-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OS3I20A+xwTkcCQKDnZjCyKKADXFFh3F8Gn+il4C1uEDm/JwSOZAtERS6DDTfb8S IDkTlsokYHO0akmS/tjbEw== 0000893877-99-000474.txt : 19990722 0000893877-99-000474.hdr.sgml : 19990722 ACCESSION NUMBER: 0000893877-99-000474 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990712 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEQUENT COMPUTER SYSTEMS INC /OR/ CENTRAL INDEX KEY: 0000811716 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 930826369 STATE OF INCORPORATION: OR FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-15627 FILM NUMBER: 99667966 BUSINESS ADDRESS: STREET 1: 15450 SW KOLL PKWY STREET 2: ED02-803 CITY: BEAVERTON STATE: OR ZIP: 97006-6063 BUSINESS PHONE: 5036265700 MAIL ADDRESS: STREET 1: 15450 SW KOLL PKWY STREET 2: ED02 -803 CITY: BEAVERTON STATE: OR ZIP: 97006-6063 8-K 1 FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) July 12, 1999 SEQUENT COMPUTER SYSTEMS, INC. State of Oregon 000-15627 930826369 - -------------------------------------------------------------------------------- (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) File No.) Identification No.) 15450 SW Koll Parkway, Beaverton, Oregon 97006 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (503) 626 - 5700 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) No Change - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Item 5. Other Events - -------------------- On July 12, 1999 the Company announced that it had entered into an Agreement and Plan of Merger with International Business Machines Corporations (IBM) that provides for the merger of a wholly-owned subsidiary of IBM into the Company, with the Company surviving as a wholly-owned subsidiary of IBM. In the merger shareholders of Sequent would receive $18 in cash per share of Sequent common stock. A copy of the Agreement and Plan of Merger is attached as Exhibit 2.1, and a copy of the press release is attached as Exhibit 99.1. In connection with the Agreement and Plan of Merger, the Company amended its shareholder rights plan. 2 Item 7. Financial Statement and Exhibits - ---------------------------------------- (c) Exhibits 2.1 Agreement and Plan of Merger dated as of July 11, 1999 among International Business Machines Corporation, Pathfinder Acquisition Corp. and Sequent Computer Systems, Inc. 4.1 Amendment No. 1 dated as of July 11, 1999 to Rights Agreement, dated April 14, 1998, between Sequent Computer Systems, Inc. and ChaseMellon Shareholder Services, L. L. C. 99.1 Press release dated July 12, 1999 of Sequent Computer Systems, Inc. 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: July 12, 1999 SEQUENT COMPUTER SYSTEMS, INC. By: ROBERT S. GREGG ------------------------------------- Name: Robert S. Gregg ----------------------------------- Title: Sr. Vice President, Finance & Legal and Chief Financial Officer ---------------------------------- 4 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 Agreement and Plan of Merger Among International Business Machines Corporation, Pathfinder Acquisition Corp. and Sequent Computer Systems, Inc., dated as of July 11, 1999 4.1 Amendment No. 1 dated July 12, 1999 to Rights Agreement, dated as of April 14, 1998, between Sequent Computer Systems, Inc. and ChaseMellon Shareholder Services, L.L.C. 99.1 Press release dated July 12, 1999 of Sequent Computer Systems, Inc. EX-2.1 2 AGREEMENT AND PLAN OF MERGER EXECUTION COPY ================================================================================ AGREEMENT AND PLAN OF MERGER Among INTERNATIONAL BUSINESS MACHINES CORPORATION, PATHFINDER ACQUISITION CORP. and SEQUENT COMPUTER SYSTEMS, INC. Dated as of July 11, 1999 ================================================================================ TABLE OF CONTENTS Page ARTICLE I The Merger SECTION 1.01. Effective Time of the Merger....................................1 SECTION 1.02. Closing.........................................................2 SECTION 1.03. Effect of the Merger............................................2 SECTION 1.04. Articles of Incorporation and By-laws...........................2 SECTION 1.05. Directors.......................................................2 SECTION 1.06. Officers........................................................3 ARTICLE II Conversion of Securities SECTION 2.01. Conversion of Capital Stock.....................................3 SECTION 2.02. Exchange of Certificates........................................4 ARTICLE III Representations and Warranties SECTION 3.01. Representations and Warranties of the Company...................................................5 SECTION 3.02. Representations and Warranties of Parent and Sub...............................................28 ARTICLE IV Covenants Relating to Conduct of Business SECTION 4.01. Conduct of Business............................................30 SECTION 4.02. No Solicitation................................................36 SECTION 4.03. Conduct by Parent..............................................40 ARTICLE V Additional Agreements SECTION 5.01. Preparation of the Proxy Statement; Shareholders Meeting.........................................40 SECTION 5.02. Access to Information; Confidentiality.........................41 SECTION 5.03. Reasonable Best Efforts; Notification..........................41 2 Page SECTION 5.04. Stock Options..................................................43 SECTION 5.05. Indemnification, Exculpation and Insurance....................................................45 SECTION 5.06. Fees and Expenses..............................................46 SECTION 5.07. Benefits Matters...............................................47 SECTION 5.08. Public Announcements...........................................48 SECTION 5.09. Rights Agreement...............................................48 ARTICLE VI Conditions Precedent SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger.........................................49 SECTION 6.02. Conditions to Obligations of Parent and Sub......................................................49 SECTION 6.03. Conditions to Obligation of the Company........................51 SECTION 6.04. Frustration of Closing Conditions..............................51 ARTICLE VII Termination, Amendment and Waiver SECTION 7.01. Termination....................................................52 SECTION 7.02. Effect of Termination..........................................53 SECTION 7.03. Amendment......................................................53 SECTION 7.04. Extension; Waiver..............................................53 ARTICLE VIII General Provisions SECTION 8.01. Nonsurvival of Representations and Warranties...............................................54 SECTION 8.02. Notices........................................................54 SECTION 8.03. Definitions....................................................55 SECTION 8.04. Interpretation.................................................56 SECTION 8.05. Counterparts...................................................56 SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries................................................56 SECTION 8.07. Governing Law..................................................56 SECTION 8.08. Assignment.....................................................57 SECTION 8.09. Enforcement....................................................57 AGREEMENT AND PLAN OF MERGER dated as of July 11, 1999, by and among INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation ("Parent"), PATHFINDER ACQUISITION CORP., an Oregon corporation and a wholly owned subsidiary of Parent ("Sub"), and SEQUENT COMPUTER SYSTEMS, INC., an Oregon corporation (the "Company"). WHEREAS the Board of Directors of each of the Company and Sub deems it advisable and in the best interests of their respective shareholders to consummate the merger (the "Merger"), on the terms and subject to the conditions set forth in this Agreement, of Sub with and into the Company in which the Company would become a wholly owned subsidiary of Parent and have adopted the Plan of Merger (as defined in Section 1.01) in accordance with Oregon Revised Statutes ("ORS") 60.481; WHEREAS the Board of Directors of the Company (i) has determined that the consideration to be paid to the shareholders of the Company in the Merger for each share of Company Common Stock (as defined in Section 2.01) held by them is fair to and in the best interests of such shareholders and recommends that such shareholders approve the Plan of Merger in accordance with ORS 60.487 and (ii) has approved the Merger; WHEREAS Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I The Merger SECTION 1.01. Effective Time of the Merger. Subject to the provisions of this Agreement, articles of merger (the "Articles of Merger") prepared in accordance with ORS 60.494, which shall include the plan of merger in the form attached hereto as Exhibit A (the "Plan of Merger"), shall be delivered by the Company to the office of the Secretary of State of the State of Oregon (or the office 2 of any other entity required by Chapter 60 of the ORS in order for the Merger to become effective) for filing, as provided in ORS 60.494, as soon as practicable on the Closing Date (as defined in Section 1.02). The Merger shall become effective upon the filing of the Articles of Merger with the office of the Secretary of State of the State of Oregon (or such other office) or at such time thereafter as is agreed upon by Parent and the Company and provided in the Articles of Merger (the "Effective Time"). SECTION 1.02. Closing. The closing of the Merger (the "Closing") will take place at 11:00 a.m., New York time, on a date to be specified by the parties, which shall be not later than the second business day after satisfaction or waiver of the conditions set forth in Article VI that by their terms are not to be satisfied or waived at the Closing (the "Closing Date"), at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019, unless another time, date or place is agreed to in writing by Parent and the Company. SECTION 1.03. Effect of the Merger. At the Effective Time Sub shall be merged with and into the Company, and the Company shall continue as the surviving corporation (the "Surviving Corporation"). The Merger shall have the effects set forth in ORS 60.497. SECTION 1.04. Articles of Incorporation and By-laws. (a) The Articles of Incorporation of Sub, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law, except that Article I of the Articles of Incorporation of the Surviving Corporation shall be amended to read in its entirety as follows: "The name of the corporation is SEQUENT COMPUTER SYSTEMS, INC." (b) The By-laws of Sub as in effect at the Effective Time shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 1.05. Directors. The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. 3 SECTION 1.06. Officers. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE II Conversion of Securities SECTION 2.01. Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Common Stock, par value $0.01 per share, of the Company (together with the associated Rights (as defined in Section 3.01(c)), the "Company Common Stock"), or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of common stock of Sub shall be converted into and become one fully paid and non- assessable share of common stock of the Surviving Corporation. (b) Cancelation of Treasury Stock and Parent-Owned Stock. All shares of Company Common Stock that are owned by the Company, as treasury stock, Parent or Sub immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist and no consideration shall be delivered in exchange therefor. (c) Conversion of Company Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 2.01(b)) shall be converted into the right to receive $18.00 in cash, without interest (the "Merger Consideration"). At the Effective Time all such shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any such shares (a "Certificate") shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. The right of any holder of any share of Company Common Stock to receive the Merger Consideration shall be subject to and reduced by the amount of any withholding that is required under applicable tax law. 4 SECTION 2.02. Exchange of Certificates. (a) Paying Agent. Prior to the Effective Time Parent shall designate a bank or trust company reasonably acceptable to the Company to act as agent for the payment of the Merger Consideration upon surrender of Certificates (the "Paying Agent"), and, from time to time after the Effective Time, Parent shall make available, or cause the Surviving Corporation to make available, to the Paying Agent funds in amounts and at the times necessary for the payment of the Merger Consideration pursuant to Section 2.01(c) upon surrender of Certificates, it being understood that any and all interest earned on funds made available to the Paying Agent pursuant to this Agreement shall be turned over to Parent. (b) Exchange Procedure. As soon as reasonably practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a Certificate (i) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates held by such person shall pass, only upon proper delivery of the Certificates to the Paying Agent and shall be in a form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancelation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive from the Paying Agent, on the behalf of Parent, as promptly as practicable in accordance with the customary procedures of the Paying Agent, in exchange therefor the amount of cash into which the shares formerly represented by such Certificate shall have been converted pursuant to Section 2.01(c), and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of shares that is not registered in the stock transfer books of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. 5 (c) No Further Ownership Rights in Company Stock. All cash paid upon the surrender of a Certificate in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock formerly represented by such Certificate. At the close of business on the day on which the Effective Time occurs the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for transfer or any other reason, they shall be canceled and exchanged as provided in this Article II. (d) No Liability. None of Parent, Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. ARTICLE III Representations and Warranties SECTION 3.01. Representations and Warranties of the Company. Except as set forth on the disclosure schedule (with specific reference to the section of this Agreement to which the information stated in such disclosure relates) delivered by the Company to Parent prior to the execution of this Agreement (the "Company Disclosure Schedule"), the Company represents and warrants to Parent and Sub as follows: (a) Organization, Standing and Corporate Power. Each of the Company and its subsidiaries (as defined in Section 8.03) (i) is a corporation duly organized, validly existing and in good standing under the laws of the juris- diction of its organization (except, in the case of good standing, for entities organized under the laws of any jurisdiction that does not recognize such concept), (ii) has all requisite corporate, company or partnership power and authority to carry on its business as now being conducted and (iii) is duly qualified or licensed to do business and is in good standing in each jurisdiction (except, in the case of good standing, any jurisdiction that does not recognize such concept) in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, other than 6 where the failure to be so organized, existing, qualified or licensed or in good standing (except in the case of clause (i) above with respect to the Company) individually or in the aggregate is not reasonably likely to have a material adverse effect (as defined in Section 8.03) on the Company. The Company has delivered to Parent complete and correct copies of its Articles of Incorporation and By-laws and the articles of incorporation and by-laws (or similar organizational documents) of each of its subsidiaries, in each case as amended to the date hereof. The Company has made available to Parent and its representatives true and complete copies of the minutes of all meetings of the shareholders, the Board of Directors and each committee of the Board of Directors of the Company and each of its subsidiaries held since January 1, 1997. (b) Subsidiaries. Section 3.01(b) of the Company Disclosure Schedule lists each subsidiary of the Company. All the outstanding shares of capital stock or other equity or voting interests of each such subsidiary are owned by the Company, by another wholly owned subsidiary of the Company or by the Company and another wholly owned subsidiary of the Company, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens"), and are duly authorized, validly issued, fully paid and nonassessable. Except for the capital stock or other equity or voting interests of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other equity or voting interests in any corporation, partnership, joint venture, association or other entity. (c) Capital Structure. The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per share (the "Company Preferred Stock"), of which 502,000 shares have been designated as Series A Preferred Shares (the "Series A Preferred Stock"). At the close of business on July 9, 1999, (i) 42,104,004 shares of Company Common Stock (excluding treasury shares) were issued and outstanding, (ii) no shares of Company Common Stock were held by the Company in its treasury, (iii) 502,000 shares of Series A Preferred Stock were reserved for issuance in connection with the rights (the "Rights") to purchase shares of Series A Preferred Stock issued pursuant to the Rights Agreement dated as of April 14, 1998 (the "Rights Agreement"), between the Company and ChaseMellon Shareholder Services L.L.C., (iv) warrants to acquire 225,000 shares