at the address shown in Section 1, or such other place as Landlord may
designate in writing from time to time. All rent shall be paid without
prior demand or notice and without any deduction or offset whatsoever.
All rent shall be paid in lawful currency of the United States of
America. All rent due for any partial month shall be prorated at the
rate of 1/30th of the total monthly rent per day. Tenant acknowledges
that late payment by Tenant to Landlord of any rent or other sums due
under this Lease will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impracticable to ascertain. Such costs include, without limitation,
processing and accounting charges and late charges that may be imposed
on Landlord by the terms of any encumbrance or note secured by the
Premises. Therefore, if any rent or other sum due from Tenant is not
received when due, Tenant shall pay to Landlord an additional sum equal
to 10% of such overdue payment. Landlord and Tenant hereby agree that
such late charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of any such late payment and that the
late charge is in addition to any and all remedies available to the
Landlord and that the assessment and/or collection of the late charge
shall not be deemed a waiver of any default. Additionally, all such
delinquent rent or other sums, plus this late charge, shall bear
interest at the prime rate of the U.S. National Bank of Oregon, plus 2%,
on a fully floating basis (herein the "Default Rate"), from the date
first due until the date paid in full. Any payments of any kind
returned for insufficient funds will be subject to an additional
handling charge of $25.00, and thereafter, Landlord may require Tenant
to pay all future payments of rent or other sums due by money order or
cashierss check.
* Tenant shall have five (5) day grace period.
5. PREPAID RENT.
Upon the execution of this Lease, Tenant shall pay to Landlord the
prepaid rent set forth in Section 1, and if Tenant is not in default of
any provisions of this Lease, such prepaid rent shall be applied toward the
Base Monthly Rent due for the first month of the term (or the first month
following any Base Monthly Rent abatement period, if applicable). Upon a
default by Tenant prior to such application, Landlord shall have the right,
without waiver of the default or prejudice to other remedies, to use the
prepaid rent or any of it to cure the default or to compensate Landlord for
all or any damages resulting from the default. Landlord's obligations with
respect to the prepaid rent are those of a debtor and not of a trustee, and
Landlord can commingle the prepaid rent with Landlord's general funds.
Landlord shall not be required to pay Tenant interest on the prepaid rent.
Landlord shall be entitled to immediately endorse and cash Tenant's prepaid
rent; however, such endorsement and cashing shall not constitute Landlord's
acceptance of this Lease. In the event Landlord does not accept this Lease,
Landlord shall return said prepaid rent.
6. DEPOSIT.
Upon execution of this Lease, Tenant shall deposit the security deposit
set forth in Section l with Landlord as security for the performance by
Tenant of the provisions of this Lease. Upon a default by Tenant, Landlord
shall have the right, without waiver of the default or prejudice to other
remedies, to use the security deposit or any portion of it to cure the
default or to compensate Landlord for any damages resulting from Tenant's
default. Upon demand, Tenant shall Immediately pay to Landlord a sum equal
to the portion of the security deposit expanded or applied by Landlord to
maintain the security deposit in the amount initially deposited with
Landlord. In no event will Tenant have the right to apply any part of the
security deposit to any rent or other sums due under this Lease. If Tenant
is not in default at the expiration or termination of this Lease, Landlord
shall return the entire security deposit to Tenant, except for the portion
designated in Section 1, if any, which Landlord shall retain as a
nonrefundable cleaning fee. Landlord's obligations with respect to the
deposit are those of a debtor and not of a trustee, and Landlord can
commingle the security deposit with Landlord's general funds. Landlord
shall not be required to pay Tenant interest on the deposit. Landlord shall
be entitled to immediately endorse and cash Tenant's security deposit;
however, such endorsement and cashing shall not constitute Landlord's
acceptance of this Lease. In the event Landlord does not accept this Lease,
Landlord shall return said security deposit. If Landlord sells its interest
in the Premises during the term hereof and deposits with or credits to the
purchaser the unapplied portion of the security deposit, thereupon Landlord
shall be discharged from any further liability or responsibility with
respect to the security deposit.
7. USE OF PREMISES AND PROJECT FACILITIES.
Tenant shall use the Premises solely for the purposes set forth in
Section 1 and for no other purpose without obtaining the prior written
consent of Landlord. Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty with respect to
the Premises or with respect to the suitability of the Premises or the
Project for the conduct of Tenant's business, nor has Landlord agreed to
undertake any modification, alteration or improvement to the Premises or the
Project, except as provided in writing in this Lease. Tenant acknowledges
that Landlord may from time to time, at its sole discretion, make such
modifications, alterations, deletions or improvements to the Project as
Landlord may deem necessary or desirable, without compensation or notice to
Tenant. Tenant shall promptly and at all times comply with all federal,
state and local statutes, laws, ordinances, orders and regulations affecting
the Premises and the Project (herein "Laws"), as well as all master plans,
restrictive covenants, and also any rules and regulations that Landlord may
adopt from time to time. Tenant shall not do or permit anything to be done
in or about the Premises or bring or keep anything in the Premises that will
in any way increase the premiums paid by Landlord on its insurance related
to the Project or which will in any way increase the premiums for fire or
casualty insurance carried by other tenants in the Project. Tenant will not
perform any act or carry on any practices that may injure the Premises or
the Project; that may be a nuisance or menace to other tenants in the
Project; or that shall in any way interfere with the quiet enjoyment of such
other tenants. Tenant shall not use the Premises for sleeping, washing
clothes, cooking or the preparation, manufacture or mixing of anything that
might emit any objectionable odor, noises, vibrations or lights onto such
other tenants. If sound insulation is required to muffle noise produced by
Tenant on the Premises, Tenant at its own cost shall provide all necessary
insulation. Tenant shall not do anything on the Premises which will
overload any existing parking or service to the Premises. Pets and/or
animals of any type shall not be kept on the Premises.
