-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUH7cQggPmI4Ick0XFPPtoSa9xfb2ECwuWZjfDAICpSZKLTAfwxRzf37VKLhgmEb r9bcWt0nnPyUd1Kf5DyJCw== 0000950109-95-003921.txt : 19951002 0000950109-95-003921.hdr.sgml : 19951002 ACCESSION NUMBER: 0000950109-95-003921 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEQUOIA SYSTEMS INC CENTRAL INDEX KEY: 0000724621 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 042738973 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18238 FILM NUMBER: 95576096 BUSINESS ADDRESS: STREET 1: 400 NICKERSON RD CITY: MARLBORO STATE: MA ZIP: 01752 BUSINESS PHONE: 5084800800 MAIL ADDRESS: STREET 1: 400 NICKERSON ROAD CITY: MARLBORO STATE: MA ZIP: 01752 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 1995 Commission File Number 0-18238 SEQUOIA SYSTEMS, INC. --------------------- (Exact Name of Registrant as Specified in its Charter) DELAWARE 04-2738973 - -------- -------------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 400 Nickerson Road, Marlborough, Massachusetts 01752 - ---------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (508) 480-0800 -------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.40 per share --------------------------------------- Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Page 1 of ____ pages Exhibit Index appears on p.38. --- The approximate aggregate market value of the voting stock held by non-affliates of the registrant, computed by reference to the closing sales price of such stock quoted on the Nasdaq on August 15, 1995, was $77,702,723 The number of shares outstanding of the Registrant's common stock, $.40 par value per share, as of August 15, 1995 was approximately 15,289,856. DOCUMENTS INCORPORATED BY REFERENCE The following document is incorporated by reference in the following part of this Form 10-K: information required in Items 10, 11, 12 and 13 Part III, of this Annual Report on Form 10-K is incorporated from the Proxy Statement relating to the 1995 annual meeting of stockholders of the Company. 2 PART I ITEM 1. BUSINESS Sequoia Systems, Inc. ("Sequoia" or the "Company") designs, manufactures and markets differentiated computer systems, servers, microcomputers and central processor unit ("CPU") boards for critical information processing environments that require the highest degree of data reliability and availability. These products are based on industry standard components from the Intel Corporation ("Intel"), Sun Microsystems, Inc. and Motorola Inc., with Sequoia-developed technology added to provide fault tolerance and ruggedness as required by the application or user environment. The Company supports its customers with a full range of services, including professional services and hardware and software maintenance support. On March 31, 1995, the Company completed a merger and stock purchase pursuant to which the Company acquired all of the common stock of SPCO, Inc., along with its subsidiaries Texas Microsystems, Inc. and Texas Micro Electronics, Inc. and their respective subsidiaries ("the TMI Group"). The Company issued 5,272,944 shares of its common stock in exchange for all the common stock and securities to acquire the common stock of each of the members of the TMI Group. The Transaction has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements for all comparative periods have been restated to include the results of operations, the financial position and cash flows of the TMI Group. Sequoia was incorporated in Delaware in September, 1981. Sequoia's principal executive offices are located at 400 Nickerson Road, Marlborough, Massachusetts 01752. The Company's telephone number is (508) 480-0800. Industry Background In January 1995, the Standish Group, an industry research organization, published a report on the need for computer system availability within MIS operations in the United States. Their results stated that the "... demand for around the clock IT (information technology) operations is being fueled by the need to meet customer requirements and meet or beat the competition." According to the Standish Group survey, 12.1% of Enterprise applications currently run 24 hours a day. This proportion will increase two fold by 1996 to 24.9%. Nearly one-third of these applications will require almost constant availability, i.e., a maximum allowable downtime of 0 to 3 seconds in any given day. 3 Many of these computers must also operate in unusual environments -- somewhere other than a desktop or a computer room. Today, computers are being used more frequently in field environments and on factory floors -- places where information is increasingly being put into digitized form onto computers. The need to quickly and accurately process information in these environments is often no less pressing than within a traditional corporate MIS environment. Therefore, the computers used in the field and on the factory floor must be environmentally rugged enough to withstand the conditions that typically exist in these environments -- greater extremes of vibration, temperature, dust, humidity, etc. Accordingly, the Company believes that continuous system availability and data integrity is an increasingly important requirement to business enterprises of all sizes. Sequoia meets this need with fault-tolerant and high availability products and ruggedized microcomputers. Company Strategy Sequoia operates in the computer hardware segment of the industry, while specifically addressing expanding market requirements for greater system availability. Sequoia provides Motorola-based and Intel-based systems and upgrade products for the on-line transaction processing market ("OLTP") and for interactive computing environments. With the acquisition of Texas Microsystems, Inc., Sequoia's expanded business lines also include ruggedized, mission- critical computers, both SPARC and Intel-based, for the industrial market, as well as Bellcore Network Equipment Building Specifications ("NEBS") compliant products specifically designed for the telecommunications market. Sequoia also makes its open systems technology available to global partners through licensing agreements. The objective of these licensing agreements is to take advantage of the greater research and development capabilities of such partners to produce expanded features that can broaden the market for Sequoia's computer products. Sequoia's business strategy incorporates the following key elements: Product Differentiation ----------------------- Sequoia differentiates its products from commercial computers marketed by larger competitors by focusing on market niches where highly available hardware is required to meet the more rigorous demands of the application. Sequoia has applied fault-tolerant and ruggedization strategies to systems and desktop personal computers ("PC"s) and has adapted SPARC workstations and PC's to the NEBS central office telecommunications environment. 4 Focus on Targeted Vertical Markets ---------------------------------- Sequoia has focused on a limited number of vertical markets. In particular, Sequoia has developed strong customer relationships through both Value Added Reseller ("VAR") and Original Equipment Manufacturer ("OEM") channels in the telecommunications, industrial, health care claims processing, retail distribution and financial services markets. Technology Licensing and Strategic Partnerships ----------------------------------------------- Sequoia licenses its patented fault-tolerant technology to companies in computer-related industries. Prospective candidates for the licensing of Sequoia's technology are companies that desire or need greater reliability in their computer-related hardware or software products. These companies recognize that a growing number of their customers depend on their products for continuous access to accurate information. Sequoia's current licensing arrangements include Toshiba Corporation, Samsung Electronics Co., Ltd. and Novell, Inc. Sequoia intends to seek opportunities to form additional strategic alliances, including potential acquisitions. Customer Support, Training and Professional Services ---------------------------------------------------- Sequoia's Customer Service Operation has a 24-hour, seven-day a week, worldwide telemaintenance and support capability whereby customer Enterprise systems are continuously monitored by various support systems. Technical support operations also provide telephone troubleshooting service for end user customers and distributors. Sequoia offers a broad array of training and other professional services to assist its customers in maximizing the return on their investment in Sequoia's products. Products Sequoia develops, markets, sells, manufactures, and services systems that meet critical business requirements for Enterprise computing. Sequoia also provides ruggedized microcomputers and components that can withstand harsh conditions. Today's products range from ruggedized microcomputers and components, primarily Intel and SPARC-based, to larger Enterprise systems that are migrating from Motorola 68040-based to Intel-based microprocessors. In fiscal 1996, Sequoia will begin offering Intel-based, highly available Enterprise systems which are designed to recover quickly from failures with a minimum loss of data. Enterprise Server Products -------------------------- Sequoia's fault-tolerant and highly available systems are based on industry- standard technologies combined with patented fault-tolerant techniques to address the needs of the OLTP market. The requirement for immediate access to data created the market for OLTP systems. In order to address the needs of a distributed computing environment, Sequoia is expanding its product line to newer technologies based on Intel microprocessors. Intel-based Enterprise systems, which can be used as a server in a client/server distributed 5 computing network, will allow Sequoia to provide industry-standard products compatible with all major databases and software applications, increasing Sequoia's market opportunities. Sequoia's Enterprise systems include the following features: Industry-Standard Compatibility ------------------------------- By using industry-standard components (such as Motorola and Intel microprocessors), operating systems (UNIX), database technologies (Pick), communications and peripheral devices and protocols (X.25, Ethernet), Sequoia's systems can be integrated easily into a wide variety of computing environments and can support new technologies and services without significant system redesign. System Architecture, Modularity and Expandability ------------------------------------------------- The architecture of Sequoia's fault-tolerant systems is designed to provide the user with continuous and reliable computer availability and to address the high performance requirements of computer-intensive, on-line applications. Sequoia's Series 500 and 440 systems achieve fault tolerance and high performance with a tightly coupled symmetric multiprocessing architecture consisting of multiple processors that share memory and are managed by a single operating system, based on UNIX. Through this design, tasks are automatically and efficiently distributed over all available processors, which allows the Sequoia platform to support a large number of users. The Sequoia architecture enables customers to expand incrementally the processing power and capacity of their systems by adding processors, memory elements and peripheral devices as needed. Sequoia's Intel-based systems can also be tailored to handle a large number of users, simply by adding the appropriate disk capacity, memory and terminals. Data Integrity -------------- Sequoia's Series 500 and 440 fault-tolerant hardware design, coupled with Sequoia's UNIX-compatible operating environment are designed to provide continuous system availability and data integrity. If a hardware fault is detected, the faulty module is automatically taken out of service and the operating system returns the system to normal operations without loss of data or program continuity. If the error was due to a transient fault, the module is returned to service. The detection, isolation and correction of the fault all occur automatically without requiring the user's intervention. Operating Systems ----------------- Sequoia's Series 500 and 440 are Motorola-based products based on TOPIX, Sequoia's proprietary version of the UNIX operating system. Although UNIX was originally developed to work with standard uniprocessor systems, Sequoia designed TOPIX for high-performance OLTP applications in a symmetric multiprocessor fault-tolerant environment, while still adhering to the industry standards defined for UNIX. Sequoia's SES100/110 Intel-based products will run in SEQUOIApro, a native Pick mode operating environment. 6 Product Line Models ------------------- Sequoia's current computer system product lines include the fault-tolerant Motorola-based Series 440, Series 500 and the high reliability Intel-based Sequoia Enterprise Servers, models 100 and 110. In a fault-tolerant system, all faults are detected, isolated and fully recovered, transparent to the end-user applications. Faults can range from transient power fluctuations to hardware component failures; data storage device outages to communications line errors; known software 'panics' to transient error conditions within the operating system. A fault-tolerant system will protect the end-user from an interruption in application processing.. Sequoia currently addresses high reliability by engineering robust systems with higher mean-time-between-failure ("MTBF") characteristics and lower mean-time-to-repair ("MTTR") features. The Series 440 system is the successor to Sequoia's Series 100, Series 200, Series 300 and Series 400 systems. The Series 440 is a complete computer system consisting of electronics, peripherals, communications interfaces and system software. The Series 440 is based on the Motorola 68040 microprocessor. The Series 500, a successor of the S40, and also based on the Motorola 68040 microprocessor, offers a lower priced entry to fault-tolerant systems, as well as a number of new operating features. The Sequoia Enterprise Server SES/100, Intel-based, is a mini-tower computer designed to maintain high reliability for critical applications. It contains a passive back-plane, allowing easy enhancements to the system performance and upgradability. The Sequoia Enterprise Server SES/110 tower computer, also Intel-based, provides greater expansion capabilities over the SES/100. It is intended for those sites requiring large disk capacity and flexibility in peripheral selection. The end-user list price of a Series 440 ranges from approximately $300,000 to more than $5,000,000, depending upon the configuration. The Series 500 base configuration starts at $86,000. The Sequoia Enterprise Servers, SES/100 and SES/110, range from an entry level average list price of $17,500 to $70,000 at the high end of the configuration. Sequoia typically offers discounts from its list prices to resellers and customer in order to meet competitive conditions. Ruggedized Products -------------------- Sequoia focuses its ruggedized products on critical applications in the industrial and telecommunications markets. Characterized by rigorous environments and the need for unattended, uninterrupted operations, Sequoia's Intel and SPARC based microcomputers are designed to withstand wide temperature ranges, shock, vibration, dirty air, moisture and electromagnetic and radio frequency interference ("EMI/RFI"). Sequoia has adapted SPARC technology that is NEBS compliant and is the leading supplier of SPARC based products to the telephone central office industry. Sequoia has also developed ruggedized mobile and vehicle mounted computers and has broadened its market opportunities by 7 developing a range of fault-tolerant features for the PC. These ruggedized products platforms feature: Industry Standard Compatibility ------------------------------- The Company's passive backplane PC's are fully compatible with standard PC operating systems, peripherals and application software. SPARC based products are also fully compliant with Sun Microsystems operating systems and peripherals. Modularity ---------- The Intel-based passive backplane systems provide for much greater expandability than the generic motherboard. These systems can be configured with from 5 to 20 expansion slots depending on chassis selection, with a wide range of supporting peripherals. Scaleable Growth ---------------- Ruggedized products are available in industry standard rackmount configuration with many options such as expansion chassis and disk farms. Typical customers will employ multiple rackmounted systems in a configuration where scalability is achieved by adding additional modules as needed. High Reliability ----------------- Sequoia addresses high reliability and availability by engineering robust systems with higher mean-time-between-failure ("MTBF") characteristics and lower mean-time-to-repair ("MTTR") features. The Company is currently developing technology that will provide sub-second failover capability to the ruggedized microcomputer platform. Product Line Models ------------------- Sequoia manufactures a broad line of ruggedized PC compatible products, including rackmount system platforms and boards, for use in data acquisition, process control, embedded control, and other applications requiring resistance to shock, temperature extremes, dust, or humidity. Ruggedized system products for the industrial markets consist primarily of rackmount platforms which offer different combinations of expansion slots, disk capacity, alarming capability, power options, and a choice of processors. Systems may also include various video, I/O, or communication expansion cards which are sourced from outside vendors. These products are offered at a wide range of price points depending on configurations. Rackmount platforms are also specially designed for the telecommunications marketplace. The 9610 and 9620 families are based on SPARC based boards purchased from SUN Microsystems. These platforms are designed and tested to stringent NEBS specifications required for installation into telephone central office facilities, and are often 8 attached to telephone 'switches' as Intelligent Peripherals. These platforms sell at prices from $12,000 to $80,000 depending on CPU speed, memory, and storage configuration. Board level products include 386, 486, and Pentium based CPUs, with new generations to be introduced in the future. These CPUs are embedded into manufactured system products and are also sold as components to be integrated into specialized platforms by customers. Depending on specifications, these board level products sell at prices from $300 to $2500. On February 1, 1995, the Company acquired certain assets of Intel related to Intel's OmniRACK and XpressRACK product lines. These systems are usually configured with either manufactured system boards or motherboards purchased from Intel. Marketing, Sales and Customers Through June 30, 1995, Sequoia has collectively shipped more than 370 Enterprise level systems and 110,000 PC based systems or complements of chassis and CPU boards, with additional components such as memory boards and processor expansion units, to more than 5,000 customers worldwide. In recent years, for the Enterprise systems Motorola-based product line, Sequoia has focused its sales and marketing efforts in three primary markets: (i) health maintenance organizations which typically use Sequoia systems for administrative services; (ii) retail wholesalers and telemarketers which use Sequoia systems to support order processing and inventory control requirements; and (iii) financial services organizations which typically use Sequoia systems for customer applications such as credit card or mortgage processing. The Company's ruggedized products primarily serve two markets: industrial and telecommunications. In these markets, the products are most frequently used in "mission-critical" or "job-critical" applications where reliability, availability and/or data integrity are essential to the enterprise. Sequoia believes that the growing need for extremely dependable microcomputers will make "mission-critical" applications one of the most rapidly expanding sectors of the microcomputer industry. For the industrial PC market, Sequoia provides microcomputers that operate reliably in harsh industrial environments, allowing them a significant role in process control, discrete manufacturing and data acquisition. The systems and board-level products are used in applications that often have government- mandated requirements for up-to-the-minute reporting of data, such as environmental safety information, financial data or transit monitoring. 9 For the telecommunications market, the central office environment has very rigorous standards for operating equipment. Telecommunications computer systems in the U. S. must be NEBS compliant including 48-volt power, heat and dust protection, earthquake resistance, alarming and remote monitoring features. Because of its experience in designing and building reliable rack-mounted systems that operate under harsh conditions, Sequoia believes that the telecommunications industry presents significant opportunities for its products. The markets for NEBS compliant SPARC and Intel based products and ruggedized Intel based products are characterized by rapidly changing technology and user needs, requiring significant investment for product development. Sequoia believes that part of its success in the future will depend upon its ability to develop, manufacture and market products which meet changing user needs in these markets and which successfully respond to technological changes in architectural standards in a cost-effective and timely basis. Sequoia markets its products through a combination of its direct sales organization, distributors, Value Added Resellers (VAR's)/ Value Added Distributors (VAD's), System Integrators (SI's), and Original Equipment Manufacturers (OEM's). VAR's generally package Sequoia Enterprise Servers with other hardware or applications programs for resale to end-users. Sequoia generally appoints VAR's and resellers which target particular applications or vertical markets, or cover certain geographies. At the end of fiscal 1995, over 25 VAR's Enterprise server products and over 1,000 resellers were under contract to sell ruggedized products. Internationally, Sequoia sells through a combination of direct sales and distributors. Sequoia has approximately 40 distributors in over 25 countries including the United Kingdom, the Netherlands, Germany, Israel and Australia. During fiscal 1995, sales to one customer, DSC Communications Corporation, represented 13% of total revenues. For the previous fiscal year, there were no sales to any customer that represented over 10% of total revenues. The Company believes that certain VAR's in the healthcare market and a select number of customers in the telecommunications market will continue to represent a substantial portion of overall sales. Changes in Sequoia's relationship with, performance by or loss of such customers could have a significant effect on the Company's revenues and operating results. 10 Competition Competitors of Sequoia vary among the products offered by the Company. Sequoia's Enterprise Systems and fault-tolerant products compete in the 10 to 2,000-plus user range of the on-line transaction processing, open systems market. Sequoia therefore competes against other fault-tolerant companies and against a wide range of open systems non fault-tolerant companies which market their products as achieving high availability. The majority of Sequoia's customers for the Enterprise Server business use the Pick database. For fault tolerant products, Sequoia's primary competitors are Tandem Computers Incorporated and Stratus Computer, Inc. Sequoia believes that it competes effectively in the fault-tolerant market on the basis of its system architecture, price/performance attributes, its version of the UNIX operating system and use of industry standard hardware and software. In the broader general purpose non fault-tolerant marketplace, Sequoia's primary competitors include Hewlett-Packard, Sequent, Data General, Digital Equipment Corporation ("Digital"), IBM and Siemens. Sequoia's ruggedized systems and board level products compete in the industrial market with the products of Diversified Technology, Industrial Computer Source and I-Bus and, to a lesser extent, IBM and others in the United States and with Siemens A.G. and others in Europe. In the telecommunications market, the Company competes with Digital, Motorola, Tandem, Stratus and Hewlett-Packard, as well as several smaller companies. Sequoia believes that it competes effectively based on its engineering responsiveness to special needs and the price/performance characteristics and hardware specialization of its products. These attributes help offset the greater recognition and broader service and support resources of the Company's larger competitors. The computer marketplace is highly competitive and is characterized by rapid changes and improvements in technology. Many of Sequoia's competitors have significantly greater financial, marketing and technological resources than Sequoia. There can be no assurance that Sequoia will have the resources necessary to compete successfully in the future. Product Development Development efforts are focused on providing users with an open systems environment and a broad range of fault tolerance and ruggedized features up to and including total system availability. Sequoia's engineering strategy is to continue to develop fault-tolerant and ruggedized capabilities that can be added to industry-standard technologies. Through this product development strategy Sequoia is able to provide industry-standard products that are compatible with all standard software and hardware environments, but provide a 11 much greater degree of system availability to users by focusing on reliability, availability and data integrity as core features. Product development at Sequoia will build on the portfolio of fault tolerant patents developed by the Company since 1985. Sequoia will continue to advance new passive backplane technology, introducing the latest versions of Pentium and next generation (P-6) Intel CPUs. Projects for the coming year include the introduction of a new ruggedized hand held PC; the development of a symmetric multiprocessing version of Intel's P-6 CPU in a passive backplane architecture; and the prototyping of a new telecommunications platform based on a SPARC multiprocessor that will employ Sequoia's "memory check pointing" failover technology. Technology Licensing and Strategic Alliances An element of Sequoia's strategy is to enter into strategic alliances to help achieve important goals: the licensing of Sequoia's technology; the acquisition of additional technology for sale with its systems; and the development of additional product and distribution capabilities. Sequoia currently has strategic alliances with Samsung Electronics Co., Ltd. ("Samsung"), Toshiba Corporation ("Toshiba") and Novell, Inc. ("Novell"). Sequoia intends to seek opportunities to form additional strategic alliances, including potential acquisitions. Sequoia's ability to achieve its goals will depend in part on the ability of current licensees, and the willingness of future licensees, to develop products that may be marketed and sold by Sequoia, or which will provide license fees or royalty income for Sequoia. There can be no assurance that Sequoia will be successful in obtaining new licensees or that any such licensees will successfully develop products that achieve market acceptance. Samsung ------- In September 1993, Sequoia and Samsung entered into new agreements that expanded upon and superseded original OEM and product development and technology license agreements which had been signed in 1990. These agreements have a term of five years and may be extended by mutual agreement. Sequoia has granted Samsung rights to use certain Sequoia technology in the development of an enhanced Series 40 system and future products. Samsung has agreed to pay Sequoia royalties with respect to its sales of Series 40 systems (other than sales to Sequoia), and sales of future products which are based on Sequoia's Motorola-based technology, subject to a credit of up to $4,800,000 for Samsung's initial manufacturing license fee and development costs. Sequoia, at its option, may act as Samsung's maintenance provider for Series 400 and Series 40 products worldwide, except in Korea. 12 Toshiba ------- Sequoia and Toshiba entered into a development, manufacturing and distribution agreement in December 1991, subsequently amended in April 1994, under which Sequoia and Toshiba agreed to use Sequoia technology to jointly develop a new computer system based on SPARC. Sequoia granted Toshiba exclusive distribution rights in Japan for this SPARC-based system and retained exclusive rights to distribute this SPARC-based system outside of Japan. In October 1994, Toshiba informed Sequoia that it had modified its development plans and would develop a new fault-tolerant computer system based on the Power PC microprocessor instead of the SPARC microprocessor as had been planned. Sequoia has granted Toshiba a non-exclusive license to use existing Sequoia technology in the development of such systems in consideration of a non- refundable license fee which was completely paid during the fiscal 1994 and 1995. New technology developed in the course of the development of the systems will be jointly owned by Sequoia and Toshiba. Sequoia has the option to manufacture such jointly-developed products or to purchase them from Toshiba on an OEM basis for distribution outside of Japan. The agreement has an initial term of five years from January 1992, with an automatic renewal period of one year unless terminated by either party. Novell ------ In April 1994, Sequoia signed a software development cooperation agreement with Novell's UNIX System Laboratories ("USL"). Under this agreement, Sequoia will work with USL and other USL partners to incorporate certain of Sequoia's fault-tolerant features into future releases of Novell's microkernel-based UNIX operating system. When completed, these future UNIX releases will be compatible, without further modification, with Sequoia's procedures for recovering from detected hardware and software faults. Subsequently, Sequoia believes that it would be able to offer the latest UNIX releases on its products as soon as such releases become available from Novell This could potentially open new opportunities to offer selected modules of its fault-tolerant technology to other distributors and users of USL's UNIX products, including the industry leading companies in the client server market. Novell has recently announced that it is selling its Unix business to the Santa Cruz Operation, Inc. ("SCO") in a business relationship that also includes Hewlett-Packard Company. If Novell, or assuming the consummation of this transfer, SCO, does not include Sequoia's fault-tolerant software in a future release of the UNIX operating system, or if the Novell implementation of UNIX containing the Sequoia fault-tolerant software fails to achieve significant market acceptance, Sequoia's growth opportunities will be diminished. 13 Customer Service and Support Sequoia provides service, training and technical support to its customers in varying degrees depending both on the product line and on customer contractual arrangements. Sequoia's Motorola-based fault tolerant systems provide immediate fault detection, isolation and correction. These functions are designed to take place automatically, without requiring the user's intervention and while the system continues operating. When a faulty component is detected, the system removes the component from service, ensuring that no corrupted data will affect the rest of the system. An electronic message is automatically sent to Sequoia's customer support center by the malfunctioning system to report the error condition. The system tests the isolated component and, if the system determines that the fault is transient, the component is added back into the system. System use is not disrupted during the course of this activity. For permanent faults, either a component is dispatched via overnight delivery for customer replaceable units or a field service engineer is dispatched to the customer's site to install the part. In either case, the system assesses the remaining resources, balances the work load among them automatically and continues operating. The architecture of the Motorola-based systems and the recently-announced Intel-based systems allow Sequoia to utilize telemaintenance to perform many of the tasks that must be performed by on-site field service engineers for other systems. Telemaintenance, which consists of hot-line support, system monitoring, remote diagnosis, operating system support and downloading, is provided by Sequoia's customer support center. This enables Sequoia to minimize labor costs by reducing the number of on-site visits. For the Intel and SPARC based product lines, the technical support operations provide initial technical telephone troubleshooting service for end user customers and distributors. These services include isolating and verifying product failures, authorizing product returns, tracking completion of repaired goods in support of customer requirements and maintaining a Bulletin Board. Sequoia generally provides end-user purchasers of its systems with a 90-day to two year warranty depending on the product line. Sequoia customer service maintains a spares inventory to support the customer base. Sequoia offers a variety of service agreements to its end-user customers and resellers for ongoing system support. Customers whose systems are under warranty or service agreements are entitled to receive telemaintenance services. Sequoia also provides technology migration, system optimization, network services, and training programs to customers on a fee basis. 14 Manufacturing Sequoia manufactures in two locations: . Motorola-based products in Marlborough, Massachusetts . Intel and SPARC-based products in Houston, Texas At its headquarters in Marlborough, Massachusetts, Sequoia's manufacturing process for its Motorola-based products consists primarily of assembly, testing and quality control. The production of printed circuit boards is subcontracted and the boards are then incorporated into Sequoia's systems. Sequoia produces standard subsystems which are tailored to customers' specific configurations when purchase orders are received. This method of manufacturing enables Sequoia to respond quickly to customer needs while maintaining a high level of quality. The Sequoia Enterprise Servers, the Intel-based models 100 and 110, as well as its ruggedized low-volume Intel board-level and system products, are manufactured in Houston, Texas. High-volume component manufacturing is subcontracted to independent manufacturers. Sequoia purchases from other manufacturers substantially all peripheral devices and components used in its products. Most of the components and peripherals are available from a number of different suppliers, although certain major items are procured from single sources. The Company believes that alternative sources could be developed for such single-source items, if necessary; however certain peripheral or component shortages, should they occur, could have an adverse affect on the Company's business. Key components used in Sequoia systems for which alternative sources are not readily available are the Motorola and Intel microprocessors, SPARC-based CPUs, and power supply components for certain products from Elgin E2, Inc. Any delay or inability to obtain these components at any time could adversely affect Sequoia's business. Certain products are manufactured pursuant to a patent license from IBM under which the Company pays specified royalties. The Company relies on several key contract manufacturers for the manufacture of several high-volume components used in the assembly of its ruggedized products. Although such subcontracting arrangements offer cost advantages, and would eliminate the need to incur certain capital expenditures associated with manufacturing, reliance on third-party manufacturers gives the Company less control over the manufacturing process for these components than if it undertook such activities itself. Any failure of such subcontractors to manufacture and deliver components as planned, or any problems with the quality of such components, could have a material adverse effect on the Company's operations. 15 Proprietary Rights Sequoia owns nine United States patents and 53 foreign patents. Other United States and foreign patent applications are pending. While Sequoia believes that its patents provide it with protection for its products and the processes through which its systems achieve fault tolerance, Sequoia also believes that such patents may be of less significance to its future success than such factors as innovation, technical skill and management ability and experience. In addition, Sequoia relies on copyright protection and its trade secret program to protect aspects of its proprietary technology. Employees As of June 30, 1995, Sequoia employed 443 people, including 141 in sales, marketing and administration, 120 in research and development and related engineering activities, 52 in customer service and support, and 130 in manufacturing. Sequoia believes that its future success will depend in part upon its continued ability to attract and retain highly qualified managerial, technical, sales, marketing, support and manufacturing personnel. Competition in recruiting technical, marketing and sales personnel in the computer industry is often intense. None of Sequoia's employees is represented by a labor union, and Sequoia considers its employee relations to be good. Backlog At June 30, 1995, the Company had an unfilled order backlog of approximately $8.7 million, which was subject to shipment in the subsequent fiscal quarter, as compared to $5.3 million at June 30, 1994. This backlog consists primarily of orders which were taken in the fourth quarter and are shipped according to specific customer-scheduled requests. Seasonality Although the Company does not consider its business to be highly seasonal, the Company in general experiences seasonally lower sales and earnings in the first quarter of the fiscal year which is affected by the U.S. and Europe summer slowdowns for business capital purchases. 16 ITEM 2. DESCRIPTION OF PROPERTIES The Company occupies two primary facilities in the U.S. for administrative, manufacturing, marketing and sales, warehousing and research and development functions consisting of approximately 85,000 square feet in Marlborough, Massachusetts and 105,000 square feet in Houston, Texas. The Company occupies these premises under leases expiring in 1997 and 2000, respectively. The Company leases ten additional offices, primarily for sales and services, in various locations throughout the United States. The Company also leases space for sales and service offices in the United Kingdom, the Netherlands, Germany, Australia and Japan. The Company's aggregate annual rental expense for these facilities for the fiscal year ended June 30, 1995 was approximately $2,098,000. The Company believes that its current facilities are adequate for its near term requirements. See Note 6 of Notes to Consolidated Financial Statements for additional information regarding the Company's lease obligations. ITEM 3. LEGAL PROCEEDINGS On May 8, 1992, the Securities and Exchange Commission notified the Company that the Commission had begun an informal investigation with respect to the Company's revenue recognition policies. On September 28, 1992, after receiving certain documentation and information requested from the Company, the Commission notified the Company that the Commission had entered a formal order of investigation with respect to these matters. On February 16, 1995, the Company and the Commission entered into a settlement agreement, subsequently approved by the U.S. District Court for the District of Columbia, pursuant to which the Company consented to the issuance of an injunction against it prohibiting future violations of certain securities laws and regulations, and the Company was not required to pay any fines or make any other payments. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company, through solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended June 30, 1995. 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been traded on the Nasdaq National Market under the symbol SEQS since March 1990. The following table reflects, for the fiscal quarters indicated, the high and low closing sales prices of the Company's Common Stock as reported on the Nasdaq National Market, in each case, based on published financial sources.
HIGH LOW ---- --- Fiscal 1993 Quarter ended September 27, 1992 $ 8.875 $ 5.000 Quarter ended December 27, 1992 $ 7.000 $ 1.375 Quarter ended March 28, 1993 $ 3.813 $ 1.625 Quarter ended June 30, 1993 $ 3.000 $ 1.750 Fiscal 1994 Quarter ended October 3,1993 $ 3.500 $ 1.750 Quarter ended January 2, 1994 $ 6.000 $ 2.750 Quarter ended April 3, 1994 $ 6.843 $ 3.9375 Quarter ended June 30, 1994 $ 5.875 $ 3.250 Fiscal 1995 Quarter ended October 2,1994 $ 5.875 $ 3.500 Quarter ended January 1, 1995 $ 4.750 $ 3.250 Quarter ended April 2, 1995 $ 4.3125 $ 3.500 Quarter ended June 30, 1995 $ 4.5625 $ 3.750
On August 15, 1995 the closing price of the Company's Common Stock as reported by Nasdaq on the National Market was $7.125 per share. As of August 15, 1995, there were approximately 638 holders of record of the Company's Common Stock. Except for a mandatory dividend in respect of the Company's former Series A Convertible Preferred Stock, the Company has not paid any dividends since its inception and does not intend to pay any cash dividends on its Common Stock in the foreseeable future. 18 ITEM 6 SELECTED FINANCIAL DATA The following selected financial data is qualified by reference to and should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth below. SELECTED FINANCIAL DATA (In thousands, except per share data) Consolidated Statements of Operations
YEARS ENDED JUNE 30, ------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Revenues $104,039 $91,826 $81,323 $100,015 $94,720 Cost of revenues 57,079 48,009 46,867 48,505 46,726 ------ ------ ------ ------ ------ Gross profit 46,960 43,817 34,456 51,510 47,994 Research and development expenses 13,044 11,621 15,104 17,774 12,635 Selling, general and administrative expenses 28,052 22,053 31,187 37,083 28,402 Restructuring charge (credit) - (1,109) 13,990 - - -------- ------ ------ -------- ------- Income (loss) from operations 5,864 11,252 (25,825) (3,347) 6,957 Other income (expense), net 373 (113) (4,715) (484) 681 -------- -------- -------- --------- ------- Income (loss) before provision for income taxes 6,237 11,139 (30,540) (3,831) 7,638 -------- -------- -------- --------- ------- Provision for income taxes 960 658 512 (183) 2,144 -------- -------- -------- --------- ------- Income before cumulative effect of change in accounting principle 5,277 10,481 (31,052) (3,648) 5,494 Cumulative effect of change in accounting principle - - 171 - 160 -------- -------- -------- --------- ------- Net income (loss) $5,277 $10,481 ($30,881) ($3,648) $5,654 ======== ======== ======== ========= ======= Net income (loss) per share $0.34 $0.69 ($2.23) ($0.27) $0.39 ======== ======== ======== ========= ======= Weighted average number of common and common share equivalents outstanding 15,565 15,103 13,829 13,528 14,353
See Notes 1 and 8 of Notes to Consolidated Financial Statements for discussion on the restructuring charge / credit and class action lawsuit settlement provisions. 19 The following information may be utilized in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations
Percent of Revenues For the years ended June 30, Year to Year Percent Change 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- 100% 100% 100% Revenues 13% 13% (19%) 55% 52% 58% Cost of revenues 19% 2% ( 3%) ----- ----- ----- ----- ------ ------- 45% 48% 42% Gross profit 7% 27% (33%) 13% 13% 19% Research and development 12% (23%) (15%) Selling, general and 27% 24% 38% administrative expenses 27% (29%) (16%) - ( 1%) 17% Restructuring charge (credit) N.M N.M N.M ----- ----- ----- ----- ------ ------- Income (loss) from 6% 12% (32%) operations (48%) N.M. N.M. - - ( 6%) Other income (expense) N.M. N.M. N.M. 6% 12% (38%) Income (loss) before taxes (44%) N.M. N.M. 1% 1% 1% Provision for income taxes 46% N.M. N.M. 5% 11% (38%) Net Income (Loss) (50%) N.M N.M ===== ===== ===== ===== ====== =======
N.M. = Not Meaningful 20 Consolidated Balance Sheets (In thousands) AS OF JUNE 30,
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Working capital $29,884 $26,270 $13,266 $37,974 $43,259 Total assets $52,241 $50,409 $46,162 $69,195 $74,563 Short-term debt including current portion of long-term debt $125 $2,484 $6,611 $3,552 $3,361 Long-term obligations $56 $1,835 $4,225 $4,654 $5,792 Stockholder's equity $35,326 $29,484 $15,844 $46,253 $48,687
21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On March 31, 1995, the Company completed a merger and stock purchase (the "Transaction") pursuant to which the Company acquired all of the common stock of SPCO, Inc., along with its subsidiaries Texas Microsystems, Inc. and Texas Micro Electronics, Inc. (collectively, the "TMI Group"). The Company issued 5,272,944 shares of its common stock in exchange for all the common stock and securities to acquire the common stock of each of the members of the TMI Group. The Transaction has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements for all comparative periods have been restated to include the results of operations, the financial position and cash flows of the TMI Group. The Company provides Motorola-based systems and upgrade products for on-line transaction processing and other interactive applications in which system availability, fast response times and data integrity are critical. With the acquisition of the TMI Group, the Company's expanded business lines also include ruggedized, mission-critical computers, both SPARC and Intel based, for the industrial market and Bellcore Network Equipment Building Specifications ("NEBS") compliant products specifically designed for the telecommunications market. As a leading supplier of ruggedized and mission critical computers from the desktop to the mainframe, the Company operates in one segment, computer systems, and addresses expanding market requirements for greater system availability. RESULTS OF OPERATIONS YEARS ENDED JUNE 30, 1995 AND 1994 REVENUES -------- The Company's revenues increased by 13% to $104,039,000 for fiscal 1995 from $91,826,000 for fiscal 1994. This is attributable to a 15% increase in product revenues and a 9% increase in service revenues. Product revenue growth of $11,620,000 was attributable to (i) sales, which more than doubled, of NEBS compliant SPARC and Intel based products specifically designed for the telecommunications market and (ii) a 5% increase in ruggedized Intel based products for the industrial market. These gains were partially offset by a 5% decrease in sales of Motorola-based products for the on-line transaction processing market. The increased sales of NEBS compliant SPARC and Intel based products for the telecommunications market were caused primarily by significantly higher demand from one customer in the second half of fiscal 1995, from which such demand is not expected to 22 continue at this level for fiscal 1996. The increased revenues were comprised of a 30% increase in units shipped and a significant increase in the average system price which reflects higher functionality and performance. The Company expects that sales of these products overall will increase although at a slower rate of growth than in fiscal 1995. On February 1, 1995, the Company acquired certain assets of Intel Corporation ("Intel") related to Intel's OmniRACK and XpressRACK product lines. These products, sold to Intel as well as other customers, contributed $2,523,000, the significant proportion of the 5% increase in fiscal 1995 ruggedized product revenues over fiscal 1994 revenues. This growth in ruggedized sales was comprised of an 11% increase in units shipped offset by a slight decline in average system price which reflects a more mature product life cycle. Planned product transitions during fiscal 1996 to the next performance level of CPU may result in higher average system prices. However, these are expected to be offset by higher discounts expected as the Company plans, in fiscal 1996, to derive a higher proportion of its revenues through an independent distribution channel. During fiscal 1995 and fiscal 1994, approximately 70% and 65%, respectively, of revenues from sales of ruggedized products and products designed for the telecommunications markets were derived from the sale of computer systems and peripherals and approximately 30% and 35%, respectively, were derived from the sale of board-level products. The decline in Motorola-based products was attributable to a substantially lower level of new systems shipped compared to fiscal 1994, as new system sales were slower pending new product introductions and as overall market demand for Motorola-based systems declined in the United States. This decline in new systems was partially offset by an increased level of upgrade and expansion sales to the Company's installed base. On July 1, 1994 the Company purchased selected assets and the ongoing business operations of its Australia joint venture with Tricom Group Pty Ltd. In fiscal 1995, this newly formed subsidiary contributed $5,798,000 in Motorola-based products and related services revenues, as compared to $1,332,000 when operated as a distributor in fiscal 1994. Approximately 9% or $1,246,000 represents increases in service revenues, primarily a result of the service revenue stream generated from this acquisition. Sales outside the United States comprised $23,445,000, or 22% of total revenues for fiscal 1995, as compared to $19,305,000 or 21% of fiscal 1994 revenues. These increases were primarily attributable to the additional revenues provided from the Company's Australian subsidiary. In the fourth quarter, fiscal 1995, the Company received $1,000,000 for software license fees, as reported in Other Revenues, as the final payment from Toshiba Corporation ("Toshiba") as part of a development and distribution agreement. In fiscal 1994, the Company received $1,500,000 for software license fees from Toshiba. 23 During fiscal 1995, sales to one customer, DSC Communications Corporation, represented 13% of total revenues. For fiscal 1994, there were no sales to any customer that represented over 10% of total revenues. The Company believes that certain Value Added Resellers ("VAR's") in the healthcare market and customers in the telecommunications market will continue to represent a substantial portion of overall sales. Changes in the Company's relationship with, performance by or loss of such customers could have a significant effect on the Company's revenues and operating results. During fiscal 1995, Motorola-based product revenues consisted primarily of sales of expansion systems, or upgrades, to existing customers who have increased information processing requirements, rather than systems sales to new customers. While sales of such expansion systems have provided a reliable source of revenues during periods when sales to new customers have been particularly slow, revenues from the sales of expansion systems and upgrades will likely decline during fiscal 1996 since the Company intends to develop limited upgrade or expansion features for these products that would be attractive to existing customers. The Company began shipping in the fourth quarter lower priced Motorola-based fault-tolerant systems designed to be sold to new customers. The Company has announced, subsequent to the 1995 fiscal year, the introduction of a new line of enterprise servers using Intel processors to expand sales which is expected to offset the decline of Motorola-based products. The markets for NEBS compliant SPARC and Intel based products and ruggedized Intel based products are characterized by rapidly changing technology and user needs, requiring significant investment for product development. The Company believes that a large part of its ability to increase revenues in the future will depend upon its ability to develop, manufacture and market new products which meet changing user needs in these markets and which successfully respond to technological changes in architectural standards in a cost-effective and timely manner. The Company's future success will also depend in part on the market acceptance of its recently announced new line of Intel servers for the on-line transaction processing market and the ability of current and the willingness of future licensees of the Company's proprietary technology to develop products and technology that may be marketed and sold by the Company, or which provide royalty income for the Company. GROSS MARGIN ------------ Gross margin declined by 3% to 45% for fiscal 1995 from 48% for fiscal 1994. The decrease in gross margin was due to decreases both in product margins to 44% for fiscal 1995 as compared to 46% for fiscal 1994, and decreases in customer service and other margins to 49% for fiscal 1995 as compared to 56% for fiscal 1994. 24 Gross profits increased $3,143,000 to $46,960,000 for fiscal 1995 as compared to $43,817,000 for fiscal 1994. This increase resulted from the higher revenues which were partially offset by the decline in margins. The decrease in product margin is primarily related to a 2% decline in the margins for Motorola-based products due to the introduction of new systems sold at the low end of the market. Ruggedized product margins held relatively constant for fiscal 1995 as compared to fiscal 1994. Sales of refurbished equipment, acquired through upgrade programs, contributed 2% to 1995 product gross margins. Sales of refurbished equipment are expected to continue in fiscal 1996. In addition, in fiscal 1994, sales of approximately $900,000 of inventory previously written off had contributed 1% to fiscal 1994 product gross margin. The decrease in service and other margin is caused by (i) lower service pricing for higher reliability Motorola VME-based products; (ii) additional costs due to increases in staffing within the product support group and the professional services group, and (iii) lower technology license fees in fiscal 1995 as compared to fiscal 1994. The Company expects continued pressure on gross margins as the product revenue mix shifts to a higher proportion of Intel and SPARC based ruggedized products which carry lower margins than the Motorola-based systems, upgrades and expansion products. Fluctuations in margin levels may result from the mix of product revenues and respective varying margin contributions from sales of ruggedized products to the telecommunication and industrial markets and Motorola-based products. RESEARCH AND DEVELOPMENT EXPENSES --------------------------------- The Company's research and development expenses increased 12% to $13,044,000 for fiscal 1995 from $11,621,000 in fiscal 1994. These increases resulted primarily from efforts made to support the continuing joint development program with Novell, to develop operating software programs for new open system products, to further expand product offerings for the telecommunications market and to continue to introduce hand held and mobile computer ruggedized products. Research and development expenses as a percentage of revenues remained relatively unchanged in fiscal 1995 as compared to fiscal 1994 at 13%, as spending on research and development programs increased in proportion to the revenue increases year over year. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES --------------------------------------------- Selling, general and administrative expenses increased 27% to $28,052,000 for fiscal 1995 as compared to $22,053,000 for fiscal 1994. This increase was primarily the result of four factors: (i) expenses related to the acquisition of the TMI Group; (ii) increased 25 selling expenses related to the higher revenue volume; (iii) new advertising and increased marketing programs; and (iv) additions in personnel. More specifically (i) the Company incurred expenses of $2,146,000 in connection with the acquisition of the TMI Group, primarily for fees to financial advisors and for legal, accounting and printing services; (ii) commissions and external VAR fees increased as a result of the increase in sales volume; (iii) new corporate advertising was initiated and marketing promotion programs increased related to new products and the expansion of sales channels; and (iv) personnel additions were focused on expanding distribution channels in the U.S. telecommunications market and staffing the Australian subsidiary which commenced operation on July 1, 1994. OPERATING INCOME ---------------- The Company reported operating profits of $5,864,000 during fiscal 1995, as compared to $11,252,000 during fiscal 1994. The decrease in operating profit was primarily the result of reduced gross margins, the expenses related to the completion of the acquisition of the TMI Group and other increases in operating expenses. In addition, fiscal 1994 operating profits reflect a restructuring credit of $1,109,000 and the sales of previously written off inventory of $900,000. INTEREST INCOME / (EXPENSE) --------------------------- The Company had interest income of $809,000 for fiscal 1995, as compared to interest income of $345,000 for fiscal 1994. The increase in interest income resulted from higher average cash and short-term investment balances earning higher interest rates as well as lower capital lease obligations during fiscal 1995. The Company had interest expense of $290,000 for fiscal 1995, as compared to interest expense of $561,000 for fiscal 1994. The decrease reflects the June 7, 1994 paydown of a subordinated note, which carried a substantially higher interest rate, to Keystone International, Inc. ("Keystone") using proceeds of a three year term bank note and a revolving credit facility. OTHER INCOME / (EXPENSE) ------------------------ Foreign currency translation and transaction gains and losses accounted for substantially all of the other income (expense). Fluctuation in these amounts from fiscal 1994 to fiscal 1995 are a result of currency fluctuations in the countries in which the Company conducted its business. 26 INCOME TAXES ------------ The Company recorded provisions for income taxes of $960,000 for fiscal 1995 and $658,000 for fiscal 1994. These tax provisions reflect the combination of the Company's pre-merger provisions for income taxes for federal alternative minimum tax and state tax liabilities, and the pre-merger tax provisions of the TMI Group. RESULTS OF OPERATIONS YEARS ENDED JUNE 30, 1994 AND 1993 REVENUES -------- The Company's revenues increased 13% to $91,826,000 for fiscal 1994 as compared to $81,323,000 for fiscal 1993. The increase was primarily due to a 10% increase in product revenues largely from increased volume of ruggedized product sales, an 18% increase in customer service revenues from $11,571,000 to $13,636,000 and the receipt of a $1,500,000 software license fee from Toshiba in fiscal 1994. For the Motorola-based products, product revenues during fiscal 1994 consisted primarily of sales of expansion systems and upgrades to existing customers having increased information processing requirements rather than system sales to new customers. Motorola product revenues increased slightly in fiscal 1994 as compared to fiscal 1993, which reflected an increase in sales of expansion systems and upgrades offset by a reduction in sales of new systems sold. During the third quarter of fiscal 1994, the Company's VME technology was introduced. VME based products accounted for 40% of fourth quarter total Motorola system and system upgrade revenues and 23% of total Motorola system and system upgrade revenues for the full fiscal year. Revenues for the ruggedized Intel and SPARC based products increased 16% for fiscal 1994 as compared to fiscal 1993. The increase in revenues was primarily attributable to increased international sales resulting from the European economic recovery and increased penetration of the United States telecommunications market. During fiscal 1994 and fiscal 1993, approximately 65% and 72%, respectively, of revenues from sales of ruggedized products and products designed for the telecommunications markets were derived from the sale of computer systems and peripherals and approximately 35% and 28%, respectively, were derived from the sale of board-level products. The Company's sales outside the United States during fiscal 1994 and fiscal 1993 were $19,305,000 and $12,996,000 respectively, representing 21% and 16% of revenues during such years. This increase reflects the receipt of a $1,500,000 software license fee from Toshiba in Japan during fiscal 1994 compared to minimal licenses fees from this region in fiscal 1993 and increased sales of ruggedized products in Western Europe and Asia during fiscal 1994. 27 There were no sales to any one customer in fiscal 1994 or fiscal 1993 that represented over 10% of total revenues. GROSS MARGIN ------------ The Company's gross margin increased to 48% for fiscal 1994 as compared to 42% for fiscal 1993 as a result of (i) an increase of 4% in fiscal 1994 product margins as compared to fiscal 1993, (ii) an increase of 10% in fiscal 1994 service margins as compared to fiscal 1993, and (iii) the receipt of a $1,500,000 software license fee from Toshiba in fiscal 1994. Contributing to the favorable product margins, particularly in the Motorola- based products, were significant overhead cost reductions in manufacturing, including facility consolidations and the sale of approximately $900,000 of previously written off inventory. Partially offsetting these were slight decreases in the ruggedized product line margins caused by a more competitive pricing policy with respect to chassis products sold with Intel-based CPUs, higher discounts to some high-volume customers and, to a lesser extent, a general decline in margins in the microcomputer industry. The increase in services margin was primarily the result of an increase in service revenues with services costs holding constant and partially associated with the retroactive billing of $230,000 of maintenance charges for services performed at a cost of approximately $105,000 prior to contract execution. RESEARCH AND DEVELOPMENT EXPENSES --------------------------------- The Company incurred research and development expenses of $11,621,000 and $15,104,000 in fiscal 1994 and fiscal 1993, respectively. The $3,483,000 reduction in expenses was the result of substantial reductions in personnel related expenses and a reduction in depreciation expense resulting from the write-off of idle assets associated with the Company's restructuring during the second fiscal quarter ended December 27, 1992. Research and development expenses as a percentage of revenues decreased to 13% in fiscal 1994 as compared to 19% in fiscal 1993. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -------------------------------------------- Selling, general and administrative expenses decreased 29% to $22,053,000 in fiscal 1994 as compared to $31,187,000 in fiscal 1993. The decrease was the combined result of personnel reductions, vacated leased facilities and reduced depreciation charges related to written off equipment resulting from the Company's restructuring during the second fiscal quarter ended December 27, 1992, as well as decreases in certain expenses such as external 28 commissions, bad debt provisions, and audit and legal fees associated with shareholder lawsuits. As a percentage of revenues, selling, general and administrative expenses decreased to 24% in fiscal 1994 from 38% in fiscal 1993. RESTRUCTURING CHARGE / (CREDIT) ------------------------------- During fiscal 1993, the Company recorded a $13,990,000 restructuring charge to reduce the carrying value of excess assets and to accrue costs for anticipated liabilities arising from a restructuring and downsizing of the business in December 1992. As a result of the restructuring, the Company reduced its personnel, leased facilities and equipment utilized in the business. The impact of these reductions in fiscal 1994 was to lower the associated operating expenses by approximately $14,500,000. During fiscal 1994, the Company recognized a $900,000 gain from the sale of previously written-off inventory, which was not expected to be sold at the time of the restructuring. By the end of fiscal 1994, substantially all of the restructuring activities were completed and the utilization of the restructuring reserves had been consistent with the original estimates and reflected actions planned and implemented. Excess reserves totaling $1,109,000 were reversed in fiscal 1994 as a result of the Company's ability, through successful negotiations with lessors and vendors, to settle certain of its commitments for amounts lower than its contractual obligations. These excess reserves consisted principally of amounts accrued for commitments for leases, software licenses and engineering services. As of June 30, 1994, the remaining accrued restructuring balance amounted to $373,000 for contractual obligations. OPERATING INCOME ---------------- The Company incurred an operating profit of $11,252,000 in fiscal 1994 versus an operating loss of $25,825,000 in fiscal 1993. Excluding the fiscal 1993 restructuring charges and class action settlement, the fiscal 1994 operating profit resulted from higher revenues and gross profit, lower operating expenses, the license fee from Toshiba of $1,500,000 and the reversal of a restructuring reserve of $1,109,000. INTEREST INCOME / (EXPENSE) --------------------------- The Company had interest income of $345,000 in fiscal 1994 compared to interest income of $222,000 in fiscal 1993. This improvement was the combined result of higher cash balances, the paydown of bank debt and reduction of capital lease obligations in fiscal 1994. 29 The Company had interest expense of $561,000 in fiscal 1994 compared to $1,016,000 in fiscal 1993. This decrease was the result of the reduction of outstanding debt and lower average interest rates. OTHER INCOME / (EXPENSE) Foreign currency translation and transaction gains and losses, accounted for substantially all of the other income (expense). Fluctuation in these amounts from fiscal 1993 to fiscal 1994 are a result of currency fluctuations in the countries in which the Company conducted its business. INCOME TAXES ------------ The Company recorded a provision for income taxes in the amount of $658,000 in fiscal 1994 as compared to $512,000 in fiscal 1993. This amount reflects alternative minimum tax requirements and foreign withholding taxes. See Note 4 of the Notes to Consolidated Financial Statements. In addition, during fiscal 1993, the IRS disallowed certain of the TMI Group's pre-acquisition deductions related to the acquisition of certain assets from Keystone in May 1989. To cover this assessment, the fiscal 1993 income tax provision included an additional $346,000. In fiscal 1994, the TMI Group reached an agreement with the IRS, as a result of which the original assessment was reduced by $215,000. Since the original assessment was expensed by the TMI Group in fiscal 1993, the Company recorded a tax benefit of $215,000 in fiscal 1994 with respect to this matter. Effective July 1, 1992, the TMI Group adopted SFAS No.109, "Accounting for Income Taxes," which replaces SFAS No. 96. The adoption of SFAS No. 109 resulted in a benefit of $171,000 which was recorded as a cumulative effect of change in accounting for income taxes in fiscal 1993. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1995, the Company had cash and cash equivalents and working capital of $15,317,000 and $29,885,000, respectively, compared to cash and cash equivalents and working capital of $21,024,000 and $26,270,000, respectively, at June 30, 1994. The reduction in cash and cash equivalents was largely due to the acquisition of the net assets of the Company's Australian distributor on July 1, 1994 for $1,100,000 and the paydown of all bank and long term debt of Texas Microsystems, Inc. during the fourth quarter totaling $5,229,000. 30 In fiscal 1995 as in fiscal 1994, the Company funded its operations through positive cash flow from operations. Cash flows from operations reflected net income offset by cash outflows for inventories. The Company generally ships systems within 30 days after receipt of specific purchase orders from customers. In order to do so, the Company typically produces and maintains an inventory of subsystems in standard configurations. Inventories including customer spares increased to $16,713,000 at June 30, 1995 from $9,698,000 at June 30, 1994, due to the purchase of inventory as part of the acquisition of the Australian distributor and the procurement of inventories associated with the introduction of new products, planned higher revenue levels and backlog. The Company expects that its inventory levels will grow in fiscal 1996, but at a slower pace in relationship to revenue growth, reflecting management's objective to increase inventory turns. At June 30, 1995, the Company's net accounts receivable totaled $12,739,000 compared to $12,759,000 at June 30, 1994. The Company's days sales outstanding at June 30, 1995 was 44 days, a decrease from 50 days at June 30, 1994. Capital expenditures totaled $2,478,000 for fiscal 1995, and were comprised primarily of computer equipment, including the capitalization of internally manufactured systems, and software licenses. This compared with fiscal 1994 capital expenditures of $2,254,000, also primarily comprised of computer equipment. The Company expects to slightly increase capital expenditures in fiscal 1996 related to increased investment and development in the Intel and SPARC-based product lines. During 1995, the Company through its subsidiary Texas Microsystems, Inc., had a $2,000,000 term loan and a maximum $4,000,000 revolving line of credit with Texas Commerce Bank, National Association and a note payable to Keystone International, Inc. In the fourth quarter fiscal 1995, subsequent to the Transaction, the Company paid down fully all bank and long term debt of Texas Microsystems, Inc. totaling $5,229,000. The Company terminated its previous $10,000,000 credit line with State Street Bank and Trust Company and in connection with the completion of the Transaction, on March 31, 1995, the Company, State Street Bank and Trust Company and Texas Commerce Bank, National Association, entered into a new credit agreement that provides for maximum borrowings of $20,000,000 secured by substantially all the assets of the Company. At the Company's option, loans may be drawn down subject to two interest rate alternatives: (i) a prime rate option bearing interest at the then current prime rate and (ii) a LIBOR option bearing interest at the LIBOR rate plus 2%. The Company is required to meet specific covenants throughout the duration of this agreement. Available borrowings under this agreement are subject to a borrowing base formula. The agreement expires on October 31, 1996. At June 30, 1995, no amounts were outstanding under this agreement and the Company had $7,549,000 available under the borrowing base formula. 31 The Company believes that its present cash and cash equivalents, working capital levels, and borrowing capacity are adequate for its operating needs through fiscal 1996. 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following statements are filed as part of this Annual Report on Form 10-K.
