<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SEQUOIA SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SEQUOIA SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO]
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, APRIL 16, 1997
The Annual Meeting of Stockholders of Sequoia Systems, Inc. (the "Company")
will be held at the offices of Texas Microsystems, Inc., 5959 Corporate Drive,
Houston, Texas on Wednesday, April 16, 1997 at 10:00 a.m., local time, to
consider and act upon the following matters:
1. To elect two Class III Directors for the ensuing three years.
2. To approve a proposed amendment to Article I of the Company's Amended
Restated Certificate of Incorporation, changing the name of the Company
to "Texas Micro, Inc."
3. To amend the Company's 1993 Employee Stock Purchase Plan by extending
its termination date by two years, from June 30, 1997 until June 30,
1999, and by permitting employee purchases thereunder until such date.
4. To amend the Company's Long Term Incentive Plan by increasing the number
of options available for grant thereunder from 600,000 to 950,000
options.
5. To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent accountants for the 1997 fiscal year.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on February 21, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement thereof.
You are cordially invited to attend the Annual Meeting in person. However,
to ensure your representation at the Annual Meeting, you are urged to review
the enclosed Proxy Statement and to sign and return the enclosed proxy card in
the enclosed prepaid envelope as promptly as possible. If you attend the
meeting and desire to revoke your proxy and vote in person, you may, of
course, do so. In all cases, a proxy may be revoked at any time before its
exercise in the manner specified herein.
Sincerely,
[ART]
Jeremy F. Swett
Secretary
Houston, Texas
February 28, 1997
<PAGE>
SEQUOIA SYSTEMS, INC.
5959 CORPORATE DRIVE, HOUSTON, TEXAS 77036
PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL
16, 1997
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Sequoia Systems, Inc. (the
"Company" or "Sequoia") for use at the Annual Meeting to be held on Wednesday,
April 16, 1997 at the offices of Texas Microsystems, Inc., 5959 Corporate
Drive, Houston, Texas, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof (the "Annual Meeting"). All proxies will
be voted in accordance with the instructions therein, and, if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. If any other matters are properly presented at
the Annual Meeting for consideration the persons named in the enclosed form of
proxy and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment. Any proxy may be revoked by a stockholder
at any time before it is exercised by delivery of written revocation to the
Secretary of the Company.
On February 21, 1997, the record date for the determination of stockholders
entitled to vote at the Annual Meeting, there were outstanding and entitled to
vote [ ] shares of common stock, par value $.40 per share, of the Company
("Common Stock"), each share of which is entitled to one vote on each of the
matters to be voted upon at the meeting.
This Proxy Statement and Notice of Annual Meeting and the accompanying form
of proxy are first being mailed to stockholders on or about the date of this
Proxy Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 15, 1997
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each director; (iii) each executive
officer named in the Summary Compensation Table under the heading "Executive
Compensation" and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF COMMON
NAME AND ADDRESS OF 5% BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) STOCK OUTSTANDING(2)
--------------------------------------- ------------------------ --------------------
<S> <C> <C>
W. Wayne Patterson............ 981,100(3) 6.8%
3324 Ella Lee Lane
Houston, Texas 77019
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
<S> <C> <C>
Dean C. Campbell.............. 53,004(4) *
A. Theodore Engkvist.......... 29,500(5) *
Francis J. Hughes, Jr......... 310,571(6) 2.1
Dennis M. Malloy.............. 32,000(7) *
Frank B. Ryan................. 14,500(8) *
John F. Smith................. 19,500(9) *
J. Michael Stewart............ 1,912,116(10) 13.2
Richard B. Goldman............ 0 *
William C. Gould.............. 58,177(11) *
John C. Leonardo, Jr.......... 155,748(12) 1.1*
Cornelius P. McMullan......... 0 *
James A. Reinhold............. 23,911 *
Jack J. Stiffler.............. 146,282(13) 1.0
All Directors and Executive
Officers as a group
(18 persons)................. 2,870,048(14) 19.9
</TABLE>
<PAGE>
- --------
* Less than 1%
(1) The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares by the respective stockholders. Unless otherwise indicated, each
stockholder referred to above has sole voting and investment power with
respect to the shares listed.
(2) For purposes of this table, the number of shares of Common Stock of the
Company owned by each director or executive officer is determined under
the rules of the Commission and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares of Common Stock as to
which each director or executive officer has sole or shared voting or
investment power and also any shares of Common Stock with respect to
which any options held by such director or executive officer are
exercisable within 60 days after January 15, 1997.
(3) Includes 691,074 shares owned directly or indirectly by Mr. Patterson and
217,320 shares belonging to Mr. Patterson's children under the Texas
Uniform Gift to Minors Act, as to which he disclaims beneficial
ownership.
(4) Comprised of 25,504 shares owned by Mr. Campbell and 27,500 shares
issuable pursuant to stock options which are exercisable by Mr. Campbell
within 60 days after January 15, 1997.
(5) Comprised of 10,000 shares owned by Mr. Engkvist and 19,500 shares
issuable pursuant to stock options which are exercisable by Mr. Engkvist
within 60 days after January 15, 1997.
(6) Includes (i) 178,571 shares owned by American Research and Development
II, L.P. ("ARD") of which Mr. Hughes is a general partner (or a general
partner of a general partner), and (ii) 37,500 shares issuable pursuant
to stock options which are exercisable by ARD within 60 days after
January 15, 1997, as to each of which Mr. Hughes disclaims beneficial
ownership. Also includes 1,500 shares held by Mr. Hughes and 93,000
shares issuable pursuant to stock options which are exercisable by Mr.
Hughes within 60 days after January 15, 1997.
(7) Comprised of 15,000 shares owned by Mr. Malloy and 17,000 shares issuable
pursuant to stock options which are exercisable by Mr. Malloy within 60
days after January 15, 1997.
(8) Comprised of shares issuable pursuant to stock options which are
exercisable by Dr. Ryan within 60 days after January 15, 1997.
(9) Comprised of shares issuable pursuant to stock options which are
exercisable by Mr. Smith within 60 days after January 15, 1997.
(10) Includes 954,043 shares owned by Mr. Stewart's wife and 63,574 shares
owned by his children under the Texas Uniform Gift to Minors Act (as to
all of which he disclaims beneficial ownership) and 37,456 shares
issuable pursuant to stock options which are exercisable by Mr. Stewart
within 60 days after January 15, 1997.
(11) Comprised of 4,000 shares owned by Mr. Gould and 54,177 shares issuable
pursuant to stock options which are exercisable by Mr. Gould within 60
days after January 15, 1997.
(12) Comprised of 120,500 shares owned by Mr. Leonardo and 35,248 shares
issuable pursuant to stock options which are exercisable by Mr. Leonardo
within 60 days after January 15, 1997.
(13) Comprised of 59,331 shares owned by Dr. Stiffler, 390 shares owned by Dr.
Stiffler's wife (as to which Dr. Stiffler disclaims beneficial ownership)
and 86,561 shares issuable pursuant to stock options which are
exercisable by Dr. Stiffler within 60 days after January 15, 1997.
