SERC never were fully aware of the negotiations taking place between ICL and Three Rivers. Sometimes we received copies of papers, sometimes not. Consequently this section is pieced together from statements made by both sides frequently concerning the other. As a result, it is likely to be the least accurate in the report.
Again, we will start at the beginning of 1980 and consider what happened during the year.
Peter Lever of ICL wrote to Brian Rosen on 11 January confirming that ICL were prepared to enter into a major agreement with Three Rivers. The aim was to get the project signed and delivered by the end of March.
The proposal was to formally sign a Heads of Agreement containing the intentions and aspirations of both sides. Once the Heads of Agreement was signed, ICL wished to move to a formal contract. It was suggested that Denis Wicks, the Commercial Relations Manager in ICL, would visit Three Rivers in February with authorisation to sign the Heads of Agreement on behalf of ICL.
ICL required full technical details of the PERQ including logic diagrams. Before the signing, ICL management required detailed plans concerning ICL setting up a manufacturing facility, modifications required by ICL to cover Quality Assurance, estimates of performance and reliability, maintenance arrangements, necessary spares holdings etc. ICL were keen to conclude arrangements with Three Rivers.
Among the items to be covered in the Heads of Agreement were the discount structure proposed by each company in sales to the other, ICL's marketing rights in terms of geographical extent, and ownership of the product in the case of bankruptcy. This was a standard ICL agreement rather than one aimed at Three Rivers. However, a number of the points were quite contentious.
ICL were playing it quite conservatively basing their position on PERQ being a scientific workstation with 300 sales in the period Autumn 1980 to Autumn 1982. There were rival products in the company and trying to make it more generally available would cause resentment in some parts of the company. ICL wanted exclusive rights to sell in Europe over the next two years and non-exclusive rights world wide.
ICL had offered to pay for their systems in advance as a sign of good faith.
The attitude in Three Rivers to the proposal was mixed. Marketing and Bob Spuntak in particular were keen to see a deal with ICL. There had been between 1000 and 2000 inquiries concerning the product and there was no way Three Rivers could ramp up production to achieve sales of that kind. Consequently, those people who only had shares in the company saw it as a mechanism for them to make money quickly. On the other hand, Brian Rosen and other founding members of Three Rivers felt that they would lose control of the product.
Three Rivers had been approached by other companies for marketing rights. These included, we believe, IBM, DEC, HP, Amdahl, Siemens, Olivetti, Philips and Logica. A European or world-wide deal with ICL would prejudice any other agreements. It was clear, also, that marketing/manufacturing agreements were also under negotiation with companies in India and Japan.
A distillation of the views in Three Rivers was that a marketing agreement with ICL was a distinct possibility but they were afraid of a manufacturing agreement. The key people for ICL to convince were Brian Rosen and Ed Fredkin.
Neil Davenport of ICL visited Three Rivers on February 16-18 with the aim of securing an option on a marketing and manufacturing agreement. The negotiations were mainly with Brian Rosen with Paul Newbury present and Ed Fredkin who assumed the role throughout the negotiations of elder statesmen. His influence on the other members of the company was large.
Three Rivers plan was to raise more than $15M worth of capital to open a new plant employing some 300 people in order to manufacture 10 PERQs a day. Fredkin believed the money could be raised. The aim was to have the plant in full production by January 1982. A possible location was Boston but others were also being considered.
Out of the meeting with Three Rivers came a number of actions designed to ensure that there were no problems in getting parts in the UK. ICL agreed to quote for the provision of a FORTRAN 77 compiler and X-25 software. Three Rivers were also required to specify discount arrangements assuming ICL took 300 systems off them. ICL had an option which stated that Three Rivers could not negotiate with other UK companies until the end of April.
After the meeting with Three Rivers, Davenport visited ICL's plant in Utica. It was clear that ICL's size in the USA meant that they could obtain components cheaper than Three Rivers. Unfortunately, the ex-Singer people at Utica had their own future plans and were completely uninterested in either helping Three Rivers or becoming involved.
ICL waited for responses from Three Rivers concerning a set of points. Meanwhile Three Rivers were being courted strongly by CII (France), Philips and Logica. Three Rivers were very short of cash at this stage and, consequently, were tending to spend more time trying to agree a deal which gave them some up-front payment than debugging the system.
At that time, SERC attempted to set up a meeting between ICL and Logica to see if joint negotiations with Three Rivers could be held. ICL were not uninterested. However, Logica were lukewarm. Logica knew of the ICL negotiations probably from CMU. They felt Three Rivers were asking for too large an up-front payment but still felt they might agree to it.
By 1 April, ICL had paid in advance for the first system but no agreement had been signed by Three Rivers and they had cancelled visits by ICL to Pittsburgh for various reasons. My own view is that they anticipated signing a more attractive deal with somebody else and were attempting to let the Heads of Agreement with ICL lapse.