8. SIGNAGE.
All signage shall comply with rules and regulations set forth by
Landlord as may be modified from time to time. Current rules and
regulations relating to signs are described on Exhibit C. Tenant shall place
no window covering (e.g., shades, blinds, curtains, drapes, screens, or
tinting materials), stickers, signs, lettering, banners or advertising or
display material on or near exterior windows or doors if such materials are
visible from the exterior of the Premises, without Landlord's prior written
consent. Similarly, Tenant may not install any alarm boxes, foil protection
tape or other security equipment on the Premises without Landlord's prior
written consent. Any material violating this provision may be destroyed by
Landlord without compensation to Tenant.
9. PERSONAL PROPERTY TAXES.
Tenant shall pay before delinquency all taxes, assessments, license fees
and public charges levied, assessed or imposed upon its business operations
as well as upon all trade fixtures, leasehold improvements, merchandise and
other personal property in or about the Premises.
10. PARKING.
Landlord grants to Tenant and Tenant's customers, suppliers, employees
and invitees, a nonexclusive license to use the designated parking areas in
the Project for the use of motor vehicles during the term of this Lease.
Landlord reserves the right at any time to grant similar nonexclusive use to
other tenants, to promulgate rules and regulations relating to the use of
such parking areas, including reasonable restrictions on parking by tenants
and employees, to designate specific spaces for the use of any tenant, to
make changes in the parking layout from time to time, and to establish
reasonable time limits on parking. Overnight parking is prohibited and any
vehicle violating this or any other vehicle regulation adopted by Landlord
is subject to removal at the owner's expense.
11. UTILITIES.
Tenant shall pay for all water, gas, heat, light, power, sewer,
electricity, telephone or other service metered, chargeable or provided to
the Premises. Landlord reserves the right (i) to install separate meters
for any such utility and to charge Tenant for the cost of such installation,
or (ii) to pay the costs of such utilities and to treat the same as an
"Expense" (subject to a right of Landlord to elect to require Tenant to pay
its actual portion of such Expense in lieu of its percentage share).
12. MAINTENANCE.
Landlord shall maintain, in good condition, the structural parts of the
Premises, which shall include only the foundations, bearing and
exterior walls (excluding glass), subflooring and roof (excluding
skylights), the unexposed electrical, plumbing and sewerage systems, in-
cluding without limitation, those portions of the systems lying outside the
Premises, exterior doors (excluding glass), window frames, gutters and
downspouts on the Building and the heating, ventilating and air conditioning
system servicing the Premises; provided, however, the cost of all such
maintenance shall be considered "Expenses" for purposes of Section 4.c.
Except as provided above, Tenant shall maintain and repair the Premises in
good condition, including, without limitation, maintaining and repairing all
walls, floors, ceilings, interior doors, exterior and interior windows and
fixtures as well as damage caused by Tenant, its agents, employees or
invitees. Upon expiration or termination of this Lease, Tenant shall
surrender the Premises to Landlord in the same condition as existed at the
commencement of the term, except for reasonable wear and tear or damage
caused by fire or other casualty for which Landlord has received all funds
necessary for restoration of the Premises from insurance proceeds. Nothing
herein shall excuse Tenant from financial responsibility for property damage
caused by Tenant or Tenant's agents.
13. ALTERATIONS.
a. Tenant shall not make any alterations to the Premises, or to the
Project, including any changes to the existing landscaping, without
Landlord's prior written consent in each instance. If Landlord gives
its consent to such alterations, Landlord may post notices in accordance
with the laws of the state in which the Premises are located. Any
alterations made shall remain on and be surrendered with the Premises
upon expiration or termination of this Lease, except that Landlord may,
within 30 days before or 3O days after the expiration or termination of
this Lease or the termination of Tenant's right of possession, elect to
require Tenant to remove any alterations which Tenant may have made to
the Premises. If Landlord so elects, at its own cost Tenant shall
restore the Premises to the condition designated by Landlord in its
election, before the last day of the term or within 30 days after notice
of its election is given, whichever is later.
b. Any request for Landlord's consent to alterations shall be made at least
thirty (30) days before any work may be commenced and shall be
accompanied by (i) detailed and costed plans and specifications for all
alterations, and (ii) Tenant's written agreement to provide, upon
completion of work, a complete set of as-built plans and specifications.
Landlord may withhold consent, in its sole discretion, or may issue such
consent subject to conditions. All alterations shall be constructed
only after obtaining Landlord's prior written consent and only in
conformity with all Laws. The issuance of Landlord's consent shall not
be a waiver of nor an opinion regarding Tenant's obligation to comply
with all Laws.
c. Should Landlord consent in writing to Tenant's alteration of the
Premises, Tenant shall contract with a contractor approved by Landlord
for the construction of such alterations, shall secure all appropriate
governmental approvals and permits, and shall complete such alterations
with due diligence in compliance with the plans and specifications
approved by Landlord. All such construction shall be performed in a
manner which will not interfere with the quiet enjoyment of other
tenants of the Project.
d. Tenant shall pay all costs for construction of alterations and shall
keep the Premises and the Project free and clear of all liens which may
result from work by third parties authorized by Tenant. If any such lien
is filed, the same shall be an event of default hereunder. It shall be a
further event of default for Tenant to fail to remove such lien within
ten (10) days of the filing thereof.
14. RELEASE AND INDEMNITY.
As material consideration to Landlord, Tenant agrees that Landlord and
Landlord's partners, shareholders, officers, directors, employees and agents
(collectively the "Protected Parties") shall not be liable to Tenant for any
damage to Tenant or Tenant's property from any cause, and Tenant waives all
claims against Landlord for damage to persons or property arising for any
reason, except for damage resulting directly from Landlord's breach of its
express obligations under this Lease which Landlord has not cured within a
reasonable time after receipt of written notice of such breach from Tenant.