(14) Includes an aggregate of 499,681 shares which all executive officers and
directors have the right to acquire under outstanding stock options
exercisable within 60 days after January 15, 1997. Also includes those
shares listed above the beneficial ownership of which is disclaimed.
VOTES REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum at the Annual Meeting.
Shares of Common Stock represented in person or by proxy at the Annual Meeting
(including shares which abstain or do not vote with respect to one or more of
the matters presented at the meeting) will be tabulated
2
<PAGE>
by the inspectors of election appointed for the Annual Meeting and will
determine whether or not a quorum is present. The inspectors of election will
treat abstentions as shares that are present and entitled to vote with respect
to any particular matter, but such abstentions will not be counted as a vote
in favor of such matter. Accordingly, an abstention from voting on a matter by
a stockholder present in person or represented by proxy at the Annual Meeting
has the same legal effect as a vote "against" the matter. If a broker holding
Common Stock in "street name" indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with
respect to that matter. Therefore, a "broker non-vote" on a matter has no
effect on the voting on such matter.
Assuming that a quorum is present, the votes required at the Annual Meeting
are as follows: The approval of the proposal to elect Class III Directors will
require the affirmative vote of a plurality of the votes cast for the election
of directors. The approval of the charter amendment regarding a change in the
name of the Company will require the affirmative vote of a majority of the
outstanding shares of the Company's Common Stock. Approval of the 1993
Employee Stock Purchase Plan amendment proposal, the Long Term Incentive Plan
amendment proposal and the proposal to elect independent accountants will
require the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock present or represented by proxy at the Annual Meeting.
ITEM 1--ELECTION OF DIRECTORS
Sequoia has a classified Board consisting of two Class I Directors, three
Class II Directors and two Class III Directors. Pursuant to Sequoia's bylaws,
directors are elected for terms ending on the date of the third annual meeting
following the annual meeting at which any given director is elected.
The persons named in the enclosed proxy will vote to elect as Class III
Directors J. Michael Stewart and Frank B. Ryan (the "Nominees"), unless the
proxy is marked otherwise. Each Nominee is currently a director of the
Company. Sequoia has no nominating committee and all nominations are made by
the Sequoia Board. The Nominees have indicated their willingness to serve, if
elected; however, if any Nominee should be unable to serve, the proxies may be
voted for a substitute nominee designated by the Board.
There are no family relationships between or among any officers or directors
of Sequoia.
The following table sets forth the name, age, length of service as a
director of each member of the Board, including the Nominees, information
given by each concerning all positions he has held with the Company, his
principal occupation and business experience for the past five years and the
names of other publicly held companies of which he serves as a director:
NOMINEES FOR TERM EXPIRING IN 1999 (CLASS III DIRECTORS)
J. MICHAEL STEWART
Mr. Stewart, age 49, became a director of the Company on March 31, 1995. He
has been President and Chief Executive Officer of the Company since January
30, 1996; from March 31, 1995, when Sequoia merged with Texas Microsystems,
Inc., until he was elected to his present position, he was Executive Vice
President of Sequoia and President and Chief Operating Officer of its Texas
Microsystems subsidiary. Prior to the merger of Sequoia and Texas
Microsystems, Mr. Stewart was President and Chief Operating Officer of the
latter since co-founding it in 1975.
FRANK B. RYAN
Dr. Ryan, age 60, was elected a director of the Company on March 12, 1996.
He has been a Professor of Applied Mathematics at Rice University since 1990
and is a director of America West Airlines and Danielson Holding Corporation.
3
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE IN 1997 (CLASS I DIRECTORS)
DEAN C. CAMPBELL
Mr. Campbell, age 47, has been a director of the Company since 1989. He is
General Partner of Campbell Venture Management, L.P. and has been associated
with that firm and its predecessors since 1982. Mr. Campbell is also a
director of Telco Systems Corp. and R. F. Monolithics, Inc.
JOHN F. SMITH
Mr. Smith, age 61, has been a director of the Company since 1993. He is
President and a director of PerSeptive Biosystems, Inc. and was previously
President of Mycos International, Inc. Mr. Smith retired from Digital
Equipment Corporation in 1993 as Senior Vice President and Chief Operating
Officer, after many years in various senior management positions. Mr. Smith is
also a director of Instron Corporation, Hadco Corporation and Ansyss, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS II DIRECTORS)
FRANCIS J. HUGHES, JR.
Mr. Hughes, age 46, has been a director of the Company since 1987. He is
President of American Research & Development Corporation, a venture capital
firm, and has been associated with that firm and its predecessors since 1982.
Mr. Hughes is also a director of Ceramics Process Systems Corporation and R.
F. Monolithics, Inc.
A. THEODORE ENGKVIST
Mr. Engkvist, age 61, has been a director of the Company since 1994. He has
been President of ENJO Consulting, a management consulting company, since
1992. He is a retired officer of NYNEX Corporation where he held a number of
executive positions during a lengthy career.
DENNIS M. MALLOY
Mr. Malloy, age 49, has been a director of the Company since 1995. He has
been President of Malloy's Cash Register Company since 1984 and is also a
director of Pinemont Bank.
BOARD AND COMMITTEE MEETINGS
The Company has standing Audit and Compensation Committees. The Audit
Committee provides the opportunity for direct contact between the Company's
independent accountants and the Board. The Audit Committee has responsibility
for recommending the appointment of Sequoia's independent accountants,
reviewing the scope and results of audits and reviewing the Company's internal
accounting control policies and procedures. During the fiscal year ended June
30, 1996, the Audit Committee consisted of Mr. Smith, Chairman, and Messrs.
Campbell, Engkvist, Hughes and Malloy. The Committee held six meetings during
fiscal 1996.
The Compensation Committee is responsible for establishing and administering
the policies which govern both annual compensation and, in conjunction with
the full Sequoia Board, equity ownership. During the fiscal year ended June
30, 1996, the Compensation Committee consisted of Mr. Hughes, Chairman, and
Messrs. Campbell and Smith; it held five meetings during fiscal 1996.
The Board held eleven meetings during the fiscal year ended June 30, 1996.
During fiscal 1996, each director attended at least 75% of the total number of
meetings of the Sequoia Board and all committees of the Sequoia Board on which
he served.
4
<PAGE>
EXECUTIVE OFFICERS
Executive officers are elected by the Board annually at its meeting
immediately following the Annual Meeting of Stockholders and hold office until
the next such Annual Meeting unless they sooner resign or are removed from
office.
Executive officers are elected by the Board of Directors annually at its
meeting immediately following the Annual Meeting of Stockholders and hold
office until the next annual meeting unless they sooner resign or are removed
from office.
The following table lists the name, age and position of the current
executive officers* of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J. Michael Stewart........ 49 President and Chief Executive Officer
John C. Leonardo, Jr. .... 57 Executive Vice President; Chief Operating
Officer, Texas Microsystems, Inc.
Jack J. Stiffler.......... 62 Executive Vice President, Chief Technical
Officer and General Manager, Technology
Business Unit
Ronald Groen.............. 34 Vice President, PC Products, Worldwide, Texas
Microsystems, Inc.