Page No. -------- Report of Independent Accountants F-1 Audited Financial Statements: Consolidated Balance Sheets at June 30, 1995 and 1994 F-3 Consolidated Statements of Operations for the three years ended June 30, 1995 F-4 Consolidated Statements of Cash Flows for the three years ended June 30, 1995 F-5 Consolidated Statements of Stockholders' Equity for the three years ended June 30, 1995 F-6 Notes to Consolidated Financial Statements F-7 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 33 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The information required for Part III, Item 10 in this Annual Report on Form 10-K is incorporated by reference from the Company's definitive Proxy Statement relating to the Company's 1995 Annual Meeting of Stockholders. Such information will be contained in the sections of the Proxy Statement captioned "Directors" and "Executive Officers". ITEM 11. EXECUTIVE COMPENSATION The information required for Part III, Item 11 in this Annual Report on Form 10-K is incorporated by reference from the Company's definitive proxy statement relating to the Company's 1995 Annual Meeting of stockholders. Such information will be contained in the sections of the proxy statement captioned "Report of the Compensation Committee", "Director's Compensation", Named Executive Officer's Compensation", "Option Grants and Exercises", Stock Option Repricing" and "Comparative Stock Performance". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required for Part III, Item 12 in this Annual Report on Form 10-K is incorporated by reference from the Company's definitive proxy statement relating to the Company's 1995 Annual Meeting of stockholders. Such information will be contained in the sections of the proxy statement captioned "Voting Securities and Certain Holders Thereof". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required for Part III, Item 13 in this Annual Report on Form 10-K is incorporated by reference from the Company's definitive proxy statement relating to the Company's 1995 Annual Meeting of stockholders. Such information will be contained in the sections of the proxy statement captioned "Certain Transactions". 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a) Exhibits The exhibits listed in the Exhibit Index on page 38 are filed as part of this Annual Report on Form 10-K. (b) Financial Statement Schedule The Financial Statement Schedule is listed on page 33 of this Annual Report on Form 10-K. (c) Reports on Form 8-K On April 14, 1995, the Company filed a Current Report on Form 8-K (the "Form 8-K"), dated March 31, 1995 announcing completion of the Company's acqusition of the TMI Group. 35 The following trademarks are mentioned in this Annual Report on Form 10-K: Sequoia and Topix are registered trademarks of Sequoia Systems, Inc. Total Availability Solutions is a trademark of Sequoia Systems, Inc. OmniRACK and XpressRACK are trademarks of Texas Microsystems, Inc. Pick is a trademark of Pick Systems, Inc. UNIX is a registered trademark of UNIX System Laboratories, Inc. Novell is a registered trademark of UNIX System Laboratories, Inc. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SEQUOIA SYSTEMS, INC. By:/s/ Cornelius P. McMullan ------------------------- Cornelius P. McMullan President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Cornelius P. McMullan President, Chief Executive September 22, 1995 - --------------------------- Officer and Director Cornelius P. McMullan (principal executive officer) /s/ Francis J. Hughes, Jr. Chairman of the Board September 22, 1995 - --------------------------- of Directors Francis J. Hughes, Jr. /s/ Richard B. Goldman Executive Vice President of September 22, 1995 - --------------------------- Finance and Chief Financial Richard B. Goldman Officer (principal financial and accounting officer) /s/ J. Michael Stewart Executive Vice President; September 22, 1995 - --------------------------- President and Chief J. Michael Stewart Operating Officer, Texas Microsystems, Inc. /s/ Dean C. Campbell Director September 22, 1995 - --------------------------- Dean C. Campbell /s/ John F. Smith Director September 22, 1995 - --------------------------- John F. Smith Director September 22, 1995 - --------------------------- A. Theodore Engkvist /s/ Dennis M. Malloy Director September 22, 1995 - --------------------------- Dennis M. Malloy
37 EXHIBIT INDEX The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit Number Description - ------ ----------- 2.1 Merger and Stock Purchase Agreement dated as of November 9, 1995 by and among the Company, Sequoia Acquisition Corporation, SPCO, Inc. and Keystone International, Inc., as amended (incorporated by reference from Exhibit 2.1 to the Company's Registration Statement on Form S-4 (File No. 33-54777), filed on February 21, 1995). 2.2 Amendment No. 1 to the Merger Agreement, dated as of February 7, 1995 (incorporated by reference from Exhibit 2.2 to the Company's Registration Statement on Form S-4 (File No. 33-54777), filed on February 21, 1995). 2.3 Amendment No. 2 to the Merger Agreement, dated as of February 23, 1995 (incorporated by reference from Exhibit 2.3 to the Company's Registration Statement on Form S-4/A (File No. 33-54777), filed on February 24, 1995). 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to the Company's Amendment No. 2 to the Annual Report on Form 10-K filed on February 21, 1995. 3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company.* 3.3 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File No. 33-33024)). 10.1 1986 Incentive Stock Option Plan and 1986 Supplemental Incentive Stock Option Plan (collectively the "Option Plans") and related form of stock option agreements (incorporated by reference to Exhibit 10.10 and Exhibit 10.11, respectively, to the Company's Registration Statement on Form S-1 (File No. 33-33024)).+ 10.2 Amendment to the Option Plans (incorporated by reference to Exhibit 10.42 to the Company's 1990 Annual Report on Form 10-K (File No. 0-18238)).+ 10.3 Amendment to the Option Plans adopted December 13, 1994.+*
38 10.4 1990 Outside Director's Stock Option Plan (incorporated by reference to Exhibit 10.45 to the Company's 1990 Annual Report on Form 10-K (File No. 0-18238)). 10.5 1993 Employee Stock Purchase Plan.+* 10.6 Amendment to the 1993 Employee Stock Purchase Plan, adopted December 13, 1994.+* 10.7 1995 Outside Directors' Stock Option Plan.* 10.8 401(k) Plan of the Company (incorporated by reference to Exhibit 10.37 to the Company's Registration Statement on Form S-1 (File No. 33-33024)).+ 10.9 Lease dated November 23, 1983 between the Company and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 (File No. 33-33024)). 10.10 Third Amendment dated April 2, 1990 to Lease of November 23, 1983, between the Company and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.38 to the Company's 1990 Annual Report on Form 10-K (File No. 0-18238)). 10.11 Lease dated March 20, 1992 between the Company and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.14 to the Company's 1992 Annual Report on Form 10-K, Amendment No. 1 (File No. 0-18238)). 10.12 Employment Agreement dated October 20, 1987 between the Company and Jack J. Stiffler (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File No. 33-33024)). 10.13 Pick Systems - Open Architecture License Agreement dated October 10, 1986 among the Company, Concurrent Operating Systems Technology and Pick Systems, and assigned to the Company on February 24, 1988 (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1 (File No. 33-33024)).
39 10.14 Product Development and Technology License Agreement dated July 24, 1990 between the Company and Samsung Electronics Company Ltd. (incorporated by reference to Exhibit 10.40 to the Company's 1990 Annual Report on Form 10-K (File No. 0-18238)).** 10.15 OEM Agreement dated July 24, 1990 between the Company and Samsung Electronics Company Ltd. (incorporated by reference to Exhibit 10.41 to the Company's 1990 Annual Report on Form 10-K (File No. 0-18238)).** 10.16 Service Provider II Maintenance Agreement dated January 1, 1992 between the Company and Samsung Electronics Company Ltd. (incorporated by reference to Exhibit 10.45 to the Company's 1992 Annual Report on Form 10-K, Amendment No. 1 (File No. 0-18238)). 10.17 OEM Agreement dated September 7, 1993 between the Company and Samsung Electronics Co., Ltd. (incorporated by reference to Exhibit 10.43 to the Company's 1993 Annual Report on Form 10-K (File No. 0-18238)). 10.18 Master Agreement dated September 7, 1993 between the Company and Samsung Electronics Co., Ltd. (incorporated by reference to Exhibit 10.44 to the Company's 1993 Annual Report on Form 10-K (File No. 0-18238)). 10.19 Development, Manufacturing, and Distribution Agreement dated as of December 26, 1991 between the Company and Toshiba Corporation (incorporated by reference to Exhibit 10.48 to the Company's 1992 Annual Report on Form 10-K, Amendment No. 1 (File No. 0-18238)).** 10.20 Revised Development, Manufacturing, and Distribution Agreement executed as of May 13, 1994 between the Company and Toshiba Corporation. 10.21 Software Cooperation Agreement executed April 5, 1994 between the Company and UNIX System Laboratories, Inc.** 10.22 Purchase of Business Agreement dated June 17, 1994 by and among the Company, SEQ (Aust.) Pty. Ltd., Sequoia Systems (Australia) Pty. Ltd., Tricom Group Pty. Ltd., Samuel Seabury and William A. Cruthers.
40 10.23 Employment Agreement dated November 5, 1992, as amended January 22, 1993 between the Company and Cornelius P. McMullan. (incorporated by reference to Exhibit 10.56 to Amendment No. 1 to the Company's 1993 Annual Report on Form 10-K/A. (File No. 0-18238)).+ 10.24 Employment Agreement dated October 2, 1992, as amended November 7, 1992 between the Company and Richard B. Goldman. (incorporated by reference to Exhibit 10.57 to Amendment No. 1 to the Company's 1993 Annual Report on Form 10-K/A (File No. 0-18238)).+ 10.25 Credit Agreement dated March 31, 1995 by and between State Street Bank and Trust Company, Texas Commerce Bank, National Association and the Company (incorporated by reference to Exhibit 10.31 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1995 (File No. 0-18238)). 10.26 Pick 64 Purchase Agreement dated March 24, 1995 between Alpha Microsystems, Inc. and the Company.* 10.27 Amendment dated August 11, 1995 to Pick Systems - Open Architecture License Agreement dated October 10, 1986 among the Company, Concurrent Operating Systems Technology and Pick Systems, and assigned to the Company on February 24, 1988.* 10.28 Amendment dated February 2, 1995 to Pick Systems - Open Architecture License Agreement dated October 10, 1986 among the Company, Concurrent Operating Systems Technology and Pick Systems, and assigned to the Company on February 24, 1988.* 10.29 Asset Sale Agreement by and between Intel Corporation and Texas Microsystems, Inc. dated November 30, 1994.* 10.30 Consent and Undertakings of the Company filed February 24, 1995 in Securities and Exchange Commission v. Sequoia Systems, Inc. et al., ------------------------------------------------------------------ U.S. District Court, District of Columbia.* 10.31 Lease by and between Chevron U.S.A. Inc. and Texas Microsystems, Inc. dated December 11, 1992, as amended.* 10.32 Letter of Employment between the Company and J. Michael Stewart dated March 31, 1995.*+
41 11 Statement re: Computation of Earnings* 21 Subsidiaries of the Company.* 23.1 Consent of Coopers & Lybrand L.L.P.* 23.2 Consent of Arthur Andersen LLP* 27 Financial Data Schedule*
- ------------------ * Filed herewith ** Confidential treatment previously granted to certain portions thereof. *** Previously filed subject to request for confidential treatment as to certain portions thereof. + Management Contract or Compensatory Plan or Arrangement required to be filed by Item 14C of this Annual Report on Form 10-K 42 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Sequoia Systems, Inc.: We have audited the accompanying consolidated balance sheets of Sequoia Systems, Inc. and subsidiaries as of June 30, 1994 and 1995 and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ending June 30, 1995. These financial statements give retroactive effect to the merger of Sequoia Systems, Inc. and the TMI Group on March 31, 1995, which has been accounted for using the pooling of interests method as described in Note 1 to the consolidated financial statements. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the TMI Group for any year prior to June 30, 1995 which statements reflect total assets constituting 35% of consolidated total assets as of June 30, 1994, and which reflect total revenues constituting 51% and 19% of consolidated total revenues for each of the years ending June 30, 1994 and 1993, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the TMI Group, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sequoia Systems, Inc. and subsidiaries at June 30, 1994 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ending June 30, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts July 25, 1995 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Boards of Directors of the Texas Microsystems Group: We have audited the combined balance sheets of the Texas Microsystems Group, as of June 30, 1994 and 1993, and the related combined statements of operations, shareholders' equity and cash flows for the years then ended (not presented separately herein). These combined financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Texas Microsystems Group as of June 30, 1994 and 1993, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Effective July 1, 1992, the Group adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Arthur Andersen LLP Houston, Texas November 30, 1994 F-2 CONSOLIDATED BALANCE SHEETS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
ASSETS June 30, June 30, 1995 1994 ---------------------- Current Assets: (in thousands) Cash and cash equivalents $ 15,317 $ 21,024 Accounts receivable, net of allowance for doubtful accounts of $1,288 at June 30, 1995 and $1,699 at June 30, 1994 12,739 12,759 Inventories 16,713 9,698 Other current assets 1,974 1,879 ---------------------- Total current assets 46,743 45,360 ---------------------- Equipment and Improvements, at cost: Computer equipment 12,329 10,236 Machinery and equipment 4,687 4,457 Equipment under capital lease 2,666 2,666 Furniture and fixtures 1,306 1,189 Leasehold improvements 1,575 1,537 ---------------------- 22,563 20,085 Less - Accumulated depreciation and amortization 17,828 15,275 ---------------------- 4,735 4,810 ---------------------- Other Assets 763 239 ---------------------- Total Assets $ 52,241 $ 50,409 ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term borrowings on line of credit $ -- $ 1,705 Current maturities of long-term debt -- 667 Current portion of capital lease obligations 125 112 Accounts payable 6,809 6,383 Accrued expenses 9,037 9,410 Deferred revenue 888 813 ---------------------- Total current liabilities 16,859 19,090 ---------------------- Obligations under capital lease, net of current portion 56 190 Long-term debt -- 1,645 ---------------------- Total long-term obligations 56 1,835 ---------------------- Commitments & Contingencies Stockholders' Equity: Preferred stock, $.40 par value: Authorized--12,500,000 shares at June 30, 1995 and 1994 Issued--none Common stock, $.40 par value: Authorized--35,000,000 shares at June 30, 1995 and --25,000,000 shares at June 30, 1994, respectively Issued and outstanding 15,165,000 shares at June 30, 1995, and 14,899,000 shares at June 30, 1994 6,066 5,960 Additional paid-in capital 79,395 79,052 Accumulated deficit (50,288) (55,565) Cumulative translation adjustment 153 37 ---------------------- Total stockholders' equity 35,326 29,484 ---------------------- Total Liabilities and Stockholders' Equity $ 52,241 $ 50,409 ======================
The accompanying notes are an integral part of these consolidated financial statements. F-3 CONSOLIDATED STATEMENTS OF OPERATIONS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
For the years ended, June 30, June 30, June 30, 1995 1994 1993 ------------------------------------------------ (in thousands except per share data) Revenues Product $ 88,145 $ 76,525 $ 69,400 Service 14,882 13,636 11,571 Other 1,012 1,665 352 ------------------------------------------------ Total revenues 104,039 91,826 81,323 Cost of Revenues Product 48,985 41,345 40,082 Service and other 8,094 6,664 6,785 ------------------------------------------------ Total cost of revenues 57,079 48,009 46,867 Gross profit 46,960 43,817 34,456 Research and Development Expenses 13,044 11,621 15,104 Selling, General and Administrative Expenses 28,052 22,053 31,187 Restructuring Charge (Credit) (1,109) 13,990 ------------------------------------------------ Total operating expenses 41,096 32,565 60,281 Income (loss) from operations 5,864 11,252 (25,825) Interest Income 809 345 222 Interest Expense (290) (561) (1,016) Other Income (Expense) (146) 103 (46) Provision for Settlement of Class Action Lawsuit (3,875) ------------------------------------------------ Income (loss) before provision for income taxes and cumulative effect of change in accounting for income taxes 6,237 11,139 (30,540) Provision for Income Taxes 960 658 512 ------------------------------------------------ Income (loss) before cumulative effect of change in accounting for income taxes 5,277 10,481 (31,052) Cumulative effect of change in accounting for income taxes 171 ------------------------------------------------ Net income (loss) $ 5,277 $ 10,481 $ (30,881) ================================================ Income (Loss) Per Common and Common Share Equivalent Before Cumulative Effect of Change in Accounting for Income Taxes $ 0.34 $ 0.69 $ (2.25) Cumulative Effect of Change in Accounting for Income Taxes 0.02 ---- Net Income (Loss) Per Common and Common Share Equivalent $ 0.34 $ 0.69 $ (2.23) ================================================ Weighted Average Number of Common and Common Share Equivalents Outstanding 15,565 15,103 13,829 ================================================
The accompanying notes are an integral part of these consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
For the years ended June 30, 1995 1994 1993 ---------------------------------------------- (in thousands) Cash Flows From Operating Activities: Net Income (Loss) $ 5,277 $ 10,481 $ (30,881) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation 2,553 2,557 3,192 Amortization 518 761 1,371 Provision for bad debts (32) 191 1,242 Restructuring charge (credit) - (1,109) 10,341 Changes in assets and liabilities: Restricted cash reclass for class action settlement (1,000) Accounts receivable 102 (1,771) 10,494 Accounts receivable, long-term - 50 130 Accrued interest included in long-term debt - (251) (106) Inventories (7,015) 2,497 5,364 Federal income taxes receivable/prepaid 423 (390) 169 Deferred tax assets (491) 13 (517) Other current assets 78 247 2,569 Accounts payable 426 1,476 (965) Accrued expenses (373) 661 5,129 Deferred revenue 75 (128) 580 ---------------------------------------------- Net cash provided by operating activities 1,385 15,285 7,112 ---------------------------------------------- Cash Flows From Investing Activities: Purchase of equipment and improvements (2,477) (2,254) (3,026) Decrease (increase) in other assets (1,042) 218 590 ---------------------------------------------- Net cash used in investing activities (3,519) (2,036) (2,436) ---------------------------------------------- Cash Flows From Financing Activities: Restricted cash for collateral on bank debt - - (2,989) Repayment of note payable to bank - - (1,050) Proceeds from note payable to bank - - 3,000 Repayment of obligations under capital leases (121) (191) (1,334) Short-term debt (2,372) (1,535) 2,380 Long-term debt (1,645) (1,663) (666) Payment of cash dividend on preferred shares - (61) - Proceeds from issuance of common stock 449 294 496 ---------------------------------------------- Net cash used in financing activities (3,689) (3,156) (163) ---------------------------------------------- Effect of exchange rates on cash 116 52 (24) Net Increase (Decrease) in Cash and Cash Equivalents (5,707) 10,145 4,489 Cash and Cash Equivalents, beginning of year 21,024 10,879 6,390 ---------------------------------------------- Cash and Cash Equivalents, end of year $ 15,317 $ 21,024 $ 10,879 ============================================== Supplemental Disclosures of Noncash Investing and Financing Activities: Issuance of convertible preferred stock in settlement of class action lawsuit $ - $ 2,875 $ - Release of restricted cash for: Class action settlement $ - $ 1,000 $ - Repayment of note payable to bank $ - $ 1,950 $ - Repayment of obligations under capital leases $ - $ 1,039 $ - Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest $ 532 $ 1,261 $ 1,069 Income taxes paid (refunds received) $ 1,090 $ 921 $ (1,179)
The accompanying notes are an integral part of these consolidated financial statements F-5 SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the years ending June 30, (dollars in thousands)
($ in thousands) ---------------------------------------------------------------------------- Common Stock Additional Preferred Stock Additional Par Paid-in Par Paid-in Shares Value Capital Shares Value Capital ---------------------------------------------------------------------------- Balance, June 30, 1992 $13,953,000 $ 5,581 $ 80,992 $ - $ - $ - Issuance of common stock pursuant to stock option and employee stock purchase plans 210,000 84 412 - - - Retirement of treasury stock (475,000) (190) (5,036) - - - Foreign currency translation - - - - - - Net loss - - - - - - ---------------------------------------------------------------------------- Balance, June 30, 1993 13,688,000 5,475 76,366 - - - Issuance of common stock pursuant to stock option and employee stock purchase plans 164,000 66 228 - - - Issuance of convertible preferred stock - - - 1,047 419 2,456 Conversion of preferred stock 1,047,000 419 2,456 (1,047) (419) (2,456) Foreign currency translation - - - - - - Dividends paid on convertible preferred stock - - - - - - Net Income - - - - - - ---------------------------------------------------------------------------- Balance, June 30, 1994 14,899,000 5,960 79,052 - - - Issuance of common stock pursuant to stock option - - - - - - and employee stock purchase plans 265,000 106 343 - - - Foreign currency translation - - - - - - Dividends paid on convertible preferred stock - - - - - - Net Income - - - - - - ---------------------------------------------------------------------------- Balance, June 30, 1995 $15,165,000 $ 6,066 $ 79,395 $ - $ - $ - ============================================================================ ($ in thousands) ---------------------------------------------------------------------------- Cumulative Preferred Accumulated Translation Common Stock in Treasury Dividends Deficit Adjustment Shares Cost Total ---------------------------------------------------------------------------- Balance, June 30, 1992 $ - $ (35,104) $ 9 $ 475 $(5,226) $ 46,252 Issuance of common stock pursuant to stock option and employee stock purchase plans - - - - - 496 Retirement of treasury stock - - - (475) 5,228 - Foreign currency translation - - (24) - - (24) Net loss - (30,881) - - - (30,681) ---------------------------------------------------------------------------- Balance, June 30, 1993 - (65,985) (15) - - 15,843 Issuance of common stock pursuant to stock option and employee stock purchase plans - - - - - 294 Issuance of convertible preferred stock - - - - - 2,875 Conversion of preferred stock - - - - - - Foreign currency translation - - 52 - - 52 Dividends paid on convertible preferred stock (61) - - - - (61) Net Income - 10,481 - - - 10,481 ---------------------------------------------------------------------------- Balance, June 30, 1994 (61) (55,504) 37 - - 29,484 Issuance of common stock pursuant to stock option - - - - - - and employee stock purchase plans - - - - - 449 Foreign currency translation - - 116 - - 116 Dividends paid on convertible preferred stock 61 (61) - - - - Net Income - 5,277 - - - 5,277 ---------------------------------------------------------------------------- Balance, June 30, 1995 $ - $ (50,288) $ 153 $ - $ - $ 35,326 ============================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES Note 1 Basis of Presentation ------ The Company provides Motorola-based systems and upgrade products for on- line transaction processing and other interactive applications in which system availability, fast response times and data integrity are critical. With the acquisition of the TMI Group, the Company's expanded business lines also include ruggedized, mission-critical computers, both SPARC and Intel based, for the industrial market and Bellcore Network Equipment Building Specifications ("NEBS") compliant products specifically designed for the telecommunications market. As a leading supplier of ruggedized and mission critical computers from the desktop to the mainframe, the Company operates in one segment, computer systems, and addresses expanding market requirements for greater system availability. A. Merger and Stock Purchase On November 9, 1994, the Company and its acquisition subsidiary entered into a definitive merger and stock purchase agreement with SPCO, Inc. and Keystone International, Inc., by which the Company acquired all of the common stock of SPCO, Inc., along with its subsidiaries Texas Microsystems, Inc. and Texas Micro Electronics, Inc. and their respective subsidiaries (the "TMI Group") (collectively the "Transaction"). On March 31, 1995, the Transaction was consummated and the Company issued 5,272,944 shares of its common stock in exchange for all the common stock and securities to acquire the common stock of each of the members of the TMI Group. The Transaction has been accounted for as a pooling of interests, and accordingly, the historical consolidated financial statements for all periods prior to the acquisition have been restated to include the results of operations, the financial position and cash flows of the TMI Group. The terms of the Transaction are fully described in the Company's Registration Statement on Form S-4 (file No. 33-54777) under the Securities Act of 1933, filed with the Securities and Exchange Commission on February 21, 1995 and amended on February 24, 1995. Total transaction costs of approximately $2,134,000 were expensed as incurred in the first nine months of fiscal 1995. These transaction costs included fees to financial advisors and legal, accounting, printing and other related expenses incurred in connection with the merger. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES The following information presents certain income statement data of Sequoia Systems and the TMI Group for the periods prior to the Transaction. The consummation of the Transaction was substantially coincident with the fiscal third quarter 1995 closing.
(unaudited) (in thousands) Sequoia Systems TMI Group Total --------------- --------- --------- Revenues for: Nine months ending: April 2, 1995 $32,850 $44,337 $77,187 April 3, 1994 32,205 34,251 66,456 Year ending June 30: 1994 44,765 47,061 91,826 1993 41,019 40,304 81,323 Sequoia Systems TMI Group Total --------------- --------- --------- Net Income for: Nine months ending: April 2, 1995 $2,097 (1) $1,463 (1) $3,560 (1) April 3, 1994 5,073 841 5,914 Year ending June 30: 1994 8,567 1,914 10,481 1993 (31,033) 152 (30,881)
(1) includes pre-tax expenses related to the Transaction of $1,236,000 for Sequoia Systems and $898,000 for the TMI Group for the nine months ended April 2, 1995 B. Restructuring Charge/Credit The Company recorded a restructuring charge of $13,990,000 in fiscal 1992 as the result of lower revenues and a downsizing of the operations based on anticipated future revenue levels. The restructuring charge included: $4,022,000 for provisions to reduce the carrying value of excess inventory, $3,077,000 for provisions to write off idle equipment and improvements, and $3,242,000 for provisions to reduce the carrying value of other current and long-term assets to their estimated net realizable values. The restructuring charge also included $2,494,000 of provisions for lease obligations for abandoned facilities, and $1,155,000 for other contractual obligations and provisions. During fiscal 1994, the Company settled the lease, contractual, and other obligations, and determined that, as of June 30, 1994, $1,109,000 of restructuring charges was in excess of the business requirements and recorded a restructuring credit. Additionally, the Company realized a benefit in cost of revenues of $900,000 in fiscal 1994 as a result of the sale of inventory which had been written-off as part of the restructuring. As of June 30, 1995, restructuring activities were completed. F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES Note 2 Summary of Significant Accounting Policies - ------ The consolidated financial statements reflect the application of certain accounting policies described in this and other notes to consolidated financial statements. A. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. B. Cash and Cash Equivalents Cash and cash equivalents are stated at cost, which approximates market. Cash equivalents consist of highly liquid investments with original maturities of 90 days or less. C. Inventories Inventories are stated at the lower of average cost (first-in, first-out) or market which requires the periodic assessment of net realizable value. The difference of cost and market is charged to income in the period the impairment is determined. Inventory including materials, labor and manufacturing overhead consists of the following:
(in thousands) June 30, 1995 1994 ------------------------- Raw materials $ 9,966 $4,545 Work-in-process 3,595 2,986 Finished goods 3,152 2,167 ------------------------- $16,713 $9,698 -------------------------
D. Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations in amounts estimated to allocate the cost of equipment and leasehold improvements over their estimated useful lives on a straight-line basis. Computer equipment, machinery and equipment, equipment under capital lease and furniture and fixtures are depreciated over three to ten years, and leasehold improvements are amortized over the term of the associated leases. The cost of improvements is charged to the property accounts, while maintenance and repairs are charged to income as incurred. The Company periodically evaluates its fixed assets to determine whether assets are impaired or continue to be utilized. Upon determination of an impairment, retirement or other disposition of property and equipment, the cost and related depreciation are removed from the accounts, and any resulting gain or loss is reflected in the results of operations. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES E. Software License Fees and Royalties The Company has entered into license and royalty agreements for software to be incorporated into certain computer systems held for resale. The initial fees under such software license arrangements are capitalized in other assets and amortized over the lesser of the term of the license agreement or on a straight- line basis over three to five years. Royalty payments are expensed upon the sale of computer systems that incorporate the licensed software. F. Revenue Recognition Revenues from product sales, which include revenues from software licenses are recognized upon shipment unless significant uncertainties exist. Service revenues include maintenance, installation fees and professional services; other revenues include rental revenue and technology license fees. Service revenues related to maintenance agreements are recognized ratably over the period in which the service is provided. All other service revenues are recognized as earned. Other revenue, primarily technology license fees, are recognized as revenue upon receipt of non-refundable payments. The Company entered into a development, manufacturing and distribution agreement with Toshiba Corporation in December 1991 and amended such agreement in April 1994. Technology license fees due the Company, amounted to $1,000,000 and $1,500,000, for the years ended June 30, 1995 and 1994, respectively. G. Research and Development Costs relating to research and development are expensed as incurred. H. Net Income (Loss) per Share Primary and fully diluted earnings per share are not separately stated as they are substantially the same. For the years ended June 30, 1995, 1994 and 1993, net income/(loss) per share was based on the weighted average number of common and common share equivalents outstanding during the year, computed in accordance with the treasury stock method. Under this method, common share equivalents are not included in the calculation for fiscal 1993 as their impact would be antidilutive. The net income/(loss) per share calculations for all years presented include shares issued to consummate the pooling transaction on March 31, 1995 (see Note 1 A). I. Foreign Currency Translation For foreign subsidiaries where the functional currency is the U.S. dollar, the financial statements of the Company's foreign subsidiaries are translated using rates of exchange in effect at the end of the fiscal year for monetary assets and liabilities and historical rates for non-monetary assets and liabilities. Income and expenses are translated at average exchange rates prevailing during the fiscal year and the resulting gains or losses are reflected in results of operations.. For foreign subsidiaries where the functional currency is the local currency, the financial statements are translated as above except that assets and liabilities are translated at current exchange rates and the resulting gains or losses are recorded as a separate component of stockholders' equity. Transaction gains and (losses) recognized by the Company amounted to $(82,000), $(9,000), and $1,000 for the years ended June 30, 1995, 1994, and 1993, respectively. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES J. Postretirement Benefits The Company sponsors two defined contribution employee savings and retirement plans (the Plans), which cover only U.S. employees. Employees participate in the Plans based on the subsidiary of their employment. The Plans are contributory for which contributions by the Company are made at the discretion of management. Employees may contribute up to 15% or 20% of their annual compensation depending on their respective plan. The Company made contributions of $231,000, $236,000 and $125,000 in fiscal 1995, 1994 and 1993 respectively. K. Concentrations of Credit Risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents and trade receivables. The Company's cash equivalents are placed with high credit quality financial institutions or invested in government securities. The Company limits the amount of credit exposure to any one institution. Concentrations of credit risk with respect to trade receivables are limited due to the varied customer base, comprised principally of distributors and resellers, dispersed across various industries and geographic locations. The Company generally does not require collateral; however, in certain circumstances the Company may require letters of credit from its customers. The Company may require deposits to be paid with an order or may negotiate added discounts in exchange for payment at time of shipment. L. Reclassifications Certain prior year balances have been reclassified to conform to current year presentation. M. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the liability method specified by SFAS No. 109, deferred tax assets, net of any valuation allowance, and deferred tax liabilities are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities and net operating losses as measured using the enacted tax rates which are expected to be in effect when these differences reverse. N. Warranty Obligations The Company generally provides its systems with a 90-day to two year warranty from the date of installation depending on the product line. Estimated warranty obligations are evaluated and provided at the time of sale. Note 3 Note Payable to Bank & Long-Term Debt - ------ The Company, through its subsidiary Texas Microsystems, Inc. had (i) a $2,000,000 term loan, payable in equal monthly installments based on a three- year amortization with the balance due on June 1, 1997, (ii) $4,000,000 revolving line of bank credit and (iii) a zero coupon note payable to Keystone International with $415,000 due. Subsequent to the third quarter, 1995, the Company paid F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES down all bank and long term debt of Texas Microsystems, Inc. totaling $5,229,000 and terminated these agreements. On March 22, 1994, the Company and State Street Bank and Trust Company entered into a credit agreement which provides for maximum borrowings of $10,000,000. Borrowings under this agreement bear interest at the rate of prime to prime plus 1%, dependent on certain ratios. At June 30, 1994, no amounts were outstanding under this agreement and the Company had $3,060,000 available under the borrowing base formula. The Company terminated its previous credit line with State Street Bank and Trust Company and in connection with the completion of the Transaction, on March 31, 1995, the Company, State Street Bank and Trust Company and Texas Commerce Bank, National Association entered into a revolving credit agreement providing for maximum borrowings of $20,000,000 secured by substantially all the assets of the Company. At the Company's option, loans may be drawn down subject to two interest rate alternatives: (i) a prime rate option bearing interest at the then current prime rate and (ii) a LIBOR option bearing interest at the LIBOR rate plus 2%. The Company is required to meet specific covenants throughout the duration of this agreement, the most restrictive of which is that the Company shall not have a net loss (i) of greater than $1,000,000 for any fiscal quarter or (ii) nor in any two consecutive fiscal quarters, or (iii) an annual loss in excess of $1,800,000. In addition, the Company may not declare cash dividends. This agreement expires on October 31, 1996. Available borrowings under this agreement are subject to a borrowing base formula predicated on qualified receivables as defined and are collateralized by substantially all assets of the Company. At June 30, 1995, no amounts were outstanding under this agreement and the Company had $7,549,000 available under the borrowing base formula. Long-term debt at June 30, 1994 and 1993, consisted of the following:
($ in thousands) 1994 1993 ------- ------ $4,250,000 original face amount subordinated note payable to Keystone, extinguished in 1994............... - $3,534 $500,000 face amount subordinated zero coupon note payable to Keystone, dated May 19th 1989 (less unamortized discount of $133,000 and $171,000 respectively, with an effective interest rate of 11.54%), due May 1, 1997............................. 367 329 $2,000,000 term note payable to Texas Commerce Bank, dated June 7, 1994................................ 1,945 - Accrued interest - 251 ------ ------ 2,312 4,114 Less - Current portion of long-term debt................ 667 733 ------ ------ $1,645 $3,381 ====== ======
All bank and long term debt was paid during 1995. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES Note 4 Other Assets - ------ Other assets consist of the following:
(in thousands) June 30: 1995 1994 --------------- Software license fees, net of accumulated amortization of $629 and $382 in 1995 and 1994, respectively. $ 663 $ 112 Other 100 127 ----- ----- $ 763 $ 239 ----- -----
Note 5 Accrued Expenses - ------ Accrued expenses consist of the following:
(in thousands) June 30: 1995 1994 --------------- Accrued compensation and benefits $4,435 $3,284 Accrued commissions and royalties 715 1,001 Accrued other 3,887 5,125 --------------- $9,037 $9,410 ---------------
Note 6 Income Taxes - ------ Effective July 1, 1992, the TMI Group adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109). Effective July 1, 1993, Sequoia Systems, Inc. adopted SFAS No. 109, "Accounting for Income Taxes". For the TMI Group the benefit of adopting the statement, $171,000, was recorded as a cumulative effect of change in accounting for income taxes in the accompanying financial statements in fiscal 1993. The impact of Sequoia Systems, Inc. adoption was immaterial to the financial statements in fiscal 1994. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES The provisions for income taxes in the accompanying statements of income consist of the following for the years ended June 30, 1995, 1994 and 1993:
(in thousands) 1995 1994 1993 ----------------------------- Current Federal income taxes $ 1,259 $ 436 $ 806 State income taxes 91 59 52 Foreign income taxes 100 150 -- -------- -------- ------ $ 1,451 $ 645 $ 858 -------- -------- ------ Deferred Federal income taxes (491) 13 (346) State income taxes -- -- -- -------- -------- ------ (491) 13 (346) -------- -------- ------ Total provisions $ 960 $ 658 512 -------- -------- ------
The components of the net deferred tax asset at June 30, 1995 and 1994 are as follows (in thousands):
1995 1994 -------- -------- Deferred tax assets $ 25,390 $ 23,039 Deferred tax liabilities -- (107) -------- -------- Net deferred tax assets 25,390 22,932 Valuation allowance (24,395) (22,428) -------- -------- $ 995 504 -------- --------
Due to the uncertainty surrounding realization of the deferred tax assets in future tax returns, the Company has established a full valuation allowance against substantially all of its otherwise recognizable net deferred asset. The components of the net deferred tax asset are as follows (in thousands):
1995 1994 -------- -------- NOL carryforward $ 19,971 16,649 Property and equipment 1,124 2,554 Inventory 2,451 1,601 Bad debt reserve 517 416 Accrued liabilities -- 228 Other 1,327 1,484 -------- ------- Total net asset 25,390 22,932 Valuation allowance $(24,395) (22,428) -------- ------- Deferred tax asset $ 995 504 -------- -------
F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows for the years ended June 30,
1995 1994 1993 ------ ------ ------ Federal statutory rate 34% 34% 34% Net benefit of tax credits and operating loss carryforwards (21%) (28.5%) -- State income taxes, net of federal benefit 1.0% 0.5% (0.1%) Federal Alternative Minimum Tax 0.8% 1.3% -- Net losses without tax benefit -- -- (34%) Revenue Agent Review Adjustments -- (2.0%) (1.1%) Foreign income tax 1.6% 1.4% -- Other (1.0%) (0.7%) (0.5)% ---- ----- ----- Effective tax rate 15.4% 6.0% (1.7%) ---- ----- -----
The Tax Reform Act of 1986 (the Act), enacted in October 1986, limits the amount of net operating loss carryforwards that companies may utilize in any one year in the event of cumulative changes in ownership in excess of 50%, as defined in the Act, which has limited the Company's ability to utilize in any one year the net operating loss carryforwards incurred prior to the change in ownership occurring upon the Company's initial public offering. The Company estimates that the total net operating loss carryforward subject to this limitation is approximately $23,000,000. The utilization of the available net operating loss carryforwards and general business credit carryforwards generated prior to the ownership change is limited to approximately $2,700,000 in each year subsequent to the change in ownership until fiscal 2002, at which time the unused net operating loss carryforwards will expire. These carryforwards are subject to review and possible adjustment by the Internal Revenue Service. The Company's net operating loss and general business credit carryforwards at June 30, 1995, were approximately $44,500,000 ($21,500,000 unrestricted) and $2,800,000, respectively. Included with-in the net operating losses is approximately $4.6 million of Incentive Stock Option deductions. This deduction when utilized will be a direct credit to stockholders' equity and will not benefit the income statement. Note 7 Stockholders' Equity - ------ A. Common and Preferred Stock The Company has 35,000,000 and 12,500,000 authorized shares of common and preferred stock, respectively at June 30, 1995. There were 25,000,000 and 12,500,000 authorized shares of common and preferred stock at June 30, 1994. No shares of preferred stock were issued or outstanding at June 30, 1995, or 1994. The Company has reserved 3,700,000 authorized shares of common stock for issuance under the Company's options plans, 750,000 authorized shares of common stock for issuance under the 1993 employee stock purchase plan, 131,000 shares for issuance under the 1991 outside directors' stock option plan, and 150,000 shares for issuance under the 1995 outside directors stock option plan. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES On October 27, 1993, the Company issued 1,047,418 shares of Series A Convertible Preferred Stock in settlement of the class action litigation. Subsequently, holders of 264,435 shares of preferred stock converted, at their option, such shares into the same number of common shares. The remaining 782,983 shares of Series A Convertible Preferred Stock were automatically converted to the same number of common shares on March 15, 1994, in accordance with a mandatory conversion clause in the class action settlement agreement. B. Stock Option Plans The Company has two employee stock option plans: the 1986 Incentive Stock Option Plan (the Incentive Plan) and the 1986 Supplemental Stock Option Plan (the Supplemental Plan). The Incentive Plan provides for the grant of incentive stock options to officers and employees of the Company at a price no less than the fair market value on the date of the grant. The Supplemental Plan provides for the grant of nonqualified stock options to employees and consultants at no less than 85% of the fair market value on the date of grant. Options expire 10 years from the date of grant or, if applicable, three months after termination of the optionee's employment or other applicable relationship with the Company. In fiscal 1990, the Company established the 1990 outside directors' stock option plan (the 1990 Directors' Plan) which provides for the issuance of nonqualified stock options at a price no less than the fair market value on the date of grant to members of the Company's Board of Directors who are not employees of the Company. An aggregate of 131,000 shares of common stock was reserved for issuance under the 1990 Directors' Plan. The options expire upon the earlier of 10 years from the date of grant or six months after the director ceases to be a director of the Company. This plan expired on June 7, 1995. The 131,000 shares allocated to the plan are available for allocation to other 1995 plans at the Board of Directors discretion. In fiscal 1995, the Company established the 1995 outside directors' stock option plan (the 1995 Directors' Plan). The terms of the 1995 Plan are identical to the 1990 Directors' Plan. An aggregate of 150,000 shares of common stock was reserved for issuance under the 1995 Directors' Plan. This plan expires on July 1, 1999. During 1993, the Company canceled certain options to employees and directors and reissued options, with similar terms, to employees and directors with an exercise price of $2.25, the fair market value at the date of grant. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES The following table summarizes the option activity under the Incentive, Supplemental and 1990 and 1995 Directors Stock Option Plans for the respective periods.