Tenant shall defend, indemnify and hold Landlord and all other Protected
Parties harmless from all claims, losses, causes of action, costs and
expenses, and damages arising out of (a) any damage to any person or
property occurring in, on or about the Premises, (b) use by Tenant or its
agents of the Premises and/or the Project or other properties of Landlord,
and/or (c) Tenant's breach or violation of any term of this Lease.
15. INSURANCE.
Tenant, at its cost, shall maintain public liability and property damage
insurance and products liability insurance with a single combined liability
limit of $1,000,000, insuring against all liability of Tenant and its
authorized representatives arising out of or in connection with Tenant's use
or occupancy of the Premises. Public liability insurance, products
liability insurance and property damage insurance shall insure performance
by Tenant of the indemnity provisions of Section 14. Landlord, Forum
Properties, Inc. and the other Protected Parties shall be named as
additional insured and the policy shall contain cross-liability
endorsements. On all its personal property, at its cost, Tenant shall
maintain a policy of standard fire and extended coverage insurance with
vandalism and malicious mischief endorsements and "all risk" coverage on all
Tenant's improvements and alterations in or about the Premises, to the
extent of at least 90% of their full replacement value. The proceeds from
any such policy shall be used by Tenant for the replacement of personal
property and the restoration of Tenant's improvements or alterations. All
insurance required to be provided by Tenant under this Lease shall release
Landlord and the other protected parties from any claims for damage to any
person or the Premises and the Project, and to Tenant's fixtures, personal
property, improvements and alterations in or on the Premises or the Project,
caused by or resulting from risks insured against under any insurance policy
carried by Tenant and in force at the time of such damage. All insurance
required to be provided by Tenant under this Lease: (a) shall be issued by
insurance companies authorized to do business in the state in which the
Premises are located with a financial rating of at least an A+XII status as
rated in the most recent edition of Best's Insurance Reports; (b) shall be
issued as a primary policy; and (c) shall contain an endorsement requiring
at least 30 days prior written notice of cancellation to Landlord and
Landlord's lender, before cancellation or change in coverage, scope or
amount of any policy. Tenant shall deliver a certificate or copy of such
policy together with evidence of payment of all current premiums to Landlord
within 30 days of execution of this Lease. Tenant's failure to provide
evidence of such coverage to Landlord may, in Landlord's sole discretion,
constitute a default under this Lease.
16. DESTRUCTION.
If during the term, the Premises or Project is more than 25% destroyed
(based upon replacement cost) from any cause, or rendered inaccessible or
unusable from any cause, Landlord may, in its sole discretion, terminate
this Lease by delivery of notice to Tenant within 30 days of such event
without compensation to Tenant. If Landlord does not elect to terminate
this Lease, and if, in Landlord's estimation, the Premises cannot be
restored within 180 days following such destruction, the Landlord shall
notify Tenant and Tenant may terminate this Lease by delivery of notice to
Landlord within 30 days of receipt of Landlord's notice. If Landlord does
not terminate this Lease and if in Landlord's estimation the Premises can be
restored within 180 days, then Landlord shall commence to restore the
Premises in compliance with then existing laws and shall complete such
restoration with due diligence. In such event, this Lease shall remain in
full force and effect, but there shall be an abatement of Base Monthly Rent
between the data of destruction and the date of completion of restoration,
based on the extent to which destruction interferes with Tenant's use of the
Premises; provided, there shall be no abatement if such damage is the result
of Tenant's negligence or wrongdoing. Tenant shall not be entitled to any
damages or compensation for loss of use or any inconvenience occasioned by
damage or any repair or restoration.
17. CONDEMNATION.
a. Definitions. The following definitions shall apply. (1) "Condemnation"
means (a) the exercise of any governmental power of eminent domain,
whether by legal proceedings or otherwise by condemnor and (b) the
voluntary sale or transfer by Landlord to any condemnor either under
threat of condemnation or while legal proceedings for condemnation are
proceeding; (2) "Date of Taking" means the date the condemnor has the
right to possession of the property being condemned; (3) "Award" means
all compensation, sums or anything of value awarded, paid or received on
a total or partial condemnation; and (4) "Condemnor" means any public or
quasi-public authority, or private corporation or individual, having a
power of condemnation.
b. Obligations to Be Governed by Lease. If during the term of the Lease
there is any taking of all or any part of the Premises or the Project,
the rights and obligations of the parties shall be determined pursuant
to this Lease.
c. Total or Partial Taking. If the Premises are totally taken by
condemnation, this Lease shall terminate on the Date of Taking. If any
portion of the Premises is taken by Condemnation, this Lease shall
terminate as to the part so taken as of the Date of Taking, but shall in
all other respects remain in effect, except that Tenant can elect to
terminate this Lease if the remaining portion of the Premises is
rendered unsuitable for Tenant's continued use of the Premises. If
Tenant elects to terminate this Lease, Tenant must exercise its right to
terminate by giving notice to Landlord within 30 days after the nature
and extant of the Condemnation have been finally determined. If Tenant
elects to terminate this Lease, Tenant shall also notify Landlord of the
date of termination, which date shall not be earlier than 30 days nor
later than 90 days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date of Taking
if the Date of Taking falls on a date before the date of termination as
designated by Tenant. If any portion of the Premises is taken by
condemnation and this Lease remains in full force and effect, on the
Date of Taking the Base Monthly Rent shall be reduced by an amount in
the same ratio as the total number of square feet in the Premises taken
bears to the total number of square feet in the Premises immediately
before the Date of Taking.
d. Landlord's Election. Notwithstanding anything herein to the contrary,
if the Project or any portion thereof is taken by Condemnation and the
portion taken does not, in Landlord's sole judgment, feasibly permit the
continuation of the operation of the Project by Landlord, then Landlord
shall have the right to terminate this Lease by written notice given
within thirty (30) days following the Date of Taking.
e. Award. Tenant shall have no right or claim to all or any portion of the
Award; provided this shall not limit Tenant's right to seek and to
receive compensation for relocation expenses or the value of its
personal property taken, so long as receipt of such compensation does
not decrease the Award otherwise payable to Landlord.