James E. McDermott........ 48 Vice President, Operations, Texas
Microsystems, Inc.
Jeremy F. Swett........... 53 Vice President, General Counsel and Secretary
Christopher M. Melson..... 41 Vice President, Engineering, Texas
Microsystems, Inc.
</TABLE>
- --------
* In addition to the above officers, K.R. Sumrall, age 45, is Acting Chief
Financial Officer of the Company. Mr. Sumrall is Controller and Secretary of
Texas Microsystems, Inc.
Mr. Stewart is a co-founder of Texas Microsystems, Inc. and served as its
President and Chief Operating Officer for many years. He was elected President
and Chief Executive Officer of the Company on January 30, 1996.
Mr. Leonardo assumed his current position effective May 1, 1996; he had been
Senior Vice President, Marketing and Sales of Texas Microsystems, Inc. since
1990. He is party to an agreement with the Company dated May 1, 1996 that
provides for a specified salary and bonus formula and certain benefits in the
case of involuntary termination of employment or change of control.
Dr. Stiffler, a co-founder of Sequoia, has served as Chief Technical Officer
since Sequoia's formation in 1981 and has served as Executive Vice President
since October 1987 and General Manager, Technology Business Unit since July
1993. Dr. Stiffler is an inventor under ten patents for error-control coding
and computer technology. He is party to an agreement with the Company that
provides for certain salary continuation and severance benefits in the event
of termination of employment under specified circumstances.
Mr. Groen was appointed to his current position on July 1, 1996. Prior to
that time, he was Managing Director of Texas Microsystems' international sales
operations since 1992, before which he held several financial management
positions with other companies in the computer industry.
Mr. McDermott has held his present position since 1993 and was previously
Operations Manager of Diversified Technology, Inc. since 1989.
5
<PAGE>
Mr. Swett joined Sequoia as General Counsel in June 1994 and was elected
Vice President, General Counsel and Secretary in December 1994. Prior to
joining Sequoia, Mr. Swett was Associate General Counsel of Wyman-Gordon
Company from 1992 to 1994 and Corporate Counsel prior to 1992. He is party to
an agreement with the Company that provides for certain salary continuation
and severance benefits in the event of termination of employment under
specified circumstances.
Mr. Melson became employed by the Company on December 16, 1996. Prior to
joining the Company, Mr. Melson held a number of engineering management
positions at Tandem Computers Incorporated since 1990.
DIRECTORS' COMPENSATION
Sequoia's non-employee directors are paid a fee of $1,750 for each meeting
attended (up to a maximum of six meetings per year) and are reimbursed for
out-of-pocket expenses incurred in attending Board and Committee meetings.
Each non-employee director then serving as a director also received an option
to purchase 2,500 shares of Sequoia Common Stock on July 1, 1995 at an
exercise price of $4.25 per share under Sequoia's 1995 Outside Directors'
Stock Option Plan (the "1995 Directors' Plan").
Under a consulting agreement with the Company, Francis J. Hughes, Jr.,
Chairman of the Board, is eligible to receive $1,000 per day for consulting
services (up to a maximum of $7,500 per month). Mr. Hughes did not provide any
consulting services or receive any payments under this agreement during fiscal
1996. Under a consulting agreement with the Company, John F. Smith, a director
of the Company, is eligible to receive $2,500 per day for consulting services.
Mr. Smith did not provide any consulting services or receive any payments
under this agreement during fiscal 1996.
Directors who are officers or employees of Sequoia do not receive any
additional compensation for their services as directors.
NAMED EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth all cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by J. Michael Stewart and
Cornelius P. McMullan, each of whom served as President and Chief Executive
Officer for a portion of fiscal 1996, Richard B. Goldman, who resigned form
the Company prior to the end of the fiscal year, and the four other most
highly compensated executive officers of Sequoia whose cash compensation
exceeded $100,000 during the fiscal year ended June 30, 1996 (such executive
officers are collectively referred to herein as the "named executive
officers"):
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- --------------------------
AWARDS PAYOUTS
------------------ -------
OTHER RESTRICTED
NAME AND ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUT COMPENSATION
------------------ ---- -------- ------- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Michael Stewart..... 1996 $211,300 0 N/A N/A 46,000 N/A 0
President and Chief 1995 $ 43,269(2) $22,156 N/A N/A 50,000 N/A 0
Executive Officer(1) 1994 N/A(2) 0 N/A N/A N/A N/A 0
Cornelius P. McMullan.. 1996 $238,657(12) 0 N/A N/A 48,000 N/A $440,042(4)
President and Chief 1995 $216,922 $90,828 N/A N/A 50,000 N/A $ 3,048(5)
Executive Officer(3) 1994 $206,511 $84,000 N/A N/A 120,000 N/A $ 2,690(6)
Richard B. Goldman..... 1996 $210,057(12) $ 0 N/A N/A 24,000 N/A $ 4,716(6)
Executive Vice
President 1995 $190,438 $51,156 N/A N/A 15,000 N/A $ 1,343(6)
and Chief Financial
Officer(7) 1994 $177,384 $93,875 N/A N/A 20,000 N/A $ 2,391(6)
Jack J. Stiffler....... 1996 $191,841 0 N/A N/A 23,000 N/A $ 74,349(8)
Executive Vice
President, 1995 $183,749 $42,715 N/A N/A 0 N/A $ 5,167(6)
General Manager, 1994 $177,384 $78,750 N/A N/A 25,000 N/A $ 1,043(6)
Technology Business
Unit
and Chief Technical
Officer
John C. Leonardo,
Jr.(9)................ 1996 $186,656 $59,278 N/A N/A 84,000 N/A $ 0
Executive Vice
President, 1995 $177,192 0 N/A N/A 25,000 N/A $109,767(11)
Chief Operating
Officer, 1994 $170,000 0 N/A N/A N/A N/A $ 0
Texas Microsystems,
Inc.
James E. Reinhold(10).. 1996 $155,452 0 N/A N/A 30,000 N/A $ 0
Senior Vice President, 1995 $196,609 $99,122 N/A N/A 25,000 N/A $ 0
Texas Microsystems,
Inc. 1994 $136,600 $16,378 N/A N/A N/A N/A $ 0
William C. Gould(13)... 1996 $149,750 0 N/A N/A 20,000 N/A $ 4,716(6)
Executive Vice
President 1995 $136,892 $38,141 N/A N/A 15,000 N/A $ 2,466(6)
1994 $130,210 $65,000 N/A N/A 15,000 N/A $ 1,232(6)
</TABLE>
- --------
(1) Mr. Stewart was elected President and Chief Executive Officer on January
30, 1996; compensation reported represents all compensation paid to him
with respect to fiscal 1996, including compensation earned as Executive
Vice President of the Company and President and Chief Operating Officer
of Texas Microsystems, Inc. His base annual salary was increased to
$300,000 effective January 30, 1996.
(2) Represents salary paid to Mr. Stewart by the Company subsequent to the
Company's merger with Texas Microsystems, Inc. during the period March
31, 1995 through June 30, 1995, based on an annual salary of $187,500.
