SEQUENT COMPUTER SYSTEMS, INC.
Notice of Annual Meeting of Shareholders to be Held
May 29, 1997
To the Shareholders of Sequent Computer Systems, Inc.:
The Annual Meeting of Shareholders of Sequent Computer Systems, Inc., an
Oregon corporation, will be held on Thursday, May 29, 1997 at 3:00 pm., Pacific
Time, at the Company's facilities at 15450 S.W. Koll Parkway, Beaverton,
Oregon, for the following purposes:
1. Electing seven directors;
2. Voting on approval of the Company's 1997 Stock Option Plan;
3. Voting on approval of an amendment to the Company's Employee Stock
Purchase Plan;
4. Voting on approval of the selection of Price Waterhouse as the
Company's independent auditors; and
5. Transacting such other business as may properly come before the
meeting.
You are respectfully requested to date and sign the enclosed proxy and
return it in the postage prepaid envelope enclosed for that purpose. You may
attend the meeting in person even though you have sent in your proxy, since
retention of the proxy is not necessary for admission to or identification at
the meeting.
By Order of the Board of Directors
/c/ KARL C. POWELL, JR.
Karl C. Powell, Jr.,
Chairman of the Board
and Chief Executive Officer
March 27, 1997
Beaverton, Oregon
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THIS MEETING IN
PERSON, PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE SO THAT YOUR STOCK WILL BE VOTED. THE ENVELOPE REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
SEQUENT COMPUTER SYSTEMS, INC.
PROXY STATEMENT
The mailing address of the principal executive offices of Sequent Computer
Systems, Inc., an Oregon corporation (the "Company" or "Sequent"), is 15450
S.W. Koll Parkway, Beaverton, Oregon 97006-6063. The approximate date this
proxy statement and the accompanying proxy form are first being sent to
shareholders is April 7, 1997.
Upon written request to the Secretary, any person whose proxy is solicited
by this proxy statement will be provided without charge a copy of the Company's
Annual Report on Form 10-K.
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited on behalf of the Board of Directors of the
Company for use at the annual meeting of shareholders to be held on Thursday,
May 29, 1997. The Company will bear the cost of preparing and mailing the
proxy, proxy statement and any other material furnished to the shareholders
by the Company in connection with the annual meeting. Proxies will be
solicited by use of the mails. Officers and employees of the Company may also
solicit proxies by telephone or personal contact. Copies of solicitation
materials will be furnished to fiduciaries, custodians and brokerage houses
for forwarding to beneficial owners of the stock held in their names. The
Company has retained ChaseMellon Shareholder Services to assist in the
solicitation of proxies from brokers and other nominees at an estimated cost
of $8,500 plus certain expenses.
Any person giving a proxy in the form accompanying this proxy statement
has the power to revoke it at any time before its exercise. The proxy may be
revoked by filing with the Company, attention Henry H. Hewitt, Secretary, an
instrument of revocation or a duly executed proxy bearing a later date. The
proxy may also be revoked by affirmatively electing to vote in person while in
attendance at the meeting. However, a shareholder who attends the meeting need
not revoke his proxy and vote in person unless he wishes to do so. All valid,
unrevoked proxies will be voted at the annual meeting.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The Common Stock is the only outstanding voting security of the Company.
The record date for determining holders of Common Stock entitled to vote at
the annual meeting is March 27, 1997. On that date there were 34,840,405
shares of Common Stock outstanding, entitled to one vote per share. The
Common Stock does not have cumulative voting rights.
The following table shows Common Stock ownership on March 1, 1997 by (i)
each person who, to the knowledge of the Company, beneficially owns more
than 5% of the Common Stock, (ii) the Chief Executive Officer of the Company,
(iii) the other executive officers of the Company named in the executive
compensation table set forth below, and (iv) all directors and executive
officers of the Company as of March 1, 1997 as a group:
Name and Address Shares(1) Percent
The Capital Group Companies, Inc. 1,820,000 (2) 5.3%
605 Third Avenue
New York, NY 10158
State Farm Mutual Automobile 1,715,950 (3) 5.0%
Insurance Company
1 State Farm Plaza
Bloomington, IL 61710
Karl C. Powell, Jr. 495,762 (4) 1.4%
John McAdam 86,469 (5) *
Robert S. Gregg 96,129 (6) *
Steve S. Chen 0 *
Andre Dahan 16,800 (7) *
10 directors and executive
officers as a group 1,058,256 (8) 3.0%
- -------------------
* Less than 1%.
(1) Shares are held directly with sole voting and dispositive power except as
otherwise indicated. Shares issuable pursuant to outstanding stock options
that are currently exercisable or become exercisable within 60 days of the
date of this table are considered outstanding for the purpose of calculating
the percentage of Common Stock owned by such person, but not for the purpose
of calculating the percentage of Common Stock owned by any other person.
(2) Based solely on information provided as of December 31, 1996 in a
Schedule 13G filed by the shareholder. The shareholder reports sole
dispositive power with respect to 1,820,000 shares.
(3) Based solely on information provided as of December 31, 1996 in a
Schedule 13G filed by the shareholder. The shareholder reports sole voting
power and sole dispositive power with respect to all of these shares.
(4) Includes 112,000 shares held in trust for the benefit of Mr. Powell's
family, as to which Mr. Powell has shared voting and dispositive power, and
342,607 shares of Common Stock subject to options that are currently
exercisable or become exercisable within 60 days. Does not include shares of
Common Stock subject to options that are currently exercisable or become
exercisable within 60 days that are held for the benefit of Mr. Powell's
former wife, as to which Mr. Powell disclaims beneficial ownership. Mr.
Powell also holds 100,000 shares of Common Stock of DP Applications, Inc., a
subsidiary of the Company, representing approximately 2% of the equity of DP
Applications, Inc. on a fully diluted basis.
(5) Includes 75,668 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days. Mr. McAdam also
holds 100,000 shares of Common Stock of DP Applications, Inc., a subsidiary
of the Company, representing approximately 2% of the equity of DP
Applications, Inc. on a fully diluted basis.
(6) Includes 79,834 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days. Mr. Gregg also
holds 100,000 shares of Common Stock of DP Applications, Inc., a subsidiary
of the Company, representing approximately 2% of the equity of DP
Applications, Inc. on a fully diluted basis.
(7) Includes 16,800 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(8) Includes 775,805 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
ELECTION OF DIRECTORS
Immediately prior to the annual meeting, the Board of Directors of the
Company will consist of seven directors who are elected at the annual meeting
to serve until the next annual meeting of shareholders and until their
successors are elected. The Company's nominees for director are listed below,
together with certain information about each of them.
<TABLE>
<CAPTION>
Shares of
Common Stock
Position with the held on
Company and Principal March 1, Approximate
Name Occupation Age 1997(1) percent
<S> <C> <C> <C> <C>
Karl C. Powell, Jr. Chairman of the Board, 53 495,762 (2) 1.4%
Chief Executive Officer and
Director of the Company
John McAdam President, Chief Operating 46 86,469 (3) *
Officer and Director of
the Company
Steve S. Chen Executive Vice President 53 0 *
of Product Group, Chief
Technical Officer and
Director of the Company
Robert C. Mathis(4)(5)(6) Director of the Company; 69 25,500 (7) *
Chairman of Eagle Mountain
Group
Richard C. Palermo, Sr. (6) Director of the Company; 59 21,680 (8) *
Consultant
Michael S. Scott Morton(4)(6) Director of the Company; 59 34,900 (9) *
Professor of Management at
the Massachusetts Institute
of Technology
Robert W. Wilmot(5)(6) Director of the Company; 52 191,716 (10) *
Chairman of the Board of
Wilmot Consulting, Inc.
* Less than 1%.
</TABLE>
(1) Shares held directly with sole voting and sole dispositive power unless
otherwise indicated.
(2) Includes 112,000 shares held in trust for the benefit of Mr. Powell's
family, as to which Mr. Powell has shared voting and dispositive power, and
342,607 shares of Common Stock subject to options that are currently
exercisable or become exercisable within 60 days. Does not include shares of
Common Stock subject to options that are currently exercisable or become
exercisable within 60 days that are held for the benefit of Mr. Powell's
former wife, as to which Mr. Powell disclaims beneficial ownership. Mr.
Powell also holds 100,000 shares of Common Stock of DP Applications, Inc., a
subsidiary of the Company, representing approximately 2% of the equity of DP
Applications, Inc. on a fully diluted basis.
(3) Includes 75,668 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days. Mr. McAdam also
holds 100,000 shares of Common Stock of DP Applications, Inc., a subsidiary
of the Company, representing approximately 2% of the equity of DP
Applications, Inc. on a fully diluted basis.
(4) Member of Compensation Committee.
(5) Member of Audit Committee.
(6) Member of Selection Committee.
(7) Includes 25,500 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(8) Includes 21,680 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(9) Includes 33,900 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(10) Includes 106,716 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days. Mr. Wilmot also
owns convertible notes of DP Applications, Inc., a subsidiary of the Company,
and warrants to purchase preferred stock of DP Applications, Inc., that
entitle him to acquire 887,096 shares of preferred stock, representing
approximately 16% of the equity of DP Applications, Inc. on a fully diluted
basis.
Mr. Powell, a co-founder of the Company, is Chairman of the Board and
Chief Executive Officer and has been a director since 1983. Mr. Powell has
served as the Company's sole Chief Executive Officer or shared the Office of
the Chief Executive with the other co-founder of the Company since the
Company's inception. From 1974 to 1983, Mr. Powell was employed by Intel
Corporation, where his most recent position was General Manager for
Microprocessor Operations. Mr. Powell served on the National Board of
Directors of the American Electronics Association from 1985 to 1986. He holds
a B.S. degree in mechanical engineering from the U.S. Merchant Marine Academy.
Mr. McAdam, President and Chief Operating Officer, became a director of
the Company in November 1995. Mr. McAdam joined the Company in August 1989 as
U.K. Sales Director. He became U.K. General Manager in January 1991, Vice
President and General Manager of European Operations in October 1992, and
Senior Vice President of European and Asian Operations in January 1994. He
was promoted to President and Chief Operating Officer in February 1995. Prior
to joining the Company, Mr. McAdam was employed for 10 years by Data General \
U.K. Ltd., serving most recently as Regional Manager, Public Sector, Finance
and Government Market. Mr. McAdam holds a degree in Computer Sciences from
Glasgow University.
Mr. Chen joined the Company in July 1996 as Executive Vice President,
Chief Technical Officer and Director. Prior to joining Sequent, Mr. Chen
served as President and Chief Executive Officer of Chen Systems Corporation,
co-founded by Mr. Chen in 1993. From 1979 to 1987, Mr. Chen was employed by
Cray Research Inc., serving most recently as a Senior Vice President. In
1987, Mr. Chen co-founded Supercomputer Systems, Inc., serving as President
and Chief Executive Officer, responsible for funding, formation and
management of an international multi-corporation supercomputer development
partnership. He is also a director of Storage Computer Corporation.
Dr. Mathis has been a director of the Company since 1985. Dr. Mathis was a
General in the United States Air Force and served as Vice Chief of Staff from
1980 to 1982. He retired from the Air Force in 1982. Dr. Mathis is Chairman of
the I Am Third Foundation, a non-profit organization serving the disabled,
which he and his wife founded in 1982. He has also served on a number of
boards and is currently Chairman of Eagle Pass Engineering, a consulting
firm, and Chairman of the Eagle Mountain Group, an international business
brokering firm.
Mr. Palermo has been a director of the Company since March 1993. Mr.
Palermo was employed by Xerox Corporation from 1965 until his retirement in
March 1993, serving most recently as Senior Vice President, U.S. Quality and
Customer Satisfaction and Vice President of Marketing. He currently serves as a
quality consultant to Xerox Corporation and other companies.
Dr. Scott Morton has been a director of the Company since 1991. Dr. Scott
Morton is the Jay W. Forrester Professor of Management at the Sloan School of
Management and was Chairman of the Faculty for the Senior Executive Program at
M.I.T. He has also served as Program Director of the Management in the 1990s
Research Program and as Associate Dean of the Sloan School of Management at
M.I.T. Dr. Scott Morton is a Trustee of the State Street Research Funds and
the Metropolitan Life Series Funds.
Dr. Wilmot has been a director of the Company since 1992. Dr. Wilmot is
Chairman of Wilmot Consulting Inc., a consulting firm, and has been a
consultant to the Company since January 1987. He has also been an advisor to the
Board of Directors since November 1988. Dr. Wilmot was a managing director of
Texas Instruments, Ltd. from 1978 to 1981. From 1981 to 1985 he was Chief
Executive and then Chairman of I.C.L., Britain's major computer company. He
has founded several companies in Europe and the United States, including
Organization and System Innovations, The OASIS Group (a leading European
company engaged in re-engineering management consultancy now a wholly owned
subsidiary of Sybase Inc.) and Poqet Computers Corporation (a palm top
computer manufacturer in California now a wholly owned subsidiary of Fujitsu
Ltd.). He is a director of several privately-held, high-technology companies
in Europe and the United States.
The Board of Directors met seven times during the last fiscal year. Each
director attended at least 75 percent of the aggregate of the meetings of the
Board of Directors and the committees of which he was a member. The only
standing committees of the Board of Directors are the Audit Committee, the
Compensation Committee and the Selection Committee. The Audit Committee, which
met three times in 1996, recommends selection of independent accountants to the
Board of Directors and reviews the scope and results of audits. The
Compensation Committee, which met eight times during 1996, reviews and
establishes compensation for executive officers and considers incentive
compensation alternatives for the Company's employees. The Selection
Committee, which did not meet in 1996, seeks and makes recommendations
concerning qualified candidates to serve on the Company's Board of Directors.