18. ASSIGNMENT OR SUBLEASE.
Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any part of the Premises or allow any
other person or entity (except Tenant's authorized representatives,
employees, invitees, or guests) to occupy or use all or any part of the
Premises without first obtaining Landlord's consent which Landlord may
withhold in its sole discretion. Any assignment, encumbrance or sublease
without Landlord's written consent shall be voidable and at Landlord's
election, shall constitute a default. If Tenant is a partnership, a
withdrawal or change, voluntary, involuntary or by operation of law of any
partner, or the dissolution of the partnership, shall be deemed a voluntary
assignment. If Tenant consists of more than one person, a purported
assignment, voluntary or involuntary or by operation of law from one person
to the other or to a third party shall be deemed a voluntary assignment. If
Tenant is a corporation, any dissolution, merger, consolidation or other
reorganization of Tenant, or sale or other transfer of a controlling
percentage of the capital stock of Tenant, or the sale of at least 25% of
the value of the assets of Tenant shall be deemed a voluntary assignment.
The phrase "controlling percentage" means ownership of and right to vote
stock possessing at least 25% of the total combined voting power of all
classes of Tenant's capital stock issued, outstanding and entitled to vote
for election of directors. The preceding two sentences shall not apply to
corporations the stock of which is traded through an exchange or over the
counter. All rent received by Tenant from its subtenants in excess of the
rent payable by Tenant to Landlord under this Lease (allocated on a square
footage basis in cases of partial subleasing) shall be paid to Landlord, and
any sums to be paid by an assignee to Tenant in consideration of the
assignment of this Lease shall be paid to Landlord. If Tenant requests
Landlord to consent to a proposed assignment or subletting, Tenant shall pay
to Landlord, whether or not consent is ultimately given, $100 or Landlord's
reasonable attorneys' fees incurred in connection with such request,
whichever is greater. No interest of Tenant in this Lease shall be
assignable by involuntary assignment through operation of law (including
without limitation the transfer of this Lease by testacy or intestacy).
Each of the following acts shall be considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes an assignment for
the benefit of creditors, or institutes proceedings under the Bankruptcy Act
in which Tenant is the bankrupt; or if Tenant is a partnership or consists
of more than one person or entity, if any partner of the partnership or
other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; or (b) If a writ of attachment or
execution is levied on this Lease; or (c) If in any proceeding or action to
which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a
default by Tenant and Landlord shall have the right to elect to terminate
this Lease, in which case this Lease shall not be treated as an asset of
Tenant.
19. DEFAULT.
The occurrence of any of the following shall constitute a default by
Tenant: (a) A failure to pay rent or other charge when due; (b) Abandonment
and vacation of the Premises (failure to occupy and operate the Premises for
ten consecutive days shall be deemed an abandonment and vacation); or (c)
Failure to perform any other provision of this Lease.
20. LANDLORD'S REMEDIES.
a. Landlord shall have the following remedies if Tenant is in default.
These remedies are not exclusive; they are cumulative and in addition to
any remedies now or later allowed by law. Landlord may terminate this
Lease and/or Tenant's right to possession of the Premises at any time.
No act by Landlord other than giving notice to Tenant shall terminate
this Lease. Acts of maintenance, efforts to relet the Premises, or the
appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of this
Lease. Upon termination of this Lease or of Tenant's right to
possession, Landlord has the right to recover from Tenant: (1) The worth
of the unpaid rent that had been earned at the time of such termination;
(2) The worth of the amount of the unpaid rent that would have been
earned after the date of such termination; and (3) Any other amount,
including court, attorney and collection costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default. "The
Worth" as used for Item 20(1) in this Paragraph 20 is to be computed by
allowing interest at the Default Rate. "The worth" as used for Item
20(2) in this Paragraph 20 is to be computed by discounting the amount
at the discount rate of the Federal Reserve Bank of San Francisco at the
time of termination of Tenant's right of possession.
b. All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any abatement of rent. If Tenant shall fall to
pay any sum of money owed to any party other than Landlord, for which it
is liable hereunder, or if Tenant shall fail to perform any other act on
its part to be performed hereunder, and such failure shall continue for
ten (10) days after notice thereof by Landlord, Landlord may, without
waiving such default or any other right or remedy, but shall not be
obligated to, make any such payment or perform any such other act to be
made or performed by Tenant. All sums so paid by Landlord and all
necessary incidental costs, together with interest thereon at the
Default Rate from the date of expenditure by Landlord, shall be payable
to Landlord on demand.
21. ENTRY ON PREMISES.
Landlord and its authorized representatives shall have the right to
enter the Premises at all reasonable times for any of the following
purposes: (a) To determine whether the Premises are in good condition
and whether Tenant is complying with its obligations under this Lease; (b)
To do any necessary maintenance and to make any restoration to the Premises
or the Project that Landlord has the right or obligation to perform; (c) To
post "for sale" signs at any time during the term, to post "for rent" or
"for lease" signs during the last 90 days of the term, or during any period
while Tenant is in default; (d) To show the Premises to prospective brokers,
agents, buyers, tenants or persons interested in leasing or purchasing the
Premises, at any time during the term; or (a) To repair, maintain or improve
the Project and to erect scaffolding and protective barricades around and
about the Premises but not so as to prevent entry to the Premises and to do
any other act or thing necessary for the safety or preservation of the
Premises or the Project. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage
arising out of Landlord's entry onto the Premises as provided in this
Section 21. Tenant shall not be entitled to an abatement or reduction of
rent if Landlord exercises any rights reserved in this Section 21. Landlord
shall conduct its activities on the Premises as provided herein in a manner
that will cause the least inconvenience, annoyance or disturbance to Tenant.