Prior to such merger, Mr. Stewart was compensated in the form of a fee
paid pursuant to an Operating and Management Agreement with Texas
Microsystems, Inc. which terminated on the effective date of the merger.
(3) Mr. McMullan resigned from the Company on January 30, 1996.
(4) Represents $431,583 of gains on exercise of stock options, $7,830 as the
value of group term life insurance paid by the Company and $629 for tax
services.
(5) Represents $2,419 as the value of group term life insurance paid by the
Company and $629 for tax services.
(6) Represents the value of group term life insurance paid by the Company.
(7) Mr. Goldman resigned from the Company on May 17, 1996.
(8) Represents $64,500 of gains on exercise of stock options and $9,849 as
the value of group term life insurance paid by the Company.
(9) Mr. Leonardo became an executive officer of the Company effective May 1,
1996.
(10) Mr. Reinhold resigned from the Company effective September 20, 1996.
(11) Represents gains on exercise of stock options.
(12) Includes certain severance payments.
(13) Mr. Gould resigned from the Company effective January 14, 1997.
7
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables summarize (i) option grants and exercises during fiscal
1996 to or by the named executive officers and (ii) the value of the options
held by such persons at the end of fiscal 1996. No Stock Appreciation Rights
were granted during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATE OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(1) IN FISCAL YEAR PER SHARE(2) DATE 5% 10%
---- ---------- -------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Stewart...... 46,000 2% $3.875 3/11/06 $ 126,618 $ 330,318
Cornelius P. McMullan... 50,000 2% $6.750 1/31/96 $ 16,200 $ 32,400
Richard B. Goldman...... 24,000 1% $3.875 3/11/06 $ 4,650 $ 9,500
Jack J. Stiffler........ 23,000 1% $3.875 3/11/06 $ 63,309 $ 165,169
John C. Leonardo........ 84,000 3% $3.875 3/11/06 $ 231,215 $ 603,189
James A. Reinhold....... 30,000 1% $3.875 3/11/06 $ 82,577 $ 215,425
William C. Gould........ 20,000 1% $3.875 3/11/06 $ 55,051 $ 143,617
</TABLE>
- --------
(1) Options generally become exercisable at the rate of 1/48th of the shares
subject to the option commencing on the first day of the first month
immediately following the month of grant and the first of each month
thereafter.
(2) The exercise price of each option grant was equal to the fair market value
of the Common Stock on the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the
options if exercised at the end of the option terms. These gains are based
on assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted and are not intended to
forecast future appreciation of the price of the Company's Common Stock.
The named executive officers will realize no gain upon the exercise of
these options without an increase in the price of the Company's Common
Stock, which increase will benefit all Company stockholders
proportionately.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT FISCAL YEAR END AT FISCAL YEAR END
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J. Michael Stewart...... 0 0 23,456 / 72,544 $0 / $ 0
Cornelius P. McMullan... 160,000 $431,583 0 0
Richard B. Goldman...... 0 0 87,586 / 72,544 $0 / $ 0
Jack J. Stiffler........ 10,000 $ 64,500 94,829 / 27,940 $104,909 / $3,225
John C. Leonardo........ 0 0 19,353 / 89,647 $0 / $ 0
James A. Reinhold....... 0 0 12,603 / 42,397 $0 / $ 0
William C. Gould........ 0 0 46,884 / 27,816 $ 29,363 / $3,225
</TABLE>
- --------
(1) On January 15, 1997, the last reported sales price of Sequoia Common Stock
on the Nasdaq National Market was $2.188 per share.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board (the "Compensation Committee") is
composed entirely of non-employee directors of Sequoia. The Compensation
Committee is responsible for establishing and administering the policies which
govern both annual compensation and, in conjunction with the full Board,
equity ownership.
This report is submitted by the Compensation Committee and addresses
Sequoia's policies for the fiscal year ended June 30, 1996 as they applied to
J. Michael Stewart and Cornelius P. McMullan, each of whom served as President
and Chief Executive Officer of the Company during a portion of such fiscal
year, and each of the Company's other executive officers.
Executive Compensation Philosophy
The Compensation Committee uses its compensation program to achieve the
following objectives:
. To attract and retain superior talent and reward performance.
. To align management's interest with the success of Sequoia in resolving
Sequoia's most critical strategic and operational issues by placing a
portion of cash compensation at risk in relation to management's
resolution of such issues and Sequoia's performance.
. To align management's interests with Sequoia stockholders by including
long-term equity incentives.
. To increase profitability of Sequoia and, accordingly, increase
stockholder value.
The Compensation Committee believes that the executive compensation program
provides an overall level of compensation that is competitive within the
computer industry and among companies of comparable size and complexity. For
fiscal year 1996, the key goal facing the Compensation Committee was
maintaining a level of profitability consistent with the long term strategic
development of the corporation. The at-risk elements of compensation, which
include the annual incentive and stock option plans, provided an additional
incentive to the executive officers to attain this goal in fiscal 1996.
Procedure for Establishing Compensation
Each fiscal year the Compensation Committee establishes an annual salary
plan for Sequoia's senior executive officers based on recommendations by
Sequoia's Chief Executive Officer and Director of Human Resources. In
addition, the Compensation Committee proposes an annual compensation plan for
Sequoia's Chief Executive Officer and submits it for approval to the Sequoia
Board.
The Compensation Committee believes that, based on its review of computer
industry compensation data, the base salaries of Sequoia's senior executive
officers are comparable to base salaries of senior executive officers of
similar companies in the computer industry and that the Company's overall
compensation policy must remain competitive in order for it to attract,
motivate and retain its key individuals. In determining the size and relative
mix of incentive based compensation, the Compensation Committee relied on the
prior year work of a consultant to assist in the assessment of the best means
of (i) maintaining competitive compensation policies and (ii) helping the
Company attain certain performance and strategic goals through the use of
incentives.
Executive Officer Compensation
Sequoia's executive officers' compensation consists of base salary, annual
incentive compensation, long-term incentives in the form of stock options, and
certain benefits such as term life insurance and other plans which are
generally available to all employees of the Company.
Base Salary. Base salary compensation is set within the range of salaries of
executive officers with comparable qualifications, experience and
responsibilities at other companies in the same or similar businesses and of
comparable size and complexity as determined by the Compensation Committee
after a review of
9
<PAGE>
computer industry compensation data. The Compensation Committee believes that
base salary is not the primary compensation tool used to motivate the
Company's executives.
Annual and Long-term Incentive Compensation. Annual incentive compensation
and long-term incentive compensation are more closely tied to the Company's
success in achieving financial performance and strategic goals and represent a
substantial portion of the total compensation available to its executives.
Annual Incentive Compensation. Annual incentive compensation relating to
Sequoia's executive officers for the fiscal year ended June 30, 1996 was
generally tied to the achievement of (i) critical financial goals related to
profitability and, in certain cases, sales and cash position, and (ii)
specific goals related to the individual executive's functional
responsibility.
Stock Options. The Compensation Committee considers an executive's past
performance in determining an award on an annual basis, and, in addition, the
Compensation Committee believes that the retention of an individual is of
paramount importance in the determination of stock option grants. Stock
options are granted at an option price equal to the fair market value of
Sequoia's Common Stock on the date of grant and generally vest over a four-
year period. The Compensation Committee believes that stock options provide
the most significant compensation opportunity for executives.