Shareholders who wish to submit names to the Selection Committee for
consideration should do so in writing addressed to the Selection Committee,
c/o Robert S. Gregg, Assistant Secretary, c/o Sequent Computer Systems, Inc.,
15450 SW Koll Parkway, Beaverton, Oregon 97006.
Director Compensation
Directors who are not employees of the Company are paid an annual retainer
of $15,000 plus an attendance fee of $1,000 per day for each board meeting and
related travel expenses. Members of the Audit, Compensation and Selection
Committees receive $1,000 for each meeting attended if the meeting is held
separate from a Board Meeting. Under the Company's stock plans, each person who
becomes a non-employee director of the Company automatically receives an
initial option to purchase 10,000 shares of the Company's Common Stock. Each
non-employee director automatically receives additional annual grants of
options to purchase 5,000 shares, provided the non-employee director
continues to serve in that capacity. Members of the Compensation, Audit and
Selection Committees receive annual option grants for 2,000 shares for
participation on each such committee. Each option granted to a non-employee
director has an exercise price equal to 85% of the fair market value of the
Company's Common Stock on the date of grant and has a term of ten years.
Options become exercisable to the extent of 24% of the shares one year after
the date of grant and become exercisable to the extent of 2% each month
thereafter. Dr. Wilmot performs consulting services relating to the Company's
European operations (for which he is paid $1,000 per day plus travel
expenses). In 1996 he was paid $41,700 under this consulting arrangement and
received options to purchase a total of 5,333 shares of Common Stock (with
exercise prices equal to 85% of fair market value on the date of grant).
Voting
The proxies will be voted with respect to the election of the nominees in
accordance with the instructions specified in the proxy form. If no
instructions are given, proxies will be voted for the election of the
nominees. If for some unforeseen reason any of the nominees would not be
available as a candidate for director, the number of directors constituting
the Board of Directors may be reduced prior to the meeting or the proxies may
be voted for such other candidate or candidates as may be nominated by the
Board of Directors, in accordance with the authority conferred in the proxy.
The Board of Directors recommends election of the nominees listed above.
Directors are elected by a plurality of the votes cast by the shares entitled
to vote if a quorum is present at the annual meeting. Abstentions are counted
for purposes of determining whether a quorum exists at the annual meeting but
are not counted and have no effect on the determination of whether a plurality
exists with respect to a given nominee.
<TABLE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation paid to the Chief Executive
Officer of the Company and the other four most highly compensated executive
officers of the Company for services in all capacities to the Company and its
subsidiaries during each of the last three fiscal years.
<CAPTION>
Long-Term Compensation
Annual Compensation (1) Awards
Name and Restricted Securities
Principal Stock Underlying All Other
Position Year Salary Bonus Other Awards ($) Options(#)(2) Compensation(3)
<S> <C> <C> <C> <C> <C> <C> <C>
Karl C. Powell, Jr. 1996 $ 550,008 $ 210,309 _ _ (4) 600,000 (5) $ 7,603
Chairman of the 1995 $ 517,342 $ 112,868 _ _ 562,500 $ 9,587
Board and Chief 1994 $ 453,140 $ 231,101 _ _ 75,000 $ 6,616
Executive Officer
John McAdam 1996 $ 400,008 $ 131,103 _ _ (4) 275,000 (5) $ 69,444 (6)
President, Chief 1995 $ 364,582 $ 63,754 _ $ 108,750 (7) 155,000 $ 613,570 (6)
Operating Officer 1994 $ 170,010 $ 171,471 _ $ 49,375 (8) 50,000 $ 121,379 (9)
and Director
Robert S. Gregg 1996 $ 250,238 $ 68,346 _ _ (4) 174,500 (5) $ 3,185
Sr. Vice President of 1995 $ 233,758 $ 34,496 _ _ 89,500 $ 4,980
Finance & Legal and 1994 $ 218,341 $ 80,000 _ _ 7,500 $ 3,188
Chief Financial Officer
Steve S. Chen 1996 $ 150,000 $ 37,691 _ _ 100,000 $ 33,425 (10)
Executive Vice President 1995 _ _ _ _ _ _
of Product Group, 1994 _ _ _ _ _ _
Chief Technical
Officer and Director
Andre Dahan 1996 $ 178,705 $89,352 _ _ 70,000 $ 118,562 (11)
Sr. Vice President, 1995 _ _ _ _ _ _
Worldwide Field 1994 _ _ _ _ _ _
Operations and
Marketing
</TABLE>
(1) Includes compensation deferred at the election of the executive under
the Company's 401(k) Plan. Under the Company's 401(k) Plan, officers and
other employees of the Company may elect to defer up to 15% of their
compensation, subject to limitations under the Internal Revenue Code. Amounts
deferred are deposited by the Company in a trust account for distribution to
employees upon retirement, attainment of age 59 to 62, permanent disability,
death, termination of employment or the occurrence of conditions constituting
extraordinary hardship. The Company did not make any contributions for
executive officers under this plan during the last three years.
(2) Represents shares of Common Stock issuable upon exercise of
nonstatutory stock options granted under the Company's 1989 Stock Incentive
Plan and/or the 1995 Stock Incentive Plan.
(3) Represents Company contributions under the Company's deferred
compensation plan and retirement plan for a foreign subsidiary, except as
otherwise indicated.
(4) During 1996 Messrs. Powell, McAdam and Gregg each purchased 100,000
shares of restricted Common Stock of DP Applications, Inc., a subsidiary of
the Company ("DP") , at a price of $.15 per share. These shares vest over
approximately four years based on continued employment of the executive with
Sequent. There is no public market for the stock of DP and the market value
of these shares at the end of fiscal 1996 was not readily ascertainable.
(5) Represents options granted in 1996 in replacement of options granted
during 1995 at higher exercise prices. See "Repricing of Stock Options."
The number of options granted in 1996 (excluding options granted to replace
cancelled options) was 37,500 shares for Mr. Powell, 120,000 shares for Mr.
McAdam and 85,000 shares for Mr. Gregg.
(6) In connection with Mr. McAdam's appointment as President and Chief
Operating Officer, the Company made special payments on his behalf related to
the relocation of Mr. McAdam and his family from England to the United
States. The amounts include relocation expenses, the down payment on his new
home, a relocation bonus, travel costs for his family, interest, tax and
insurance payments for his new home in the US, overseas expatriate
reimbursement for property management of his home in the UK, pension payments
and reimbursements of taxes to cover the withholding due on the above
mentioned payments. These amounts totaled $613,570 in 1995 and $69,444 in
1996.
(7) Represents the market price of the Common Stock on the grant date
multiplied by the number of shares granted. On December 31, 1996 7,500 shares
of Common Stock were restricted. These shares become vested to the extent of
2,500 shares on each of February 7, 1997, February 7, 1998 and February 7,
1999 subject to continued employment and, once vested, will no longer be
subject to any restrictions.
(8) Represents the market price of the Common Stock on the grant date
multiplied by the number of shares granted. These shares became fully vested
in April 1995 and are no longer subject to any restrictions.
(9) In August 1994, in connection with Mr. McAdam's appointment as Senior
Vice President, World Wide Field Operations, the Company made a special
payment to him of $100,044 in order to compensate Mr. McAdam for the
extensive travel and inconvenience to Mr. McAdam and his family, who
continued to reside in England. In addition, the Company's subsidiary
contributed an aggregate of $21,368 to retirement plans in 1994 on behalf of
Mr. McAdam.
(10) In connection with Mr. Chen's appointment as Executive Vice President and
Chief Technical Officer, the Company agreed to pay for expenses related to
the relocation of Mr. Chen and his family. The total amount paid in 1996
for relocation expenses was $33,425.
(11) In 1996, in connection with Mr. Dahan's appointment as Sr. Vice
President of Marketing, the Company made special payments on his behalf
related to the relocation of Mr. Dahan and his family. The total amount paid
was $118,562, which includes relocation expenses and a resettlement
allowance.
<TABLE>
Stock Option Grants in Last Fiscal Year
The following table provides information regarding stock options granted
in 1996 to the named executive officers.
<CAPTION>
Individual Grants
Percent of
Total
Number of Options Grant
Shares Granted to Date Fair
Underlying Employees Market Exercise Grant Date
Options in Fiscal Value Price Expiration Present Value
Name Granted(1) Year per Share per Share Date $ (2)
<S> <C> <C> <C> <C> <C> <C>
Karl C. Powell, Jr. 137,500 (3) * $ 14.00 $ 14.00 2/07/05 $ 765,387
300,000 (4) * $ 14.00 $ 14.00 2/07/05 $ 1,774,048
125,000 (5) 2.8% $ 10.50 $ 10.50 2/07/05 $ 433,005
37,500 (6) * $ 11.25 $ 11.25 7/16/06 $ 182,843
John McAdam 120,000 (3) 2.6% $ 14.00 $ 14.00 2/07/05 $ 667,974
35,000 (3) * $ 14.00 $ 14.00 7/18/05 $ 194,825
100,000 (7) 2.2% $ 10.50 $ 10.50 3/12/06 $ 385,660
20,000 (6) * $ 11.25 $ 11.25 7/16/06 $ 97,516
Robert S. Gregg 74,500 (3) 1.6% $ 14.00 $ 14.00 2/07/05 $ 414,701
15,000 (3) * $ 14.00 $ 14.00 7/18/05 $ 83,497
80,000 (7) 1.8% $ 10.50 $ 10.50 3/12/06 $ 308,528
5,000 (6) * $ 11.25 $ 11.25 7/16/06 $ 24,379
Steve S. Chen 100,000 (8) 2.2% $ 11.25 $ 9.56 7/16/06 $521,934
Andre Dahan 70,000 (8) 1.6% $ 14.63 $ 12.43 4/29/06 $475,754
* Less than 1%.
</TABLE>
(1) Under the terms of the Company's stock incentive plans, each of the
options is subject to accelerated vesting in the event of a future change in
control of the Company or the occurrence of certain events indicating an
imminent change in control of the Company. Upon such acceleration, the
optionee has the right to cause the Company to repurchase the option for a
cash amount calculated in accordance with a formula set forth in the plan.
Each of the options is subject to early termination in the event of
termination of employment. Each option terminates 12 months after termination
following death or disability and 30 days after termination for any other
reason.
(2) Although the Company believes that it is not possible to place a value on
an option, in accordance with the rules of the Securities and Exchange
Commission, the Company has used a Black-Scholes model of option valuation to
estimate grant date present value. The actual value realized, if any, may
vary significantly from the values estimated by this model. Any future
values realized will ultimately depend upon the excess of the stock price
over the exercise price on the date the option is exercised. The
assumptions used to estimate the grant date present value of this option were
volatility (50%), risk-free rate of return (6.05%), dividend yield (0) and
time of exercise (3 years).
(3) Represents options granted in 1996 in replacement of options granted
during 1995 at higher exercise prices. See "Repricing of Stock Options."
This option becomes exercisable over a three-year period with one-third of the
shares vesting on each of January 22, 1997, January 22, 1998 and January 22,
1999, subject to continued employment.
(4) Represents options granted in 1996 in replacement of options granted
during 1995 at higher exercise prices. See "Repricing of Stock Options."
This option vests to the extent of 16,667 shares on 12/31/96, 16,667 shares
on 6/30/97 and 16,666 shares on 1/2/98, subject to continued employment. The
balance of this option vests based on performance standards set by the
Compensation Committee for 1997 (125,000 shares on 2/7/98) and 1998 (125,000
shares on 2/7/99) or 2005, subject to continued employment.
(5) Represents options granted in 1996 in replacement of options granted
during 1995 at higher exercise prices. See "Repricing of Stock Options."
This option vests to the extent of 12,132 shares on 12/31/96, 88,603 shares
on 2/7/97, 12,132 shares on 6/30/97 and 12,133 shares on 1/2/98, subject to
continued employment.
(6) This option becomes exercisable in equal installments of 25% in 1997,
1998, 1999 and 2000, subject to continued employment.
(7) This option becomes exercisable for the full number of shares on
September 12, 1997, subject to continued employment.
(8) This option becomes exercisable for 24% of the total shares granted on
the first anniversary following the granting of the options and for an
additional 2% of the shares each month thereafter until fully vested.
Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table indicates (i) stock options exercised by the named
executive officers during 1996, including the value realized on the date of
exercise, (ii) the number of shares subject to exercisable (vested) and
unexercisable (unvested) stock options as of December 28, 1996, and (iii) the
value of "in-the-money" options, which represents the positive spread between
the exercise price of existing stock options and the year-end price of the
Common Stock.
<TABLE>
<CAPTION>
Number of Value of
Shares Subject Unexercised
to Unexercised In-the-Money
Number of Options Options
Shares at Fiscal Year End at Fiscal Year End
Acquired Value (Exercisable/ (Exercisable/
Name on Exercise Realized(1) Unexercisable)(2) (Unexercisable)
<S> <C> <C> <C> <C>
Karl C. Powell, Jr.(3) 0 _ 242,324 (exercisable) $ 1,781,213 (exercisable)
912,753 (unexercisable) $ 5,035,961 (unexercisable)
John McAdam 0 _ 19,000 (exercisable) $ 75,125 (exercisable)
325,000 (unexercisable) $ 1,842,875 (unexercisable)
Robert S. Gregg 0 _ 50,000 (exercisable) $ 231,250 (exercisable)
188,000 (unexercisable) $ 1,112,925 (unexercisable)
Steve S. Chen 0 _ 0 (exercisable) $ 0 (exercisable)
100,000 (unexercisable) $ 869,000 (unexercisable)
Andre Dahan 0 _ 0 (exercisable) $ 0 (exercisable)
70,000 (unexercisable) $ 407,400 (unexercisable)
</TABLE>
(1) Aggregate market value of the shares covered by the option, less the
aggregate price paid by the executive.
(2) Calculated based on the stock price on December 27, 1996.
(3) Excludes 17,368 exercisable option shares ($95,670 value) and 42,247
unexercisable option shares ($263,288 value) held for the benefit of Mr.
Powell's former wife.
Repricing of Stock Options
As discussed in the Compensation Committee Report on Executive
Compensation, in January 1996 the Company offered all employees who
participated in the Company's stock incentive plans an opportunity to
surrender unexercised stock options granted prior to January 1996 with an
exercise price of more than $14.00 in exchange for new options for an equal
number of shares with an exercise price equal to the then current fair market
value of $14.00 per share. The new options retained the same expiration date
as the options surrendered and were subject to a new three-year vesting
schedule, with no credit given for vesting under the original grant. The
following table sets forth the repricing of options held by all current or
former executive officers during the last ten completed fiscal years.
