With Deadlines Past and Looming, Intense, Often Acrimonious, Background Negotiations Underway Between All Involved Firms

While Both Clients and Employees Are Kept in the Dark...

Brad Friedman Byon 4/20/2008, 5:49pm PT

On Sunday, April 13th, following our Thursday April 10th exclusive investigative report revealing that the nation's 4th largest voting machine vendor, Hart InterCivic, was on the verge of a successful hostile takeover of the nation's 3rd largest voting machine company, Sequoia Voting Systems, in order to become the nation's 2nd largest powerhouse in the "election industry," Sequoia quietly issued a press release on their website, publicly confirming our report.

The release is not linked from their main page, but we were able to trip across it this morning nonetheless. We post it in full at the end of this article since Sequoia's website has been frequently hacked at times of late, and the company also has a history of revising, scrubbing and doctoring officially published material on their website without noting those changes.

While officials at both Hart and Sequoia have now confirmed our report, Sequoia has yet to fully inform its voting system clients around the country --- or even its own employees --- as to what's actually going on, even while a "high-priority" company-wide email was distributed immediately after our report went public, attempting to instruct employees to field no "calls from the media"...

Sequoia's confirmation of the attempted takeover comes as officials inside of both companies were forced to do so in the wake of our detailed exclusive, as published here at The BRAD BLOG (along with a greatly condensed version filed at ComputerWorld).

Yet, in the ten days since our report was filed, no other media outlets have covered the potential merger, despite the fact that jurisdictions across the country --- including New York state, which is in the middle of a $100 million deal with the company --- could be adversely affected by the takeover of the cash-poor Sequoia, whose equipment currently controls elections in some 20% of the United States. (Hart now controls some 8% of that market.)

The clients with whom Sequoia has contracts, and pending contracts, were wholly unaware of the possible merger prior to our report. As well, they had no idea that they might soon find themselves in business with Hart --- a company currently facing federal fraud litigation --- instead of their chosen vendor, Sequoia.

While Sequoia's CEO and President Jack Blaine was forced to give an explanation to some of those clients who became quite curious after reading details of the attempted takeover here at The BRAD BLOG, Blaine failed to disclose to them the full depth of Sequoia's woes, complete details of the possible merger, and that the fact that the company, in its current form, may not be long for this world.

Sequoia's clients are not the only ones caught off-guard by the potential sea change coming in the election industry. The majority of the company's employees, whose jobs hang in the balance, had similarly been left in the dark, even about Sequoia's planned move out of Oakland, which had been in the works for some time.

Our report came as news to most of their employees, who may find themselves soon out of work, whether or not the company is able to fend off the Hart takeover. We had revealed, in that April 10 story, the company's plan to shut down their Oakland, CA, headquarters in order to move their full base of operations to their Denver hub.

Facing a severe cash crunch, made even worse by the Hart takeover attempt, the move to Denver is currently underway as Sequoia's lease on their Oakland office space is up at the end of May. A smaller space will be sought in Oakland for a number of company engineers, but it's currently unclear --- since Sequoia has failed to inform workers --- how many of the California employees will find themselves out of a job after the move.

As previously reported, last Tuesday, April 15th, was "Match Day" at Sequoia. That was the deadline for the consortium of company executives --- incorporated as SVS Holdings, Inc. last year in order to claim "ownership" of Sequoia in the wake of a Federal investigation of their parent company Smartmatic, a foreign-based consortium with ties to Venezuelan President Hugo Chavez --- to offer a "match" to the proposal Hart had given to Smartmatic. The deal would give control of SVS Holdings' $2 million note, currently being held by the off-shore firm, to Hart.

Our report caused a subsequent panic at Sequoia, leading company VP, part-owner, and press spokesperson Michelle Shafer to issue a company wide email, just minutes after the report was published here, instructing employees within the company not to respond to media inquiries on any aspect of the impending deal.

From: Shafer, Michelle

Sent:Thursday, April 10, 2008 [redacted]

To: [redacted]

Subject: Reminder: Calls from the Media

Importance: High Shafer, MichelleThursday, April 10, 2008 [Reminder: Calls from the MediaHigh All - As a reminder, please direct any and all calls from the media, and the like to me at the phone number and email address below. Thanks for your cooperation,

Michelle Michelle M. Shafer

Vice President, Communications & External Affairs

Sequoia Voting Systems

7677 Oakport Street

Suite 800

Oakland, CA 94621

phone: 800.347.4702

mshafer@sequoiavote.com

www.sequoiavote.com

We had sent a number of queries to Shafer for comment, in regard to our report, prior to publication. She failed to respond at all, unlike Hart's spokesperson Peter Lichtenheld, who had the courtesy to reply, at least, with a "no comment."