Number of Option Price Shares per Share ---------- -------------- Outstanding at June 30, 1992 1,243,669 .35 - 16.81 1993 Activity: Options granted 943,644 2.25 - 7.63 Options exercised (173,176) .80 - 5.13 Options terminated (1,107,131) .80 - 16.50 ---------------------------------- Outstanding at June 30, 1993 907,006 .80 - 16.50 1994 Activity: Options granted 656,020 1.94 - 6.06 Options exercised (137,392) .80 - 2.25 Options terminated (120,802) .80 - 11.44 ---------------------------------- Outstanding at June 30, 1994 1,304,832 $ .80 - $11.44 ---------------------------------- 1995 Activity: Options granted 523,700 3.22 - 5.13 Options exercised (222,561) .35 - 3.13 Options terminated ( 40,020) 2.06 - 5.44 ---------------------------------- Outstanding at June 30, 1995 1,565,951 $ .35 - $ 5.44 ---------------------------------- Exercisable at June 30, 1995 801,847 $ .80 - $11.44 ----------------------------------
C. Employee Stock Purchase Plans In March 1995, the Board of Directors amended the 1993 employee stock purchase plan (the 1993 Plan) to encompass fiscal years 1996, and 1997, as well as fiscal years 1994 and 1995, and to increase to 750,000 shares of common stock the number of shares available for issuance. Under the terms of the 1993 employee stock purchase plan, eligible employees were able to purchase shares of the Company's common stock at 85% of market price, as defined by the 1993 Plan. The term of the 1993 Plan is four years, divided into eight separate semi-annual offerings commencing on July 1, 1993,(fiscal 1994) and ending on January 1, 1997 (fiscal 1997). In the fiscal 1994 offering which commenced on July 1, 1993 and ended on June 30, 1994, (two offering periods)45,578 shares were issued. In the third offering which commenced on July 1, 1994 and ended on December 31, 1994, 24,346 shares were issued. The fourth offering, which commenced on January 1, 1995 and ended on June 30, 1995, resulted in 25,969 shares being issued subsequent to the end of fiscal 1995. F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES Note 8 Commitments and Contingencies - ------ A. Lease Commitments The Company leases equipment and office space for its headquarters and sales offices under various operating arrangements that expire at various dates through 2000. In addition, the Company leases certain equipment, office furniture and software licenses under capital leases that mature at various dates through July 2000. At June 30, 1995, minimum payments due under all operating and capital lease arrangements are as follows:
(in thousands) Operating Capital Lease Lease Fiscal Year Commitments Commitments ----------- ----------- 1996 $1,945 $137 1997 1,769 69 1998 1,315 -- 1999 839 -- 2000 839 -- ------ ---- Total minimum lease payments $6,706 $206 ------ ---- Less--Amount representing interest on capital lease -- 25 ------ ---- Present value of minimum lease payments $ -- $181 ------ ----
Approximately $2,098,000, $2,272,000 and $2,938,000 were charged to rent expense in fiscal 1995, 1994 and 1993, respectively, under operating lease agreements. Accumulated amortization on equipment under capital lease amounted to $2,460,000 and $2,507,000 at June 30, 1995 and 1994, respectively. B. Legal Proceedings In 1992 the Company was named a defendant to a class action suit brought in the United States District Court of Massachusetts. The plaintiffs purported to represent a class of persons who purchased the common stock of the Company between July 29, 1991 and December 11, 1992 and alleged that the Company violated (S)10 (b) of the Securities and Exchange Act of 1934 and committed common law fraud by materially overstating its revenue and income for the fiscal quarter ended September 30, 1991, thereafter failing to disclose the alleged need to restate the Company's revenue and income for that fiscal quarter and by agreeing with certain revenue and earnings projections for the Company made by financial analysts. On July 30, 1993, the Company entered into a settlement by which all claims asserted by the plaintiffs against the Company, Arthur Andersen & Co., the Company's former auditors, and former executives of the Company were settled. The global settlement provided for a cash payment totaling $3,125,000, of which $1,075,000 was paid by the Company and $2,050,000 was paid by the Company's insurance carrier and the other defendants in the class action litigation. In addition, the Company issued to the plaintiffs $2,875,000 in face amount of a new class of preferred stock, bearing dividends at a rate of 7% per year, payable annually, and convertible into common stock at a conversion price equal to 110% of the average trading price of the Company's common stock during a specified period prior to the effective date. F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES The preferred stock was automatically converted to common stock according to its terms on March 15, 1994 on which date the closing price of the Company's common stock was $6.0625 per share. The agreement was approved by the District Court on September 10, 1993. On May 8, 1992, the Securities and Exchange Commission notified the Company that the Commission had begun an informal investigation with respect to the Company's revenue recognition policies. On September 28, 1992, after receiving certain documentation and information requested from the Company, the Commission notified the Company that the Commission had entered a formal order of investigation with respect to these matters. On February 16, 1995, the Company and the Commission entered into a settlement agreement, subsequently approved by the U.S. District Court for the District of Columbia, pursuant to which the Company consented to the issuance of an injunction against it prohibiting future violations of certain securities laws and regulations, but the Company was not required to pay any fines or make any other payments. Note 9 Significant Customers and Domestic and Export Sales - ------ The Company had one customer, DSC Communications Corporation, that represented 13%, or $13,559,000, in revenues for the year ending June 30, 1995. There were no customers exceeding 10% of revenues for the fiscal years ending June 30 1994, and 1993, respectively. The following summarizes domestic and export sales for the years ended June 30:
(in thousands) Years Ended June 30 1995 1994 1993 --------- -------- --------- Domestic $ 80,594 $72,521 $68,327 Foreign 10,592 4,010 2,461 Export-- Europe 5,505 5,518 3,555 Asia 2,019 3,579 1,401 Australia - (1) 1,331 934 All other 5,329 4,867 4,645 -------- ------- ------- $104,039 $91,826 $81,323 -------- ------- ------- Percent: Domestic 78% 79% 84% Foreign 10% 4% 3% Export-- Europe 5% 6% 4% Asia 2% 4% 2% Australia - 2% 1% All other 5% 5% 6% -------- ------- ------- 100% 100% 100% -------- ------- -------
(1) (see Note 10) F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES Note 10 Acquisition of Joint Venture - ------- In November 1991, the Company entered into a joint venture, Sequoia Systems Pty. Ltd., with Tricom Group Pty. Ltd. ("Tricom"). The joint venture (owned 15% by Sequoia), through Tricom, had the right to distribute the Company's products in Australia and New Zealand. On July 1, 1994, the Company reached agreement and purchased selected assets and the ongoing business operations of Sequoia Systems (Australia) Pty. Ltd., its joint venture with Tricom for cash totaling $1.1 million. The Company has also incorporated certain Australian legal entities to operate the business in the same geographical market area. Tricom also agreed to specific noncompete arrangements in selected markets with the Company and/or its subsidiary(s) and further, that the joint venture would be liquidated, as defined in the agreement. F-20 SCHEDULE II SEQUOIA SYSTEMS, INC. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ----------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ------------------------------------------------------------------------------------------------------------------- JUNE 30, 1993: - --------------------------------- Allowance for Doubtful Accounts 3,407,000 1,282,000 400,000 2,843,000 2,246,000 Inventory Reserve: 4,341,000 1,245,000 0 880,000 4,706,000 JUNE 30, 1994: - --------------------------------- Allowance for Doubtful Accounts 2,246,000 116,000 300,000 963,000 1,699,000 Inventory Reserve: 4,706,000 548,000 579,000 2,692,000 3,141,000 JUNE 30, 1995: - --------------------------------- Allowance for Doubtful Accounts 1,699,000 226,000 (175,000) 462,000 1,288,000 Inventory Reserve: 3,141,000 573,000 0 1,789,000 1,925,000
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Sequoia Systems, Inc.: Our report on the consolidated financial statements of Sequoia Systems, Inc. and subsidiaries is included on page 33 of this Annual Report on Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule for each of the three years in the period ended June 30, 1995 listed in the index on page 33 of this Annual Report on Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements take as a whole, presentS fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Boston, Massachusetts July 25, 1995 S-2 EX-3.2 2 CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF SEQUOIA SYSTEMS, INC. Sequoia Systems, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said Corporation, at a meeting duly called and held on December 13, 1994, as filed with the minutes of the Board, duly adopted a resolution pursuant to Section 242 of the General Corporation Law of the State of Delaware ("Delaware Law") proposing and declaring advisable the following amendment to the Restated Certificate of Incorporation of the Corporation: RESOLVED: That, subject to stockholder approval, the first -------- paragraph of Article FOURTH of the Corporation's Charter be amended to read in its entirety as follows: ARTICLE IV ---------- The total number of shares of capital stock which the Corporation shall have authority to issue is forty-seven million five hundred thousand (47,500,000) shares, consisting of thirty-five million (35,000,000) shares of common stock, $.40 par value per share ("Common Stock"), and twelve million five hundred thousand (12,500,000) shares of Preferred Stock, $.40 par value per share ("Preferred Stock"), all of which remain available for designation in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware and the Corporation's Certificate of Incorporation, as amended." SECOND: That the foregoing Amendment to the Corporation's Restated Certificate of Incorporation was adopted by the holders of a majority of the outstanding shares of Common Stock at the Corporation's Special Meeting of Stockholders held on March 29, 1995 pursuant to notice duly given. IN WITNESS WHEREOF, Sequoia Systems, Inc. has caused this Certificate to be signed by Richard B. Goldman, its Vice President, Finance and Chief Financial Officer and attested by Jeremy F. Swett, its Vice President, General Counsel and Secretary this 11th day of April, 1995. SEQUOIA CORPORATION By: /s/Richard B. Goldman --------------------- Richard B. Goldman Vice President, Finance and Chief Financial Officer ATTEST: By: /s/Jeremy F. Swett ------------------ Jeremy F. Swett, Vice President and General Counsel - 2 - EX-10.3 3 AMENDMENT TO OPTION PLAN SEQUOIA SYSTEMS, INC. Amendment to 1986 Incentive Stock Option Plan and 1986 Supplemental Stock Option Plan (Adopted by the Board of Directors on December 13, 1994 and Approved by the Stockholders on March 29, 1995.) RESOLVED: That, subject to stockholder approval, Section 3(a) -------- of the Company's 1986 Incentive Stock Option Plan be amended to read in its entirety as follows: "3. SHARES SUBJECT TO THE PLAN. -------------------------- (a) Subject to the provisions of Section 9 relating to adjustments upon changes in the Company's Common Stock, the shares that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate three million seven hundred thousand (3,700,000) shares of the Company's Common Stock; provided, however, that such aggregate number of shares shall be reduced to reflect the number of shares of the Company's Common Stock that have been sold pursuant to, or may be sold pursuant to outstanding options granted under, the Company's 1986 Supplemental Option Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan." FURTHER RESOLVED: That, subject to stockholder approval, Section 3(a) -------- of the Company's 1986 Supplemental Stock Option Plan be amended to read in its entirety as follows: "3. SHARES SUBJECT TO THE PLAN. -------------------------- (a) Subject to the provisions of Section 9 relating to adjustments upon changes in the Company's Common Stock, the shares that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate three million seven hundred thousand (3,700,000) shares of the Company's Common Stock; provided, however, that such aggregate number of shares shall be reduced to reflect the number of shares of the Company's Common Stock that have been sold pursuant to, or may be sold pursuant to outstanding options granted under, the Company's 1986 Incentive Stock Option Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan." FURTHER RESOLVED: That, subject to stockholder approval, Section 4 of -------- each of the Company's 1986 Incentive Stock Option Plan and 1986 Supplemental Stock Option Plan be amended by adding the following to the last subsection of each such Section; "Notwithstanding any provision of the Plan to the contrary and subject to adjustment as provided in Section 9, from and after December 13, 1994, the maximum number of shares with respect to which options may be granted to any employee under the Plan shall not exceed 500,000 in any given calendar year." -2- EX-10.5 4 1993 EMPLOYEE STOCK PURCHASE PLAN SEQUOIA SYSTEMS, INC. 1993 EMPLOYEE STOCK PURCHASE PLAN 1. Purposes. -------- The 1993 Employee Stock Purchase Plan of Sequoia Systems, Inc. (the "Plan") is intended to provide a method for employees of Sequoia Systems, Inc. and its Subsidiary Corporations (as defined below) (hereinafter collectively referred to, unless the context otherwise requires, as the "Company") to acquire an ownership interest in the Company through the purchase of shares of the common stock of the Company (the "Common Stock"). It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of such Section 423. 2. Definitions. ----------- (a) "Employee" means any person who is customarily employed by the Company for 20 or more hours per week. (b) "Monetary Compensation" means an Employee's regular base pay (as the same may be adjusted from time to time), including shift differentials, plus overtime, commissions and other special cash payments to such Employee during an Offering Period (as defined below). (c) "Offering" or "Offerings" means the offering(s) of shares of Common Stock to Employees of the Company pursuant to this Plan. (d) "Offering Commencement Date" means the date on which an Offering under the Plan commences pursuant to Paragraph 4. (e) "Offering Termination Date" means the date on which an Offering under the Plan terminates pursuant to Paragraph 4. (f) "Offering Period" means, with respect to each Offering under the Plan, the period of time beginning on the applicable Offering Commencement Date and ending on the applicable Offering Termination Date. -1- (g) "Subsidiary Corporation" means any present or future corporation which (i) is a "subsidiary corporation" as that term is defined in Section 424 of the Code and (ii) is designated as a participant in the Plan by the Board of Directors or by the Committee described in Paragraph 13. 3. Eligibility. ----------- (a) Any Employee who shall have completed two weeks of employment and who shall be employed by the Company on an Offering Commencement Date shall be eligible to participate in the applicable Offering under the Plan. (b) Any provision of the Plan to the contrary notwithstanding, no Employee shall be granted an option to participate in the Plan: (i) if, immediately after the grant, such Employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary Corporation (for purposes of this Paragraph the rules of Section 424(d) of the Code shall apply in determining stock ownership of any Employee); or (ii) which permits his or her rights to purchase stock of the Company or of any Subsidiary Corporation to accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined at the time such option is granted) for any one calender year. 4. Offering Dates. -------------- The Plan will be implemented by four semi-annual Offerings of an aggregate of 62,500 shares (subject to adjustment as provided in Paragraphs 12(a) and 17) each of the Common Stock, as follows: (i) the first Offering shall commence on July 1, 1993 and shall terminate on December 31, 1993; (ii) the second Offering shall commence on January 1, 1994 and shall terminate on June 30, 1994; (iii) the third offering shall commence on July 1, 1994 and shall terminate on December 31, 1994; and (iv) the fourth Offering shall commence on January 1, 1995 and terminate on June 30, 1995. -2- 5. Participation. ------------- All eligible Employees will become participants in an Offering on the applicable Offering Commencement Date. Payroll deductions for a participant shall commence on the Offering Commencement Date applicable to the Offering (or as soon thereafter as may be determined by the Company in its discretion) and shall end on the Offering Termination Date applicable to such Offering, unless sooner terminated pursuant to Paragraph 10. 6. Payroll Deductions. ------------------ (a) Participants may elect to have amounts withheld from Monetary Compensation by completing an authorization for a payroll deduction (an "Authorization") on the form provided by the Company and delivering it to the Company. At the time a participant files his or her Authorization for a payroll deduction, the participant shall elect to have deductions made from his or her pay on each payday during the time he or she is a participant in an Offering at the rate of 0, 1, 2, 3, 4, 5, or 6%, of his or her Monetary Compensation. The aggregate amount of a participant's payroll deductions for any Offering Period is referred to herein as the "Authorized Deduction." An Authorization filed with respect to any Offering shall also be deemed to be an Authorization with respect to any subsequent Offering; provided, that (i) the participant may amend his or her Authorization with respect to any subsequent Offering by filing a new Authorization at least seven days prior to the Offering Commencement Date of such subsequent Offering, and (ii) the participant may withdraw his or her payroll deductions from the Plan at any time pursuant to Section 8(b). If a participant has not filed an Authorization with respect to an Offering (including an Authorization deemed to apply to any Offering pursuant to the preceding sentence) on or before the date(s) specified by the Company, he or she shall be deemed to have filed an Authorization election to withhold 0% of any Monetary Compensation. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan. Except as provided in Section 6(d), a participant may not make any separate cash payment into such account. (c) Except as provided in Paragraph 8(b) or Paragraph 10, a participant may not make changes to the rate of deductions from his or her Monetary Compensation during an Offering Period. (d) Notwithstanding the foregoing, the Company may permit and/or require participants who are not residents of the United States to make one or more lump-sum contributions to the Plan in lieu of contributions through payroll deductions, such -3- number of contributions and the manner of making such contributions required of any such participant shall be determined by the Committee (as defined in Section 13 hereof) or such other officer of the Company as the Committee shall designate. No such employee shall participate in the Plan, however, unless such employee shall have filed an Authorization on or before the date on which other employees must file Authorizations. Any lump-sum contributions shall be treated as payroll deductions for all purposes under the Plan. 7. Granting of Options. ------------------- (a) With respect to each Offering, a participating Employee shall be deemed to have been granted, on the applicable Offering Commencement Date, an option (the "Option") to purchase a maximum number of shares of Common Stock determined as follows: 85% of the market value of a share of Common Stock on such Offering Commencement Date shall be divided into an amount equal to 6% of such Employee's Monetary Compensation for the period of such Offering, provided that in no event shall an Employee be granted an Option to purchase more than 500 shares of Common Stock with respect to each Offering. The market value of the Common Stock shall be determined as provided in paragraph (b) below. (b) With respect to each Offering, the purchase price of a share of Common Stock purchased with the Authorized Deduction (the "Option Exercise Price") shall be the lower of: (i) 85% of the composite closing price of the Common Stock on the over the counter market as reported by NASDAQ in "The Wall Street Journal" on the Offering Commencement Date applicable to such Offering (or on the next regular business day on which shares of the Common Stock shall be traded in the event that no such shares shall have been traded on the Offering Commencement Date); or (ii) 85% of the composite closing price of the Common Stock on the over the counter market as reported by NASDAQ in "The Wall Street Journal" on the Offering Termination Date applicable to such Offering (or on the next regular business day on which shares of the Common Stock shall be traded in the event that no such shares shall have been traded on the Offering Termination Date). 8. Exercise of Options. ------------------- With respect to each Offering during the term of the Plan: (a) Unless a participant gives written notice of withdrawal to the Company as provided in Paragraph 10, his or her -4- Option will be deemed to have been exercised automatically on the Offering Termination Date applicable to such Offering for the purchase of the number of whole shares of Common Stock which the Authorized Deduction in his or her account on such date will purchase at the applicable Option Exercise Price (but not in excess of the number of shares for which an Option has been granted the employee pursuant to Paragraph 7(a)). No fractional shares will be issued. Any excess in such participant's account on such date will either, (i) to the extent it is attributable to amounts that would have purchased fractional shares only, with the consent of such participant (and with the consent of the Company, which may be withheld in its sole discretion), remain in such participant's account under the Plan or under a successor plan, if any, or (ii) be returned to him or her; provided that any excess returned will not be credited with any interest. (b) By written notice to the Company at any time prior to the applicable Offering Termination Date, a participant may elect to withdraw all (but not less than all) of the accumulated payroll deductions in his or her account at such time. 9. Delivery of Share Certificates. ------------------------------ As promptly as practicable after the Offering Termination Date with respect to each Offering, the Company will deliver to each participant, as appropriate, a certificate or certificates representing the shares of Common Stock purchased upon the exercise of such participant's Option. 10. Withdrawal. ---------- (a) As indicated in Paragraph 8(b), a participant may withdraw payroll deductions credited to his or her account at any time prior to the applicable Offering Termination Date by giving written notice of withdrawal to the Company. All of the participant's payroll deductions credited to his or her account will be paid to the participant promptly after receipt of such notice of withdrawal, and no further payroll deductions will be made with respect to such participant during such Offering. The Company may, at its option, treat any attempt by an employee to borrow on the security of accumulated payroll deductions as an election to withdraw such deductions. (b) A participant's withdrawal from any Offering will not have any effect upon his or her eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company; provided, however, that an Employee who is subject to Section 16 of the Securities Exchange Act of 1934, as amended, who withdraws his or her payroll deductions prior to the end of an Offering Period may not participant in the Plan or in any similar successor plan for a period of at least six months from the date of such withdrawal. -5- (c) Upon termination of the participant's employment for any reason, including retirement but excluding death or disability while in the employ of the Company, the payroll deductions credited to his or her account will be returned to the participant or, in the case of his or her death subsequent to the termination of employment, to the person or persons entitled thereto under Paragraph 14. (d) Upon termination of the participant's employment because of death or disability, the participant or his or her beneficiary (as defined in Paragraph 14) shall have the right to elect, by written notice given to the Company prior to the expiration of the period of 30 days commencing with the date of the death or disability of the participant, either: (i) to withdraw all of the payroll deductions credited to the participant's account under the Plan; or (ii) to exercise the participant's option for the purchase of Common Stock on the Offering Termination Date next following the date of the participant's death or disability for the purchase of the number of full shares of Common Stock which the accumulated payroll deductions in the participant's account at the date of the participant's death or disability will purchase at the applicable Option Exercise Price, and any excess in such account will be returned to the participant or said beneficiary. In the event that no such written notice of election shall be duly received by the Company, the participant or beneficiary shall automatically be deemed to have elected to withdraw the payroll deductions credited to the participant's account at the date of the participant's death or disability, and the same will be paid promptly to the participant or said beneficiary. 11. Interest. -------- No interest will be paid or allowed on any money paid into the Plan or credited to the account of any participant employee except as specifically set forth in this Plan. 12. Stock. ----- (a) The maximum number of shares of Common Stock which shall be made available for sale under the Plan during any Offering under the Plan shall be 62,500 shares, subject in each case to adjustment upon changes in capitalization of the Company as provided in Paragraph 17. If the total number of shares for which Options are exercised on any Offering Termination Date in accordance with Paragraph 8 exceeds 62,500, the Company shall make -6- a pro rata allocation of the shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of payroll deductions credited to the account of each participant under the Plan shall be returned to him or her as promptly as possible. If fewer than 62,500 shares are purchased during any given Offering under the Plan, the amount not purchased may be carried over to and made available during the next and other subsequent Offerings under the Plan. (b) No participant will have any interest in Common Stock covered by his or her Option until such Option has been exercised. (c) The Common Stock to be delivered to a participant under the Plan will be registered in the name of the participant, or, if the participant so directs, by written notice to the Company prior to the Offering Termination Date applicable thereto, in the names of the participant and one such other person as may be designated by the participant, as joint tenants with rights of survivorship, to the extent permitted by applicable law. (d) The Board of Directors of the Company may, in its discretion, require as conditions to the Exercise of any Option that the shares of Common Stock reserved for issuance upon the exercise of the Option shall have been duly listed, upon official notice of issuance, on the over the counter market as reported by NASDAQ, and that either: (i) a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to said shares shall be effective; or (ii) the Company shall have received the opinion of counsel acceptable to the Company to the effect that the issuance of such shares is exempt from all registration requirements under the Securities Act. 13. Administration. -------------- The Plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors of the Company. The officer of the Company charged by the Committee with day-to-day administration of the Plan shall, for matters involving the Plan, be an ex officio member of the Committee. The interpretation and construction of any provision of the Plan and the adoption of all rules and regulations for administering the Plan shall be made by the Committee; provided, however, that any such interpretation, rule or regulation adopted by the Committee may be subsequently altered, amended or repealed by the Committee or the Board of Directors. All such interpretations, rules and regulations made by the Committee and approved by the Board of -7- Directors with respect to any matter or provision contained in the Plan shall be final, conclusive and binding upon the Company and upon all participants, their heirs or legal representatives. The Company shall indemnify Committee members, to the fullest extent permitted by applicable statute, for any expenses incurred in defending a civil or criminal action or proceeding arising out of such member's actions with respect to the administration of the Plan, in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the member indemnified to repay such payment if such member shall be adjudicated not to have, acted in good faith in the reasonable belief that such members actions were in the best interests of the Company. 14. Designation of Beneficiary. -------------------------- A participant may file a written designation of a beneficiary who is to receive any shares of Common Stock and/or cash in the event of the death of the participant prior to the delivery of such shares or cash to the participant. Such designation of beneficiary may be changed by the participant at any time by written notice to the Company. Within 30 days after the participant's death, the beneficiary may, as provided in Paragraph l0(d), elect to exercise the participant's Option when it becomes exercisable on the Offering Termination Date of the then current Offering. Upon the death of a participant and upon receipt by the Company of proof of the identity and existence at the participant's death of a beneficiary validly designated by the participant under the Plan, and notice of election of the beneficiary to exercise the Option, the Company shall deliver such stock and/or cash to such beneficiary. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan designated under the Plan who is living at the time of such participant's death, the Company shall deliver such stock and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such stock and/or cash to the spouse or to any one or more dependents of the participant as the Company may designate. No beneficiary shall prior to the death of the participant by whom he has been designated acquire any interest in the stock or cash credited to the participant under the Plan. 15. Transferability. --------------- Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an Option or to receive stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the participant -8- otherwise than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge, or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Paragraph 8(b). 16. Use of Funds. ------------ All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Effect of Changes of Common Stock. --------------------------------- In the event of any changes of outstanding shares of the Common Stock by reason of stock dividends, subdivisions, combinations and the like, the aggregate number and class of shares available under this Plan and the Option Exercise Price per share shall be appropriately adjusted by the Board of Directors of the Company, whose determination shall be conclusive. Any such adjustments may provide for the elimination of any fractional shares which would otherwise become subject to any Option. 18. Amendment or Termination. ------------------------ The Board of Directors of the Company may at any time terminate or amend the Plan. Except as hereinafter provided, however, no such termination may affect Options previously granted, and no such amendment may make any change in any Option previously granted which would adversely affect the rights of any participant. In addition, no amendment may be made without prior approval of the stockholders of the Company if such amendment would (a) materially increase the benefits accruing to participants under the Plan or (b) materially modify the requirements as to eligibility for participation under the Plan. 19. Notices. ------- All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received by the Company's Human Resources Department. 20. Merger or Consolidation. ----------------------- If the Company shall at any time merge into or consolidate with another corporation and the Company is the surviving entity, the holder of each Option then outstanding will thereafter be entitled to receive at the next Offering Termination Date upon the exercise of such Option for each share as to which such Option shall be exercised the securities or property to which a holder of -9- one share of the Common Stock was entitled upon and at the time of such merger or consolidation, and the Board of Directors of the Company shall take such steps in connection with such merger or consolidation as the Board of Directors shall deem necessary to assure that the provisions of Paragraph 17 shall thereafter be applicable, as nearly as reasonably may be, in relation to the said securities or property as to which such holder of such Option might thereafter be entitled to receive thereunder. In the event of a merger or consolidation in which the Company is not the surviving entity, or of a sale of all or substantially all of the assets of the Company, the Plan shall terminate, and all payroll deductions credited to participants' accounts shall be returned to them. 21. Approval of Stockholders. ------------------------ The Plan has been adopted by the Board of Directors of the Company, but shall be void and of no effect unless it is approved by the stockholders of the Company at the 1993 annual meeting. 22. Registration and Qualification of the Plan Under ------------------------------------------------ Applicable Securities Laws. -------------------------- No Option shall be granted under the Plan until such time as the Company has qualified or registered the shares which are subject to the Options under the applicable state and federal securities laws to the extent required by such laws. APPROVED BY THE BOARD OF DIRECTORS ON JUNE 11, 1993. APPROVED BY THE STOCKHOLDERS ON JANUARY 28, 1994. -10- EX-10.6 5 AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN SEQUOIA SYSTEMS, INC. Amendment to 1993 Employee Stock Purchase Plan (Resolutions Adopted by the Board of Directors on December 13, 1994 and Approved by the Stockholders on March 29, 1995) RESOLVED: That, subject to stockholder approval, Section 4 of -------- the Company's 1993 Employee Stock Purchase Plan be amended to read in its entirety as follows: "4. Offering Dates. -------------- The Plan will be implemented by: (I) four (4) semi-annual offerings of an aggregate of 62,500 shares (subject to adjustment as provided in paragraphs 12(a) and 17) each of the Company's Common Stock as follows: (i) the first Offering shall commence on July 1, 1993 and shall terminate on December 31, 1993; (ii) the second Offering shall commence on January 1, 1994 and shall terminate on June 30, 1994; (iii) the third Offering shall commence on July 1, 1994 and shall terminate on December 31, 1994; and (iv) the fourth Offering shall commence on January 1, 1995 and shall terminate on June 30, 1995 and (II) four (4) semi-annual offerings of an aggregate of 125,000 shares (subject to adjustment as provided in paragraphs 12(a) and 17) each of the Company's Common Stock as follows: (v) the fifth Offering shall commence on July 1, 1995 and shall terminate on December 31, 1995; (vi) the sixth Offering shall commence on January 1, 1996 and shall terminate on June 30, 1996; (vii) the seventh Offering shall commence on July 1, 1996 and shall terminate on December 31, 1996; and (viii) the eighth Offering shall commence on January 1, 1997 and shall terminate on June 30, 1997." -2- EX-10.7 6 1995 OUTSIDE DIRECTORS' STOCK OPTION PLAN SEQUOIA SYSTEMS, INC. 1995 OUTSIDE DIRECTORS' STOCK OPTION PLAN ----------------------------------------- 1. Purpose. ------- The purpose of this 1995 Outside Directors' Stock Option Plan (the "Plan") of Sequoia Systems, Inc. (the "Company") is to encourage stock ownership in the Company by outside directors of the Company whose continued services are considered essential to the Company's future success and to provide them with a further incentive to remain as directors of the Company. 2. Administration. -------------- The Board of Directors of Sequoia Systems (the "Board") shall supervise and administer the Plan. Grants of stock options under the Plan and the amount and nature of the options to be granted shall be automatic in accordance with Section 5. However, all questions concerning interpretation of the Plan or any options granted under it shall be resolved by the Board and such resolution shall be final and binding upon all persons having an interest in the Plan. 3. Participation in the Plan. ------------------------- Directors of the Company who are not employees of the Company or any subsidiary of the Company ("outside directors") shall be eligible to receive options under the Plan. 4. Stock Subject to the Plan. ------------------------- (a) The maximum number of shares of the Company's Common Stock, par value $.40 per share ("Common Stock"), which may be issued under the Plan shall be 150,000 shares, subject to adjustment as provided in Section 7. (b) If any outstanding option under the Plan for any reason expires or is terminated without having been exercised in full, the shares covered by the unexercised portion of such option shall again become available for issuance pursuant to the Plan. (c) All options granted under the Plan shall be nonstatutory options not under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 5. Terms, Conditions and Form of Options. ------------------------------------- Each option granted under the Plan shall be evidenced by a written agreement in such form as the Chairman of the Board of Directors shall from time to time approve, which agreement shall comply with and be subject to the following terms and conditions: (a) Option Grant Dates and Shares Subject to Option. ----------------------------------------------- (i) Initial Grants. A fully vested option to purchase -------------- 12,000 shares of Common Stock shall be granted automatically to each person who becomes an outside director of the Company after the date of the Board's adoption of the Plan. (ii) Subsequent Grants. A fully vested option to ----------------- purchase 2,500 shares of the Common Stock shall be granted automatically to each outside director on each July 1 from July 1, 1995 through and including July 1, 1999, provided, that he or she is an eligible director on the date of grant of such option. (b) Option Exercise Price. The option exercise price per --------------------- share for each option granted under the Plan shall be equal to the fair market value per share of Common Stock on the date of grant, which shall be determined as follows: (i) if the Common Stock is listed on the Nasdaq National Market or another nationally recognized exchange or trading system as of the date on which a determination of fair market value is to be made, the fair market value per share shall be deemed to be the last reported sale price per share of Common Stock thereon on such date (or, if no such price is reported on such date, such price on the nearest preceding date on which such a price is reported); and (ii) if the Common Stock is not listed on the Nasdaq National Market or another nationally recognized exchange or trading system as of the date on which a determination of fair market value is to be made, the fair market value per share shall be deemed to be the book value per share of the Common Stock as of the end of the most recent fiscal quarter preceding such date. (c) Options Non-Transferable. Each option granted under the ------------------------ Plan by its terms shall not be transferable by the optionee otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order (as defined in the Code), and shall be exercised during the lifetime of the optionee only by the optionee or his or her legal representative. No option or interest therein may be transferred, assigned, pledged or hypothecated by the optionee during his or her -2- lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (d) Exercise Period. Each option may be exercised at any --------------- time and from time to time, in whole or in part, prior to the tenth anniversary of the date of grant, except that no option may be exercised more than six months after the optionee ceases to serve as a director of the Company. (e) Termination. Each option shall terminate, and may no ----------- longer be exercised, on the earlier of (i) the date 10 years after the date of grant or (ii) the date one year after the optionee ceases to serve as a director of the Company for any reason, whether by death, resignation, removal or otherwise. (f) Exercise Procedure. An option may be exercised only by ------------------ written notice to the Company at its principal office accompanied by payment in cash of the full consideration for the shares as to which the option is exercised. (g) Exercise by Representative Following Death of Director. ------------------------------------------------------ An optionee, by written notice to the Company, may designate one or more persons (and from time to time change such designation), including his or her legal representative, who, by reason of the optionee's death, shall acquire the right to exercise all or a portion of the option. If the person or persons so designated wish to exercise any portion of the option, they must do so within the term of the option as provided herein. Any exercise by a representative shall be subject to the provisions of the Plan. 6. Limitation of Rights. -------------------- (a) No Right to Continue as a Director. Neither the Plan, ---------------------------------- nor the granting of an option nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the optionee shall be entitled to continue as a director for any period of time. (b) No Stockholder Rights for Options. An optionee shall --------------------------------- have no rights as a stockholder with respect to the shares covered by his or her option until the date of the issuance to him or her of a stock certificate therefor, and no adjustment will be made for dividends or other rights (except as provided in Section 7) for which the record date is prior to the date such certificate is issued. -3- 7. Adjustment Provisions for Mergers, Recapitalizations and -------------------------------------------------------- Related Transactions. -------------------- If, through or as a result of any merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, (i) the outstanding shares of Common Stock are exchanged for a different number or kind of securities of the Company or of another entity, or (ii) additional shares or new or different shares or other securities of the Company or of another entity are distributed with respect to such shares of Common Stock, the Board shall make an appropriate and proportionate adjustment in (x) the maximum number and kind of shares reserved for issuance under the Plan, (y) the number and kind of shares or other securities subject to then outstanding options under the Plan, and/or (z) the price for each share subject to any then outstanding options under the Plan (without changing the aggregate purchase price for such options), to the end that each option shall be exercisable, for the same aggregate exercise price, for such securities as such optionholder would have held immediately following such event if he or she had exercised such option immediately prior to such event. No fractional shares will be issued under the Plan on account of any such adjustments. 8. Modification, Extension and Renewal of Options. ---------------------------------------------- The Board shall have the power to modify or amend outstanding options; provided, however, that no modification or amendment may (i) have the effect of altering or impairing any rights or obligations of any option previously granted without the consent of the optionee, or (ii) modify the number of shares of Common Stock subject to the option (except as provided in Section 7). 9. Termination and Amendment of the Plan. ------------------------------------- The Board may suspend, terminate or discontinue the Plan or amend it in any respect whatsoever; provided, however, that without approval of the stockholders of the Company, no amendment may (i) increase the number of shares subject to the Plan (except as provided in Section 7), (ii) materially modify the requirements as to eligibility to receive options under the Plan, or (iii) materially increase the benefits accruing to participants in the Plan; and provided further that the Board may not amend the provisions of Sections 3 or 5, insofar as they relate to the amount, price and timing of options to be granted hereunder, more frequently than once every six months, other than to comply with changes in the Code or the rules thereunder. -4- 10. Notice. ------ Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the Treasurer of the Company and shall become effective when it is received. 11. Governing Law. ------------- The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the Commonwealth of Massachusetts. 12. Stockholder Approval. -------------------- The Plan is conditional upon approval by the Company's stockholders of the Plan within one year from its date of adoption by the Board. No option under the Plan may be exercised until such stockholder approval is obtained, and the Plan and all options granted under the Plan shall be null and void if the Plan is not so approved by the Company's stockholders. As adopted by the Board on December 13, 1994. Approved by the Stockholders on March 29, 1995. -5- EX-10.26 7 PICK 64 PURCHASE AGREEMENT EXHIBIT 10.26 PICK 64 PURCHASE AGREEMENT BETWEEN ALPHA MICROSYSTEMS, INC. AND SEQUOIA SYSTEMS, INC. AGREEMENT made this 24th day of March 1995 by and between Alpha Microsystems, ---- Inc. of 3511 Sunflower, Santa Ana, California 92704 ("Seller") and Sequoia Systems, Inc. of 400 Nickerson Road, Marlborough, Massachusetts 01752 ("Buyer"). Recitals -------- A. Seller is the developer of and owns all right, title and interest in a derivative work of Pick Systems' Pick operating system/database software (the "Pick Database"), which derivative work is known as Pick 64, as more fully defined in Paragraph 1(a), and licenses such derivative work to others as part of its customary business; B. Seller desires to sell and Buyer desires to acquire the right to reproduce and license Pick 64 to others, all on the terms and conditions recited herein. Agreements ---------- 1. Purchase and Sale ----------------- Subject to and upon the terms and conditions of this Agreement, Seller shall sell and deliver to Buyer at Closing, and Buyer shall purchase from Seller all of Seller's right, title and interest, including the right to reproduce and license to others, in: (a) Seller's derivative work, known as Pick 64, of the Pick Database, and all revisions thereof, as it is more particularly described in Exhibit A hereto, including all source code and all copies thereof (collectively, "Pick 64"); (b) all of its inventions, discoveries, technology, design specifications, databases and know-how related to Pick 64; (c) all U.S. and foreign patents, copyrights, design rights, trademarks and any registrations or applications therefor related to Pick 64 and all rights to secure renewals, reissuances and extensions of the foregoing; (d) all of its trade secrets and confidential or proprietary information related to Pick 64; (e) the information contained in Exhibit B hereto; (f) the three computer systems and associated equipment and documentation listed in Exhibit C hereto. 2. Purchase Price and Closing -------------------------- The purchase price to be paid to Seller by Buyer hereunder shall be comprised of a guaranteed portion, as described in (a), below, and a second portion, payment of which is contingent upon the occurrence of certain events, as described in (b), below. (a) Subject to the conditions specified herein, at the Closing, Buyer shall deliver to Seller by wire transfer the sum of $100,000. Thereafter, Buyer shall deliver to Seller in immediately available funds five payments of $40,000 each, to be made within five business days of each of the following dates: 2 June 30, 1995, September 30, 1995, December 31, 1995, March 31, 1996 and June 30, 1996. (b) Buyer shall make further payments to Seller based on the number of Process Identification Blocks ("PIBs") of Pick 64 that Buyer licenses to third parties during the period commencing as of the date of this Agreement and ending eighteen (18) months after Buyer's first customer shipment of Pick 64 as part of a Buyer computer system, as follows: No payments will be made in respect of the initial 3,000 PIBs so licensed; however, Buyer shall pay Seller $100 for each PIB it so licenses thereafter to a maximum of 4,000 PIBs licensed subsequent to such initial 3,000 PIBS. Payments under this Paragraph 2(b) shall in no event exceed $400,000, and no payments shall be due in respect of any PIBs licensed by Buyer after the expiration of the 18-month period described above. (c) Payments due Seller under (b), above, shall be made within fifteen business days after the end of each calendar quarter for each qualifying PIB licensed by Buyer during such quarter. (d) Closing shall take place on or before March 24, 1995 at Buyer's offices, unless otherwise agreed ("Closing"); the actual date of Closing is referred to herein as the "Closing Date". At the time of Closing, Seller shall ship to Buyer's Marlborough, Massachusetts office the master media containing Pick 64 and shall deliver to Buyer all physical, printed and electronic copies, executable object code versions, source code, simulations, program listings, system documentation, manuals, software diagnosis reports, engineering notebooks, flow charts, programmer notes, development and maintenance records, bug-fixes, 3 updates, revisions, releases, marketing materials, and the like related to Pick 64, title to all of which shall pass to Buyer. 3. Reports and Audit Rights ------------------------ (a) Buyer shall keep complete and accurate records of all Pick 64 licensing activity relevant to the determination of payments required to be made to Seller under Paragraph 2 hereof and within fifteen business days after the end of each calendar quarter shall provide Seller a reasonably detailed written report of such activity during such quarter together with the calculation of such payments. Such record-keeping and reporting obligation shall expire after Buyer makes the required report for the last quarter of the 18-month period described in Paragraph 2(b). (b) Seller may at its expense inspect Buyer's records of Pick 64 licensing activity at anytime during normal business hours upon at least 72 hours prior notice solely for the purpose of verifying the accuracy of the payments required of Buyer pursuant to Paragraph 2(b). Such inspections may be made not more than twice prior to the expiration of the 18-month period referred to above and once, within six months, thereafter. All information obtained during such inspection shall be considered Information subject to the Non-Disclosure Agreement dated, December 21, 1995 between Seller and Buyer. Should such audit disclose any underpayment in excess of $500.00, Buyer shall reimburse Seller its reasonable costs of conducting such audit. 