<TABLE>
<CAPTION>
Length of Original
No. of Shares Market Price Exercise Option Term
Underlying of Stock at Price at New Remaining at Date
Date of Options Time of Time of Exercise of Repricing
Name and Position Repricing Repriced (1) Repricings($) Repricings($) Price($) (in years)
<S> <C> <C> <C> <C> <C> <C>
Executive Officers
Karl C. Powell, Jr. 10/3/90 17,500 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Chairman of the 7/23/91 17,500 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
Board and Chief 7/23/91 652 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
Executive Officer 1/22/96 437,500 $ 14.00 $ 16.63 $ 14.00 9 Yrs. 16 Day
3/12/96 125,000 $ 10.50 $ 16.63 $ 10.50 8 Yrs. 332 Days
John McAdam 10/3/90 6,000 $ 16.00 $ 14.56 $ 14.25 8 Yrs. 348 Days
President, Chief 10/3/90 1,200 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Operating Officer 7/23/91 6,000 $ 9.00 $ 14.25 $ 8.75 8 Yrs. 62 Days
and Director 7/23/91 1,200 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
7/23/91 238 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
1/22/96 120,000 $ 14.00 $ 16.63 $ 14.00 9 Yrs. 16 Days
1/22/96 35,000 $ 14.00 $ 19.75 $ 14.00 9 Yrs. 177 Days
Robert S. Gregg 10/3/90 6,500 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Sr. Vice President of 7/23/91 6,500 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
Finance & Legal and 7/23/91 426 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
Chief Financial Officer 1/22/96 74,500 $ 14.00 $ 16.63 $ 14.00 9 Yrs. 16 Days
1/22/96 15,000 $ 14.00 $ 19.75 $ 14.00 9 Yrs. 177 Days
Steve S. Chen 0 _ _ _ _ _
Executive Vice President
of Product Group,
Chief Technical
Officer and Director
Andre Dahan 0 _ _ _ _ _
Sr. Vice President,
Worldwide Field
Operations and
Marketing
Former Executive Officers
Roger A. Cooper 10/3/90 6,000 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Former Sr. Vice 7/23/91 6,000 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
President, 7/23/91 490 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
Worldwide Field
Operations
Lary L. Evans 10/3/90 5,000 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Former Vice 7/23/91 5,000 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
President 7/23/91 398 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
and General
Manager,
Sequent Products
Group
C. Scott Gibson 10/3/90 17,500 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Former President 7/23/91 17,500 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
and Chief 7/23/91 652 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
Operating Officer
Paul J. O'Mara 10/3/90 2,000 $ 16.00 $ 26.99 $ 14.25 9 Yrs. 284 Days
Former Vice 7/23/91 2,000 $ 9.00 $ 14.25 $ 8.75 8 Yrs. 356 Days
President 7/23/91 246 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
and General Manager,
Enterprise
Division
Waldo J. Richards 7/23/91 50,000 $ 9.00 $ 10.47 $ 8.75 8 Yrs. 2 Days
Former Sr. Vice 10/3/90 8,000 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
President, 7/23/91 8,000 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
Internal 7/23/91 522 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
Operations
Michael D. Simon 10/3/90 8,000 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Former Sr. Vice 7/23/91 8,000 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
President, Corporate 7/23/91 494 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
Development
and Secretary
Robert M. Tanner 10/3/90 8,000 $ 16.00 $ 27.75 $ 14.25 9 Yrs. 294 Days
Former Sr. Vice 7/23/91 8,000 $ 9.00 $ 14.25 $ 8.75 9 Yrs. 0 Days
President, 7/23/91 400 $ 9.00 $ 15.00 $ 8.75 9 Yrs. 203 Days
Worldwide Field
Operations
Neal M. Waddington 10/3/90 40,000 $ 16.00 $ 22.53 $ 14.25 9 Yrs. 218 Days
Former Vice
President, Marketing
</TABLE>
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three outside directors and, pursuant to authority delegated by
the Board, determines the compensation to be paid to the Chief Executive
Officer and each of the other executive officers of the Company. The
Committee also is responsible for developing and making recommendations to
the Board with respect to the Company's executive compensation policies.
The Company's objectives for executive compensation are to (i) attract and
retain key executives important to the long term success of the Company; (ii)
reward executives for performance and enhancement of shareholder value; and
(iii) align the interests of the executive officer with the success of the
Company by basing a portion of the compensation upon corporate performance.
Executive Officer Compensation Program. The Company's executive officer
compensation program is comprised of base salary, quarterly and annual cash
incentive compensation, and long term incentive compensation in the form of
stock options.
Base salary levels for the Company's executive officers are set relative
to companies of similar size in the electronics industry and other comparable
companies. There are 54 companies in the comparative group, 6 of which are
included in the S&P Computer Systems Index referred to in the table on page 14
of this proxy statement. The companies included in the comparative group sell
electronic hardware and software and are believed to be companies that the
Company competes with in attracting and retaining executives. Of the 54
companies included in the comparative group, 31 companies have revenues under
$500 million and 23 companies have revenues over $500 million. Base salaries
for executive officers of the Company are generally in the 50 to 75
percentile of the range of salaries of the comparable companies in the
surveys considered by the Committee. In determining salaries, the Company
also takes into account individual experience, job responsibility and
individual performance. The Committee does not assign a specific weight to
each of these factors in establishing base salaries.
The Company's Management Incentive Plan is an annual incentive program for
executive officers and key managers based on quarterly and annual performance
of the Company and individual contributions. The purpose of the plan is to
provide a direct financial incentive in the form of quarterly and annual cash
bonuses to executives to achieve predetermined levels of Company performance.
Company performance measures and participant target bonus amounts are set at
the beginning of each fiscal year. The performance measures for 1996 and
relative importance in calculating the bonus amount were: revenues (80%) and
economic value added (20%). The bonus amount based on Company performance is
multiplied by an individual performance multiplier (which can range from .75
to 1.25) reflecting the participant's performance for the year. Target
bonuses for each executive officer were set by the Committee in relation to
base salary and level of responsibility within the Company and are generally
in the 50 to 75 percentile of the range of cash bonuses of the comparable
companies in the survey considered by the Committee. The Company's
performance in 1996 resulted in bonus amounts equal to 43% of the target
bonus amounts, prior to adjustment to reflect individual performance.
The Company's stock option program is intended as a long term incentive
plan for executives, managers and other employees broadly within the Company.
The objectives of the program are to align employee and shareholder long term
interests by creating a strong and direct link between compensation and
shareholder value. The Company's stock incentive plans authorize the Committee
to award stock options to executive officers and other employees of the
Company. Stock options for new employees (including new officers) are granted
at an option price equal to 85 percent of fair market value of the Company's
Common Stock on the date of grant. Options are granted to new officers at a
discount from market as an additional incentive for new officers to join the
Company. In most cases new officers will forfeit significant stock options or
other benefits from a prior employer. Options granted to existing officers
and employees are granted at fair market value of the Common Stock on the
date of grant. Initial stock options become exercisable to the extent of 24
percent of the shares one year after the date of grant and to the extent of 2
percent of the shares each month thereafter. Additional grants to existing
officers and employees are generally made annually. Stock options have
10-year terms and generally terminate in the event of termination of
employment. The amount of stock option grants for an individual is at the
discretion of the Committee and depends upon the level of responsibility and
position in the Company.
In January 1996 the Committee approved the offering to all employees
(including executive officers) holding stock options the opportunity to
surrender unexercised stock options granted prior to January 1996 with an
exercise price of more than $14 in exchange for new options for an equal number
of shares with an exercise price equal to the then current fair market value of
$14 per share. The Committee concluded that, with the decline in the market
price of the stock, the options no longer provided a significant incentive to
management and other employees and that the options were no longer serving the
purposes intended. The Company was in the critical stage of its product
development relating to its new NUMA-Q product line and the Committee concluded
that the Company was at risk of losing key management and other employees.
The new options retained the same expiration dates as the options surrendered
and generally have a new three-year vesting schedule, with no credit given for
vesting under the original grants.
During the last fiscal year the Company formed a subsidiary, DP
Applications Inc. ("DP") and transferred to DP the Company's assets relating to
a specific application software business. The Committee approved the sale of
restricted stock of DP to three executive officers of the Company, including
the Chief Executive Officer. Each executive officer purchased 100,000
shares of Common Stock at $.15 per share, which was the same price used by DP
in granting options to its key employees. The restricted stock vests over
approximately four years, subject to continued employment of the executive
officers by Sequent. The Committee approved the sale of the stock as part of
the overall compensation packages for these executive officers and to provide
an additional incentive for these executives to use their efforts to increase\
the value of the DP business to the benefit of Sequent, the largest
shareholder of DP.
Section 162(m) of the Internal Revenue Code of 1986, as adopted in 1993,
limits to $1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers in any year
after 1993. The levels of salary and bonus generally paid by the Company do not
exceed this limit. Under IRS regulations, the $1,000,000 cap on deductibility
will not apply to compensation received through the exercise of a nonqualified
stock option that meets certain requirements. This option exercise compensation
is equal to the excess of the market price at the time of exercise over the
option price and, unless limited by Section 162(m), is generally deductible by
the Company. It is the Company's current policy generally to grant options that
meet the requirements of the regulations.
Chief Executive Officer Compensation. The Committee determined the Chief
Executive Officer's compensation for 1996 based upon a number of factors and
criteria. The Chief Executive Officer's base salary was determined based upon a
review of the salaries of chief executive officers for similar companies of
comparable size and complexity and upon a review by the Committee of the Chief
Executive Officer's performance and is not based on the Company's performance.
The Chief Executive Officer's 1996 salary and target bonus amounts were set at
approximately the median for salaries and bonuses for chief executive officers
of the companies in the comparative group. The Chief Executive Officer received
a bonus for 1996 based on Company performance as measured under the Company's
1996 Management Incentive Plan described above and his individual performance.
During 1996 the Chief Executive Officer was granted options to purchase
37,500 shares of Common Stock as a part of the Company's annual option grant
program. The Committee also granted options to purchase 437,500 shares at
$14.00 per share in substitution for options for the same number of shares
previously granted at higher prices. The Committee also granted options to
purchase 125,000 shares at $10.50 per share in substitution for options for
the same number of shares previously granted at higher prices. The exercise
prices for the new options were equal to fair market value at the time of the
regrants. The Committee accelerated the vesting schedules on 86,397 option
shares so that the options become exercisable in installments ending in
January 1998. The Committee concluded that the original vesting schedule and
the option exercise prices in relation to the market price of the stock were
not serving the purposes intended by the options. The options were regranted
and the vesting schedule was changed to provide significant ongoing
incentives for Mr. Powell to remain with the Company and to further align his
long-term interests with shareholder interests. The number of shares granted
in 1996 was based on a subjective determination of the number of shares
needed in 1996 as part of this long-term program.
David R. Hathaway
Robert C. Mathis
Michael S. Scott Morton
Comparison of Five Year Cumulative Total Return
The following graph provides a comparison of the five year cumulative
total shareholder return on (i) the Company's Common Stock, (ii) the S&P 500
Index and (iii) the S&P Computer Systems Index, in each case assuming the
reinvestment of any dividends.
1991 1992 1993 1994 1995 1996
S&P COMPUTER
SYSTEMS INDEX $100 $ 73.41 $ 76.19 $ 98.40 $130.94 $175.33
S&P 500 INDEX $100 $107.62 $118.46 $120.03 $165.13 $203.05
SEQUENT COMPUTER
SYSTEMS, INC. $100 $151.82 $110.91 $143.64 $105.45 $129.09
The graph assumes that $100 was invested on December 29, 1991 in Company Common
Stock, the S&P 500 Index and the S&P Computer Systems Index, and that all
dividends were reinvested.
CERTAIN TRANSACTIONS
During 1996 Sequent leased an airplane (the "Airplane") from a corporation
owned by Karl C. Powell, Jr. The Airplane is leased by Sequent pursuant to a
three-year lease ending on September 30, 1999 and providing for monthly
airplane lease fees of $50,000. Under the lease, Sequent is responsible for
all maintenance expenses, storage expenses and insurance premiums relating to
the Airplane. The terms of this lease including the monthly fees, are
believed to be more favorable to Sequent than the rates that would be charged
by an unrelated lessor to lease a comparable airplane, and, based on
Sequent's usage of the Airplane, are also less than the amounts Sequent would
pay to lease a comparable airplane on an hourly basis. When the Airplane is
not being used by Sequent, Sequent is permitted to sublease it. During the
last fiscal year, Sequent paid $1,079,164 in lease fees, insurance premiums,
hangar fees, maintenance expenses and reserves related to the Airplane.
In 1996 Sequent paid $450,000 to American International Motorsports to
sponsor a race car in professional competitions in connection with the
promotion, marketing and advertising of Sequent's products. For the 1997
racing season Sequent replaced this arrangement with a similar arrangement
with Jim Epler Racing, Inc. ("Epler") and will pay $450,000 to Epler.
Beginning in late January 1997, the race car has been driven in professional
competitions by Karl C. Powell, Jr.'s daughter, Cristen Powell. Ms. Powell
is paid $60,000 a year for driving the Epler race car in professional
competitions.
During the last fiscal year the Company formed a subsidiary, DP
Applications, Inc. ("DP"), and transferred to DP the Company's assets relating
to a specific application software business. The primary purpose of creating a
separate subsidiary was to attract outside capital and have the subsidiary
valued independently as a separate business entity. Robert W. Wilmot, a
director of the Company, loaned $1,000,000 to DP to provide operating capital
in exchange for a 10% Convertible Note and warrants to purchase preferred
stock of DP. The convertible notes and warrants entitle Dr. Wilmot to
acquire 887,096 shares of preferred stock, representing approximately 16% of
the equity of DP on a fully diluted basis. The terms of Dr. Wilmot's
investment in DP were approved by the Board of Directors of Sequent and the
terms are the same as those negotiated by another investor who is not
affiliated with Sequent.