Benefits. Sequoia's executive officers are entitled to receive medical and
term life insurance benefits and to participate in Sequoia's 401(k) savings
plan on the same basis as other full-time employees of Sequoia, with the
exception that they are provided at no cost with additional life insurance in
an amount equal to twice their base salary. Sequoia's 1993 Employee Stock
Purchase Plan, which is generally available to all employees, including
executive officers, allows participants to purchase up to a maximum of 500
shares of Common Stock per offering period at a discount of 15% from the fair
market value of such Common Stock at the beginning or end of the applicable
offering period.
The amount of perquisites provided to executive officers, as determined in
accordance with the rules of the Commission relating to executive
compensation, did not exceed 10% of salary of any executive officer for the
fiscal year ended June 30, 1996.
Chief Executive Officer Compensation
During the fiscal year ended June 30, 1996, the Company's current President
and Chief Executive Officer, J. Michael Stewart, participated in the programs
discussed above, as did his predecessor, Mr. McMullan. The performance
criteria for Mr. Stewart's annual incentive program stressed the maintenance
of profitability while posturing Sequoia for significant future growth. Mr.
Stewart received aggregate salary of $211,300 during fiscal 1996.
In conformance with the compensation program specified herein, and in light
of Sequoia's performance, the Compensation Committee awarded Mr. Stewart
options to acquire 46,000 shares of Sequoia Common Stock in fiscal 1996.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1 million paid to a corporation's chief executive officer
and four other most-highly-compensated executive officers. Qualifying
compensation will not be subject to the deduction limit if certain
requirements are met. Although Sequoia has not paid any of its executive
officers compensation over $1 million and has no plans to do so, it intends to
establish a limit on option grants to employees in a manner that complies with
the provisions of the statute.
The Compensation Committee
Francis J. Hughes, Jr., Chairman
Dean C. Campbell
John F. Smith
10
<PAGE>
STOCK OPTION REPRICING
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
MARKET
PRICE EXERCISE LENGTH OF ORIGINAL
NUMBER OF OF STOCK PRICE AT TERM REMAINING
OPTIONS/SARS AT TIME OF TIME OF NEW AT DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT(1)
---- ------- ------------ ------------ ------------ -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Stewart...... 3/11/96 50,000 $3.875 $ 4.00 $3.875 109
3/11/96 46,000 $3.875 $ 6.75 $3.875 113
Cornelius P.
McMullan(2)............ 5/16/93 60,000 $2.25 $ 3.75 $2.25 113
Richard B. Goldman(3)... 3/11/96 24,000 $3.875 $ 6.75 $3.875 113
5/16/93 70,000 $2.25 $ 3.50 $2.25 109
5/16/93 30,000 $2.25 $ 3.25 $2.25 113
Jack J. Stiffler........ 3/11/96 10,000 $3.875 $ 4.00 $3.875 99
3/11/96 23,000 $3.875 $ 6.75 $3.875 113
5/16/93 3,503 $2.25 $ 4.00 $2.25 77
5/16/93 3,857 $2.25 $ 5.125 $2.25 90
5/16/93 10,000 $2.25 $12.375 $2.25 97
5/16/93 5,000 $2.25 $15.00 $2.25 103
5/16/93 15,000 $2.25 $ 7.00 $2.25 109
5/16/93 1,000 $2.25 $ 3.50 $2.25 112
John C. Leonardo, Jr.... 3/11/96 25,000 $3.875 $ 4.00 $3.875 109
3/11/96 50,000 $3.875 $ 6.75 $3.875 113
3/11/96 34,000 $3.875 $ 6.75 $3.875 113
Jeremy F. Swett......... 3/11/96 10,000 $3.875 $ 6.75 $3.875 113
Ron Groen............... 3/11/96 12,500 $3.875 $ 4.00 $3.875 109
3/11/96 22,500 $3.875 $ 6.75 $3.875 113
James E. McDermott...... 3/11/96 25,000 $3.875 $ 4.00 $3.875 109
3/11/96 26,000 $3.875 $ 6.875 $3.875 113
James A. Reinhold(4).... 3/11/96 25,000 $3.875 $ 4.000 $3.875 109
3/11/96 30,000 $3.875 $ 6.750 $3.875 113
William C. Gould(5)..... 3/11/96 20,000 $3.875 $ 6.750 $3.875 113
5/16/93 20,000 $2.25 $13.125 $2.25 99
5/16/93 4,000 $2.25 $14.125 $2.25 107
5/16/93 700 $2.25 $ 3.50 $2.25 113
David A. Butler(6)...... 3/11/96 10,000 $3.875 $ 6.75 $3.875 113
5/16/93 1,000 $2.25 $ 7.00 $2.25 110
5/16/93 400 $2.25 $ 3.50 $2.25 113
John M. Owens(7)........ 3/11/96 25,000 $3.875 $ 4.9375 $3.875 101
3/11/96 19,000 $3.875 $ 6.75 $3.875 113
Andrew P. Wood(8)....... 3/11/96 15,000 $3.875 $ 6.75 $3.875 113
5/16/93 1,400 $2.25 $11.375 $2.25 98
5/16/93 700 $2.25 $ 7.00 $2.25 110
5/16/93 400 $2.25 $ 3.50 $2.25 113
5/16/93 1,000 $2.25 $ 5.125 $2.25 86
</TABLE>
- --------
(1) Data is presented in terms of months
(2) Mr. McMullan resigned from the Company on January 30, 1996.
(3) Mr. Goldman resigned from the Company on May 17, 1996.
(4) Mr. Reinhold resigned from the Company on September 20, 1996.
(5) Mr. Gould resigned from the Company on January 14, 1997.
(6) Mr. Butler resigned from the Company on May 30, 1996.
(7) Mr. Owens resigned from the Company on January 14, 1997.
(8) Mr. Wood resigned from the Company on April 30, 1996.
11
<PAGE>
REPORT ON REPRICING OF OPTIONS
On March 11, 1996, the Compensation Committee of the Board of Directors
approved a stock option exchange program (the "Exchange Program"), pursuant to
which employees and officers holding incentive stock options and non-statutory
options under the Company's 1986 Incentive Stock Option Plan and 1986
Supplemental Stock Option Plan (collectively, the "Stock Plans") were given
the opportunity, on or after that date, to exchange such options for new
options.
Because of significant declines in the market value of the Company's Common
Stock, most outstanding options at that time were exercisable at prices which
substantially exceeded the market value of the Common Stock. In view of such
declines in market value and in keeping with the Company's philosophy of
utilizing equity incentives to motivate and retain qualified employees, the
Compensation Committee felt it was important to regain the incentive intended
to be provided by options to purchase shares of the Company's Common Stock.