4. Seller's Agreements with Others ------------------------------- Except as specifically provided herein, Buyer shall not acquire by purchase, assignment, transfer or otherwise any 4 contracts, licenses, leases or other agreements, written or oral, express or implied, executory or completed, or any rights, liabilities or obligations thereunder, between Seller and any other party or person. 5. Non-Assumption of Liabilities ----------------------------- Buyer shall not assume or agree to perform, pay or discharge, and Seller shall remain unconditionally liable for, all obligations, liabilities and commitments, fixed or contingent, known or unknown, of Seller or its employees, officers of directors related to Pick 64 or otherwise. 6. Training -------- Seller agrees to provide without charge to Buyer, on a schedule to be agreed upon, fourteen days of training at Seller's Santa Ana, California office for each of six Buyer employees in the structure, operation and maintenance of Pick 64, such training to be conducted by experienced Seller personnel knowledgeable in the subject matter. 7. [Deleted] 8. Buyer's Due Diligence --------------------- Seller will permit Buyer to conduct a thorough due diligence investigation of Seller's business as it relates to Pick 64 and will cooperate with Buyer in giving Buyer access to Seller's engineering, technical, maintenance, sales and marketing, accounting and executive employees who are most knowledgeable about Pick 64 and Seller's Pick 64 business. Seller will also cooperate with Buyer in arranging meetings between Buyer and a 5 reasonable number of Pick 64 customers selected by Buyer for purposes of evaluating user experiences with Pick 64. 9. Pick Systems License Agreement ------------------------------ Buyer will cooperate with Seller in obtaining the consent of Pick Systems, Inc. to permit Buyer to license and sublicense Pick 64 to others under the terms of Buyer's existing Pick Systems-Open Architecture License Agreement. 10. Seller's Representations ------------------------ Seller represents and warrants to Buyer that the statements contained in this Paragraph are true and correct: (a) Organization. Seller is a corporation duly organized, validly ------------ existing and in good standing under the laws of the State of California and has requisite power and authority to use, maintain and license Pick 64 to others, subject to the terms of Seller's Open Architecture License Agreement with Pick Systems dated December 9, 1986 (the "Pick License"), to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (b) Authorization. The execution and delivery of this Agreement and the ------------- consummation by Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement constitutes the valid and legally binding obligation of Seller, enforceable in accordance with its terms. 6 (c) Noncontravention. The execution and delivery of this Agreement will ---------------- not (i) conflict with or violate Seller's charter or bylaws, (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver (except the consent of Seller's primary lender which Seller shall use commercially reasonable efforts to obtain) under, any contract, license, sublicense, security interest, agreement or other arrangement to which Seller is bound or is a party and which relates to Pick 64 (excepting the Pick License), (iii) result in the imposition of any security interest upon Pick 64, (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller. (d) Rights in Pick 64. Except to the extent that Pick 64 is a derivative ----------------- work of the Pick Database, owned by Pick Systems, Inc., Seller is, and at the Closing will be, the sole true and lawful owner of Pick 64 and will have the right to sell and transfer to Buyer good and clear title to Pick 64, free and clear of all claims, liabilities, liens, pledges and encumbrances of any kind. Upon the Closing, Buyer will have good and clear title to Pick 64, except to the extent of the interest of Pick Systems in the underlying work noted in the prior sentence, free and clear of all security interests, mortgages, pledges, restrictions, prior assignments, encumbrances and claims of any kind whatsoever. (e) Quality. To the best of Seller's knowledge, Pick 64 is free from ------- material errors and defects and all computer viruses, code blocks and other harmful code, does not require unreasonable levels of maintenance, support or troubleshooting and will operate in all material respects in accordance with Seller's 7 published user documentation as set forth in Exhibit A. The documentation, manuals and other materials listed in Paragraph 1(a) document in reasonable detail all of the functions of, and relevant information related to the operation, maintenance and support of, Pick 64 and are sufficient to enable a person of reasonable skill in the field to understand the functionality and operation of Pick 64 and to maintain and support it. (f) Maintenance of Rights to Pick 64. Seller has taken reasonable -------------------------------- measures consistent with industry practice to maintain its rights in and to Pick 64 and has not disclosed its source code or other confidential or proprietary information constituting, embodied in or pertaining to Pick 64 to any person and has taken reasonable measures to prevent such disclosure, other than disclosure of such source code to employees and independent contractors of Seller pursuant to binding nondisclosure agreements with such persons which are in full force and effect. Seller has not distributed Pick 64 except pursuant to binding license or sublicense agreements that remain in full force and effect. No licensees of Seller have been permitted to distribute Pick 64, and no third parties are permitted to use Pick 64, except pursuant to sublicense agreements, a form of which has been provided to Buyer. To Seller's knowledge, no unauthorized third parties are using Pick 64 for commercial purposes, are distributing Pick 64 to others or are supporting or maintaining Pick 64 on a commercial basis. (g) Litigation. Seller is not a party to or threatened with, any ---------- litigation, suit, action, investigation, proceeding or controversy before any court, administrative agency or other governmental authority relating in any way to Pick 64. 8 (h) Customers. Exhibit B, to be delivered at Closing, shall be a complete --------- and accurate list of the names, addresses, any last known telephone numbers and contact personnel of all parties known to Buyer who are currently, or who have been at anytime in the previous five years, Pick 64 licensees or sublicensees. (i) Disclosure. No representation or warranty by Seller herein contains ---------- any untrue statement of a material fact or omits any material fact necessary in order to make the statements contained therein not misleading. Seller has not knowingly failed to disclose any material fact relating to the transaction contemplated by this Agreement. 11. Buyer's Representations ----------------------- Buyer represents and warrants to Seller that the statements contained in this Paragraph are true and correct: (a) Organization. Buyer is a corporation duly organized, validly existing ------------ and in good standing under the laws of the State of Delaware and has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (b) Authorization. The execution and delivery of this Agreement and the ------------- consummation by Buyer of the transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms. 9 (c) Noncontravention. The execution and delivery of this Agreement will ---------------- not (i) conflict with or violate Buyer's charter or bylaws or (ii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Buyer. 12. Pre-Closing Covenants --------------------- From the date hereof and until the Closing occurs: (a) Public Announcements. Except as otherwise required by law, any public -------------------- announcements regarding this Agreement or its subject matter shall be subject to the prior written approval of both parties, which approval shall not be unreasonably withheld or delayed. The parties agree to cooperate in the issuance of a joint or separate press releases within three business days after Closing. (b) Conduct of Business. Seller shall (i) continue to support and ------------------- maintain Pick 64 in the ordinary course in accordance with its past practice and shall preserve Seller's relationship with Pick 64 licensees, sublicensees and others having business relationships with it, (ii) not pledge, mortgage or encumber Pick 64 or subject it to any security interest and shall not sell, transfer or license Pick 64, other than licenses in the ordinary course of business, (iii) not take any action or fail to take any action permitted by this Agreement with the knowledge that such action or failure to take action would result in any of the Seller representations or warranties set forth herein becoming untrue or any of the conditions set forth in Paragraph 14 not being satisfied, or (iv) agree to take any of the foregoing actions. 10 (c) Communications with Licensees and Sublicensees. Seller and Buyer will ---------------------------------------------- cooperate in communicating with Seller's licensees and sublicensees regarding the sale of Pick 64 to Buyer. (d) Continued Truth of Representation and Warranties. Neither party will ------------------------------------------------ take any actions that would result in any of its respective representations or warranties set forth herein being untrue. (e) Exclusive Dealing. Seller shall not solicit, initiate, or engage in ----------------- discussions or negotiations with any other party concerning any sale or other disposition of Pick 64, other than through licenses and sublicenses in the ordinary course of business. 13. Satisfaction of Conditions -------------------------- Buyer and Seller agree to use their best efforts to obtain satisfaction of the conditions set forth in this Agreement. 14. Conditions to Buyer's Obligations --------------------------------- Buyer's obligations hereunder are subject to the fulfillment, at the Closing Date, of the following conditions: (a) Continued Truth of Seller's Representation and Warranties; Compliance --------------------------------------------------------------------- with Covenants and Obligations. Seller's representations and warranties shall - ------------------------------ be true in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such date. Seller shall have performed and complied in all material respects with all terms, conditions, covenants, obligations and agreements 11 required by this Agreement to be performed or complied with by it prior to or at the Closing Date. (b) Corporate Proceedings. All corporate and other proceedings required --------------------- to be taken by Seller to authorize or carry out this Agreement and to convey Seller's rights in Pick 64 to Buyer shall have been taken. (c) Consents of Third Parties. Buyer and Seller shall have received all ------------------------- requisite consents and approvals of third parties whose consent or approval is required to consummate the transactions contemplated hereby, including, without limitation, the agreement of Pick Systems, Inc., referred to in Paragraph 9, and the consent of Seller's primary lender. (d) Adverse Proceedings. No action or proceeding by or before any court ------------------- or other governmental body shall have been instituted or threatened that shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement or which might affect Buyer's right to use Pick 64 or to own the rights to Pick 64 being conveyed hereby. (e) Due Diligence. Buyer shall have completed its due diligence ------------- investigation to its satisfaction. (f) Closing Deliveries. Buyer shall have received at Closing (i) such ------------------ instruments of conveyance, assignment and transfer, in form and substance reasonably satisfactory to Buyer, as shall be appropriate to convey, transfer and assign to, and vest in, Buyer, good and clear title to Pick 64, (ii) such certificates of Seller's officers evidencing satisfaction of the condition specified in this Paragraph 14 as Buyer shall reasonably request, (iii) certificates of Seller's Secretary 12 attesting to the incumbency of Seller's officers and the authenticity of the resolutions authorizing the transactions contemplated hereby, (iv) such other certificates, instruments or documents as Buyer may reasonably request and (v) Exhibit B. 15. Conditions to Seller's Obligations ---------------------------------- Seller's obligations hereunder are subject to the fulfillment, at the Closing Date, of the following conditions: (a) Continued Truth of Buyer's Representation and Warranties; Compliance -------------------------------------------------------------------- with Covenants and Obligations. Buyer's representations and warranties shall be - ------------------------------ true in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such date. Buyer shall have performed and complied in all material respects with all terms, conditions, covenants, obligations and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing Date. (b) Corporate Proceedings. All corporate and other proceedings required --------------------- to be taken by Buyer to authorize or carry out this Agreement shall have been taken. (c) Adverse Proceedings. No action or proceeding by or before any court ------------------- or other governmental body shall have been instituted or threatened that shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement. (d) Closing Deliveries. Seller shall have received at Closing (i) such ------------------ certificates of Buyer's officers evidencing satisfaction of the condition specified in this Paragraph 14 as Seller shall reasonably request, (ii) certificates of Buyer's 13 Secretary attesting to the incumbency of Buyer's officers, and (iii) such other certificates, instruments or documents as Seller may reasonably request. (e) Consents of Third Parties. Seller shall have obtained the consent of ------------------------- its primary lender to the transaction contemplated hereby. 16. Indemnification --------------- (a) By Seller and Buyer. Seller and Buyer each hereby indemnifies and ------------------- holds harmless the other against all claims, damages, losses, liabilities, costs and expenses reasonably and actually incurred by the other in connection with (i) any breach by the indemnifying party of any covenant, agreement, representation or warranty contained in this Agreement, (ii) any misrepresentation contained in any certificate or other document furnished by the indemnifying party pursuant to this Agreement. (b) By Seller. Seller further agrees to indemnify and hold harmless Buyer --------- against all claims, losses, liabilities, costs and expenses reasonably and actually incurred by Buyer in connection with (i) any claims against, or liabilities or obligations of, Seller or against Pick 64 that are not specifically assumed by Buyer pursuant to this Agreement and (ii) any warranty claim or product liability claim relating to any copy or copies of Pick 64 licensed or sublicensed by Seller prior to the Closing Date. (c) By Buyer. Buyer further agrees to indemnify and hold Seller harmless -------- against all claims, losses, liabilities, costs and expenses reasonably and actually incurred by Seller in connection with any warranty claim or product liability claim 14 relating to any copy or copies of Pick 64 licensed or sublicensed by Buyer on or after the Closing Date. (d) Survival of Representations; Claims for Indemnification. All ------------------------------------------------------- representations and warranties made by the parties herein shall survive the Closing and any investigation made by or on behalf of the parties. All such representations and warranties shall expire on the second anniversary of the Closing Date, except for claims, if any, asserted in writing prior to such second anniversary, which shall survive until finally resolved and satisfied in full. All claims and actions for indemnity hereunder shall be asserted or maintained in writing by a party hereto on or prior to the expiration of such two-year period. 17. Noncompetition -------------- Seller shall not for a period of five years following the Closing, without the prior written consent of Buyer, design, produce, market, sell, distribute, license, sublicense or permit any other party to use any software product that is a derivative work of the Pick Database or whose origin relates to the Pick operating system/database software or is otherwise related to the same. Nothing herein, however, shall restrict Seller's right (a) to market systems which use other unrelated operating systems or (b) to provide hardware services for or maintain the hardware for Pick-based systems. 18. Support to Seller's Licensees. Buyer agrees to make its support services ----------------------------- and other services relating to Pick 64 available to those licensees listed on Exhibit B ("Seller's Licensees") substantially to the same extent and on substantially the same terms as it makes support available to its own Pick 64 licensees, 15 and to include Seller's Licensees on any of its general mailings to its own Pick 64 licensees. 19. Termination ----------- This Agreement shall terminate at midnight E.S.T. on March 31, 1995 if the Closing has not by that date occurred, unless such date is extended by mutual written agreement of the parties. This Agreement may be terminated by either party if at anytime prior to Closing there shall occur a material breach of any of the representations, warranties or covenants of the other party or the failure by the other party to perform any condition or obligation hereunder. Notwithstanding the foregoing, the following Paragraphs of this Agreement shall survive any termination in accordance with their terms: 12(a) ("Public Announcements"), 12(e) ("Exclusive Dealing"), 19 ("Termination") and 20 ("General"). 20. General ------- (a) Notices. Any notices to be given hereunder shall be sufficiently given ------- if delivered personally or sent by facsimile, overnight delivery service, or registered or certified mail, postage prepaid, addressed as follows or to such other address of which the parties may have given notice: To Seller: Alpha Microsystems, Inc. 3511 West Sunflower Avenue Santa Ana, CA 92704 Attention: President 16 To Buyer: Sequoia Systems, Inc. 400 Nickerson Road Marlborough, MA 01752 Attention: President Such notices shall be deemed received (i) on the date delivered, if delivered personally, (ii) upon receipt, if sent by facsimile or overnight delivery service, or (iii) three business days after being sent by registered or certified mail. (b) Brokers. The parties each represent and warrant that each has not ------- engaged any broker or finder or incurred any liability for brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement. Each party agrees to indemnify and hold harmless the other against claims or liabilities asserted against it with respect to such fees or commissions. (c) Assignment. Neither party may assign this Agreement without the prior ---------- written consent of the other, which consent shall not be unreasonably withheld. (d) Taxes. Notwithstanding any provisions of law imposing the burden of ----- such taxes on Seller or Buyer, as the case may be, Buyer shall be responsible for and shall pay all sales, use and transfer taxes, and all other governmental charges, if any, upon the sale or transfer of Pick 64 to Buyer. (e) Entire Agreement. This Agreement represents the entire understanding ---------------- and agreement between the parties with respect to its subject matter and supersedes all prior oral and written negotiations, commitments and understandings between them. This 17 Agreement may be amended only in writing signed by authorized representatives of both parties. (f) Governing Law. This Agreement is made in and shall be governed by and ------------- construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to its conflicts of laws principles. (g) Severability. The invalidity or unenforceability of any provision ------------ of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first written above. SEQUOIA SYSTEMS, INC. ALPHA MICROSYSTEMS, INC. By: /s/ SIGNATURE APPEARS HERE By: /s/ SIGNATURE APPEARS HERE ---------------------------- ---------------------------- Title: President and CEO Title: President and CEO ------------------------ ------------------------ 18 EXHIBIT A --------- Alpha Microsystems, Inc. Pick 64+, Volumes I and II, including the following: Volume I -------- Pick 64+ User Guide Pick 64+ 2.3 Release Note Pick 64+ Quick Reference Booklet Pick 64+ Q 2.3 G01 Release Note Volume II --------- Jet Word Users Guide Pick 64+ Basic Reference Manual Pick 64+ System Operators Guide EXHIBIT B
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 0010938 A I R S, INC (404) 949-0133 ED STACKS 003 2175-A W. COUNTY LINE ROAD (404) 949-2773 FAX # DOUGLASVILLE, GA 30135 USA PROFILE: AMS, DEALER 0031945 A K C (201) 476-0748 KOMET, ARNOLD 003 30 KINDERKAMACK ROAD (201) 476-9061 FAX # WOODCLIFF LAKE, NJ 07675 USA PROFILE: AMS, SERV, DEALER, ASSC-D 0010917 ABACUS DATA SYSTEMS (516) 487-3418 ETESSAMI, MEHRAN 003 P. O. BOX 4267 GREAT NECK, NY 11023 USA PROFILE: AMS, DEALER SALES MEMOPAD: SHIPPING ADDRESS: 13 CATALINA DR. KINGS POINT, NY 11024 0010937 ABRAXAS SYSTEMS (404) 948-3396 SUE A. CRANE 003 109 SHANE WAY (404) 739-4924 FAX # MABLETON, GA 30059 USA PROFILE: AMS, DEALER, ASSC-D SALES MEMOPAD: - 03/02/94 02:23 PD : FORMERLY S A C ASSOCIATES ---- 0091308 ACCESS SOFTWARE, INC. (305) 823-4249 LEONG, W. PAUL 003 6187 N.W. 167TH STREET, H-39 (305) 556-3047 MIAMI, FL 33015 USA PROFILE: AMS, DEALER 9210410 ACCOUNTING PLUS SYSTEMS, INC. (203) 677-5477 HANSHAW III, FRANK 003 101 WEST BROAD ST., SUITE 300 E1041 FALLS CHURCH, VA 22046 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: FORMERLY: ACCOUNTING PLUS SYSTEMS ---- 0031849 ACCURATE COMPUTER TECH. (714) 651-8845 PATEL, ANIL 001 P. O. BOX 4982 (714) 651-8489 FAX # DIAMOND BAR, CA 91765 USA PROFILE: AMS, DEALER 9410370 ACTIVE DATA PROCESSING (510) 460-8488 BRENTON, DOUGLAS H. 002 6666 OWENS DRIVE W1037 PLEASANTON, CA 94588 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 04/23/93 10:06 PD : TERMINATED 4/19/93 ---- - 04/23/93 10:12 PD : ---- 9210810 ADVANCED MFG. TECHNIQUES, INC. (216) 732-9191 SPADARO, MICHAEL F. 003 26380 CURTIS WRIGHT PKWY. 302 (216) 732-9220 FKA COMPLETE INF FAX # CLEVELAND, OH 44143 USA PROFILE: AMS, DEALER
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ------------------------------------------------------------------------------------------------------------------------------------ SALES MEMOPAD: MICHAEL SPADARO (JOE) DEALER COUNCIL ASSUMED BY ADVANCED MANUFACTURING TECHINQUES -- NEW DEALER AGREEMENT SENT 3/22/91. FORMERLY COMPLETE INFORMATION SYSTEMS - NAME CHANGED/NEW CONTRACTS FILED 4/19/91. 9410890 AMERICAN COMPUTER ENTREPRENEUR (713) 772-0600 JANKEL, DARYL L. 003 P.O. BOX 498 (000) 000-0000 DARYL FAX NOT ALWAYS 0 SUGAR LAND, TX 77487-0498 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 08/16/94 05:30 PD : TERMINATION LETTER SENT THIS DATE; EFFECTIVE 10/20/94 ---- 0091261 AREA COMPUTER SVCS OF ORLANDO (407) 774-0830 PETILLO, FRANK 003 2180 WEST S.R. 434, SUITE 1140 LONGWOOD, FL 32779 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: - 03/03/92 07:35 PD : TERMINATION LETTER SENT 3/3/92 EFFECTIVE 5/7/92 = REMOVE FROM MAILING LIST - MAIL BEING REFUSED ---- - 05/20/92 02:12 PD : TERMINATED ---- 9220460 AUGMENTED COMPUTER TECH. (904) 407-0431 BASTIAN, ANTHONY 003 SUITE A 24 (904) 877-9840 DOROTHEA FAX # **345 SO. MAGNOLIA DR. TALLAHASSEE, FL 32301 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 305-989-0002 9420340 AUROTECH INCORPORATED (303) 770-5004 000 5445 DTC PARKWAY W2034 ENGLEWOOD, CO 80111 USA PROFILE: AMS, DEALER 0091338 AUTOMATED BUSINESS SOLUTIONS (305) 791-5399 IGUALADA, PAULINE 003 7090 N W 7TH STREET (305) 791-5227 FAX ** PLANTATION, FL 33317 USA PROFILE: AMS, SERV, DEALER 0010939 AUTOMATED COMPUTER ENVIRONMENT (510) 828-0996 WAYNE DODSON 001 11875 DUBLIN BLVD. STE. B-130 (510) 828-0997 FAX# DUBLIN, CA 94568 USA PROFILE: AMS, DEALER 0010893 AUTOMATION CONSULTANTS (510) 794-7921 CARL, R. ALAN 001 39210 STATE STREET, SUITE 108 (510) 794-7923 MIRIAM FAX FREMONT, CA 94538 USA PROFILE: AMS, DEALER
ESD12:ARCAP2.000 OPERATOR:PD DATE: 03/13/95, 02:30:22 PM PAGE: 2
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 0090279 AVEXXIS (203) 676-9006 CARLSON, ALLEN 003 30 AVON MEADOW LANE (203) 677-2176 FAX # AVON, CT 06001 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: - 12/10/93 08:33 PD : FORMERLY AVELLON GROUP -- NAME CHANGED DUE TO COPYRIGHT INFRINGEMENT PROBLEM ---- - 01/18/94 02:27 PD : ---- 0032019 AZTEC COMPUTER CORP., INC. (201) 244-0200 MILT SILVERSHEIN 003 333 ROUTE 46 WEST (201) 244-9480 FAX # FAIRFIELD, NJ 07004 USA PROFILE: AMS, DEALER, E-USER, ASSC-D 9410960 B K P G INTEREST (713) 880-0042 KURKA, GEORGE J. 003 6801 PORT WEST DRIVE SUITE 170 (713) 865-5349 MARY JOHNSON FAX # HOUSTON, TX 77024 USA PROFILE: AMS, DEALER 9210811 BANC ONE LEASING CORP (216) 642-0077 003 6100 ROCKSIDE WOODS BLVD E1081-1 FAX # CLEVELAND, OH 44131 USA PROFILE: AMS, DEALER 0010894 BUSINESS INFORMATION SYSTEMS (510) 866-7000 RAGLE, STEPHEN 001 2270 CAMINO RAMON, STE. 101 (510) 866-0369 MEG FAX # SAN RAMON, CA 94583 USA PROFILE: AMS, SERV, DEALER 9210480 BY-TEQ SYSTEMS, INC. (212) 967-9009 ATTEN: F. KENNETH FREEDMAN 003 358 FIFTH AVE E1048 NEW YORK, NY 10001-2209 USA PROFILE: AMS, DEALER 0010909 C & W ASSOCIATES, INC. (713) 367-8067 WHITNEY, GARY E. 003 6 LULLABY LANE (713) 367-8067 FAX # THE WOODLANDS, TX 77380 USA PROFILE: AMS, DEALER 0031932 C R COMPUTING (714) 363-8130 CHUCK RUBAN 001 30902 CLUBHOUSE DR., STE 27A (714) 363-7158 FAX LAGUNA NIGUEL, CA 92677 USA PROFILE: AMS, DEALER, DEV 0010864 C T S COMPUTERS, INC. (201) 882-7515 KOMET, ARNOLD 003 81 TWO BRIDGES ROAD, BLDG 2 (201) 808-0524 BOB KRAMER/SHERRY FAX # FAIRFIELD, NJ 07004 USA PROFILE: AMOS, AMS, DEALER SALES MEMOPAD: - 11/20/92 04:34 PD : FORMERLY ASKEY COMPUTER - 06/28/93 10:39 PD : MAILER FLAG FLIPPED TO "N" - MAIL BEING RETURNED AND DEALER IS IN THE PROCESS OF OPENING A NEW DEALERSHIP UNDER AKC.
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 0091365 CAPRICORN DATA INC. (619) 471-9307 MORCK, J. MICHEL 001 1285 STONE DR., SUITE 101 LAKE SAN MARCOS, CA 92069 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 01/08/92 02:20 PD : TERMINATED 1/8/92 AT DEALER'S REQUEST ---- 9210960 CAYMAN VENTURES, INC. (804) 743-3963 003 5039 GRASSMERE RD E1096 RICHMOND, VA 23234 USA PROFILE: AMS, DEALER 9420280 CENTURY PUBLISHING SYSTEMS (208) 765-6300 ATTN: MIKE URQUHART P. O. BOX 730 W2028 COEUR D'ALENE, ID 83814 USA PROFILE: AMS, DEALER 0010920 CHEROKEE SYSTEMS, INC. (404) 439-1299 SAM D. MYERS 003 5205 ELLIOT ROAD (404) 739-7614 CHEREE MYERS FAX # ** POWDER SPRINGS, GA 30073 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 03/21/94 08:54 PD : STREET ADDRESS: 422 THONTON RD. SUITE 104 LITHIA SPRINGS, GA 30057 0091355 CLASSIC SOLUTIONS (714) 724-4597 CHRISTIAN, RANDALL H. 001 BRINDERSON TOWERS SUITE 1450 (714) 263-1389 C&W 3-11-3 FAX # 19800 MACARTHUR BLVD. IRVINE, CA 92715 USA PROFILE: AMS, DEALER, DEV 9410830 CLE ENTERPRISES INC (602) 246-3624 ATTEN:CRAIG ELGGREN 10814 WEST FRIER DR W1083 GLENDALE, AZ 85307 USA PROFILE: AMS, DEALER 9210600 COMP U TIME (708) 228-1600 GOODIN, DAVID 003 2216 LANDMEIER RD. (708) 228-6584 NCRI DUE 5-18-94 FAX # ELK GROVE VILLAGE, IL 60007 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 10/23/91 12:54 PD : ---- 9210990 COMPUTER CENTER OF TAMPA (813) 875-5050 ATTEN: ARTHUR ALVAREZ/PRE 4520 WEST KENNEDY BLVD E1099 TAMPA, FL 33609 USA PROFILE: AMS, DEALER 9420040 COMPUTER CENTER, THE (907) 456-2281 1603 COLLEGE RD W2004 FAIRBANKS, AK 99701
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ------------------------------------------------------------------------------------------------------------------------------------ USA PROFILE: AMS, DEALER 9420050 COMPUTER CENTER, THE (206) 854-2050 P.O. BOX 1359 W2005 KENT, WA 98031 USA PROFILE: AMS, DEALER 9211020 COMPUTER PERSONALITIES, INC. (201) 996-3100 CAPELL, GEORGE L. 003 29 RACE ST (201) 996-4519 E1102 FAX # FRENCHTOWN, NJ 08825 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 201-996-4519 - 10/16/91 10:22 PD : TERMINATION LETTER SENT 10/16/91 - WILL BE FINAL 12/20/91 ---- - 12/20/91 02:48 PD : DEALER TERMINATED ---- 0089699 COMPUTER SYSTEMS INC. (503) 639-9150 FRIBERG, RONALD 001 6950 SW HAMPTON (503) 639-6840 DOROTHEA FAX PORTLAND, OR 97223 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: - 04/01/94 08:51 PD : TERMINATED THIS DAY -- UNABLE TO LOCATE DEALER ---- 9410990 COMPUTRAIN, LTD (504) 524-7256 SORANT, PETER 003 938 LAFAYETTE ST (504) 523-1149 NCRI DUE 5-6-94 FAX# NEW ORLEANS, LA 70113 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 01/20/94 02:50 PD : TERMINATED THIS DATE -- NO SALES SINCE 1992 SEE FUJITSU CONTRACT SECTION 4.1(D) ---- 9210710 COURAGE GROUP LTD (201) 851-0900 ATTN: ART CLAUSEN 003 2333 MORRIS AVE STE D-3 E1071 UNNION, NJ 07083 USA PROFILE: AMS, DEALER 9410900 COVERSTON ENTERPRISES (713) 558-4531 ATTEN: GREG COVERSTON 14686 G PERTHSHIRE W1090 HOUSTON, TX 77079 USA PROFILE: AMS, DEALER 9420270 CREATIVE COMPUTER SOLUTIONS (415) 790-2073 CLARKE, GREGORY R. 093 39350 CIVIC CENTER DR. STE 400 W2027 FREMONT, CA 94538 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 415-791-0711 - 06/12/91 08:09 PD : TERMINATED 6/1/90 PER PHIL SMITH - 10/23/91 02:40 PD : ---- 9210420 CRS, INC. (215) 674-1399 ATTEN: HAROLD WILLIAMS 003
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PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 50 SOUTH PENN ST E1042 HATBORO, PA 19040 USA PROFILE: AMS, DEALER 9411000 CUSTOM REPORTS TECHNOLOGIES (916) 676-6455 KENDALL, DENNIS D. 001 3294 ROYAL DRIVE (916) 676-6460 NANCY KENDALL FAX # SUITE 102 CAMERON PARK, CA 95682 USA PROFILE: AMS, SERV, DEALER 0010880 DANDI COMPUTER SERVICES INC. (516) 431-2827 KOPPELMAN, IRWIN 003 206 LAGOON DRIVE, WEST (516) 889-2843 FAX LIDO BEACH, NY 11561 USA PROFILE: AMS, DEALER 0091279 DATA RESOURCE GROUP, INC. (305) 753-1024 MADDEN, H. DAN 003 P. O. BOX 8976 (305) 753-1136 MARSHA FAX # CORAL SPRINGS, FL 33075-8976 USA PROFILE: AMS, DEALER 9411030 DATA-IMAGE SYSTEMS CORPORATION (916) 638-3333 SHOEMAKER, MERLIN 001 3062 PROSPECT PARK DRIVE (916) 638-0909 LUANNA A/P FAX # SACRAMENTO, CA 95670 USA PROFILE: AMS, DEALER SALES MEMOPAD: FORMERLY SYSTEMS DATA PROCESSING - 11/21/91 10:33 PD : ---- - 04/13/93 06:47 PD : ---- 9211060 DATABASE BUSINESS APPLICATIONS (617) 932-3366 003 12 ALFRED STREET E1106 WOBURN, MA 01801 USA PROFILE: AMS, DEALER 9420230 DATABASE SOLUTIONS (713) 320-0036 GOODWIN, WILLIAM 003 7610 HERTFORDSHIRE DRIVE (713) 320-9059 FAX # ** SPRING, TX 77379 USA PROFILE: AMS, DEALER 0010889 DATACRON, INC. (708) 832-1011 PAUL, PETER 003 977 OAKLAWN AVENUE (708) 832-1049 RACHEL, OWNER'S DAUGHTER ** ELMHURST, IL 60126 USA PROFILE: AMS, DEALER 0031866 DATAFOX SYSTEMS INC. (519) 747-4040 ZENGER, DAVID A. 004 620 DAVENPORT ROAD UNIT 18 (519) 747-9665 DAVID ZENGER, PRES WATERLOO, ONTARIO, N2V 2C2 CANADA PROFILE: AMS, DEALER, E-USER, DEV 0031846 DATAWORKS CORPORATION (619) 546-9600 MOHR, MARIANNE 001 5910 PACIFIC CENTER BLVD., (619) 546-9705 KATY/PRISCELLA X9770
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ------------------------------------------------------------------------------------------------------------------------------------ SUITE 300 SAN DIEGO, CA 92121 USA PROFILE: AMS, SERV, DEALER, E-USER 9220550 DATEK, INC. (508) 369-0185 RADFORD, CYRUS 003 242 BAKER AVENUE (508) 371-2374 E2055 FAX NUMBER CONCORD, MA 01742 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 508-371-2374 TERMINATED 2/5/91 PER P. SMITH LETTER OF 1/24/91 ---- 0010710 DEALER SOFTWARE, INC. (818) 887-5061 CRAMER, PHILIP 001 6312 VARIEL AVENUE (818) 887-2768 FAX# ** SUITE 204 WOODLAND HILLS, CA 91367 USA PROFILE: AMS, DEALER, DEV 9410390 DELIBERATE SYSTEMS, INC. (619) 280-4400 3456 CAMINO DEL RIO NORTH W1039 SAN DIEGO, CA 92108 USA PROFILE: AMS, DEALER 0010885 DELTA DATA SOLUTIONS INC. (901) 377-5511 VETTER, JOHN D. 003 5115 COVINGTON WAY, STE 5 (901) 377-5914 LISA FAX # MEMPHIS, TN 38134 USA PROFILE: AMS, DEALER, DEV 0031767 DIVERSIFIED ANALYSIS & SOL. (201) 450-1650 TURI, PASQUAL C. 003 272 FOREST ST. AS OF 11/9 BELLEVILLE, NJ 07109 NO FAX USA PROFILE: AMS, DEALER 9210890 DIVERSIFIED COMPUTERS (404) 475-4601 1081 CAMBRIDGE SQUARE E1089 ALPHARETTE, GA 30201 USA PROFILE: AMS, DEALER 9410920 DJAN, INC. (619) 695-6691 ATTN: DORTHA TURNER 9948 HIBERT ST. STE 101 W1092 SAN DIEGO, CA 92131 USA PROFILE: AMS, DEALER 9420200 DOLPHIN ENTERPRISES LTD (604) 687-2890 DOLPHIN, DAN R. 004 301 - 6340 BUSWELL STREET (604) 682-3571 W2020 FAX # RICHMOND, BC, V6Y 2G1 CANADA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: DEALER COUNCIL ---- - 04/22/93 02:48 PD : ---- 0091392 E C I COMPUTER, INC. (714) 434-8800 JEREMIAS, CARL 001 1231 EAST DYER ROAD SUITE 120 (714) 434-8880 SUE 434-8812 FAX#
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- SANTA ANA, CA 92705 USA PROFILE: AMS, SERV, DEALER 0010866 E D P SERVICES (708) 913-0059 ALBRECHT, KYLE M. 003 14531 RIVER OAKS DRIVE LINCOLNSHIRE, IL 60069 USA PROFILE: AMS, DEALER 0031937 E W M SYSTEMS, INC. (315) 488-3681 BILL MARTIN 003 4935 ALBART DRIVE SYRACUSE, NY 13215-1305 USA PROFILE: AMS, DEALER ASSC-D, SPECL 9420300 EECO COMPUTER INC. (714) 434-8800 GERRY SOMA 093 USE 91392 (714) 434-8880 CHAPTER 11 FAX # SANTA ANA, CA 92705 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX -0714-434-8880 SHIPPING ADDRESS: EECO COMPUTER INC. 1231 EAST DYER RD SANTA ANA, CA 92705 CUSTOMER INACTIVE 1/8/91 PER KAY FAZEL - BANKRUPTCY FILED 9420330 ELECTRONIC BUSINESS SYSTEMS (800) 882-7740 STOKKA, JOHN R. 003 1501 - 50TH STREET (800) 736-3412 ROBIN OR JOHN FAX # DES MOINES, IA 50266 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 8/16/94 05:30 PD : TERMINATION LETTER SENT THIS DATE; EFFECTIVE 10/20/94 ---- 9411040 ENFORCEMENT TECHNOLOGY, INC. (714) 707-3832 WARD, GARY E. 001 28 HAMMOND, SUITE C (714) 832-0473 LINDA FAX # P. O. BOX 4726 IRVINE, CA 92716-4726 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: SHIPPING ADDRESS: 3002 DOW AVENUE SUITE 502 TUSTIN, CA 92680 - 09/03/93 07:32 FD : ---- 9210900 ERIN GROUP, INC., THE (708) 305-0814 BRAJE, FRANK 004 509 AURORA AVENUE, SUITE 117 (708) 357-1672 FAX # NAPERVILLE, IL 60540 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 312-369-1878 - 11/09/92 02:30 PD : TERMINATION LETTER SENT 11/9/92 - EFFECTIVE 1/14/93 ---- - 01/14/93 03:48 PD : TERMINATION FINAL
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ------------------------------------------------------------------------------------------------------------------------------------ ---- F9210350 - 01/18/94 12:03 PD : ---- 9410440 ESCOM, INC. (206) 828-0995 WOLD, KURT 001 10502 N.E. 37TH CIRCLE (206) 827-2297 MAUREEN O'BRIEN FAX # KIRKLAND, WA 98033 USA PROFILE: AMS, DEALER SALES MEMOPAD: - DEALER COUNCIL - 07/12/93 01:59 PD : ---- ---- 9210940 EXECUSOFT, INC. (305) 345-6741 FEIG, LAWRENCE 003 9305 W. SAMPLE ROAD (305) 345-6780 E1094 FAX NUMBER CORAL SPRINGS, FL 33065 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 305-755-4255 AFTER HOURS TECH SUPPORT - 305-345-6780 - 04/13/93 09:30 PD : TERMINATION LETTER SENT - EFFECTIVE 6/17/93 ---- - 06/24/93 01:07 PD : TERMINATED THIS DATE ---- - 12/03/93 03:25 PD : F ---- 9210700 FMP (312) 272-2400 5 REVERE DR E1070 NORTHBROOK, IL 60062-1561 USA PROFILE: AMS, DEALER 0091322 FRISARD COMPUTER CONSULTANTS (504) 455-7306 FRISARD, RODNEY P. 003 DBA: ULTIMATE BUSINESS SYSTEMS (504) 887-5297 FAX # 4712 CHASTANT STREET METAIRIE, LA 70006 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 12/01/93 11:09 PD : DEALER TERMINATED AFTER FINAL ORDER PER HIS REQUEST. ---- - ---- 9310000 FUJITSU AUSTRALIA, LTD. (000) 959-6497 MR. T. HASHIMOTO 006 ATTN: T. HASHIMOTO/FINANCE MGR (612) 411-8362 SIMON DAVIS FAX# 011 475 VICTORIA AVE. CHATSWOOD, NSW, 2067 AUSTRALIA PROFILE: AMS, DEALER 9310060 FUJITSU CANADA INC (416) 673-8666 6280 NORTHWEST DRIVE F1006
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- MISSISSAUGA, ON L4V 1-J7 USA PROFILE: AMS, DEALER 9210380 G.P. TAURIO (301) 381-7240 003 9891 BROKEN LANE PARKWAY E1038 COLUMBIA, MD 21046 USA PROFILE: AMS, DEALER 9410910 GEAC COMPUTERS, INC. (808) 625-2111 300 KAHELU AVENUE W1091 MILILANI TOWN, HI 96789 USA PROFILE: AMS, DEALER 9411060 GOLD MEDAL EQUIPMENT-ALTA (403) 279-2960 TRAXLER, WILLIAM J. 094 5904 35 ST. S.E. W1106 CALGARY, AL T2C2G3 CANADA PROFILE: AMS, DEALER 9211040 GOLUBOV COMPUTER SALES, INC. (908) 671-5800 GOLUBOV, JOSEPH N. 003 P.O. BOX 4164 (908) 671-5903 PATRICIA HASAN, A/P FAX # MIDDLETOWN, NJ 07748 USA PROFILE: AMS, DEALER, DEV SALES MEMOPAD: - 03/25/94 02:14 PD : SHIPPING ADDRESS: 10 KINGS HIGHWAY MIDDLETOWN, NJ 07748 9410380 H.L. SYNERTECH (206) 881-9491 2663 BEL-RED ROAD W1038 BELLEVUE, WA 98008 USA PROFILE: AMS, DEALER 9410620 HARDWARE HARDWARE, SOFTWARE, INC (512) 328-6244 VON MERZ, WALTER L. 003 P. O. BOX 161322 (512) 328-6244 SAME FAX # AUSTIN, TX 78716-1322 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 1/31/92 12:07 PD : ---- 9210740 HEALTH CARE TECHNOLOGIES (201) 228-8700 SAUNDERS, THOMAS G. 003 101 EISENHOWER PARKWAY (201) 228-1066 CLAIRE, A/P FAX # ROSELAND, NJ 07068 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: NEW DEALER APPLICATION SENT 4/3/91 DEALERSHIP ACCEPTED 4/16/91 - 12/10/93 08:33 PD : DIVISION OF MEDICAL DATA TECHNOLOGY, INC. ---- 0010930 HEIDER/BROWNE & ASSOCIATES (310) 370-5374 HEIDER, PEGGY J. 001 1410 FIFTH STREET (310) 379-0662 FAX # MANHATTAN BEACH, CA 90266 USA PROFILE: AMS, DEALER 0091357 HIGHLAND LIBRARY SYSTEMS, INC. (813) 734-7300 FRAISER, PHILIP T. 003 2075 NORTH KEENE ROAD (813) 733-4791 FAX #
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- CLEARWATER, FL 34615-1372 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 02/07/94 12:38 PD : TERMINATION LETTER SENT THIS DATE -- EFFECTIVE 4/13/94 ---- - 04/14/94 08:00 PD : TERMINATED THIS DATE ---- 9410870 HYCOMP, INC. (409) 693-4575 ATTEN: GEORGIA MTLEYDE 2402 E. TEX AVE SOUTH W1087 COLLEGE STATION, TX 77840 USA PROFILE: AMS, DEALER 9211000 I M S AGENCY INFORMATION SERVS (212) 789-3600 KLAR, NEIL 003 11 WEST 42ND ST., #1271 (212) 789-3637 E1100 FAX NUMBER SECOND FLOOR NEW YORK, NY 10036 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 12/6/90 - CHANGED TO KTS SYSTEMS GROUP/ADSERVE #91375 ---- ---- 9220190 I S P A, INC. (404) 881-6212 BALTHAZAR, LANTZ A. 003 1718 PEACHTREE STREET, NW (404) 881-6218 FREDDIE LOWE FAX # SUITE 560 SOUTH TOWER ATLANTA, GA 30309-2409 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 404-881-6218 - 02/07/94 12:36 PD : TERMINATION LTR. SENT THIS DATE -- EFFECTIVE 4/13/94 ---- - 04/14/94 07:59 PD : TERMINATED THIS DATE ---- 9210720 IMAGE COMMUNICATIONS SYSTEMS (313) 425-5225 ATTN: ROBERT GUSBAR 32553 SCHOOLCRAFT E1072 LIVONIA, MI 48150 USA PROFILE: AMS, DEALER 9210760 INDEPENDENT DATA SYSTEMS (404) 533-6628 DEALER NOT ACTIVE E1076 DECATUR, GA 30030 USA PROFILE: AMS, DEALER 9210670 INFORMATION DYNAMICS OF N.Y. (914) 761-3925 GOLOMB, HANK 003 701 WESTCHESTER AVE. #308W (708) 601-6107 CONNIE FAX # WHITE PLAINS, NY 10604 USA PROFILE: AMS, DEALER 9210400 INFORMATION MANAGEMENT CORP (301) 953-0541 O'NEILL, JOHN W. 003 14333 LAUREL-BOWIE RD (301) 953-3254 E1040 FAX # SUITE 310 LAUREL, MD 20708
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ------------------------------------------------------------------------------------------------------------------------------------ USA PROFILE: AMS, DEALER 9220410 INFORMATION PROCESSING COMPANY (703) 683-8620 ATTEN: THOMAS ALFANO 003 2010 EISENHOWER AVE E2041 ALEXANDRIA, VA 22314 USA PROFILE: AMS, DEALER 9210500 INFORMATION SYSTEMS CONSULT. (813) 921-5500 000 2344 BEE RIDGE RD E1050 SARASOTA, FL 34239 USA PROFILE: AMS, DEALER 9210770 INFORMATION TECH. CONSULTANTS (201) 882-9881 ATTEN: ZAMIR HASSAN 003 75 PYLMOUTH ST E1077 FAIRFIELD, NJ 07006 USA PROFILE: AMS, DEALER 9410850 INFOSHARE, INC. (512) 736-0567 DORSEY, CLIFFORD 092 4400 PIEDRAS ST (512) 736-0537 W1085 FAX NUMBER SUITE 175 SAN ANTONIO, TX 78228 USA PROFILE: AMS, DEALER 0010912 INOVATIVE BUS. ASSOCIATES INC (407) 788-2314 SHIBLES, LARRY 003 499 N. STATE ROAD 434 (407) 788-7264 FAX# SUITE 2129 ALTAMONTE SPRINGS. FL 32714 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 09/29/92 02:20 PD : ---- - 09/29/94 08:35 HS : ---- 9210350 INSIGHT SOLUTIONS, INC. (508) 486-0322 DUMONT, PETER 003 294 GREAT ROAD E1035 P.O. BOX 1485 LITTLETON, MA 01460 USA PROFILE: AMS, DEALER 9210580 INTEGRATED DATA SYSTEMS (317) 845-7445 ATTEN: PAM MCGUIRE 8021 CASTLETON ROAD E1058 INDIANAPOLIS, IN 46250 USA PROFILE: AMS, DEALER 9120080 INTERCOMP DO NOT USE THIS CODE C2008 USA PROFILE: AMS, DEALER 9210510 J. GLASER & COMPANY, INC. (312) 786-0377 55 E. JACKSON BLVD E1051 CHICAGO, IL 60604 USA PROFILE: AMS, DEALER 0031940 JAMES BOYD ASSOCIATES (412) 833-0805 JIM BOYD 003
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ----------------------------------------------------------------------------------------------------------- BROOKSIDE PROFESSIONAL BLD 2 (412) 833-1295 FAX # 37 MCMURRAY ROAD, SUITE 1102 PITTSBURGH, PA 15241 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 06/29/93 04:37 PD : ---- 9410430 JENKON DATA SYSTEMS, INC. (206) 256-4400 JENSEN, DANIEL O. 093 4601 NE 77TH AVENUE (206) 256-4400 NELSON COPELAND - MAINT SUITE 300 VANCOUVER, WA 98662 USA PROFILE: AMS, DEALER SALES MEMOPAD: TERMINATED AT CUSTOMER'S REQUEST 10/15/90 - 06/12/91 08:28 PD : ---- - 10/23/91 02:57 PD : ---- 0091375 K T S SYSTEMS GROUP/ADSERVE (212) 213-5700 TILE, GARY 003 49 WEST 27TH STREET, STE 200 (212) 213-5996 REHANA (CANADA) FAX # NEW YORK, NY 10201 USA PROFILE: AMS, DEALER SALES MEMOPAD: ACQUIRED IMS/ADSERVE ---- 0010931 KORE DATA SYSTEMS, INC. (708) 369-5673 REDEMEIER, DON 003 P. O. BOX 3009 (708) 369-5748 FAX # LISLE, IL 60532 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 07/20/93 09:39 PD : SHIPPING ADDRESS: 6425 ASHFORD C. LISLE, IL 6053 ---- 9410470 L P SYSTEMS (801) 756-4182 PARKER, LEROY 001 456 EASTVIEW DR (801) 756-4182 W1047 FAX # ALPINE, UT 84003 USA PROFILE: AMS, DEALER 0010907 L W SUBSCRIPTION SERVICES (905) 475-4145 WULF, LOUIS 004 60 RENFREW DRIVE SUITE 260 (905) 940-3606 ELAINE FAX # ** MARKHAM, ONTARIO, L3R OE1 CANADA PROFILE: AMS, DEALER 9410690 LAGUNA SOFTWARE & CONSULTING (714) 494-1092 WULFF, WILLIAM H. 001 P. O. BOX 168 (206) 376-6092 KRIS HAD GONE TO NCRI FAX # EASTSOUND, WA 98245-0168 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 714-494-2370 9210360 LEARNING SOURCE OF NEW ENGLAND (617) 969-0766 ATTEN: DENNIS SANCHEZ 003 719 MAIN STREET E1036 WALTHAM, MA 02154 USA PROFILE: AMS, DEALER
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ------------------------------------------------------------------------------------------------------------------------------------ 0010876 LOGICAL CONNECTIONS, INC. (813) 586-2234 SHEDD, STEPHEN K. 003 1261 - 16TH COURT, SW (000) 000-0000 NO FAX# LARGO, FL 34640 USA PROFILE: AMS, DEALER 0010838 LTD COMPUTER SERVICES, INC. (612) 851-7020 TEGEN, THOMAS 003 2950 METRO DR. #214 BLOOMINGTON, MN 55425-1561 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 02/07/94 12:35 PD : TERMINATION LTR. SENT 2/7 -- EFFECTIVE 4/13/94 ---- - 04/14/94 07:59 PD : TERMINATED THIS DATE 0010868 MARK INFORMATION SYSTEMS, INC. (415) 697-9051 FARHAD, NAHREIN 001 1633 OLD BAYSHORE HIGHWAY (415) 697-6536 FAX# SUITE 155 BURLINGAME, CA 94010 USA PROFILE: AMS, DEALER 9211030 MARKET SOLUTIONS, INC. (813) 955-4400 LEONARD, ROBERT C. 003 550 S. PINEAPPLE AVENUE (813) 953-3764 ADAMS, MATTHEW, 1/29/92 SARASOTA, FL 34236 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 212-995-2809 - 03/03/92 07:36 PD : TERMINATION LETTER SENT 3/2/92 - EFFECTIVE 5/7/92 - REMOVED FROM MAILING LIST - 05/20/92 02:11 PD : TERMINATED ---- 9420210 MATRIX COMPUTERS (505) 831-3219 3108 ALAMONGORDO N.W. W2021 ALBUQUERQUE, NM 87120 USA PROFILE: AMS, DEALER 9210590 MEDIA SERVICES GROUP LTD, THE (203) 921-1771 DAVID SHINE 003 4 HIGH RIDGE PARK (203) 921-1791 CAROL STOSSE FAX# STAMFORD, CT 06905 USA PROFILE AMS, SERV, DEALER SALES MEMOPAD: FAX = 203-329-1507 - 06/12/91 08:39 PD: ---- 9410840 MEDICAL COMPUTER BILLING, INC. (916) 966-9222 6403 COYLE AVE W1084 CARMICHAEL, CA 95608 USA PROFILE: AMS DEALER 9220490 MEGASYS, INC. (305) 446-8673 YUSSO, WILLIAM 003 4200 SALZEDO STREET P2049 CORAL GABLES, FL 33186 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 02/25/92 02:18 PD: ----
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- - 09/14/92 10:50 PD : MAIL BEING RETURNED - FLAG FLIPPED TO N ---- - 11/09/92 02:29 PD : TERMINATION LTR. SENT 11/9/92 - EFFECTIVE 1/14/93 ---- - 01/14/93 03:48 PD : TERMINATION FINAL 0010887 MICRO SYSTEMS INTEGRATION (714) 644-9844 ADLER, DAN 001 450 NEWPORT CENTER DR. (714) 895-9806 SHERRI FAX #720-0366 & SUITE 420 NEWPORT BEACH, CA 92660 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: - 03/23/94 07:46 GN : ---- - 03/23/94 07:47 GN : ---- 0031856 MICRODYNE COMPANY (419) 756-5427 KEULTJES, HENRY B. 003 P. O. BOX 1056 (419) 756-5427 FAX MANSFIELD, OH 44901-1056 USA PROFILE: AMS, DEALER 9410750 MICROPLAN COMPUTER SERVICES (000) 821-1070 ATTN: ANDREW NEAL 614 ALICANTE STE 104 W1075 EL PASO, TX 79912 USA PROFILE: AMS, DEALER 9210790 MINI BUSINESS SYSTEMS, INC. (203) 262-1306 THOMAS, TIMOTHY J. 003 194 MAIN STREET NORTH (203) 262-1310 NCRI DUE 11-14 FAX # **P.O. BOX 425 SOUTHBURY, CT 06488 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 203-262-1310 9411010 MULTIDATA CORPORATION (408) 559-6500 BILL OGDEN 001 2105 HAMILTON AVE., STE 100 (408) 879-9220 JACKIE OGDEN FAX # SAN JOSE, CA 95125-5900 USA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 408-879-9220 0010881 N S A TECHNOLOGIES, INC. (404) 604-9000 THOMPSON, C. DEAN 003 P. O. BOX 888465 (404) 604-9077 RUTH THOMPSON FAX # ** ATLANTA, GA 30356 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 01/08/92 03:21 PD : 9420310 NATIONAL SOFTWARE SOLUTIONS (310) 595-5075 ANDERSON, ERIC 001 3520 LONG BEACH BLVD. (310) 595-8920 W2031 FAX # SUITE 204 LONG BEACH, CA 90807 USA PROFILE: AMS, DEALER
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PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - ------------------------------------------------------------------------------------------------------------------------------------ 0091228 NEW ENGLAND COMPUTER SOLUTIONS (617) 229-1100 MACPHERSON, RONALD E. 003 128 CORPORATE CENTER (617) 229-1105 PAT DOHERTY FAX# 70 BLANCHARD ROAD BURLINGTON, MA 01803 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 11/12/91 09:59 PD : TERMINATION LETTER SENT 11/12/91 - WILL BE FINAL ON 1/16/92 ---- 9410680 NEWPORT TRAFFIC STUDIES (612) 541-1979 ATTN: CLIFF YARGES 177 RIVERSIDE AVE STE F W1068 NEWPORT BEACH, CA 92663 USA PROFILE: AMS, DEALER 9410980 NOMAN SYSTEMS, INC. (714) 634-3606 WILLIAMS, RON C. 093 C/O LIBRARY SYSTEMS OF ALASKA W1098 P.O. BOX 34362 JUNEAU, AK 99803-4362 USA PROFILE: AMS, DEALER 9410700 OMNI ADVANCED TECHNOLOGIES INC (415) 536-6000 2000 EMBARCADERO W1070 OAKLAND, CA 94606 USA PROFILE: AMS, DEALER 9210440 ON-LINE GROUP, INC. (305) 266-2330 000 85 GRAND CANAL DRIVE E1044 MIAMI, FL 33144 USA PROFILE: AMS, DEALER 9410730 OPUS (415) 436-4424 ATTN: LES FISHBEIN 001 2647 E. 14TH STREET SUITE 306 W1073 OAKLAND, CA 94601 USA PROFILE: AMS, DEALER 9410720 ORYX CORPORATION (503) 620-3543 DO NOT USE THIS CODE W1072 FAX 97233 USA PROFILE: AMS, DEALER 0032071 OUTSOURCE COMPUTER SERV., INC. (713) 864-3311 PORTER PHILLIPS 003 411 DURHAM STREET, SUITE 200 (713) 869-9851 FAX# HOUSTON, TX 77007-7265 USA PROFILE: AMS, DEALER, ASSC-D 0010890 P G I SYSTEMS (714) 729-1085 GREGOR, BRETT 001 1303 AVOCADO SUITE 220 (714) 729-1083 FAX # NEWPORT BEACH, CA 92660 USA PROFILE: AMS, DEALER, DEV 9210970 P O S SOFTWARE SOLUTIONS, INC. (313) 751-1506 JACHYRA, TONY 003 28290 SUBURBAN W1072 FAX WARREN, MI 48093
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 0031829 PACIFIC DIGITAL PRODUCTS (818) 355-5785 LISA 001 38 E. MONTECITO AVENUE UNIT A (818) 355-5789 LISA FAX # SIERRA MADRE, CA 91024 USA PROFILE: AMS, DEALER 9420320 PAMAR SYSTEMS, INC. (206) 896-5512 PRATT, WILLIAM 001 7600 N. E. 41ST ST. SUITE 150 (206) 896-5521 CHRISTY FAX # VANCOUVER, WA 98662 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: FAX = 206-690-0282 9210430 PEACHTREE COMPUTER SYSTEMS (404) 998-4500 500 NORTHRIDGE ROAD E1043 ATLANTA, GA 30338 USA PROFILE: AMS, DEALER 0010842 PERELANDRA SYSTEMS, INC. (708) 304-1122 WESTERMANN, WILLIAM 004 18-3 E. DUNDEE ROAD SUITE 100 (708) 304-1132 ALLEN BELL FAX # BARRINGTON, IL 60010 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 05/22/92 09:47 PD : TERMINATION LETTER SENT 5/22/92 - EFFECTIVE 7/27/92 - 07/27/92 10:16 PD : TERMINATION FINAL ---- 9410610 PERFORMANCE WAREHOUSE (503) 286-7140 ATTEN: LYLE MOORE 9440 N. WHITAKER RD W1061 PORTLAND, OR 97217-1748 USA PROFILE: AMS, DEALER 9210860 PERRY DATA SYSTEMS (919) 786-8100 ATTEN: ACCOUNTS PAYABLES 3401 SPRING FOREST RD E1086 RALEIGH, NC 27604 USA PROFILE: AMS, DEALER 9410540 PRACTICAL AUTOMATION CORP. (214) 980-1864 13500 MIDWAY ROAD W1054 DALLAS, TX 75244 USA PROFILE: AMS, DEALER 0090842 PRACTICAL SOFTWARE SOLUTIONS (303) 756-4951 SOLOSKY, RICHARD L.P. 001 6000 EAST EVANS AVE. (303) 756-5089 JENNIFER FAX # SUITE 1-261 DENVER, CO 80222 USA PROFILE: AMS, DEALER 0010936 PRACTICE SUPPORT SERVICES INC. (610) 558-4439 STEVEN P. DOUGLAS 003 44 REGENCY PLAZA (610) 459-3199 FAX # P.O. BOX 892 CONCORDVILLE, PA 19331 USA PROFILE: AMS, DEALER
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 0031854 PRO:MAN (206) 889-2121 CAREY, J. PATRICK 001 11825 - 120TH AVENUE NE (206) 827-4339 FAX # KIRKLAND, WA 98034 USA PROFILE: AMS, DEALER 0010895 PROCO, INC. (206) 453-0212 MCCOLLEY, ROGER L. 001 12951 BEL-RED ROAD, SUITE 170 (206) 451-9566 CHERYL SHIELDS, A/P FAX BELLEVUE, WA 98005 USA PROFILE: AMS, DEALER, DEV SALES MEMOPAD: - 10/01/93 09:24 PD : ---- 0010874 PROFESSIONAL COPYING INC. (619) 535-0555 CLARK, CHARLES 001 P.O. BOX 22268 (619) 535-0406 FAX # SAN DIEGO, CA 92122 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 01/21/92 PD : F ---- 9210980 PROFESSIONAL SOFTWARE SYSTEMS (216) 928-8491 ROWE, EUGENE E. 003 141 BROAD BLVD (216) 928-5460 E1098 FAX # CUYAHOGA FALLS, OH 44221 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 04/27/93 10:46 PD : TERMINATED THIS DATE ---- - 05/28/93 08:16 PD : REINSTATED THIS DATE ---- - 01/18/94 12:19 PD : ---- 9410630 PROMCOR DATA DESIGN, INC. (514) 426-2248 ARMSTRONG, DENNIS 004 P.O. BOX 410, STATION "H" (416) 764-9511 NCRI DUE 2-25-94 MONTREAL, QUEBEC, H3G 2LI CANADA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: FAX = 416-764-9511 ---- - 10/22/92 02:16 PD : M ---- 9410400 PROVINCIAL DATA SYSTEMS (714) 645-2352 ATTN: CLIFF YARGES 170 EAST 17TH ST STE 213 W1040 COSTA MESA, CA 92627 USA PROFILE: AMS, DEALER 0091218 PROXIMA SYSTEMS LTD (514) 875-5403 MARTIN, LOUIS 004 555 BOUL. RENE-LEVESQUE QUEST (514) 875-5167 MR. BYETTE FAX # BUREAU 1510 MONTREAL, QUEBEC, H2Z 1B1 CANADA PROFILE: AMS, DEALER 9210920 PURE LOGIC COMPUTERS (718) 625-3113 LICCIARDI, JOE 003 572 HENRY STREET (718) 625-3139 PINO, CATHERINE, AP FAX # BROOKLYN, NY 11231 USA PROFILE: AMS, DEALER