PROPOSAL TO APPROVE
THE 1997 STOCK OPTION PLAN
As described under "Executive Compensation" the Company maintains stock
option plans for the benefit of executive officers and other employees. The
Board of Directors believes that the availability of stock incentives is an
important factor in the Company's ability to attract and retain experienced and
competent executive officers and to provide an incentive for them to exert
their best efforts on behalf of the Company. As of March 1, 1997, only
793,227 shares remained available for grant to executive officers under the
Company's existing plans. The Board of Directors believes that additional
shares are needed to provide option grants to executive officers during the
next one to two years. In addition, additional shares are needed for the
automatic annual stock option grants to non-employee directors. Accordingly,
the Board of Directors adopted and approved the 1997 Stock Option Plan (the
"Plan"), subject to shareholder approval, and reserved 750,000 shares for the
Plan.
Certain provisions of the Plan are described below. The complete text of
the Plan is attached to this proxy statement as Appendix A.
Description of the 1997 Option Plan
Eligibility. All executive officers of the Company and its subsidiaries
are eligible to participate in the Plan. Non-employee directors performing
consulting services to the Company are also eligible to participate.
Administration. The Board of Directors has delegated to the Compensation
Committee of the Board authority to administer the Plan. The Compensation
Committee will determine the executive officers to whom options grants are made
under the Plan and the terms of such grants and may promulgate rules and
regulations for the operation of the Plan. Only the Board of Directors may
amend, modify or terminate the Plan.
Term of Plan. The Plan will continue until all shares available for
issuance under the Plan have been issued. The Board of Directors may suspend
or terminate the Plan at any time.
Stock Options. The Compensation Committee will determine the executive
officers to whom options are granted, the option price, the number of shares to
be covered by each option, the period of each option and the times at which
options may be exercised and whether the option is an incentive stock option
("ISO") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") or a non-statutory option that does not so qualify
("NSO"). If the option is an ISO, the option price cannot be less than the
fair market value of the Common Stock on the date of grant and the option may
not be granted on or after the tenth anniversary of the effective date of the
Plan. If an optionee of an ISO at the time of grant owns stock possessing
more than 10% of the combined voting power of the Company, the option price
may not be less than 110% of the fair market value of the Common Stock on the
date of grant. If the option is an NSO, the option price cannot be less than
85% of the fair market value of the Common Stock on the date of the grant.
The Plan provides that no employee may be granted options under the Plan for
more than an aggregate of 300,000 shares in any calendar year. In addition,
the Plan limits the amount of ISOs that may become vested under the Plan in
any year to $100,000 per optionee (based on the exercise price of the stock).
No monetary consideration is paid to the Company upon the granting of
options. On March 19, 1997, the closing price of the Common Stock of the
Company on the NASDAQ National Market System was $15.63 per share.
Options granted under the Plan generally continue in effect for the period
fixed by the Board of Directors or committee, except that ISOs are not
exercisable after the expiration of 10 years from the date of grant, or 5 years
in the case of optionees who at the time of the grant own stock possessing more
than 10% of the combined voting power of the Company. Options are exercisable
in accordance with the terms of an option agreement entered into at the time of
grant and are nontransferable except on death of a holder. Options may be
exercised only while an optionee is employed by the Company or a subsidiary or
within 12 months following termination of employment by reason of death or
disability or 30 days following termination for any other reason. The Plan
provides that the Board of Directors may extend the exercise period for any
period up to the expiration date of the option and may increase the number of
shares for which the option may be exercised up to the total number underlying
the option. The purchase price for each share purchased pursuant to exercise
of options must be paid in cash, including cash which may be the proceeds of a
loan from the Company or shares of Common Stock valued at fair market value,
or in other forms of consideration, as determined by the Board of Directors.
Upon the exercise of an option, the number of shares subject to the option
and the number of shares available under the Plan for future option grants
are reduced by the number of shares with respect to which the option is
exercised, less any shares surrendered in payment or withheld to satisfy
withholding obligations.
Stock Option Grants to Non-employee Directors. Under the Plan, each
person who becomes a non-employee director will automatically be granted an
initial option to purchase 10,000 shares. Each non-employee director
automatically receives additional annual grants of options to purchase 5,000
shares, provided the non-employee director continues to serve in that
capacity. Each non-employee director also receives an annual option grant of
2,000 shares for each committee on which he or she serves. Options granted
to non-employee directors generally are governed by the terms discussed
above, except that the options have an exercise price equal to 85% of fair
market value and have a term of 10 years. Non-employee directors are also
eligible for discretionary option grants in connection with performing
services to the Company.
Foreign Qualified Grants. Options may be granted to executive officers
residing in foreign jurisdictions. The Board of Directors may adopt such
supplements to the Plan as may be necessary to comply with the applicable laws
of such foreign jurisdictions and to afford participants favorable treatment
under such laws except that no options shall be granted under any such
supplement with terms which are more beneficial to the participants than the
terms permitted by the Plan.
Changes in Capital Structure. The Plan provides that if the outstanding
Common Stock of the Company is increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any recapitalization, stock
split or certain other transactions, appropriate adjustment will be made by
the Board of Directors in the number and kind of shares available for awards
under the Plan. In addition, the Board of Directors will make appropriate
adjustments in outstanding options. If the stockholders of the Company
receive capital stock of another corporation ("Exchange Stock") in exchange
for their shares of Common Stock in any transaction involving a merger,
consolidation or plan of exchange, all options granted hereunder shall be
converted into fully vested options to purchase shares of Exchange Stock
based on the exchange rate applied to Common Stock in the transaction. In
the event of dissolution of the Company or a merger, consolidation or plan of
exchange affecting the Company, in lieu of the foregoing treatment for
options, the Board of Directors may, in its sole discretion, provide a 30-day
period prior to such event during which optionees shall have the right to
exercise options in whole or in part without any limitation on exercisability
and upon the expiration of which 30-day period all unexercised options shall
immediately terminate.
Acceleration in Certain Events. The Plan provides for accelerated vesting
of options granted under the Plan in the event of a future change in control of
the Company or the occurrence of certain events indicating an imminent change
in control of the Company as specified in the Plan. The special acceleration
provision may, in certain circumstances, have the effect of discouraging
attempts to take over the Company.
Federal Income Tax Consequences
Certain options authorized to be granted under the Plan will be treated as
NSOs for federal income tax purposes. Under federal income tax law presently
in effect, no income is realized by the grantee of an NSO pursuant to the Plan
until the option is exercised. At the time of exercise of an NSO, the optionee
will realize ordinary compensation income, and the Company will generally be
entitled to a deduction, in the amount by which the market value of the shares
subject to the option at the time of exercise exceeds the exercise price. The
Company's deduction is conditioned upon withholding on the income amount. Upon
the sale of shares acquired upon exercise of an NSO, the excess of the amount
realized from the sale over the employee's tax basis in the shares will be
taxable.
Certain options authorized to be granted under the Plan are intended to
qualify as ISOs for federal income tax purposes. Under federal income tax law
currently in effect, the optionee will recognize no income, and the Company
will be entitled to no deduction, upon grant or upon a proper exercise of the
ISO. The excess of the fair market value of the shares on the exercise date
over the exercise price will, however, be taken into account in calculating
the employee's alternative minimum taxable income. If any employee exercises
an ISO and does not dispose of any of the option shares within two years
following the date of grant and within one year following the date of
exercise, then any gain realized upon subsequent disposition of the shares
will be treated as income from the sale or exchange of a capital asset. If
an employee disposes of shares acquired upon exercise of an ISO before the
expiration of either the one-year holding period or the two-year waiting
period, any amount realized will be taxable as ordinary compensation income
in the year of such disqualifying disposition to the extent of the lesser of
the excess of the fair market value of the shares on the exercise date over
the exercise price or the excess of the fair market value of the shares on
the date of disposition over the employee's tax basis in the shares. If the
employee disposes of the shares in a transaction in which loss would not be
recognized, the amount realized will be taxable as ordinary compensation
income to the extent that the fair market value of the shares on the exercise
date exceeds the exercise price. The Company will not be allowed any
deduction for federal income tax purposes at either time of the grant or
exercise of an ISO. Upon any disqualifying disposition by an employee, the
Company will generally be entitled to a deduction to the extent the employee
realized ordinary income.
Section 162(m) of the Internal Revenue Code of 1986, as adopted in 1993,
limits to $1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers in any year
after 1993. Compensation received through the exercise of an option will not
be subject to the $1,000,000 limit if the option and the plan meet certain
requirements. One such requirement is that the shareholders approve per-
employee limits on the number of shares as to which options may be granted.
Other requirements are that the option be granted by a committee composed
solely of at least two outside directors and that the exercise price of the
option be not less than fair market value of the Common Stock on the date of
grant. Accordingly, the Company believes that compensation received on
exercise of options granted under the Plan in compliance with all of the
above requirements will not be subject to the $1,000,000 deduction limit.
Grants Under 1997 Option Plan
Under the provisions of the Plan providing for automatic option grants to
non-employee directors, at the 1997 Annual Meeting the non-employee directors
would receive options to purchase shares in the following amounts (based upon
current board committee memberships):
Dr. Mathis - 11,000 shares
Mr. Palermo - 7,000 shares
Dr. Scott Morton - 9,000 shares
Dr. Wilmot - 9,000 shares
Recommendation by the Board of Directors
The Board of Directors recommends that the Plan be approved. The proposal
must be approved by the holders of at least a majority of the outstanding
shares of Common Stock present, or represented by proxy, and entitled to vote
on the matter at the annual meeting. Abstentions have the effect of "no"
votes in determining whether the Plan is approved. Broker non-votes are
counted for the purposes of determining whether a quorum exists at the annual
meeting but are not counted and have no effect on the results of the vote.
The proxies will be voted for or against the proposal, or as an abstention,
in accordance with the instructions specified on the proxy form. If no
instructions are given, proxies will be voted for approval of the Plan.
PROPOSAL TO AMEND
THE EMPLOYEE STOCK PURCHASE PLAN
A total of 5,550,000 shares of Common Stock have been reserved for the
Employee Stock Purchase Plan (the "Purchase Plan"). As of March 1, 1997, only
1,273,710 shares remained available for purchase under the Purchase Plan. The
Board of Directors believes that it is desirable for the Company to continue to
provide the opportunity for employees to acquire Common Stock through the
Purchase Plan. Accordingly, subject to shareholder approval, the Board of
Directors has adopted an amendment to the Purchase Plan reserving an additional
1,400,000 shares for issuance under the Purchase Plan. The following is a
summary of the basic provisions of the Purchase Plan, a complete copy of which,
marked to indicate the proposed change, is attached to this Proxy Statement as
Appendix B.
Description of the Purchase Plan
The purpose of the Purchase Plan is to provide a convenient and practical
means by which employees may participate in stock ownership of the Company. The
Board of Directors believes that the opportunity to acquire a proprietary
interest in the success of the Company through the acquisition of shares of
Common Stock pursuant to the Purchase Plan is an important aspect of the
Company's ability to attract and retain highly qualified and motivated
employees.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code of 1986,
as amended (the "Code"). The Purchase Plan is administered by the Board of
Directors. The Board has the power to make and interpret all rules and
regulations it deems necessary to administer the Purchase Plan and has broad
authority to amend the Purchase Plan, subject to certain amendments requiring
shareholder approval.
All regular status employees of the Company and its subsidiaries,
including the Company's officers, are eligible to participate in the Purchase
Plan. Eligible employees may elect to contribute from 2% to 10% of their cash
compensation during each pay period. Each participant may enroll in an 18-month
offering in which shares of Common Stock are purchased on the last day of each
six-month period of an offering. A separate offering commences on March 1, June
1, September 1 and December 1 of each year (the "Enrollment Dates"). The
purchase price per share is equal to 85% of the lower of (a) the fair market
value of the Common Stock on the Enrollment Date of the Offering or (b) the
fair market value on the date of purchase.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the purchase of shares under the Purchase Plan may be
assigned, transferred, pledged or otherwise disposed of in any way by the
participant. Upon termination of a participant's employment for any reason
other than death, retirement or disability of the participant, the payroll
deductions credited to the participant's account will be returned to the
participant. Upon termination of the participant's employment because of
death, retirement or disability, the payroll deductions credited to the
participant's account will be used to purchase shares on the next purchase
date. Any remaining balance will be returned to the participant or his or her
beneficiary. As of March 1, 1997, there were 2,623 employees of the Company
eligible to participate in the Purchase Plan and 1,908 employees participating.
Federal Income Tax Consequences
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code. Under the Code, no
taxable income is recognized by the participant with respect to shares
purchased under the Purchase Plan either at the time of enrollment or at any
purchase date within an Offering.
If the participant disposes of shares purchased pursuant to the Purchase
Plan more than two years from the Enrollment Date and more than one year from
the date on which the shares were purchased, the participant will recognize
ordinary income equal to the lesser of (i) the excess of the fair market value
of the shares at the time of disposition over the purchase price, or (ii) 15%
of the fair market value of the shares on the Enrollment Date. Any gain on the
disposition in excess of the amount treated as ordinary income will be capital
gain. The Company is not entitled to take a deduction for the amount of the
discount in the circumstances indicated above.
If the participant disposes of shares purchased pursuant to the Purchase
Plan within two years after the Enrollment Date or within one year after the
Purchase Date, the employee will recognize ordinary income on the excess of the
fair market value of the stock on the purchase date over the purchase price.
Any difference between the sale price of the shares and the fair market value
on the purchase date will be capital gain or loss. The Company is entitled to
a deduction from income equal to the amount the employee is required to
report as ordinary compensation income.
The federal income tax rules relating to employee stock purchase plans
qualifying under Section 423 of the Code are complex. Therefore, the foregoing
outline is intended to summarize only certain major federal income tax rules
concerning employee stock purchase plans.
Purchases Under the Purchase Plan
The following table indicates shares purchased under the Purchase Plan
during the last fiscal year and since the inception of the plan in 1987 by the
named executive officers, by all executive officers as a group and by all
employees (excluding executive officers) as a group:
Shares Purchased Shares Purchased
in 1996 since 1987
Name Dollar Number Dollar Number
and Position Value(1) of Shares Value(1) of Shares
Karl C. Powell, Jr. $ 3,672 2,173 $ 192,848 24,340
John McAdam $ 3,282 1,942 $ 95,850 15,335
Robert S. Gregg $ 2,854 1,689 $ 124,268 17,139
Steve S. Chen $ 0 0 $ 0 0
Andre Dahan $ 0 0 $ 0 0
All Executive
Officers (5 persons) $ 9,808 5,804 $ 412,966 56,814
All employees,
excluding executive
officers $ 1,690,591 677,060 $ 21,910,707 3,819,184
(1) "Dollar Value" equals the difference between the price paid for shares
purchased under the Purchase Plan and the fair market value of the shares on
the purchase date.