For each of these purposes, Landlord shall at all times have and retain a
key with which to unlock all the doors in, upon and about the Premises,
excluding Tenant's vaults and safes. Tenant shall not alter any lock or
install a new or additional lock or bolt on any door of the Premises without
prior written consent of Landlord. If Landlord gives its consent, Tenant
shall furnish Landlord with a key for any such lock.
22. SUBORDINATION.
Without the necessity of any additional document being executed by
Tenant for the purpose of affecting a subordination, and at the
election of Landlord or any mortgagee or any beneficiary of a Deed of Trust
with a lien on the Project or any ground lessor with respect to the Project,
this Lease shall be subject and subordinate at all times to (a) all ground
leases or underlying leases which may now exist or hereafter be executed
affecting the Project, and (b) the lien of any mortgage or deed of trust
which may now exist or hereafter be executed in any amount for which the
Project, ground leases or undertone leases, or Landlord's interest or estate
in any of said Items is specified as security. In the event that any ground
lease or underlying lease terminates for any reason or any mortgage or Deed
of Trust is foreclosed or a conveyance in lieu of foreclosure is made for
any reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord, at the option of
such successor in interest. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord any
additional documents evidencing the priority or subordination of this Lease
with respect to any such ground lease or underlying leases or the lien of
any such mortgage or Deed of Trust.
Tenant, within ten days from notice from Landlord, shall execute and deliver
to Landlord, in recordable form, certificates stating that this Lease is not
in default, is unmodified and in full force and effect, or in full force and
effect as modified, and stating the modifications. This certificate should
also state the amount of current monthly rent, the dates to which rent has
been paid in advance, the amount of any security deposit and prepaid rent,
and such other matters as Landlord may request. Failure to deliver this
certificate to Landlord within ten days shall be conclusive upon Tenant that
this Lease is in full force and effect and has not been modified except as
may be represented by Landlord.
23. NOTICE.
Any notice, demand, request, consent, approval or communication desired
by either party or required to be given, shall be in writing and either
served personally or sent by prepaid certified first class mail, addressed
as set forth in Section 1. Either party may change its address by
notification to the other party. Notice shall be deemed to be communicated
48 hours from the time of such mailing, or upon the time of service as
provided in this Section 23.
24. WAIVER.
No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver. No act or
conduct of Landlord, including without limitation, acceptance of the keys to
the Premises, shall constitute an acceptance of the surrender of the Premises
by Tenant before the expiration of the term. Only written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the
Premises and accomplish termination of the Lease. Landlord's consent to or
approval of any act by Tenant requiring Landlord's consent or approval shall
not be deemed to waive or render unnecessary Landlord's consent to or approval
of any subsequent act by Tenant. Any waiver by Landlord of any default must
be in writing and shall not be a waiver of any other default concerning the
same or any other provision of the Lease.
25. SURRENDER OF PREMSES; HOLDING OVER.
Upon expiration of the term or the termination of this Lease or of
Tenant's right of possession, Tenant shall surrender to Landlord the Premises
and all tenant improvements and alterations (except alterations which Tenant
has the right or obligation to remove) in good condition, except for ordinary
wear and tear. Tenant shall remove all personal property including, without
limitation, all wallpaper, paneling and other decorative improvements or
fixtures and shall perform all restoration made necessary by the removal of
any alterations or Tenant's personal property before the expiration of the
term, including for example, restoring all wall surfaces to their condition
prior to the commencement of this Lease. Landlord can elect to retain or
dispose of in any manner Tenant's personal properly not removed from the
Premises by Tenant prior to the expiration of the term. Tenant waives all
claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's personal property. Tenant shall be
liable to Landlord for Landlord's costs for storage, removal or disposal of
Tenant's personal property. If Tenant fails to surrender the Premises upon the
expiration of the term, or upon the termination of this Lease or of Tenant's
right of possession, Tenant shall defend, indemnify and hold Landlord harmless
from all resulting loss or liability, including without limitation, any claim
made by any succeeding tenant founded on or resulting from such failure.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration of this Lease, such possession by Tenant shall be deemed to
be a month-to-month tenancy terminable on written 30-day notice at any time,
by either party. All provisions of this Lease, except those pertaining to
term and rent, shall apply to the month-to-month tenancy. Tenant shall pay
Base Monthly Rent in an amount equal to 125% of the Base Monthly Rent for the
last full calendar month during the regular term plus 100% of said last
month's estimate of Tenant's share of Expenses pursuant to Section 4.c(3).
26. LIMITATION OF LIABILITY.
In consideration of the benefits accruing hereunder, Tenant agrees that,
regarding any claim against Landlord and/or any other Protected Party,
including in the event of any actual or alleged failure, breach or default by
Landlord:
a. The sole and exclusive remedy of Tenant shall be against the interest of
Landlord in the Project, and neither Landlord nor any other Protected
Party shall have any other liability whatsoever.
b. If Landlord is a partnership, the following provisions of this Item b.
shall also apply: (i) No partner of Landlord shall be sued or named as a
party in any suit or action; (ii) No service of process shall be made
against any partner of Landlord (except as may be necessary to secure
jurisdiction of the partnership); (iii) No partner of Landlord shall be
required to answer or otherwise plead to any service or process; (iv) No
judgment may be taken against any partner of Landlord; (v) Any judgment
taken against any partner of Landlord may be vacated and set aside at any
time without hearing; and (vi) No writ of execution will ever be levied
against the assets of any partner of Landlord.
c. These covenants and agreements contained in this Section 26 are
enforceable both by Landlord and also by any other Protected Party.
d. Tenant agrees that each of the foregoing provisions shall be applicable to
any and all liabilities, claims and causes of action whatsoever, including
those based on any provision of this Lease, any implied covenant, and/or
any statute or common law principle.