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- SALES MEMOPAD: FAX = 718-625-3139 9210680 QUADRA TECHNOLOGY, INC. (609) 482-0930 DO NOT USE E1068 0, 0 0 PROFILE: AMS, DEALER 0091336 QUETZAL SYSTEMS, INC. (203) 677-5477 FRANK HANSHAW III 003 20 AVON MEADOW LANE AVON, CT 06001 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 06/02/92 02:22 PD : MAIL BEING RETURNED - NEW COMPANY ESTABLISHED UNDER AVELLON GROUP 9219520 R C I SYSTEMS INC. (203) 977-6100 DEGRANDIS, PHILIP 003 2 STAMFORD PLAZA (203) 325-8968 CHRIS SOO FAX # P.O. BOX 10148 STAMFORD, CT 06904 USA PROFILE: AMS, DEALER 0090877 RAST COMPUTER SERVICES, INC. (718) 805-0188 TARANTOLA, SAL 003 141-60 84TH ROAD, SUITE 6M (718) 805-0377 FAX BRIARWOOD, NY 11435 USA PROFILE: AMS, SERV, DEALER, ASSC-D 0010753 REAL TIME SYSTEMS (714) 820-2219 PECORARO, VINCENT 001 861 HAWTHORNE AVENUE FAX # BLOOMINGTON, CA 92316 USA PROFILE: AMS, DEALER 9210450 REALTYME INTERACTIVE SYSTEMS (513) 528-3553 H. LEE SPADA, PRES 003 496 CINCINNATI-BATAVIA PIKE (513) 528-3587 HOWARD FAX # SUITE 302 CINCINNATI, OH 45244 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 04/13/93 10:25 PD : ---- 9210470 RELIANCE SYSTEMS, INC. (212) 219-3292 JOHN TOMASELLI 003 99 HUDSON STREET 2ND FLOOR (212) 334-0135 NINA FAX # NEW YORK, NY 10013 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 10/15/93 08:40 PD : MAIL RETURNED, PHONE DISCONNECTED. OK TO TERMINATE PER PHIL SMITH. ---- 9410860 ROBERT L. MEYERS & ASSOC. (213) 633-8443 ATTEN: ROBERT MEYERS 7332 ADAMS W1086 PARAMOUNT, CA 90723 USA PROFILE: AMS, DEALER 0090992 S B H ENTERPRISES INC. (314) 671-1330 STEPHEN B. HENKEL 003 5887 SERENE DRIVE (314) 671-1340 FAX # HOUSE SPRINGS, MO 63051
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- USA PROFILE: AMS, SERV, DEALER, ASSC-D SALES MEMOPAD: - 01/19/95 07:33 PD : APPLICATION FOR ASSOCIATE DEALERSHIP SENT OUT ---- 0091234 SAGUARO DATA SYSTEMS (602) 946-2983 JESS ROBERTS, PRES. 001 4100 E. BROADWAY RD. #150 (602) 946-9364 BARBARA FAX # PHOENIX, AZ 85040-8810 USA PROFILE: AMS, SERV, DEALER SALES MEMOPAD: FAX 602-946-9364 - 10/07/94 04:18 PD : MAILER FLAG FLIPPED - POST OFFICE IS UNABLE TO FORWARD THEIR MAIL ---- 9410460 SANDERS SOFTWARE SYSTEMS (714) 642-6595 ATTEN: RAYFORD SANDERS 093 1963 BALEARIC DR W1046 COSTA MESA, CA 92626 USA PROFILE: AMS, DEALER 9410640 SELECT DATA SYSTEMS INC. (619) 727-0060 ATTEN: PETER SERVOLD 1141 COLUMBUS WAY W1064 VISTA, CA 92083 USA PROFILE: AMS, DEALER 9420240 SOFTAC, CORPORATION (503) 636-4626 4000 KRUSE WAY PLACE W2024 LAKE OSWEGO, OR 97035 USA PROFILE: AMS, DEALER 9210910 SOFTWARE CO-OP INC (201) 355-7700 BENDER, BRUCE 003 1284 N. BROAD STREET E1091 HILLSIDE, NJ 07205 USA PROFILE: AMS, DEALER 0091225 SOFTWARE CONCEPTS, INC. (416) 475-4145 COY, PETER N. 005 60 CENTURIAN DR. SUITE 112 (416) 940-3606 LLOYD HOFFMAN FAX # MARKHAM, ONTARIO, L3R 9R2 CANADA PROFILE: AMS, DEALER SALES MEMOPAD: - 10/01/92 PD : TERMINATATION FINAL ---- ---- 9410570 SOFTWARE EXCHANGE, INC., THE (314) 275-7777 ROSS, THOMAS A. 003 1810 CRAIG RD., SUITE 102 (314) 275-7608 FAX # ST LOUIS, MO 63146 USA PROFILE: AMS, DEALER 0010918 SOFTWARE, MANAGEMENT CONSULTANT (407) 880-6400 MAIORIELLO, AL 003 ATTN: AL MAIORIELLO (407) 880-9783 HEIDI FAX # 380 SEMORAN COMMERCE PL. B208 APOPKA, FL 32703 USA PROFILE: AMS, DEALER
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PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 0010867 SOFTWARE MARKETING ASSOCIATES (203) 721-8929 LUNDEN, JIM 003 2080 SILAS DEANE HIGHWAY (203) 257-9679 A M S I FAX # ROCKY HILL, CT 06067-2347 USA PROFILE: AMS, DEALER 9220450 SOFTWARE SUPPORT TEAM, INC. (407) 969-2882 PEACOCK, AL 003 3900 WOODLAKE BLVD. (407) 964-2664 E2045 FAX NUMBER SUITE 200 LAKE WORTH, FL 33463 USA PROFILE: AMS, DEALER SALES MEMOPAD: SECOND CONTACT: MARYSE PEACOCK 0091353 SOFTWARE SUPPORT TEAM, INC.### (407) 969-2882 PEACOCK,AL 003 3900 WOODLAKE BLVD., SUITE 200 (407) 964-2662 MARYSE PEACOCK FAX # LAKE WORTH, FL 33463 USA PROFILE: AMS, DEALER 0091251 SOUTHEASTERN COMP. CONSULTANTS (615) 791-1795 PIGG, JIM 003 128 HOLIDAY COURT, STE 114 (615) 791-4932 FAX # FRANKLIN, TN 37064 USA PROFILE: AMS, DEALER 0031931 SOUTHERN COMPUTER SPECIALTIES (404) 242-5888 BRADLEY, STEVE 003 5120 RUNNING FOX TRAIL (404) 441-9588 FAX # ** NORCROSS, GA 30071 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 06/06/94 02:09 PD : FORMERLY H & H ENTERPRISES ---- 9410490 STAR GLASS SERVICES, LTD. (504) 456-9063 2600 NORTH HULLEN STREET W1049 METAIRIE, LA 70002 USA PROFILE: AMS, DEALER 0010875 SURVEYS INCORPORATED (203) 355-8570 DOWNIE, CHRISTOPHER 003 P. O. BOX 528 (203) 354-0669 FAX # SHERMAN, CT 06784-0528 USA PROFILE: AMS, DEALER 0010915 SWAN CONSULTING, INC. (813) 682-1658 SWAN, GEORGE N. L. 003 2110 SYLVESTER RD, SUITE 5 (813) 682-1658 FAX # LAKELAND, FL 33803 USA PROFILE: AMS, DEALER 9219850 SYSTEM STRATEGIES, INC. (404) 242-1659 GITLIN, DEAN 092 6961 PEACHTREE INDUSTRIAL BLVD (404) 242-1642 E1085 FAX # NORCROSS, GA 30071 USA PROFILE: AMS, DEALER 9210851 SYSTEM STRATEGIES, INC. E1085-1 801 S. GRAND PLAZA LOS ANGELES, CA 90017 USA PROFILE: AMS, DEALER
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PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 9210930 SYSTEMS & SOFTWARE SOLUTIONS (813) 645-7692 ATTN: FRED REGISTER 000 906 SAGO PALM WAY E1093 APOLLO BEACH, FL 33570 USA PROFILE: AMS, DEALER SALES MEMOPAD: ---- 9410510 SYSTEMS SOLUTIONS INC. (602) 955-5566 KAKAR, RAJESH 001 2108 E. THOMAS ROAD (602) 955-0085 KENDA FAX # PHOENIX, AZ 85016-7758 USA PROFILE: AMS, DEALER 9220480 TAURUS BUSINESS SYSTEMS INC. (603) 437-4705 HOLMES, NED 003 P. O. BOX 905 (603) 437-3941 NED HOLMES FAX # LONDONDERRY, NH 03053-0905 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 02/11/92 12:34 PD : FORMERLY GEMSTONE COMPUTER SHIPPING ADDRESS: 46 NASHUA ROAD, SUITE 13A LONDONDERRY, NH 03053 - 06/29/92 10:00 PD : ---- 0010932 TAURUS COMPUTER GROUP (315) 431-0212 WAGNER, DANIEL J. 003 461 MANLIUS CENTER RD. (315) 431-0214 FAX # P. O. BOX 89 E. SYRACUSE, NY 13057 USA PROFILE: AMS, DEALER 0095621 TECHTRON SYSTEMS, INC. (908) 355-2244 COHEN, JONATHAN 003 450 YORK STREET (908) 527-6060 JAN FAX # ** ELIZABETH, NJ 07201 USA PROFILE: AMS, DEALER 9410770 TEXAS COMPUTER MANAGEMENT ATTEN: RUDY RUIZ 703 S. BLANCO W1077 LOCKHART, TX 78644 USA PROFILE: AMS, DEALER 9210650 THE MUSICLAND GROUP (612) 932-7700 ATTN:T HOLMES/ACCTS PAYAB 7500 EXCELSIOR BLVD E1065 MINNEAPOLIS, MN 55426 USA PROFILE: AMS, DEALER 0010925 THE ORODELL GROUP, INC. (310) 988-9231 MOECKEL, LUTZ E. 001 2321 E. 28TH ST., STE 404 (310) 427-7865 FAX # LONG BEACH, CA 90806 USA PROFILE: AMS, DEALER 0091213 TOMARK-CYBER ASSOCIATES MANZOLILLO, TONY 003 29 CONTINENTAL PLACE E1083 GLEN COVE, NY 11542 USA PROFILE: AMS, DEALER SALES MEMOPAD: - 08/12/91 12:52 PD : TERMINATION LETTER SENT 8/12/91 - EFFECTIVE
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PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 10/16/91 - 10/16/91 08:14 PD : TERMINATED 10/16/91 ---- - 10/23/91 03:20 PD : 9210460 TREN TECH, INC. (201) 593-9200 DI MEO, LOU 003 23 VREELAND ST. (201) 593-9222 E1046 FAX NUMBER 2ND FLOOR FLORHAM PARK, NJ 07932 USA PROFILE: AMS, DEALER SALES MEMOPAD: NAME CHANGE FORM QUADRA TECHNOLOGY - 09/14/92 10:49 PD : MAIL BEING RETURNED - MAILER FLAG FLIPPED TO "N" - 09/25/92 10:49 PD : OUT OF BUSINESS PER PHIL SMITH - TERMINATED ---- 9210461 TREN TECH, INC. (212) 371-6020 DIMEOANK, LOU G. 003 USE ACCT # 9210460 E1046-1 NJ 07932 USA PROFILE: AMS, DEALER SALES MEMOPAD: FORMERLY QUADRA TECHNOLOGY 9210750 TSE SOFTWARE ENTERPRISES, INC. (305) 484-5268 ATTN: J. KELLGREN 1640 W OAKLAND PARK BD STE 303 E1075 FT. LAUDERDALE, FL 33311 USA PROFILE: AMS, DEALER 9410820 UNIQUE COMPUTER SOLUTIONS, INC (714) 646-8971 ATTN: JERRY BURLEY 170 EAST 17TH ST STE 206 W1082 COSTA MESA, CA 92627 USA PROFILE: AMS, DEALER 0031764 UNISOL CORPORATION (201) 507-0800 PRICE, ROMAN 003 1099 WALL STREET WEST (201) 507-9796 C & W 6-21-94 FAX # LYNDHURST, NJ 07071 USA PROFILE: AMS, DEALER 0031848 VEREX CORPORATION (702) 361-3557 DE ANGELO, LARRY 001 6253 INDUSTRIAL ROAD #F (702) 361-3376 ARLENE FAX # LAS VEGAS, NV 89118 USA PROFILE: AMS, DEALER 0010897 VERSYS SOFTWARE LTD. (604) 940-8854 WRIXON, RANDY 004 4917 DELTA STREET (604) 940-1867 DEBBIE FAX DELTA, B.C., V4K 2V1 CANADA PROFILE: AMS, DEALER, DEV 0010802 W-TECHNOLOGY (916) 971-9071 WELLBORN, ROGER 001 P.O. BOX 60787 SACRAMENTO, CA 95860-0787 USA PROFILE: AMS, DEALER, DEV
PHONE-1 CONTACT-1 CUST # NAME PHONE-2 CONTACT-2 SLSMAN - -------------------------------------------------------------------------------------------------------------- 9210870 WILLIAMS, BROWN & CO., INC. (212) 840-3435 BROWN, CAROL W. 003 SUITE 1108 (212) 840-3449 FAX # 19 WEST 44TH STREET NEW YORK, NY 10036 USA PROFILE: AMS, DEALER, DEV SALES MEMOPAD: FAX - 212-228-2782 - 03/02/94 02:23 PD : FORMERLY WINTHROP, BROWN & CO. ---- 9420260 WORLDLINX TELECOMMUNICATIONS (416) 350-1000 JIM BETTS 004 BCE PLACE/181 BAY STREET, #350 (416) 350-1001 DIANA EVERTS FAX # P O BOX 851 TORONTO, M5J 2T3 CANADA PROFILE: AMS, DEALER SALES MEMOPAD: FAX = 416-890-6789 - 01/15/93 08:18 PD : FORMERLY IIS TECHNOLOGIES ---- 9410950 YODER SYSTEMS (916) 488-5900 ATTN: SHARON YODER 000 3451 LONGVIEW DR STE 140 W10N95 N. HIGHLANDS, CA 95660 USA PROFILE: AMS, DEALER 9410780 Z-BASE COMPUTER SERVICES (714) 963-9483 CUSTOMER DELETED PER SALES W1078 FOUNTAIN VALLEY, CA 92708 USA PROFILE: AMS, DEALER T-O-T-A-L CUSTOMER TYPE-MD RECORDS PRINTED: 195
EXHIBIT C --------- System 1: ICE HOST (ICE = Intell's In-Circuit Emulator for Debugging) --------------------------------------------------------------------- 1 Summit 2000 - WYSE 386/16 with 4MB memory 1 PRIAM V185 71 MB disk drive 1 5.25" floppy drive 1 150MB WANGTEK tape drive 1 keyboard 1 monochrome video card and monitor MS-DOS System 2: ICE TARGET --------------------- 1 Summit 2000 - WYSE 386/16 with 4MB memory 1 MINISCRIBE 42MB disk drive 1 MAXPEED 16 port - ASSET TAG #10662 1 WYSE 8 port 1 60MB WANGTEK tape drive 1 3.5" floppy drive 1 5.25" floppy drive 1 TMI card in machine (part of ICE)( 2 spare TMI CPU chip cards for ICE - not installed) 1 box of various chips for TMI CPU cards - not installed 1 DigiBoard host adapter card - not installed 1 DigiBoard concentrator - not installed 1 Catamount 1/2" tape controller - not installed 1 AM303-20 with SSD MS-DOS System 3 - Development ---------------------- 486SX/20 with 8MB memory 1 MAXTOR 310 SCSI drive and Adaptec controller 1 MAXPEED 8 port controller 1 Tandberg tape drive and controller 1 3.5" floppy drive 1 5.25" floppy drive 1 AM303-20 SSD MS-DOS ICE Board - Bridge between ICE HOST and ICE TARGET -------------------------------------------------- EX-10.27 8 AMENDMENT TO PICK SYSTEMS LICENSE AGREEMENT EXHIBIT 10.27 SECOND AMENDMENT TO PICK - SEQUOIA LICENSE AGREEMENT This Second Amendment to the Pick - Sequoia Open Architecture License Agreement is entered into effective 8-11-95, between Pick Systems ("Pick") and Sequoia Systems, Inc. ("Sequoia"). RECITALS A. Pick and Concurrent Operating Systems Technology ("Concurrent Operating") entered into an Open Architecture License Agreement (the "License Agreement") on October 10, 1986. By virtue of its purchase of Concurrent Operating, Sequoia Systems, Inc. assumed all of Concurrent Operating's rights and duties under the License Agreement. B. Pick and Sequoia now wish to enter into this Second Amendment to the License Agreement. Now, therefore, for valuable consideration, the sufficiency of which is acknowledged by the parties, Pick and Sequoia hereby amend the License Agreement as follows: 1. A new Section 25 is hereby added to the License Agreement, as follows: Operating Systems File Interface -------------------------------- (a) Pick hereby grants to Licensee non-exclusive license to use Pick's Operating Systems File Interface, including both source and object code therefor, and all revisions, enhancements and upgrades thereto developed by Pick, (collectively, "OSFI") subject to the terms and conditions of this Agreement, except as specified in this Section 25. (b) For such license, Licensee shall pay Pick license fees based on the aggregate number of Seats on which Licensee sub-licenses the use of OSFI to its sub-licensees of Licensed Systems at the rate of $20.00 each for the first 5000 Seats, $10.00 for each of the next 5000 Seats and $5.00 for each Seat over 10,000 Seats. Such payments shall be subject, however, to an aggregate maximum of $225,000, beyond which no further license fees with respect to the OSFI shall be due. No other license fees or royalties shall be due in respect of OSFI. For purposes of licensing OSFI, "Seats" shall be defined as the number of concurrently active users of OSFI software. (c) Licensee and Pick agree to cooperate with each other in the continued development of OSFI, to share the results of such efforts and to furnish each other with all upgrades and other OSFI product developments each produces (collectively referred to 1 herein as ("Enhancements") as they are available. Either party may use and license such Enhancements as it sees fit without additional compensation to the other party, regardless of which party originated such Enhancements, provided, however, that neither party will license or disclose the source code for any Enhancements to any third party without the prior written consent of the other. This agreement will expire in three (3) years, unless an extension is mutually agreed upon. 2. Except as specifically modified hereby, the License Agreement and its terms, conditions and definitions shall remain in full force and effect, and shall govern this Second Amendment. Capitalized terms used herein shall have the meaning given to them in the License Agreement. PICK SYSTEMS SEQUOIA SYSTEMS, INC. By /s/ George E. Olenik By /s/ John Owens ------------------------ ------------------------ Name George E. Olenik Name John Owens ----------------------- ---------------------- Title CEO Title VP, Engineering ---------------------- --------------------- 2 EX-10.28 9 AMENDMENT TO PICK SYSTEMS LICENSE AGREEMENT EXHIBIT 10.28 FIRST AMENDMENT TO PICK - SEQUOIA LICENSE AGREEMENT This First Amendment to the Pick - Sequoia Open Architecture License Agreement is entered into effective Feb. 2, 1995, between Pick Systems ("Pick") and Sequoia Systems, Inc. ("Sequoia"). RECITALS -------- A. Pick and Concurrent Operating Systems Technology ("Concurrent Operating") entered into an Open Architecture License Agreement (the "License Agreement") on October 10, 1986. By virtue of its purchase of Concurrent Operating, Sequoia Systems, Inc. assumed all of Concurrent Operating's rights and duties under the License Agreement. B. Pick and Sequoia now wish to enter into this First Amendment to the License Agreement. Now, therefore, for valuable consideration, the sufficiency of which is acknowledged by the parties, Pick and Sequoia hereby amend the License Agreement as follows: AMENDMENT ---------- 1. Limitation on License. Subparagraph 4(b) which excludes the use --------------------- and sub-licensing of the Pick Systems is deleted in its entirety. All recurring references to "Excluded" systems are also deleted. 2. Qualified Configuration. The defined term "Qualified ----------------------- Configuration" set out in Paragraph 1.7 of the License Agreement is amended to read as follows: 1.7 "Qualified Configuration" shall mean a Licensee hardware configuration which is based only on the microprocessor defined in Exhibit "A" hereto. The Qualified Configuration shall include not only the most current version of the microprocessor, but each subsequent version by the same manufacturer which incorporates or exhibits the same instruction set and is marketed by the manufacturer as a sequential upgrade to the current version. The Qualified Configuration shall include a central processing unit, random access memory, and a hard disk drive as inherent hardware components. 3. Licensed System. The term "Licensed System" as defined in --------------- Paragraph 1.5 of the License Agreement is amended to read as follows: 1.5 "Licensed System" shall mean a single copy of the Pick System, as modified by an Implementation, to be used, delivered or sub-licensed in object code form only, solely on, and bundled as an integral part of a single "Qualified Configuration" designated by location, type and serial number. 4. Effect of Amendment. Except as specifically modified hereby, the ------------------- License Agreement and its terms, conditions and definitions shall remain in full force and effect, and shall govern this First Amendment. PICK SYSTEMS SEQUOIA SYSTEMS, INC. By: /s/ George E. Olenik By: /s/ R. Gellert ------------------------- ------------------------- Name: George E. Olenik Name: R. Gellert ------------------------- ----------------------- Title: CEO Title: V.P./GM ------------------------- ---------------------- 2 EXHIBIT "A" QUALIFIED CONFIGURATIONS ------------------------ Microprocessors based on the following: Motorola MC 68000; Intel X86, Pentium, P6, P7; PowerPC series chips; and derivatives of the foregoing. PICK SYSTEMS LICENSEE TEXT TO COME TEXT TO COME - -------------- -------------- Initials Initials 2-2-95 2-2-95 - ------------- ------------- Date Date EX-10.29 10 ASSET SALE AGREEMENT BY AND BETWEEN INTEL & TEXAS MICROSYSTEMS EXHIBIT 10.29 ASSET SALE AGREEMENT -------------------- by and between -------------- Intel Corporation ----------------- and --- Texas Microsystems, Incorporated -------------------------------- Dated November 30, 1994 ----------------------- TABLE OF CONTENTS -----------------
Page Section 1. Purchase and Sale of Assets 4 1.1 Purchase and Sale 4 1.2 Description of Assets 4 1.3 Assets Excluded 5 1.4 Required Consents 5 1.5 Assumed Liabilities 5 Section 2. Purchase Price, Audits, Payment, Taxes and Closing 5 2.1 Price 5 2.2 Taxes 6 2.3 Closing 7 2.4 Adjustments 7 Section 3. Sellers Representations and Warranties 8 3.1 Corporate Existence 8 3.2 Authorization 8 3.3 Transfer Not Subject to Encumbrances or Third Party Approval 8 3.4 Litigation 8 3.5 Title to Assets 8 3.6 No Defaults 8 3.7 Names 8 Section 4. Representations of Buyer 8 4.1 Corporate Existence 8 4.2 Authorization 9 4.3 Buyers Acceptance 9 4.4 Conditions and Best Efforts 9 4.5 Confidential Information 9 4.6 Export 9 Section 5. Covenants of Seller 9 5.1 Seller's Operation of Business Prior to Closing Date 9 Section 6. Other Agreements 9 6.1 Inventory 10 6.2 Test Programs 10 6.3 Sellers Board Products 10 6.4 Engineering Support 10 6.5 Product Supply 10 6.6 Customer Support 10 6.7 Non-Competition 10 6.8 Astec Power Supply 11
2 TABLE OF CONTENTS Continued -----------------
Page Section 7. Disclaimer of Warranty and Limitation of Liability 11 7.1 No Warranty 11 7.2 Other Disclaimers 11 7.3 Liability Cap 11 Section 8. Indemnification and Survival 11 8.1 Survival of Representations and Warranties 11 8.2 Buyer's Indemnification 12 8.3 Seller's Indemnification 12 Section 9. Conditions Precedent 12 Section 10. Termination 12 10.1 Termination 12 10.2 Effect of Termination 12 Section 11 Default 13 11.1 Cross Default Provision 13 Section 12 Miscellaneous 13 12.1 Documents Incorporated by Reference 13 12.2 Approvals 13 12.3 Further Assurances 13 12.4 Titles and Subtitles 13 12.5 Notices 13 12.6 Governing Law 14 12.7 Publicity 14 12.8 Integration; Amendment 14 Schedule A Asset Package 15 Schedule B List of Software 25 Schedule C List of Rackmount Customers 26 Schedule D Supplier List 28 Exhibit A Terms/Conditions of Sale-Equipment & Raw Materials 29 Exhibit B Intel Software Distribution License Agreement 31 Exhibit C Rackmount Product Purchase Agreement 36 Exhibit D Assignment of Names 45 Exhibit E Assignment of Copyright 47
3 AGREEMENT FOR SALE AND PURCHASE OF BUSINESS ASSETS This agreement (hereinafter referred to as the "Agreement") is entered into this 30th day of November, 1994 (hereinafter referred to as the "Effective Date") by and between Intel Corporation, a Delaware corporation with a place of business at 5200 N.E. Elam Young Parkway, Hillsboro, OR, 97124-6497 (hereinafter referred to as "Seller"), and Texas Microsystems, Incorporated, a Delaware company having its principal place of business at 5959 Corporate Drive, Houston, Texas 77036 (hereinafter referred to as "Buyer"). Seller and Buyer may singularly or collectively be referred to herein as a "Party" or the "Parties". RECITALS WHEREAS, Seller is divesting certain names, copyrights, marketing and manufacturing documentation, customer information, engineering specifications, equipment and inventories (hereinafter referred to as the "Assets") used in connection with the manufacture and sale of products marketed by Seller as OmniRACK an XpressRACK (hereinafter referred to as the "Rackmount Products"). - ---------------------- WHEREAS, Seller desires to sell such Assets to Buyer and Buyer desires to acquire such Assets from Seller. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties covenant and agree as follows: SECTION 1. PURCHASE AND SALE OF ASSETS 1.1 Purchase and Sale. Subject to the terms and conditions of this ----------------- Agreement, Seller agrees to sell to Buyer and Buyer agrees to purchase the assets described in Section 1.2 of this Agreement. 1.2 Description of Assets. Seller agrees to deliver to Buyer and --------------------- Buyer agrees to accept the following assets (the "Assets") on the Closing Date: 1.2.1 All of Seller's right, title and interest in its OmniRACK and XpressRACK name. 1.2.2 All of Sellers right, title and interest in copyrights under, and related items specifically described with, the manufacturing package and related documentation for the Rackmount Products set forth in Schedule A. 1.2.3 All of Seller's rights and obligations with respect to the Rackmount Products under purchase order agreements with customers in Schedule C 4 of this Agreement, to the extent that Seller is authorized to make such assignments. 1.2.4 All of Sellers rights and obligations with respect to supplies for the Rackmount Products under agreements with vendors in Schedule D of this Agreement, to the extent that Seller is authorized to make such assignments. 1.3 Assets Excluded. Buyer acknowledges that Seller shall not sell ---------------- and Buyer shall not acquire any of Seller's assets not specified in Section 1 of this Agreement, including without limitation, accounts receivable, cash, notes receivable, and prepaid accounts. 1.4 Required Consents. Seller shall use commercially reasonable ------------------ efforts to obtain the consent of the customers and suppliers to assign all of the agreements set forth in Schedules C and D of this Agreement prior to the Closing Date. In the event Seller is unable to obtain the necessary consents, and Buyer, in its reasonable discretion, views this lack of consent as material, Buyer shall have no obligation to consummate this Agreement. In the event the Buyer elects not to consummate this Agreement, Seller shall have no liability to Buyer except to refund the amount paid by Buyer pursuant to section 2.1. 1.5 Assumed Liabilities. Effective as of the Closing Date, Buyer -------------------- shall assume and agrees to pay, discharge or perform, as appropriate, (1) any and all of Seller's liabilities under agreements with customers and suppliers assigned to Buyer and (ii) any and all liabilities and obligations relating to --- ownership, use or operation of the Assets and the design, manufacture or sale of the Rackmount Products after the Closing Date. SECTION 2. PURCHASE PRICE, AUDITS, PAYMENT, TAXES AND CLOSING 2.1 Price. The price for the Assets shall be paid as follows: ------ 2.1.1 Buyer shall pay to Seller, by cashiers or certified check or by wire transfer, the sum of $650,000.00, as follows: 2.1.1.1 $200,000 U.S. upon execution of this Agreement; and 2.1.1.2 $450,000 U.S. on the Closing Date. 2.1.1.3 If for any reason this Agreement is terminated pursuant to Section 10 of this Agreement, Seller shall promptly return the $200,000 paid by Buyer to Seller upon execution of this Agreement without any offsets or deductions of any kind. 2.1.2 In addition following Closing, except for sales by Buyer to Seller, Buyer shall pay to Seller a royalty of 4% of total net revenue (total revenue minus returns, or any shipping, insurance, taxes, duties included on any invoice) received by Buyer for Rackmount Products distributed by Buyer, and successors or derivatives thereof distributed by Buyer, for a period 5 of three (3) years beginning January 1, 1996, up to a maximum cumulative royalty of $1,000,000 U.S. Such royalty shall be payable quarterly within thirty (30) calendar days following the close of each calendar quarter. 2.1.2.1 Successors or derivatives will include only those products which utilizes the Seller's baseboard, CPU module, motherboard products, or which use the XpressRACK or OmniRACK chassis, including any modifications of those chassis'. Seller recognizes that Buyer designs and manufactures other chassis' which incorporates Seller's motherboards and which will not be subject to any royalty under this Agreement. If Buyer incorporates their own motherboard into Rackmount Products, Buyer will pay royalty on the chassis and integrated options only. 2.1.2.2 Buyer will market and sell Rackmount Products for a period of at least four (4) years from the Closing Date provided Buyer can do so at a profit. 2.1.3 Buyer will keep accurate and complete records of royalties owed to Seller pursuant to Section 2.1.2 of this Agreement. Buyer agrees that Seller may conduct audits of Buyer's records to verify Buyer's compliance with this Agreement. If such audit discloses an underpayment, Buyer shall promptly pay the underpayment to Seller. If the underpayment is five percent (5%) or more of royalties owed Seller, or the audit discloses a material breach of this Agreement, Buyer will reimburse Seller for all costs incurred for the audit. If such audit reflects an over payment, Seller shall promptly refund the over payment amount to Buyer. 2.1.4 Not more than thirty (30) days following the close of each calendar quarter, Buyer will provide to Seller a report showing the number of units shipped for the quarter and the total net revenue therefor and tender to Seller a check in the amount of all royalties payable thereunder sent by Buyer to the following address: Sheryl White Intel Corporation, Post Contracts Management 5200 NE Elam Young Parkway, HF3-24 Hillsboro, OR 97124 2.2 Taxes. All payments by Buyer to Seller shall be made free and ----- clear without deduction for any and all present and future taxes imposed by any taxing authority. In the event that Buyer is prohibited by law from making such payments unless such deductions are made or withheld therefrom, then Buyer shall pay such additional amounts as are necessary in order that the net amounts received by Seller, after such deduction or withholding, equal the amounts which would have been received if such deduction or withholding had not occurred. Buyer shall promptly furnish Seller with a copy of an official tax receipt or other 6 appropriate evidence of any taxes imposed on payments made under this Agreement, including taxes on any additional amounts paid. In cases other than taxes referred to above, including but not limited to sales and use taxes, stamp taxes, value added taxes, property taxes and other taxes or duties imposed by any taxing authority on or with respect to this Agreement, the costs of such taxes or duties shall be borne by Buyer. In the event that such taxes or duties are legally imposed initially on Seller or Seller is later assessed by any taxing authority, then Seller will be promptly reimbursed by Buyer for such taxes or duties plus any interest and penalties suffered by Seller. However, Seller will pay any taxes on income or profit recognized by Seller. 2.3 Closing. This Agreement shall be closed at the offices of Intel ------- on or before the 31st of January, 1995, or at such other time as the parties may agree in writing (the "Closing" or "Closing Date"), as follows: 2.3.1 At the Closing, Seller shall deliver to Buyer the following: 2.3.1.1 Name assignment of XpressRACK and OmniRACK names, substantially in the form set forth in Exhibit D. 2.3.1.2 Copyright assignments for engineering and marketing documentation in the form set forth in Exhibit E. 2.3.1.3 An assignment of, and customer's consents for the assignment of Rackmount Product's backlog. 2.3.1.4 An Assignment of, and supplier consents for assignment of Agreements, for Rackmount Product's supplies. 2.3.2 At the Closing, Buyer shall deliver to Seller the following: Cashiers or certified check for the amount of $450,000 U.S. (Four Hundred Fifty Thousand Dollars). 2.3.3 If Closing has not occurred on or prior to 28 February 1995, then either party may elect to terminate this Agreement upon notice to the other party. 2.4 Adjustments ----------- 2.4.1 Seller and Buyer agree that Seller will continue to book and fill orders for the Rackmount Products with its existing customer base through 31 January 1995. 2.4.2 No assignment of Seller's accounts receivable shall occur under this agreement for Rackmount Products shipped by Seller, whether prior to or after the Closing Date. 7 SECTION 3. SELLER'S REPRESENTATIONS AND WARRANTIES. 3.1 Corporate Existence. Seller is now and on the Closing Date will ------------------- be a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware. Seller has all requisite corporate power and authority to sell the Assets and grant the licenses set forth herein, as the case may be. 3.2 Authorization. The execution, delivery and performance of this ------------- Agreement has been duly authorized and approved by Seller, and this Agreement constitutes a valid and binding Agreement of Seller enforceable in accordance with its terms. 3.3 Transfer Not Subject to Encumbrances or Third-Party Approval. ------------------------------------------------------------ Except as specifically set forth in Section 1 of this Agreement, and subject to disclaimers set forth in Section 7 of this Agreement, the execution and delivery of this Agreement by Seller, and the consummation of the contemplated transactions, will not result in the creation or imposition of any valid lien, charge, or encumbrance on any of the Assets and will not require the authorization, consent, or approval of any third party except as expressly provided herein, including any governmental subdivision or regulatory agency. 3.4 Litigation. Seller has no actual knowledge of any claim, ---------- litigation, proceeding or investigation pending or threatened against Seller which would impair Buyer's right to use the Assets being conveyed under this Agreement. 3.5 Title to Assets. Except as disclosed to Buyer in Section 7.1, --------------- and subject to Buyer's obligation under Section 8.2, Seller has valid title to all of the Assets, free and clear of all liens, security interests and encumbrances and upon assignment of the same to Buyer, Buyer will acquire the Assets in the same manner. 3.6 No Defaults. Each of the agreements set forth in Schedules C and ----------- D of this Agreement is in full force and effect, and Intel has not received actual notice that defaults exist in any of such agreements. 3.7 Names. Seller owns and will transfer to Buyer all Seller's rights ----- in the names known as OmniRACK and XpressRACK pursuant to Exhibit E to this Agreement. Buyer acknowledges that Seller has not registered the OmniRACK or XpressRACK names as trademarks, has not treated the OmniRACK or XpressRACK names as trademarks, and has not maintained an active trademark enforcement program with respect to the OmniRACK or XpressRACK names. SECTION 4. REPRESENTATIONS OF BUYER 4.1 Corporate Existence. Buyer is now and on the Closing Date will be ------------------- a corporation duly organized and validly existing and in good standing under the laws of Delaware. Buyer has all requisite corporate power and authority to acquire Assets and accept the licenses set forth in this Agreement, as the case may be. 8 4.2 Authorization. The execution, delivery and performance of this ------------- Agreement has been duly authorized and approved by Buyer, and this Agreement constitutes a valid and binding Agreement of Buyer enforceable in accordance with its terms. 4.3 Buyer's Acceptance. Buyer represents and acknowledges that it ------------------ will make a decision whether to close this Agreement on the basis of its own examination, personal knowledge, and opinion of the value of the assets. Buyer has not relied on any representations made by Seller other than those specified in this Agreement. Buyer further acknowledges that Seller has made no agreement or promise to repair or improve any of the equipment, inventory, or other personal property being sold to Buyer under this Agreement and that Buyer takes all such property in the condition existing on the Closing Date, except as otherwise expressly provided in this Agreement. Buyer agrees that on or before December 20, it will advise Seller in writing whether or not it intends to close on the basis of its own evaluation of Seller's customer and supplier purchase orders pursuant to Schedule C and D. In the event Buyer does not provide notice, or provides notice in its willingness to proceed, and except as set forth in Sections 1.4, 2.3.3, and 5.1, Buyer waives its right to terminate pursuant to Section 10. 4.4 Conditions and Best Efforts. Buyer will use its reasonable best --------------------------- efforts to effectuate the transactions contemplated by this Agreement and to fulfill all the conditions of Buyer's obligations under this Agreement, and shall do all acts and things as may be required to carry out Buyer's obligations and to consummate this Agreement. 4.5 Confidential Information. Buyer will not disclose to third ------------------------ parties any Confidential Information received from Seller pursuant to the Corporate Non-Disclosure Agreement #06457, dated July 8, 1992. 4.6 Export. Buyer will not export, either directly or indirectly, the ------ Rackmount Products or any technical data describing such Rackmount Products or software without first obtaining any required license or other approval from the U.S. Department of Commerce or any other agency or department of the United States Government. SECTION 5. COVENANTS OF SELLER 5.1 Seller's Operation of Business Prior to Closing Date. Seller ---------------------------------------------------- agrees that between the Effective Date and the Closing Date, Seller will: 5.1.1 Not assign, sell, lease, or otherwise transfer or dispose of any of the Assets, whether owned or hereafter acquired, except in the normal and ordinary course of business and in connection with its normal operation. SECTION 6. OTHER AGREEMENTS 9 6.1 Inventory. Buyer will purchase from Seller the raw materials --------- related to the Rackmount Products in Seller's inventory, and which Buyer in its reasonable discretion determines to be reasonably useable in future sales by Buyer, or on order, which Seller determines to be excess pursuant to an agreement in the form set forth in Exhibit A, which will become effective on the Closing Date. 6.2 Test Programs. Seller will license Buyer to use software ------------- developed by Seller to test the Rackmount Products for a period of four (4) years following the Closing Date pursuant to a license agreement in the form set forth in Exhibit B, which will become effective on the Closing Date. 6.3 Seller's Board Products. For a term of five (5) years from the ----------------------- Closing Date of this Agreement Seller will make available to Buyer, PC and server baseboards and CPU modules, at prices equal to Seller's established 5Ku per quarter prices and at Seller's standard terms and conditions of sale. 6.4 Engineering Support. Seller will provide to Buyer reasonable ------------------- technical support services, limited to two (2) engineers for a period of thirty (30) days following the Effective Date. Buyer will pay all Seller's traveling expenses related to such support, including the cost of all travel, accommodations and meals incurred. Such support shall be limited to two trips between Seller's and Buyer's facility. Such expenses shall be itemized by Seller monthly and payable by Buyer by check within five (5) business days following the close of each calendar month sent by Buyer to the remittance address set forth in Section 2.1.4 of this Agreement. 6.5 Product Supply. Buyer will supply to Seller Rackmount Products on -------------- a subcontract basis prior to the Closing Date and for Seller's internal or OEM requirements thereafter at most favored customer prices pursuant to an agreement in the form set forth in Exhibit C, which will become effective prior to the Closing Date of this Agreement. 6.6 Customer Support. Buyer will maintain an acceptable quality level ---------------- for Rackmount Products as required for like products in the industry. Buyer will offer customers of Rackmount Products, manufactured by Buyer following the Closing Date, product support services, technical assistance, warranty, out-of warranty, and spares support under terms that are reasonably comparable to those previously offered by Seller, as set forth in this Agreement or as communicated by Seller to Buyer in writing prior to the Closing Date. 6.7 Non-Competition. For a period of four (4) years from the Closing --------------- Date, Seller shall not manufacture, market or sell any Ruggedized Industrial Rackmount Products, as defined in section 6.7.1 and 6.7.2 below, which compete with the Assets. 6.7.1 Ruggedized Industrial Rackmount Products are defined as having additional filtering, rugged 19 inch rackmountable chassis designed to the industrial RETMA standard, and used in a hostile non-environmentally controlled area. 10 6.7.2 Rackmount Industrial Products exclude, (i) any Rackmount Products purchased under Exhibit C for internal use or OEM resale and, (ii) the commercial rackmount computer and rack under development by Seller, targeted for environmentally controlled computer room stacking and cable management, which does have means for mounting on a rack, and any derivative or successor thereof and, (iii) any like product manufactured by Seller under special contract for specific OEM customers, provided Buyer cannot reasonably offer the product or after reviewing a proposal by Buyer, customer requires that the product be built by Seller. 6.8 ASTEC Power Supply. Seller will authorize Buyer to acquire ASTEC ------------------ Power Supply (Part number 202123-005) directly from Supplier at price and terms and conditions negotiated between Buyer and Supplier. SECTION 7. DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY 7.1 No Warranty. SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED ----------- CONCERNING THE TECHNICAL INFORMATION OR INTELLECTUAL PROPERTY RIGHTS TRANSFERRED HEREUNDER, THE CONDITION OF THE INTELLECTUAL PROPERTY UNDER THE RACKMOUNT PRODUCTS OR THE MANUFACTURABILITY OF THE RACKMOUNT PRODUCTS, OR THE ABILITY OF BUYER TO SELL THE RACKMOUNT PRODUCTS WITHOUT INFRINGING THIRD-PARTY PATENTS THIRD PARTY PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS. 7.2 Other Disclaimers. EXCEPT FOR FRAUD, NEITHER PARTY HERETO SHALL ----------------- BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES (INCLUDING WITHOUT LIMITATION LOSS OF PROFIT) WHETHER OR NOT THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY ARISING OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THIS EXCLUSION INCLUDES LIABILITY THAT MAY ARISE OUT OF THIRD-PARTY CLAIMS. 7.3 Liability Cap. IN NO EVENT WILL SELLER'S TOTAL LIABILITY UNDER ------------- THIS AGREEMENT EXCEED THE AMOUNTS PAID BY BUYER TO SELLER PURSUANT TO SECTIONS 2.1.1 AND 2.1.2 OF THIS AGREEMENT. SECTION 8. INDEMNIFICATION AND SURVIVAL 8.1 Survival of Representations and Warranties. All representations ------------------------------------------ and warranties made in this Agreement shall survive the Closing of this Agreement, except that any party to whom a representation or warranty has been made in this Agreement shall be deemed to have waived any misrepresentation or breach of representation or warranty of which such party had knowledge prior to Closing. Any party learning of a misrepresentation or breach of representation or warranty under this Agreement shall immediately give written notice thereof to all other parties to this Agreement. Except as otherwise set forth in Section 11 of this Agreement with respect to Confidential Information, the representations and 11 warranties in this Agreement shall terminate two (2) years from the Closing Date, and such representations or warranties shall thereafter be without force or effect, except any claim with respect to which notice has been given to the party to be charged prior to such expiration date. 8.2 Buyer's Indemnification. Buyer agrees to defend, indemnify, and ----------------------- hold harmless Seller from and against any and all claims, liabilities, demands, actions, causes of action, obligations, and costs of every kind and description (including reasonable attorney's fees) arising (i) out of or related to the sale or distribution of the Rackmount Products by Buyer following the Closing Date, including, without limitation death, personal injury or property damage and use, infringement or misappropriation of any patent, trade secret or intellectual property right; (ii) out of Buyer's failure to perform obligations of Seller assumed by Buyer pursuant to this Agreement, including without limitation obligations assumed under Exhibits A through E of this Agreement, or (iii) out of default by Buyer of any contract, agreement or other obligation with or to third-parties, including, without limitation, contracts, agreements and obligations with and to customers and suppliers. 8.3 Seller's Indemnification. Seller agrees to defend, indemnify, and ------------------------ hold harmless Buyer from and against any and all claims, liabilities, demands, actions, causes of action, obligations, and costs of every kind and description (including reasonable attorney's fees) arising out of any products manufactured and sold by Seller prior to the Closing Date, including, without limitation death, personal injury or property damage and use, infringement or misappropriation of any patent, trade secret or intellectual property right. SECTION 9. CONDITIONS PRECEDENT 9.1 The obligations of Seller under this Agreement to effect the sales or assignments contemplated herein are subject to satisfactory performance by Buyer of obligations pursuant to Sections 6.5 and 6.6 of this Agreement. SECTION 10. TERMINATION 10.1 Termination. This Agreement may be terminated at any time prior ----------- to the Closing Date (a) by mutual written consent of the Seller and Buyer, or (b) by either Buyer or Seller if, (i) pursuant to Section 2.3.3 closing has not occurred by 28 February 1995, (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of this Agreement, (iii) there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to this Agreement by any governmental authority which would make consummation of this Agreement illegal, or (c) by Buyer pursuant to Sections 1.4, 4.3 and 5.1 of this Agreement. 10.2 Effect of Termination. In the event of termination of this --------------------- Agreement by either Seller or Buyer as provided in Section 10.1 of this Agreement, this Agreement shall forthwith become void and there shall be no liability or obligation on the part 12 of the parties hereto or their respective officers or directors except as to Section 4.5 of this Agreement. SECTION 11. DEFAULT 11.1 Cross-Default Provision. A default in this Agreement shall ----------------------- constitute a default in the agreements described in Section 6 of this Agreement, and a default in any one or more of the agreements described in Section 6 shall constitute a default in this Agreement. SECTION 12. MISCELLANEOUS 12.1. Documents Incorporated by Reference ----------------------------------- 12.1.1 The following Schedules and Exhibits, are incorporated herein by reference: Schedules: ---------- "A" Asset Package "B" List of Software "C" Assigned Customer Agreements "D" Supplier List Exhibits: --------- "A" Terms and Conditions of Sale-Equipment and Raw Materials "B" Intel Software Distribution License Agreement "C" Rackmount Product Purchase Agreement "D" Assignment of Names "E" Assignment of Copyright 12.2 Approvals. Any approvals required by this Agreement shall not be --------- withheld unreasonably unless specifically otherwise indicated. 12.3 Further Assurances. The parties hereto agree to execute such ------------------ further instruments and to take such further action as may be reasonably necessary to carry out the intent of this Agreement. 12.4 Titles and Subtitles. The titles and subtitles in this Agreement -------------------- are for convenience only and are not considered in construing or interpreting this Agreement. 12.5 Notices. Any notice required or permitted hereunder shall be ------- given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at his or its address hereinafter shown below his or its signature or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 13 12.6 Governing Law. This Agreement shall be governed by and construed ------------- under the laws and conflict of law rules of the State of Oregon as applied to agreements among Oregon residents entered into and performed entirely within Oregon and shall inure to the benefit of the heirs, successors and assigns of the parties. 12.7 Publicity. Neither party may disclose the content of this --------- Agreement, except to lawyers, bankers and external auditors, without the prior written consent of the other party. 12.8 Integration: Amendment. This Agreement represents the entire ---------------------- understanding of the parties with respect to the subject matter hereof and supersedes all previous understandings, written or oral. This Agreement may only be amended with the written consent of the parties hereto or their successors or assigns. No oral waiver or amendment shall be effective under any circumstances whatsoever. IN WITNESS WHEREOF, the Parties, by and through their respective duly authorized representatives, hereby agree upon the Effective Date. SELLER: BUYER: /s/ Michael Stewart - ---------------------------- ---------------------------- Signature Signature MICHAEL STEWART - ---------------------------- ---------------------------- Printed Name Printed Name PRESIDENT - ---------------------------- ---------------------------- Title Title 14 EX-10.30 11 CONSENT OF UNDERTAKINGS EXHIBIT 10.30 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA - ------------------------------------- : SECURITIES AND EXCHANGE COMMISSION : 450 Fifth Street, N.W. : Washington, D.C. 20549, : Civil Action No. : Plaintiff, : 95 0321 v. : : FILED SEQUOIA SYSTEMS, INC., : FEB 24 1995 GABRIEL P. FUSCO, : KENT R. ALLEN, : KEITH D. JOHNSON, and : CLERK, U.S. DISTRICT COURT EDWIN J. HUDSON, JR., : DISTRICT OF COLUMBIA : Defendants. : : - ------------------------------------- CONSENT AND UNDERTAKINGS OF DEFENDANT SEQUOIA SYSTEMS, INC. ----------------------------------------------------------- 1. Defendant Sequoia Systems, Inc. ("Sequoia"), having been served with the Complaint for Permanent Injunction and Other Equitable Relief ("Complaint"), and having entered a general appearance admits the service of the Complaint upon it and consents to the jurisdiction of this Court over it and over the subject matter of this action. 2. Sequoia, without admitting or denying any of the allegations of the Complaint, except as to jurisdiction which it admits, hereby consents, solely for the purposes of this action, to the entry of the Final Judgment of Permanent Injunction as to Defendant Sequoia Systems, Inc. ("Final Judgment") in the form annexed hereto and incorporated by reference herein, permanently restraining and enjoining Sequoia from engaging in conduct violative of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. (S)(S) 78j(b), 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)] and Rules 10b-5, 12b-20, 13a-1 and 13a-13 [17 C.F.R. (S)(S) 240.10b-5, 240.12b-20, 240.13a-1 and 240.13a-13] thereunder. 3. As set forth above, Sequoia consents to the entry of the Final Judgment, without admitting or denying any of the allegations of the Complaint, except as to jurisdiction which it admits. Sequoia understands that it is the Commission's policy, set forth in 17 C.F.R. (S) 202.5(e), not to permit a defendant to consent to entry of a judgment while denying the allegations in the Complaint. Sequoia further understands that the Commission's acceptance of this Consent in this matter is based upon its compliance with this policy. 4. Sequoia waives the filing of an answer and waives the entry of findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure. 5. Sequoia waives any right it may have to appeal from the entry of the annexed Final Judgment. 6. Sequoia enters into this Consent and Undertakings ("Consent") voluntarily and of its own accord and represents that no offers, promises, inducements, or threats of any kind have been made by the Commission or any member, officer, agent, employee, or representative thereof to induce it to enter into this Consent. 7. Sequoia undertakes and agrees to cooperate with the Commission and to provide to the Commission discovery, including documentary evidence, and to provide truthful information at any interview, deposition, and any judicial or investigative (whether 2 formal or informal) or administrative proceeding related to or in connection with the matters alleged in, or arising out of, the Complaint, or any of the other defendants in SEC v. Sequoia Systems, Inc., as the Commission may seek ---------------------------- or require; and that it will do so at the request of the Commission or its staff, upon reasonable request and upon service of a subpoena on either the General Counsel or Corporate Secretary of Sequoia, by First Class Mail or any other method the Commission may choose. 8. Sequoia agrees that this Consent shall be incorporated by reference in the Final Judgment with the same force and effect as if fully set forth therein. 9. Sequoia agrees that it will not oppose the enforcement of the Final Judgment on the ground, if any exists, that it fails to comply with Rule 65(d) of the Federal Rules of Civil Procedure, and hereby waives any objection it may have based thereon. 10. Sequoia agrees that the Final Judgment may be presented by the Commission to the Court for signature and entry without further notice. 11. Sequoia waives service of the Final Judgment entered herein upon it and agrees that entry of the Final Judgment by the Court and filing with the Clerk in the District of Columbia will constitute notice to it of the terms and conditions of the Final Judgment. 