Recommendation by the Board of Directors
The Board of Directors recommends that the amendment to the Purchase Plan
be approved. The proposal must be approved by the holders of at least a
majority of the shares of Common Stock present or represented by proxy and
entitled to vote at the annual meeting. Abstentions have the effect of "no"
votes in determining whether the amendment to the Purchase Plan is approved.
Broker non-votes are counted for purposes of determining whether a quorum
exists at the annual meeting but are not counted and have no effect on the
results of the vote. The proxies will be voted for or against the proposal,
or an abstention, in accordance with the instructions specified on the proxy
form. If no instructions are given, proxies will be voted for approval of the
amendment to the Purchase Plan.
APPROVAL OF SELECTION OF AUDITORS
The Board of Directors has selected Price Waterhouse LLP as the Company's
independent auditors for the current fiscal year and is submitting the
selection to the shareholders for approval. Price Waterhouse LLP has audited
the financial statements of the Company since incorporation. Proxies will be
voted in accordance with the instructions specified in the proxy form. If no
instructions are given, proxies will be voted for approval of the selection
of Price Waterhouse LLP as independent auditors. Representatives of Price
Waterhouse LLP are expected to be present at the annual meeting, will have
the opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than ten
percent of the Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and beneficial owners of more than ten percent of the
Common Stock are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of such forms received by the Company and on written representations
from certain reporting persons that they have complied with the relevant
filing requirements, the Company believes that all Section 16(a) filing
requirements applicable to its executive officers and directors were complied
with during the last fiscal year ending on December 28, 1996.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders provides for
transaction of such other business as may properly come before the meeting,
the Board of Directors has no knowledge of any matters to be presented at the
meeting other than those referred to herein. However, the enclosed proxy gives
discretionary authority in the event that any other matters should be
presented.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be considered for inclusion in proxy material for
the Company's 1998 annual meeting must be received at the principal executive
offices of the Company not later than December 6, 1997.
By Order of the Board of Directors
/c/ KARL C. POWELL, JR.
Karl C. Powell, Jr.
Chairman of the Board
and Chief Executive Officer
March 27, 1997
APPENDIX A
SEQUENT COMPUTER SYSTEMS, INC.
1997 STOCK OPTION PLAN
1. Purpose. The purpose of this Stock Option Plan (the "Plan") is to
enable Sequent Computer Systems, Inc. (the "Company") to attract and retain the
services of executive officers and directors of the Company or of any
subsidiary of the Company.
2. Shares Subject to the Plan. Subject to adjustment as provided
below and in paragraph 9, the shares to be offered under the Plan shall consist
of Common Stock of the Company, and the total number of shares of Common Stock
that may be issued under the Plan shall not exceed 750,000 shares plus any
shares that become available for grant under the Plan through the expiration,
termination or cancellation of option grants under the Plan. The shares issued
under the Plan may be authorized and unissued shares or reacquired shares. If
an option granted under the Plan expires, terminates or is canceled, the
unissued shares subject to such option shall again be available under the Plan.
3. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective as of
March 11, 1997 (the "Effective Date"). No option granted under the Plan
shall become exercisable, however, until the Plan is approved by the
affirmative vote of the holders of a majority of the shares of Common
Stock represented at a shareholders meeting at which a quorum is present
and any such grant under the Plan prior to such approval shall be
conditioned on and subject to such approval. Subject to this limitation,
options may be granted under the Plan at any time after the Effective Date
and before termination of the Plan.
(b) Duration. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued. The Board of
Directors may suspend or terminate the Plan at any time except with
respect to options then outstanding under the Plan. Termination shall not
affect any outstanding options under the Plan.
4. Administration.
(a) Board of Directors. The Plan shall be administered by the
Board of Directors of the Company, which shall determine and designate
from time to time the executive officers and directors to whom option
grants shall be made, the amount of the grants and the other terms and
conditions of the awards. Subject to the provisions of the Plan, the
Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, advance the lapse of
any waiting period, accelerate any exercise date, waive or modify any
restriction applicable to shares (except those restrictions imposed by
law) and make all other determinations in the judgment of the Board of
Directors necessary or desirable for the administration of the Plan. The
interpretation and construction of the provisions of the Plan and related
agreements by the Board of Directors shall be final and conclusive. The
Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related agreement in the
manner and to the extent it shall deem expedient to carry the Plan into
effect, and it shall be the sole and final judge of such expediency.
(b) Committee. The Board of Directors may delegate to a committee
of the Board of Directors (the "Committee") any or all authority for
administration of the Plan. If authority is delegated to a Committee, all
references to the Board of Directors in the Plan shall mean and relate to
the Committee except (i) as otherwise provided by the Board of Directors
and (ii) that only the Board of Directors may amend or terminate the Plan
as provided in paragraphs 3 and 12.
5. Types of Awards; Eligibility; Limitations on Certain Awards. The
Board of Directors may, from time to time, take the following action,
separately or in combination, under the Plan: (i) grant Incentive Stock
Options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as provided in paragraphs 6(a) and 6(b); (ii) grant
options other than Incentive Stock Options ("Non-Statutory Stock Options") as
provided in paragraphs 6(a) and 6(c); and (iii) grant foreign qualified
awards as provided in paragraph 7. Option grants may be made to executive
officers of the Company and to non-employee directors providing consulting
services to the Company selected by the Board of Directors. The Board of
Directors shall select the executive officers and directors to whom grants
shall be made and shall specify the action taken with respect to each
individual to whom a grant is made. The Board of Directors shall determine
which employees or officers are executive officers for purposes of the Plan.
At the discretion of the Board of Directors, an individual may be
given an election to surrender an award in exchange for the grant of a new
award. No employee may be granted options under the Plan for more than an
aggregate of 300,000 shares of Common Stock in any calendar year.
6. Option Grants.
(a) General Rules Relating to Options.
(i) Terms of Grant. With respect to each option grant, the
Board of Directors shall determine the number of shares subject to
the option, the option price, the period of the option, the time or
times at which the option may be exercised and whether the option is
an Incentive Stock Option or a Nonstatutory Stock Option.
(ii) Exercise of Options. Except as provided in paragraph
6(a)(iv) or as determined by the Board of Directors, no option
granted under the Plan may be exercised unless at the time of such
exercise the optionee is employed by or performing services for the
Company or any subsidiary of the Company and shall have been so
employed continuously since the date such option was granted.
Absence on leave or on account of illness or disability under rules
established by the Board of Directors shall not, however, be deemed
an interruption of employment or service for this purpose. Unless
otherwise determined by the Board of Directors, vesting of options
shall not continue during an absence on leave (including an extended
illness) or on account of disability. Except as provided in
paragraphs 6(a)(iv), 9 and 10, options granted under the Plan may be
exercised from time to time over the period stated in each option in
such amounts and at such times as shall be prescribed by the Board
of Directors, provided that options shall not be exercised for
fractional shares. Unless otherwise determined by the Board of
Directors, if the optionee does not exercise an option in any one
year with respect to the full number of shares to which the optionee
is entitled in that year, the optionee's rights shall be cumulative
and the optionee may purchase those shares in any subsequent year
during the term of the option.
(iii) Nontransferability. Each Incentive Stock Option and,
unless otherwise determined by the Board of Directors, each other
option granted under the Plan by its terms shall be nonassignable
and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and
distribution of the state or country of the optionees domicile at
the time of death, and each option by its terms shall be exercisable
during the optionees lifetime only by the optionee.
(iv) Termination of Employment or Service.
(A) General Rule. Unless otherwise determined by the
Board of Directors, in the event the employment or service of
the optionee with the Company or a subsidiary terminates for
any reason other than because of physical disability or death
as provided in subparagraphs 6(a)(iv)(B) and (C), the option
may be exercised at any time prior to the expiration date of
the option or the expiration of 30 days after the date of such
termination, whichever is the shorter period, but only if and
to the extent the optionee was entitled to exercise the option
at the date of such termination.
(B) Termination Because of Total Disability. Unless
otherwise determined by the Board of Directors, in the event
of the termination of employment or service because of total
disability, the option may be exercised at any time prior to
the expiration date of the option or the expiration of
12 months after the date of such termination, whichever is the
shorter period, but only if and to the extent the optionee was
entitled to exercise the option at the date of such
termination. The term "total disability" means a mental or
physical impairment which is expected to result in death or
which has lasted or is expected to last for a continuous
period of 12 months or more and which causes the optionee to
be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties as an employee,
director, officer or consultant of the Company and to be
engaged in any substantial gainful activity. Total disability
shall be deemed to have occurred on the first day after the
Company and the two independent physicians have furnished
their opinion of total disability to the Company.
(C) Termination Because of Death. Unless otherwise
determined by the Board of Directors, in the event of the
death of an optionee while employed by or providing service to
the Company or a subsidiary, the option may be exercised at
any time prior to the expiration date of the option or the
expiration of 12 months after the date of such death,
whichever is the shorter period, but only if and to the extent
the optionee was entitled to exercise the option at the date
of such termination and only by the person or persons to whom
such optionees rights under the option shall pass by the
optionee's will or by the laws of descent and distribution of
the state or country of domicile at the time of death.
(D) Amendment of Exercise Period Applicable to
Termination. The Board of Directors, at the time of grant or
at any time thereafter, may extend the 30-day and 12-month
exercise periods any length of time not later than the
original expiration date of the option, and may increase the
portion of an option that is exercisable, subject to such
terms and conditions as the Board of Directors may determine.
(E) Failure to Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose
employment or service terminates is not exercised within the
applicable period, all further rights to purchase shares
pursuant to such option shall cease and terminate.
(v) Purchase of Shares. Unless the Board of Directors
determines otherwise, shares may be acquired pursuant to an option
granted under the Plan only upon receipt by the Company of notice in
writing from the optionee of the optionee's intention to exercise,
specifying the number of shares as to which the optionee desires to
exercise the option and the date on which the optionee desires to
complete the transaction, and if required in order to comply with
the Securities Act of 1933, as amended, containing a representation
that it is the optionee's present intention to acquire the shares
for investment and not with a view to distribution. Unless the
Board of Directors determines otherwise, on or before the date
specified for completion of the purchase of shares pursuant to an
option, the optionee must have paid the Company the full purchase
price of such shares in cash (including, with the consent of the
Board of Directors, cash that may be the proceeds of a loan from the
Company) or, with the consent of the Board of Directors, in whole or
in part, in Common Stock of the Company valued at fair market value.
The fair market value of Common Stock provided in payment of the
purchase price shall be the closing price of the Common Stock as
reported in The Wall Street Journal on the trading day preceding the
date the option is exercised, or such other reported value of the
Common Stock as shall be specified by the Board of Directors. No
shares shall be issued until full payment therefor has been made.
With the consent of the Board of Directors, an optionee may request
the Company to apply automatically the shares to be received upon
the exercise of a portion of a stock option (even though stock
certificates have not yet been issued) to satisfy the purchase price
for additional portions of the option. Each optionee who has
exercised an option shall immediately upon notification of the
amount due, if any, pay to the Company in cash amounts necessary to
satisfy any applicable federal, state and local tax withholding
requirements. If additional withholding is or becomes required
beyond any amount deposited before delivery of the certificates, the
optionee shall pay such amount to the Company on demand. If the
optionee fails to pay the amount demanded, the Company may withhold
that amount from other amounts payable by the Company to the
optionee, including salary, subject to applicable law. With the
consent of the Board of Directors an optionee may satisfy this
obligation, in whole or in part, by having the Company withhold from
the shares to be issued upon the exercise that number of shares that
would satisfy the withholding amount due or by delivering to the
Company Common Stock to satisfy the withholding amount. Upon the
exercise of an option, the number of shares reserved for issuance
under the Plan shall be reduced by the number of shares issued upon
exercise of the option, less the number of shares surrendered in
payment of the option exercise or surrendered or withheld to satisfy
withholding obligations.
(b) Incentive Stock Options. Incentive Stock Options shall be
subject to the following additional terms and conditions:
(i) Limitation on Amount of Grants. Incentive Stock Options
may be granted only to employees of the Company or its subsidiaries.
No employee may be granted Incentive Stock Options under the Plan if
the aggregate fair market value, on the date of grant, of the Common
Stock with respect to which Incentive Stock Options are exercisable
for the first time by that employee during any calendar year under
the Plan and under any other incentive stock option plan (within the
meaning of Section 422 of the Code) of the Company or any parent or
subsidiary of the Company exceeds $100,000.
(ii) Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee
possessing more than 10 percent of the total combined voting power
of all classes of stock of the Company or of any parent or sub-
sidiary of the Company only if the option price is at least 110
percent of the fair market value of the Common Stock subject to the
option on the date it is granted, as described in paragraph
6(b)(iv), and the option by its terms is not exercisable after the
expiration of five years from the date it is granted.
(iii) Duration of Options. Subject to paragraphs 6(a)(ii)
and 6(b)(ii), Incentive Stock Options granted under the Plan shall
continue in effect for the period fixed by the Board of Directors,
except that no Incentive Stock Option shall be exercisable after the
expiration of 10 years from the date it is granted.
(iv) Option Price. The option price per share shall be
determined by the Board of Directors at the time of grant. Except
as provided in paragraph 6(b)(ii), the option price shall not be
less than 100 percent of the fair market value of the Common Stock
covered by the Incentive Stock Option at the date the option is
granted. The fair market value shall be deemed to be the closing
price of the Common Stock as reported in The Wall Street Journal on
the day preceding the date the option is granted, or if there has
been no sale on that date, on the last preceding date on which a
sale occurred, or such other value of the Common Stock as shall be
specified by the Board of Directors.
(v) Limitation on Time of Grant. No Incentive Stock Option
shall be granted on or after the tenth anniversary of the effective
date of the Plan.