Shafer, who lists her address as being in Oakland, doesn't actually have an office there, so she'll not have to worry about moving anything when the Oakland site shuts down. She works largely out of her Texas home, where she was based while working for her former employer...Hart InterCivic.

The press release issued Sunday by Sequoia echoes both the sentiment from Shafer's email and the generally secretive nature of the company which controls the votes of millions of Americans. In the release, they promise, "We will have more information to share in the coming weeks. However, until that time, we do not expect to have further comment on this matter."

Despite the attempted media lock-out, over the past week The BRAD BLOG has been able to learn the companies, Hart, Smartmatic, and Sequoia/SVS, have been engaged in brutal, and often contentious, inside negotiations, as SVS tries desperately to stave off losing control of the company to Hart.

While no official actions have yet been taken, at least publicly, the next key date in the matter will likely be May 15th, the currently set "closing day" for the proposed deal, when either Hart or SVS will have to "pay Smartmatic $7 million on closing, as well as 40% of the net income of [the company] for the next 5 years, with a promise to pay at least $9 million in those 5 years," according to court documents obtained by The BRAD BLOG [PDF] during the reporting of our original story.

As we also reported at the time, the office of Rep. Carolyn Maloney (D-NY) has told us they are keeping a close eye on the possible deal, since the Congresswoman was instrumental in bringing the original concerns of Smartmatic's ownership and control of Sequoia to the attention of federal investigators at the Committee on Foreign Investment in the United States (CFIUS). That commission is responsible for overseeing foreign ownership of key domestic infrastructure, such as our election system, and their investigation of Smartmatic/Sequoia's shadowy ties to Venezuela had prompted Smartmatic's apparent divestiture of the company.

The proposed Hart deal, however, as the Delaware court papers describe the potential business arrangement, reveals that Smartmatic still retains direct control of both the Intellectual Property of the Sequoia firm, as well as rights to strike an agreement with Hart that they are "not to compete with Smartmatic (who remain in the election business) in Latin America, the Philippines, and Belgium."

In light of the possible compact, questions may return for Maloney and federal investigators, as to whether or not Smartmatic truly divested from the company last year when they had claimed to, or whether it was a deal 'on paper only' in order to bring an end to the CFIUS investigation which had been getting close to the root of Smartmatic's true ownership. The sale of Sequoia to SVS was successful in ending the CFIUS review at that time, prompting Sequoia/SVS to boast, in a November 2007 announcement of "New Corporate Ownership" for the firm, resulting in a "100% American-Owned and Independent Company."

Though Smartmatic is carefully referred to as their "former parent company" in Sequoia's press release last week, the foreign firm clearly retains --- and is in the process of exercising --- the ability to determine far-ranging aspects of both Sequoia's future, and those of American elections in the bargain.

We will, of course, continue to follow developments in this story.

Sequoia's quietly posted press release, issued just after, and confirming, our original report, follows in full below...

SEQUOIA VOTING SYSTEMS RESPONDS TO QUESTIONS ON FUTURE OWNERSHIP DIRECTION DENVER - April 13, 2008 - Hart InterCivic has made an offer to purchase the outstanding loan and earn-out provision agreement that Sequoia Voting Systems maintains with its former parent company. It is yet to be determined whether a transaction between these two companies will be completed. However, both companies are fully committed to their customers and to the elections industry. We will have more information to share in the coming weeks. However, until that time, we do not expect to have further comment on this matter. Sequoia and our employees remain focused and dedicated to servicing our valued customers, as we have throughout our century of service to election jurisdictions throughout the nation. Thank you for your continued patience and support. About Sequoia Voting Systems (www.sequoiavote.com)

Sequoia Voting Systems is an American-owned election technology company with major offices in Denver, Colorado; Jamestown, New York and Oakland, California with over a 100-year history of providing accurate, reliable and innovative voting solutions dating back to the nation's first lever-based mechanical voting equipment in the 1890s. Sequoia provides comprehensive election technology products, customized training options, ballot layout and printing services and complete implementation and support programs to its state and local government customers throughout the United States. Sequoia's product suite is includes a comprehensive election management system, precinct-based optical scan voting units, high-speed central count optical scan ballot readers, and full-face and paginating touch screen electronic voting equipment with optional printers that produce voter verified paper records. Sequoia's voting equipment is currently used by hundreds of jurisdictions throughout 17 states and the District of Columbia.

UPDATE 4/25/08: Sequoia CEO Blaine admits in "confidential" company-wide phone call that Smartmatic, not Sequoia, controls the Intellectual Property (IP) rights for Sequoia's voting machines. Details now here...

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