of Company Common Stock from the Company pursuant to the warrant agreements set forth on Schedule 3.01(c) of the Company Disclosure Schedule (the 7 "Warrants") were outstanding; (v) options to acquire 9,500,682 shares of Company Common Stock from the Company pursuant to the 1987 Employee Stock Option Plan, the 1989 Stock Incentive Plan, the 1995 Stock Incentive Plan, the 1996 Stock Option Plan and the 1997 Stock Option Plan (such plans and arrangements, collectively, the "Company Stock Plans") were issued and outstanding; (vi) 2,947,357 shares of Company Common Stock were reserved and available for issuance pursuant to the Employee Stock Purchase Plan (the "ESPP"); and (vii) no shares of Company Preferred Stock were issued and outstanding or were held by the Company in its treasury. No shares of Company Common Stock are owned by any subsidiary of the Company. The Company has delivered to Parent a complete and correct list, as of the close of business on June 28, 1999, of all outstanding stock options or other rights to purchase or receive Company Common Stock granted under the Company Stock Plans (collectively, the "Stock Options") and the Warrants, the number of shares subject to each such Stock Option and Warrant, the grant dates and exercise prices of each such Stock Option and Warrant and the names of the holders thereof. As of the close of business on July 9, 1999, there were outstanding Stock Options to purchase 8,697,327 shares of Company Common Stock with exercise prices on a per share basis lower than the Merger Consideration, and the weighted average exercise price of such Stock Options was equal to $12.22. During the biweekly period ending June 11, 1999, the aggregate amount credited to the accounts of the participants in the ESPP was $571,000 and in each payroll period thereafter the aggregate amount credited to such accounts did not exceed such amount. Except as set forth above, at the close of business on July 9, 1999, no shares of capital stock or other voting securities of the Company, or options, warrants or other rights to acquire any such stock or securities were issued, reserved for issuance or outstanding. Since July 9, 1999, until the date of this Agreement, (x) there have been no issuances by the Company of shares of capital stock or other voting securities of the Company other than issuances of shares of Company Common Stock pursuant to the exercise of Stock Options and Warrants outstanding on such date as required by their terms as in effect on the date of this Agreement and (y) there have been no issuances by the Company of options, warrants or other rights to acquire shares of capital stock or other voting securities from the Company, other than for rights that may have arisen under the ESPP. There are no outstanding stock appreciation rights or rights (other than the Stock Options, the Warrants and rights that may have arisen under the ESPP) to receive shares of Company Common Stock on a deferred basis granted under the Company Stock Plans or otherwise. All outstanding shares of capital stock of the Company are, and all shares 8 that may be issued pursuant to the Company Stock Plans, the Warrants and the ESPP will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of the Company or any of it subsidiaries, and no securities or other instruments or obligations of the Company or any of its Subsidiaries the value of which is in any way based upon or derived from any capital or voting stock of the Company, having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth above and except as expressly permitted under Section 4.01(a), there are no securities, options, warrants, calls, rights, contracts, commitments, agreements, instruments, arrangements, understandings, obligations or undertakings of any kind to which the Company or any of its subsidiaries is a party, or by which the Company or any of its subsidiaries is bound, obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of, or securities convertible into, or exchangeable or exercisable for, shares of capital stock or other voting securities of, the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, contract, commitment, agreement, instrument, arrangement, understanding, obligation or undertaking. There are not any outstanding contractual obligations of the Company or any of its subsidiaries to (i) repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or (ii) vote or dispose of any shares of the capital stock of any of its subsidiaries. To the knowledge of the Company, as of the date of hereof, there are no irrevocable proxies and no voting agreements with respect to any shares of the capital stock or other voting securities of the Company or any of its subsidiaries. (d) Authority; Noncontravention. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement, subject, in the case of the Merger, to obtaining the Shareholder Approval (as defined in Section 3.01(t)). The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize 9 this Agreement or to consummate the transactions contemplated by this Agreement, subject, in the case of the Merger, to obtaining the Shareholder Approval. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Board of Directors of the Company, at a meeting duly called and held at which all directors of the Company were present, duly and unanimously adopted resolutions (i) adopting this Agreement, (ii) declaring that it is advisable and in the best interests of the Company's shareholders to consummate the Merger on the terms and subject to the conditions set forth in this Agreement, (iii) declaring that the consideration to be paid to such shareholders in the Merger for each share of Company Common Stock held by them is fair to and in the best interests of such shareholders, (iv) directing that the Plan of Merger be submitted to a vote at a meeting of such shareholders, (v) recommending that such shareholders approve the Plan of Merger and (vi) approving the Merger upon the terms and subject to the conditions set forth in this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement do not and will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancelation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien in or upon any of the properties or assets of the Company or any of its subsidiaries under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any provision of (i) the Articles of Incorporation or By-laws of the Company or the articles of incorporation or by-laws (or similar organizational documents) of any of its subsidiaries, (ii) any loan or credit agreement, bond, debenture, note, mortgage, indenture, lease or other contract, commitment, agreement, instrument, arrangement, understanding, obligation, undertaking, permit, concession, franchise or license (each, a "Contract") to which the Company or any of its subsidiaries is a party or any of their respective properties or assets is subject or (iii) subject to the governmental filings and other matters referred to in the following sentence, any (A) statute, law, ordinance, rule or regulation or (B) judgment, order or decree, in each case, applicable to the Company or any of its subsidiaries or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses or Liens that individually or in the aggregate are not reasonably likely to (x) have a 10 material adverse effect on the Company, (y) impair in any material respect the ability of the Company to perform its obligations under this Agreement or (z) prevent or materially impede, interfere with, hinder or delay the consummation of any of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Federal, state or local, domestic or foreign, government or any court, administrative agency or commission or other governmental or regulatory authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (1) the filing of a premerger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") or any other applicable competition, merger control, antitrust or similar law, (2) the filing with the Securities and Exchange Commission (the "SEC") of a proxy statement relating to the approval by the Company's shareholders of this Agreement (as amended or supplemented from time to time, the "Proxy Statement") and such reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (3) the filing of the Articles of Merger with the office of the Secretary of State of the State of Oregon (or the office of any other entity required by Chapter 60 of the ORS in order for the Merger to become effective) and appropriate documents with the relevant authorities of other states in which the Company or any of its subsidiaries is qualified to do business, (4) any filings required under the rules and regulations of the Nasdaq National Market and (5) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made individually or in the aggregate are not reasonably likely to (x) have a material adverse effect on the Company, (y) impair in any material respect the ability of the Company to perform its obligations under this Agreement or (z) prevent or materially impede, interfere with, hinder or delay the consummation of any of the transactions contemplated by this Agreement. (e) SEC Documents. The Company has filed with the SEC, and has heretofore made available to Parent true and complete copies of, all reports, schedules, forms, statements and other documents required to be filed with the SEC by the Company since December 29, 1996 (together with all information incorporated therein by reference, the "SEC 11 Documents"). No subsidiary of the Company is required to file any form, report or other document with the SEC. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933 (the "Securities Act") or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents at the time they were filed contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not mis- leading. Except to the extent that information contained in any SEC Document filed and publicly available prior to the date hereof (a "Filed SEC Document") has been revised or superseded by a later-filed Filed SEC Document, none of the SEC Documents contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements (including the related notes) of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments and the absence of footnotes). Except as set forth in the Filed SEC Documents, the Company and its subsidiaries have no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that individually or in the aggregate are reasonably likely to have a material adverse effect on the Company. (f) Information Supplied. None of the information included or incorporated by reference in the Proxy Statement will, at the date it is first mailed to the Company's shareholders or at the time of the Shareholders Meeting (as defined in Section 5.01) or at the time of any amendment or supplement thereof, contain any untrue state ment of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under 12 which they are made, not misleading, except that no representation is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Sub specifically for inclusion or incorporation by reference in the Proxy Statement. The Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. (g) Absence of Certain Changes or Events. Since the date of the most recent audited financial statements included in the Filed SEC Documents, the Company and its subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice, and there has not been (i) any material adverse effect or any state of facts, change, development, effect or occurrence that is reasonably likely to result in a material adverse effect on the Company, (ii) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company's or any of its subsidiaries' capital stock, except for dividends by a wholly owned subsidiary of the Company to its parent, (iii) any split, combination or reclassification of any of the Company's or any of its subsidiaries' capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock or other securities of the Company or any of its subsidiaries, (iv) (x) any granting by the Company or any of its subsidiaries of any increase in compensation or fringe benefits, except for normal increases of cash compensation in the ordinary course of business consistent with past practice, or any payment by the Company or any of its subsidiaries of any bonus, except for bonuses made in the ordinary course of business consistent with past practice, in each case to any current or former director, officer, employee or consultant, (y) any granting by the Company or any of its subsidiaries to any current or former director, officer, or employee of any increase in severance or termination pay or (z) any entry by the Company or any of its subsidiaries into, or any amendment of, (A) any currently effective employment, severance, termination or indemnification agreement or consulting agreement (other than in the ordinary course of business consistent with past practice), with any current or former director, officer, employee or consultant or (B) any agreement with any current or former director, officer, employee or consultant the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement, (v) any damage, destruction or loss, whether or 13 not covered by insurance, that individually or in the aggregate is reasonably likely to have a material adverse effect on the Company, (vi) any change in financial or tax accounting methods, principles or practices by the Company, except insofar as may have been required by a change in GAAP or applicable law, (vii) any tax election that individually or in the aggregate is reasonably likely to have a material adverse effect on the Company or any of its tax attributes or any settlement or compromise of any material income tax liability, (viii) any revaluation by the Company of any of its material assets or (ix) any licensing agreement or any agreement with regard to the acquisition or disposition of any material Intellectual Property (as defined in Section 3.01(q)) or rights thereto other than licenses by the Company or its subsidiaries in the ordinary course of business consistent with past practice of (A) software to end users or distributors solely for the use with the hardware products of the Company or its subsidiaries or (B) technology that is included in or with the products of the Company or its subsidiaries. (h) Litigation. There is no suit, claim, action, investigation or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries that individually or in the aggregate is reasonably likely to have a material adverse effect on the Company, nor is there any statute, law, ordinance, rule, regulation, judgment, order or decree, of any Governmental Entity or arbitrator outstanding against, or, to the knowledge of the Company, investigation by any Governmental Entity involving, the Company or any of its subsidiaries that individually or in the aggregate is reasonably likely to have a material adverse effect on the Company. (i) Contracts. Except for Contracts filed as exhibits to the Filed SEC Documents, none of the Company or any of its subsidiaries is a party to or bound by, and none of their properties or assets are bound by or subject to, any written or oral: (i) material Contract not made in the ordinary course of business entered into prior to the date of this Agreement; (ii) Contract pursuant to which the Company or any of its subsidiaries has agreed not to compete with any person or to engage in any activity or business, or pursuant to which any benefit is required to be given or lost as a result of so competing or engaging; 14 (iii) Contract pursuant to which the Company or any of its subsidiaries is restricted in any material respect in the development, marketing or distribution of their respective products or services (other than (A) restrictions on the scope of a license granted to the Company, (B) restrictions entered into in the ordinary course of business consistent with past practice prior to the date of this Agreement and (C) restrictions that would not (without any action by Parent or its subsidiaries to assume such restriction) in any way apply to Parent or any of its subsidiaries (other than the Company and its subsidiaries) following the Merger); (iv) Contract with (A) any affiliate of the Company or any of its subsidiaries or (B) any current or former director or officer of the Company or any of its subsidiaries or of any affiliate of the Company or any of its subsidiaries or any of the 25 most highly compensated employees of the Company and its subsidiaries, taken as a whole, or (C) any affiliate of any such person (other than (u) Contracts with DP Applications (as defined in Section 3.01(x)), (v) contracts on arm's-length terms with companies whose common stock is publicly traded, (w) employment agreements referred to in Section 3.01(k), (x) offer letters providing solely for "at will" employment, (y) invention assignment and confidentiality agreements relating to the assignment of inventions to the Company or any of its subsidiaries not involving the payment of money and (z) Benefit Plans referred to in Section 3.01(n)); (v) license or franchise (other than exclusive distribution agreements entered into in the ordinary course of business consistent with past practice prior to the date of this Agreement) granted by the Company or such subsidiary pursuant to which the Company or such subsidiary has agreed to refrain from granting license or franchise rights to any other person; (vi) Contract under which the Company or such subsidiary has (i) incurred any indebtedness that is currently owing or (ii) given any guarantee in respect of indebtedness, in each case having an aggregate principal amount in excess of $5,000,000; (vii) material Contract that requires consent, approval or waiver of or notice to a third party in the event of or with respect to a transaction such as the Merger, including in order to avoid termination of or a loss of material benefit under any such Contract; 15 (viii) material Contract providing for payments of royalties to third