(vi) Conversion of Incentive Stock Options. The Board of
Directors may at any time without the consent of the optionee
convert an Incentive Stock Option to a Non-Statutory Stock Option.
(vii) Limitation on Number of Shares Issuable Under Incentive
Stock Options. Subject to adjustment as provided in paragraph 9,
the total number of shares of Common Stock that may be issued under
the Plan upon exercise of Incentive Stock Options shall not exceed
750,000 shares.
(c) Non-Statutory Stock Options. Non-Statutory Stock Options shall
be subject to the following additional terms and conditions:
(i) Option Price. The option price for Non-Statutory Stock
Options shall be determined by the Board of Directors at the time of
grant. The option price may not be less than 85 percent of the fair
market value of the shares on the date of grant. The fair market
value of shares covered by a Non-Statutory Stock Option shall be
determined pursuant to paragraph 6(b)(iv).
(ii) Duration of Options. Non-Statutory Stock Options
granted under the Plan shall continue in effect for the period fixed
by the Board of Directors.
7. Foreign Qualified Grants. Options may be granted under the Plan to
such executive officers of the Company and its subsidiaries residing in foreign
jurisdictions as the Board of Directors may determine from time to time. The
Board of Directors may adopt such supplements to the Plan as may be necessary
to comply with the applicable laws of such foreign jurisdictions and to afford
participants favorable treatment under such laws; provided, however, that no
award shall be granted under any such supplement with terms which are more
beneficial to the participants than the terms permitted by the Plan.
8. Automatic Option Grants to Non-Employee Directors.
(a) Initial Board Grants. Each person who becomes a Non-Employee
Director after the Effective Date shall be automatically granted an option
to purchase 10,000 shares of Common Stock on the date he or she becomes a
Non-Employee Director. A "Non-Employee Director" is a director who is not
an employee of the Company or any of its subsidiaries.
(b) Additional Board Grants. Each Non-Employee Director shall be
automatically granted an option to purchase additional shares of Common
Stock in each calendar year subsequent to the year in which such Non-
Employee Director became a director, such option to be granted as of the
date of the Company's annual meeting of stockholders held in such calendar
year, provided that the Non-Employee Director continues to serve in such
capacity as of such date. The number of shares subject to each additional
grant shall be 5,000 shares.
(c) Committee Grants. On the date of each annual meeting of
shareholders, each Non-Employee Director who then serves on a committee of
the Board of Directors shall be automatically granted an option to
purchase 2,000 shares of Common Stock for each committee on which he or
she then serves.
(d) Exercise Price. The exercise price of the options granted
pursuant to this paragraph 8 shall be equal to 85 percent of the fair
market value of the Common Stock determined pursuant to paragraph
6(b)(iv).
(e) Term of Option. The term of each option granted pursuant to
this paragraph 8 shall be 10 years from the date of grant.
(f) Exercisability. Until an option expires or is terminated and
except as provided in paragraph 8(g), 9 and 10, an option granted under
this paragraph 8 shall be exercisable according to the following schedule:
Period of Non-Employee Director's
Continuous Service as a Director of the
Company from the Date the Option is Granted Portion of Total Option
Which is Exercisable
Less than 12 months 0%
After 12 months 24% plus 2% for each complete
month of continuous service in
excess of 12 months, until fully
vested.
For purposes of this paragraph 8(f), a complete month shall be
deemed to be the period which starts on the day of grant and ends on the
same day of the following calendar month, so that each successive
"complete month" ends on the same day of each successive calendar month
(or, in respect of any calendar month which does not include such a day,
that "complete month" shall end on the first day of the next following
calendar month).
(g) Termination As a Director. Unless otherwise determined by the
Board of Directors, if an optionee ceases to be a director of the Company
for any reason, including death, the option may be exercised at any time
prior to the expiration date of the option or the expiration of 30 days
(or 12 months in the event of death) after the last day the optionee
served as a director, whichever is the shorter period, but only if and to
the extent the optionee was entitled to exercise the option as of the last
day the optionee served as a director.
(h) Nontransferability. Unless otherwise determined by the Board
of Directors, each option by its terms shall be nonassignable and
nontransferable by the optionee, either voluntarily or by operation of
law, except by will or by the laws of descent and distribution of the
state or country of the optionee's domicile at the time of death, and each
option by its terms shall be exercisable during the optionee's lifetime
only by the optionee.
(i) Exercise of Options. Options may be exercised upon payment of
cash or shares of Common Stock of the Company in accordance with paragraph
6(a)(v).
9. Changes in Capital Structure. If the outstanding Common Stock of
the Company is hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
or of another corporation by reason of any reorganization, merger,
consolidation, plan of exchange, recapitalization, reclassification, stock
splitup, combination of shares or dividend payable in shares, appropriate
adjustment shall be made by the Board of Directors in the number and kind of
shares available for awards under the Plan. In addition, the Board of
Directors shall make appropriate adjustment in the number and kind of shares
as to which outstanding options, or portions thereof then unexercised, shall
be exercisable, so that the optionee's proportionate interest before and
after the occurrence of the event is maintained. Notwithstanding the
foregoing, the Board of Directors shall have no obligation to effect any
adjustment that would or might result in the issuance of fractional shares,
and any fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board of Directors. Any such
adjustments made by the Board of Directors shall be conclusive. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger, consolidation or plan of exchange, all
options granted hereunder shall be converted into options to purchase shares of
Exchange Stock unless the Company and the corporation issuing the Exchange
Stock, in their sole discretion, determine that any or all such options granted
hereunder shall not be converted into options to purchase shares of Exchange
Stock but instead shall terminate in accordance with the provisions of the last
sentence of this paragraph 9. The amount and price of converted options shall
be determined by adjusting the amount and price of the options granted
hereunder in the same proportion as used for determining the number of shares
of Exchange Stock the holders of the Common Stock receive in such merger.
The converted options shall be fully vested whether or not the vesting
requirements set forth in the option agreement have been satisfied. In the
event of dissolution of the Company or a merger, consolidation or plan of
exchange affecting the Company in lieu of providing for options as provided
above in this paragraph 9 the Board of Directors may, in its sole discretion,
provide a 30-day period prior to such event during which optionees shall have t
he right to exercise options in whole or in part without any limitation on
exercisability and upon the expiration of such 30-day period, all unexercised
options shall immediately terminate.
10. Special Acceleration in Certain Events.
(a) Special Acceleration. Notwithstanding any other provisions of
the Plan, a special acceleration ("Special Acceleration") of options
outstanding under the Plan shall occur with the effect set forth in
paragraph 10(b) at any time when any one of the following events has taken
place:
(i) The shareholders of the Company approve one of the
following ("Approved Transactions"):
(A) Any consolidation, merger or plan of exchange
involving the Company ("Merger") pursuant to which Common
Stock would be converted into cash; or
(B) Any sale, lease, exchange, or other transfer (in
one transaction or a series of related transactions) of all or
substantially all of the assets of the Company or the adoption
of any plan or proposal for the liquidation or dissolution of
the Company; or
(ii) A tender or exchange offer, other than one made by the
Company, is made for Common Stock (or securities convertible into
Common Stock) and such offer results in a portion of those
securities being purchased and the offeror after the consummation of
the offer is the beneficial owner (as determined pursuant to Section
13(d) of the Exchange Act), directly or indirectly, of at least 20
percent of the outstanding Common Stock (an "Offer"); or
(iii) The Company receives a report on Schedule 13D of the
Exchange Act reporting the beneficial ownership by any person of 20
percent or more of the Company's outstanding Common Stock, except
that if such receipt shall occur during a tender offer or exchange
offer by any person other than the Company or a wholly owned
subsidiary of the Company, Special Acceleration shall not take place
until the conclusion of such offer; or
(iv) During any period of 12 months or less, individuals who
at the beginning of such period constituted a majority of the Board
of Directors cease for any reason to constitute a majority thereof
unless the nomination or election of such new directors was approved
by a vote of at least two thirds of the directors then still in
office who were directors at the beginning of such period.
The terms used in this paragraph 10 and not defined elsewhere in the Plan
shall have the same meanings as such terms have in the Exchange Act and the
rules and regulations adopted thereunder.
(b) Effect on Outstanding Options and Stock Appreciation Rights.
Upon a Special Acceleration pursuant to paragraph 10(a), all options then
outstanding under the Plan shall immediately become exercisable in full
for the remainder of their terms or until terminated pursuant to
paragraph 9.
11. Corporate Mergers, Acquisitions, etc. The Board of Directors may
also grant options under the Plan having terms, conditions and provisions that
vary from those specified in this Plan provided that any such options are
granted in substitution for, or in connection with the assumption of, existing
options, awarded or issued by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of
property or stock, reorganization or liquidation to which the Company or a
subsidiary is a party.
12. Amendment of Plan. The Board of Directors may at any time, and
from time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6, 9 and 10, however, no change
in an award already granted shall be made without the written consent of the
holder of such award.
13. Approvals. The obligations of the Company under the Plan are
subject to the approval of state and federal authorities or agencies with
jurisdiction in the matter. The Company will use its best efforts to take
steps required by state or federal law or applicable regulations, including
rules and regulations of the Securities and Exchange Commission and any stock
exchange on which the Company's shares may then be listed, in connection with
the grants under the Plan. The foregoing notwithstanding, the Company shall
not be obligated to issue or deliver Common Stock under the Plan if such
issuance or delivery would violate applicable state or federal securities laws.
14. Employment and Service Rights. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in
any way with the right of the Company or any subsidiary by whom such employee
is employed to terminate such employee's employment at any time, for any
reason, with or without cause, or to decrease such employee's compensation or
benefits, or (ii) confer upon any person engaged by the Company any right to
be retained or employed by the Company or to the continuation, extension,
renewal, or modification of any compensation, contract, or arrangement with
or by the Company.
15. Rights as a Shareholder. The recipient of any award under the
Plan shall have no rights as a shareholder with respect to any Common Stock
until the date of issue to the recipient of a stock certificate for such
shares. Except as otherwise expressly provided in the Plan, no adjustment
shall be made for dividends or other rights for which the record date occurs
prior to the date such stock certificate is issued.
APPENDIX B
SEQUENT COMPUTER SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
The purpose of the Sequent Computer Systems, Inc. Employee Stock Purchase
Plan (the "Plan") is to provide a convenient and practical means through which
employees of Sequent Computer Systems, Inc. (the "Company") may participate in
stock ownership of the Company. The Company believes the Plan will be to the
mutual benefit of the employees and the Company by creating a greater community
of interest between the Company's stockholders and its employees and by
permitting the Company to compete with other companies in obtaining and
retaining the services of competent employees. The Company intends that the
Plan shall constitute an "employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code of 1986. Further, the Company
intends that the Plan shall satisfy the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934.
ARTICLE II
DEFINITIONS
The following terms, when capitalized, shall have the meanings specified
below unless the context clearly indicates to the contrary.
2.1 Account shall mean each separate account maintained for a
Participant under the Plan, collectively or singly as the context requires.
Each Account shall be credited with a Participant's contributions, and shall be
charged for the purchase of Shares. A Participant shall be fully vested in the
cash contributions to his or her Account at all times. The Plan Administrator
may create special types of accounts for administrative reasons, even though
the Accounts are not expressly authorized by the Plan.
2.2 Beneficiary shall mean a person or entity entitled under Section
7.2 to receive shares purchased by, and any remaining balance in, a
Participant's Account on the Participant's death.
2.3 Board of Directors shall mean the Board of Directors of the
Company.
2.4 Code shall mean the Internal Revenue Code of 1986, as amended
from time to time.
2.5 Committee shall mean the Committee appointed by the Board of
Directors in accordance with Section 8.1 of the Plan.
2.6 Compensation shall mean the total cash compensation (except as
otherwise set forth below) paid to an Employee in the period in question for
services rendered to the Employer by the Employee while a Participant.
Compensation shall include the earnings waived by an Employee pursuant to a
salary reduction arrangement under any cash or deferred or cafeteria plan that
is maintained by the Employer and that is intended to be qualified under
Section 401(k) or 125 of the Code. An Employee's Compensation shall not include:
(a) severance pay;
(b) hiring or relocation bonuses;
(c) pay in lieu of vacations or sick leave.
2.7 Common Stock shall mean the common stock, par value $.01 per
share, of the Company.
2.8 Company shall mean Sequent Computer Systems, Inc., an Oregon
corporation.
2.9 Custodian shall mean the investment or financial firm appointed by
the Plan Administrator to hold all Shares issued pursuant to the Plan.
2.10 Custodian Account shall mean the account maintained by the
Custodian for a Participant under the Plan.
2.11 Disability shall refer to a mental or physical impairment which
is expected to result in death or which has lasted or is expected to last for a
continuous period of twelve (12) months or more and which causes the Employee
to be unable, in the opinion of the Company and two independent physicians, to
perform his or her duties as an Employee of the Company. Disability shall be
deemed to have occurred on the first day after the Company and two independent
physicians have furnished their opinion of Disability to the Plan Administrator.
2.12 Employee shall mean an individual who renders services to his or
her Employer pursuant to a regular-status Employment relationship with such
Employer. A person rendering services to an Employer purportedly as an
independent consultant or contractor shall not be an Employee for purposes of
the Plan.
2.13 Employer shall mean, collectively, the Company and any
Subsidiary, or any successor entity that continues the Plan, or all such
entities collectively. All Employees of entities which constitute the Employer
shall be treated as employed by a single company for all Plan purposes; except
that:
(a) No person shall become a Participant except while employed
by an entity which is an Employer;
(b) A Participant shall cease to be a Participant if he or she
transfers to an entity which is not an Employer and ceases to be employed
by an Employer;
(c) An Employer shall cease to be an Employer for purposes of
the Plan, and a Participant who is an Employee of such an Employer shall
cease to be a Participant, upon the happening of any event or the
consummation of any transaction which causes such Employer to cease being
an Employer, as defined above; and
(d) Amounts paid by entities other than the Employer shall be
ignored in determining Compensation under the Plan.
In contexts in which actions are required or permitted to be taken or
notices to be given, the Employer shall mean the Company or any successor
corporation.
