To:         All Employees (sigma_world)
From:        Office of the President
Date:        Tuesday, 16 September 1997
Subject:    Restructuring, Departure of Os Kennell and Gene Bryce

As all of you are aware, Sigma's financial results for the first half of 1997, while excellent from our point of view, were not in line with analysts' even rosier expectations for our performance. Many of us found the resulting stock price declines both frustrating and demoralizing. During the third quarter we took several steps to address this problem, and I would like to review them briefly.

•

Cross-functional cost management study groups have been meeting in each division throughout the third quarter, and our group Directors have implemented many of their recommendations. We are confident that in some areas we are reducing costs without jeopardizing sales goals or product quality.

•

Many of you have expressed concern that, although we dominate three of the four market segments in which we participate, and have excellent prospects for worldwide growth, our stock price has been hurt by institutions' and funds' profit-taking, and by the fact that analysts' Q2 expectations were unrealistic. We have been working with our public relations agency to set analysts' expectations at a realistic level, and you should see the effect of those efforts in the current quarter.

•

Our compensation committee has been examining this year's stock option grants, rendered less valuable by recent declines, and has developed a plan to adjust the values of these grants retroactively, to underscore our continued commitment to wide ownership of Sigma's equity by its employees. Retroactive adjustments will be made at the same time as the Q4 grants; details will be forthcoming.

However, these changes, important as they have been, can in some sense be described as mere reactions to the dip in our stock price. I and your Board of Directors are responsible for also taking a longer view, and proactively making changes that will ensure Sigma is well positioned to thrive in the next millennium. Today we are unveiling a dramatic two-part restructuring plan that will refocus corporate efforts and provide resources for aggressive growth in our core businesses.

Part I: Spin Off Sigma Consulting

Our Consulting division is now in the process of being spun off as a separate company. Sigma will retain minority ownership of the new business (yet to be named), and receive a cash payment from its new majority owners, a consortium of venture capitalists led by Kohlberg Kravis Roberts and partners. Sigma's own Chief Financial Officer, Gene Bryce, will lead the resulting firm. We are very sorry to lose Gene, but the new venture will benefit from his vision of how the consulting products, now so different from the software products in sales cycle, pricing, and delivery, can be made to be profitable.

As a result of Gene's departure, a reorganization of the Finance group will take place over the coming months. In the near term, Controllers Edward Sucheki and Patricia Rossignol will report to me directly. Further details about this reorganization will be forthcoming.

Part II: Retire the Kappa Product Family

Although several aspects of our patented Kappa technology remain exciting, and we are proud of the teams who have worked hard to make Kappa succeed, the expected market for our Kappa products has failed to materialize. Therefore, we have made the difficult decision to retire this entire product family. Kappa technology advances and its advanced EU distribution network will not be lost, as they will be added over time to Omega and Omicron, providing additional benefits to each of those product families. Most of Kappa's current resources will immediately be put to good use in the Omega and Omicron divisions, and we expect this restructuring to be fully underway by the end of Q4. However, a small number of departures and layoffs will accompany this reorganization.

Kappa's hard-charging Director, J. Osbert Kennell, will be leaving immediately to pursue other opportunities. Os has been a "true believer" whose ability to articulate the Kappa technology and approach have made Kappa what it is today; he will be sorely missed and we wish him well in his future endeavors.

After the final units have been delivered and installed later this month, Kappa sales and support personnel will first be offered first choice of all commensurate openings in other divisions and then, if matches cannot be found, a generous severance package and outsourcing services to assist them in finding jobs outside Sigma. Gene Bryce has advised us that he is very interested in working with the former Kappa personnel.

We regret the short-term stress of these reorganizations, and especially regret losing valuable team members. However, each of these changes will free up resources that can be better used by our three successful divisions. More information on how these changes will affect each of you will be forthcoming from your Directors and line managers, as well as the Office of the President, as the new structures fall into place.

In our global marketplace, the risks are great, but so are the rewards. These are difficult times, as Sigma attempts to adjust to global change while continuing to provide our customers with the best solutions possible and extend our domination of all three major product categories. Thank you in advance for remaining flexible and willing to make whatever changes may be necessary for all of us to succeed.

Sincerely,

Thomas Balpheimer
President and CEO
Sigma Worldwide