parties; (ix) Contract granting a third party any license to Intellectual Property that is not limited to the internal use of such third party; (x) Contract providing confidential treatment by the Company or such subsidiary of third party information other than non-disclosure agreements and provisions entered into by the Company in the ordinary course of business consistent with past practice; (xi) Contract granting the other party to such Contract or a third party "most favored nation" status that, following the Merger, would in any way apply to Parent or any of its subsidiaries (other than the Company and its subsidiaries and their products or services (other than any similar products or services produced or offered by Parent or its subsidiaries (other than the Company and its subsidiaries))); (xii) Contract that guarantees or warrants a result or that expressly guarantees or warrants that the products and/or services of the Company will be Year 2000 Ready (as defined in Section 3.01(m)), except insofar as the Company's or its subsidiaries' sole obligation in respect of a breach of such guarantee or Warranty is the repair or replacement of the Company's or its subsidiaries' products; and (xiii) Contract which (i) has aggregate future sums due from the Company or such subsidiary in excess of $2,500,000 and is not terminable by the Company or such subsidiary for a cost of less than $250,000 or (ii) is entered into prior to the date of this Agreement and is otherwise material to the business of the Company or such subsidiary or as presently conducted or as proposed to be conducted. Each Contract of the Company and its subsidiaries is in full force and effect and is a legal, valid and binding agreement of the Company or such subsidiary and, to the knowledge of the Company or such subsidiary, of each other party thereto, enforceable against the Company or any of its subsidiaries, as the case may be, and, to the knowledge of the Company, against the other party or parties thereto, in each case, in accordance with its terms, except for such failures to be in full force and effect or enforceable that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. Each of the Company and its 16 subsidiaries has performed or is performing all material obligations required to be performed by it under its Contracts and is not (with or without notice or lapse of time or both) in breach or default in any material respect thereunder, and, to the knowledge of the Company or such subsidiary, no other party to any of its Contracts is (with or without notice or lapse of time or both) in breach or default in any material respect thereunder except, in each case, for such breaches that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. Neither the Company nor any of its subsidiaries knows of any circumstances that are reasonably likely to occur that could reasonably be expected to materially adversely affect its ability to perform its obligations under any material Contract. (j) Compliance with Laws. The Company and its subsidiaries are, and since December 29, 1996 have been, in compliance with all statutes, laws, ordinances, rules, regulations, judgments, orders and decrees of any Govern- mental Entity applicable to their businesses or operations, except for instances of possible noncompliance that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company, impair in any material respect the ability of the Company to perform its obligations under this Agreement or prevent or materially impede, interfere with, hinder or delay the consummation of any of the transactions contemplated by this Agreement. None of the Company or any of its subsidiaries has received, since December 29, 1996, a notice or other written communication alleging a possible violation of any statute, law, ordinance, rule, regulation, judgment, order or decree of any Governmental Entity applicable to its businesses or operations, except for such violations that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. The Company and its subsidiaries have in effect all Federal, state and local, domestic and foreign, governmental consents, approvals, orders, authorizations, certificates, filings, notices, permits, concessions, franchises, licenses and rights (collectively "Permits") necessary for them to own, lease or operate their properties and assets and to carry on their businesses as now conducted and there has occurred no violation of, or default under, any such Permit, except for the lack of Permits and for violations of, or defaults under, Permits, which lack of Permits, violations or defaults individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. The Merger, in and of itself, could not reasonably be expected to cause the revocation or cancelation of any 17 such Permit, which revocation or cancelation is reasonably likely to have a material adverse effect on the Company. (k) Absence of Changes in Benefit Plans; Employment Agreements; Labor Relations. Except as disclosed in the Filed SEC Documents, since the date of the most recent audited financial statements included in the Filed SEC Documents, none of the Company or any of its subsidiaries has terminated, adopted, amended or agreed to amend in any material respect any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock appreciation, restricted stock, stock option, phantom stock, performance, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other material plan, arrangement or understanding providing benefits to any of its current or former directors, officers or employees (collectively, "Benefit Plans"). Except as disclosed in the Filed SEC Documents, there exist no (i) employment, severance, termination or indemnification agreements or material consulting agreements between the Company or any of its subsidiaries, on the one hand, and any current or former director, officer, employee or consultant of the Company or any of its subsidiaries, on the other hand, or (ii) agreements between the Company or any of its subsidiaries, on the one hand, and any current or former director, officer, employee or consultant of the Company or any of its subsidiaries, on the other hand, the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature contemplated by this Agreement. There are no collective bargaining or other labor union agreements to which the Company or any of its subsidiaries is a party or by which it is bound. Since December 29, 1996, neither the Company nor any of its subsidiaries has encountered any labor union organizing activity, or had any actual or threatened employee strikes, work stoppages, slowdowns or lockouts that individually or in the aggregate are reasonably likely to have a material adverse effect on the Company. (l) Environmental Matters. Except to the extent that the inaccuracy of any of the following (or the circumstances giving rise to such inaccuracy) is not reasonably likely to have a material adverse effect on the Company: (i) the Company and each of its subsidiaries are in compliance with all applicable Environmental Laws (as defined below); (ii) the Company and each of its subsi- diaries have all Permits required under Environmental Laws and are in compliance with their respective requirements; (iii) there are no pending, or to the knowledge of the 18 Company or any of its subsidiaries, threatened claims, proceedings or investigations against the Company or any of its subsidiaries alleging any noncompliance with, or liability under, Environmental Law; (iv) neither the Company nor any of its subsidiaries have received notice that the Company or any of its subsidiaries is subject to potential liability under any Environmental Law, including potential liability for the costs of investigating or remediating contaminated property pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, or analogous state law; (v) there have been no Releases (as defined below) or threatened Releases of Hazardous Substances (as defined below) on, at, under or about any properties currently or formerly owned, leased or operated by the Company or any of its subsidiaries, or any of their respective predecessors, and neither the Company nor any of its subsidiaries has Released, disposed of or arranged for the disposal of Hazardous Substances at any on-site or off-site location; and (vi) there are no facts, circumstances or conditions that are reasonably likely to give rise to any liability of, or form the basis of a claim against, the Company or any of its Subsidiaries in connection with any Environmental Law. For purposes of this Agreement, the term "Environmental Laws" shall mean any applicable Federal, state or local, domestic or foreign, statutes, laws, regulations, ordinances, rules, codes, enforceable requirements, agreements, orders, decrees, judgments or injunctions issued, promulgated or entered into by any Governmental Entity relating to protection of the environment, natural resources or human health and safety, or to the use, management, disposal, Release or threatened Release of Hazardous Substances. For purposes of this Agreement, the term "Hazardous Substances" shall mean any explosive or radioactive substances or materials, any toxic or hazardous substances or materials, including asbestos or asbestos-containing materials, polychlorinated biphenyls, petroleum and petroleum products, and any other substances or materials defined as, or included in the definition of, "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic substances", or is otherwise regulated, under any Environmental Law. For purposes of this Agreement, the term "Release" shall mean any spilling, leaking, pumping, pouring, discharging, emitting, emptying, leaching, injecting, dumping, disposing or migrating into or through the environment. (m) Year 2000 Compliance. All computer and other systems, software, hardware and other products (A) licensed or sold, or offered for licensing or sale (including products under development), by the Company or any of its subsidiaries under any trademark, service mark, brand name, 19 certification mark, assumed name or trade name owned or licensed for use by the Company or any of its subsidiaries, whether produced by the Company or any of its subsidiaries or supplied thereto by any third party, (B) produced by any third party that are licensed to the customers of the Company or any of its subsidiaries by the Company or any of its subsidiaries under a license that does not explicitly disclaim liability with respect to failures of such products to be Year 2000 Ready and (C) produced by the Company or any of its subsidiaries, in each case have been written, manufactured and tested to be Year 2000 Ready, except for such failures to be Year 2000 Ready that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. All internal data processing systems, equipment and facilities used by the Company and its subsidiaries, including all information technology applications running in the Company or any of its subsidiaries and all tools used to develop the Company's or any of its subsidiaries' products, are Year 2000 Ready, except for such failures to be Year 2000 Ready that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. No failure on the part of the customers of or the suppliers to the Company and its subsidiaries to be Year 2000 Ready is reasonably likely to have a material adverse effect on the Company. For purposes of this Agreement, "Year 2000 Ready" shall mean, with respect to any system, product, equipment or facility, that such system, product, equipment or facility, when used with software and equipment that is Year 2000 Ready, is capable of correctly processing, providing, receiving and manipulating date data within and between the twentieth and twenty-first centuries, and its operation and functionality has not been adversely affected and will not be adversely affected by the advent of the Year 2000. (n) ERISA Compliance. (i) Section 3.01(n)(i) of the Company Disclosure Schedule contains a list of all "employee welfare benefit plans" (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended "ERISA")), "employee pension benefit plans" (as defined in Section 3(2) of ERISA) and all other Benefit Plans maintained or contributed to by the Company or any of its subsidiaries or any person or entity that, together with the Company or any of its subsidiaries, is treated as a single employer (a "Commonly Controlled Entity") under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "Code") for the benefit of any current or former directors, officers or employees of the Company or any of its subsidiaries. The Company has provided to Parent true, complete and correct copies of 20 (1) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof), (2) the most recent annual report on Form 5500 required to be filed with the Internal Revenue Service (the "IRS") with respect to each Benefit Plan (if any such report was required), (3) the most recent summary plan description for each Benefit Plan for which such summary plan description is required and (4) each trust agreement and group annuity contract relating to any Benefit Plan. Each Benefit Plan has been administered in accordance with its terms, except where the failure so to be administered individually or in the aggregate is not reasonably likely to have a material adverse effect on the Company. The Company and its subsidiaries and all the Benefit Plans are in compliance with all applicable provisions of ERISA and the Code, except for instances of possible noncompliance that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. (ii) Neither the Company nor any Commonly Controlled Entity has maintained, contributed to or been obligated to contribute to any Benefit Plan that is subject to Title IV of ERISA. (iii) With respect to any Benefit Plan that is an employee welfare benefit plan, there are no understandings, agreements or undertakings, written or oral, that would prevent any such plan (including any such plan covering retirees or other former employees) from being amended or terminated without material liability to the Company or any of its subsidiaries on or at any time after the Effective Time. (iv) No current or former director, officer or employee of the Company or any of its subsidiaries will be entitled to any additional compensation or benefits or any acceleration of the time of payment or vesting of any compensation or benefits under any Benefit Plan as a result of the transactions contemplated by this Agreement or any benefits under any Benefits Plan the value of which will be calculated on the basis of any of the transactions contem- plated by this Agreement. (v) The deduction of any amount payable pursuant to the terms of the Benefit Plans or any other employment contracts or arrangements will not be subject to disallowance under Section 162(m) of the Code. (o) Taxes. (i) Each of the Company and its subsidiaries and each Company Affiliated Group has timely filed all Federal, state and local, domestic and foreign, 21 income and franchise tax returns and reports and all other tax returns and reports required to be filed by it and all such returns and reports are complete and correct, except for such failures to file or to be complete and correct that individually or in the aggregate are not reasonably likely to result in a material liability for the Company. Each of the Company and its subsidiaries and each Company Affiliated Group has timely paid all taxes due with respect to the taxable periods covered by such returns and reports and all other material taxes, and the most recent financial statements contained in the Filed SEC Documents reflect an adequate reserve for all taxes payable by the Company and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (ii) No Federal, state or local, domestic or foreign, income or franchise tax return or report or any other material tax return or report of the Company or any of its subsidiaries or any Company Affiliated Group is currently under audit or examination by any taxing authority, and no written or unwritten notice of such an audit or examination has been received by the Company or any of its subsidiaries (except for audits or examinations commenced after the date of this Agreement that individually or in the aggregate are not reasonably likely to result in a material liability for the Company). There is no deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any taxes due and owing by the Company, any of its subsidiaries or any Company Affiliated Group (except for those arising after the date of this Agreement that individually or in the aggregate are not reasonably likely to result in a material liability for the Company). Each deficiency resulting from any completed audit or examination relating to taxes by any taxing authority has been timely paid. No issues relating to taxes were raised by the relevant taxing authority during any presently pending audit or examination, and no issues relating to taxes were raised by the relevant taxing authority in any completed audit or examination that could reasonably be expected to recur in a later taxable period, except for issues first raised after the date of this Agreement that individually or in the aggregate are not reasonably likely to result in a material liability for the Company. All assessments for taxes due and owing by the Company, any of its subsidiaries or any Company Affiliated Group with respect to completed and settled examinations or concluded litigation have been paid. As of the date of this Agreement, no Federal, state or local, domestic or foreign, tax return or report of the Company or any of its subsidiaries or any Company Affiliated Group has ever been under audit or examination by the IRS or other relevant 22 taxing authority. The relevant statute of limitations is closed with respect to the United States Federal tax returns of the Company and its subsidiaries for all years through 1990 and with respect to taxable year 1994. (iii) There is no currently effective agreement or other document extending, or having the effect of extending, the period of assessment or collection of any taxes and no power of attorney (other than powers of attorney authorizing employees of the Company to act on behalf of the Company) with respect to any taxes has been executed or filed with any taxing authority. (iv) No Liens for taxes exist with respect to any assets or properties of the Company or any of its subsi diaries, except for statutory Liens for taxes not yet due and Liens for taxes that the Company or any of its subsidiaries is contesting in good faith through appropriate proceedings and for which adequate reserves have been established. (v) None of the Company or any of its subsi diaries is a party to or bound by any tax sharing agreement, tax indemnity obligation or similar agreement, arrangement or practice with respect to taxes (including any advance pricing agreement, closing agreement or other agreement relating to taxes with any taxing authority). (vi) None of the Company or any of its subsi diaries will be required to include in a taxable period ending after the Effective Time taxable income attributable to income that accrued (for purposes of the financial statements of the Company included in the Filed SEC Docu ments) in a prior taxable period but was not recognized for tax purposes in any prior taxable period as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting or Section 481 of the Code or comparable provisions of state or local tax law, domestic or foreign, or for any other reason. (vii) No amount or other entitlement that could be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this Agreement by any director, officer or employee of the Company or any of its affiliates who is a "disqualified individual" under any Benefit Plan or other compensation arrangement currently in effect would be characterized as an "excess parachute payment" (as such terms are defined in Section 280G of the Code and in proposed Treasury Regulation Section 1.280G-1). 