2.14 Employment shall mean the period during which an individual is an
Employee. Employment shall commence on the day the individual first performs
services for the Employer as an Employee and shall terminate on the day such
services cease, except as determined under Article XI.
2.15 Enrollment Date shall mean the first day of each Offering.
2.16 ESPP New Account Form shall mean the form provided by the Company
on which a Participant shall elect to open an account with the Custodian and
authorize the delivery to the Custodian of all Shares issued for the
Participant's Account.
2.17 Offering shall mean any one of the separate overlapping 18-month
periods commencing on March 1, June 1, September 1, and December 1 of each
calendar year under the Plan; provided, however, that the first Offering shall
commence on the date set by the Plan Administrator as the Enrollment Date for
the first Offering and shall continue for 18 months thereafter.
2.18 Participant shall mean any Employee who is participating in any
Offering under the Plan pursuant to Article III.
2.19 Payroll Deduction Authorization Form shall mean the form provided
by the Company on which a Participant shall elect to participate in the Plan
and designate the percentage of his or her Compensation to be contributed to
his or her Account through payroll deductions.
2.20 Plan shall mean this document.
2.21 Plan Administrator shall mean the Board of Directors or the
Committee, whichever shall be administering the Plan from time to time in the
discretion of the Board of Directors, as described in Article IX.
2.22 Purchase Date shall mean the last day of each of the sixth,
twelfth and eighteenth months of the Offering.
2.23 Retirement shall mean a Participant's termination of Employment
on or after attaining the age of 65 or after the Plan Administrator has
determined that he or she has suffered a Disability.
2.24 Share shall mean one share of Common Stock.
2.25 Subsidiary shall mean any corporation, association or other
business entity at least fifty percent (50%) or more of the total combined
voting power of all classes of stock of which is owned or controlled directly
or indirectly by the Company or one or more of such Subsidiaries or both.
2.26 Valuation Date shall mean the date upon which the fair market
value of Shares is to be determined for purposes of setting the price of Shares
under Section 6.2 (that is, the Enrollment Date or the applicable Purchase
Date). If the Enrollment Date is not a date on which the fair market value may
be determined in accordance with Section 6.3, the Valuation Date shall be the
first day after the Enrollment Date for which such fair market value may be
determined. If the Purchase Date is not a date on which the fair market value
may be determined in accordance with Section 6.3, the Valuation Date shall be
the first date prior to the Purchase Date on which such fair market value may
be determined.
2.27 Vested shall mean non-forfeitable.
ARTICLE III
EMPLOYEE PARTICIPATION
3.1 Participation. Subject to the provisions of this Article III, an
Employee may elect to participate in the Plan effective as of any Enrollment
Date, by completing and filing a Payroll Deduction Authorization Form as
provided in Section 4.1. As of each Enrollment Date, the Company hereby grants
a right to purchase Shares under the terms of the Plan to each eligible
Employee who has elected to participate in the Offering commencing on that
Enrollment Date.
3.2 Requirements for Participation.
(a) A person shall become eligible to participate in the Plan on
the first Enrollment Date on which he or she first meets all of the
following requirements; provided, however, that no one shall become
eligible to participate in the Plan prior to the Enrollment Date of the
first Offering provided for in Section 2.17:
(i) The person is an Employee of the Employer;
(ii) The person's customary period of Employment is for more
than twenty (20) hours per week;
(iii) The person's customary period of Employment is for more
than five (5) months in any calendar year.
(b) Employees who are also directors or officers of the Company
may participate only in accordance with Rule 16b-3 under the Securities
Exchange Act of 1934, as in effect from time to time.
(c) Any eligible Employee may enroll or re-enroll in the Plan as
of the Enrollment Date of any Offering by filing timely written notice
of such participation, subject to the following provisions:
(i) In order to enroll in the Plan initially, an eligible
Employee must complete, sign and submit to the Company the following
forms:
(A) Payroll Deduction Authorization Form. Any Payroll
Deduction Authorization Form received by the Company no later than
5:00 p.m. on the Enrollment Date of the Offering will be effective
on that Enrollment Date.
(B) ESPP New Account Form. The ESPP New Account Form must
accompany the Payroll Deduction Authorization Form submitted for
enrollment in the Plan. Any ESPP New Account Form received by the
Company no later than 5:00 p.m. on the Enrollment Date of the
Offering will be effective on that Enrollment Date.
(ii) A Participant may re-enroll in the Plan as of any
Enrollment Date by the submission of a new Payroll Deduction
Authorization Form and, if applicable, an ESPP New Account Form
required to open a Custodian Account. If a Participant is
participating in an Offering at the time of re-enrollment, such re-
enrollment shall constitute withdrawal, effective as of such
Enrollment Date, from the ongoing Offering and simultaneous enrollment
in the new Offering commencing on the Enrollment Date. If the
Enrollment Date coincides with a Purchase Date of an ongoing Offering,
the funds that have been credited to the Participant's Account as of
such Purchase Date may at the Participant's election either be applied
to the purchase of Shares under the ongoing Offering from which the
Participant is withdrawing, or returned to the Participant if the
Participant has given 15 days' notice to the Company in accordance
with Section 7.4. If the Enrollment Date does not coincide with a
Purchase Date under the ongoing Offering, all funds credited to the
Participant's Account as of the Enrollment Date will be returned to
the Participant in accordance with Section 7.4.
(iii) Absent withdrawal from the Plan pursuant to Section
7.4, a Participant will automatically be re-enrolled in the Plan on
the next Enrollment Date immediately following the expiration of the
Offering of which he or she is then a Participant.
(d) An Employee may participate in only one Offering at any one
time.
(e) A Participant shall become ineligible to participate in the
Plan and shall cease to be a Participant when any of the following occurs:
(i) The entity of which the Participant is an Employee ceases
to be an Employer as defined in Section 2.13.
(ii) The Participant ceases to meet the eligibility
requirements of Section 3.2(a).
3.3 Limitations on Participation.
(a) No Employee may obtain a right to purchase Shares under the
Plan if, immediately after the right is granted, the Employee owns or is
deemed to own Shares possessing five percent (5%) or more of the combined
voting power or value of all classes of stock of the Company or any parent
or Subsidiary of the Company. For purposes of determining share ownership,
the rules of Section 425(d) of the Code shall apply and Shares that the
Employee may purchase under any options or rights to purchase, whether or
not Vested, shall be treated as Shares owned by the Employee.
(b) No Employee may obtain a right to purchase Shares under the
Plan that permits the Employee's rights to purchase Shares under the Plan
and any other employee stock purchase plan of the Company or any parent or
Subsidiary of the Company to accrue at a rate which exceeds $25,000 in
fair market value of Shares (determined as of the Enrollment Date ) for
each calendar year of the Offering. This section shall be interpreted to
permit an Employee to purchase the maximum number of Shares permitted
under Section 423(b)(8) of the Code and regulations and interpretations
adopted thereunder.
(c) The maximum number of Shares that an Employee may purchase in
an Offering shall not exceed 10,000 Shares, no more than one-third of
which may be purchased on any Purchase Date with respect to that Offering.
3.4 Termination of Participation. Unless Section 7.2 applies, a
Participant whose participation is terminated in accordance with Section 3.2(e)
shall have the rights provided in Section 7.1.
3.5 Voluntary Participation. Participation in the Plan shall be
voluntary.
ARTICLE IV
PAYROLL DEDUCTIONS
4.1 Payroll Deduction Authorization. An Employee may contribute to the
Plan only by means of payroll deductions. A Payroll Deduction Authorization
Form must be filed with the Company's stock administration department no
later than 5:00 p.m. on the Enrollment Date as of which the payroll
deductions are to take effect; provided, however, that a Payroll Deduction
Authorization Form that effects a withdrawal and simultaneous re-enrollment
may be filed at any time on or before the Enrollment date.
4.2 Amount of Deductions. A Participant may specify that he or she
desires to make contributions to the Plan at a rate not less than two percent
(2%) and not more than ten percent (10%) of the Participant's Compensation
during each pay period in the Offering, or such other minimum or maximum
percentages as the Plan Administrator shall establish from time to time. Such
specification shall apply during any period of continuous participation in the
Plan, unless modified or terminated as provided in Section 4.5 or as otherwise
provided in the Plan. If a payroll deduction cannot be made in whole or in part
because the Participant's pay for the period in question is insufficient to
fund the deduction after having first withheld all other amounts deductible
from his or her pay, the amount that was not withheld cannot be made up by the
Participant nor will it be withheld from subsequent pay checks.
4.3 Commencement of Deductions. Payroll deductions for a Participant
shall commence on the Enrollment Date of the Offering for which his or her
Payroll Deduction Authorization Form is effective and shall continue
indefinily, unless modified or terminated as provided in Section 4.5 or as
otherwise provided in the Plan.
4.4 Accounts. All payroll deductions made for a Participant shall be
credited to his or her Account under the Plan. Following each Purchase Date,
the Plan Administrator shall promptly deliver a report to each Participant
setting forth the aggregate payroll deductions credited to such Participant's
Account during the preceding six months and the number of Shares purchased
and delivered to the Custodian for deposit into the Participant's Custodian
Account.
4.5 Modification of Authorized Deductions.
(a) A Participant may,
(i) prior to the commencement of each Offering in which he or
she will be a Participant, and
(ii) on not more than one occasion during each such Offering,
increase or reduce the amount of his or her payroll deduction
effective for all subsequent payroll periods, by completing an amended
Payroll Deduction Authorization Form and filing it with the Company's
stock administration department in accordance with Section 4.1;
provided, however, that no modification in a Participant's payroll
deduction shall cause such Participant's contribution to be less than
two percent (2%) or more than ten percent (10%) of such Participant's
Compensation during any pay period.
(b) A Participant may at any time discontinue his or her payroll
deductions, without withdrawing from the Plan, by completing an amended
Payroll Deduction Authorization Form and filing it with the Company's
stock administration department. Previous payroll deductions will then be
retained in the Participant's Account for application to purchase Shares
on the next Purchase Date, after which the Participant's participation in
the Offering will terminate.
(c) For purposes of this Section 4.5, an amended Payroll
Deduction Authorization Form shall be effective for a specific pay period
when filed 15 days prior to the last day of such period.
ARTICLE V
CUSTODY OF SHARES
5.1 Delivery and Custody of Shares. Shares purchased pursuant to the
Plan shall be delivered to and held by the Custodian.
5.2 Custodian Account. As soon as practicable after each Purchase
Date, the Company shall deliver to the Custodian the full Shares purchased for
each Participant's Account. The Shares will be held a Custodian Account
specifically established for this purpose. An Employee must open a Custodian
Account with the Custodian in order to be eligible to purchase Shares under the
Plan. In order to open a Custodian Account, the Participant must complete an
ESPP New Account Form and submit it with the enrolling individual's stock
administration office no later than the Enrollment Date of the Offering as of
which the enrollment is to take effect; provided, however, that an ESPP New
Account Form that effects a change in the status of the Custodian Account may
be filed at any time during participation in the Plan.
5.3 Transfer of Shares. Upon receipt of appropriate instructions from
a Participant on forms provided for that purpose, the Custodian will transfer
into the Participant's own name all or part of the Shares held in the
Participant's Custodian Account and deliver such shares to the Participant.
5.4 Statements. The Custodian will deliver to each Participant a
quarterly statement showing the activity of the Participant's Custodian Account
and the balance as to both Shares and cash. Participants will be furnished such
other reports and statements, and at such intervals, as the Custodian and Plan
Administrator shall determine from time to time.
ARTICLE VI
PURCHASE OF SHARES
6.1 Purchase of Shares. Subject to the limitations of Article VII, on
each Purchase Date in an Offering, the Company Shall apply the amount credited
to each Participant's Account to the purchase of as many full Shares that may
be purchased with such amount at the price set forth in Section 6.2, and shall
promptly deliver such Shares to the Custodian for deposit into the
Participant's Custodian Account. Payment for Shares purchased under the Plan
will be made only through payroll withholding in accordance with Article IV.
6.2 Price. The price of Shares to be purchased under Section 6.1 on
any Purchase Date shall be the lower of:
(a) Eighty-five percent (85%) of the fair market value of the
Shares on the Enrollment Date of the Offering; or
(b) Eighty-five percent (85%) of the fair market value of the
Shares on the Purchase Date.
6.3 Fair Market Value.
(a) The fair market value of the Shares on any date shall be
equal to the closing price of such Shares on the Valuation Date, as
reported on the NASDAQ National Market System or such other quotation
system that supersedes it.
(b) If (a) is not applicable, the fair market value of the Shares
shall be determined by the Plan Administrator in good faith. Such
determination shall be conclusive and binding on all persons.
6.4 Unused Contributions. Any amount credited to a Participant's
Account and remaining herein immediately after a Purchase Date because it was
less than the amount required to purchase a full Share shall be carried forward
in such Participant's Account for application on the next succeeding Purchase
Date.
ARTICLE VII
TERMINATION AND WITHDRAWAL
7.1 Termination of Employment. Upon termination of a Participant's
Employment for any reason other than as set forth in Section 7.2, the payroll
deductions credited to such Participant's Account shall be returned to the
Participant. A Participant shall have no right to acquire Shares upon
termination of his or her Employment.
7.2 Termination upon Death, Retirement or Disability. Upon termination
of the Participant's Employment because of his or her Death, Retirement or
Disability, the payroll deductions credited to his or her Account shall be used
to purchase Shares as provided in Article VI on the next Purchase Date. Any
remaining balance in the Participant's Account shall be returned to him or her
or, in the case of death, any Shares purchased and any remaining balance shall
be transferred to the deceased Participant's Beneficiary, or if none, to his or
her estate.
7.3 Designation of Beneficiary. Each Participant may designate, revoke
and redesignate Beneficiaries. This action shall be taken in writing on a form
provided by the Plan Administrator and shall be effective upon delivery to the
Plan Administrator.
7.4 Withdrawal. A Participant may withdraw the entire amount credited
to his or her Account under the Plan and thereby terminate participation in the
current Offering at any time by giving written notice to the Company, but in no
case may a Participant withdraw amounts within the 15 days immediately
preceding a Purchase Date for that Offering. A withdrawal under Section
3.2(c)(ii) not involving a return of funds does not require such 15-day
notice to the Company. Any amount withdrawn shall be paid to the Participant
promptly after receipt of proper notice of withdrawal and no further payroll
deductions shall be made from his or her Compensation unless a Payroll
Deduction Authorization Form directing further deductions is or has been
submitted.