27. MISCELLANEOUS PROVISIONS.
a. Time of Essence. Time is of the essence of each provision of this
Lease.
b. Successor. This Lease shall be binding on and inure to the benefit of
the parties and their successors, except as provided in Section 18
herein.
c. Landlord's Consent. Any consent required by Landlord under this Lease
must be granted in writing. No such consent shall be unreasonably
withheld, but any consent may be issued subject to reasonable conditions.
As a condition to any consent, Landlord may require that any other party
or parties with a right of consent issue such consent on terms acceptable
to Landlord.
d. Commissions. Each party represents that it has not had dealings with any
real estate broker, finder or other person with respect to this Lease in
any manner, except for the broker identified in Section 1, who shall be
compensated by Landlord.
e. Other Charges. If Landlord becomes a party to any litigation concerning
this Lease, the Premises or the Project, by reason of any act or omission
of Tenant or any agent, guest or invitee of Tenant, Tenant shall be liable
to Landlord for all attorneys fees and costs incurred by Landlord in
connection with such litigation, including any appeal or review.
In the event of litigation between Tenant and Landlord and/or any other
Protected Party, the prevailing party shall be entitled to recover from
the losing party all costs and attorneys fees incurred both at and in
preparation for trial and any appeal or review. If Landlord employs a
collection agency to recover delinquent charges, Tenant agrees to pay all
collection agency and attorneys' fees charged to Landlord in addition to
rent, late charges, interest and other sums payable under this Lease.
Tenant shall pay a charge of $75 to Landlord for preparation of a demand
for delinquent rent.
f. Landlord's Successors. In the event of a sale or conveyance by Landlord
of the Project or a portion thereof including the Premises, or of
Landlord's interest in the foregoing, the same shall operate to release
Landlord from any liability under this Lease, and in such event Landlord's
successor in interest shall be solely responsible for all obligations of
Landlord under this Lease.
g. Interpretation. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the Premises are located.
This Lease constitutes the entire agreement between the parties with
respect to the Premises and the Project, except for such guarantees or
modifications as may be executed in writing by the parties from time to
time. When required by the context of this Lease, the singular shall
include the plural, and the masculine shall include the feminine and/or
neuter. "Party" shall mean Landlord or Tenant. If more than one person or
entity constitutes Tenant, the obligations imposed upon Tenant shall be
joint and several. The enforceability, invalidity or illegality of any
provision shall not tender the other provisions unenforceable, invalid or
illegal.
h. Third Parties. The Protected Parties shall have the right to enforce the
provisions of this lease which references them. Except for the foregoing,
there are no third parties benefited hereby, this Lease being intended
solely for the benefit of Landlord and Tenant. Notwithstanding the
foregoing, the beneficiary under a trust deed, or a mortgagee, holding a
security interest in the Project shall be a third party beneficiary of the
Tenant's obligations set forth in Sections 28e. and 28f. hereof and shall
have the right to enforce such provisions.
i. Survival. The release and indemnity covenants of Tenant, the right
of Landlord to enforce its remedies hereunder, the attorneys fees
provisions hereof, the provisions of Section 26 hereof, as well as all
provisions of this Lease which contemplate performance after the
expiration or termination hereof or the termination of Tenant's right to
possession hereunder, shall survive any such expiration or termination.
28. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
a. Emissions. Tenant shall not:
(1) Discharge, emit or permit to be discharged or emitted, any liquid,
solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as
reasonably determined by Lessor or any governmental entity, does, or
may, pollute or contaminate the same, or is, or may become,
radioactive or does, or may, adversely effect the (1) health or safety
of persons, wherever located, whether on the Premises or anywhere
else, (2) condition, use or enjoyment of the Premises or any other
real or personal property, whether on the Premises or anywhere else,
or (3) Premises or any of the improvements thereto or thereon
including buildings, foundations, pipes, utility lines, landscaping or
parking areas;
(2) Produce, or permit to be produced, any intense glare, light or heat
except within an enclosed or screened area and then only in such
manner that the glare, light or heat shall not be discernible from
outside the Premises;
(3) Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of any real property outside the
Premises; or which will create a nuisance or violate any law, rule
regulation or requirement;
(4) Create, or permit to be created, any ground vibration that is
discernible outside the Premises;
(5) Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or
hazardous to any person or property in, on or about the Premises, or
anywhere else.
b. Storage and Use.
(1) Storage. Subject to the uses permitted and prohibited to Tenant under
this lease, Tenant shall store in appropriate leak proof containers
all solid, liquid, or gaseous matter, or any combination thereof,
which matter, if discharged or emitted into the atmosphere, the ground
or any body of water, does or may (1) pollute or contaminate the same,
or (2) adversely affect the (i) health or safety of persons, whether
on the Premises or anywhere else, (ii) condition, use or enjoyment of
the Premises or any real or personal property, whether on the Premises
or anywhere else, or (iii) Premises or any of the improvements thereto
or thereon.