23 (viii) The Company and its subsidiaries have complied with all applicable statutes, laws, ordinances, rules and regulations relating to the payment and withholding of taxes (including withholding of taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or similar provisions under any foreign Federal laws or any state or local laws, domestic and foreign) and have, within the time and the manner prescribed by law, withheld from and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under applicable laws. (ix) As used in this Agreement, "taxes" shall include all Federal, state and local, domestic and foreign, income, franchise, property, sales, excise, employment, payroll, social security, value-added, ad valorem, transfer, withholding and other taxes, including taxes based on or measured by gross receipts, profits, sales, use or occupation, tariffs, levies, impositions, assessments or governmental charges of any nature whatsoever, including any interest penalties or additions with respect thereto. As used in this Agreement, "Company Affiliated Group" shall mean each group of which the Company or any of its subsidiaries is or has been a member during a period for which the group filed a tax return or report on an affiliated, combined, consolidated or unitary basis. (p) Title to Properties. (i) The Company and each of its subsidiaries has good and marketable title to, or valid leasehold interests in, all of its material properties and assets except for such as are no longer used or useful in the conduct of its businesses or as have been disposed of in the ordinary course of business and except for defects in title, easements, restrictive covenants and similar encumbrances that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. All such material assets and properties, other than assets and properties in which the Company or any of its subsidiaries has a leasehold interest, are free and clear of all Liens, except for Liens that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. (ii) Each of the Company and its subsidiaries has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect, except for such noncompliance or failures to be in full force and effect that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. The Company and its subsidiaries enjoy 24 peaceful and undisturbed possession under all such material leases, except for failures to do so that individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company. (q) Intellectual Property. (i) Section 3.01(q) of the Company Disclosure Schedule lists all patents, trademarks, tradenames, service marks and registered copyrights and applications therefor, if any, owned by or licensed to the Company or any of its subsidiaries as of the date of this Agreement. The Company has made available to Parent true and correct copies of all material license agreements relating to Intellectual Property to which the Company or any of its subsidiaries is a party as of the date of this Agreement. (ii) Except to the extent that the inaccuracy of any of the following (or the circumstances giving rise to such inaccuracy) is not reasonably likely to have a material adverse effect on the Company: (A) the Company and each of its subsidiaries owns, or is licensed or otherwise has the right to use (in each case, free and clear of any Liens), all Intellectual Property used in or necessary for the conduct of its business as currently conducted; (B) none of the Company or any of its subsidiaries is infringing on or otherwise violating the rights of any person with regard to any copyright owned by, licensed to or otherwise used by the Company or any of its subsidiaries; (C) there is no suit, claim, action, investigation or proceeding pending or, to the knowledge of the Company, threatened with respect to, and the Company has not been notified of, any possible infringement by the Company or any of its subsidiaries on or other violation of the rights of any person with regard to any Intellectual Property owned by, licensed to or otherwise used by the Company or any of its subsidiaries; (D) to the knowledge of the Company, no person is infringing on or otherwise violating any right of the Company or any of its subsidiaries with respect to any Intellectual Property owned by, licensed to and/or otherwise used by the Company or any of its subsidiaries; 25 (E) to the knowledge of the Company, none of the former or current members of management or key personnel of the Company or any of its subsidiaries, including all former and current employees, agents, consultants and contractors who have contributed to or participated in the conception and development of Intellectual Property of the Company or any of its subsidiaries, have a valid claim against the Company or any of its subsidiaries in connection with the involvement of such persons in the conception and development of any computer software or other Intellectual Property of the Company or any of its subsidiaries, and no such claim has been asserted or threatened; (F) the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to any right, license or encumbrance relating to, Intellectual Property owned by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries now has or has had any agreement with any third party, or any right of termination, cancelation or acceleration of any material Intellectual Property right or obligation set forth in any agreement to which the Company or any of its subsidiaries is a party, or the loss or encumbrance of any Intellectual Property or benefit related thereto, or result in the creation of any Lien in or upon any Intellectual Property or right, other than under certain contracts and agreements, the material ones of which are set forth on Section 3.01(p) of the Company Disclosure Schedule, that provide for their termination upon a change of control of the Company; (G) except in the ordinary course of business consistent with past practice, no licenses or rights have been granted to distribute the source code of, or to use the source code to create Derivative Works (as defined below) of, any product currently marketed by, commercially available from or under development by the Company or any of its subsidiaries for which the Company possesses the source code; and (H) the Company and each of its subsidiaries has taken all reasonable and necessary steps to protect their Intellectual Property and their rights thereunder, and to the knowledge of the Company no such rights to Intellectual Property have been lost or are 26 in jeopardy of being lost through failure to act by the Company or any of its subsidiaries. As used herein, "Derivative Work" shall mean a work that is based upon one or more preexisting works, such as a revision, enhancement, modification, abridgement, condensation, expansion or any other form in which such preexisting works may be recast, transformed or adapted, and which, if prepared without authorization of the owner of the copyright in such preexisting work, would constitute a copyright infringement. For purposes hereof, a Derivative Work shall also include any compilation that incorporates such a preexisting work as well as translation from one human language to another and from one type of code to another. (iii) For purposes of this Agreement, "Intellectual Property" shall mean trademarks (registered or unregistered), service marks, brand names, certification marks, trade dress, assumed names, trade names and other indications of origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patented, patentable or not in any jurisdiction; computer programs and software (including source code, object code and data), know-how and any other technology; trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any person; writings and other works, whether copyrighted, copyrightable or not in any jurisdiction; registration or applications for registration of copyrights in any jurisdic- tion, and any renewals or extensions thereof; any similar intellectual property or proprietary rights similar to any of the foregoing; licenses, immunities, covenants not to sue and the like relating to any of the foregoing; and any claims or causes of action arising out of or related to any infringement, misuse or misappropriation of any of the foregoing. (r) Business Combination Charter Provision. The approval of the Merger by the Board of Directors of the Company referred to in Section 3.01(d) constitutes approval of the Merger by the Continuing Directors (as defined in the Company's Articles of Incorporation) for purposes of Section 11.2 of such Articles of Incorporation and represents the only action necessary to ensure that such Section 11.2 does not and will not apply to the execution or delivery of this Agreement or the consummation of the Merger. 27 (s) State Takeover Statutes. The approval of the Merger by the Board of Directors of the Company referred to in Section 3.01(d) constitutes approval of the Merger for purposes of ORS 60.835 and represents the only action neces- sary to ensure that ORS 60.835 does not and will not apply to the execution or delivery of this Agreement or the consummation of the Merger. The consummation of the Merger will not constitute a "control share acquisition" for purposes of ORS 60.801 to ORS 60.816. No other state takeover or similar statute or regulation is applicable to this Agreement, the Merger or the other transactions contemplated by this Agreement. (t) Voting Requirements. The affirmative vote at the Shareholders Meeting or any adjournment or postponement thereof of the holders of a majority of the outstanding shares of Company Common Stock in favor of approving the Plan of Merger (the "Shareholder Approval") is the only vote of the holders of any class or series of the Company's capital stock necessary to approve or adopt this Agreement or the consummation of the transactions contemplated by this Agreement. (u) Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Morgan Stanley, Dean Witter, Discover & Co., the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission, or the reimbursement of expenses, in connection with the transactions contemplated by this Agreement based upon arrange ments made by or on behalf of the Company. The Company has delivered to Parent true and complete copies of all agreements under which any such fees or expenses are payable and all indemnification and other agreements related to the engagement of the persons to whom such fees are payable. The fees and expenses of any accountant, broker, financial advisor, consultant, legal counsel or other person retained by the Company in connection with this Agreement or the transactions contemplated hereby incurred or to be incurred by the Company in connection with this Agreement and the transactions contemplated by this Agreement will not exceed the fees and expenses set forth in Section 3.01(u) of the Company Disclosure Schedule. (v) Opinion of Financial Advisor. The Company has received the written opinion of Morgan Stanley, Dean Witter, Discover & Co., in customary form to the effect that, as of the date hereof, the consideration to be received in the Merger by the Company's shareholders is fair 28 to the Company's shareholders from a financial point of view, a copy of which opinion has been delivered to Parent. (w) Rights Agreement. The Company has taken all actions necessary to ensure that (i) the Rights Agreement and the Rights are and will be inapplicable to Parent and its subsidiaries; (ii) neither Parent nor any of its subsidiaries will be deemed to be an Acquiring Person (as defined in the Rights Agreement); (iii) neither a Distribution Date nor a Stock Acquisition Date (each as defined in the Rights Agreement) has occurred or will occur and the Rights have not and will not become separable, distributable, unredeemable or exercisable as a result of entering into this Agreement or consummating the Merger or the other transactions contemplated by this Agreement; and (iv) the Rights Agreement will terminate upon the earlier of the Final Expiration Date (as defined in the Rights Plan) and the Effective Time. (x) DP Applications, Inc. (i) Organizational Documents; Stock Ownership. The Company has delivered to Parent complete and correct copies of the articles of incorporation and by-laws of DP Applications, Inc., an Oregon corporation ("DP Applications"), as amended to the date hereof. The Company has delivered to Parent a complete and correct list, as of the close of business on July 6, 1999, of all the shareholders of DP Applications and the number of shares (categorized by class and series) of each class of capital stock of DP Applications owned by each shareholder. (ii) Contracts with the Company; Obligations of the Company. As of the date of this Agreement, Section 3.01(x)(ii) of the Company Disclosure Schedule sets forth all Contracts between DP Applications or its subsidiaries, on the one hand, and the Company or its subsi diaries, on the other hand. Neither the Company nor any of its subsidiaries has any material liability or obligation (whether fixed, contingent or otherwise) in respect of any liability or obligation of, or in any way arising out of or in connection with its ownership interest in or any act or omission of, DP Applications or any of its subsidiaries. SECTION 3.02. Representations and Warranties of Parent and Sub. Parent and Sub represent and warrant to the Company as follows: (a) Organization. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated (except, in the case of good standing, for 29 entities organized under the laws of any jurisdiction that does not recognize such concept) and has all requisite corporate power and authority to carry on its business as now being conducted. (b) Authority; Noncontravention. Parent and Sub have the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Sub and no other corporate proceedings on the part of Parent or Sub are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by Parent and Sub, as applicable, and constitutes a valid and binding obligation of Parent and Sub, as applicable, enforceable against Parent and Sub, as applicable, in accordance with its terms. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement do not and will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancelation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any provision of (i) the certificate of incorporation or by-laws of Parent or similar organizational documents of any subsidiary of Parent (including Sub), (ii) any Contract applicable to Parent or Sub or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any (A) statute, law, ordinance, rule or regulation or (B) judgment, order or decree, in each case, applicable to Parent or Sub or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses or Liens that individually or in the aggregate would not impair in any material respect the ability of each of Parent and Sub to perform its obligations under this Agreement or prevent or materially impede, interfere with, hinder or delay the consummation of any of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent or Sub in connection with the execution and 30 delivery of this Agreement by Parent and Sub or the consummation by Parent and Sub of the transactions contemplated by this Agreement, except for (1) the filing of a premerger notification and report form under the HSR Act or any other applicable competition, merger control, antitrust or similar law, (2) the filing of the Articles of Merger with the Oregon Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business and (3) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made individually or in the aggregate would not impair in any material respect the ability of Parent or Sub to perform its obligations under this Agreement or prevent or materially delay the consummation of any of the transactions contemplated by this Agreement. (c) Information Supplied. None of the information supplied or to be supplied by Parent or Sub specifi cally for inclusion or incorporation by reference in the Proxy Statement will (except to the extent revised or superseded by amendments or supplements contemplated hereby), at the date the Proxy Statement is first mailed to the Company's shareholders or at the time of Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. (d) Interim Operations of Sub. Sub was formed solely for the purpose of engaging in the transactions contemplated hereby and has engaged in no business other than in connection with the transactions contemplated by this Agreement. (e) Capital Resources. Parent has sufficient cash or access to cash to pay the aggregate Merger Consideration. ARTICLE IV Covenants Relating to Conduct of Business SECTION 4.01. Conduct of Business. (a) Conduct of Business by the Company. During the period from the date of this Agreement to the Effective Time, except as consented to in writing by Parent or as specifically contemplated by this Agreement, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the 31 ordinary course consistent with past practice and use commercially reasonable efforts to comply with all applicable laws, rules and regulations and, to the extent consistent therewith, use commercially reasonable efforts to preserve their assets and technology and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, except as consented to in writing by Parent or as specifically contemplated by this Agreement, the Company shall not, and shall not permit any of its subsidiaries to: (i) (x) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock except for dividends by a direct or indirect wholly owned subsidiary of the Company to its parent, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (z) purchase, redeem or otherwise acquire any shares of capital stock or any other securities of the Company or its subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or exchangeable for, or any options, warrants, calls or rights to acquire, any such shares, voting securities or convertible securities (other than (x) the issuance of Stock Options representing in the aggregate up to 250,000 shares of Company Common Stock during any calendar quarter, and in the aggregate up to 750,000 shares of Company Common Stock during the term of this Agreement, in the ordinary course of business consistent with past practice and with an exercise price per share at least equal to the market value of the Company Common Stock on the date of issuance (and with other material terms no more favorable to such employee than the terms of the Stock Options outstanding on the date of this Agreement that were issued under similar circumstances), to any employee of the Company (other than directors and officers of the Company) in connection with the hiring of such employee, the promotion of such employee or a compensation package granted to such employee in an effort to counter what the Company reasonably believes to have 32 been a bona fide offer of employment made to such employee by a third party, (y) the granting of rights that may arise under the ESPP, as the ESPP is in effect on the date of this Agreement or (z) the issuance of shares of Company Common Stock upon the exercise of Stock Options and Warrants in accordance with their terms and pursuant to the ESPP, as the ESPP is in effect on the date of this Agreement); (iii) amend its articles of incorporation or by-laws (or similar organizational documents) or take any action to cause or permit DP Applications to amend its articles of incorporation or by-laws; (iv) acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by purchasing all of or a substantial equity interest in, or by any other manner, any business or any corporation, partnership, joint venture, association or other entity or division thereof or (y) any assets other than inventory, components, raw materials and other immaterial assets in the ordinary course of business consistent with past practice; (v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties or assets, except sales of inventory or used equipment in the ordinary course of business consistent with past practice; (vi) (x) repurchase, prepay or incur any indebtedness or guarantee any indebtedness of another person or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business consistent with past practice or (y) make any loans, advances or capital contributions to, or investments in, any other person, other than the Company or any direct or indirect wholly owned subsidiary of the Company; (vii) incur or commit to any capital expenditures, or any obligations or liabilities in connection therewith, in any manner materially inconsistent with the Company's current capital budget, a true and complete 33 copy of which (including all back-up materials) has been provided to Parent prior to the date hereof; (viii) pay, discharge, settle or satisfy any claims (including claims of shareholders), liabilities or obligations (whether absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or as required by their terms as in effect on the date hereof, of claims, liabilities or obligations reflected or reserved against in the most recent audited financial statements (or the notes thereto) of the Company included in the Filed SEC Documents (for amounts not in excess of such reserves) or incurred since the date of such financial statements in the ordinary course of business consistent with past practice, waive, release, grant or transfer any right of material value other than in the ordinary course of business consistent with past practice, or waive any material benefits of, or agree to modify in any adverse respect, or fail to enforce, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (ix) modify, amend or terminate any Contract to which the Company or such subsidiary is a party or waive, release or assign any rights or claims thereunder, in each case in a manner materially adverse to the Company and its subsidiaries, taken as a whole, and, in particular, modify or amend the Aircraft Lease Agreement dated as of October 1, 1996, between the Company and CP Transportation, Inc. to cause the expiration date of such Contract to be later than the expiration date set forth in such Contract on the date of this Agreement (which expiration date is hereby represented and warranted to be October 1, 1999) or, if later, the Effective Time; (x) enter into any Contract with the persons listed on Schedule 4.01(x) of the Company Disclosure Schedule; (xi) enter into any Contract with DP Applications or any of its subsidiaries, except any Contract relating to joint installation, maintenance and/or service programs with respect to bundled systems and software produced by the Company and DP Applications (provided that the revenue per product unit of DP Applications sold pursuant to any such Contract shall not be greater than the amount DP Applications would be 34 expected to receive if such DP Applications product units were sold separately from any products or services of the Company); (xii) enter into any material Contract not otherwise prohibited by any other provision of this Agreement, including any arrangements involving material Intellectual Property; provided, however, that for purposes of this clause (xii), the following shall be deemed not to be material if entered into in the ordinary course of business consistent with past practice: (A) Contracts with users of the Company's or any of its subsidiaries' products or services relating to the sale or license of such products or services, (B) Contracts with distributors or resellers of the Company's or any of its subsidiaries' products or services, (C) licenses by the Company or any of its subsidiaries of technology that is included in or with the products of the Company or any of its subsidiaries, (D) Contracts that have aggregate future sums due from the Company or any of its subsidiaries in an amount not to exceed $2,500,000 and that are terminable by the Company or such subsidiary for a cost of less than $250,000, (E) Contracts with third party service providers to provide services to the customers of the Company or any of its subsidiaries, (F) real property leases, real property maintenance Contracts and similar Contracts related to real property leases (provided that each such contract shall be for a period no longer than one year), (G) consulting services Contracts and (H) currency exchange swap agreements, currency exchange cap agreements or currency exchange collar agreements (other than those entered into for speculative purposes); (xiii) except as otherwise specifically contemplated by this Agreement or as required to comply with applicable law or any Contract or Benefit Plan existing on the date hereof, (A) pay to any current or former director, officer or employee of the Company any benefit not provided for under any Benefit Plan, other than the payment of cash compensation in the ordinary course of business consistent with past practice, (B) except to the extent expressly permitted under Section 4.01(a)(ii), grant any awards under any Benefit Plan (including the grant of stock options, stock appreciation rights, stock based or stock related awards, performance units or restricted stock or the removal of existing restrictions in any Contract or Benefit Plan or awards made thereunder), (C) take any action to fund or in any other way secure the payment 35 of compensation or benefits under any Contract or Benefit Plan or (D) take any action to accelerate the vesting or payment of any compensation or benefit under any Benefit Plan; (xiv) except as otherwise specifically contemplated by this Agreement, take any action that would or is reasonably likely to result in (A) any representation and warranty of the Company set forth in this Agreement that is qualified as to materiality or material adverse effect becoming untrue (as so qualified), (B) any such representation and warranty that is not so qualified becoming untrue in any material respect or (C) any condition to the Merger set forth in Article VI not being satisfied; or (xv) authorize any of, or commit, resolve or agree to take any of, the foregoing actions. (b) Certain Tax Matters. During the period from the date of this Agreement to the Effective Time, (i) the Company and each of its subsidiaries shall timely file all Federal, state and local, domestic and foreign, income and franchise tax returns and reports and all other material tax returns and reports ("Post-Signing Returns") required to be filed by each such entity (after taking into account any extensions); (ii) the Company and each of its subsidiaries will timely pay all taxes due and payable in respect of such Post-Signing Returns that are so filed; (iii) the Company will accrue a reserve in its books and records and financial statements in accordance with past practice for all taxes payable by the Company or any of its subsidiaries for which no Post-Signing Return is due prior to the Effective Time; (iv) the Company and each of its subsidiaries will promptly notify Parent of any suit, claim, action, investigation, proceeding or audit (collectively, "Actions") pending against or with respect to the Company or any of its subsidiaries in respect of any tax where there is a reasonable possibility of a determination or decision that is reasonably likely to have a material adverse effect on the Company's or any of its subsidiaries' tax liabilities or tax attributes and will not settle or compromise any such Action without Parent's consent; and (v) none of the Company or any of its subsidiaries will make or change any material tax election without Parent's consent, which consent shall not be unreasonably withheld. (c) Advice of Changes; Filings. The Company shall confer with Parent at the times that Parent shall reasonably request (which is expected to be on a regular and frequent basis) to report on operational matters and other 36 matters requested by Parent, other than patent applications. The Company and Parent shall each promptly provide the other copies of all filings made by such party with any Governmental Entity in connection with this Agreement and the transactions contemplated hereby, other than the portions of such filings that include confidential information not directly related to the transactions contemplated by this Agreement. SECTION 4.02. No Solicitation. (a) The Company shall not, nor shall it permit any of its subsidiaries to, or authorize or permit any director, officer or employee of the Company or any of its subsidiaries or any investment banker, attorney, accountant or other advisor or representative of the Company or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage, or take any other action knowingly to facilitate, any Takeover Proposal (as defined below) or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, any Takeover Proposal; provided, however, that if, at any time prior to obtaining the Shareholder Approval, the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's shareholders under applicable law, the Company and its representatives may, in response to a Superior Proposal (as defined in Section 4.02(b)) that was unsolicited and that did not otherwise result from a breach of this Section 4.02(a), and subject to compliance with Section 4.02(c), (x) furnish information with respect to the Company and its subsidiaries to any person making such Superior Proposal (and its representatives) pursuant to a customary confidentiality agreement (which confidentiality agreement contains terms that are equivalent to, and in no respect less favorable to the Company than, the terms of the Confidentiality Agreement dated June 25, 1999, between Parent and the Company (as it may be amended from time to time, the "Confidentiality Agreement")) and (y) participate in discussions or negotiations with the person making such Superior Proposal (and its representatives) regarding such Superior Proposal; and provided further that if the Company has received an unsolicited Takeover Proposal which (i) specifies consideration with a higher value than the consideration payable in the Merger, (ii) does not contain any term or condition that would result in such Takeover Proposal failing any of the criteria for a Superior Proposal set forth in the definition thereof and (iii) the Board of Directors of the Company determines in good faith that such Takeover Proposal might constitute a Superior Proposal but cannot definitively make such determination without 37 obtaining certain additional information relating to such Takeover Proposal or the person making such Takeover Proposal, then such Board of Directors may send a written communication to such person requesting such additional information (and only such additional information) as is necessary for such Board of Directors to make such determination. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any director, officer or employee of the Company or any of its subsidiaries or any investment banker, attorney, accountant or other advisor or representative of the Company or any of its subsidiaries shall be deemed to be a breach of this Section 4.02(a) by the Company. For purposes of this Agreement, "Takeover Proposal" means any inquiry, proposal or offer from any person relating to, or that is reasonably likely to lead to, (i) any direct or indirect acquisition or purchase of a business that constitutes 20% or more of the total revenue, operating income or assets of the Company and its subsidiaries, taken as a whole, or 20% or more of the outstanding shares of Company Common Stock or of any class of capital stock or other equity or voting interests in any of its subsidiaries, (ii) any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of the voting power of Company Common Stock or (iii) any merger, consolidation, share exchange (as defined in ORS 60.484), business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries, other than the transactions contemplated by this Agreement. (b) Neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Parent or Sub, the adoption, approval or recommendation by such Board of Directors or any such committee of this Agreement or the Merger, (ii) adopt, approve or recommend, or publicly propose to adopt, approve or recommend, any Takeover Proposal or (iii) cause or agree to cause the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement (each, an "Acquisition Agreement") constituting or related to, or which is intended to or is reasonably likely to lead to, any Takeover Proposal (other than a confidentiality agreement referred to in Section 4.02(a) entered into under the circumstances referred to in such Section 4.02(a)). Notwithstanding the foregoing, if, at any time prior to obtaining the Shareholder Approval, the Board of Directors 38 of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's shareholders under applicable law, the Board of Directors of the Company may, in response to a Superior Proposal that was unsolicited and that did not otherwise result from a breach of Section 4.02(a), cause the Company to terminate this Agreement if, and only if, the Company shall concurrently with such termination enter into a definitive Acquisition Agreement containing the terms of a Superior Proposal; provided, however, that the Company shall not terminate this Agreement pursuant to this Section 4.02(b), and any pur- ported termination pursuant to this Section 4.02(b) shall be void and of no force or effect, unless the Company shall have complied with all the provisions of this Section 4.02, including the notification provisions in this Section 4.02, and with all applicable requirements of Section 5.06(b), including the payment of the Termination Fee (as defined in Section 5.06(b)) prior to such termination; and provided further, however, that the Company shall not exercise its right to terminate this Agreement pursuant to Section 4.02(b) until after the fifth business day (the "Match Period Expiration Date") following Parent's receipt of written notice (a "Notice of Superior Proposal") advising Parent that the