Under the Exchange Program, holders of stock options on March 11, 1996 which
were granted under the Stock Plans and which had an exercise price greater
than $3.875 per share (the "Existing Options") were offered the opportunity to
request that the Company issue new options ("New Options") having an exercise
price equal to $3.875, the fair market value of a share of the Company's
Common Stock on that date (the "Base Exercise Price"). New Options granted
with respect to Existing Options that were vested as of March 11, 1996 (other
than Existing Options granted on August 7, 1995 which were to vest in part
subject to the achievement of certain performance goals) were not subject to
any additional vesting periods. New Options granted with respect to Existing
Options granted on August 7, 1995 were subject to a ratable 48 month vesting
period commencing March 11, 1996.
A total of 404 option holders (constituting 100% of eligible option holders)
holding options to purchase an aggregate of 1,140,823 shares of Common Stock
under Existing Options elected to participate in the Exchange Program and were
issued the same aggregate number of New Options as they had held Existing
Options.
Except as noted with regard to the Existing Options granted on August 7,
1995, the New Options modify only the exercise price of the Existing Options
to which each relates and were issued under and are governed by the respective
Stock Plan under which such options were originally granted. Other than the
different exercise price and, in the case of the August 7, 1995 Existing
Options, the commencement of a new vesting schedule not based in part on
performance, the option agreements relating to the New Options are
substantially identical to the option agreements for the Existing Options they
replaced.
The Compensation Committee
Francis J. Hughes, Jr., Chairman
Dean C. Campbell
John F. Smith
12
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The cumulative stock performance graph below compares the cumulative
shareholder return on Common Stock for the period from June 30, 1991 through
the fiscal year ended June 30, 1996 with the cumulative return on the Nasdaq
National Market (U.S. Companies) (the "Nasdaq Composite Index") and (ii) a
group consisting of publicly-traded United States companies in Sequoia's line
of business (the "Peer Group") for the same period (assuming an investment of
$100 in Common Stock, the Nasdaq Composite Index and the Peer Group on June
30, 1991 and reinvestment of all dividends). Measurement points are June 30,
1991 and the last trading days of Sequoia's fiscal years ended June 30, 1992,
1993, 1994, 1995 and 1996.
The Peer Group consists of the following companies:
Tandem Computers Incorporated
Stratus Computer, Inc.
Sequent Computer Systems, Inc.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SEQUOIA SYSTEMS INC., THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
6/91 6/92 6/93 6/94 6/95 6/96
SEQUOIA SYSTEMS INC. 100 88 18 35 39 27
PEER GROUP 100 107 102 89 117 94
NASDAQ STOCK
MARKET-US 100 120 151 153 204 261
* $100 INVESTED ON 6/30/91 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
13
<PAGE>
ITEM 2--AMENDMENT TO THE AMENDED RESTATED CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY
As part of its agreement to sell substantially all the assets of its Sequoia
Enterprise Systems business unit to General Automation, Inc., which sale was
completed on October 11, 1996, the Company agreed to convey its right to use
the name "Sequoia" to General Automation. The Company further agreed to
propose to its stockholders at its 1996 Annual Meeting an amendment to its
charter documents for the purpose of changing the name of the corporation to
one not incorporating the word "Sequoia" so as to avoid confusion in the
marketplace. With the sale of the Sequoia Enterprise Systems business unit,
the Company's Texas Microsystems, Inc. subsidiary, which was acquired by the
Company through merger on March 31, 1995 and which has a well-established
leadership position in its markets, accounts for all of the Company's current
operating revenue. Accordingly, on February 11, 1997, the Board voted to
recommend to the Company's stockholders that the name of the Company be
changed to "Texas Micro, Inc." and that Article I of the Company's Amended
Restated Certificate of Incorporation be amended to read as follows: "The name
of this Corporation is Texas Micro, Inc."
The Board believes that the adoption of the amendment to the Amended
Restated Certificate of Incorporation so as to change the name of the Company
to "Texas Micro, Inc." is in the best interests of Sequoia and its
stockholders and therefore recommends a vote FOR this proposal.
ITEM 3--AMENDMENT TO 1993 EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Company's 1993 Employee Stock Purchase Plan (the "ESPP")
is to encourage ownership in the Company by employees, including officers, and
to provide a further incentive to retain and motivate such employees. The ESPP
currently covers 750,000 shares of Sequoia Common Stock, and its current six-
month offering period will close on June 30, 1997, at which time the ESPP will
expire. As of January 15, 1997, 209,025 shares had been issued under the ESPP.
On February 11, 1997, the Board voted to amend the ESPP by extending its
termination date by two years until June 30, 1999 and by permitting employee
purchases thereunder until such date. Following is a summary of the material
provisions of the ESPP.
The ESPP is administered by the Board of Directors and covers 750,000 shares
of Common Stock, subject to adjustment for any dividend, stock split or other
relevant changes in Sequoia's capitalization ("Shares"). With certain limited
exceptions, all full-time employees, including officers, employed by Sequoia
for at least three months are eligible to participate in the ESPP.
The Plan consists of four consecutive six-month offerings of 62,500 Shares
each, commencing July 1, 1993 and ending June 30, 1995 and four consecutive
six-month offerings of 125,000 Shares each, commencing July 1, 1995 and ending
June 30, 1997. The number of Shares may be increased at the election of the
Board by the number of Shares, if any, which were made available, but not
purchased during an earlier offering. The proposed amendment to the ESPP will
extend its termination date by two years until June 30, 1999 and permit
employee purchases thereunder until such date. The amendment will make no
change to the total number of Shares available for purchase under the ESPP.
On the first day of a designated six-month offering period, the Company
grants to each eligible employee who has elected to participate in the ESPP an
option to purchase Shares as follows: the employee may authorize an amount (a
whole percentage from 1% to 6%) of such employee's monetary compensation, as
defined in the ESPP, to be deducted from such compensation during the offering
period. On the last day of the offering period, the employee is deemed to have
exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the ESPP, the option price
is an amount equal to 85% of the fair market value per Share of the Sequoia
Common Stock on either the first day or the last day of the offering period,
whichever is lower. In no event, however, may an employee purchase more than
500 Shares in any one offering period.
14
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The ESPP is intended to qualify as an "employee stock purchase plan" as
defined in Section 423 of the Internal Revenue Code of 1986, as amended.
Section 423 provides that a participating employee does not have to pay any
federal income tax when such employee joins the ESPP or when an offering ends
and such employee receives Shares of Sequoia Common Stock. The employee is
required, however, to pay federal income tax on the difference, if any,
between the price at which he sells the Shares and the price he paid for them.
If the employee has owned the Shares for more than one year and disposes of
them at least two years after the date an offering commenced, he will be taxed
as described below. If the market price of the Shares on the date they are
sold is equal to or less than the price paid for the Shares under the ESPP,
the employee will incur long-term capital loss in the amount equal to the
price paid over the sale price. If the sale price is higher than the price
paid under the ESPP, such employee will recognize ordinary income in an amount
equal to the lesser of (i) the market price of the Shares on the date the
offering commenced over the price paid or (ii) the excess of the sale price
over the price paid. Any further gain is treated as a long-term capital gain.