(2) Use. In addition, without Landlord's prior written consent, Tenant
shall not use, store or permit to remain on the Premises any solid,
liquid or gaseous matter which is, or may become, radioactive. If
Landlord does give its consent, Tenant shall store the materials in
such a manner that no radioactivity will be detectable outside a
designated storage area and Tenant shall use the materials in such a
manner that (1) no real or personal property outside the designated
storage area shall become contaminated thereby or (2) there are and
shall be no adverse effects on the (i) health or safety of persons,
whether on the Premises or anywhere else, (ii) condition, use or
enjoyment of the Premises or any real or personal property thereon
or therein, or (iii) Premises or any of the improvements thereto or
thereon.
c. Disposal of Waste.
(1) Refuse Disposal. Tenant shall not keep any trash, garbage, waste or
other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove same from the Premises. Tenant shall
keep all incinerators, containers or other equipment used for the
storage or disposal of such materials in a clean and sanitary
condition.
(2) Sewage Disposal. Tenant shall properly dispose of all sanitary sewage
and shall not use the sewage system (1) for the disposal of anything
except sanitary sewage or (2) in excess of the lesser of the amount
(a) reasonably contemplated by the uses permitted under this Lease or
(b) permitted by any governmental entity. Tenant shall keep the
sewage disposal system free of all obstructions and in good operating
condition.
(3) Disposal of Other Waste. Tenant shall properly dispose of all other
waste or other matter delivered to, stored upon, located upon or
within, used on, or removed from, the Premises in such a manner that
it does not, and will not, adversely affect the (1) health or safety
of persons, wherever located, whether on the Premises or elsewhere,
(2) condition, use or enjoyment of the Premises or any other real or
personal property, wherever located, whether on the Premises or
anywhere else, or (3) Premises or any of the improvements thereto or
thereon including buildings, foundations, pipes, utility lines,
landscaping or parking areas.
d. Compliance with Law. Notwithstanding any other provision in the Lease to
the contrary, Tenant shall comply with all Laws in complying with its
obligations under this Lease, and in particular, Laws relating to the
storage, use and disposal of hazardous or toxic matter.
e. Indemnification. Tenant shall defend, indemnify and hold Landlord, the
other Protected Parties, the Project and the beneficiary under a trust
deed, or mortgagee, holding a security interest in the Project harmless
from any loss, claim, liability or expense, including, without limitation,
attorneys fees and costs, at trial and/or on appeal and review, arising
out of or in condition with its failure to observe or comply with the
provisions of this Section 28. This indemnity shall survive the
expiration or earlier termination of the term of the Lease or the
termination of Tenant's right of possession and be fully enforceable
thereafter.
f. Additional Provisions. The following covenants and agreements shall in no
way diminish or limit the forgoing provisions of this Section 28. No use
may be made of, on or from the Premises relating to the handling, storage,
disposal, transportation, or discharge of Hazardous Substances (as defined
below). All of such use which does occur shall be in strict conformance
with all Laws. Tenant shall give prior written notice to Landlord of any
use, whether incidental or otherwise, of Hazardous Substances on the
Premises, or of any notice of any violation of any Law with respect to
such use. Landlord and any ground lessor or master lessor of the Premises
and/or the Project shall have the right to request and to receive
information with respect to use of Hazardous Substances on the Premises in
writing.
In addition to the indemnity obligations contained elsewhere herein,
Tenant shall indemnify, defend and hold harmless Landlord, the other
Protected Parties, the Premises, the Project, and the beneficiary under a
trust deed, or a mortgagee, holding a security interest in the Project,
from and against all claims, losses, damages, costs, response costs and
expenses, liabilities, and other expenses caused by, arising out of, or in
connection with, the generation, release, handling, storage, discharge,
transportation, deposit or disposal in, on, under or about the Premises by
Tenant or any of Tenant's Agents of the following (collectively referred
to as "Hazardous Substances"): hazardous materials, hazardous substances,
toxic wastes, toxic substances, pollutants, petroleum products,
underground tanks, oils, pollution, asbestos, PCB'S, materials, or
contaminants, as those terms are commonly used or as defined by federal,
state, and/or local law or regulation related to protection of health or
the environment, including but not limited to, the Resource Conservation
and Recovery Act (RCRA) (42 U.S.C. (6901 et. seq.); the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) (42 U.S.C.
(9601, et. seq.); the Toxic Substances Control Act (15 U.S.C. (2601, et.
seq.); the Clean Water Act (33 U.S.C. (1251, et. seq.); the Clean Air Act
(42 U.S.C. (7401 et. seq.); and ORS Chapters 453, 465 and 466 as any of
same may be amended from time to time, and/or by any rules and regulations
promulgated thereunder. Such damages, costs, liabilities, and expenses
shall include such as are claimed by any regulating and/or administering
agency, any ground lessor or master lessor of the Project, the holder of
any Mortgage or Deed of Trust on the Project, and/or any successor of the
Landlord named herein. This indemnity shall include (a) claims of third
parties, including governmental agencies, for damages, fines, penalties,
response costs, monitoring costs, injunctive or other relief; (b) the
costs, expenses or losses resulting from any injunctive relief, including
preliminary or temporary injunctive relief; (c) the expenses, including
fees of attorneys and experts, of reporting the existence of Hazardous
Substances to an agency of the State of Oregon or of the United States as
required by applicable laws and regulations; (d) any and all expenses or
obligations, including attorney's and paralegal fees, incurred at, before
and after any trial or appeal therefrom of review thereof, or an
administrative proceeding of appeal therefrom or review thereof, whether
or not taxable as costs, including, without limitation, attorney's fees,
paralegal fees, witness fees (expert and otherwise), deposition costs,
photocopying and telephone charges and other expenses related to the
foregoing, all of which shall be paid by Tenant to Landlord when such
expenses are accrued. This indemnity shall survive the expiration or
earlier termination of the term of the Lease or the termination of
Tenant's right of possession and be fully enforceable thereafter.
g. Information. Tenant shall provide Landlord with any and all information
regarding Hazardous Substances in the Premises, including contemporaneous
copies of all filings and reports to governmental entities, and any other
information requested by landlord. In the event of any accident, spill or
other incident involving Hazardous Substances. Tenant shall immediately
report the same to Landlord and supply Landlord with all information and
reports with respect to the same. All information described herein shall
be provided to Landlord regardless of any claim by Tenant that it is
confidential of privileged.