12. Sequoia agrees that this Court shall retain jurisdiction over this matter for the purpose of enforcing the terms and conditions of the Final Judgment, for all purposes regarding the 3 litigation of the above-captioned action, and for purposes regarding this Consent. SEQUOIA SYSTEMS, INC. By: SIGNATURE APPEARS HERE ---------------------------- On this 30th day of December, 1994, Cornelius P. McMullen, being known to me and who executed the foregoing Consent and Undertakings of Defendant Sequoia Systems, Inc., personally appeared before me and did duly acknowledge to me that he was authorized to execute and executed the same on behalf of Sequoia. /s/ Florence R. Silverman - ----------------------------------- Notary Public My Commission expires: March 15, 1996 APPROVED AS TO FORM: /s/ Geoffrey S. Stewart - ----------------------------------- Geoffrey S. Stewart, Esq. Hale & Dorr 1455 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Counsel for Sequoia Systems, Inc. 4 SEQUOIA SYSTEMS, INC. Certificate of Corporate Resolution ----------------------------------- I, Jeremy F. Swett, do hereby certify that I am the duly elected, qualified and acting Secretary of Sequoia Systems, Inc., a Delaware corporation (the "Company"), and that the following is a complete and accurate copy of a resolution adopted by the Board of Directors of the Company on November 8, 1994: RESOLVED: That the President and Chief Executive Officer of the Company be and he hereby is authorized to act on behalf of the Company, and in his sole discretion, to negotiate, approve and accept the Offer of Settlement of Sequoia Systems, Inc., attached hereto, in connection with the investigation conducted by the Securities and Exchange Commission; in this connection, the aforementioned officer be and he hereby is authorized to undertake such actions as he may deem necessary and advisable, including the execution of such documentation as may be required by the Securities and Exchange Commission, in order to carry out the foregoing. I further certify that the aforesaid resolution has not been amended or revoked in any respect and is still in full force and effect. IN WITNESS WHEREOF, I have executed this Certificate as a sealed instrument as the duly elected, qualified, and acting Secretary of the Board of Directors of Sequoia Systems, Inc. hereunto duly authorized this 30th day of December, 1994. /s/ Jeremy F. Swett --------------------------- Jeremy F. Swett Secretary UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA - ------------------------------------- : SECURITIES AND EXCHANGE COMMISSION : 450 Fifth Street, N.W. : Washington, D.C. 20549, : Civil Action No. : Plaintiff, : 95 0321 V. : : FILED SEQUOIA SYSTEMS, INC., : GABRIEL P. FUSCO, : FEB 24 1995 KENT R. ALLEN, : KEITH D. JOHNSON, and : CLERK, U.S. DISTRICT COURT EDWIN J. HUDSON, JR., : DISTRICT OF COLUMBIA : Defendants. : : - ------------------------------------- FINAL JUDGMENT OF PERMANENT INJUNCTION AS TO DEFENDANT SEQUOIA SYSTEMS, INC. ------------------------------------- Plaintiff Securities and Exchange Commission (the "Commission"), having filed a Complaint for Permanent Injunction and Other Equitable Relief ("Complaint"), and defendant Sequoia Systems, Inc. ("Sequoia"), in the attached Consent and Undertakings of Defendant Sequoia Systems, Inc. ("Consent"), having entered a general appearance herein, having admitted the jurisdiction of this Court over it and over the subject matter of this action, having waived the filing of an answer to the Complaint, having waived the entry of findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure, and, without admitting or denying the allegations of the Complaint, except as to jurisdiction, which it admits, having consented to the entry of this Final Judgment of Permanent Injunction as to Defendant Sequoia Systems, Inc. ("Final Judgment"), and it further appearing that this Court has jurisdiction over Sequoia and the subject matter hereof, and the Court being fully advised in the premises: I. IT IS HEREBY ORDERED, ADJUDGED AND DECREED that Sequoia, its officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise, and each of them, be and hereby are permanently restrained and enjoined from, directly or indirectly, violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") (15 U.S.C. (S) 78j(b)] and Rule lOb-5 [17 C.F.R. (S) 240.10b-5], promulgated thereunder, by using any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange: (a) to employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 2 II. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia, its officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise, and each of them, be and hereby are permanently restrained and enjoined from, directly or indirectly, violating Section 13(a) of the Exchange Act (15 U.S.C. (S) 78m(a)] and Rules 12b-20, 13a-1 and 13a-13 [17 C.F.R. (S)(S) 240.12b-20, 240.13a-1 and 240.13a-13] thereunder, by filing or causing to be filed with the Commission any periodic report on behalf of Sequoia, which contains any untrue statement of material fact, or which omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or which fails to comply in any material respect with the requirements of Section 13(a) of the Exchange Act [15 U.S.C. (S) 78m(a)] and the rules and regulations thereunder. III. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia, its officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise, and each of them, be and hereby are permanently restrained and enjoined from, directly or indirectly, violating Section 13(b)(2) (A) of the Exchange Act [15 U.S.C. (S) 78m(b)(2)(A)] by failing to make and keep books, records and accounts, which, in 3 reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Sequoia. IV. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia, its officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of this Final Judgment by personal service or otherwise, and each of them, be and hereby are permanently restrained and enjoined from, directly or indirectly, violating Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. (S) 78m(b)(2)(B)] by failing to devise and maintain a system of internal accounting controls at Sequoia sufficient to provide reasonable assurances that: (a) transactions are executed in accordance with management's general or specific authorization; (b) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets; (c) access to assets is permitted only in accordance with management's general or specific authorization; and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 4 V. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Sequoia shall cooperate in all respects with the efforts of the Commission pursuant to this Final Judgment, shall give the Commission all reasonable assistance, and shall provide to the Commission such discovery, including testimony, information, and documentary evidence, as the Commission may seek or require in connection with any continuing investigation or litigation of, or administrative proceeding relating to, the matters alleged in, or arising out of, the Complaint. VI. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the annexed Consent is incorporated by reference herein with the same force and effect as if fully set forth herein. VII. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain jurisdiction of this matter for the purposes of enforcing the terms and conditions of this Final Judgment and annexed Consent, and for all purposes regarding the litigation of the above-captioned action. 5 * * * There being no reason for delay, the Clerk of the Court is hereby directed, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, to enter this Final Judgment forthwith. SO ORDERED, this 23rd day of February, 1995, at 2:00 P.M. E.S.T. /s/ SIGNATURE TO COME ---------------------------------- UNITED STATES DISTRICT JUDGE 6 EX-10.31 12 LEASE BETWEEN CHEVRON & TEXAS MICRO-SYSTEMS EXHIBIT 10.31 THIRD AMENDMENT TO LEASE ------------------------ THIS THIRD AMENDMENT TO LEASE (this "Amendment") is made by and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO-SYSTEMS, INC. a Texas corporation ("Tenant"), effective the 10th day of July, 1995. W I T N E S S E T H: -------------------- WHEREAS, Landlord and Tenant did enter into that certain lease (the "Lease") dated December 11, 1992, and as amended effective February 24, 1993 and October 28, 1993 for certain leased space situated in the Building known as 5959 Corporate Drive, Houston, Texas; and WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth herein; NOW THEREFORE, Landlord and Tenant in consideration of the premises and the mutual benefits its to be derived therefrom, do hereby covenant, stipulate and agree, each with the other, to the following terms, covenants, conditions and obligations as an amendment to the Lease: 1. All terms, covenants, obligations and conditions in this Amendment which conflict with a like provision in the Lease shall be controlling over and supersede any like provision in the Lease. 2. All terms, covenants, obligations and conditions in the Lease not superseded and/or amended by any provision in this Amendment shall remain in full force and effect. All defined terms in the Lease shall have the same definition in this Amendment. 3. Article 1, Section 1.01 of the Lease is amended to include within the Premises approximately 17,109 square feet of Net Rentable Area located in the Northwest Quadrant of the first floor of the Building (the "Northwest Quadrant Space") as shown on Exhibit 1 attached hereto and incorporated herein. The Premises also shall be increased to include 3,871 square feet of Net Rentable Area located in the Basement (the "Additional Basement Space") as shown on Exhibit 2 attached hereto and incorporated herein. 4. Article 2, Section 2.01 of the Lease is amended to provide that the Expiration Date shall be midnight on July 1, 2000. 1 5. Article 5, Section 5.02 is amended to provide that the Base Rent for the Northwest Quadrant Space is $8.50 per square foot of Net Rentable Area per annum and $4.50 per square foot of Net Rentable Area per annum for the Additional Basement Space. 6. Tenant will take the Northwest Quadrant Space on an "AS IS" basis. Construction of demising walls shall be subject to Article 11 of the Lease. Tenant and Landlord shall each bear one-half (1/2) the cost of the construction of the demising walls for the Northwest Quadrant. 7. Tenant will take the Additional Basement Space on an "AS IS" basis, agreeing that no air-conditioning is to be provided to such Additional Basement Space, and subject to Landlord's right to substitute for the Additional Basement Space an equally sized area of space in the basement level of the Building, effective fourteen (14) days from Landlord's written notice thereof to Tenant. 8. Effective July 10, 1995, Landlord will lease Tenant 44 covered parking spaces at a rate of $15.00 per month per space, such lease shall be co-terminus with the Lease. 9. (a) Tenant will have subject to the provisions herein, the option to include "AS IS" the entire remaining approximately 14,606 square feet of Net Rentable Area contained in the Northwest Quadrant for office space at a Base Rent of $8.50 per square foot of Net Rentable Area per annum, but such option must be exercised before December 31, 1995 and in the following manner: Tenant must provide written notice of such exercise to Landlord at least one (1) month prior to December 31, 1995. if Tenant is in default under the terms of the Lease either at the time such option is exercised or at the time Tenant is to take delivery of the space subject to said option, this option and the exercise thereof shall be of no effect. (b) After December 31, 1995, Tenant will have a preferential right to include within the Premises "AS IS" the approximately 14,606 square feet of Net Rentable Area of the Northwest Quadrant for office space subject to the provisions of Article 26, Section 26.03 of the Lease, except that the Base Rent for such space shall be the greater of: (i) $9.50 per square foot of Net Rentable Area per annum, or, (ii) the Base Rent in the proposed third-party lease which Landlord notified Tenant of pursuant to Article 26, Section 26.03. 10. Tenant will have a preferential right to lease "AS IS" 2 the two South Quadrants on the second floor of the Building for office space, subject to the provisions of Article 26, Section 26.03, except that the Base Rent for such space shall be the greater of: (i) $8.50 per square foot of Net Rentable Area per annum, or, (ii) the Base Rent in the proposed third-party lease which Landlord notified Tenant of pursuant to Article 26, Section 26.03. 11. For a period of six (6) months following the full execution of this Amendment (the "Basement Space Option Period"), Tenant will have the option to include within the Premises "AS IS" approximately 10,000 square feet of Net Rentable Area in the B-2 and B-3 Expansion Space area of the basement of the Building at a Base Rent of $7.50 per square feet of Net Rentable Area per annum, but such option must be exercised in the following manner: Tenant must provide written notice of such exercise to Landlord at least one (1) month prior to the expiration of the aforesaid Basement Space Option Period. If Tenant is in default under the terms of the Lease either at the time such option is exercised or at the time Tenant is to take delivery of the space subject to said option, this option and the exercise thereof shall be of no effect. 12. For a period of 24 months following the full execution of this amendment, Tenant will have the option to surrender the Northwest Quadrant Space to Landlord upon 120 days prior written notice of its election to do so; and, Landlord will accept the surrender of the Northwest Quadrant Space 120 days following such written notice and the Premises shall be reduced by the approximately 17,109 square feet of Net Rentable Area constituting the Northwest Quadrant Space. Made as of the date first written above. LANDLORD TENANT -------- ------ CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC. By SIGNATURE TO COME By SIGNATURE TO COME --------------------------- --------------------------- Its Lease Manager Its President -------------------------- -------------------------- 3 MEMORANDUM OF UNDERSTANDING AND SECOND AMENDMENT TO LEASE ------------------------------- This Memorandum of Understanding and Second Amendment to Lease is made by and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord"), and TEXAS MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"), effective the _______ day of ______________________, 1993. Landlord and Tenant have disputed the start of the Rental Commencement Date, as that term is defined in the lease dated December 11, 1992, as amended effective February 24, 1993 (the "Lease") . In order to resolve any and all past, present, or future disputes regarding said Rental Commencement Date, Landlord and Tenant agree that the Lease be amended as follows: 1. Subject to the provisions of Paragraph 2 below, the Rental Commencement Date is February 19, 1993. Section 5.02 of the Lease is amended to provide that Tenant's obligation to pay Rent shall not begin until the date that is six (6) months and three (3) weeks after the Rental Commencement Date. Upon the full execution of this Memorandum of Understanding and Second Amendment to Lease, Tenant shall pay the Rent, except for the Rent for the Basement Space which is governed by Paragraph 2 below, for the period beginning September 12, 1993 through October 31, 1993, adjusted to account for or Tenant's advance payment of one month's Rent. The Rent to be paid pursuant to this Paragraph 1 is Twenty-Six Thousand Nine Hundred Fifty-Nine and 41/100 Dollars ($26,959.41), without any late fee, interest or penalty of any kind. 2. Notwithstanding anything to the contrary in the Lease or herein, Tenant shall pay Rent, as that term is defined in the Lease, for the Basement Space, as that term is defined in the Lease, beginning August 8, 1993. The Rent due for such Basement Space for the period August 8, 1993 through October 31, 1993 is Twenty-Three Thousand Nine Hundred Twenty-One and 19/100 Dollars ($23,921.19), adjusted to account for Tenant's advance payment of one month's Rent, and shall be paid, without any late fee, interest, or penalty of any kind, upon the full execution of this Memorandum of Understanding and Second Amendment to Lease. 3. Section 2.01 of the Lease is amended to provide that the Expiration Date, as that term is defined in the Lease, shall be midnight on July 1, 1998. 4. All terms, covenants, obligations and conditions in the Lease not superseded and/or amended by any provision in this Memorandum of Understanding and Second Amendment to Lease shall remain in full force and effect. Execution effective as of the date first written above. LANDLORD TENANT CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC. By: By: SIGNATURE TO COME ---------------------------- ---------------------------- Its: Its: Chmn & CEO --------------------------- --------------------------- FIRST AMENDMENT TO LEASE ------------------------ THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made by and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO-SYSTEMS, a Texas corporation ("Tenant") , effective the 24th day of February, 1993. W I T N E S S E T H: -------------------- WHEREAS, Landlord and Tenant did enter into that certain lease (the "Lease") dated December 11, 1992, for certain leased space situated in the Building known as 5959 Corporate Drive, Houston, Texas; and WHEREAS, Landlord and Tenant desire to amend the Lease as set forth herein; NOW THEREFORE, Landlord and Tenant in consideration of the premises and the mutual benefits to be derived therefrom, do hereby covenant, stipulate and agree, each with the other, to the following terms, covenants, conditions and obligations as an amendment to the Lease: 1. All terms, covenants, obligations and conditions in this Amendment which conflict with a like provision in the Lease shall be controlling over and supersede any like provision in the Lease. 2. All terms, covenants, obligations and conditions in the Lease not superseded and/or amended by any provision in this Amendment shall remain in full force and effect. 3. Article 1, Section 1.01 of the Lease is amended to increase the Premises to 83,878 square feet of Net Rentable Area, such increase resulting from the addition of 450 square feet of Net Rentable Area to the Basement Space, with the location of such 450 square feet as shown on Exhibit 1 attached hereto and incorporated herein. 4. Article 5, Section 5.02 of the Lease is amended to change the required monthly installments of Base Rent to $56,372.46. 1 Executed as of the date first written above. LANDLORD TENANT -------- ------ CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC. By SIGNATURE TO COME By SIGNATURE TO COME ----------------------------- ------------------------------ Its Leasing Manager Its Chmn & CEO ---------------------------- ----------------------------- 2 5959 CORPORATE DRIVE HOUSTON, TEXAS OFFICE LEASE AGREEMENT BETWEEN CHEVRON U.S.A. INC. ("Landlord") AND TEXAS MICRO-SYSTEMS, INC. ("Tenant") TABLE OF CONTENTS FOR THE 5959 CORPORATE DRIVE LEASE TO TEXAS MICRO-SYSTEMS, INC.
PAGE ---- ARTICLE 1 PREMISES ............................................................. 1 ARTICLE 2 TERM ................................................................. 2 ARTICLE 4 ACCEPTANCE OF THE PREMISES AND BUILDING BY TENANT .................... 4 ARTICLE 5 RENT ................................................................. 4 ARTICLE 6 SERVICES BY LANDLORD ................................................. 13 ARTICLE 7 UTILITIES ............................................................ 15 ARTICLE 8 USE .................................................................. 18 ARTICLE 9 LAWS, ORDINANCES, AND REQUIREMENTS OF PUBLIC AUTHORITIES ............. 18 ARTICLE 10 OBSERVANCE OF RULES AND REGULATIONS .................................. 20
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PAGE ---- ARTICLE 11 ALTERATIONS ......................................................... 20 ARTICLE 12 LIENS ............................................................... 22 ARTICLE 13 ORDINARY REPAIRS .................................................... 23 ARTICLE 14 INSURANCE ........................................................... 23 ARTICLE 15 DAMAGE BY FIRE OR OTHER CAUSE ....................................... 26 ARTICLE 16 CONDEMNATION ........................................................ 28 ARTICLE 17 ASSIGNMENT AND SUBLETTING ........................................... 29 ARTICLE 18 INDEMNIFICATION ..................................................... 30 ARTICLE 19 SURRENDER OF THE PREMISES ........................................... 31 ARTICLE 20 ESTOPPEL CERTIFICATES ............................................... 31
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PAGE ---- ARTICLE 21 SUBORDINATION ....................................................... 32 ARTICLE 22 PARKING ............................................................. 33 ARTICLE 23 DEFAULT AND REMEDIES ................................................ 34 ARTICLE 24 ATTORNEYS' FEES AND LEGAL EXPENSES .................................. 37 ARTICLE 25 NOTICES ............................................................. 37 ARTICLE 26 TENANT'S RENEWAL OPTIONS/EXPANSION OPTIONS .......................... 38 ARTICLE 27 MISCELLANEOUS ....................................................... 46 ARTICLE 28 CONFLICTS OF INTEREST ............................................... 50
-iii- OFFICE LEASE AGREEMENT THIS OFFICE LEASE AGREEMENT (this "Lease") dated as of December 11, 1992, is made between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord"), and TEXAS MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"). ARTICLE 1 PREMISES Section 1.01. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord for the Term (as defined below) and subject to the provisions hereof, to each of which Landlord and Tenant mutually agree, the Premises (as defined below) 83,428 square feet of Net Rentable Area (as defined below) located on the first floor (such first floor space shall comprise 32,033 square feet as shown on Exhibit A-1 hereto ("Existing Space") and 30,703 square feet as shown on Exhibit A-2 hereto ("Improvement Space") plus 20,692 square feet of Net Rentable Area in the basement as shown on Exhibit A-3 hereto ("Basement Space") of the Building now known as 5959 Corporate Drive ("Building"), located in Houston, Harris County, Texas ("Premises"), which Premises are more particularly described in the floor plans in Exhibit A hereto, together with its --------- appurtenances, including the right to use, in common with others, the lobbies, entrances, stairs, passenger and freight elevators, offstreet loading areas (for loading and unloading of materials and supplies), and other public portions of the Building. Landlord covenants that the main floor lobby, atrium and common area restrooms located on the first floor will not be unreasonably reduced or the use thereof be otherwise unreasonably limited except as is necessary for ordinary maintenance and repair. Landlord further covenants that a vending area reasonably comparable to the vending area presently existing in the Building will be maintained in the Building and be accessible to Tenant and Tenant's employees, provided, however, that Landlord reserves the right to relocate such vending area to another location in the Building and provided further that Landlord may reduce the size of such vending area so long as such area continues to be reasonably usable for its essential purpose by tenants in the Building, including Tenant and Tenant's employees. The Building is situated on the real property described in Exhibit B hereto (the "Land"). --------- Section 1.02. The term "Net Rentable Area", as used herein, shall be the unit of measurement for space in the Building leased or held for lease to tenants, and shall mean (a) in the case of a single tenancy floor, all floor area, measured from the inside surface of the outer glass line of the Building excluding only the areas ("service areas") used for Building stairs, fire towers, elevator shafts, flues, vent stacks, pipe shafts, and vertical ducts (which service areas shall be measured from the midpoint of walls enclosing such service areas), but including any such service areas which are for the specific use of the particular tenant such as special stairs or special elevators, plus an allocation of the square footage of the Building's "support areas," (support areas defined as the elevator and mechanical and electrical rooms, maintenance areas and public areas, and (b) in the case of a floor to be occupied by more than one tenant, all floor areas within the inside surface of the outer glass line enclosing the Premises and measured to the midpoint of the walls separating areas leased by or held for lease to other tenants, or "common areas," (common areas defined as those areas devoted to corridors, elevator foyers, rest rooms, mechanical rooms, janitor closets, vending areas and other similar facilities for the use of all tenants on the particular floor, but including a proportionate part of the common areas located on such floor, plus an allocation of the support areas of the Building. No deductions from Net Rentable Area share be made for columns or projections necessary to the Building. The Net Rentable Area of the Premises has been calculated on the basis of the foregoing definition, includes the "add-on factors" of fifteen percent (15%) for the Existing Space and ten percent (10%) for the Improvement Space, and is stipulated for all purposes hereof to be the amount stated in Section 1.01. The Net Rentable Area of the Building is to be determined by Landlord in good faith and supplied to Tenant by Landlord in writing on or before December 21, 1992; provided, however, that if the Net Rentable Area is ever thereafter calculated by Landlord to be, or otherwise established to be, more than such number, then the Net Rentable Area of the Building shall be adjusted to such higher number for all purposes hereof. ARTICLE 2 TERM Section 2.01. The term of this Lease (the "Term") is sixty six (66) months beginning on the date of execution of this Lease by Landlord and Tenant (the "Commencement Date") and, unless sooner terminated or renewed pursuant to the provisions hereof, ending at midnight on June 11, 1998 (the "Expiration Date"). Regardless of whether construction of Leasehold Improvements (as defined in Article 3) in the Premises is completed by the Rental Commencement Date (as defined in Article 3), the Term shall not be extended for any reason beyond the Expiration Date. The period between the Commencement Date and the Expiration Date is sometimes herein referred to as the it "original" Term, and that portion, if any, of the Term resulting from the exercise of a renewal option granted in Section 26.01 is sometimes referred to as a "original" Term. Section 2.02. Provided Tenant performs all of Tenant's obligations under this Lease, including the payment of Rent (as defined below), Tenant shall, during the Term, peaceably and quietly enjoy the Premises without disturbance from Landlord or any other persons acting by, through or under Landlord; subject, however, to the terms of this Lease. This covenant and all other covenants of Landlord in this Lease shall be binding, -2- upon Landlord and its successors only with respect to breaches occurring during its and their respective ownership of Landlord's interest hereunder. ARTICLE 3 LEASEHOLD IMPROVEMENTS Section 3.01. Leasehold Improvements from time to time designated by Landlord as "Building Standard" are sometimes called in this Lease "Building Standard Leasehold Improvements." Leasehold Improvements not designated as Building Standard Leasehold Improvements are sometimes called in this Lease "Non-Building Standard Leasehold Improvements." Building Standard Leasehold Improvements and Non-Building Standard Leasehold Improvements are collectively called "Leasehold Improvements." If the Premises already contain Leasehold Improvements from a prior occupancy, Tenant may, at its option, use such improvements in connection with the construction of Leasehold Improvements in the Premises, to the extent provided in the final plans and specifications for the Leasehold Improvements approved by Landlord and Tenant. From and after the Commencement Date, Tenant and Tenant's Contractor share be permitted to enter the Premises and shall construct or cause to be constructed certain additional Leasehold Improvements in accordance with the Tenant Space Plan and Working Drawings prepared by Tenant subject to and in accordance with the terms and provisions of the Work Letter executed simultaneously with this Lease, the form of which Work Letter is attached hereto as Exhibit C. Landlord shall either --------- approve or disapprove such Tenant Space Plan within seven (7) days after Landlord's receipt thereof, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant and Tenant's Contractor may enter the Premises for construction and demolition work and may occupy the Premises and conduct business operations from the Premises, and regardless of such entry and occupancy, Tenant shall not be required to pay Base Rent or Additional Rent until the Rental Commencement Date. Subject to Section 5.02, the date on which Tenant's Rent obligations shall be the date which is seventy (70) days after the Commencement Date (the "Rental, Commencement Date"). If for any reason, Tenant fails to complete construction of its additional Leasehold Improvements before the Rental Commencement Date, then this Lease shall not be void or voidable, and Tenant shall not be liable for any loss or damage resulting therefrom except that Tenant's obligation to pay Base Rent and Additional Operating Expenses shall commence as of the Rental Commencement Date, provided that Tenant shall not be obligated to pay any Base Rent or Additional Operating Expenses for any days (i.e. for the number of days) and the Rental Commencement Date shall be postponed for the number of days that the completion of the construction is delayed because of Events of Force Majeure (as defined in Section 27.06) affecting Tenant or Tenant's Contractor or because of Landlord Delay (as defined in the Work Letter). If (i) Tenant is not delivered possession of the Existing Space and the -3- Improvement Space on or before December 14, 1992 or (ii) Tenant is not delivered possession of the Basement Space on or before December 21, 1992, then Tenant shall be entitled to terminate this Lease. However, without limiting the foregoing right of Tenant, Landlord shall use reasonable efforts to deliver the Premises to Tenant as soon as is practicable after the Commencement Date. ARTICLE 4 ACCEPTANCE OF THE PREMISES AND BUILDING BY TENANT Section 4.01. Taking possession of the Premises by Tenant shall be conclusive evidence that, except for any latent defects of which Tenant is not aware after Tenant's exercise of a reasonable inspection period (but such exception shall not include any latent defects in the work performed or materials supplied by Tenant or Tenant's contractor) Tenant: (a) accepts the Premises as suitable for the purposes for which they are leased; (b) accepts the Building and every part and appurtenance thereof as being in good and satisfactory condition; and (c) waives any claims against Landlord in respect of defects in the Premises and its appurtenances, except for those defects not discoverable by Tenant after conducting a reasonable inspection that are the result of Landlord's negligence or willful misconduct. ARTICLE 5 RENT Section 5.01. Base Rent; Additional Rent. Subject to any other applicable provisions of this Lease, the Rent reserved by Landlord and payable by Tenant in consideration of and under the terms of this Lease for each year of the Term thereof (prorated on a daily basis for any period less than an entire year) shall be and consist of: (a) an annual base rent (sometimes herein called the "Base Rent") in the amounts stated in Section 5.02 hereof, plus (b) such other sums of money as shall become due and payable by Tenant as Additional Rent (as hereinafter defined), which Additional Rent shall be payable as hereinafter provided. Section 5.02. Base Rent. "Base Rent" shall, during the original Term hereof, be at the per annum rate of $8.50 per square foot of Net Rentable Area of Existing Space, $8.00 per square foot of Net Rentable Area of Improvement Space, and $7.50 per square foot of Net Rentable Area of Basement Space. Tenant covenants and agrees to pay Base -4- Rent in equal monthly installments of $56,091.21, in advance on the first day of each and every calendar month during the Term of this Lease from and after the Rental Commencement Date. Notwithstanding anything in this Lease to the contrary, Tenant shall not be obligated to pay any Rent until the date that is six (6) months after the Rental Commencement Date. The Base Rent payable during any renewal period granted pursuant to Section 26.01 hereof shall be at the rate therein provided. It is further understood that the rent for the seventh (7th) full calendar month after the Rental Commencement Date has been paid in advance upon the execution of this Lease and Landlord acknowledges receipt thereof. Section 5.03. Additional Rent. "Additional Rent" means all sums, other than Base Rent, which Tenant is or becomes obligated to pay to Landlord under this Lease, including, but not limited to, Additional Operating Expenses (as hereinafter defined). Section 5.04. Additional Operating Expenses. "Additional Operating Expenses" shall be computed separately for each square foot of Net Rentable Area in the Premises for each calendar year or portion thereof which ensues after the Commencement Date and prior to the end of the Term of this Lease and, for each such calendar year or portion thereof, shall mean an amount (but not less than zero) per square foot of Net Rentable Area in the Premises determined by subtracting the amount described below in (b) from the amount described below in (a), to wit: (a) The arithmetic average of the Operating Expenses (as hereinafter defined) per square foot of Net Rentable Area in the Building incurred during such calendar year or portion thereof. (b) The applicable Landlord's Expense Stop (as hereinafter defined) as to such square foot of Net Rentable Area in the Premises for such calendar year or portion thereof. For all purposes under this Lease, the "arithmetic average" of the Operating Expenses per square foot of Net Rentable Area in the Building for a calendar year shall be determined by dividing the total amount of the Operating Expenses incurred during such calendar year by the total number of square feet of Net Rentable Area in the Building, and, likewise, the Operating Expenses for any portion (less than all) of a calendar year for a square foot of Net Rentable Area in the Building shall be determined by dividing the arithmetical average of the Operating Expenses per square foot of Net Rentable Area in the Building for such entire calendar year by the number of days in such year and by multiplying the result obtained by the number of days in such portion of said calendar year. -5- Section 5.05. Landlord's Expense Stop. "Landlord's Expense Stop" means as follows: (a) For any full calendar year during the Term, "Landlord's Expense Stop" shall mean $6.50. (b) For any partial calendar year during the Term, "Landlord's Expense Stop" means the product obtained by multiplying the amount in Section 5.05(a) by a fraction, the denominator of which is 365, and the numerator of which is the number of days in such partial calendar year. Section 5.06. Operating Expenses. (a) Subject to the provisions of subsection (b) hereof, "Operating Expenses" as used herein means all expenses, costs, and disbursements of every kind which Landlord shall be required to pay, in connection with the ownership, operation, and maintenance of the Building and the Land, including, without limitation, the following: (1) An amount (the "Management Fee Allocation") equal to three percent (3%) of the Base Rent and Additional Rent; provided, however, that for the purpose of calculating the Management Fee Allocation, Operating Expenses shall exclude the Management Fee Allocation. (2) Wages, salaries, and fees of all personnel at or below the level of building manager engaged in the operation, maintenance, or security of the Building, including taxes, insurance, and benefits relating thereto; provided, however, that if during the Term such personnel are also working on other projects being periodically developed or operated by Landlord, their wages, salaries, fees, and related expenses shall be allocated by Landlord in good faith among all of such projects, and only that portion of such expenses allocable to the Building shall be included as an Operating Expense. (3) All supplies and materials directly used in the operation and maintenance of the Building. (4) Cost of all maintenance and service agreements for the Building, including without limitation, alarm service, janitorial services, security services, window cleaning, elevator maintenance, landscaping, and parking facilities maintenance. -6- (5) Cost of all insurance relating to the Building, including, without limitation, the cost of casualty and liability insurance applicable to the Building and Landlord's personal property used in connection therewith, the cost of business interruption insurance in such amounts as will reimburse Landlord for all losses of earnings and other income attributable to the ownership and operation of the Building and the cost of insurance against such perils and occurrences as are commonly insured against by prudent landlords; provided, however, (A) any portion of such insurance premiums, surcharge, or ascribed cost thereof pursuant to Landlord's self-assumption of risk pursuant to Article 19 below as a result of any use by any tenant (including Tenant) of such tenant's premises other than for general office purposes shall not be a Operating Expense, but shall instead be billed to and paid for by such tenant separately and (B) if such insurance is provided in the form of master insurance covering more than the Building, then only an equitable portion of the premiums therefor shall be included in Operating Expenses. If Landlord elects to self-assume risk as provided in Section 14.02, the cost of insurance shall be Landlord's estimated fair market cost, not to exceed the rates charged to landlords of first-class office buildings in the suburban area of Houston, Texas, during the applicable period of time or the applicable rates published in the Insurance Service Offices (ISO) Manual for the applicable period, whichever is less. (6) All taxes, assessments, and other governmental charges, whether federal, state, county, or municipal and whether assessed by taxing districts or authorities presently taxing the Building or the Land or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Building and the Land or their operation, exclusive of any inheritance, gift, franchise, succession, transfer, or income taxes which may be assessed against Landlord. (7) Cost of repairs and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Tenant or other third parties, and alterations attributable solely to tenants of the Building other than Tenant). (8) Amortization of the cost of capital investment items that are installed primarily (and in good faith) to reduce operating costs for the benefit of all the Building's tenants or which may be required by any governmental authority, including but not limited to the Americans with Disabilities Act ("ADA"). All such costs, including interest cost shall -7- be amortized over the reasonable life of the capital investment items, with the reasonable life and amortization schedule being determined by Landlord according to generally accepted accounting principles, but in no event to extend beyond the reasonable life of the Building. (9) Cost of all utilities for the Building, including the cost of water, electricity, gas, fuel oil, heating, lighting, air conditioning, and ventilation for the Building. (10) Landlord's legal, appraisal and other such third party fees relating to the operation of the Building. If the Net Rentable Area of the Building is not fully occupied during any Fiscal Year of the Term, an adjustment shall be made in computing the Operating Expenses for that year so that those Operating Expenses that vary with occupancy shall be increased for that year to the amount that in Landlord's reasonable good faith judgment, would have been incurred had the total Net Rentable Area of the Building been occupied during that year. All Operating Expenses shall be computed according to generally accepted accounting principles, consistently applied. (b) Notwithstanding anything to the contrary contained herein, the term "Operating Expenses" shall not include any of the following expenses: (1) Depreciation and amortization; (2) Tenant allowance, tenant concessions and other costs and expenses incurred in renovating or otherwise improving or decorating or redecorating space for tenants or other occupants in the Building or vacant space in the Building or in relocating such tenants or other occupants of the Building, including space planning and interior design fees and the cost of removing the property of former tenants or occupants of the Building; (3) Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord or any affiliate of Landlord; (4) Leasing commissions, attorneys' fees, costs and disbursements, and other expenses incurred in connection with solicitations, negotiations or disputes with tenants, other occupants or prospective tenants of the Building or with consultants, management agents, purchasers, ground lessors, prior owners, or mortgagees of the Building; -8- (5) Costs incurred by Landlord for alterations, additions, and replacements which are considered capital expenditures under generally accepted accounting principles, consistently applied, except to the extent provided in Section 5.06(a)(8); (6) Interest on debt or amortization payment on any mortgage or mortgages and any rental under any ground or underlying leases or lease (except to the extent the same may be made to pay insurance or taxes); (7) Advertising and promotional expenses; (8) Costs of restoration or repair or other work on all or any portion of the Building or Land occasioned by fire, windstorm, or other casualty or condemnation; and (9) Specific costs in connection with services (including electricity), items or other benefits of a type that are not available to Tenant without specific charge therefor, but that are provided to another tenant or occupant of the Building, regardless of whether such other tenant or occupant is specifically charged therefor by Landlord, in addition to any costs specially billed to specific tenants, such as above Building Standard janitor service, or other services above Building Standard. (10) Except for the Management Fee Allocation, costs of Landlord's general corporate overhead and general administrative expenses including (A) any benefits or extraordinary compensation above salaries, wages and reasonable and customary incentive-based compensation (other than medical benefits) payable by Landlord to any of its employees or personnel, (B) any magazine or other subscriptions, and (C) seminars, conferences, or other educational or training expenses. (11) Interest or penalties due to late payment of taxes, utility bills or any other such costs, except any interest or penalties arising from any late payments beyond Landlord's control. (12) Costs or expenses (including fines, penalties and legal fees) incurred by Landlord due to the violation by Landlord, its employees, agents or contractors, or any tenant or other occupant of the Building, of the terms, conditions of any lease in the Building or of any third -9- party contract or obligation, or of any applicable laws, rules, regulations and codes of any federal, state, county, municipal or other governmental authority having jurisdiction over the Building, it being intended that each party shall be responsible for the costs resulting from his own violation of such leases and laws, rules, regulations and codes as same shall pertain to the Building. (13) Without impairing any indemnity or insurance obligation set forth herein, costs directly resulting from the negligence, willful misconduct or other tortious conduct of Landlord or its employees, agents or contractors. Costs (including without limitation overhead, profit, and fees) paid to Landlord or affiliates of Landlord for services or other matters related to the Building or related facilities to the extent that such costs exceed competitive costs for such services rendered by unaffiliated persons or entities of similar skill, confidence, and experience. (14) All costs associated with the presence in the Building or related facilities of asbestos, polychlorinated biphenyls, or other hazardous or toxic materials. (15) Costs or expenses incurred with respect to the purchase, leasing, showing or promotion of sculpture, paintings or other works of fine art. (16) Contributions to operating expense reserves. (17) Contributions to charitable organizations. (18) Costs or fees relating to the defense of Landlord's title to or interest in the Building, or the Land, or any part thereof. (19) Any other expense which, under generally accepted accounting principles, consistently applied, would not be considered to be normal or reasonable maintenance or operating expense for comparable buildings. (c) The term "Fiscal Year," as used herein shall mean a period of twelve consecutive calendar months commencing on January 1, and ending on December 31, or such other twelve-month period as Landlord may specify from time to time. -10- Section 5.07. Rent. "Rent" means all amounts which Tenant is obligated or becomes obligated to pay to Landlord under this Lease, including Base Rent and Additional Rent. Section 5.08. Payment of Rent. Tenant shall pay to Landlord all Rent at Landlord's lockbox in Houston, Texas or elsewhere, as Landlord may from time to time designate to Tenant in writing, in legal tender for the payment of public and private debts, without counterclaims, set-off, or deduction except as set forth in this Lease, in the following manner: (a) The Base Rent monthly in advance (without written demand) in equal monthly installments on the first day of each full calendar month during the Term and for any other period of occupancy; and (b) The Additional Rent, within thirty (30) days after notice thereof by Landlord's invoice or statement for the same as elsewhere provided and authorized herein, and at such other times as this Lease provides for the payment of the same. Section 5.09. Failure to Pay; Interest. All past-due Rent shall bear interest from and after the fifth (5th) day after it is due until paid at the rate of interest per annum equal to the interest rate then being quoted by Bank of America National Trust and Savings Association (or its successor) as its "prime rate," plus two (2) points, or the maximum rate permitted under state or federal law, if the aforesaid rate exceeds such maximum. Section 5.10. Additional Operating Expenses. As Additional Rent, Tenant shall pay to Landlord an amount (if any) equal to the Additional Operating Expenses for each square foot of Net Rentable Area included in the Premises during any calendar year or portion thereof during the Term of this Lease; provided that for any period of time which constitutes less than an entire calendar year, the Additional Rent if any, payable by Tenant under this Section 5.10 for each square foot of Net Rentable Area in the Premises during such portion of a calendar year shall be calculated on a proportionate per-day basis as described in Sections 5.04 and 5.05 above. Notwithstanding the foregoing, if the Consumer Price Index (as hereafter defined) on the first day of the calendar month in which this Lease commences is less than the Consumer Price Index on the first day of any calendar year during the original Term or any renewal Term hereof, then Tenant shall not be obligated to pay Additional Operating Expenses for each square foot of Net Rentable Area included in the Premises in any calendar year in an amount greater than the product of (a) the Landlord's Expense Stop multiplied by (b) a fraction the numerator of which is the Consumer Price Index for the year for which the Additional Operating Expenses is being computed and the denominator of which is the Consumer Price Index for the calendar year 1992. Additionally, notwithstanding anything to the contrary herein, -11- Tenant shall not be obligated to pay any Additional Operating Expenses for the calendar year 1993. "Consumer Price Index" shall mean the Consumer Price Index published by the Bureau of Labor Statistics, U.S. City Average, All Items for Urban Wage Earners and Clerical Workers (1982-84=100). Section 5.11. Payment of Estimated Additional Rent in Respect of Additional Operating Expenses. At least fifteen (15) days prior to the first day of each calendar year during the Term of this Lease, Landlord shall notify Tenant of Landlord's good faith estimate of the amount, if any, of Additional Rent which will become due by Tenant under Section 5.10 during the next calendar year or part thereof. The amount of Additional Rent, if any, thus estimated by Landlord to become due for any such period shall be divided into equal monthly installments during such period (reduced proportionately for any partial month) and shall be paid by Tenant in such equal monthly installments in advance on the first day of each month during such period; provided that if Additional Rent is estimated to accrue under Section 5.10 during a portion only of such period (as, for example, a portion of a calendar year during which the Term hereof ends), the entire amount of such estimated Additional Rent shall be payable in equal monthly installments only during the portion of such period during which it is estimated to accrue. If Landlord fails to give notice to Tenant of Landlord's estimate of the amount of Additional Rent to become due by Tenant during any period at least fifteen (15) days prior to commencement of such period as required in the first sentence of this Section 5.11, Tenant shall not be required to commence paying monthly installments of estimated Additional Rent for such period until the first day of the first calendar month which ensues at least fifteen (15) days after notice of such estimate is given by Landlord to Tenant, in which event the first monthly installment of estimated Additional Rent to be paid by Tenant after receipt of such notice shall include all monthly installments of estimated Additional Rent for such period which would have become due through such installment payment date if Landlord had timely given notice of estimated Additional Rent for such period as provided for in the first sentence of this Section 5.11. Section 5.12. Correction of Estimated Payments. Within one hundred fifty (150) days, or reasonably thereafter, after the end of each calendar year during which any estimated Additional Rent has accrued under Section 5.11 above, Landlord shall provide to Tenant a statement for such calendar year setting forth, in reasonable detail, the Operating Expenses incurred during such calendar year and the amount, if any, of Additional Rent due by Tenant under Section 5.10 for such calendar year or any portion thereof. If the actual Additional Rent, if any, due by Tenant under Section 5.10 for such calendar year, or portion thereof, is greater than the estimated Additional Rent paid by Tenant under Section 5.11 during such calendar year, or portion thereof, then within thirty (30) days after receipt of such statement Tenant shall pay to Landlord the amount of such excess. If the actual Additional Rent, if any, due by Tenant under Section 5.10 for such calendar year, or portion thereof, is less than the estimated Additional Rent paid by -12- Tenant under Section 5.11 during such calendar year, or portion thereof, then Landlord shall allow a credit in the amount of such overpayment plus interest thereon from the date of delivery of said statement from Landlord until the credit is given, at the rate of interest per annum equal to the interest rate being quoted by Bank of America National Trust and Savings Association (or its successor) as its "prime rate" plus two (2) percent, or the maximum rate permitted by state or federal law if the aforesaid rate exceeds such maximum, against the aggregate payment of Base Rent and estimated Additional Rent otherwise becoming due under Section 5.08(a) and Section 5.11 on the next ensuing monthly payment of Rent due or dates, if any, after delivery of such statement to Tenant; provided that if the Term of this Lease has ended or shall end prior to utilization of such entire overpayment as a credit against Rent hereunder, Landlord shall promptly refund such overpayment together with applicable interest as provided pursuant to this Section 5.12 (to the extent not credited against Rent otherwise becoming due hereunder) to Tenant. Section 5.13. Tenant's Right to Examine Records. Tenant shall have the right at all reasonable times to audit and copy or reproduce at its own expense Landlord's books and records relating to Additional Rent under this Lease for all or any part of the immediately preceding two (2) calendar years of the Term. Landlord agrees that it will maintain complete and accurate records of all costs, expenses and disbursements relating to Operating Expenses that shall be paid or incurred by Landlord, its employees, agents or contractors, or any of the foregoing. Landlord agrees to reimburse Tenant for the professional or accounting costs or expenses incurred by Tenant in connection with any such inspection or audit conducted by or for Tenant (including, without limitation, the allocated cost of Tenant's internal accounting or auditing personnel, but in no event