Except as set forth below, Sequoia will generally not be entitled to a tax
deduction upon the purchase or sale of Shares under the ESPP. If the employee
sells the Shares before he has owned them for more than one year or before the
expiration of a two-year period commencing on the date the offering period
commenced, the employee will recognize ordinary income in the amount of the
difference between the option price and the market price of the Shares on the
date of purchase, and Sequoia will receive an expense deduction for the same
amount. The employee will recognize a capital gain or loss for the difference
between the sale price and the fair market value on the date of purchase.
BOARD RECOMMENDATION
The Board believes that the adoption of the amendment to the 1993 Employee
Stock Purchase Plan, as described above, is in the best interests of Sequoia
and its stockholders and therefore recommends a vote FOR this proposal.
ITEM 4--AMENDMENT TO THE LONG-TERM INCENTIVE PLAN
At the time of the Company's 1995 Annual Meeting of Stockholders, the Board
recommended and the stockholders approved the adoption of the 1996 Long Term
Incentive Plan (the "Plan") in order to encourage equity ownership among its
employees and to permit the Company to attract, motivate and retain both
executive and non-executive employees. The Board believes that the Plan
promotes the interests of the Company and its stockholders by, among other
things, providing incentives and rewards to those employees of the Company and
its subsidiaries who contribute to the Company's growth in earnings.
Under the terms of the Plan, the Company is authorized, among other things,
to grant options to purchase up to 600,000 shares of Sequoia Common Stock
("Shares") to employees, including officers, of the Company. As of January 15,
1997, approximately 277,000 options to purchase an equivalent number of Shares
had been granted. To continue the Company's ability to utilize the Plan for
the purposes described above, the Board on February 11, 1997 voted to amend
the Plan so as to permit the granting of an additional 350,000 options by
increasing the maximum number of options to purchase Shares that may be
granted under the terms of the Plan from 600,000 to 950,000 options, subject
to stockholder approval. Following is a summary of the material provisions of
the Plan.
The Plan is administered in all respects by the Compensation Committee of
the Board (the "Committee"). The Committee has plenary authority to interpret
the Plan and may adopt rules and regulations relating to the Plan. The
Committee selects the employees, including executive officers and employees
who are also directors, to whom grants will be made; determines the number,
frequency and timing of awards as well as the type of award and its exercise
or purchase price, if any; prescribes any performance criteria to be met and
any restrictions on exercise of awards or receipt of Shares or cash, and
determines any other terms or conditions applicable to
15
<PAGE>
any awards, including exercise or vesting schedules and the conditions under
which exercisability or vesting may be accelerated, such as in the event of
death or disability. A participant may receive more than one grant of awards
under the Plan, and awards may be exercisable independently of, jointly with,
or in the alternative with respect to other awards, all as the Committee may
determine.
A total of 600,000 Shares (950,000 Shares if the proposed amendment is
approved) may be issued under the Plan, subject to adjustments for stock
splits, stock dividends, or other changes in capital stock of the Company. To
the extent that awards under the Plan do not vest or otherwise revert to the
Company, the Shares represented by such awards may be the subject of future
awards. The Plan provides that a maximum of 120,000 stock options or Stock
Appreciation Rights ("SARs") may be granted to any one participant in any one
calendar year. On January 15, 1997 Sequoia's Common Stock closed at $2.188 on
the Nasdaq National Market.
The Committee may grant awards in the form of non-qualified stock options or
incentive stock options (as defined in Section 422(b) of the Code). The
exercise price of a non-qualified stock option may not be less than 65% of the
fair market value of such Shares on the date of grant, and the exercise price
of an incentive stock option may not be less than the fair market value of
such Shares on the date of grant. Each grant of an incentive stock option will
not be exercisable more than ten years after grant, and will include any other
provisions necessary to comply with Section 422 of the Code. Awards of SARs
may also be granted either in tandem with grants of stock options (and
exercisable as an alternative to the exercise of the stock options) or
separately. SARs allow the grantee to receive without payment, and upon
surrender of the SARs and tandem options or of the separate SARs, an amount
payable in cash, Shares or a combination thereof, as determined by the
Committee, not exceeding the value on the exercise date of the number of
Shares for which the SARs are exercised over the exercise price of the SARs.
The exercise price of an SAR may not be less than the fair market value of a
Share on the date of grant, or in the case of an SAR granted in relation to an
option, not less than the option exercise price.
In addition, the Committee may in its discretion grant other awards that
consist of or are denominated in or payable in Shares, or that are valued by
reference to or are otherwise based on or related to Shares. Such awards may
include, for example, restricted Shares (limited in amount, as described
below) that are forfeitable upon termination of employment or failure to
achieve specified performance goals or that require no consideration other
than services rendered, phantom shares, performance bonus awards or other
awards payable in cash, Shares or a combination thereof. All awards are
nontransferable (other than by will or by the laws of descent and
distribution) and may be exercised during the grantee's lifetime only by the
grantee. The Committee may subject the awards to vesting or earnout
provisions, restrictions on transfer or in incidence of ownership, and other
conditions. A maximum of 100,000 restricted Shares may be granted in the
aggregate under the Plan, no more than 25,000 of which may be granted to any
one Plan participant in any calendar year.
In the event of a merger, reorganization, recapitalization, stock dividend,
stock split or other change in capitalization, the Committee has the
discretion to prevent dilution or enlargement of grantees' rights and benefits
such as by adjusting the aggregate number and type of Shares available for
awards, the number and type of Shares subject to outstanding awards, the time
of vesting of outstanding awards, or the purchase or exercise price of
outstanding awards. The Committee may permit the exercise or purchase price
(if any) of awards, including options, granted under the Plan to be paid in
cash or through delivery of Shares having a fair market value equal to all or
a portion of such price; by authorizing the Company to withhold Shares
comprising part of an award and having a fair market value equal to all or a
portion of such price; by payment from the grantee's broker as instructed by
the grantee; or by other means at the discretion of the Committee. In
addition, in the event of a consolidation, merger or sale of all or
substantially all the assets of the Company, the Board may, in its discretion,
provide, among other things, that stock options and SARs shall be assumed by
the acquiring or succeeding corporation, or replaced by equivalent stock
options or SARs of such corporation, or that outstanding stock options shall
become exercisable in full immediately prior to any such consolidation, merger
or sale.
The Board may at any time terminate, suspend or amend the Plan in any way,
without stockholder approval, subject to the following exceptions. The Board
may not without stockholder approval, materially increase the
16
<PAGE>
benefits accruing to participants under the Plan or change (except as
appropriate to reflect a change in the capitalization of the Company) the
aggregate number of Shares available for grant or the class of persons
eligible for awards under the Plan. Further, the Board may not take any action
with respect to the Plan that would adversely affect the rights previously
acquired by any grantee without such grantee's consent.
FEDERAL INCOME TAX CONSEQUENCES
The principal federal income tax consequences to the Company and to the
grantee of the grant and exercise of awards under the Plan under existing
applicable provisions of the Code and regulations thereunder are substantially
as outlined in summary form below.