29. SPACE PLAN.
Attached hereto as Exhibit "D" is a final approved space plan (the "Space
Plan") depicting the Premises as they shall be improved by Landlord prior to
delivery of possession to Tenant. As partial compensation to Landlord for the
cost of the Improvement shown on the Space Plan, Tenant shall pay to Landlord
the sum of $ . Such sum shall be paid by Tenant to Landlord prior to
start of construction.
TENANT: Sequent Computer Systems, Inc.
By: _____/s/Bob Witt_______________
BOB WITT
Its: VP Information Services & CIO
LANDLORD: PETULA ASSOCIATES, LTD., an Iowa corporation, and KOLL WOODSIDE
ASSOCIATES, a California general partnership, doing business as
KC Woodside
By: ____/s/ John N. Urban___________
JOHN N. URBAN
Its: Vice President
EXHIBITS
A - Premises
B - Project
C - Signs
D - (Deleted from this Lease.)
E - 1
FIRST AMENDMENT TO LEASE
That certain lease dated January 15, 1996 by and between PETULA ASSOCIATES,
LTD., an Iowa Corporation, and KOLL WOODSIDE ASSOCIATES, a California General
Partnership, Landlord, and SEQUENT COMPUTER SYSTEMS, INC., for the premises
located at 15125 S.W. Koll Parkway, Suite EFG, Beaverton, Oregon 97006, is
amended this 1st day of March, 1996 solely as hereinafter described.
Effective the 1st day of February, 1996, the clauses below are substituted for
like numbered clauses in the Lease Agreement.
1.e. Original Premises Area: 6,302 s.f.
Expansion Area: 2,282 s.f.
TOTAL Revised Premises Area: 8,584 s.f.
1.g. Premises Percent of Area: 6.55%
1.i. Revised Base Monthly Rent: $ 6,438
Effective the 1st day of June, 1996, the clauses below are substituted for
like numbered clauses in the Lease Agreement.
1.e. Original Premises Area: 8,584 s.f
Expansion Area: 3,561 s.f.
TOTAL Revised Premises Area: 12,145 s.f.
1.g. Premises Percent of Area: 9.27%
1.h. Term of Lease:
Original Expiration Date: 11/30/96
Revised Expiration Date: 5/31/99
1.i. Revised Base Monthly Rent:
6/l/96 - 5/31/97 $9,109
6/l/97 - 5/31/98 $9,352
6/l/98 - 5/31/99 $9,473
All other terms and conditions of said Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
date first written above.
LANDLORD: PETULA ASSOC., LTD., an Iowa Corporation, and
Koll Woodside Associates, a California general partnership,
DBA KC Woodside
_____/s/ Kurt D. Schaeffer__________
KURT D. SCHAEFFER
VICE PRESIDENT
TENANT: SEQUENT COMPUTER SYSTEMS, INC.
____/s/ Bob Witt____________________
By Bob Witt
Its VP IS/OS
SECOND AMENDMENT TO LEASE
That certain lease dated January 15, 1996 by and between PETULA ASSOCIATES,
LTD., an Iowa Corporation, and KOLL WOODSIDE ASSOCIATES, a California
General Partnership, Landlord, and SEQUENT COMPUTER SYSTEMS, INC.,
Tenant, for the premises located at 15125 S.W. Koll Parkway, Suite EFG,
Beaverton, Oregon 97006, is amended this 1st day of October, 1996 solely as
hereinafter described.
Effective the 1st day of October, 1996, the clauses below are substituted for
like number clauses in the Lease Agreement.
1.i Revised Monthly Base Rent:
02/01/96 - 08/31/96 $6,438
09/01/96 - 09/30/96 $7,150
10/01/96 - 05/31/97 $9,109
06/01/97 - 05/31/98 $9,352
06/01/98 - 05/31/99 $9,473
All other terms and conditions of said Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
date first written above.
LANDLORD: PETULA ASSOC., LTD., an Iowa Corporation, and
Koll Woodside Associates, a California general partnership,
DBA KC Woodside
____/s/ Bill Bramwell________________
BILL BRAMWELL
SENIOR REGIONAL ASSET MANAGER
COMMERCIAL REAL ESTATE EQUITIES
DATE: 11/8/96
TENANT: SEQUENT COMPUTER SYSTEMS, INC.
____/s/Bob Witt______________________
By Bob Witt
Its VP Occupancy
DATE: 10/17/96
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 82,634,000
<SECURITIES> 0
<RECEIVABLES> 212,558,000
<ALLOWANCES> 2,806,000
<INVENTORY> 74,491,000
<CURRENT-ASSETS> 397,454,000
<PP&E> 292,234,000
<DEPRECIATION> 158,396,000
<TOTAL-ASSETS> 612,009,000
<CURRENT-LIABILITIES> 214,026,000
<BONDS> 16,503,000
0
0
<COMMON> 342,000
<OTHER-SE> 374,467,000
<TOTAL-LIABILITY-AND-EQUITY> 612,009,000
<SALES> 414,418,000
<TOTAL-REVENUES> 595,362,000
<CGS> 197,702,000
<TOTAL-COSTS> 337,685,000
<OTHER-EXPENSES> 244,802,000
<LOSS-PROVISION> 317,000
<INTEREST-EXPENSE> 2,845,000
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