Negotiations continued between April and June. There was a lot of disagreement over some of the clauses in the Heads of Agreement document provided by ICL. If Three Rivers failed to deliver systems to ICL on time, ICL could obtain ownership of the rights to the PERQ. This was clearly unacceptable to Three Rivers. On the other hand, ICL saw it as a standard clause aimed against suppliers of components who went bankrupt. ICL's bureaucracy, Brain Rosen's lack of trust and outside influences meant that negotiations dragged on into May. Rosen was insisting on an up-front payment from ICL. ICL agreed in principle but were not prepared to provide it prior to the first delivery.
During the summer, Three Rivers managed to raise a further $1M which secured their position until after the initial set of systems had been sold and revenue started arriving. This probably hardened their attitude towards ICL.
Meanwhile, ICL's fortunes were definitely on the decline. The company started laying people off and failed to give jobs to many university graduates who had been promised employment. The climate in ICL was tightening against new commitments in any area.
Immediately after SIGGRAPH, contact with Three Rivers became very difficult with nobody answering the phone or being evasive as to the whereabouts of senior staff.
By September, it became clear that a major shake-up had taken place at Three Rivers. Ed Fredkin had taken over as Chairman and Chief Executive and was now responsible for all management decisions.
Firm shipment dates in November were given for the two systems. Three Rivers were expanding production aiming for 25 systems a month by mid-1981 (even so the backlog of orders meant that they now had an 8-month delivery cycle). This was particularly worrying to SERC who had an urgent need for more systems but had refrained from ordering them hoping that it could be done from ICL rather than Three Rivers.
To preserve its position, SERC reserved 11 production slots from Three Rivers. These were machines 67, 68, 71, 72, 75, 76, 81, 82, 88, 89 and 94.
Fredkin made it clear that he was interested in an agreement with ICL and agreed to put the constraints on such an agreement in writing to ICL.
It was nearing ICL's end of financial year and with the likelihood of bad end-of-year figures, ICL were putting all their efforts into selling equipment. Consequently negotiations with Three Rivers were put on hold for about a month.
In ICL, Neil Davenport, who had been the main negotiator for ICL with Three Rivers was moved into another Region and Charles Hughes took over as Manager of the Education and Science Region. His previous post had been responsibility for ICL's UK Marketing Strategy. Neil Davenport eventually left ICL to join CRAY.
Roger Vinnicombe of ICL visited Apollo in November just before the launch and was impressed by the quality of the company. Apollo showed some interest in using ICL as a marketing agent and it was agreed that further talks would take place between ICL and Apollo in mid December.
On the same trip, Vinnicombe had a long meeting with Fredkin in Pittsburgh. Fredkin was aiming to raise another $5M before January 1981 and was looking for deals which involved a significant amount of money as well as marketing rights. With the PERQ product beginning to appear, Three Rivers could see cash flowing in and were now less sympathetic to ICL particularly as ICL had not put in money in the dark period after Christmas when it was needed. Also, with a product out in the field, Three Rivers were now having greater success in raising capital.
However, Three Rivers were anxious to get SERC's business. They saw that SERC could give them a market entry into the UK scientific research market and were aware of PRIME's benefits from the ICF programme.
Fredkin was also aware from his Informational International Incorporated connections of the SERC software developments on the FR80 which improved that product (a coincidence here was that Rob Witty had been mainly responsible for the FR80 developments). Consequently, despite their reservations, Three Rivers continued to negotiate with ICL.
By December, delivery of the two systems was imminent and ICL began to put together a business plan that could be put to management in order to conclude the deal with Three Rivers.
ICL's share of the UK university marketplace was currently nearly £90M and it was the dominant supplier although its share had been decreasing over the last few years. The lack of a multi user interactive system to compete against DEC, PRIME and GEC had seriously weakened its position. ICL saw the PERQ as a key ingredient in getting back the confidence of the university market. The only competition in the near future was likely to be the APOLLO system which was inferior in performance and higher priced. However, Apollo had financing of $100M which would mean that they would develop quickly. It also gave some indication of the confidence that the venture capitalists had in this market area developing.
ICL saw the initial PERQ as being competitive for about 2 years. Cheaper and colour systems would need to be available at the end of that period. The aim would be for Three Rivers to continue manufacturing the initial product while the follow-up product would be manufactured in the UK.
ICL anticipated sales to SERC, the university sector, DoI office pilot schemes and other areas.
The aim was to finalise the technical assessment in the New Year, demonstrate to ICL Senior Management in February 1981, discuss with DoI in the Spring with an effective launch date of 1 April 1981.
Negotiations continued between ICL and Three Rivers throughout the year. ICL were able to put pressure on an ailing Three Rivers in the first half of the year but the presence of Brian Rosen and the heavy handed approach of ICL made negotiations difficult.
By the second half of the year, ICL's finances had begun to cause concern. Meanwhile Three Rivers had delivered PERQs and were raising further capital.
The year ended with Fredkin (a more experienced manager) having taken over from Rosen and still interested in a deal with ICL in order to capture the UK scientific market.