The grant of an option will not have any tax consequences to the grantee or
the Company. If Shares purchased pursuant to the exercise of an incentive
stock option are not disposed of by the grantee for two years after the grant
of the incentive stock option and for one year after exercise, then (i) the
grantee will not recognize income upon the exercise of the incentive stock
option; (ii) any gain or loss will be recognized only upon ultimate
disposition of the Shares; (iii) assuming the Shares constitute capital assets
in the grantee's hands, the gain or loss will be treated as long-term capital
gain or loss; and (iv) the Company will not be entitled to a tax deduction.
The difference between the option price and the fair market value of the
Shares acquired upon exercise of an incentive stock option is considered an
item of adjustment included in the grantee's income for purposes of the
alternative minimum tax under the Code.
If the grantee disposes of the Shares acquired by the exercise of an
incentive stock option before the expiration of the required one and two year
holding periods described above, the grantee must treat as ordinary income in
the year of such disposition an amount equal to the difference between the
option price and the lesser of the fair market value of the Shares on the date
of exercise or the selling price. The balance of any gain or loss on such
disposition will be treated as a capital gain or loss (long-term or short-
term, depending on whether the Shares have been held for more than one year).
The Company will be entitled to a tax deduction in the year of disposition
equal to the amount of ordinary income recognized by the grantee.
In general, upon exercise of a non-qualified stock option, the grantee will
recognize ordinary income equal to the difference between the option exercise
price and the fair market value (on the date of exercise) of the Shares
purchased, and the Company will be entitled to a tax deduction in that amount.
When the grantee disposes of Shares acquired by the exercise of a non-
qualified stock option, any gain or loss on such disposition (generally, the
difference between the amount realized on disposition and the fair market
value of the Shares on the date of exercise) will be treated as capital gain
or loss (long-term or short-term, depending on whether the Shares have been
held for more than one year).
Generally, no gain or loss will be recognized by a grantee upon transfer to
the Company of previously acquired Shares of common stock in payment of all or
a portion of the incentive stock option or non-qualified stock option exercise
price.
No taxable income is recognized by a grantee of an SAR under the Plan. The
grantee must recognize as ordinary income any cash delivered and the fair
market value of any Shares delivered in payment of an amount due under an SAR.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the grantee, subject to the
limitations of Section 162(m) of the Code. On the disposition by the grantee
of any Shares received in payment of an SAR, any additional gain or loss
recognized will be a capital gain or loss and will be a long-term gain or loss
if the Shares are held for more than one year.
The Company has the right under the Plan to collect from the grantee an
amount sufficient to satisfy any withholding tax obligation that arises in
connection with any award or to deduct a sufficient amount of cash or Shares
from other payments or transfers otherwise due to the grantee. The Committee
also may permit a grantee to satisfy the obligation by any of the methods
described above for payment of the exercise or purchase price of awards.
17
<PAGE>
Substantially all employees are eligible to participate in the Plan. The
number of Shares that may be granted to executive officers and non-executive
officers is indeterminable at this time, as such grants are subject to the
discretion of the Committee.
BOARD RECOMMENDATION
The Board believes that the adoption of the amendment to the 1996 Long Term
Incentive Plan, as described above, is in the best interests of Sequoia and
its stockholders and therefore recommends a vote FOR this proposal.
ITEM 5--RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
Subject to ratification by the stockholders, the Board, on the
recommendation of its Audit Committee, has selected the firm of Coopers &
Lybrand L.L.P. as Sequoia's independent accountants for the fiscal year ending
June 30, 1997.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
If the stockholders of Sequoia do not ratify the selection of Coopers &
Lybrand L.L.P. as Sequoia's independent accountants, the selection of such
accountants will be reconsidered by the Board.
BOARD RECOMMENDATION
The Sequoia Board believes that the ratification of the selection of Coopers
& Lybrand L.L.P. as the Company's independent accountants for the fiscal year
ending June 30, 1997 is in the best interests of the Company and its
stockholders and therefore recommends a vote FOR this proposal.
OTHER MATTERS
The Board does not know of any other matters that may come before the Annual
Meeting. However, if any other matters are properly presented to the Annual
Meeting, it is the intention of persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
All expenses of the Company's solicitation of proxies, including the cost of
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of the Company in person or by telephone,
telegram or other means of communication. Such directors, officers and
employees soliciting proxies will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. The Company has retained Morrow & Co., Inc. for assistance in
connection the Annual Meeting at an estimated expense of approximately $4,000,
plus reasonable out-of-pocket expenses. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and the Company will reimburse such persons for
reasonable expenses incurred in connection therewith.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996, as filed with the Securities and Exchange Commission, except
for exhibits, will be furnished without charge to any stockholder upon written
request of the Chief Financial Officer of the Company at 5959 Corporate Drive,
Suite 1600, Houston, Texas 77036
18
<PAGE>
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, Company stockholders may
present proper proposals for inclusion in the Company's proxy statement for
consideration at the next annual meeting of stockholders by submitting their
proposals to the Company in a timely manner. In order to be considered for
inclusion in the proxy statement for the annual meeting of stockholders to be
held after the fiscal year ending June 30, 1997, stockholder proposals must be
received by the Secretary of the Company by August 1, 1997.
By Order of the Board of Directors,
(ART)
Jeremy F. Swett
Secretary
19
<PAGE>
SEQUOIA SYSTEMS, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 16, 1997
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) J. Michael
Stewart and K.R. Sumrall, and each of them, with full power of substitution, as
proxies to represent and vote as designated herein, all shares of stock of
Sequoia Systems, Inc. (the "Company") which the undersigned would be entitled
to vote if personally present at the Annual Meeting of Stockholders of the
Company to be held at 5959 Corporate Drive, Houston, Texas, on Wednesday, April
16, 1997 at 10:00 a.m., local time, and at any adjournment or adjournments
thereof.
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is given, this proxy will be
voted FOR proposals 2, 3, 4 and 5. Attendance of the undersigned at the meeting
or at any adjournment thereof will not be deemed to revoke this proxy unless
the undersigned shall revoke this proxy in writing before it is exercised.
1. To elect J. Michael Stewart and Frank B. Ryan as Class III Directors of
the Company as described in the Proxy Statement.
[_] FOR [_] WITHHELD
-------------------------
For all nominees except as noted above
<PAGE>
LOGO
2. To approve a proposed amendment to Article I of the Company's Amended
Restated Certificate of Incorporation, changing the name of the Company
to "Texas Micro, Inc."
[_] FOR [_] AGAINST [_] ABSTAIN
3. To amend the Company's 1993 Employee Stock Purchase Plan by extending its
termination date by two years, from June 30, 1997 until June 30, 1999 and
by permitting employee purchases thereunder until such date.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To amend the Company's Long Term Incentive Plan by increasing the number
of options available for grant thereunder from 600,000 to 950,000
options.
[_] FOR [_] AGAINST [_] ABSTAIN
5. To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
Independent Accountants.
[_] FOR [_] AGAINST [_] ABSTAIN
6. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Signature: _________________ Date
Signature: _________________ Date
Please sign exactly as name appears
hereon. When shares are held by joint
owners, both should sign. When sign-
ing as attorney, executor, adminis-
trator, trustee or guardian, please
give the full title as such. If a
corporation, please sign in full cor-
porate name by President or other au-
thorized officer. If a partnership,
please sign in partnership name by
authorized person.