Board of Directors of the Company has received a Superior Proposal and that such Board of Directors will, subject to any action taken by Parent pursuant to this sentence, cause the Company to accept such Superior Proposal, specifying the material terms and conditions of the Superior Proposal and identifying the person making such Superior Proposal (it being understood and agreed that any amendment to the price or any other material term of a Superior Proposal shall require an additional Notice of Superior Proposal and, if the Match Period Expiration Date would otherwise occur less than two business days from the date of such Notice of Superior Proposal relating to such amendment, the Match Period Expiration Date shall be extended until two business days after the receipt of such Notice of Superior Proposal). For purposes of this Agreement, a "Superior Proposal" means any bona fide proposal made by a third party which would result in such third party (or in the case of a direct merger between such third party and the Company, the shareholders of such third party) acquiring, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, share exchange (as defined in ORS 60.484), business combination, share purchase, asset purchase, recapitalization, liquidation, dissolution or similar transaction, more than 50% of the voting power of the Company Common Stock or all or substantially all the 39 assets of the Company and its subsidiaries, taken as a whole, for consideration consisting of cash and/or securities that the Board of Directors of the Company determines in its good faith judgment (after consultation with a financial advisor of nationally recognized reputation) to have a higher value than the consideration payable in the Merger and which proposal is determined in good faith by the Board of Directors of the Company to be more favorable to the Company's shareholders than the Merger, in each case taking into account any changes to the terms of this Agreement proposed by Parent in response to such Superior Proposal or otherwise. (c) In addition to the obligations of the Company set forth in paragraphs (a) and (b) of this Section 4.02, the Company promptly shall advise Parent orally and in writing of any request for information that the Company reasonably believes could lead to a Takeover Proposal or of any Takeover Proposal, or any inquiry the Company reasonably believes could lead to any Takeover Proposal, the terms and conditions of such request, Takeover Proposal or inquiry, including any subsequent amendment or other modification to such terms and conditions, and the identity of the person making any such request, Takeover Proposal or inquiry. On a daily basis, the Company will confer with Parent regarding (i) the progress of negotiations concerning any Takeover Proposal, the material resolved and unresolved issues related thereto and any other matters identified with reasonable specificity by Parent and (ii) the material details (including material amendments or proposed amendments as to price and other material terms) of any such request, Takeover Proposal or inquiry. (d) Nothing contained in this Section 4.02 or elsewhere in this Agreement shall prohibit the Company from (i) taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or (ii) making any disclosure to the Company's shareholders if, in the good faith judgment of a majority of the members of the Board of Directors of the Company, after consultation with outside counsel, failure so to disclose would be inconsistent with applicable laws; provided that none of the Company nor its Board of Directors nor any committee thereof shall withdraw or modify, or publicly propose to withdraw or modify, its position with respect to this Agreement or the Merger or approve or recommend, or propose to approve or recommend, a Takeover Proposal (it being understood that disclosure of the delivery of a Notice of Superior Proposal (as contemplated by Section 4.02(b)) shall not violate this Section 4.02(d) or any other provision of this Agreement). 40 SECTION 4.03. Conduct by Parent. During the period from the date of this Agreement to the Effective Time, except as consented to in writing by the Company or as specifically contemplated by this Agreement, Parent shall not, and shall not permit any of its subsidiaries to, take any action that would or is reasonably likely to result in (i) any representation and warranty of Parent set forth in this Agreement that is qualified as to materiality becoming untrue, (ii) any such representation and warranty that is not so qualified becoming untrue in any material respect or (iii) any condition to the Merger set forth in Article VI not being satisfied. ARTICLE V Additional Agreements SECTION 5.01. Preparation of the Proxy Statement; Shareholders Meeting. (a) As promptly as practicable following the date of this Agreement, the Company shall prepare and file with the SEC the Proxy Statement and the Company shall use its reasonable best efforts to respond as promptly as practicable to any comments of the SEC with respect thereto and to cause the Proxy Statement to be mailed to the Company's shareholders as promptly as practicable following the date of this Agreement. Parent shall furnish to the Company all information concerning itself as may be reasonably requested in connection with the preparation, filing and distribution of the Proxy Statement. The Company shall promptly notify Parent upon the receipt of any comments from the SEC or its staff or any request from the SEC or its staff for amendments or supplements to the Proxy Statement and shall provide Parent with copies of all correspondence between the Company and its representatives, on the one hand, and the SEC and its staff, on the other hand. Notwithstanding anything to the contrary stated above, prior to filing or mailing the Proxy Statement (or any amendment or supplement thereto) or responding to any comments of the SEC with respect thereto, the Company (i) shall provide Parent an opportunity to review, comment on and approve such document or response, (ii) shall include in such document or response all comments reasonably proposed by Parent and (iii) and shall not file or mail such document or respond to the SEC prior to receiving Parent's approval, which approval shall not be unreasonably withheld or delayed. (b) The Company shall, as promptly as practicable following the date of this Agreement, establish a record date (which will be as promptly as practicable following the 41 date of this Agreement) for, duly call, give notice of, convene and hold a meeting of its shareholders (the "Shareholders Meeting") for the purpose of obtaining the Shareholder Approval. The Company shall, through its Board of Directors, recommend to its shareholders that they approve this Agreement, and shall include such recommendation in the Proxy Statement. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to this Section 5.01(b) shall not be affected by the commencement, public proposal, public disclosure or communication to the Company or any other person of any Takeover Proposal. SECTION 5.02. Access to Information; Confidentiality. The Company shall, and shall cause each of its subsidiaries to, afford to Parent, and to Parent's officers, employees, investment bankers, attorneys, accountants and other advisors and representatives, reasonable access during normal business hours during the period prior to the Effective Time or the termination of this Agreement to all their respective properties, books, contracts, commitments, directors, officers, attorneys, accountants, auditors (and, to the extent within the Company's control, former auditors), other advisors and representatives and records and, during such period, the Company shall, and shall cause each of its subsidiaries to, make available to Parent (a) a copy of each report, schedule, form, statement and other document filed or received by it during such period pursuant to the requirements of Federal, state, local or foreign laws and (b) all other information concerning its business, properties and personnel as Parent may reasonably request (including the work papers of Deloitte & Touche LLP and PriceWaterhouseCoopers LLP); provided, however, that the foregoing shall not entitle Parent or its officers, employees, investment bankers, attorneys, accountants or other advisors and representatives to have access to any patent application of the Company or any of its subsidiaries. Except as required by law, Parent will hold, and will direct its officers, employees, investment bankers, attorneys, accountants and other advisors and representatives to hold, any and all information received from the Company, directly or indirectly, in confidence in accordance with the Confidentiality Agreement. SECTION 5.03. Reasonable Best Efforts; Notification. (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, that are necessary, proper or advisable to consummate and make effective the Merger and the other transactions contemplated by this Agreement, including using 42 its reasonable best efforts to accomplish the following: (i) the taking of all reasonable acts necessary to cause the conditions precedent set forth in Article VI to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Entities, if any), (iii) the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding by any Governmental Entity and (iv) the obtaining of all necessary consents, approvals or waivers from third parties. In connection with and without limiting the foregoing, the Company and its Board of Directors shall, if any state takeover statute or similar statute or regulation is or becomes applicable to this Agreement, the Merger or any of the other transactions contemplated by this Agreement, use its reasonable best efforts to ensure that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger, this Agreement and the other transactions contemplated by this Agreement. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, in no event shall any party hereto be obligated to (A) agree to, or proffer to, divest or hold separate, or enter into any licensing or similar arrangement with respect to, any assets (whether tangible or intangible) or any portion of any business of Parent, the Company or any of their respective subsidiaries or (B) litigate any suit, claim, action, investigation or proceeding, whether judicial or administra- tive, (1) challenging or seeking to restrain or prohibit the consummation of the Merger; (2) seeking to prohibit or limit in any material respect the ownership or operation by the Company, Parent or any of their respective affiliates of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a whole, or to require any such person to dispose of or hold separate any material portion of the business or assets of the Company and its subsi- diaries, taken as a whole, or Parent and its subsidiaries, taken as a whole, as a result of the Merger; or (3) seeking to prohibit Parent or any of its affiliates from effectively controlling in any material respect a substantial portion of the business or operations of the Company or its subsidiaries. The Company and Parent will provide such assistance, information and cooperation to each other as is reasonably required to obtain any such nonactions, waivers, consents, approvals, orders and authorizations and, in 43 connection therewith, will notify the other person promptly following the receipt of any comments from any Governmental Entity and of any request by any Governmental Entity for amendments, supplements or additional information in respect of any registration, declaration or filing with such Governmental Entity and will supply the other person with copies of all correspondence between such person or any of its representatives, on the one hand, and any Governmental Entity, on the other hand. (b) The Company shall give prompt notice to Parent of any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate such that the condition set forth in Section 6.02(a) would not be satisfied; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. (c) Parent shall give prompt notice to the Company of any representation or warranty made by it or Sub contained in this Agreement becoming untrue or inaccurate such that the condition set forth in Section 6.03(a) would not be satisfied; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. (d) Without limiting the generality of the foregoing, the Company shall give Parent the opportunity to participate in the defense of any litigation against the Company and/or its directors relating to the transactions contemplated by this Agreement, it being understood and agreed that this Section 5.03(d) shall not give Parent the right to direct such defense. SECTION 5.04. Stock Options. (a) As soon as practicable following the date of this Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering the Company Stock Plans) shall adopt such resolutions or take such other actions (if any) as may be required to effect the following: (i) each Stock Option outstanding immediately prior to the Effective Time shall be converted into an option to acquire, on the same terms and conditions as were applicable under the Stock Option, the number of shares of Parent common stock, par value $0.50 per share ("Parent Common Stock") (rounded down to the nearest whole share) determined by multiplying the number of shares of Company Common Stock subject to 44 such Stock Option by a fraction (the "Option Exchange Ratio"), the numerator of which is the Merger Consideration and the denominator of which is the average closing price of Parent Common Stock on the New York Stock Exchange Composite Transactions Tape on the ten trading days immediately preceding the date on which the Effective Time occurs at an exercise price per share of Parent Common Stock equal to (1) the per share exercise price for the shares of Company Common Stock otherwise purchasable pursuant to such Stock Option divided by (2) the Option Exchange Ratio (each, as so adjusted, an "Adjusted Option"), provided that such exercise price shall be rounded up to the nearest whole cent; provided, however, that (x) each holder of a Stock Option issued under the 1989 Stock Incentive Plan or the 1995 Stock Incentive Plan may, for a period of 30 days following the receipt of Shareholder Approval, elect to receive a cash payment in cancellation of such Stock Option in accordance with the terms of such Company Stock Plan and (y) each holder of a Stock Option issued under the 1987 Employee Stock Option Plan, the 1996 Stock Option Plan or the 1997 Stock Option Plan may elect to have any Stock Option owned by such holder converted immediately following the Effect Time into the right to receive an amount of cash equal to (1) the product of (x) the number of shares of Company Common Stock subject to such Stock Option and (y) the Merger Consideration, minus (2) the product of (x) the number of shares of Company Common Stock subject to such Stock Option and (y) the per share exercise price of such Stock Option; and (ii) make such other changes to the Company Stock Plans as Parent and the Company may agree are appropriate to give effect to the Merger. (b) The adjustments provided herein with respect to any Stock Options that are "incentive stock options" as defined in Section 422 of the Code shall be and are intended to be effected in a manner which is consistent with Section 424(a) of the Code. (c) At the Effective Time, by virtue of the Merger and without the need of any further corporate action, Parent shall assume the Company Stock Plans, with the result that all obligations of the Company under the Company Stock Plans, including with respect to Stock Options outstanding at the Effective Time, shall be obligations of Parent following the Effective Time. 45 (d) Prior to the Effective Time, Parent shall prepare and file with the SEC a registration statement on Form S-8 (or another appropriate form) registering a number of shares of Parent Common Stock equal to the number of shares subject to the Adjusted Options. Such registration statement shall be kept effective (and the current status of the prospectus or prospectuses required thereby shall be maintained) as long as any Adjusted Options may remain outstanding. (e) As soon as practicable after the Effective Time, Parent shall deliver to the holders of Stock Options appropriate notices setting forth such holders' rights pursuant to the respective Company Stock Plans and the agreements evidencing the grants of such Stock Options and that such Stock Options and agreements shall be assumed by Parent and shall continue in effect on the same terms and conditions (subject to the adjustments and vesting acceleration required by this Section 5.04 after giving effect to the Merger). (f) A holder of an Adjusted Option may exercise such Adjusted Option in whole or in part in accordance with its terms by delivering a properly executed notice of exercise to Parent, together with the consideration therefor and the Federal withholding tax information, if any, required in accordance with the related Company Stock Plan. SECTION 5.05. Indemnification, Exculpation and Insurance. (a) Parent and Sub agree that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time (and rights for advancement of expenses) now existing in favor of the current or former directors or officers of the Company and its subsidiaries as provided in their respective articles of incorporation or by-laws (or comparable organizational documents) and any indemnification or other agreements of the Company as in effect on the date hereof shall be assumed by the Surviving Corporation in the Merger, without further action, at the Effective Time and shall survive the Merger and shall continue in full force and effect in accordance with their terms. (b) In the event that the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all its properties and assets to any person, then, and in each such case, Parent shall cause proper provision to be made