shall such amounts exceed the amounts that would have been charged by unaffiliated third parties of similar skill and competence and experience for providing such services on a competitive basis), but only up to the amount of $10,000 of such expenses, in the event said inspection or audit shall prove that Operating Expenses or Additional Operating Expenses, or both, for the period of time covered by such inspection or audit shall have been overstated by five percent (5%) or more. Furthermore, Landlord agrees to adjust its computation of Operating Expenses or Additional Operating Expenses, or both, to the extent that inaccuracies or mistakes are discovered by Tenant or by other tenants of the Building (to the extent such inaccuracies or mistakes detected are applicable to Tenant pursuant to this Lease). -13- ARTICLE 6 SERVICES BY LANDLORD Section 6.01. While Tenant or a permitted sublessee or assignee is paying Rent as required hereunder and has not abandoned the Premises, Landlord shall furnish the Premises or Building, as applicable, with: (a) Passenger elevator service and freight elevator service in common with other tenants for access to and from the Premises and to the Basement (as well as stairwell access from the Premises to the Basement) in such number of elevators as is customarily provided to tenants in first-class office buildings in the suburban area of Houston, Texas, (but not less than the number of such items currently in existence in the Building), provided that Landlord may reasonably limit the number of passenger elevators to be operated before or after Normal Business Hours (as defined in Section 27.03 hereof) and on holidays (as defined in Section 27.02 hereof), provided, further that the Tenant's use of freight elevator to be installed by Tenant pursuant to the Tenant Space Plan may not be restricted or limited by Landlord. (b) Janitorial cleaning services as are customarily provided to tenants in first-class office buildings in the suburban area of Houston, Texas provided that in the Basement Space and Improvement Space, such janitorial services will be limited to floor sweeping and basic trash removal; additionally, Landlord will make their compactor available to Tenant; (c) Replacement, as necessary, of all lamps bulbs, starters and ballasts in the Building Standard light fixtures within the Premises and all support areas and common areas; (d) Maintenance, painting and electric lighting service for all common areas, support areas, and other public areas, including all restrooms and surface parking lots serving the Building and located on the Land (including any restriping as may be required), any and all walkways and sidewalks serving the Building and located on the Land, all as are customarily provided to tenants in first-class office buildings in the suburban area of Houston, Texas; (e) Window cleaning services for the interior and exterior of the Building as needed, but no less than twice per calendar year; (f) Restriction on access of unauthorized individuals to the Building and Land as is customarily provided to tenants in first-class office buildings and the land in the suburban area of Houston, Texas; provided however that such level of restriction of -14- access, in the aggregate, shall not be reduced from the level now provided to the Building and Land; (g) Maintenance of all equipment supplied by Landlord (elevators, mechanical, electrical and plumbing) as is customarily provided to tenants in first-class office buildings in the suburban area of Houston, Texas; (h) Maintenance of all landscaped areas as is customarily provided to tenants in first-class office buildings in the suburban area of Houston, Texas; (i) Pest control service as is customarily provided to tenants in first-class office buildings in the suburban area of Houston, Texas; (j) To the extent presently available, use of the Building's paging system, for Tenant's exclusive use within the Premises; (k) If a directory for the Building in the ground floor lobby is ever constructed, then Tenant will be entitled to a quantity of listing strips on the directory in an amount equal to the greater of (1) ten (10) listing strips or (2) that number of listing strips which shall bear the same ratio to the total number of listing strips on such directory as the number of square feet of Net Rentable Area in the Premises bears to the number of square feet of Net Rentable Area of the Building, taking into account any renewals, expansions, and preference rights exercised by Tenant in the Building; and (l) the services provided for in Sections 7.01 and 7.02 below. If Tenant requires services which are not specified herein and Landlord elects to provide such services to Tenant, Tenant will pay to Landlord, as Additional Rent, upon demand, the cost of providing such services. ARTICLE 7 UTILITIES Section 7.01. While Tenant or a permitted sublessee or assignee is paying Rent as required hereunder and has not abandoned the Premises, Landlord shall furnish Tenant with the following services: (a) hot and cold potable water at those points of supply provided periodically for normal lavatory use by tenants in the Building in such amounts and temperatures as may be customarily provided to tenants occupying -15- comparable space in first-class office buildings in the suburban area of Houston, Texas; and (b) heating, ventilating, and/or air conditioning in season during Normal Business Hours for the Building and at such temperatures and in such amounts as may customarily be provided to tenants occupying comparable space in first-class office buildings in the suburban area of Houston, Texas (such temperature ranges to be between 68' and 74' degrees fahrenheit). With respect to heating, ventilating, and/or air conditioning, if Tenant requires air conditioning (heating and cooling) during any season outside the hours and days specified above, Landlord shall furnish it only at Tenant's request, and Tenant will bear the entire charge therefor. Section 7.02. While Tenant or a permitted sublessee or assignee is paying Rent as required hereunder and has not abandoned the Premises, Landlord will furnish sufficient power for lighting and for typewriters, voicewriters, calculating machines, word processors, micro-computers, duplicating machines and other machines of low electrical consumption, exclusive of electricity for (a) special lighting which has electrical consumption in excess of Building Standard lighting or (b) any item that consumes more than 0.5 kilowatts per square foot of Net Rentable Area of the Premises per hour at rated capacity all of which power shall be supplied by Landlord and paid for by Tenant as a part of the Additional Rent. If Tenant's requirements for electricity exceed those described above, Landlord, at Tenant's expense, will make reasonable efforts to supply such service through the then-existing feeders servicing the Building and will bill Tenant periodically for such additional service. Such additional consumption shall be determined, at Landlord's election, either (i) by a survey performed by a reputable consultant selected by Landlord and the reasonable cost of which is to be paid for by Tenant, or, (ii) by a separate meter in the Premises to be installed, maintained, and read by Landlord and the reasonable cost of installation of such meter shall be paid for by Tenant. Except for the abatement of Rent as provided herein, Landlord will not be liable in any way to Tenant for any failure or defect in the supply or character of electric energy or any other utility service furnished to the Premises because of any requirement, act, or omission of the public utility serving the Building with electricity or any other utility service. All installations of electrical fixtures, appliances, and equipment within the Premises will be subject to Landlord's prior written approval, such approval not to be unreasonably withheld conditional, or delayed. -16- Landlord's obligation to furnish electrical and other utility services as described in this Article 7 will be subject to the rules and regulations of the supplier of such electricity or other utility services and the rules and regulations of any municipal or other governmental authority regulating the business of providing electricity and other utility services. At all times Tenant's use of electrical current will never exceed the capacity of existing feeders to the Building or the risers or wiring installations; provided, however, that Landlord shall not reduce the capacity of such existing feeders, risers and wiring installations to the Building and Premises if such reduction would result in Tenant's not being able to use the Premises for the uses permitted herein. Section 7.03. Failure to furnish, or any stoppage of, the services provided for in Article 6 above and this Article 7 resulting from any cause beyond Landlord's reasonable control will not make Landlord liable in any respect for damages to either person, property, or business (other than the abatement of Rent as provided herein), nor be construed as an eviction of Tenant nor relieve Tenant of any of its obligations under this Lease, except as is otherwise provided herein. Landlord shall use reasonable efforts to cause any such services to be restored. Should stoppage of the services provided for in Article 6 above or this Article 7 render the Premises untenantable (tenantability being presumed if Tenant is using Premises in the usual manner for its intended purpose) for more than three (3) consecutive days (or for more than five (5) days during any calendar month) and be the result of the act or omission of Landlord, or its employees, contractors or agents, then Tenant's rent shall abate during the entire period of untenantability. Should stoppage of the services provided for in Article 6 and this Article 7 render the Premises untenantable for more than five (5) consecutive days (or for more than ten (10) days during any calendar month) for any cause, Tenant's rent shall abate during the entire period of untenantability. If the period of untenantability exceeds thirty (30) consecutive days (or for more than forty-five (45) days in any sixty (60) day period) for any cause, Tenant shall have the right to terminate the Lease after the thirtieth consecutive day, or after forty-five (45) days of such untenantability have elapsed in any sixty (60) day period, by giving written notice to Landlord prior to full restoration of such services. Section 7.04. Landlord may require, at its option installation of a meter or meters to monitor Tenant's use of electricity or the chilled water for cooling purposes, the cost of installation of such meter or meters to be shared equally by Landlord and Tenant. -17- ARTICLE 8 USE Section 8.01. The Premises shall be used only for general office purposes and for no other purpose, with the only exception to the foregoing being those light manufacturing activities described in Exhibit F to this Lease and the use in connection therewith of those chemicals and in the quantities thereof specified in Exhibit G to this Lease. Tenant agrees to use and maintain the Premises in a clean, careful, safe, lawful, and proper manner consistent with the foregoing. If a change in the use of the Premises by Tenant from that permitted herein occurs (no implied consent of Landlord being hereby given therefor) and such change results in a materially increased environmental risk to the Premises or Building, then Landlord may (i) impose additional requirements upon Tenant relating to the lessening of such additional environmental risk to the Premises or Building or (ii) demand that Tenant cease such changed use giving rise to the additional environmental risk to the Premises or Building. ARTICLE 9 LAWS, ORDINANCES, AND REQUIREMENTS OF PUBLIC AUTHORITIES Section 9.01. Tenant shall, at its sole expense, comply with all laws, orders, ordinances, and regulations of federal, state, county, and municipal authorities, including the ADA, and with any directive of any public officer or officers which shall, with respect to the use of the Premises or to any abatement of nuisance, impose any violation, order or duty upon Landlord or Tenant arising from Tenant's use of the Premises or from conditions which have been created by or at the insistence of Tenant or required by reason of a breach of any of Tenant's obligations hereunder. The foregoing obligations of Tenant under this Article 9 shall not apply to any laws, orders, ordinances, regulations, or directives to which Landlord is subject and which are applicable to the Building (but not the Premises), or which generally relate to Landlord's leasing of space in the Building for general office purposes. To the best of Landlord's knowledge, except as provided below in Section 9.02, there are no Hazardous Substances used, stored, generated or disposed of in the Building or the Land in violation of an applicable environmental law, however, should there prove to be Hazardous Substances within the Building or on the Land in violation of any environmental law, through no fault of Tenant, Landlord shall except as otherwise provided below, promptly, at its sole expense, take any and all necessary actions to cause the Building or Land, or both, to be in compliance with all applicable environmental laws. As used herein, -18- "Hazardous Substance" means any petroleum fuel, polychlorobiphenyls and any hazardous or toxic substance, material or waste that is or becomes regulated by any local government or authority, the State of Texas or the United States Government, including, but not limited to, any material or substance defined as a "hazardous waste", "extremely hazardous waste", "restricted hazardous waste", "hazardous substances", "hazardous material" or "toxic pollutant" under the Texas Statutes or under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)9601 et. seq. ------- If Tenant receives written notice of the violation of any law, order, ordinance, or regulation, it shall promptly notify Landlord thereof. Section 9.02. (a) Landlord represents and warrants to Tenant that there is no asbestos in the Building other than as set forth in that certain Environmental Report dated October 16, 1989 prepared by Loflin Environmental Services. (b) Landlord covenants that it has implemented, or if Landlord has not, Landlord will promptly implement, at its sole cost and expense, an Operations and Maintenance Plan ("Plan") during the duration of this Lease or until all asbestos-containing materials ("ACM") are removed from the Property, whichever comes first, to address the presence of all ACM on the Property. Such Plan shall include (1) a regular program of inspections, to be conducted no less frequently than annually, of all ACM known to be present on the Property to determine whether ACM have deteriorated or otherwise become capable of releasing asbestos fibers into the air; (2) a regular program of inspections to ensure that any improvements or other activities of tenants of the Property have not and do not disturb ACM; (3) documentation of all inspections; (4) the designation of a representative of Landlord who will be responsible for all ACM-related activities at the Property and who may be notified by Tenant in the event that Tenant's proposed activities may result in the disturbance of ACM on the Property; and (5) compliance with all applicable laws and regulations relating to ACM. (c) Landlord further covenants to notify Tenant promptly upon becoming aware of any condition relating to ACM on the Property that may pose a threat to the health of any of Tenant's employees, agents, or representatives. (d) If (i) the representation and warranty contained in (a) above proves to be incorrect and the presence of asbestos poses or may be reasonable suspected of posing a threat to the health of Tenant's employees, agents, or representatives, or (ii) if Landlord fails to perform any covenant contained in (b) or (c) above, then Tenant may terminate this Lease upon thirty (30) days written notice to Landlord and thereupon Landlord shall reimburse Tenant for the unamortized cost of Tenant's initial construction of Leasehold Improvements in the same manner as if Landlord exercised its cancellation option pursuant to Section 26.01. -19- ARTICLE 10 OBSERVANCE OF RULES AND REGULATIONS Section 10.01. Tenant and its servants, employees, agents, visitors, and licensees shall observe faithfully and comply with the Rules and Regulations attached hereto as Exhibit E; provided, however, in the event of a --------- conflict between the terms of this Lease and the Rules and Regulations (whether now existing or hereafter created), then this Lease shall control. Landlord shall at all times have the right to make reasonable changes in and additions to such Rules and Regulations, provided any changes in existing rules or any new rules do not interfere with the lawful conduct of Tenant's business in the Premises as permitted by this Lease and further provided that such Rules and Regulations are applied uniformly to all tenants conducting similar types of activities in the Building. Landlord shall have no responsibility or liability to Tenant and its servants, employees, agents, visitors, and licensees with respect to any damages or injuries to persons or property arising out of noncompliance with the Rules and Regulations, or any of them, by any other tenant or person in the Building. ARTICLE 11 ALTERATIONS Section 11.01. Tenant shall not without Landlord's prior written consent which consent shall not be unreasonably withheld, conditioned or delayed, make any alterations to the Premises. Should Tenant desire to make any such alterations, Tenant agrees to submit all plans and specifications for same to Landlord for Landlord's written approval, which approval shall not be unreasonably withheld, conditioned or delayed, before such work is begun. Upon Tenant's receipt of Landlord's written approval, and upon Tenant's payment to Landlord of a Review Fee (as defined in this Section 11.01), if any, as provided herein, Tenant may proceed with the construction of the approved alterations, but only so long as the alterations are constructed in substantial compliance with the approved plans and specifications and with the provisions of this Article 11. All alterations shall be made at Tenant's expense, at Tenant's option, either by Tenant's contractors which have been approved by Landlord, or by Landlord's contractors on terms reasonably satisfactory to Tenant, including a payment of the Review Fee, if any. -20- All work in connection with such alterations shall: (a) be performed in such a manner as to maintain harmonious labor relations; (b) not alter the exterior appearance of the Building; (c) not adversely affect the structure or safety of the Building; (d) comply with all building, safety, fire, and other codes and governmental and insurance requirements; (e) not result in any usage in excess of Building Standard of water, electricity, gas, heating, ventilating, or air-conditioning (either during or after such work) unless prior written arrangements satisfactory to Landlord are made with respect thereto; and (f) be completed promptly and in a good and workmanlike manner. Tenant shall not obligated to pay to Landlord any fee or similar charge for any alterations or additions to the Premises unless (i) such alterations or additions affect the structural, mechanical, electrical or plumbing systems of the Building and (ii) Landlord is incapable of reviewing and approving the plans and specifications because Landlord does not have on its payroll any person or persons qualified to review such plans and specifications (any such alteration not satisfying (i) and (ii) above is herein called an "Exempt Alteration"). Tenant shall pay to Landlord, upon completion of any alteration or addition, other than in connection with the initial Leasehold Improvements to the Premises to be constructed and installed pursuant to the Tenant Space Plan (as such may be amended in accordance with the Work Letter) a fee (the "Review Fee") equal to all reasonable architectural and engineering fees and expenses paid by Landlord in reviewing and approving the plans and specifications for any alteration that is not an Exempt Alteration. Section 11.02. All Leasehold Improvements, alterations, and physical additions made or installed by or for Tenant in or to the Premises other than Tenant's furniture, furnishings, personal property, equipment, and removable trade fixtures shall be and remain Landlord's property, and shall not be removed. Tenant agrees to remove, at Tenant's expense, all of its furniture, furnishings, personal property, equipment, and removable trade fixtures by the Expiration Date or the date of any earlier termination hereof, and shall promptly repair all damage done to the Premises or the Building by such removal, normal wear and tear excepted (or Tenant shall promptly reimburse Landlord for the reasonable cost of repairing all damage done to the Premises or the Building by -21- such removal, normal wear and tear excepted). Notwithstanding the foregoing, Tenant shall be entitled to remove the freight elevator at the expiration or earlier termination of this Lease provided Tenant promptly repairs all damage done to the Premises or the Building by such removal, normal wear and tear excepted (or provided that Tenant promptly reimburses Landlord for the reasonable cost of repairing an damage done to the Premises or the Building by such removal, normal wear and tear excepted). If Tenant elects not to remove the freight elevator, Tenant shall so notify Landlord in writing and Landlord may request in writing that Tenant remove the freight elevator and thereupon Tenant shall remove the freight elevator at Tenant's sole cost and expense and Tenant shall promptly repair all damage done to the Premises or the Building by such removal, normal wear and tear excepted (or Tenant shall promptly reimburse Landlord for the reasonable cost of repairing all damage done to the Premises or the Building by such removal, normal wear and tear excepted). ARTICLE 12 LIENS Section 12.01. Tenant shall keep the Premises free from any liens arising from any work performed, materials furnished or obligations incurred by or at the request of the Tenant. All persons either contracting with Tenant or furnishing or rendering labor and materials to Tenant shall be notified in writing by Tenant that they must look only to Tenant for payment for any labor and materials. Nothing contained in this Lease shall be construed as Landlord's consent to any contractor, subcontractor, laborer, or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration, or repair of, or to, the Premises, nor as giving Tenant any right to contract for, or permit the performance of, any services or the furnishing of any materials that would result in any liens against the Premises. If any lien is filed against the Premises or Tenant's leasehold interest therein, Tenant shall discharge same within ten (10) days after Tenant learns that the lien has been filed. If Tenant fails to discharge any lien within such period, then, in addition to any other right or remedy of Landlord, Landlord may, at its election, discharge the lien by either paying the amount claimed to be due or obtaining the discharge by deposit with a court or a title company or by bonding. Tenant shall pay on demand any amount paid by Landlord for the discharge or satisfaction of any lien, and all reasonable attorneys' fees and other legal expenses of Landlord incurred in defending any such action or in obtaining the discharge of such lein, together with all necessary disbursements in connection therewith. Notwithstanding the foregoing, Tenant may contest the amount or validity of any such lien, provided that Tenant first posts with Landlord an indemnity bond issued by a -22- corporate surety reasonably satisfactory to Landlord in an amount required by law. This bond shall name Landlord and such other parties as Landlord may direct as assignees thereunder. ARTICLE 13 ORDINARY REPAIRS Section 13.01. Tenant shall, at all times during the Term hereof and at Tenant's sole cost and expense, keep the Premises and every part thereof (but excluding exterior glass or any structural elements, which Landlord shall be obligated to repair) in good condition and repair. Tenant shall, at the end of the Term hereof, surrender to Landlord the Premises and all alterations, additions, and improvements thereto in the same condition as when received, ordinary wear and tear and damage by fire or other casualty not required hereunder to be repaired by Tenant excepted. If Tenant fails to make such repairs promptly, Landlord may, at its option, make the repairs, and Tenant shall pay Landlord on demand Landlord's actual costs in making such repairs, plus the Review Fee, if any, as provided in Section 11.01. Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate, or paint the Premises, or any part thereof, except as specifically herein set forth. No representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically herein set forth. ARTICLE 14 INSURANCE Section 14.01. Tenant shall, during the Term and at its sole expense, obtain and keep in force, with Tenant, Landlord, and the mortgagees of Landlord named as insured therein (except with respect to the Workers' Compensation coverage) as their respective interests may appear, the following insurance: (a) Fire insurance, including extended coverage, vandalism, and malicious mischief, upon property of every description and kind owned by Tenant and located in the Building or for which Tenant is legally liable or installed by, or on behalf of, Tenant including, without limitation, furniture, fittings, installations, fixtures, and any other personal property, Non-Building -23- Standard Leasehold Improvements and alterations, in an amount not less than ninety percent (90%) of the full replacement cost thereof; (b) Comprehensive General Liability Insurance Coverage, to include personal injury, bodily injury, broad form property damage, operations hazard, owner's protective coverage, contractual liability, and products and completed operations liability, in limits not less than $1,000,000, inclusive. (c) Workers' Compensation and Employer's Liability insurance, in such form and amounts as are required by applicable law. (d) Any other form or forms of insurance as Tenant or Landlord or the mortgagees of Landlord may reasonably require from time to time in form, in amounts, and for insurance risks against which a prudent tenant of a comparable size and in a comparable business would protect itself; provided, however, that as long as Landlord is Chevron U.S.A. Inc. or a related entity, the provisions of this Section 14.01(d) shall not apply. All policies shall be taken out with insurers that are licensed in Texas and have a Best's Rating of B+ or better in form reasonably satisfactory from time to time to Landlord. Tenant agrees that certificates of insurance reasonably acceptable to Landlord will be delivered to Landlord or the mortgagees of Landlord as soon as practicable after the placing of the required insurance, but not later than ten (10) days after Tenant takes possession of all or any part of the Premises. All policies shall contain an undertaking by the insurers to notify Landlord and the mortgagees of Landlord in writing not less than fifteen (15) days before any material change, reduction in coverage, cancellation, or other termination thereof. The insurance policies (if more than one) required in (b) above shall name Landlord as an additional insured. Section 14.02. During the Term, Landlord shall insure the Building and the Building Standard Leasehold Improvements (excluding any property which Tenant is obligated to insure under Section 14.01 thereof) against damage by fire and standard extended coverage perils (including vandalism and malicious mischief coverage) in amounts equal to one hundred percent (100%) of the insurable value thereof (actual replacement value without deduction for physical depreciation) and comprehensive general public liability and broad form property damage insurance in such amounts as shall be appropriate for a first-class office building project in the suburban area of Houston, Texas, but in no event with limits less than a combined single limit of $1,000,000, with overlying umbrella coverage (or a combination of primary and umbrella coverage) to a limit of $5,000,000. Landlord shall also maintain employee's liability insurance with a minimum limit of $1,000,000 for bodily injury; provided, however, that Landlord shall have the right at its election, to maintain all such insurance under a program of self-assumption of risk -24- in lieu of purchasing an insurance policy or policies pursuant to Chevron's Self-Adjusted Claims Program if it is Landlord's normal policy to self-assume against such perils for its property. Landlord may, but shall not be obligated to, take out and carry any other form or forms of insurance as it or Landlord's mortgagees may reasonably determine advisable. Notwithstanding any contribution by Tenant to the cost of insurance premiums, as provided herein, Tenant acknowledges that such contribution in and of itself, shall not confer upon Tenant the right to receive any proceeds from any such insurance policies carried by Landlord for which such contribution by Tenant has been made, unless said insurance covers any of Tenant's property required to be insured by Tenant hereunder. Landlord will not have to carry insurance of any kind on any Non- Building Standard Leasehold Improvements, on Tenant's furniture or furnishings, or on any of Tenant's fixtures, equipment, improvements, or appurtenances under this Lease; and Landlord shall not be obligated to repair any damage thereto or replace the same. Section 14.03. Landlord represents and warrants to Tenant that Tenant's use of the Premises in accordance with Section 8.01 hereof will not violate any insurance policy carried by Landlord. With respect to those materials or substances set forth in Exhibit G, which are used by Tenant in connection with Tenant's use of the Premises as permitted herein, Tenant shall at all times comply with all applicable law regarding the storage and handling of such materials or substances. Tenant shall not bring or keep or permit to be brought to the Premises or kept therein, anything (or any quantity of such item) not set forth on Exhibit G attached hereto that is prohibited by any insurance policy carried by Landlord or Tenant periodically in force covering the Building, the Leasehold Improvements, or the Premises. If Tenant's use of the Premises does not comply with Section 8.01 hereof, and if such non-permitted use is prohibited by any insurance policy carried by Landlord and such violation could lead to a cancellation or reduction in the coverage afforded by such policy, Tenant shall cease such non-permitted use giving rise to any such cancellation or reduction, or threatened cancellation or reduction of coverage, immediately after notice thereof and the failure of Tenant to do so shall constitute an event of default hereunder, and Landlord may do any one or more of the following without any notice or demand: (a) Exercise any one or more of the remedies provided in Section 23.02 hereof; (b) Enter upon the Premises and attempt to remedy such condition, in which event Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located on the Premises resulting from such entry and Tenant shall promptly pay to Landlord as Additional Rent the cost to Landlord of remedying or attempting to remedy such condition. In the case of an increase or threatened increase in insurance premiums in connection with any use by Tenant of the Premises not permitted herein (no implied consent of -25- Landlord hereby given to any such use), Tenant shall pay any actual increase in premiums as Additional Rent within ten (10) days after being billed therefor by Landlord. In determining whether increased premiums are a result of Tenant's use of the Premises, a schedule issued by the organization computing the insurance rate on the Building or the Leasehold Improvements showing the various components of such rate shall be conclusive evidence of the several items and charges which make up such rate. Provided Tenant's use of the Premises as herein permitted is not materially impaired, Tenant shall promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises. Section 14.04. All policies of fire, extended coverage or similar casualty insurance, which either party obtains for the Premises or the Building, as applicable, shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured before the occurrence of injury or loss. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claim, action, or cause of action, against the other and such party's agents, servants, partners, shareholders, officers, or employees for injury or loss or damage that may occur to the Premises, the Building or the Land, or any improvements thereto or thereon, or any property of such party therein or thereon, by reason of fire, the elements, or any other cause which is or is required to be insured against (whether by assumption of the risk as permitted herein or policies of insurance obtained by insurance carriers) under the terms of the fire and extended coverage insurance policies referred to in this Article 14, regardless of the amount of proceeds payable under the insurance policies (or whether such loss was assumed as permitted herein by Landlord) and regardless of cause or origin, including the negligence or other acts or omissions of the other party hereto, its agents, officers, partners, shareholders, servants, or employees. ARTICLE 15 DAMAGE BY FIRE OR OTHER CAUSE Section 15.01. Subject to Sections 15.02, 15.03, and 15.04 hereof, if the Premises or the Building Standard Leasehold Improvements are damaged by fire or other casualty against which Landlord is required to maintain a policy of insurance under Section 14.02 or elects to assume the risk therefor as permitted therein, Landlord shall, to the extent of the original Building Standard Leasehold Improvements, diligently attempt to have the damage repaired with reasonable speed at the expense of Landlord, subject to delays that may arise by reason of adjustment of loss under insurance policies and for other delays beyond Landlord's reasonable control. -26- Section 15.02. Notwithstanding anything to the contrary in this Lease, if the Premises are damaged or destroyed by any cause whatsoever, and if, in Landlord's reasonable opinion, (a) the Premises cannot be rebuilt or made fit for Tenant's purposes within ninety (90) days of the damage or destruction (or the Premises are not actually rebuilt or made fit again for Tenant's purposes within one hundred twenty (120) days after the date of such damage or destruction), or (b) the proceeds from insurance remaining after payment of any such proceeds to Landlord's mortgagee are insufficient to repair or restore the damage or destruction, then Landlord or Tenant may, at its option, terminate this Lease by giving the other party notice of termination within sixty (60) days after such damage or destruction, and thereupon, Rent and any other payments for which Tenant is liable under this Lease shall be apportioned and paid to the date of such damage, and Tenant shall as soon as reasonably possible, but in no event longer than within sixty (60) days vacate the Premises to Landlord, provided, however, that those provisions of this Lease which are designated to cover matters of termination and the period thereafter shall survive the termination hereof. Section 15.03. If the Building is damaged or destroyed by any cause whatsoever (a) not required to be covered by insurance (or the risk therefor is elected by Landlord to be assumed as permitted herein against) hereunder and the cost to repair such damage or destruction according to Landlord's reasonable estimate will exceed $1,000,000, or (b) the cost of which to repair according to Landlord's reasonable estimate exceeds $1,000,000 and which damage or destruction is covered by insurance required hereunder but the proceeds are not available for the repair of restoration of the Building through no fault of Landlord or (c) and in Landlord's reasonable estimate after conferring with Landlord's general contractor and insurance advisor, the damage or destruction to the Building cannot or will not be repaired or restored by Landlord using reasonable diligence within one hundred eighty (180) days after such damage or destruction (or the Building is not actually rebuilt or made fit again within two hundred ten (210) days after the date of such damage or destruction), then in the event of either (a), (b), or (c) above, Landlord may, and in the event of (c) above, Tenant may, at its option, terminate this Lease by giving the other party written notice of termination within sixty (60) days after such damage, and thereafter Tenant shall vacate the Premises sixty (60) days after delivery of notice of termination, and thereupon, Rent and any other payments shall be apportioned and paid to the date on which possession is relinquished, if Tenant continues to occupy the Premises for said sixty (60) day period. Section 15.04. If the Building, the Premises, or Building Standard Leasehold Improvements are substantially damaged by fire or other cause at any time during the last ten (10) months of the then current Term and Tenant has not elected to exercise a renewal option, or if such damage occurs at any time during the last two (2) years of the last renewal Term, then Landlord or Tenant may terminate this Lease upon written notice to the other party given within sixty (60) days of the date of such damage, and upon such -27- termination Tenant shall vacate the Premises sixty (60) days after delivery of notice of termination, and thereupon Rent and any other payments shall be apportioned and paid to the date on which possession is relinquished, if Tenant continues to occupy the Premises for said sixty (60) day period, and Tenant shall immediately vacate the Premises according to such notice of termination. Section 15.05. Except for Tenant's right to abate rent as provided in Sections 7.03 and 23.05 of this Lease, no damages, compensation, or claim shall be payable by Landlord for inconvenience, loss of business, loss of profits, or annoyance arising from any repair or restoration of any portion of the Premises, the Building Standard Leasehold Improvements, or the Building. Landlord shall use reasonable efforts to have such repairs made promptly so as not unnecessarily to interfere with Tenant's occupancy. Section 15.06. The provisions of this Article shall be considered an express agreement governing any case of damage or destruction of the Building, the Building Standard Leasehold Improvements, the Non-Building Standard Leasehold Improvements, or the Premises by fire or other casualty. Section 15.07. Tenant shall promptly notify Landlord if the Premises or the Building Standard Leasehold Improvements are damaged by any cause whatsoever. If the Building, Premises, or Building Standard Leasehold Improvements shall be damaged by fire or other casualty so as to render any portion of the Premises untenantable (i) through no neglect of Tenant, its agents, employees or invitees or (ii) through the neglect of Tenant, its agents, employees or invitees at a time when Landlord is carrying rent loss insurance, then the Base Rent and Additional Operating Expenses hereunder shall abate as to that portion of the Premises rendered untenantable by such damage from the date of such casualty until such time as Landlord reasonably determines that such damaged portion of the Premises has been made tenantable. ARTICLE 16 CONDEMNATION Section 16.01. If a material part of the Premises or the Building shall be taken or condemned for any public purpose, whether such taking or condemnation shall be temporary or permanent, Landlord or Tenant, may terminate this Lease. If all of the Premises shall be taken or condemned for any public purpose, this Lease shall automatically terminate. All proceeds from any taking or condemnation shall belong to and be paid to Landlord; provided, however, that any awards specifically identified and made payable to Tenant (i) for the taking of personal property and fixtures belonging to and removable by Tenant hereunder or (ii) for the interruption of, damage to, or -28- relocation of Tenant's business or (iii) the unamortized value of any improvements, alterations or additions paid for by Tenant, shall be payable to Tenant. Additionally, nothing contained herein shall preclude Tenant from pursuing any claim in its own behalf in connection with any such taking or condemnation. ARTICLE 17 ASSIGNMENT AND SUBLETTING Section 17.01. Except as provided in Section 17.02, if Tenant should desire to assign this Lease or sublet the Premises (or any part thereof), Tenant shall give Landlord written notice at least thirty (30) days in advance of the date on which Tenant desires to make such assignment or sublease. Landlord shall then have a period of thirty (30) days following receipt of such notice within which to notify Tenant in writing that Landlord elects either: (a) to permit Tenant to assign or sublet such space, provided that if the rental rate (prorated to reflect the Base Rate allocable to that portion of the Premises subject to such assignment or sublease agreed upon between Tenant and its proposed assignee or subtenant is greater than the Base Rate that Tenant must pay Landlord hereunder, then such excess shall constitute "Excess Rent" for purposes hereof and fifty percent (50%) of such Excess Rent shall be payable by Tenant to Landlord as provided herein; provided, however, that prior to being required to pay such portion of Excess Rent to Landlord, Tenant shall deduct from the Excess Rent first becoming due and payable under such assignment or sublease and shall be entitled to retain its Reimbursable Expenses. For purposes hereof, "Reimbursable Expenses" shall mean and refer to Tenant's reasonable out-of-pocket expenses associated with such assignment or sublease including reasonable brokerage commissions and attorney's fees and other costs relating to permitted alterations or improvements to the Premises to accommodate such assignment or subletting. Upon request at any time, and from time to time, Tenant shall be obligated to provide Landlord an accounting of such Reimbursable Expenses incurred by Tenant and copies of invoices relating thereto. Such Excess Rent minus the Reimbursable Expense shall be considered Additional Rent owed by Tenant to Landlord, and shall be paid by Tenant to Landlord in the same manner that Tenant pays Base Rent; or (b) to refuse to consent to Tenant's assignment or subleasing of such space and to continue this Lease in full force and effect as to the entire Premises; provided, however, that Landlord will not unreasonably withhold, delay or condition its approval or consent of any assignment or subletting. -29- If Landlord shall fail to notify Tenant in writing of such election within such thirty (30) day period, Landlord shall be deemed to have elected option (b) above. No assignment or subletting by Tenant, even if done by Tenant without Landlord's consent pursuant to Section 17.02, shall relieve Tenant of Tenant's obligations under this Lease. Any attempted assignment or sublease by Tenant in violation of the terms and provisions of this Article 17 shall be void. Section 17.02. Landlord may sell, transfer, assign, or convey, all or any part of the Building and any and all of its rights under this Lease, and in the event Landlord assigns its rights under this Lease, Landlord shall be released from any obligations hereunder attributable to periods of time after such assignment, and Tenant agrees to look solely to Landlord's successor in interest for performance of such obligations. ARTICLE 18 INDEMNIFICATION Section 18.01. Subject to the terms of Sections 4.01 and 14.04 of this Lease, Tenant waives all claims against Landlord and its agents, employees, and representatives (herein collectively referred to as "Landlord") arising out of damage to any property or injury to, or death of, any person in, upon or about the Premises demised hereby to Tenant arising at any time and from any cause (other than the sole negligence [but including the contributory negligence], gross negligence and willful misconduct of Landlord, its agents, employees, representatives or contractors), including, without limitation, the negligence of other tenants of the Building, or their agents, employees, representatives, or contractors, and Tenant shall hold Landlord harmless from all liabilities, claims, losses, damages and expenses, including environmental remediation or clean-up charges, arising from any damage, injury or death resulting from any breach or default on the part of Tenant in the performance of any covenant or agreement of Tenant to be performed under this Lease, or from any act or neglect of Tenant, its employees, agents or contractors, and shall defend Landlord against any claim or suit arising therefrom. Landlord waives all claims against Tenant arising out of damage to any property or injury to, or death of, any person in, upon or about that portion of the Building other than the Premises, arising at any time and from any cause (other than the negligence, gross negligence or willful misconduct of Tenant, its agents, employees, representatives, contractors), and Landlord shall hold Tenant harmless from all liabilities, claims, losses, damages and expenses, including environmental remediation or clean-up charges in respect of any damage, injury or death resulting from any breach or default on the part of Landlord in the performance of any covenant or agreement of Landlord to be performed in this Lease, or from any act or neglect of Landlord, its employees, agents or contractors, and shall defend Tenant against any claim or suit arising therefrom. Each party's -30- foregoing indemnity obligation shall include reasonable attorneys' fees, investigation costs, and all other reasonable costs and expenses incurred by the indemnified party from the first notice that any claim or demand has been made or may be made, and shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable under applicable workers' compensation acts, disability benefit acts, or other employee benefit acts. The provisions of this Article 18 shall survive the termination of this Lease with respect to any damage, injury or death occurring before such termination. ARTICLE 19 SURRENDER OF THE PREMISES Section 19.01. Upon the expiration or other termination of this Lease for any cause whatsoever, Tenant shall peacefully vacate the Premises in as good order and condition as the same were at the beginning of the Term or as may thereafter have been improved by Landlord or Tenant reasonable use and wear thereof and damage from fire or casualty insured or required to be insured by Landlord hereunder and damage by any other casualty not required to be repaired by Tenant hereunder excepted. Should Tenant continue to hold the Premises after the termination of this Lease, whether the termination occurs by lapse of time or otherwise, such holding over shall, unless otherwise agreed to by Landlord in writing, constitute and be construed as a tenancy at will at a daily Base Rent equal to one-thirtieth (1/30th) of an amount equal to one and one-half (1-1/2) times the monthly Base Rent hereunder, plus all Additional Rent that would have been due hereunder for the period involved if such period had been included in the Term, and subject to all of the other terms set forth herein except any right to renew this Lease. Tenant shall be liable to Landlord for all damage that Landlord suffers because of any wrongful holding over by Tenant for a period of more than seven (7) days after the expiration of the Term of this Lease, and Tenant shall indemnify Landlord against (i) all claims made by any other tenant or prospective tenant against Landlord resulting from delay by Landlord in delivering possession of the Premises to such other tenant or prospective tenant and (ii) all other losses, costs, and expenses, including (without limitation) attorneys' fees, incurred by reason of such holding over. ARTICLE 20 ESTOPPEL CERTIFICATES Section 20.01. Tenant agrees to furnish periodically, when requested by Landlord or the holder of any deed of trust or mortgage covering the Building, the Land, or any interest of Landlord therein, within ten (10) business days of Tenant's receipt of such written request, a certificate signed by Tenant certifying (i) that this Lease is in full -31- force and effect and unmodified (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications, if any); (ii) that the Term of this Lease has commenced and the full Rent is then accruing hereunder; (in) that Tenant has accepted possession of the Premises and that except as stated in the certificate, to Tenant's knowledge, any improvements required by the terms of this Lease to be made by Landlord have been completed to the satisfaction of Tenant; (iv) that except as stated in the certificate, no Rent under this Lease has been paid more than thirty (30) days in advance of its due date; (v) that the address for notices to be sent to Tenant is as set forth in this Lease (or has been changed by notice duly given and is as set forth in the certificate); (vi) that except as stated in the certificate, Tenant, to Tenant's knowledge as of the date of such certificate, has no charge, lien, or claim of offset under this Lease or otherwise against Rent or other charges due or to become due hereunder; (vii) that except as stated in the certificate, to the knowledge of Tenant, Landlord is not then in default under this Lease; and (viii) such other matters as may reasonably be requested by Landlord or the holder of any such deed of trust or mortgage. Landlord shall deliver within twenty (20) days of Landlord's receipt of such written request, in reasonable form, an estoppel certificate to Tenant and any party designated by Tenant certifying (if such be the case) that this Lease is in full force and effect, the date of Tenant's most recent payment of Rent, and to Landlord's knowledge, that Tenant is not in default under this Lease, or stating in reasonable detail, the nature of such then continuing default and any other information reasonably requested. Any certificate delivered hereunder may be relied upon by any prospective purchaser, mortgagee or any beneficiary under any deed of trust on the Building or the Land or any part thereof or to any other party to which the certificate is addressed. ARTICLE 21 SUBORDINATION Section 21.01. This Lease is subject and subordinate to any deeds of trust, mortgages, or, other security instruments which presently or may in the future cover the Building and the Land, or any interest of Landlord therein, and to any advances made on the security thereof, and to any increases, renewals, modifications, consolidations, replacements, and extensions of any of such deeds of trust, mortgages, or security instruments. Provided, however, that any such contractual subordination by Tenant shall not become effective until such deed of trust holder or mortgagee shall enter into a non-disturbance and attornment agreement with Tenant (or Tenant's successors or assigns) agreeing that notwithstanding such subordination, so long as no event of default is occurring under this Lease, neither this Lease nor any of the rights of Tenant hereunder shall be disturbed, terminated or subject to termination by any trustee's sale, any action to enforce the security therefor or by any proceeding or action in foreclosure. Contemporaneously with the execution of this Lease, Landlord shall provide Tenant with -32- a non-disturbance agreement providing the terms set forth in the preceding sentence and in a form reasonably acceptable to Tenant, executed by (i) any ground lessor or ground lessee holding an interest in the Premises, the Building, or the Land, or any part thereof superior to Landlord or Tenant and (ii) Landlord's lender and any other holder of a mortgage or deed of trust presently encumbering the Premises, the Building or the Land or any part thereof, provided that if no such non-disturbance agreements are provided to Tenant the non-delivery of such instruments to Tenant shall constitute a representation and warranty by Landlord to Tenant that no such lease, mortgage or other encumbrance exists. Any subordination effected in accordance with this Section 21.01 is declared by Landlord and Tenant to be self-operative and no further instruments shall be required to effect such subordination of this Lease. Tenant shall, however, upon demand execute, acknowledge and deliver to Landlord any further instruments and certificates evidencing such subordination as Landlord may reasonably require, provided Tenant is supplied the non- disturbance and attornment agreement as required herein. This Lease is further subject and subordinate to all applicable ordinances of the City of Houston or relevant governmental authority; provided, however, if any such present or future ordinance would serve to materially impair Tenant's use of the Premises as permitted herein, then Tenant shall be entitled to terminate this Lease upon sixty (60) days written notice to Landlord. Section 21.02. At any time, before or after the institution of any proceedings for the foreclosure of any such deeds of trust, mortgages, or other security instruments, or the sale of the Building under any such deeds of trust, mortgages, or other security instruments, provided Tenant has been supplied the non-disturbance and attornment agreement referred to in Section 21.01, then Tenant shall attorn to such Purchaser upon any sale or the grantee under any deed in lieu of such foreclosure and recognize such purchaser or grantee as Landlord under this Lease. The agreement of Tenant to attorn contained in the preceding sentence shall survive any such foreclosure sale, trustee's sale, or conveyance in lieu thereof. ARTICLE 22 PARKING Section 22.01. Landlord shall permit Tenant to use the parking facilities ("Parking Facilities") in common with other tenants in the Building during the Term to the extent, if any, so provided in Exhibit D hereto. --------- -33- ARTICLE 23 DEFAULT AND REMEDIES Section 23.01. The occurrence of any one or more of the following events shall constitute an "event of default" by Tenant under this Lease: (a) if Tenant shall fail to pay any Rent or other sums payable by Tenant hereunder as and when such Rent or other sums become due and payable and such failure continues for ten (10) days after written notice thereof from Landlord; (b) if Tenant shall fail to perform or observe any other term hereof (other than the provisions of Section 14.03) or any of the Rules and Regulations and such failure shall continue for more than fifteen (15) days after notice thereof from Landlord or for such longer period as reasonably necessary so long as Tenant shall continuously and diligently pursue the remedy of such default at all times until such default is cured, but in no event more than ninety (90) days after Tenant is provided notice of such failure. (c) if any petition is filed by or against Tenant under any section or chapter of the present or any future federal Bankruptcy Code or under any similar law or statute of the United States or any state thereof (and with respect to any petition filed against Tenant, such petition is not dismissed within ninety (90) days after the filing thereof, or Tenant shall be adjudged bankrupt or insolvent in proceedings filed under any section or chapter of the present or any future federal Bankruptcy Code or under any similar law or statute of the United States or any state thereof; (d) if Tenant becomes insolvent; (e) if a receiver, custodian, or trustee is appointed for Tenant or for any of the assets of Tenant which appointment is not vacated within ninety (90) days of the date of such appointment; or (f) any events that constitute an event of default under the terms of Section 14.03 hereof. Section 23.02. If an event of default occurs and at any time thereafter while Tenant remains in default, Landlord may do any one or more of the following without notice or demand, provided however, that Landlord shall comply with the applicable provisions of the Texas Property Code, as amended from time to time: -34- (a) Terminate this Lease, and consider Tenant's event of default as an anticipatory repudiation of this Lease and Tenant immediately shall become liable for damages equal to the total of: (1) the costs of recovering the Premises; (2) the unpaid Rent earned as of the date of termination, plus interest thereon at a rate per annum from the due date equal to the lesser of (a) the prime rate plus two percent (2%) or (b) the maximum rate of interest allowed by state or federal law; (3) the amount of the excess of (i) the total Rent and other benefits which Landlord would have received under the Lease for the remainder of the then current Term without regard to any renewals thereof, at the rates then in effect, over (ii) the fair market rental value of the balance of the then current Term as of the time of such termination, each item discounted at the rate of eight percent (8%) per annum to the then present value; and (4) all other sums of money and damages owing hereunder by Tenant to Landlord; (b) Enter upon and take possession of the Premises as Tenant's agent without terminating this Lease and without being liable to prosecution or any claim for damages therefor, and Landlord may relet the Premises as Tenant's agent and receive the Rent therefor. Landlord shall use reasonable efforts to relet the Premises; provided, however, that Landlord's failure to relet the Premises shall not release or affect Tenant's liability for Rent or damages and provided further that Landlord shall have the right to give preference to leasing other premises in the Building over the reletting of the Premises. Any rental received by Landlord from reletting the Premises as Tenant's agent shall be applied first against the reasonable cost of renovating, repairing and altering the Premises for such new tenant, and then against any sums due under this Lease. Tenant shall pay to Landlord on demand any deficiency between the sums due hereunder and that portion of any rental received from reletting applied against such sums. (c) Do whatever Tenant is obligated to do under this Lease and enter the Premises without being liable to prosecution or any claim for damages therefor, to accomplish this purpose. Tenant shall reimburse Landlord within ten (10) days for any expenses which Landlord incurs in thus effecting compliance with this Lease on Tenant's behalf, and Landlord shall not be liable for any damages suffered by Tenant from such action. -35- Section 23.03. No act or thing, done by Landlord or its agents during the Term shall constitute an acceptance of an attempted surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless made in writing and signed by Landlord. No reentry or taking possession of the Premises by Landlord shall constitute an election by Landlord to terminate this Lease, unless a written notice of such intention is given to Tenant. Notwithstanding any such reletting, reentry or taking possession, Landlord may at any time thereafter terminate this Lease for a previous default. Landlord's acceptance of Rent following an event of default hereunder shall not be construed as a waiver of such event of default. No waiver by Landlord of any breach of this Lease shall constitute a waiver of any other violation or breach of any of the terms hereof. Forbearance by Landlord to enforce one or more of the remedies herein provided upon a breach hereof shall not constitute a waiver of any other breach of the Lease. Section 23.04. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing and signed by Landlord. Nor shall any custom or practice which may grow tip between the parties in the administration of the terms of this Lease be construed to waive or lessen Landlord's right to insist upon strict performance of the terms of this Lease. The rights granted to Landlord in this Lease shall be cumulative of every other right or remedy which Landlord may otherwise have at law or in equity or by statute and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. Section 23.05. Notwithstanding any provision hereunder the contrary, if Landlord is required to make a repair or perform an obligation hereunder, Tenant shall provide written notice to Landlord specifying in reasonable detail the nature of the repair or obligation. Thereafter, if Landlord fails to (i) commence such repair or performance of such obligation within ten (10) days after such notice (or of such repair or performance of such obligation cannot with reasonable diligence be commenced within ten (10) days, such longer period as is reasonably necessary to commence such repair or perform such obligation, but in no event more than thirty (30) days after such notice, and (ii) thereafter prosecute such repair or perform such obligation with due diligence until such repair is completed or such obligation is performed, then Tenant shall provide a further written notice to Landlord giving notice of Tenant's intention to make such repairs or perform such obligations. Thereafter, if Landlord fails to (i) commence such repair or perform such obligation within five (5) days and (ii) thereafter prosecute such repair or perform such obligation with due diligence until such repair or obligation is completed or performed, then Tenant shall have the right to make such repair or perform such obligation and deduct the reasonable expenses expended by Tenant in performing such repair or obligation from the next installments of Base Rent due to Landlord hereunder. -36- The provisions to this Section 23.05 are not intended to limit any specific rights given to Tenant pursuant to any other provision of this Lease. ARTICLE 24 ATTORNEYS' FEES AND LEGAL EXPENSES Section 24.01. In any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover from the other party attorneys' fees, investigation costs, and other legal expenses and court costs incurred by such party in such action or proceeding as the court may find to be reasonable. ARTICLE 25 NOTICES Section 25.01. Any notice or document required to be delivered hereunder shall be registered or certified mail, return receipt requested, or by personal delivery with a receipt therefor, or by telecopy (with a confirmatory letter to follow mailed in the manner set forth above) addressed to the parties hereto at the respective addresses specified below: If to Landlord - Chevron U.S.A. Inc. P. 0. Box 4619 Houston, Texas 77210 Attention: Leasing Manager Telecopy No. _____________ If to Tenant - Prior to the Commencement Date: Texas Micro-Systems, Inc. 10618 Rockley Road Houston, Texas 77099 Attn: W. Wayne Patterson, President Telecopy No. (713) 983-8149 -37- From and After the Commencement Date: Texas Micro-Systems, Inc. 5959 Corporate Drive, #____ Houston, Texas 77036 Attn: W. Wayne Patterson, President Telecopy No. _____________ Notice sent in accordance with the above shall be deemed sufficiently served and received upon the earlier of delivery (whether by telecopy or messenger) or two (2) days after deposit of same in the United States Mail. Either party may change its address for purposes of notice under this Article 25 to any address within the continental United States of America upon thirty (30) days' advance written notice to the other party hereto. ARTICLE 26 TENANT'S RENEWAL OPTIONS/EXPANSION OPTIONS Section 26.01. Tenant's Renewal Options. ------------------------ (a) The Options. Unless Landlord elects to cancel the Lease in ----------- exercise of its cancellation right set forth below, and subject to the further provisions of this Section and provided that no event of default by Tenant under this Lease for which Landlord has provided Tenant notice of in writing has occurred and is continuing under this Lease at the time of exercise of any renewal option or at commencement of any renewal Term, Tenant shall have and is hereby given the option to renew and extend this Lease for up to an additional five (5) year period (Tenant has a one time opportunity to choose a renewal Term of one (1), two (2), three (3), four (4), or five (5) year term) upon the terms, covenants, conditions, and provisions herein contained that are in effect as of the time of the renewal and extension, excepting Rent, to follow consecutively upon the expiration of the original Term of this Lease. However, Tenant's one- time opportunity to choose a first renewal Term described herein shall be subject to and conditional upon the right of Landlord to cancel any renewal of the original Lease Term. Such cancellation must be exercised by Landlord providing Tenant with written notice of such exercise at least eighteen (18) months prior to the expiration of the original Lease Term. If Landlord exercises the foregoing cancellation right, Landlord shall reimburse Tenant, upon the expiration of the original Lease Term, for all unamortized costs for remodeling or other Tenant work in connection with the construction of the initial Leasehold Improvements, excluding the cost of Tenant's demolition work, based on a ten (10) year amortization schedule (commencing as of the Rental Commencement Date) using a 10% interest factor. Tenant shall provide Landlord with a written statement of such costs of remodeling or other Tenant work, as well as invoices and other receipts -38- relating thereto, if available, as soon as such information is available. The amortization computation described above will be analogous to the amortization calculation depicted on Exhibit H (it being agreed, however, that the calculation depicted on Exhibit H is intended solely to set forth the procedure for the amortization and does not purport to accurately reflect or estimate the cost of the Tenant work [excluding the cost of Tenant's demolition work] to be reimbursable by Landlord as provided hereunder). (b) Method of Exercise. The option contained in Section 26.01(a) ------------------ may be exercised by Tenant's giving Landlord notice of its irrevocable exercise of the same, and choice of length of renewal Term as provided above, not less than ten (10) months prior to the expiration date of the original Term hereof. (c) Premises Affected by Renewal. Tenant may renew this Lease ---------------------------- and extend the Term hereof as to all (but not less than all) of the Premises and the parking spaces that are, on the date of the exercise of the option, subject to this Lease. (d) Terms of the Renewal. The first renewal and extension of -------------------- this Lease shall be on and under the same covenants, agreements, terms, provisions, and conditions as are contained herein for the original Term, except (1) that the Base Rent for purposes of calculating annual Base Rent per square foot of (i) Net Rentable Area of Existing Space and (ii) Net Rentable Area of Improvement Space in the Premises and (iii) Net Rentable Area of Basement Space shall be Market Rental Rate (as defined in Section 26.05) for first-class office buildings in the suburban area of Houston, whether such be higher or lower, provided that such Market Rental Rate may not exceed the original Term Base Rent for (i), (ii), and (iii) above by more than one dollar ($1.00) per square foot. Any second or third five (5) year renewal Term shall be subject to the foregoing, except that the one dollar ($1.00) per square foot cap or limitation shall not apply. (e) If Tenant exercises its one time option for a first renewal Term, then Tenant shall have an option for a second renewal Term of five years, and if such foregoing option for a second renewal Term is exercised, then Tenant shall have an option for a third five year renewal Term. The method of exercise, premises affected, and terms of renewal for any such second or third five year renewals shall be as provided in (b) (except that the notice shall be given by Tenant not less than ten (10) months prior to the expiration date of the applicable renewal Term), (c), and (d) herein. Any right or option granted to Tenant hereunder is conditional upon an event of default by Tenant under this Lease for which Landlord has provided Tenant notice of in writing not having occurred and being continuing at the time of commencement of any renewal Term. (f) Further Assurances. If Tenant exercises its option to extend ------------------ this Lease in accordance with all the provisions hereof, Landlord and Tenant, upon request of either, will sign and acknowledge a written memorandum evidencing such facts, and -39- setting out the date to which the renewal Term will extend, and the Base Rent will apply during such renewal Term. Section 26.02. Tenant's Expansion Options. -------------------------- (a) The Options. So long as no event of default by Tenant under ----------- this Lease for which Landlord has provided Tenant notice of in writing has occurred and is continuing at the time of delivery of any expansion space, and subject to the other provisions thereof, Tenant shall have one-time options to include under this Lease as a part of the Premises certain basement space designated by diagonal lines on Exhibit I attached hereto (the "B-2 Expansion Space") (approximately 6,700 square feet) and certain basement space designated by cross-hatching on Exhibit J (the "B-3 Expansion Space") (approximately 2,000 square feet). (b) Method of Exercise. Tenant may exercise its option to ------------------ include the B-2 Expansion Space effective two (2) years from the Commencement Date (the "B-2 Expansion Date"), provided that Tenant shall have provided notice to Landlord in writing of Tenant's exercise of such option six (6) months prior to the B-2 Expansion Date. Tenant may exercise its option to include the B-3 Expansion Space effective four (4) years from the commencement of the Lease (the "B-3 Expansion Date"), provided that Tenant shall have notified Landlord in writing of Tenant's exercise of such option six (6) months prior to the B-3 Expansion Date. (c) Terms of the Expansion. All covenants, terms, provisions, ---------------------- and conditions of this Lease (with the Base Rent for the B-2 Expansion Space being the Base Rent per square foot of Net Rentable Area for the Basement Space) shall apply to any B-2 Expansion Space and B-3 Expansion Space included under Tenant's expansion options, except that the Base Rent for the B-3 Expansion Space shall be the Market Rental Rate and the Rent payable for the B-2 Expansion Space or the B-3 Expansion Space shall commence on the earlier of (i) the date Tenant occupies and conducts normal business operations from the applicable Expansion Space or (ii) the date that is thirty (30) days after the applicable Expansion Date (the "Expansion Space Rental Commencement Date"); provided, however, that if Tenant is not delivered the Expansion Space to begin any build- out or remodeling Tenant may wish to do as of the applicable Expansion Date, then Tenant shall not be obligated to begin paying Rent until the date which is thirty (30) days after the date upon which Tenant is delivered such space. Additionally, notwithstanding the foregoing, if Landlord does not deliver either the B-2 Expansion Space or the B-3 Expansion Space within thirty (30) days after the B-2 Expansion Date or the B-3 Expansion Date, respectively, then Tenant shall not be obligated to pay any Rent for such Expansion Space after the applicable Expansion Space Rental Commencement Date for the number of days that Landlord was late in delivering such Expansion Space to Tenant beyond thirty (30) days after the applicable Expansion Date. -40- (d) Condition of Expansion Space. Subject to all the other terms ---------------------------- and provisions of this Lease, Tenant shall take any expansion space "as is," with all faults, except that all building systems shall function in accordance with their original design intent. (e) Construction of Leasehold Improvements. Any leasehold -------------------------------------- improvements to such space shall be constructed in accordance with Section 3.02, 3.03, and 3.05 and Article 11 of this Lease. Section 26.03. Tenant's Preferential Rights. ---------------------------- (a) The Preferential Rights. During the Term of this Lease, so ----------------------- long as no event of default by Tenant under this Lease for which Landlord has provided Tenant notice of in writing shall have occurred and be continuing, and subject to the other provisions and conditions of this Section 26.03, Tenant shall have the preferential right to lease the northeast and northwest quadrants of the first floor in the Building until such space is leased to another party. A "quadrant" is approximately one-fourth of a floor calculated as if the floor were bisected by two lines drawn from the mid-point of both sets of opposite outer building walls, but excluding central floor service areas, which totals approximately thirty-five thousand (35,000) square feet of Net Rentable Area. During the first six (6) months of the Term of this Lease, so long as no event of default by Tenant under this Lease for which Landlord has provided Tenant notice of in writing shall have occurred and be continuing, and subject to the other provisions and conditions of this Section 26-03, Tenant shall have the preferential right to lease certain space designated by cross-hatching on Exhibit K attached hereto, or any portion thereof, provided, however, that in the event Tenant leases only a portion of the space indicated on the attached Exhibit K, such portion leased by Tenant shall be reasonably configured such that, based upon customary space planning standards and applicable law, the remaining portion of space not leased by Tenant would be reasonably leasable to a prospective tenant. Notwithstanding the foregoing provisions of this Section 26.03(a), it is herein agreed by Tenant that if any portion of the space over which Tenant has preferential rights under this Section 26.03(a) is occupied by Landlord (or a related entity of Landlord) as of the Commencement Date, then such occupied space shall not be subject to Tenant's preferential rights contained herein until such space becomes unoccupied or until such space is proposed to be leased to a third-party tenant). (b) Method of Exercise. If Tenant elects to exercise any ------------------ preference right contained herein, then Tenant shall so notify Landlord in writing and shall describe the space Tenant wishes to lease pursuant thereto. Additionally, Landlord shall notify Tenant in writing of the material terms and conditions of any proposed third-party lease before any such space is leased to a third-party tenant, and Tenant shall have fifteen (15) days -41- thereafter to give Landlord notice of the exercise of its preferential right as to all such space specified in the notice. Except as provided in Section 26.03(a), Tenant may not exercise any preferential rights as to a part only of the space specified in the notice; provided, however, if the third party lease covers more space than the northeast and northwest quadrants and Tenant exercises its preferential right hereunder, if the number of square feet of Net Rentable Area to be leased by the third party is less than twice the number of square feet of Net Rentable Area to be leased by Tenant pursuant to its preferential right herein contained, then Tenant shall only be obligated to (and Tenant shall have the right to) lease only the northeast and northwest quadrants. (c) Effect of Non-Exercise. If Tenant elects not to, or fails ---------------------- timely to, exercise any preferential rights as to any given space for which Tenant has been notified in accordance with Section 26.03(b) hereof that such space is proposed to be leased to a third-party tenant, then Tenant shall waive any and all rights as to such space and Landlord shall be free for ten (10) months to lease such space to such third party upon terms and conditions substantially no less favorable to Landlord, taken as a whole, than the terms and conditions stated in the notice. If Landlord fails to consummate such a lease with such third party within such time period, then the provisions of this Section 26.03 shall again become operative, and Tenant shall again have the opportunity to lease such space or portion thereof as herein provided. (d) Terms of Exercise. Landlord and Tenant shall execute an ----------------- amendment to this Lease so that all covenants, terms, provision, and conditions of this Lease shall apply to any space included under this Lease pursuant to Tenant's preferential options set forth in this Section 26.03 (with the Base Rent payable for such space being the Base Rent per square foot of the Net Rentable Area of either the Existing Space or Improvement Space, depending upon whether condition of option space to be absorbed into the Premises by Tenant, in Landlord's and Tenant's reasonable opinion, more closely resembles the condition, as of the Commencement Date of this Lease, of the Existing Space or the Improvement Space, provided, however, that the Base Rent per square foot of Net Rentable Area in the northeast quadrant shall be the Base Rent per square foot of Net Rentable Area for the Improvement Space, and the Base Rent per square foot of Net Rentable Area in the northwest quadrant shall be the Base Rent per square foot of Net Rentable Area for the Existing Space). Section 26.04. Except as is otherwise provided in Section 26.03(a), the expansion rights and preferential rights granted to Tenant pursuant to Sections 26.02 and 26.03 are subordinate only to the rights of Amoco to lease such expansion space and preference space pursuant to the Amoco Lease as currently existing; provided, however, that Landlord represents and warrants to Tenant that Amoco is entitled to only fifteen (15) days after notice of a third-party tenant's election to lease space in the Building during -42- which to decide whether Amoco wishes to exercise such preference right over all such space. Section 26.05 Market Rental Rate. The term "Market Rental Rate" as used ------------------ in this Lease, shall mean the rate (determined on a "net" lease basis in the same manner as Base Rent is calculated for this Lease) charged to non- renewing/non-extending tenants for space of comparable size, location and condition in the Building and in comparable, first-class, low-rise office buildings in the western suburban area of Houston, Texas that are located South of Interstate Highway 10, north of Highway 59 and West of Gessner Road (giving a strong preference to those buildings located in Beltway Business Park), further taking into consideration the following: (i) the location, quality and age of the building; (ii) the use, location, size and floor level(s) of the space in question; (iii) the definition of "usable area" and "rentable area" used therein; (iv) the extent of leasehold improvements (existing or to be provided); (v) abatements (including with respect to base rental, operating expenses and real estate taxes, and parking charges); (vi) the inclusion or exclusion of parking charges in rental; (vii) lease takeovers/assumptions; (viii) relocation/moving allowances; (ix) space planning allowances; (x) refurbishment and repainting allowances; (xi) club memberships; (xii) any other concessions or inducements such as rent discounts, build out or construction allowance; (xiii) extent of services provided or to be provided; -43- (xiv) distinctions between "gross" and "net" lease (Market Rental Rate being calculated on a "net" lease basis); (xv) base year or dollar amount for escalation purposes of all operating expenses, including real estate taxes, and the method of calculation used in determining each tenant's share of operating expenses for any given period; (xvi) any other adjustments (including by way of indexes such as increases based upon increases of Consumer Price Index) to base rental; (xvii) the extent, if any, to which the credit standing and financial stature of the tenant and any guarantors would have an impact on operators of comparable buildings; (xviii) term or length of lease; (xix) the time the particular rental rate under consideration was agreed upon and became or is to become effective; (xx) any leasing commissions and/or fees/bonuses to be paid in connection therewith; and (xxi) except as provided otherwise in this Lease to the contrary, any other relevant term or condition in making such Market Rental Rate determination. Within sixty (60) days of the date upon which Tenant exercises its option to take on the B-3 Expansion Space, or exercise its second or third Renewal Term options (if Tenant so elects), Tenant may give Landlord a written notice requesting Landlord to set forth in writing to Tenant the amount of such Market Rental Rate, and Landlord shall provide Tenant with such amount in writing together with reasonable information setting forth how such Market Rental Rate was determined, within thirty (30) days of Tenant's written request therefor. Notwithstanding anything else herein to the contrary, Tenant shall not be required to exercise any such expansion or renewal option until Tenant has received Landlord's determination of the Market Rental Rate, if requested as herein provided by Tenant. Any dispute by the parties as to the Market Rental Rate for the B-3 Expansion Space or the Market Rental Rate applicable during the second or third Renewal Term, upon written request by Tenant, shall be settled by arbitration in accordance with this Section 26.05, and any determination as a result thereof shall be binding upon the parties. Landlord and Tenant shall use reasonable efforts to agree, within five (5) business days following Landlord's receipt of a notice from Tenant that -44- Tenant disputes Landlord's calculation of Market Rental Rate for the space in question, upon the appointment of one (1) arbitrator to resolve the matter. If an agreement on a single arbitrator cannot be reached within such five (5) business day period, Landlord and Tenant shall each appoint their respective arbitrator within ten (10) days following the expiration of the five (5) business day period and shall specify the name and address of their respective arbitrator to the other party prior to the expiration of such ten (10) day period; provided, that if one party fails to specify the name and address of its selected arbitrator within such ten (10) day period, the arbitrator selected by the other party shall act as the single arbitrator as if both parties had agreed to the appointment of such arbitrator as provided above. The selected arbitrators shall then meet and if such arbitrators are unable to agree upon such matter, they shall appoint a third arbitrator within ten (10) business days following their appointment. If the two (2) arbitrators are unable to agree upon a third arbitrator within such ten (10) business day period, the third arbitrator shall be appointed as soon as reasonably possible by the American Arbitration Association (or any successor organization, or if no successor organization shall then exist, by a court of competent jurisdiction residing in Harris County, Texas) subject to the qualification requirements set out below. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as set forth above for the appointment of such resigning arbitrator. Immediately following the selection of the final arbitrator(s), the arbitrator(s) shall meet and, within fifteen (15) days following the complete selection of the arbitrators, endeavor to resolve the matter, such fifteen (15) day period may be extended only to the extent of delay caused by Events of Force Majeure or if resolution within such fifteen (15) day period is not reasonable under the circumstances. Within three (3) business days following the selection of each arbitrator, each party shall submit to such arbitrator such party's proposed resolution of the matter being arbitrated, together with reasonable evidence supporting such proposed resolution. The arbitrator(s) shall select either the proposed resolution of such matter submitted by Landlord or the proposed resolution of such matter submitted by Tenant, whichever proposal such arbitrator(s) deem to be the most correct according to the definitions, terms and requirements set forth in this Lease, with no compromise. The power of the arbitrators shall be exercised by the concurrence of at least two (2) arbitrators, except that if only one arbitrator is required, the decision of such arbitrator shall govern. The arbitrator(s) shall resolve the controversy and shall execute and acknowledge their decision, together with a brief statement describing the rationale for such decision, in writing and deliver a copy thereof to each of the parties personally or by registered or certified mail, return receipt requested. If the arbitrators fail to reach an agreement during such fifteen (15) day period, they shall be discharged, and new arbitration proceedings shall commence, which appointments shall be made in the same manner as set forth above. By agreement in writing, Landlord and Tenant may extend the time to reach agreement either before or after the expiration thereof. The non-prevailing party shall be assessed with all of the costs and expenses of the arbitration. Each arbitrator shall be a real estate broker -45- licensed under the laws of the State of Texas, shall be a member of the Society of Office or Industrial Realtors (or any successor or equivalent organization then existing), and shall have been actively and continuously engaged in leasing transactions involving office space in Houston, Texas for the immediately preceding ten (10) year period. Until the arbitration proceedings have concluded, if the Tenant has begun to pay Base Rent for such space, the Base Rent payable by Tenant shall be the Base Rent proposed by Landlord in its notice to Tenant provided, however, that upon the final determination of the Market Rental Rate by the arbitrators, the difference between the Base Rent paid by Tenant and the correct Base Rent shall be refunded by Landlord to Tenant or paid by Tenant to Landlord, as the case may be, within ten (10) days of the determination of the correct Rent, together with interest thereon at the prime rate from the date owed or paid, as the case may be, until paid or returned, as the case may be. ARTICLE 27 MISCELLANEOUS Section 27.01. Tenant represents and warrants that it has had no dealings with any broker or agent, other than Peter Dienna and Doug Simpkins of the Dienna/Simpkins Company (the "Tenant's Broker") in connection with the negotiation or execution of this Lease and Landlord shall pay Tenant's Broker a commission pursuant to separate agreement, a copy of which is attached as Exhibit L. Tenant shall indemnify and hold Landlord harmless from any costs, expenses, or liability for commissions or other compensation or charges claimed by any broker or agent, other than Tenant's Broker, claiming by, through, or under Tenant with respect to this Lease. Landlord represents and warrants that it has had no dealings with any broker or agent, other than Gerry Trione of Trione & Gordon (the "Landlord's Broker") in connection with the negotiation or execution of this Lease and Landlord shall pay Landlord's Broker and Tenant's Broker a commission pursuant to a separate agreement, a copy of which is attached as Exhibit L. Landlord shall indemnify and hold Tenant harmless from any costs, expenses, or liability for commissions or other compensation or charges claimed by any broker, including Tenant's Broker and Landlord's Broker or agent claiming by, through, or under Landlord with respect to this Lease. Section 27.02. As used herein, the terms "business days" means Monday through Friday (except for holidays); "Normal Business Hours" means 7:00 a.m. to 5:30 p.m. on business days and 7:00 a.m. to 12:00 p.m. on Saturdays (except for holidays); and "holidays" means those holidays designated by Landlord (but in no event more than eight (8) days in any calendar year), which holidays shall be consistent with those holidays designated by landlords of other first-class office buildings in the suburban area of Houston, Texas. -46- Section 27.03. Every agreement contained in this Lease is, and shall be construed as, a separate and independent agreement. If any term of this Lease or the application thereof to any person or circumstances shall be invalid and unenforceable, the remainder of this Lease, or the application of the term to other persons or circumstances, shall not be affected. Section 27.04. There shall be no merger of this Lease or of the leasehold estate hereby created with the fee estate in the Premises or any part thereof by reason of the fact that the same person may acquire or hold, directly or indirectly, this Lease or the leasehold estate hereby created or any interest in this Lease or in such leasehold estate as well as the fee estate in the Premises or any interest in such fee estate. In the event of a voluntary or other surrender of this Lease, or a mutual cancellation hereof, Landlord may, at its option, terminate all subleases, or treat such surrender or cancellation as an assignment of any of such subleases. Section 27.05. Tenant's recovery of any judgment against Landlord for any breach of Landlord of the terms and conditions of this Lease shall be limited to the fair market value of the Building and the Land (as determined without regard to any mortgage, deed of trust, or other encumbrance). Section 27.06. "Events of Force Majeure" means each of the following events to the extent that (and only for the number of days that) such event delays the performance of an obligation hereunder by the party claiming such delay: strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations, or restrictions or any other cause of any kind whatsoever that is beyond the reasonable control of the party claiming such delay. The existence of any Event of Force Majeure shall not excuse a party's performance of any provision hereof, or prohibit the other party from exercising any remedy it might have for the failure of such performance, in any circumstance under this Lease unless such provision expressly provides that such party is excused from such performance, or that the other party's exercise of any remedy therefor is delayed, by virtue of the existence of an Event of Force Majeure. Section 27.07. The article headings contained in this Lease are for convenience only and shall not enlarge or limit the scope or meaning of the various and several articles hereof. Words of any gender used in this Lease shall include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. Section 27.08. Neither Landlord nor Landlord's agents or brokers have made any representations or promises with respect to the Premises or the Building except as herein expressly set forth and all reliance with respect to any representations or promises is based solely on those contained herein. No rights, easements, or licenses are acquired -47- by Tenant under this Lease by implication or otherwise except as expressly set forth in this Lease. Section 27.09. This Lease sets forth the entire agreement between the parties and cancels all prior negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant regarding the subject matter of this Lease. No amendment or modification of this Lease shall be binding or valid unless expressed in writing and executed by both parties hereto. Section 27.10. The submission of this Lease to Tenant shall not be construed as an offer, nor shall Tenant have any rights with respect thereto unless Landlord executes a copy of this Lease and delivers the same to Tenant. Section 27.11. If Tenant signs as a corporation, each of the persons executing this Lease on behalf of Tenant represents and warrants that Tenant is a duly organized and existing corporation, that Tenant has and is qualified to do business in Texas, that the corporation has full right and authority to enter into this Lease, and that all persons signing on behalf of the corporation were authorized to do so by appropriate corporate actions. If Landlord signs as a corporation, each of the persons executing this Lease on behalf of Landlord represents and warrants that Landlord is a duly organized and existing corporation, that Landlord has and is qualified to do business in Texas, that the corporation has full right and authority to enter into this Lease, and that an persons signing on behalf of the corporation were authorized to do so by appropriate corporate actions. Section 27.12. This Lease shall be governed by and construed under the laws of the State of Texas. Any action brought to enforce or interpret this Lease shall be brought in the court of appropriate jurisdiction in Harris Comity, Texas. Section 27.13. Tenant shall not, without the prior written consent of Landlord, use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises, nor shall Tenant do or permit the doing of anything in connection with Tenant's business or advertising which in the reasonable judgment of Landlord may reflect unfavorably on Landlord or the Building or confuse or mislead the public as to any apparent connection or relationship between Landlord, the Building, and Tenant. Section 27.14. Any elimination or shutting off of exterior light, air, or view by any structure that may be erected on lands adjacent to the Building and the Land shall in no way affect this Lease or impose any liability on Landlord. -48- Section 27.15. Landlord covenants and agrees with Tenant to furnish Tenant Two (2) keys to each corridor door to the Premises. Additional keys will be furnished at a reasonable charge by Landlord on an order signed by Tenant or Tenant's authorized representative. All such keys shall remain the property of Landlord. No additional locks shall be allowed on any door of the Premises without Landlord's permission, and Tenant shall not make or permit to be made any duplicate keys, except those furnished by the Landlord. Upon termination of this Lease, Tenant shall surrender to Landlord all keys to the Premises, and give to Landlord the explanation of the combination of all locks for safes, safe cabinets, and vault doors not removed by Tenant from the Premises. Tenant shall be permitted to maintain a secure caged area that only Tenant or Tenant's designated employee will have or be permitted access. The size of such secure area shall be approximately twenty (20) feet by twenty (20) feet; provided, however, that the top of such caged area shall not extend into any area that is within two (2) feet of the roof structure of the area in which the caged area is located. The location of such secure caged area is to be mutually agreed upon by Landlord and Tenant. Section 27.16. Tenant shall not cause this Lease to be filed of public record. However, Landlord or Tenant shall have the right (but not the obligation) to cause a memorandum or this Lease to be filed of public record, and upon request by the other party Landlord or Tenant shall promptly execute, acknowledge, and deliver to the requesting party such a memorandum of this Lease. Any such memorandum shall not set forth the rental or other charges payable pursuant to this Lease, and shall state that it is not intended to vary the terms of this Lease. Upon the expiration or earlier termination of the Term of this Lease, Tenant, upon the request of Landlord, shall enter into a short form memorandum of termination of this Lease in recordable form. Section 27.17. Tenant will be permitted to erect an exclusive sign monument (the "Sign Monument") at Tenant's sole cost and expense on Corporate Drive, the exact location and design of the Sign Monument to be as chosen by Tenant and reasonably acceptable to Landlord, provided that Landlord may reasonably withhold its consent to such Sign Monument if such exceeds forty- eight (48) inches above grade or if such exceeds one hundred twenty (120) inches in length. Tenant or Tenant's permitted assignee or sublessee may erect and use the Sign Monument for so long as Tenant and such permitted assignee or sublessee has not abandoned the Premises, provided, however, if Tenant and Tenant's permitted assignee or sublessee has abandoned the Premises, so long as Rent as required herein is paid, then Tenant or such assignee or sublessee may continue to display its name (or their names as the case may be) on the Sign Monument. Section 27.18. Notwithstanding anything to the contrary contained in this Lease, Landlord does hereby waive, relinquish and discharge all liens and rights (constitutional, statutory, consensual, or otherwise) that Landlord may have on any personal property or fixtures of Tenant of any kind, and all additions, accessions and -49- substitutions thereto (except for judgment liens that may hereafter arise in favor of Landlord). This clause shall be self-operative and no further instrument of waiver need be required by any lienholder on such property or fixtures. In confirmation of such waiver, however, Landlord shall, at Tenant's request, execute promptly any appropriate certificate or instrument that Tenant may reasonably request. Section 27.19. Tenant shall, at Tenant's sole cost and expense, be entitled to construct and maintain a freight elevator for Tenant's exclusive use within the Premises to operate between the first floor of the Premises and the Basement Space within the Premises. Such freight elevator shall be constructed in accordance with the Tenant Space Plan to be approved by Landlord. The freight elevator installed by Tenant shall be maintained by Tenant at Tenant's sole cost and expense. Section 27.20. The exhibits attached to this Lease are by this reference incorporated fully herein. The term "this Lease" shall be considered to include all such exhibits. ARTICLE 28 CONFLICTS OF INTEREST Section 28.01. Conflicts of interest relating to this Agreement are strictly prohibited. Except as otherwise expressly provided herein, neither Tenant, nor any director, employee, or agent of Tenant, shall give to or receive from any director, employee, or agent of the Landlord, any gift entertainment, or other favor of significant value, or any commission, fee, or rebate. Likewise, neither Tenant, nor any director, employee, or agent of Tenant shall enter into any business relationship with any director, employee or agent of Landlord (or any affiliate of Landlord), without prior written notification thereof to Landlord unless such person is acting for and on behalf of Landlord. Any authorized representative(s) of Landlord may audit the records of Tenant relating to this transaction, including the expense records of the Tenant's employees involved in this transaction, upon reasonable notice and during regular business office hours for the sole purpose of determining whether there has been compliance with this Section 28.01. However, the foregoing audit rights shall not apply to Tenant's confidential business records or trade secrets not related to this transaction. -50- EXECUTED as of the date first written above. LANDLORD CHEVRON U.S.A. INC. By: /s/ Gary D. Schuman -------------------------------- Name: Gary D. Schuman ------------------------------ Title: Lease Manager ----------------------------- TENANT TEXAS MICRO-SYSTEMS, INC. By: /s/ W. W. Patterson -------------------------------- Name: W. W. Patterson ------------------------------ Title: Chmn. & CEO ----------------------------- -51- EX-10.32 13 LETTER OF EMPLOYMENT March 31, 1995 Mr. J. Michael Stewart Texas Microsystems, Inc. 5959 Corporate Drive Houston, TX 77242 Dear Michael: On behalf of Sequoia Systems, Inc., it is my pleasure to offer you the position of Executive Vice President of Sequoia and President of the TMI/TME division based at TMI's headquarters in Houston, Texas, commencing with the closing of Sequoia's acquisition of TMI/TME. Your starting salary will be $7,211.54 (which calculates to $187,500 annually) paid bi-weekly. Your salary will be reviewed on an annual basis. This position reports directly to me. You will be entitled to all employee benefits, including group insurance, employee stock purchase plan, 401(k) plan, etc., normally extended to new Sequoia employees. Additionally, as an officer of Sequoia, you will receive an additional executive life insurance policy of two times your base salary. You should understand and agree that your employment is governed by the employee policies and practices of Sequoia and that you will be an employee at will rather than for any fixed period of time. You will be eligible to participate in Sequoia's Officer Incentive Compensation Plan targeted to provide additional earnings potential, dependent on achievement of individual goals and the financial results of the new company, on the same basis as other Sequoia officers. For FY94, such incentive compensation was generally in the range of 30-60% of base salary. This offer is contingent upon your completing and signing several documents, as well as the closing of Sequoia's acquisition of TMI/TME. You must sign a Proprietary Information and Inventions Agreement, and you should complete a Direct Deposit form. Additionally, we will provide you with a copy of Form I-9, which must be completed by all newly hired employees. Please indicate your acceptance by signing and returning the copy of this letter to me, together with the signed copy of the Proprietary Information and Inventions Agreement. Please call me with any particular questions regarding this offer. You may contact Don Colanton, Director of Human Resources, for additional information concerning Sequoia benefits. The Board of Directors and the management team at Sequoia join me in enthusiasm at the prospect of your joining Sequoia. Sincerely, Neil McMullan President & CEO I accept your offer of employment with Sequoia Systems, Inc. Signed: /s/ J. Michael Stewart Date: ------------------------------------- ----------------------------- EX-11 14 COMPUTATION OF EARNINGS Exhibit 11 Sequoia Systems, Inc. Statement re: Computation of Earnings per Share
June 30, 1995 1994 1993 --------------------------------------------- Weighted Average Common Share outstanding 15,033,000 14,486,000 13,829,000 --------------------------------------------- Weighted Average Options Outstanding 1,426,000 1,310,000 Shares assumed to be purchased (900,000) (701,124) ------------------------------ Primary weighted average common and common share equivalents outstanding 15,559,000 15,095,000 Dilutive effect of weighted average options 6,000 8,000 ------------------------------ Fully diluted weighted average common and common share equivalent outstanding 15,565,000 15,103,000 ==============================
EX-21 15 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 Subsidiaries of the Registrant
Jurisdiction Subsidiary of Incorporation - ---------- ---------------- Texas Microsystem, Inc. Delaware Sequoia Systems (UK) Limited United Kingdom Sequoia Systems (Australia) Pty Ltd. Australia
EX-23.1 16 COOPERS CONSENT Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Sequoia Systems, Inc. on Form S-8 (File Nos. 33-35362, 33-40339 and 33-64690) of our reports dated July 25, 1995, on our audits of the consolidated financial statements and financial statement schedule of Sequoia Systems, Inc. as of June 30, 1995 and 1994 and for each of the three years in the period ended June 30, 1995 which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Boston, Massachusetts September 25, 1995 EX-23.2 17 ARTHUR ANDERSEN CONSENT Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated November 30, 1994 on the combined financial statements of The Texas Microsystems Group (the Company) as of and for the years ended June 30, 1994 and 1993 (and to all references to our firm), included in this Form 10K. It should be noted that we have not audited any financial statements of the Company subsequent to June 30, 1994, or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Houston, Texas September 26, 1995 EX-27 18 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 0000724621 SEQUOIA SYSTEMS, INC. 1000 YEAR JUN-30-1995 JUL-1-1994 JUN-30-1995 15,317 0 14,027 1,288 16,713 46,743 22,563 17,828 52,241 16,859 0 6,066 0 0 29,260 52,241 88,145 104,039 48,985 57,079 0 0 290 6,237 960 5,277 0 0 0 5,277 0.34 0.34
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