7.5 Status of Custodian Account.
(a) Upon the termination of a Participant's Employment as set
forth in Section 7.1, the Participant may,
(i) elect to retain with the Custodian the Shares held in the
Participant's Custodian Account. The Participant will bear the cost of
any annual fees resulting from maintaining such account.
(ii) request issuance of the Shares held in the Participant's
Custodian Account by submitting to the Custodian the appropriate forms
provided for that purpose.
(b) Upon the termination of a Participant's Employment as set
forth in Section 7.2, any shares held by the Custodian for the
Participant's Account shall be transferred to the persons entitled thereto
under the laws of the state of domicile of the Participant upon a proper
showing of authority.
ARTICLE VIII
SHARES PURCHASED UNDER THE PLAN
8.1 Source and Limitation of Shares.
(a) The Company has reserved for sale under the Plan [5,550,000]
6,950,000 shares of its Common Stock, subject to adjustment upon changes
in capitalization of the Company as provided in Section 10.2. Shares sold
under the Plan may be newly issued shares or shares reacquired in private
transactions or open market purchases, but all Shares sold under the Plan
regardless of source shall be counted against the [5,550,000] 6,950,000
Share limitation.
(b) If there is an insufficient number of Shares to permit the
full exercise of all existing rights to purchase Shares, or if the legal
obligations of the Company prohibit the issuance of all Shares purchasable
upon the full exercise of such rights, the Plan Administration shall make
a pro rata allocation of the Shares remaining available in as nearly a
uniform and equitable manner as possible, based pro rata on the aggregate
amounts then credited to each Participant's Account. In such event,
payroll deductions to be made shall be reduced accordingly and the Plan
Administrator shall give written notice of such reduction to each
Participant affected thereby. Any amount remaining in a Participant's
Account immediately after all available Shares have been purchased will be
promptly remitted to such Participant. Determination by the Plan
Administrator in the regard shall be final, binding and conclusive on all
persons. No deductions shall be permitted under the Plan at any time when
no Shares are available.
8.2 Delivery of Shares. As promptly as practicable after each Purchase
Date, the Company shall deliver to the Custodian the full Shares purchased for
each Participant's Account.
8.3 Interest in Shares. The rights to purchase Shares granted pursuant
to this Plan will in all respects be subject to the terms and conditions of the
Plan, as interpreted by the Plan Administrator from time to time. The
Participant shall have no interest in Shares purchasable under the Plan until
payment for the shares has been completed at the close of business on the
relevant Purchase Date. The Plan provides only an unfunded, unsecured promise
by the Employer to pay money or property in the future. Except with respect
to the Shares purchased on a Purchase Date, an Employee choosing to
participate in the Plan shall have no greater rights than an unsecured
creditor of the Company. After the purchase of the Shares, the Participant
shall be entitled to all rights of a stockholder of the Company.
ARTICLE IX
ADMINISTRATION
9.1 Plan Administrator. At the discretion of the Board of Directors,
the Plan shall be administered by the Board of Directors or by a Committee
appointed by the Board of Directors in accordance with Rule 16b-3 under the
Securities Exchange Act of 1934, as in effect from time to time. Each member of
the Committee shall be either a director, an officer or an Employee of the
Company. Each member shall serve for a term commencing on a date specified by
the Board of Directors and continuing until he or she dies, resigns or is
removed from office by the Board of Directors.
9.2 Powers. The Plan Administrator shall be vested with full authority to
make, administer and interpret all rules and regulations as it deems necessary
to administer the Plan. Any determination, decision or act of the Plan
Administrator with respect to any action in connection with the construction,
interpretation, administration or application of the Plan shall be final,
conclusive and binding upon all Participants and any and all other persons
claiming under or through any Participant. The provisions of the Plan shall be
construed in a manner consistent with the requirements of Section 423 of the
Code.
ARTICLE X
CHANGES IN CAPITALIZATION, MERGER, ETC.
10.1 Rights of the Company. The grant of a right to purchase Shares
pursuant to this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassification, reorganizations or other changes
of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or transfer all or any part of its divisions, subsidiaries,
business or assets.
10.2 Recapitalization. Subject to any required action by the
stockholders, the number of Shares covered by the Plan as provided in Section
8.1 and the price per share shall be proportionately adjusted for any increase
of decrease in the number of issued Shares of the Company resulting from a
subdivision or consolidation of Shares or the payment of a stock dividend (but
only on the Shares) or any other increase or decrease in the number of such
Shares effected without receipt or payment of consideration by the Company.
10.3 Consolidation or Merger. In the event of the consolidation or
merger of the Company with or into any other business entity, or the sale by
the Company of substantially all of its assets, the successor may continue
the Plan by adopting the same by resolution of its board of directors or
agreement of its partners or proprietors. If, within 90 days after the
effective date of a consolidation, merger or sale of assets, the successor
corporation, partnership or proprietorship does not adopt the Plan, the Plan
shall be terminated in accordance with Section 13.1.
ARTICLE XI
TERMINATION OF EMPLOYMENT
11.1 Vacation, Leave or Layoff. A person's Employment shall not
terminate on account of an authorized leave of absence, sick leave or vacation,
or on account of a military leave described in Section 11.2, or a direct
transfer between Employers. Failure to return to work upon expiration of any
leave of absence, sick leave or vacation shall be considered a resignation
effective as of the expiration of such leave of absence, sick leave or vacation.
11.2 Military Leave. Any Employee who leaves the Employer directly to
perform services in the Armed Forces of the United States or in the United
States Public Health Service under conditions entitling the Employee to
reemployment rights provided by the laws of the United States, shall be on
military leave. An Employee's military leave shall expire if the Employee
voluntarily resigns from the Employer during the leave or if he or she fails to
make application for reemployment within a period specified by such law for the
preservation of employment rights. In such event, the individual's Employment
shall terminate by resignation on the day the military leave expires.
ARTICLE XII
STOCKHOLDER APPROVAL AND RULINGS
The Plan is expressly made subject (a) to the approval of the holders of a
majority of the outstanding shares of the Company within 12 months after the
date the Plan is adopted and (b) at its election, to the receipt by the Company
from the Internal Revenue Service of a ruling in scope and content satisfactory
to counsel to the Company, affirming the qualification of the Plan within the
meaning of Section 423 of the Internal Revenue Code of 1986. If the Plan is not
so approved by the stockholders within 12 months after the date the Plan is
adopted and if, at the election of the Company a ruling from the Internal
Revenue Service is sought but is not received on or before one year after this
Plan's adoption by the Board of Directors, this Plan shall not come into
effect. In that case, the Account of each Participant shall forthwith be paid
to him.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Amendment and Termination of the Plan.
(a) The Board of Directors of the Company may at any time amend
the Plan. Except as otherwise provided herein, no amendment may adversely
affect or change any right to purchase Shares previously granted to any
Participant. No amendment shall be made without prior approval of the
stockholders of the Company if the amendment would:
(i) Permit the sale of more Shares than are authorized under
Section 8.1;
(ii) Permit the sale of Shares to Employees of entities which
are not Employers as defined in Section 2.13;
(iii) Materially increase the benefits accruing to
Participants under the Plan; or
(iv) Materially modify the requirements as to eligibility for
participation in the Plan.
(b) The Plan is intended to be a permanent program, but an
Employer shall have the right at any time to declare the Plan terminated
completely as to it. Upon such termination, amounts credited to the
Accounts of Participants with respect to whom the Plan has been terminated
shall be returned to such Participants.
13.2 Non-Transferability. Neither payroll deductions credited to a
Participant's Account nor any rights with regard to the purchase of Shares
under the Plan may be assigned, transferred, pledged or otherwise disposed of
in any way by the Participant except as provided in Section 7.2, and any
attempted assignment, transfer, pledge, or other disposition shall be null
and void. The Company may treat any such act as an election to withdraw funds
in accordance with Section 7.4.
13.3 Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purposes
and the Company shall not be obligated to segregate the payroll deductions.
13.4 Expenses. All expenses of administering the Plan shall be borne
by the Company and its subsidiaries. The Company will not pay expenses,
commission or taxes incurred in connection with sales of Shares by the
Custodian at the request of a Participant. Expenses to be paid by a
Participant will be deducted from the proceeds of sale prior to remittance.
13.5 No Interest. No Participant shall be entitled, at any time, to
any payment or credit for interest with respect to or on the payroll deductions
contemplated herein, or on any other assets held hereunder for the
Participant's Account.
13.6 Registration and Qualification of Shares. The offering of Shares
hereunder shall be subject to the effecting by the Company of any registration
or qualification of the Shares under any federal or state law or the obtaining
of the consent or approval of any governmental regulatory body which the
Company shall determine, in its sole discretion, is necessary or desirable as a
condition to, or in connection with, the offering or the issue or purchase of
the Shares covered thereby. The Company shall make every reasonable effort to
effect such registration or qualification or to obtain such consent or approval.
13.7 Responsibility and Indemnity. Neither the Company, any Subsidiary
of the Company, its Board of Directors, the Custodian, nor any member, officer,
agent, or employee of any of them, shall be liable to any Participant under the
Plan for any mistake of judgment or for any omission or wrongful act unless
resulting from gross negligence, willful misconduct or intentional misfeasance.
The Company will indemnify and save harmless its Board of Directors, the
Custodian and any such member, office, agent or employee against any claim,
loss, liability or expense arising out of the Plan, except such as may result
from the gross negligence, willful misconduct or intentional misfeasance of
such entity or person.
13.8 Plan Not a Contract of Employment. The Plan is strictly a
voluntary undertaking on the part of the Employer and shall not constitute a
contract between the Employer and any Employee, or consideration for or an
inducement or a condition of the employment of an Employee. Except as otherwise
required by law, or any applicable collective bargaining agreement, nothing
contained in the Plan shall give any Employee the right to be retained in the
service of the Employer or to interfere with or restrict the right of the
Employer, which is hereby expressly reserved, to discharge or retire any
Employee at any time, with or without cause and with or without notice. Except
as otherwise required by law, inclusion under the Plan will not give any
Employee any right or claim to any benefit hereunder except to the extent such
right has specifically become fixed under the terms of the Plan. The doctrine
of substantial performance shall have no application to any Employee,
Participant, or Beneficiary. Each condition and provision, including
numerical items, has been carefully considered and constitutes the minimum
limit on performance which will give rise to the applicable right.
3.9 Service of process. The Secretary of the Company is hereby
designated agent for service or legal process on the Plan.
13.10 Notice. 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 Plan Administrator. Any notice required by the
Plan to be received by the Company prior to an Enrollment Date, payroll period
or other specified date, and received by the Plan Administrator subsequent to
such date shall be effective on the next occurring Enrollment Date, payroll
period or other specified date to which such notice applies.
13.11 Governing Law. The Plan shall be interpreted, administered and
enforced in accordance with the Code, and the rights of Participants, former
Participants, Beneficiaries and all other persons shall be determined in
accordance with it. To the extent that state law is applicable, however, the
laws of the State of Oregon shall apply.
13.12 Plurals. Where the context so indicates, the singular shall
include the plural and vice versa.
13.13 Titles. Titles of Articles and Sections are provided herein for
convenience only and are not to serve as the basis for interpretation or
construction of the Plan.
13.14 References. Unless the context clearly indicates to the contrary,
reference to a Plan provision, statute, regulation or document shall be
construed as referring to any subsequently enacted, adopted or executed
counterpart.
PROXY
Annual Meeting of Shareholders of Sequent Computer Systems, Inc. May 29, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Karl C. Powell, Jr., Henry H. Hewitt and
Robert S. Gregg, and each of them, proxies with power of substitution to vote
on behalf of the undersigned all shares which the undersigned may be entitled
to vote at the Annual Meeting of Shareholders of Sequent Computer Systems,
Inc. on May 29, 1997 and any adjournments thereof, with all powers that the
undersigned would possess if personally present, with respect to the
following:
Please mark this proxy as indicated on the reverse side to vote on any
item. If you wish to vote in accordance with the Board of Directors'
recommendations, please sign the reverse side; no boxes need to be checked.
COMMENT/ADDRESS CHANGE: PLEASE MARK
COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
Annual Meeting of Shareholders
Thursday, May 29, 1997
3:00 p.m.
Sequent Computer Systems, Inc.
15450 S.W. Koll Parkway
Beaverton, Oregon
<TABLE>
The Board of Directors recommends a vote for the
nominees and proposals listed below.
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
Item 1 - ELECTION OF DIRECTORS Item 2 - PROPOSAL TO APPROVE THE ____ ____ ____
1997 STOCK OPTION PLAN. COMPANY'S 1997 STOCK OPTION PLAN
_____ FOR all nominees listed (except
for those nominees Item 3 - PROPOSAL TO APPROVE THE AMEND- ____ ____ _____
whose names are lined MENT TO THE COMPANY'S EMPLOYEE
through below), or, if any STOCK PURCHASE PLAN.
named nominee is unable to
serve, for a substitute
nominee.
Item 4 - PROPOSAL TO RATIFY SELECTION OF ____ ____ ____
Steve S. Chen, John McAdam, Robert C. PRICE WATERHOUSE AS INDEPENDENT
Mathis, Michael S. Scott Morton, AUDITORS OF THE COMPANY.
Richard C. Palermo, Sr., Karl C.
Powell, Jr., Robert W. Wilmot
Item 5 - IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
_____ WITHHELD AUTHORITY to vote for
all nominees
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AS SPECIFIED HEREON, BUT IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES INDICATED AND FOR APPROVAL OF PROPOSAL NOS. 2, 3 AND 4.
</TABLE>
COMMENTS/ADDRESS CHANGE
_____ Please mark this box if you have
written comments/address change on the
reverse side.
Receipt is hereby acknowledged of the
Sequent Computer Systems, Inc.
Notice of Meeting and Proxy Statement.
Signature(s):
__________________________________ Date: ______________________
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by
authorized person.
FOLD AND DETACH HERE