so 46 that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 5.05. (c) For six years after the Effective Time, Parent shall maintain in effect the Company's current directors' and officers' liability insurance covering each person currently covered by the Company's directors' and officers' liability insurance policy for acts or omissions occurring prior to the Effective Time on terms with respect to such coverage and amounts no less favorable than those of such policy in effect on the date hereof; provided that Parent may substitute therefor policies of a reputable insurance company the material terms of which, including coverage and amount, are no less favorable to such directors and officers than the insurance coverage otherwise required under this Section 5.05(c); provided however, that in no event shall Parent be required to pay aggregate premiums for insurance under this Section 5.05(c) in excess of 150% of the amount of the aggregate premiums paid by the Company in 1998 on an annualized basis for such purpose (which 1998 annualized premiums are hereby represented and warranted by the Company to be $192,000), provided that Parent shall nevertheless be obligated to provide such coverage as may be obtained for such 150% amount. (d) The provisions of this Section 5.05 (i) are intended to be for the benefit of, and will be enforceable by, each indemnified party, his or her heirs and his or her representatives and (ii) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise. SECTION 5.06. Fees and Expenses. (a) All fees and expenses incurred in connection with the Merger, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated. (b) In the event that (i) (A) a Takeover Proposal shall have been made known to the Company or has been made directly to its shareholders or any person has announced an intention (whether or not conditional) to make a Takeover Proposal, (B) thereafter this Agreement is terminated by either Parent or the Company pursuant to Section 7.01(b)(i) (but only if the Shareholders Meeting has not been held by the date that is five business days prior to the date of such termination) or 7.01(b)(iii) and (C) within 12 months after such termination, the Company or any of its subsidiaries enters into any Acquisition Agreement with respect to, or consummates, any Takeover Proposal (solely for pur- 47 poses of this Section 5.06(b)(i)(C), the term "Takeover Proposal" shall have the meaning set forth in clauses (i), (ii) and (iii) of such definition in Section 4.02(a) except that (I) all references to 20% shall be deemed references to 40%, (II) the reference in such definition to capital stock or other voting or equity interests of the subsidiaries of the Company shall be disregarded and (III) the reference to subsidiaries in clause (iii) of such definition shall be disregarded except with respect to transactions including subsidiaries which would have any of the effects set forth in clause (i) of such definition), (ii) this Agreement is terminated by the Company pursuant to Section 4.02(b) or (iii) this Agreement is terminated by Parent pursuant to Section 7.01(c), then the Company shall pay Parent a fee equal to $25 million (the "Termination Fee") by wire transfer of same day funds (1) in the case of a termination pursuant to Section 4.02(b), prior to such termination, (2) in the case of a termination pursuant to Section 7.01(c), within two days after such termination and (3) in the case of a payment as a result of any event referred to in Section 5.06(b)(i)(C), upon the first to occur of such events. The Company acknowledges that the agreements contained in this Section 5.06(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent would not enter into this Agreement; accordingly, if the Company fails promptly to pay the amounts due pursuant to this Section 5.06(b), and, in order to obtain such payment, Parent commences a suit that results in a judgment against the Company for the amounts set forth in this Section 5.06(b), the Company shall pay to Parent its reasonable costs and expenses (including attorneys' fees and expenses) in connection with such suit and any appeal relating thereto, together with interest on the amounts set forth in this Section 5.06(b) at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made. SECTION 5.07. Benefits Matters. (a) The Company shall take all necessary actions so that as of the Effective Time, no former or current director, officer or employee of DP Applications, in his or her capacity as such, shall be entitled actively to participate in any employee welfare benefit plan, employee pension benefit plan or other Benefit Plan of the Company. (b) Following the Effective Time, the Surviving Corporation shall honor, or cause to be honored, all obligations under employment agreements and Benefit Plans of the Company in accordance with the terms thereof. Nothing herein shall be construed to prohibit the Surviving Corporation from amending or terminating such agreements and 48 Benefit Plans in accordance with the terms thereof and with applicable law. (c) The Company shall amend the ESPP on the date of this Agreement to provide that (i) participation in the ESPP shall be limited to those employees who were participants on June 9, 1999, (ii) such participants may not increase their payroll deductions or purchase elections from those in effect on June 9, 1999, (iii) no offering periods shall be commenced after the date of this Agreement, (iv) an additional Purchase Date (as defined in the ESPP) shall be set by the Board of Directors of the Company, which additional Purchase Date shall be the trading day immediately prior to the day on which the Effective Time shall occur (the "Final Purchase Date") and (v) immediately following the purchase of Company Common Stock on the Final Purchase Date, the ESPP shall terminate. SECTION 5.08. Public Announcements. Parent and Sub, on the one hand, and the Company, on the other hand, will, to the extent reasonably practicable, consult with each other before issuing, and give each other a reasonable opportunity to review and comment upon, any press release or other public statements with respect to this Agreement, the Merger and the other transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange or national securities quotation system. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties. SECTION 5.09. Rights Agreement. The Board of Directors of the Company shall take all further action (in addition to that referred to in Section 3.01(w)) reasonably requested in writing by Parent in order to render the Rights inapplicable to the Merger and the other transactions contemplated by this Agreement to the extent provided herein. Except as provided above with respect to the Merger and the other transactions contemplated hereby, the Board of Directors of the Company shall not, without the written consent of Parent (a) amend the Rights Agreement or (b) take any action with respect to, or make any determination under, the Rights Agreement, including a redemption of the rights or any action to facilitate a Takeover Proposal. 49 ARTICLE VI Conditions Precedent SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Shareholder Approval. The Shareholder Approval shall have been obtained. (b) Antitrust. Any waiting period (and any extension thereof) applicable to the Merger under the HSR Act or any other applicable competition, merger control, antitrust or similar law shall have been terminated or shall have expired. (c) No Injunctions or Legal Restraints. No temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition (collectively, "Legal Restraints") which has the effect of preventing the consummation of the Merger shall be in effect. SECTION 6.02. Conditions to Obligations of Parent and Sub. The obligations of Parent and Sub to effect the Merger are further subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Representations and Warranties. The representations and warranties of the Company contained herein that are qualified as to materiality shall be true and correct (as so qualified), and the representations and warranties of the Company contained herein that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the Closing Date except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date. Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and chief financial officer of the Company to such effect. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it 50 under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (c) No Litigation. There shall not be pending any suit, action or proceeding brought by any Governmental Entity, or any suit, action or proceeding with a reasonable possibility of success brought by any other third party (in the case of any such other third party, excluding suits, actions and proceedings based upon state law fiduciary duty claims related to the transactions contemplated by this Agreement), (i) challenging or seeking to restrain or prohibit the consummation of the Merger; or (ii) seeking to prohibit or limit in any material respect the ownership or operation by the Company, Parent or any of their respective affiliates of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a whole, or to require any such person to dispose of or hold separate any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a whole, as a result of the Merger; or (iii) seeking to prohibit Parent or any of its affiliates from effectively controlling in any material respect a substantial portion of the business or operations of the Company or its subsidiaries. (d) Legal Restraint. No Legal Restraint that could reasonably be expected to result, directly or indirectly, in any of the effects referred to in clauses (i) through (iii) of paragraph (c) of this Section 6.02 shall be in effect. (e) Consents. Parent shall have received evidence, in form and substance reasonably satisfactory to it, that Parent or the Company shall have obtained (i) all material consents, approvals, authorizations, qualifications and orders of all Governmental Entities legally required to effect the Merger, (ii) all other consents, approvals, authorizations, qualifications and orders of Governmental Entities or third parties required in connection with this Agreement and the transactions contemplated by this Agreement, except, in the case of this clause (ii), for those the failure of which to be obtained individually or in the aggregate are not reasonably likely to have a material adverse effect on the Company, and (iii) the consents, 51 approvals and waivers referred to on Schedule 6.02(e) of the Company Disclosure Schedule. (f) Warrants. The Company shall have no Warrants outstanding. SECTION 6.03. Conditions to Obligation of the Company. The obligation of the Company to effect the Merger is further subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Representations and Warranties. The representations and warranties of Parent and Sub contained herein that are qualified as to materiality shall be true and correct (as so qualified), and the representations and warranties of Parent contained herein that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the Closing Date except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date. The Company shall have received a certificate signed on behalf of Parent by an authorized signatory of Parent to such effect. (b) Performance of Obligations of Parent and Sub. Parent and Sub shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent by an authorized signatory of Parent to such effect. SECTION 6.04. Frustration of Closing Conditions. None of the Company, Parent or Sub may rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by such party's failure to use reasonable best efforts to consummate the Merger and the other transactions contemplated by this Agreement, as required by and subject to Section 5.03. 52 ARTICLE VII Termination, Amendment and Waiver SECTION 7.01. Termination. This Agreement may be terminated, and the Merger contemplated hereby may be abandoned, at any time prior to the Effective Time, whether before or after the Shareholder Approval has been obtained: (a) by mutual written consent of Parent, Sub and the Company; (b) by either Parent or the Company: (i) if the Merger shall not have been consummated by April 30, 2000 for any reason; provided, however, that the right to terminate this Agreement under this Section 7.01(b)(i) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement; (ii) if any Legal Restraint having the effect set forth in Section 6.01(c) shall be in effect and shall have become final and nonappealable; or (iii) if the Shareholder Approval shall not have been obtained at the Shareholders Meeting duly convened therefor or at any adjournment or postponement thereof; or (c) by Parent if the Board of Directors of the Company or any committee thereof shall have failed to reconfirm its recommendation referred to in Section 5.01(b) within ten business days (a "Reconfirmation Period") after a written request to do so, provided that such request is made following the making of a Takeover Proposal; and provided, further, that if during such Reconfirmation Period the Company delivers to Parent a Notice of Superior Proposal, then such Reconfirmation Period shall not expire prior to the Match Period Expiration Date (including any extension thereof) related to such Notice of Superior Proposal. (d) by Parent (i) if the Company shall have breached in any material respect any of its representa- 53 tions, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.02(a) or 6.02(b), and (B) has not been or is incapable of being cured by the Company within 30 business days after its receipt of written notice thereof from Parent; or (ii) if any Legal Restraint having any of the effects referred to in clauses (i) through (iv) of Section 6.02(c) shall be in effect and shall have become final and nonapplicable; (e) by the Company, if Parent shall have breached in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 6.03(a) or 6.03(b), and (ii) has not been or is incapable of being cured by Parent within 30 business days after its receipt of written notice thereof from the Company; (f) by the Company, in accordance with, and subject to the terms and conditions of, Section 4.02(b); SECTION 7.02. Effect of Termination. In the event of termination of this Agreement by either the Company or Parent as provided in Section 7.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Sub or the Company, other than the provisions of Section 3.01(u), the last sentence of Section 5.02, Section 5.06, this Section 7.02 and Article VIII and except to the extent that such termination results from a willful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement. SECTION 7.03. Amendment. This Agreement may be amended by the parties hereto at any time, whether before or after the Shareholder Approval has been obtained; provided, however, that after the Shareholder Approval has been obtained, there shall be made no amendment that by law requires further approval by shareholders of the parties without the further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other 54 acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (c) waive compliance with any of the agreements or conditions contained herein; provided, however, that after the Shareholder Approval has been obtained, there shall be made no waiver that by law requires further approval by shareholders of the parties without the further approval of such shareholders. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure or delay by any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights nor shall any single or partial exercise by any party to this Agreement of any of its rights under this Agreement preclude any other or further exercise of such rights or any other rights under this Agreement. ARTICLE VIII General Provisions SECTION 8.01. Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 8.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. SECTION 8.02. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): if to Parent or Sub, to: International Business Machines Corporation New Orchard Road Armonk, NY 10504 Attention: Mr. Lee A. Dayton 55 with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Attention: Allen Finkelson, Esq. Scott A. Barshay, Esq. if to the Company, to: Sequent Computer Systems, Inc. 15450 S.W. Koll Parkway Beaverton, OR 97006 Attention: Mr. Robert S. Gregg with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: Larry Sonsini, Esq. SECTION 8.03. Definitions. For purposes of this Agreement: (a) an "affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person; (b) as it relates to the Company, "knowledge" means, with respect to any matter in question, that any of the chief executive officer, chief financial officer or any other executive officer of the Company has actual knowledge of such matter. (c) "material adverse effect" means any state of facts, change, development, effect or occurrence that is materially adverse to the business, properties, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, other than any state of facts, change, effect or occurrence principally attributable to (i) the economy in general or the Company's industry in general and not specifi- cally relating to the Company or any of its Subsidiaries (ii) any securities class action litigation against the Company arising out of the transactions 56 contemplated hereby or (iii) a shortfall in the revenues of the Company and its subsidiaries, taken as a whole, that results from delays of customer orders attributable to the announcement of the Merger; (d) "person" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity; and (e) a "subsidiary" of any person means another person of which more than 50% of any class of capital stock, voting securities or other equity interests are owned or controlled, directly or indirectly, by such first person; provided, however, that, for purposes of this Agreement, DP Applications shall not be a subsidiary of Parent. SECTION 8.04. Interpretation. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". SECTION 8.05. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement (a) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Section 5.05, are not intended to confer upon any person other than the parties hereto any rights or remedies. SECTION 8.07. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent the laws of the State of Oregon are mandatorily applicable to the Merger. 57 SECTION 8.08. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Sub of any of its obligations here- under. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. SECTION 8.09. Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the partes shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of New York or the State of Oregon or in any New York state court or any Oregon state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any court of the United States located in the State of New York or the State of Oregon or of any New York state court or any Oregon state court in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or the transactions contemplated 58 by this Agreement in any court other than a court of the United States located in the State of New York or the State of Oregon or a New York state court or an Oregon state court. 59 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. INTERNATIONAL BUSINESS MACHINES CORPORATION, by LEE A. DAYTON ------------------------------------ Name: Lee A. Dayton Title: Vice President, Corporate Development and Real Estate PATHFINDER ACQUISITION CORP., by LEE A. DAYTON ------------------------------------ Name: Lee A. Dayton Title: Vice President, Corporate Development and Real Estate SEQUENT COMPUTER SYSTEMS, INC., by KARL C. POWELL, JR. ------------------------------------ Name: Karl C. Powell, Jr. Title: Chairman and Chief Executive Officer EXHIBIT A PLAN OF MERGER OF PATHFINDER ACQUISITION CORP. WITH AND INTO SEQUENT COMPUTER SYSTEMS, INC. 1. Parties. (a) The name of the surviving corporation is Sequent Computer Systems, Inc., an Oregon corporation ("Sequent"). (b) The name of the corporation merging with and into the surviving corporation is Pathfinder Acquisition Corp., an Oregon corporation ("PAC"). 2. The Merger. The Merger (as defined below) shall become effective when this Plan of Merger and Articles of Merger are filed with the Secretary of State of the State of Oregon (the "Effective Time"). In accordance with the provisions of this Plan of Merger and the applicable provisions of the Oregon Business Corporation Act, PAC shall be merged with and into Sequent (the "Merger"), and Sequent shall continue as the surviving corporation (the "Surviving Corporation"). Thereupon the separate corporate existence of PAC shall cease, and the Surviving Corporation shall continue in existence under the laws of the State of Oregon. The Merger shall have the effects set forth in ORS 60.497. 3. Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holders of any shares of Common Stock, par value $0.01 per share, of Sequent (together with the associated rights to purchase shares of Series A Preferred Stock issued pursuant to the Rights Agreement dated as of April 14, 1998 between Sequent and ChaseMellon Shareholder Services L.L.C., the "Sequent Common Stock"), or any shares of capital stock of PAC: (a) Capital Stock of PAC. Each issued and outstanding share of common stock of PAC shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. (b) Cancellation of Treasury Stock and Other Stock. All shares of Sequent Common Stock that are owned by Sequent, as treasury stock, International 2 Business Machines Corporation or PAC immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist and no consideration shall be delivered in exchange therefor. (c) Conversion of Sequent Common Stock. Each share of Sequent Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 3(b) of this Plan of Merger shall be converted into the right to receive $18.00 in cash, without interest (the "Merger Consideration"). At the Effective Time all such shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any such shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. The right of any holder of any share of Sequent Common Stock to receive the Merger Consideration shall be subject to and reduced by the amount of any withholding that is required under applicable tax law. 4. Articles of Incorporation and Bylaws of Surviving Company. (a) The Articles of Incorporation of PAC, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law, except that Article I of the Articles of Incorporation of the Surviving Corporation shall be amended to read in its entirety as follows: "The name of the corporation (hereinafter called the "Corporation") is Sequent Computer Corporation." A copy of the Articles of Incorporation, as amended, of the Surviving Corporation is attached as Exhibit 1. (b) The Bylaws of PAC as in effect at the Effective Time shall be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. 5. Directors. The directors of PAC immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. 3 6. Officers. The officers of the PAC immediately prior to the Effective Time shall be the officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. EXHIBIT 1 ARTICLES OF INCORPORATION OF SEQUENT COMPUTER SYSTEMS, INC., AS AMENDED FOLLOWING MERGER OF PATHFINDER ACQUISITION CORP. INTO SEQUENT COMPUTER SYSTEMS, INC. ARTICLE I NAME The name of the corporation (hereinafter called the "corporation") is Sequent Computer Systems, Inc.. ARTICLE II SHARES The total number of shares of stock which the corporation shall have authority to issue is 1,000, with a par value of $.01 per share. All such shares are of one class, Common Stock, and shall have identical rights and privileges in every respect. ARTICLE III REGISTERED OFFICE AND AGENT The address including street and number of the initial registered office of the corporation in the State of Oregon is: 3500 U.S. Bancorp Tower, 111 SW Fifth Avenue, Portland, Oregon 97204-3699; and the name of the initial registered agent of the corporation at such address is MN Service Corporation (Oregon). ARTICLE IV INCORPORATOR The name and the mailing address of the incorporator are as follows: 2 NAME MAILING ADDRESS Michael E. Arthur 3500 U.S. Bancorp Tower 111 SW Fifth Avenue Portland, Oregon 97204-3699 ARTICLE V NOTICES The address to which notices, as required by the Oregon Business Corporation Act, may be mailed until the principal office of the corporation has been designated by the corporation in its annual report is: 3500 U.S. Bancorp Tower 111 SW Fifth Avenue Portland, Oregon 97204-3699 ARTICLE VI PURPOSES AND POWERS The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the Oregon Business Corporation Act. ARTICLE VII ELIMINATION OF LIABILITY Directors of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages for conduct as directors except to the extent that the Oregon Business Corporation Act, as it now exists or may hereafter be amended, prohibits elimination or limitation of director liability. No repeal or amendment of this article or of the Oregon Business Corporation Act shall adversely affect any right or protection of a director for actions or omissions prior to the repeal or amendment. 3 ARTICLE VIII INDEMNIFICATION The corporation shall indemnify each of its directors to the fullest extent permissible under the Oregon Business Corporation Act, as the same exists or may hereafter be amended, against all expense, liability, and loss (including, without limitation, attorneys' fees) incurred or suffered by such person by reason of or arising from the fact that such person is or was a director of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, and such indemnification shall continue as to a person who has ceased to be a director, officer, partner, trustee, employee, or agent and shall inure to the benefit of his or her heirs, executors, and administrators. The corporation may, by action of the board of directors, provide indemnification to officers, employees, and agents of the corporation who are not directors with the same scope and effect as the indemnification provided in this Article to directors. The indemnification provided in this Article shall not be exclusive of any other rights to which any person may be entitled under any statute, bylaw, agreement, resolution of shareholders or directors, contract or otherwise. ARTICLE IX AMENDMENT From time to time any of the provisions of these Articles of Incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Oregon at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the shareholders of the corporation by these Articles of Incorporation are granted subject to the provisions of this Article NINTH. EX-4.1 3 FIRST AMENDMENT TO RIGHTS AGREEMENT FIRST AMENDMENT TO RIGHTS AGREEMENT Amendment dated July 11, 1999 ("Amendment") to the Rights Agreement ("Agreement"), dated as of April 14, 1998 between Sequent Computer Systems, Inc., an Oregon corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent"). Pursuant to Section 26 of the Agreement, this Amendment is being executed by the Company and the Rights Agent for the purpose of amending the Agreement as set forth below: The Agreement is hereby amended as follows: 1. Section 1(a) shall be amended by inserting the following at the end of Section 1(a): "Notwithstanding the foregoing or any provision to the contrary in this Agreement, none of International Business Machines Corporation ("Parent"), its subsidiaries, Affiliates or Associates, including Pathfinder Acquisition Corp. ("Sub"), is or shall be an Acquiring Person pursuant to this Agreement solely by virtue of their acquisition, or their right to acquire, beneficial ownership of shares of the Company as a result of their execution of the Agreement and Plan of Merger dated July 11, 1999 among Parent, Sub and the Company (the "Merger Agreement"), the consummation of the Merger (as defined in the Merger Agreement) (the "Merger"), or any other transaction contemplated by the Merger Agreement. 2. Section 1(m) shall be amended by inserting the following at the end of Section 1(m): "Notwithstanding the foregoing or any provision to the contrary in this Agreement, a Distribution Date shall not occur solely by reason of the execution of the Merger Agreement, the consummation of the Merger, or any other transaction contemplated by the Merger Agreement. 3. Section 1(ac) shall be amended by inserting the following at the end of Section 1(ac): "Notwithstanding the foregoing or any provision to the contrary in this Agreement, a Stock Acquisition Date shall not occur solely by reason of the execution of the Merger Agreement, the consummation of the Merger, or any other transaction contemplated by the Merger Agreement. 4. Section 7(a)(i) (including the definition of "Final Expiration Date" therein) shall be amended to read in its entirety as follows: "the earlier of the Effective Time (as defined in the Merger Agreement) or the close of business on October 28, 2008 (the "Final Expiration Date")". 5. The Rights Agreement shall terminate and be of no further force and effect upon the Final Expiration Date. 6. This Amendment shall be deemed to be entered into under the laws of the State of Oregon and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. 7. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 8. As amended hereby, the Agreement shall remain in full force and effect. * * * -2- Entered into as of the date first written above, SEQUENT COMPUTER SYSTEMS, INC. By: DAVID CUNNINGHAM ------------------------------------- David Cunningham Its: Secretary/Corporate Counsel ------------------------------------ CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Rights Agent By: ASA DREW ------------------------------------- Authorized Signature Asa Drew Assistant Vice President -3- EX-99.1 4 PRESS RELEASE Contacts: IBM - Scott Brooks - 914-766-4495 Sequent - Mike Fay - 212-317-5710 IBM and Sequent Announce Merger Agreement Beaverton, Ore., July 12, 1999... IBM and Sequent Computer Systems today announced they have entered into a merger agreement. The merger brings together unique hardware and software technologies with global presence and partnerships, advancing IBM's thrust in UNIX and NT servers. IBM will pay $18.00 in cash for each outstanding share of Sequent common stock. The transaction, when completed, is expected to have a total equity value of approximately $810 million. IBM plans to begin selling Sequent's product line worldwide immediately following completion of the merger. IBM will integrate Sequent technologies into IBM products. Similarly, Sequent will benefit from IBM's technological, manufacturing and global sales prowess. These actions support IBM's strategy to deliver leadership solutions for e-businesses, emerging "NetGen" companies, and UNIX and NT customers, large and small. Sequent is an acknowledged leader in systems based on NUMA (non-uniform memory access) architecture with a worldwide customer installed base. NUMA is advanced hardware and software that allows large numbers of processors to operate as a single system while maintaining the ease of programming and manageability of a small system. Sequent's systems use up to 64 Intel microprocessors (with plans to use 256) for a wide variety of e-business related applications, including data warehousing and business intelligence. Many of the world's largest Oracle databases and application environments run on Sequent's servers. "NUMA will be a defining technology for early 21st century UNIX and NT servers," said Robert M. Stephenson, IBM senior vice president and group executive, IBM Server Group. "Increasingly, customers want servers that can scale quickly to manage unpredictable workloads or spikes in online traffic. NUMA is an elegant solution combining industry leading scalability and excellent manageability. We're impressed by the people and technology at Sequent and look forward to working with them, their customers and their partners." Today, many enterprises use both UNIX and NT servers, and this trend will increase over time. Sequent has innovative technology that helps UNIX and NT interoperate on a single system. Customers can choose to run UNIX applications on some processors within a system while running NT applications on other processors at the same time. The system can be managed from a single point, and data can be shared between the UNIX and NT applications. In October of 1998, Sequent was a founding member of Project Monterey, an IBM-led initiative to create a high-volume, enterprise-ready, commercial UNIX operating system supporting both IBM and Intel architectures. SCO and Intel also were original members, and Project Monterey has since expanded to include many leading software vendors and systems manufacturers. This merger will enhance the development efforts of Project Monterey, which is poised to become the industry's leading commercial UNIX, providing economies-of-scale to customers, software vendors and systems manufacturers. "Sequent will be able to extend its customer base by taking advantage of IBM's global presence and partnerships," said Casey Powell, chairman and CEO of Sequent. "With IBM, Sequent becomes part of the worldwide leader in server sales and enterprise computing and a major force in filling the fast-growing demand for commercial UNIX systems. Our progress with IBM on Project Monterey has been extraordinarily productive so we're confident we'll work well together. We look forward to joining IBM." Sequent's systems complement IBM's scalable RS/6000 line of servers. IBM's RS/6000 UNIX systems range from scientific and commercial workstations to the world's most powerful supercomputers. In fact, the new RS/6000 S80 server (which will begin shipping in the third quarter) has set records for Internet, Java and clustering performance. Add to this Sequent's leading performance in online transaction processing and data warehousing, and the new, dual lineup is the runaway winner in competitive performance. As a result of the merger: 1. IBM will market and sell Sequent's NUMA-Q 1000 and 2000 using IBM's worldwide sales force. 2. IBM will enable its business partner network to market and sell Sequent's current products. 3. The IBM and Sequent development teams will accelerate their work on Project Monterey. 4. IBM's servers will incorporate Sequent's NUMA technology. 5. IBM will provide middleware support for Sequent's current product line. Sequent, headquartered in Beaverton, Oregon, has more than 2500 employees worldwide with 56 sales offices in North America, Europe and Asia and is the leader in Intel-based data center solutions. Founded in 1983, Sequent pioneered symmetric multiprocessor (SMP) and NUMA systems for commercial environments. In March of 1998, Sequent introduced the industry leading path to Windows NT in the data center with the introduction of the NUMACenter mixed UNIX and Windows NT environment. This solution allows customers to build their IT infrastructures leveraging the respective strengths of UNIX and Windows NT. The completion of the merger is subject to Sequent stockholder and regulatory approvals. # # # All trademarks are the property of their respective owners. Information contained in this release with respect to the expected benefits of the proposed transaction is forward-looking. These statements represent our reasonable judgment with respect to future events are subject to risks and uncertainties that could cause actual events to differ materially. Such factors include, but are not limited to, material adverse changes in economic and competitive conditions in the markets served by the companies, material adverse changes in the financial condition of either or both companies and their respective customers, uncertainties concerning technological changes and future product performance, and substantial delay in the closing of the transaction. -----END PRIVACY-ENHANCED MESSAGE-----